-----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, T2gp1+UdIpNhYhxbW84dIYfv0/gSQNEPYmHh6/Rgl9VQABFdZNwhsWidGUPCIEQy YDuFGF1fxaW3n1n0n4wfWQ== 0000906197-98-000025.txt : 19980401 0000906197-98-000025.hdr.sgml : 19980401 ACCESSION NUMBER: 0000906197-98-000025 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 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: SEC FILE NUMBER: 000-10275 FILM NUMBER: 98581133 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, 1997 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 NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $ 3.33 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 27, 1998) held by non-affiliates was approximately $185.4 million, excluding 1,185,000 shares held by affiliates of the registrant. The number of shares of Registrant's Common Stock outstanding on February 27, 1998 was 8,909,353. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1997(Parts I, II and IV). (2) Portions of the Registrant's Proxy Statement for its 1998 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 8 counties of upstate New York. At December 31, 1997 Evergreen Bank had total assets of approximately $1,002 million, total deposits of approximately $857 million, and total stockholders' equity of approximately $83 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 27 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 interest checking 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 currently expects the Bank to re-enter the credit card business in the near 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. 2 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 3 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. 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 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. 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 4 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 is 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, 1997, under dividend restrictions imposed under federal and state laws, the Bank, without obtaining governmental approvals, could declare aggregate dividends to the Registrant of approximately $3.1 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. 5 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, 1997, the Registrant's consolidated Tier 1 Capital and Total Capital ratios were 13.5% and 14.8%, 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, 1997 was 8.6%. The 6 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 7 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. At December 31, 1997, 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, 1997, 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 to the point where Evergreen was required to pay no FDIC insurance. On September 30 1997, 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 was $102,000 in 1997. Under the FDIA, insurance of deposits may be terminated by the FDIC upon 8 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 1997, Evergreen and its affiliates had a total of 391 employees on a full time equivalent basis. Evergreen considers its employee relations to be good. 9 FOREIGN OPERATIONS Neither Evergreen nor The 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 1997 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 1997 Annual Report is incorporated herein by reference. II. Investment Portfolio The information set forth on page 20 of Registrant's 1997 Annual Report is incorporated herein by reference. III. Loan Portfolio The information set forth on pages 21 Registrant's 1997 Annual Report is incorporated herein by reference. Non-Performing Loans The information set forth on page 21 through 22 of Registrant's 1997 Annual Report is incorporated herein by reference. IV. Summary of Loan Loss Experiences The information set forth on page 18 of Registrant's 1997 Annual Report is incorporated herein by reference. V. Deposits The information set forth on page 24 through 26 of Registrant's 1997 Annual Report is incorporated herein by reference. 10 VI. Return on Equity and Assets The information set forth on page 13 of Registrant's 1997 Annual Report is incorporated herein by reference. ITEM 2. Properties Registrant The Registrant has six physical properties, all of which are leased to The Bank and independent third parties at market rates. Real estate holdings, and the income generated from them, represent an insignificant portion of the Registrant's business. 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. The Bank owns in fee the buildings where 20 of the Bank's offices are located. In addition to the facilities leased from the Registrant, five offices are leased from third parties at the current rate of $15,906 per month through June 30, 2001. 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 1997. 11 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 58 President and Chief 1994 Executive Officer Paul A. Cardinal 41 Executive Vice President 1995 and General Counsel Thomas C. Crowley 51 Executive Vice President 1994 Chief Credit Officer Anthony J. Koenig 59 Executive Vice President 1986 and Chief Administrative Officer George L. Fredette 38 Executive Vice President 1995 Chief Financial Officer Daniel J. Burke 45 Senior Vice President 1997 Retail Banking (Evergreen Bank, N.A.) Kenneth J. Cartledge 53 Senior Vice President 1995 Asset Quality (Evergreen Bank, N.A.) John M. Fullerton 48 Executive Vice President 1988 of Trust and Investment (Evergreen Bank, N.A.)
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 the Registrant or the 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 12 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 Executive Vice President and Chief Financial Officer of Evergreen and the Bank, in December 1997. Prior thereto he was Senior Vice President, Finance of Evergreen and the Bank. Prior to joining Evergreen in 1993 he was Vice President and Chief Financial Officer of Schenectady Federal Savings and Loan Association. Daniel J. Burke was elected Senior Vice President, Retail Banking of Evergreen Bank in July 1997. Prior thereto he served as Senior Vice President, Retail Sales and Director of Marketing since 1995. Prior thereto he was Vice President of Marketing since January, 1991. Kenneth J. Cartledge was elected Senior Vice President, Asset Quality of Evergreen Bank in November 1995. Prior thereto he was Senior Vice President and Senior Credit Officer of Evergreen Bank. Prior to joining Evergreen in 1994, he served as Vice President at Trustco Bank since 1993. Prior to joining Trustco he served as Senior Vice President and Regional Senior Lender for Fleet 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. 13 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 1997 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 1997 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 26 of Registrant's 1997 Annual Report is incorporated herein by reference. ITEM 8. Financial Statements and Supplementary Data The information set forth on pages 27 through 47 of Registrant's 1997 Annual Report is incorporated herein by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 14 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 1998 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 1998 Annual Meeting of Stockholders, is hereby incorporated by reference, except that the information under the caption "Report of the Human Resources and Nominating Committee" and the "Five Year Performance Graph" are not so incorporated. 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 1998 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 1998 Annual Meeting of Stockholders, is hereby incorporated by reference. 15 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 27 through 47, inclusive, of Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1997, are incorporated herein by reference: Financial Statements: Consolidated Statements of Income - Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Condition - December 31, 1997 and 1996 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995 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 and amendments thereto.# Exhibit 3(b) - By-Laws (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 3(c) - Amendment No.1 to the amended and restated By-Laws of Evergreen Bancorp, Inc.# 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). 16 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)* - Amended and Restated 1995 Incentive Stock Option Plan.# Exhibit 10(f)* - 1995 Directors Stock Option Plan (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 10(g)* - Amendment No. 1 to the 1995 Directors Stock Option Plan.# Exhibit 10(h)* - 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(i)* - 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). Exhibit 10(j)* - Employment Agreement dated as of December 19, 1997, between Registrant and George W. Dougan (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). Exhibit 10(k)* - Supplemental Executive Retirement Plan (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). Exhibit 10(l)* - Senior Officer Supplemental Retirement Plan (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 13 - Registrant's Annual Report to Stockholders for the year ended December 31, 1997.# Exhibit 21 - Subsidiaries of Registrant.# 17 Exhibit 23 - Consent of KPMG Peat Marwick LLP to the use of its Report on the Consolidated Financial Statements of Registrant in connection with previously filed registration statements of the Registrant.# Exhibit 27 - Financial Data Schedule.# # Filed herewith. * 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 during the three month period ended December 31, 1997. 18 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 20, 1998 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 3/20/98 George W. Dougan of Directors /s/ George L. Fredette Executive Vice President 3/20/98 George L. Fredette (Chief Financial and Accounting Officer) /s/ John W. Bishop Director 3/20/98 John W. Bishop /s/ Carl R. DeSantis Director 3/20/98 Carl R. DeSantis /s/ Robert F. Flacke Director 3/20/98 Robert F. Flacke /s/Michael D. Ginsburg Director 3/20/98 Michael D. Ginsburg /s/Joan M. Mannix Director 3/20/98 Joan M. Mannix /s/Anthony J. Mashuta Director 3/20/98 Anthony J. Mashuta /s/Philip H. Morse Director 3/20/98 Phillip H. Morse /s/William E. Philion Director 3/20/98 William E Philion /s/Alan R. Rhodes Director 3/20/98 Alan R. Rhodes /s/Floyd H. Rourke Director 3/20/98 Floyd H. Rourke /s/ Paul W. Tomlinson Director 3/20/98 Paul W. Tomlinson /s/ Walter Urda Director 3/20/98 Walter Urda
19 EXHIBIT 3(a) [Annual Report on Form 10-K] CERTIFICATE OF INCORPORATION OF FIRST GLEN BANCORP, INC. The undersigned incorporator, in order to form a corporation under the General Corporation Law of the State of Delaware, certifies as follows: 1. Name. The name of the corporation is FIRST GLEN BANCORP, Inc. (hereinafter called the "Corporation"). 2. Address; Registered Agent. The address of the Corporation's registered office is 100 West Tenth Street, City of Wilmington, County of New Castle, State of Delaware; and its registered agent at such address is The Corporation Trust Company. 3. Purposes. The nature of the business and purposes to be conducted or promoted by the Corporation are to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. Number of Shares. The total number of shares of stock which the Corporation shall have authority to issue is: One Million (1,000,000), all of which shall be shares of Common Stock of the par value of Ten Dollars ($10.00) each. 5. Name and Address of Incorporator. The name and mailing address of the incorporator are: Thomas B. Kinsock, 611 Olive St., Suite 1400, St. Louis, Missouri 63101. 6. Directors; Election and Classification. (a) Members of the Board of Directors may be elected either by written ballot or by voice vote. (b) The Board shall consist of seventeen (17) persons and shall be divided into three classes, with the first class to comprise six (6) members, the second class to comprise six (6) members, and the third class to comprise five (5) members. At the election of the first Board, the class of each of the seventeen members then elected shall be designated. The term of office of those members then designated as the first class shall expire at the annual meeting of shareholders next ensuing, that of the members designated as the second class at the annual meeting of shareholders one year thereafter, and that of the members designated as the third class at the annual meeting of shareholder two years thereafter. At each annual meeting of shareholders held after the election and classification of the first Board, directors shall be elected for a full term of three (3) years to succeed those members whose terms then expire. 7. Adoption, Amendment and/or Repeal of By-Laws. The Board of Directors may from time to time (after adoption by the undersigned of the original by-laws of the Corporation adopt, amend or repeal the by-laws of the Corporation; provided, that any by-laws adopted, amended or repealed by the Board of Directors may be amended or repealed, and any by-laws may be adopted, by the stockholders of the Corporation 8. Compromise and Arrangements. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of creditors of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholder of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. IN WITNESS WHEREOF, this certificate has been signed on this 31st day of October, 1980, and the signature of the undersigned shall constitute the affirmation and acknowledgment of the undersigned, under penalties of perjury, that the Certificate is the act and deed of the undersigned and that the facts stated in the Certificate are true. /s/ Thomas B. Kinsock Thomas B. Kinsock, Incorporator - - 2- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF FIRST GLEN BANCORP, INC. Before Payment of Capital Pursuant to Section 241 of the General Corporation Law, as amended, the undersigned, being a majority of the directors of the above-named Delaware corporation (the "Corporation"), hereby certify as follows: ONE: At a meeting of the board of directors of the Corporation, duly called and held, a majority of the directors acting by resolution adopted the following amendment to the Certificate of Incorporation of the Corporation: 1. Article 4 of the Certificate of Incorporation of the Corporation, which sets forth the classes and numbers of shares of stock of the Corporation, shall be amended in its entirety to read as follows: 4. Number and Classes of Shares; Relative Rights, Preferences, and Limitations. The total number of shares of all classes of stock which the Corporation shall have authority to issue is One Million, Five Hundred Thousand (1,500,000), of which One Million (1,000,000) shares of the par value of Ten Dollars ($10.00) each, amounting in the aggregate to Ten Million Dollars ($10,000,000), shall be common stock and Five Hundred Thousand (500,000) shares of the par value of Ten Dollars ($10.00) each, amounting in the aggregate to Five Million Dollars (5,000,000), shall be preferred stock. The preferred stock may be issued from time to time in one or more series for any proper corporate purpose without further action by the shareholders. The designations, preferences and other rights and limitations or restrictions of the preferred stock of each series (other than such as are stated and expressed herein) shall be such as may be fixed by the Board of Directors (authority so to do being hereby expressly granted) and stated and expressed in a resolution or resolutions adopted by the Board of Directors providing for the initial issue of preferred stock of such series. Such resolution or resolutions shall (a) fix the dividend rights of holders of shares of such series, including the dividend rate thereon, whether such dividends shall be cumulative, and, if so, on what terms, (b) fix the terms on which stock of such series may be redeemed, including amounts payable upon redemption if the shares of such series are to be redeemable, (c) fix the rights of the holders of stock of such series upon dissolution, liquidation or any distribution of assets, (d) fix the terms or amount of the sinking fund, if any, to be provided for the purchase or redemption of stock of such series, (e) fix the terms upon which the stock of such series may be converted into or exchanged for stock of any other class or classes or of any one or more series of preferred stock, if the shares of such series are to be convertible or exchangeable, (f) fix the voting rights, if any, of the shares of such series and (g) fix such other designations, preferences, and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof desired to be so fixed. Except to the extent otherwise provided in the resolution of resolutions of the Board of Directors providing for the initial issue of shares of a particular series or expressly required by law, holders of shares of preferred stock of any series shall be entitled to one vote for each share thereof so held, shall vote share-for-share with the holders of the common stock without distinction as to class and shall not be entitled to vote separately as a class or a series of a class. The number of shares of preferred stock may be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, and the holders of the preferred stock shall not be entitled to vote separately as a class or series of a class on any such increase or decrease. All shares of any one series of preferred stock shall be identical with each other in all respects except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accumulate, and all series of preferred stock shall rank equally and be identical in all respects except as specified in the respective resolutions of the Board of Directors providing for the initial issue thereof. Subject to the prior and superior rights of the preferred stock as set forth in any resolution or resolutions of the Board of Directors providing for the initial issue of a particular of preferred stock, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be delayed and paid on the common stock from time to time out of any fund legally available therefor, and the preferred stock shall not be entitled to participate in any such dividend. No holder of stock of the Corporation shall be entitled as a matter of right, preemptive or otherwise, to subscribe for or purchase any part of any stock now or hereafter authorized to be issued, or shares thereof held in the treasury of the Corporation or securities convertible into stock, whether issued for cash or other consideration or by way of dividend or otherwise. 2. Subsection (b) of Article 6 of the Certificate of Incorporation of the Corporation, which sets forth the number and classes of the directors of the Corporation, which sets forth the number and classes of the directors of the Corporation, shall be amended in its entirety to read as follows: "(b) The Board of Directors shall be divided into three classes. The number of directors of the first class shall equal one-third (1/3) of the total number of directors as determined in the manner provided in the By-Laws (with fractional remainders to count as one); the number of directors of the second class shall equal one-third (1/3) of said total number of directors (or the nearest whole number thereto); and the number of directors of the third class shall equal said total number of directors minus the aggregate number of directors of the first and second classes. At the election of the first Board of Directors, the class of each of the members then elected shall be designated. The term of office of each member then designated as a director of the first class shall expire at the annual meeting of the shareholders next ensuing, that of each member then designated as a director of the second class at the annual meeting of shareholders one year thereafter, and that of each member then designated as a director of the third class at the annual meeting of shareholders two years thereafter. At each annual meeting of shareholders held after the election and classification of the first Board of Directors, directors shall be elected for a full term of three (3)years to succeed those members whose terms then expire." TWO:The Corporation has not received any payment for any of its stock. - - 2 - IN WITNESS WHEREOF, this Certificate has been signed on this 11th day of March, 1981, and the signature of the undersigned shall constitute the affirmation and acknowledgment of the undersigned, under penalties of perjury, that the Certificate is the act and deed of the undersigned and that the facts stated in the Certificate are true. /s/ William L. Bitner (Seal) William L. Bitner III, President ATTEST: /s/ Michael P. Brassel Michael P. Brassel, Secretary - 3 - CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION First Glen Bancorp, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, at a meeting duly held, adopted a resolution proposing and declaring advisable the following amendments to the Certificate of Incorporation of said corporation: RESOLVED that the Certificate of Incorporation of First Glen Bancorp, Inc. be amended by changing Article 4 thereof so that, as amended, said Article shall be and read as follows: 4. Number and Classes of Shares; Relative Rights, Preferences, and Limitations The total number of shares of all classes of stock which the Corporation shall have authority to issue is Two Million, Five Hundred Thousand (2,500,000), of which Two Million (2,000,000) shares of the par value of Five Dollars ($5.00) each, amounting in the aggregate to Ten Million Dollars ($10,000.000), shall be common stock and Five Hundred Thousand (500,000) shares of the par value of Ten Dollars ($10.00) each, amounting in the aggregate to Five Million Dollars ($5,000,000), shall be preferred stock. The preferred stock may be issued from time to time in one or more series for any proper corporate purpose without further action by the shareholders. The designations, preferences and other rights and limitations or restrictions of the preferred stock of each series (other than such as are stated and expressed herein) shall be such as may be fixed by the Board of Directors (authority so to do being hereby expressly granted) and stated and expressed in a resolution or resolutions adopted by the Board of Directors providing for the initial issue of preferred stock of such series. Such resolution or resolutions shall (a) fix the dividend rights of holders of shares of such series, including the dividend rate thereon, whether such dividends shall be cumulative, and, if so, on what terms, (b) fix the terms on which stock of such series may be redeemed, including amounts payable upon redemption if the shares of such series are to be redeemable, (c) fix the rights of the holders of stock of such series upon dissolution, liquidation or any distribution of assets, (d) fix the terms or amount of the sinking fund, if any, to be provided for the purchase or redemption of stock of such series, (e) fix the terms upon which the stock of such series may be converted into or exchanged for stock of any other class or classes or of any one or more series of preferred stock, if the shares of such series are to be convertible or exchangeable, (f) fix the voting rights, if any, of the shares of such series and (g) fix such other designations, preferences, and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof desired to be so fixed. Except to the extent otherwise provided in the resolution or resolutions of the Board of Directors providing for the initial issue of shares of a particular series or expressly required by law, holders of shares of preferred stock of any series shall be entitled to one vote for each share thereof so held, shall vote share-for-share with the holders of the common stock without distinction as to class and shall not be entitled to vote separately as a class or a series of a class. The number of shares of preferred stock may be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, and the holders of the preferred stock shall not be entitled to vote separately as a class or series of a class on any such increase or decrease. All shares of any one series of preferred stock shall be identical with each other in all respects except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accumulate, and all series of preferred stock shall rank equally and be identical in all respects except as specified in the respective resolutions of the Board of Directors providing for the initial issue thereof. Subject to the prior and superior rights of the preferred stock as set forth in any resolution or resolutions of the Board of Directors providing for the initial issue of a particular series of preferred stock, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the common stock from time to time out of any fund legally available therefor, and the preferred stock shall not be entitled to participate in any such dividend. No holder of stock of the Corporation shall be entitled as a matter of right, preemptive or otherwise, to subscribe for or purchase any part of any stock now or hereafter authorized to be issued, or shares thereof held in the treasury of the Corporation or securities convertible into stock, whether issued for cash or other consideration or by way of dividend or otherwise. BE IT FURTHER RESOLVED, that the Certificate of Incorporation of First Glen Bancorp, Inc. be amended by changing Article 6 thereof so that, as amended said Article shall be and read as follows: 6. Directors; Election and Classification. (a) Members of the Board of Directors may be elected either by written ballot or by voice vote. (b) The Board shall consist of a minimum of five and a maximum of twenty-five members. The total number of directors may be changed from time to time within the above minimum and maximum numbers by vote of the majority of the total number of directors then in office, provided that such total number of directors may not be increased by more than two between any two successive annual meetings of shareholders. Directors need not be stockholders and each director hold office until his successor is elected and qualified or until his earlier death, resignation or removal. (c) The Board of Directors shall be divided into three classes. The number of directors of the first class shall equal one-third (1/3) of the total number of directors determined in the manner provided in subdivision (b) above (with fractional remainders to count as one); the number of directors of the second class shall equal one-third (1/3) of said total number of directors (or the nearest whole number thereto); and the number of directors of the third class shall equal said total number of directors minus the aggregate number of directors of the first and second classes. At the election of the first Board of Directors, the class of each of the members then elected shall be designated. The term of office of each member then designated as a director of the first class shall expire at the annual meeting of the shareholders next ensuing, that of each member then designated as a director of the second class at the annual meeting of shareholders one year thereafter, and that of each member then designated as a director of the third class at the annual meeting of shareholders two years thereafter. At each annual meeting of shareholders held after the election and classification of the first Board of Directors, directors shall be elected for a full term of three (3) years to succeed those members whose terms then expire. (d) At a special meeting of shareholders called expressly for that purpose, any director, or the entire Board of Directors, may be removed from office at any time, without cause, but only by the affirmative vote of the holders of not less than eighty percent (80%) of the shares of the Corporation then entitled to vote in an election of directors. At a special meeting of shareholders called expressly for that purpose, a director may be removed by the shareholders for cause by the affirmative vote of the holders of a majority of the shares then entitled to vote in an election of directors. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if the director whose removal is proposed - - 2 - (i) has been convicted of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal or (ii) has been adjudged by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of his duty to the Corporation in a matter of substantial importance to the Corporation, and such adjudication is no longer subject to direct appeal. (e) Notwithstanding any other provision of the Certificate of Incorporation to the contrary, the affirmative vote of the holders of not less than eighty percent (80%) of the shares of the Corporation then entitled to vote in an election of directors shall be required to alter, amend or repeal, or to adopt any provision inconsistent with the provisions of this Article 6. BE IT FURTHER RESOLVED, that the Certificate of Incorporation of First Glen Bancorp, Inc. amended by adding a new Article 9 to said certificate which shall reach as follows. 9. Shareholder Approval of Business Combinations. The approval of any Business Combination (as hereinafter defined) shall, in addition to any affirmative vote required by law or any other provision of this Certificate of Incorporation, require the affirmative vote of the holders of not less than eighty percent (80%) of the shares of the Corporation then entitled to vote generally in the election of directors of the Corporation voting as a single class, with each share to have one (1) vote; provided, however, that any such Business Combination may be approved by the affirmative shareholder vote required by law or otherwise, if: (a) such Business Combination is approved by not less than eighty percent (80%) of the entire Board of Directors of the Corporation, or (b) the consideration to be received per share by holders of Common Stock of the Corporation and by holders of each other class of stock entitled to vote generally in the election of directors of the Corporation, if any, is Fair Consideration (as hereinafter defined). a. Definitions for the purposes of Article 9: 1. "Business Combination" shall mean as follows: (i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (1) any Substantial Shareholder (as hereinafter defined), or (2) any other corporation which, after such merger or consolidation, would be a Substantial Shareholder, regardless of which entity survives; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Substantial Shareholder of all or substantially all of the assets of the Corporation or any Subsidiary, or both; (iii) the adoption of any plan or proposal for the liquidation of the Corporation proposed by or on behalf of a Substantial Shareholder; or - - 3 - (iv) any transaction involving the Corporation or any Subsidiary, including any issuance, transfer or reclassification or any securities of, or any recapitalization of, the Corporation or any Subsidiary, or any merger or consolidation of the Corporation with any Subsidiary ( whether or not involving a Substantial Shareholder), if the transaction would have the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary, of which a Substantial Shareholder is the Beneficial Owner. 2. "Substantial Shareholder" shall mean and include any individual, corporation, partnership or other person or entity (other than the Corporation or any Subsidiary) which, together with its "Affiliates" and "Associates" (as such terms were defined as of December 11, 1984, under Rule 13d-3 under the Securities Exchange Act of 1934) is the Beneficial Owner (as hereinafter defined) in the aggregate of more than five percent (5%) of the voting power of the then-outstanding shares of the Corporation entitled to vote generally in an election of directors; and any Affiliate or Associate of any such individual corporation, partnership or other person or entity. 3. "Beneficial Owner" - The term "Beneficial Owner" shall be defined with reference to the rules and regulations of the Securities and Exchange Commission under the Securities and Exchange Act of 1934 as in effect from time to time provided that in addition thereto a person shall be a Beneficial Owner of any capital stock or be considered to "Beneficially" own any capital stock: (i) which such person or any of its Affiliates and Associates beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates and Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting or disposing of any shares of capital stock. 4. "Subsidiary" shall mean any corporation of which a majority of any class of equity security is owned, directly or indirectly by the Corporation. 5. "Fair Consideration" shall mean, (i) in the case of shares of Common Stock of the Corporation, an amount in cash or readily available funds at least equal to the highest of the following (whether or not the Substantial Shareholder has previously acquired any such shares): (a) the highest per share price paid by the Substantial Shareholder for any such shares acquired by it within the four-year period immediately preceding the first public announcement of the proposal of the Business Combination (hereinafter referred to as the "Announcement Date"), plus an "Adjustment" of such price, as defined hereafter in this Article 9; (b) the highest reported per share price at which such shares were publicly traded during the two-year period immediately preceding the Announcement Date, plus an "Adjustment" of such price, as defined hereafter in this Article 9; - - 4 - (c) the per share fair market value of such shares on the Announcement Date, plus an "Adjustment" of such value, as defined hereafter in this Article 9; or (d) the book value per share of the Common Stock of the Corporation (determined in accordance with generally accepted accounting principles) as of the end of the latest fiscal quarter preceding the Announcement Date, plus an "Adjustment" of such value as defined hereafter in this Article 9. (ii) and in the case of any other shares of voting stock of the Corporation outstanding, an amount in cash or readily available funds at least equal to the highest of the following (whether or not the Substantial Shareholder has previously acquired any such shares): (a) the highest per share price paid by the Substantial Shareholder for any such shares acquired by it the four-year period immediately preceding the Announcement Date, plus an "Adjustment" of such price, as defined hereafter in this Article 9: (b) the highest reported per share price at which such shares were publicly traded during the two-year period immediately preceding the Announcement Date, plus an "Adjustment" of such price, as defined hereafter in this Article 9; (c) the per share fair market value of such shares on the Announcement Date, plus an "Adjustment" or such price, as defined hereafter in this Article 9; or (d) the highest preferential amount per share to which the holders of such shares are entitled in the event of voluntary or involuntary liquidation or dissolution or the Corporation. An "Adjustment" of any price or value per share for shares of stock of the Corporation under this Article 9 shall equal an amount of interest on such price or value compounded annually from the Announcement Date until the consummation of the Business Combination (the "Consummation Date"), or, in the case of subdivisions (a) and (b) in each of subsections 5 (i) and 5 (ii) in this Article 9, from the date the Substantial Shareholder first became a Substantial Shareholder (the "Determination Date") until the Consummation Date, at a market prime rate of interest as may be determined from time to time by a majority of the Board of Directors of the Corporation, less the aggregate amount of any cash dividends per share paid on such class of shares during such period up to but not in excess of such amount of interest. Notwithstanding any other provision of this Certificate of Incorporation or any provision of law or any preferred stock designation to the contrary, but in addition to any affirmative vote of the holders of any particular class or series of outstanding voting stock of the Corporation required by law or this Certificate of Incorporation or any preferred stock designation of this Corporation, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the then outstanding shares of the Corporation then entitled to vote in an election of directors, voting together as a single class, shall be required to alter, amend or repeal, or to adopt any provision inconsistent with, this Article 9 or any provision of this Article 9. SECOND: that the foresaid amendments were duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware by a majority of shareholders of First Glen Bancorp, Inc. at the annual meeting of First Glen Bancorp, Inc. on March 20, 1985 - - 5 - IN WITNESS WHEREOF, said First Glen Bancorp, Inc. has caused the Certificate to be signed by G. Nelson Lowe, its Senior Vice President, and attested by Michael P. Brassel, its Secretary, this 5th day of April, 1985. First Glen Bancorp, Inc. By /s/ G. Nelson Lowe G. Nelson Lowe Senior Vice President Attest: By /s/ Michael P. Brassel Michael P. Brassel Secretary Filed: April 15, 1985 - 6 - CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION First Glen Bancorp, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, at a meeting duly held, adopted the following resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation as amended of said corporation: RESOLVED that the Certificate of Incorporation as amended of First Glen Bancorp, Inc. be amended by changing Article 1 thereof so that, as amended, said Article shall be and read as follows: 1. Name. The name of the corporation is EVERGREEN BANCORP, Inc. (hereinafter called the "Corporation"). SECOND: That the foresaid amendment was duly adopted in accordance State of Delaware by a majority of shareholders of First Glen Bancorp, Inc. at the with the applicable provisions of Section 242 of the General Corporation Law of the annual meeting of First Glen Bancorp, Inc. on April 23, 1986. IN WITNESS WHEREOF: said First Glen Bancorp, Inc. has caused the Certificate to be signed by Michael P. Brassel, its Senior Vice President, and attested by Kathleen Martinez, it Secretary, this 23rd day of April, 1986. First Glen Bancorp, Inc. By /s/ Michael P. Brassel Michael P. Brassel Senior Vice President Attest: By /s/ Kathleen G. Martinez Kathleen G. Martinez Secretary Filed: April 29, 1986 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Evergreen Bancorp, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, at a meeting duly held, adopted the following resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation as amended of said corporation: RESOLVED that the Certificate of Incorporation as amended of Evergreen Bancorp, Inc. be amended by changing the first sentence of Article 4 thereof so that, as amended, said first paragraph of Article 4 shall be and read as follows: 4. Number and Classes of Shares; Relative Rights, Preferences, and Limitations The total number of shares of all classes of stock which the Corporation shall have authority to issue is Four Million, Five Hundred Thousand (4,500,000), of which Four Million (4,000,000) shares of the par value of Three Dollars, Thirty Three and one Third Cents ($3.33 1/3) each, amounting in the aggregate to Thirteen Million Three Hundred Thirty Three Thousand Three Hundred Thirty Three and One Third Dollars ($13,333,333 1/3), shall be common stock and Five Hundred Thousand (500,000) shares of the par value of Ten Dollars ($10.00) each, amounting in the aggregate to Five Million Dollars ($5,000,000), shall be preferred stock. SECOND: that the foresaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation law of the State of Delaware by a majority of shareholders of Evergreen Bancorp, Inc. at the annual meeting of Evergreen Bancorp, Inc. on April 23, 1986. THIRD: that the aforesaid amendment shall become effective on the close of business on May 30, 1986. IN WITNESS WHEREOF: said Evergreen Bancorp, Inc. has caused the Certificate to be signed by Michael P. Brassel, its Senior Vice President, and attested by Kathleen Martinez, its Secretary, this 19 day of May, 1986. Evergreen Bancorp, Inc. By /s/ Michael P. Brassel Michael P. Brassel Attest: Senior Vice President By /s/ Kathleen G. Martinez Kathleen G. Martinez Secretary Filed: May 29, 1986 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Evergreen Bancorp, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, at a meeting duly held, adopted the following resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation as amended of said corporation: RESOLVED: That the Certificate of Incorporation of EVERGREEN BANCORP, INC. as now in effect be amended by adding the following Article 10 thereto: 10. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. SECOND: That the foresaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware by a majority of stockholders of Evergreen Bancorp, Inc. at the annual meeting of Evergreen Bancorp, Inc., on April 15, 1987. IN WITNESS WHEREOF: Said Evergreen Bancorp, Inc. has caused the Certificate to be signed by Michael P. Brassel, its Senior Vice President, and attested by Kathleen Martinez, its Secretary, this 15th day of April, 1987. Evergreen Bancorp, Inc. By: /s/ Michael P. Brassel Michael P. Brassel Senior Vice President Attest: By: /s/ Kathleen G. Martinez Kathleen G. Martinez Secretary Filed: May 13, 1987 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Evergreen Bancorp, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, at a meeting duly held, adopted the following resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation as amended of said corporation; RESOLVED: That the Certificate of Incorporation as amended of Evergreen Bancorp, Inc., be amended by changing the first sentence of Article 4 thereof so that, as amended, said first sentence of Article 4 shall be and read as follows: 4. Number and Classes of Shares; Relative Rights, Preferences, and Limitations The total number of shares of all classes of stock which the Corporation shall have authority to issue is Twenty Million, Five Hundred Thousand (20,500,000), of which Twenty Million (20,000,000) shares of the par value of Three Dollars, Thirty Three and One Third Cents ($3.33 1/3) each, amounting in the aggregate to Sixty Six Million Six Hundred Sixty Six Thousand Six Hundred Sixty Six and Two Thirds Dollars ($66,666,666.67) shall be common stock and Five Hundred Thousand (500,000) shares of the par value of Ten Dollars ($10.00) each, amounting in the aggregate to Five Million Dollars ($5,000,000), shall be preferred stock. SECOND: that the foresaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware by a majority of stockholders of Evergreen Bancorp, Inc. at the annual meeting of Evergreen Bancorp, Inc. on April 14, 1988. IN WITNESS WHEREOF: said Evergreen Bancorp, Inc., has caused this Certificate to be signed by Michael P. Brassel, its Senior Vice President, and attested by Kathleen G. Martinez, its Secretary, this 16 day of May, 1988. Evergreen Bancorp, Inc. By /s/ Michael P. Brassel Michael P. Brassel Attest: Senior Vice President By /s/ Kathleen G. Martinez Kathleen G. Martinez Secretary Filed: May 31, 1988 AMENDMENT NO 1. TO THE AMENDED AND RESTATED BY-LAWS OF EVERGREEN BANCORP, INC. AMENDMENT NO. 1, dated as of January 16, 1997 (the "Amendment"), to the Amended and Restated By-Laws of Evergreen Bancorp, Inc., is hereby adopted as follows: WHEREAS, the Board, after discussion, believes it to be in the best interests of the Company to increase the retirement age of directors as recommended; upon the motion of Anthony Mashuta, Chairman of the Human Resource and Nominating Committee, and duly seconded, it is unanimously RESOLVLED, that the Company's By-Laws be, and they hereby are, amended effective immediately to delete the last sentence of Section 3.2 of the By-Laws, captioned "Number; Qualification; Term of Office", and insert in its stead the following: "Notwithstanding the foregoing, any director reaching the age of 72 during any term of office shall continue to be qualified to serve as director only untill the next annual meeting of stockholders following his 72nd birthday." IN WITNESS WHEREOF, the undersigned confirms the adoption of this Amendment by the Board of Directors of Evergreen Bancorp, Inc. as of the date first set forth above. EVERGREEN BANCORP, INC. By: /s/ George W. Dougan George W. Dougan, Chairman of the Board EXHIBIT 10(e) [Annual Report on Form 10-K] EVERGREEN BANCORP, Inc. AMENDED AND RESTATED 1995 STOCK INCENTIVE PLAN 1. Purpose. The purpose of the Evergreen Bancorp, Inc. (the "Company") 1995 Stock Incentive Plan (the "Plan") is to advance the interests of the Company and its stockholders by aiding the Company in attracting, retaining and motivating employees of the Company and its Affiliates. 2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Affiliate" means: (i) A member of a controlled group of corporations of which the Company is a member; or (ii) Any majority-owned subsidiary of either the Company or its principal banking subsidiary, Evergreen Bank, N.A.; or (iii) An unincorporated trade or business which is under common control with the Company as determined in accordance with Section 414(c) of the Internal Revenue Code of 1986, as amended ("Code") and regulations issued 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. (b) "Award" means the grant of any Stock Option, Limited Alternate Right or Conditional Share granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Change in Control" means, for purposes of the Plan, 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 Exchange Act; or (ii) Results in a Change in Control of the Company 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 at 12 C.F.R. Section 303.4(a), as in effect on the date hereof; or (iii) Without limiting the above conditions, 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 Company representing 25% or more of a class of equity securities, except that a securities purchase or purchases by the Company'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 (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 Company'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 Company or any similar transaction occurs in which the Company is not or will not be the resulting entity; or (D) A proxy statement shall be distributed soliciting proxies from stockholders of the Company, by someone other than the current management of the Company, 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 Company; or (E) A tender offer is made for 25% or more of the voting securities of the Company then outstanding. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the Human Resources and Nominating Committee of the Board. Such committee, or a subcommittee thereof formed for the purposes of making discretionary awards under this Plan, shall be comprised at all times solely 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. (g) "Common Stock" means the common stock, par value $3.33-1/3 per, share, of the Company. (h) "Conditional Share" means a share of the Common Stock of the Company, such share becoming the sole property of a Participant upon the fulfillment of performance and/or tenure requirements as set forth by the Committee pursuant to Section 7 of the Plan. (I) "Date of Grant" means the date an Award is made to a Participant. (j) "Disability" means any physical or mental condition which may reasonably be expected to be permanent and which renders the Participant incapable of continuing as an employee for his customary hours of employment, provided, however, that such disability originated while the Participant was in the active service of the Company, and (1) 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 (2) did not result from habitual drunkenness or addiction to narcotics or a self-inflicted injury while sane or insane. To aid the Committee and determining whether such disability exists, the Committee may require, as a condition precedent to the receipt of any benefits hereunder, that the Participant submit to examinations by one or more duly licensed and practicing physicians selected by the Committee. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended - -- 2 -- from time to time. References to any provision of the Exchange Act shall be deemed to include successor provisions thereto and regulations thereunder. (l) "Fair Market Value" means with respect to shares of Common Stock or other property, the fair market value of such shares or other property determined by such methods or procedures as shall be established from time to time by the Committee. If the shares are listed on any established stock exchange or a national market system then, unless otherwise determined by the Committee in good faith, the Fair Market Value of Shares shall mean the closing price per share on the immediately preceding date (or, if the shares were not traded on that day, the next preceding day that the shares were traded) on the national market system or principal exchange on which the Common Stock is traded, as such prices are officially quoted. (m) "Normal Retirement" means retirement at the normal or early retirement date as set forth in any tax-qualified retirement/pension plan of the Company. If no such plan is in place, it shall mean termination of employment at or after age 65. (n) "Participant" means any employee of the Company or its Affiliates selected by the Committee to participate in the Plan for the current Plan year. (o) "Plan Year" means a calendar year commencing on or after January 1, 1995. (p) "Stock Option" shall mean a right granted to a Participant to purchase Common Stock of the Company at a specified price (the "Strike Price") for a specified period. Such Stock Options may be granted by the Committee as either: (i) Incentive Stock Options -- Those Stock Options so specified by the Committee at the Date of Grant as being intended to comply with the provisions of Section 422 of the Internal Revenue Code of 1986 as from time to time amended; or (ii) Non-Qualified Stock Options -- Those Stock Options so specified by the Committee at the Date of Grant as not being intended to qualify as Incentive Stock Options. (q) "Stock Agreement" shall mean the agreement entered into between the Company and the Participant pursuant to the terms of the Company's 1995 Stock Incentive Plan. (r) "Termination for Cause" means the Company's termination of any Participant's employment for the following: (i) the commission of any intentional acts or conduct by the Participant involving moral turpitude; (ii) the gross negligence by the Participant in complying or otherwise in performing his required duties for the Company; (iii) the commission of any intentional act of dishonesty in the performance of the Participant's duties for the Company; or (iv) 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 chief executive officer or the Board of Directors of the Company. 3. Administration. (a) Authority of the Committee. Except as expressly provided in this Plan, the Plan shall be administered by the Committee, and the Committee shall have full and final authority to take the following actions, in each case subject to and consistent with the provisions of the Plan: (i) to select participants to whom Awards may be granted; - -- 3 -- (ii) to designate Affiliates; (iii) to determine the type or types of Awards to be granted to each Participant; (iv) to determine the type and number of Awards to be granted, the number of shares of Common Stock to which an Award may relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, any exercise price, grant price, or purchase price, and any bases for adjusting such exercise, grant or purchase price, any restriction or condition, any schedule for lapse of restrictions or conditions relating to transferability or forfeiture, exercisability, or settlement of an Award, and waiver or accelerations thereof, and waivers of performance conditions relating to an Award, based in each case on such considerations as the Committee shall determine), and all other matters to be determined in connection with an Award; (v) to determine whether, to what extent, and under what circumstances an Award may be settled, or the exercise price of an Award may be paid, in cash, shares of Common Stock, other Awards, or other property, or an Award may be canceled, forfeited, exchanged, or surrendered; (vi) to determine whether, to what extent, and under what circumstances cash, shares of Common Stock, other Awards, or other property payable with respect to an Award will be deferred either automatically, at the election of the Committee, or at the election of the Participant; (vii) to prescribe the form of each Stock Agreement, which need not be identical for each Participant; (viii) to adopt, amend, suspend, waive, and rescind such rules and regulations and appoint such agents as the Committee may deem necessary or advisable to administer the Plan; (ix) to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and any Award, rules and regulations, Stock Agreement, or other instrument hereunder; (x) to accelerate the exercisability or vesting of all or any portion of any Award or to extend the period during which an is exercisable; and (xi) to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan. (b) Manner of Exercise of Committee Authority. The Committee shall have sole discretion in exercising its authority under the Plan. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Company, Affiliates, Participants, any person claiming any rights under the Plan from or through any Participant, and stockholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any Affiliate the authority, subject to such terms as the Committee shall determine, to perform administrative functions and, with respect to Awards granted to persons not subject to Section 16 of the Exchange Act, to perform such other functions as the Committee may determine, to the extent permitted under Rule 16b-3 (if applicable) and other applicable law. (c) Limitation of Liability. Each member of the Committee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any Affiliate, the Company's independent certified public accountants, or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee, nor any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully - -- 4 -- indemnified and protected by the Company with respect to any such action, determination, or interpretation. 4. Participation. (a) Each Plan Year, the Committee shall, in its sole discretion, determine which employees of the Company and its Affiliates shall participate in the Plan. Participation in the Plan for one Plan Year is neither a guarantee of participation in future Plan Years nor a guarantee of future employment. (b) At the time an employee is named as a Participant in the Plan, the Committee shall notify such Participant of the Award. Such notification shall identify: (i) The number of Stock Options granted (if any) and their terms and conditions, including whether such stock options carry Limited Alternate Rights; and (ii) The number of Conditional Shares granted (if any) and their terms and conditions. 5. Stock Options. (a) The Committee shall have the right to grant Stock Options to a Participant pursuant to this Section 5, and establish the terms and provisions, including but not limited to the exercise price, option term and methods of exercise. A Stock Option Award shall not be considered an Incentive Stock Option unless it is specifically designated as such in the Stock Agreement. All Stock Option Awards shall be presumed to be Non-Qualified Stock Options unless it is specifically stated to the contrary in a Stock Agreement. (b) Stock Options shall be granted at the Fair Market Value of the Common Stock on the Date of Grant except as provided for Incentive Stock Options in Section 5(g) below. (c) Unless otherwise determined by the Committee, Non-Qualified Stock Options shall become vested and be exercisable for their remaining term following death or Disability or Normal Retirement and, to the extent then vested, shall become exercisable for three years following termination of employment by the Company for reasons other than Cause, for three months following the date of separation if an employee terminates employment for any other reason, and immediately forfeited following Termination for Cause. Incentive Stock Options shall be exercisable for one year following death or disability; for three months following Normal Retirement or termination of employment by the Company for reasons other than Cause. Incentive Stock Options shall be exercisable for three months following date of separation if an employee terminates employment for any other reason, and immediately forfeited following Termination for Cause. Notwithstanding the foregoing, Stock Options shall in no event be exercisable after the date specified in the Stock Agreement relating thereto. (d) No Stock Options shall be exercisable for more than 10 years following the Date of Grant. No Incentive Stock Option may be exercisable earlier than at least one year following the Date of Grant. (e) Unless otherwise determined by the Committee, Stock Options may be exercised by tendering cash, a certified check, Common Stock then owned by the Participant or any combination thereof, to the Office of the Secretary of the Company, provided that any shares of Common Stock tendered which were acquired through a previous Stock Option exercise were held by the Participant for at least six months from the Date the Grant pursuant to which they were acquired was granted. If the optionee intends to obtain a permissible broker loan or a simultaneous order to sell the shares issuable upon exercise of any Options, upon the giving of at least 48 hours prior written notice to the Company, exercise thereof shall not be deemed to occur until the Company receives the proceeds of the recipient's broker loan or other permitted transaction. (f) To the extent that the aggregate Fair Market Value of Common Stock with respect to - -- 5 -- which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other plan of the Company or an Affiliate of the Company exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock Options. (g) No Incentive Stock Option shall be granted to a Participant who, at the time of the grant, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock either of the Company or any Affiliate of the Company, unless the Strike Price of the shares or Common Stock issuable upon exercise of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value (at the time the Incentive Stock Option is granted), and the Incentive Stock Option is not exercisable more than five (5) years from the date it is granted. 6. Limited Alternate Rights. (a) The Committee may, in its sole discretion, grant Limited Alternate Rights in tandem with any Stock Option Award. (b) Limited Alternate Rights shall entitle the holder to receive, in lieu of exercising the Stock Option to which such Limited Alternate Rights relate (in which event such Stock Option shall terminate), an amount in cash equal to 100 percent of the excess of the Fair Market Value of the Common Stock on the date of exercise times the number of rights tendered, over the aggregate Strike Price of the Stock Options to which the Limited Alternate Rights relate. (c) Limited Alternate Rights shall only become vested and exercisable: (i) If there is a Change in Control of the Company; and, (ii) The Stock Option to which the Limited Alternate Right is attached has been held by the Participant for a period of at least six months at the time the Change in Control has occurred. 7. Conditional Shares. (a) The Committee shall have the right to grant Conditional Shares to a Participant pursuant to this Section 7, and establish the terms and provisions, including but not limited to vesting provisions and conditions of forfeiture. (b) Conditional Shares represent the right to receive free of any restrictions, shares of Common Stock on the completion of specified performance and/or tenure requirements as set forth in a Participant's Conditional Share agreement by the Committee. At the discretion of the Committee, such shares may be issued to the Participant at the time of the grant, provided such shares bear a restrictive legend specifying that such shares cannot be sold or otherwise transferred by the Participant. (c) Conditional Shares shall be vested in full following death, Disability or Normal Retirement. If a Participant terminates employment with the Company for any other reason, all unvested Conditional Shares shall be forfeited, except as may be determined in the judgment of the Committee. (d) A Participant holding Conditional Shares shall, unless otherwise determined by the Committee, be entitled to receive dividends and exercise voting rights with respect to such Conditional Shares even though such Conditional Shares have not vested. 8. Designation Of Beneficiary. A Participant may, with the consent of the Committee, designate a person or persons to receive or exercise, in the event of the Participant's death, any Award to which the Participant would have been entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If a Participant fails to effectively designate a beneficiary then the Participant's estate, or legal representative, will be deemed to be the beneficiary. Except as provided in this Section 8 and except for transfers by will or laws of descent and distribution, or except as permitted by the - -- 6 -- Committee, all awards granted pursuant to the Plan shall be nontransferable. 9. Change in Control Provisions. In the event of a Change in Control, the following acceleration and cash-out provisions shall apply unless otherwise provided by the Committee at the time of the Award grant. All outstanding Awards pursuant to which the Participant may have rights, the exercise of which is restricted or limited, shall become fully exercisable at the time of the Change in Control. Unless the right to lapse of restrictions or limitations is waived or deferred by a Participant prior to such lapse, all restrictions or limitations (including risks of forfeiture and deferrals) on outstanding Awards subject to restrictions or limitations under the Plan shall lapse, and all performance criteria and other conditions to payment of Awards under which payments of cash, shares of Common Stock or other property are subject to conditions shall be deemed to be achieved or fulfilled and shall be waived by the Company at the time of the Change in Control. 10. Miscellaneous Provisions. (a) Tax Withholding. The Company's obligations under the Plan shall be subject to applicable federal, state, and local tax withholding requirements. Federal, state, and local withholding tax due at the time of a grant or upon the exercise of any Award may, in the discretion of the Committee, be paid in shares of Common Stock already owned by the Participant upon such terms and condition as the Committee shall determine. If the Participant shall fail to pay, or make arrangements satisfactory to the Committee for the payment, to the Company of all such federal, state and local taxes required to be withheld by the Company, then the Company shall, to the extent permitted by law, have the right to refuse to issue the shares of Common Stock relating to the Award and/or to deduct from any payment of any kind otherwise due to such Participant an amount equal to any federal, state, or local taxes of any kind required to be withheld by the Company. (b) Amendment. The Board may amend, alter, suspend, discontinue, or terminate the Plan or the Committee's authority to grant Awards under the Plan without the consent of stockholders of the Company or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company's stockholders to the extent such stockholder approval is required under Section 422 of the Code, Rule 16b-3 under the Exchange Act, or any other federal or state law or regulation; provided, however, that, without the consent of an affected Participant, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant under any Award theretofore granted to him or her. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate, any Award theretofore granted, prospectively or retrospectively; provided, however, that, without the consent of a Participant, no amendment, alteration, suspension, discontinuation or termination of any Award may materially and adversely affect the rights of such Participant under any Award theretofore granted to him or her. (c) Applicable Law. The Plan will be administered in accordance with the laws of the State of New York, without regard to its principles of conflict of laws, to the extent not governed by relevant provisions of the Exchange Act and other federal law. (d) Shares Authorized. The Committee shall be authorized to make Awards of Stock Options, Conditional Shares or any combination thereof representing up to 900,000 shares of Common Stock, subject to adjustment as provided below. Any shares of Evergreen Common Stock that are delivered to or withheld by the Company to satisfy the tax withholding consequences of an option exercise or the grant or vesting of a conditional share award shall again be available for purposes of the 1995 Stock Incentive Plan. (e) Maximum Award. No Participant may receive an Award of Stock Options, Conditional Shares or any combination thereof, representing more than 100,000 shares in any Plan Year, subject to adjustment as provided below. - -- 7 -- (f) Adjustments in Common Stock for Recapitalizations, Splits, etc. In the event that the Committee shall determine that any dividend in Common Stock, recapitalization, Common Stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the shares of Common Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems appropriate and, in such manner as it may deem equitable, adjust any or all of: (i) the number and kind of shares which may thereafter be issued under the Plan, (ii) the number and kind of shares, other securities or other consideration issued or issuable in respect of outstanding Awards, (iii) the exercise price, grant price, or purchase price relating to any Award, and (iv) the Maximum Award; provided, however, in each case that, with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424(a) of the Code, unless the Committee determines otherwise. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria and performance objectives included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence) affecting the Company or any Affiliate or the financial statements of the Company or any Affiliate, or in response to changes in applicable laws, regulations, or accounting principles. (g) Compliance with Legal and Trading Requirements. The Plan, the granting and exercising of Awards thereunder, and the other obligations of the Company under the Plan and any Stock Agreement, shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company, in its discretion, may postpone the issuance or delivery of shares of Common Stock under any Award until completion of such stock exchange or market system listing or registration or qualification of such shares of Common Stock or other required action under any state or federal law, rule or regulation as the Company may consider appropriate, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of shares of Common Stock in compliance with applicable laws, rules and regulations. No provisions of the Plan shall be interpreted or construed to obligate the Company to register any shares Common Stock under federal or state law. (h) Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided, however, that the Committee may authorize the creation of trusts or make other arrangements to meet the Company's obligations under the Plan to deliver cash, shares of Common Stock, other Awards, or other property pursuant to any Award, which trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. (i) Non-exclusivity of the Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of options and other awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. - -- 8 -- 11. Effective Date Of The Plan. The Plan, as amended and restated, shall become effective January 16, 1997, subject to approval by a majority vote of the stockholders of record of the Company at the 1997 annual meeting. The Plan shall terminate on April 1, 2005, or such earlier date as determined by the Board. Effective Date: April 20, 1995; amended and restated effective January 16, 1997. * * * * * IN WITNESS WHEREOF, the undersigned have executed this Agreement on behalf of the Company effective January 16, 1997. Evergreen Bancorp, Inc. By: /s/ Anthony J. Koenig Anthony J. Koenig, Executive Vice President--Administration - -- 9 -- EXHIBIT 10(g) [Annual Report on Form 10-K] This AMENDMENT NO. 1, dated as of January 16, 1997 (the "Amendment"), to the Evergreen Bancorp, Inc. 1995 Directors Stock Option Plan is made and entered into by EVERGREEN BANCORP, INC., a corporation organized and existing under the laws of the State of Delaware and having its principal office and place of business at 237 Glen Street, Glens Falls, New York 12801 (the "Bank"). WHEREAS, the Bank has previously established the Evergreen Bancorp, Inc. 1995 Directors Stock Option Plan (the "Plan") to advance the interests of the Bank and its shareholders in attracting, retaining and motivating high quality directors for the Bank; and WHEREAS, the number of shares issuable under the formula under the Plan and the maximum number of shares issuable under the Plan should have doubled upon the two-for-one stock split of the Common Stock effected in September, 1996 in the form of a 100% stock dividend; and WHEREAS, the Board of Directors of the Bank has adopted a resolution approving and adopting the amendments to the Plan as set forth herein. NOW, THEREFORE, by the power and authority vested in the Board of Directors of the Bank, the Plan is amended to now provide as follows: 1. Effective Date and Condition Precedent. This Amendment shall be effective upon and expressly conditioned upon the approval of the Bank's stockholders at the 1997 Annual Meeting of Stockholders, scheduled for May 8, 1997. 2. Defined Terms. Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Plan. 3. Amendments to the Plan. The Plan is hereby amended as follows: (a) Section II (H) is amended by deleting the word "Member" or "Employee" each time it appears in the Section and replacing it with the word "Participant". (b) Section III (A) is hereby amended by deleting it and inserting in lieu thereof "The Plan shall be administered by the Board of Directors of the Bank (the "Administrator")." (c) Section IV (A) is hereby amended by deleting the number "200" in the first sentence and replacing it with "1,600", and by adding the following to the end of the Section: "B. The Stock Options granted pursuant to Section IV (A) shall be granted as of and on the date of the Bank's Annual Shareholders' meeting. "C. Consistent with the Plan provisions, and except for authority that would precluded designation of the Bank's Directors from qualifying as a "non-employee director" under Rule 16b-3 ("Rule 16b-3"), as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as amended, the Board as Administrator shall have full and final authority to make additional grants of Stock Options to Participants under the Plan, including but not limited to the right to determine the type and number of Awards to be granted, the number of Shares to which an Award may relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, any exercise price, grant price, or purchase price, provided that the exercise price is equal to or exceeds the Fair Market Value of the Common Stock on the date of grant), any schedule for lapse of restrictions or conditions relating to transferability or forfeiture, exercisability, or settlement of an Award, and waiver or accelerations thereof, and waivers of performance conditions relating to an Award, based in each case on such considerations as the Board shall determine), and all other matters to be determined in connection with an Award." (d) Section V (E) is hereby amended by adding the following at the end thereof: "If the Participant intends to obtain a permissible broker loan or a simultaneous order to sell the shares of Common Stock issuable upon exercise of any Stock Options, upon the giving of at least 48 hours prior written notice to the Bank, exercise thereof shall not be deemed to occur until the Bank receives the proceeds of the recipient's broker loan or other permitted transaction. In addition, the Administrator shall the authority to impose any other conditions on or provisions for the exercise of any Award not inconsistent with the provisions of the Plan and Rule 16b-3." (e) Section VII (D) is hereby amended by deleting it and inserting in lieu thereof the following: "Shares Authorized for Issuance--Subject to adjustment as provided in Section VII (E) hereof, the total number of Shares reserved for issuance in connection with Awards under the Plan shall be 90,000. No Award may be granted if the number of Shares to which such Award relates, when added to the number of Shares of Common Stock previously issued under the Plan, exceeds the number of Shares of Common Stock reserved under the preceding sentence. If any Awards are forfeited, canceled, terminated, exchanged or surrendered or such Award is settled in cash or otherwise terminates without a distribution of Shares of Common Stock to the Participant, any Shares of Common Stock counted against the number of Shares of Common Stock reserved and available under the Plan with respect to such Award shall, to the extent of any such forfeiture, settlement, termination, cancellation, exchange or surrender, again be available for Awards under the Plan." 4. Ratification of the Plan. As modified and amended by this Amendment, the Plan is hereby ratified and confirmed. * * * * * IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. Evergreen Bancorp, Inc. By: /s/ Anthony J. Koenig Anthony J. Koenig, Executive Vice President--Administration EX-13 2 1997 Annual Report Growth. By choice, not chance. Evergreen Bancorp This year represents the best year in the 144 year history of your bank. All of our successes this year are the results of a tightly focused organization. One that builds on its strengths and recognizes opportunities for growth. Seizes upon them with innovative solutions. In a constantly shifting financial services sector, we are creating our destiny. Above all, we know who we are. We know where we want to go. And we will be successful in getting there. We continue to make the right choices. Choice, not chance, determines our destiny. Financial Highlights A record year. Solid performance. And significant efforts to build on our growth. Common Stock Data Evergreen Bancorp's common stock is traded on the NASDAQ National Market System under the symbol EVGN. There were 1,670 stockholders of record as of December 31, 1997. The range of the high and low sales prices, as reported by NASDAQ, and the quarterly cash dividends paid for the years 1997 and 1996 are in the adjacent column. The information provided has been adjusted to reflect the company's two-for-one stock split effective on September 16, 1996. For more information on restrictions relating to the payment of cash dividends, see Note 12 of Notes to Consolidated Financial Statements.
1997 High Low Div. Paid 4th Quarter $25.25 $18.25 $0.15 3rd Quarter 20.63 16.63 0.13 2nd Quarter 17.00 14.25 0.13 1st Quarter 17.13 14.75 0.13
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
Financial Highlights
(Dollars -- except per share data -- expressed in thousands) 1997 1996 1995 Net Income $11,327 $10,313 $8,380 Per Share: Basic Net Income 1.26 1.12 .89 Diluted Net Income 1.24 1.11 .88 Cash Dividends .54 .43 .23 Book Value 9.91 9.37 8.86 Average Shares Outstanding 8,995,000 9,229,000 9,430,000 Year End: Assets $1,010,161 $928,649 $871,423 Loans, Net of Unearned Income 679,039 654,888 592,198 Deposits 853,676 800,856 750,224 Stockholders' Equity 88,256 85,439 83,045 Trust Assets Under Management 511,100 463,600 427,800
Corporate Profile Evergreen Bancorp, Inc. (NASDAQ: EVGN) is a one-bank holding company headquartered in Glens Falls, New York. Its principal subsidiary, Evergreen Bank, N.A., operates 27 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 144-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 $1 billion as of year-end 1997, 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 7, 1998. Form 10-K A copy of the Company's Form 10-K annual report is available without charge to shareholders upon written request to Brian Hampl, Assistant Secretary, 237 Glen Street, Glens Falls, New York, 12801. "The key was our management team, no question about it... They're energized to meet the bank's objectives, no matter what the market conditions." - --George W. Dougan, Chairman, President and CEO Dougan on Evergreen Chairman's Report Now a billion-dollar bank, Evergreen is developing a reputation for strong, solid, consistent financial performance. Far from relying on market and industry trends, that reputation stems from focused management in every corner of the bank. Evergreen's top manager, George Dougan, explains how active management led to an exceptional 1997--and how growth by choice, not chance, remains the course for the future. On the highlights of 1997: Simply put, Evergreen turned in an excellent performance: Record earnings of $11,327,000 Closing stock price of $24.875 as of December 31, 1997, a 52% increase from the end of 1996 Record level dividends of $0.54 per share Over $1 billion in assets for the first time Improvements in efficiency and return on equity Expansion in our principal markets Market capitalization over $200 million, up from $150 million in 1996 In a nutshell, the performance of 1997 has added significantly to the value of the franchise--the value for our shareholders-- in many ways. We've worked hard to manage our way toward that goal, rather than rely on external factors. On achieving record earnings and expanding in the same year: The key to our growth was our management team, no question about it. Every year, our senior managers work more closely as a functioning unit; they stay focused on both sides of the ledger. And they're energized to meet the bank's objectives, no matter what the market conditions. This past year was a good example. Early in 1997, we faced a slow-growth economy, a soft marketplace in mortgages and indirect lending, expenses from expansion, and the rise in bankruptcies that every bank was encountering. The management team created responses to each of these issues to continue the bank's solid growth. We delayed hiring. We re- allocated human resources to open new branches with almost no rise in staffing. We took significant steps on the financial side. We reviewed third-party contracts for potential cost savings. We pursued new fee- income opportunities. Faced with slow loan growth--but strong growth in deposits--we adjusted by investing the deposits to generate income. These initiatives paid off to the point where we exceeded budget projections at the end of 1997. Dougan on Evergreen Chairman's Report--continued On addressing the market, segment by segment: This is key to our ongoing success. With products, it comes down to meeting needs at different points in the life cycle. This past year, for instance, we rolled out programs for children, first-time homebuyers, the middle market, the affluent, and small business. By aiming at different segments, we increase our chances of maximizing market share in each one. That applies geographically, too. In 1997, we addressed the need for an ever greater presence in one of our largest markets, the Capital Region. To increase our physical presence, we opened two new locations to complement our branch opening in 1996, and we relocated a third. We also rolled out our new commercial products for the region's business customers, who hold significant potential for us. And we generated a lot of favorable press. Has all this made an impact? Well, of the new locations we've opened over the past two years, all have far exceeded their first-year deposit goals. I think that speaks to our increased effectiveness in a significant geographic market. On technology as a growth driver: Quite a few initiatives have taken place on the technology front. Our technology team has fully implemented the teller automation system, which streamlines branch operations. The new call center will help us fulfill our mission by providing customers with faster, better service--no matter where they are in our franchise area. New imaging capabilities in loan origination and documentation do the same for our lending customers, including auto dealers providing indirect loans. In each case, our goal is to leverage technology which drives our costs lower and our level of service higher. On Evergreen's response to market trends: Consolidation in banking is going to continue. We take advantage of it by looking for opportunities...whether they lie in acquiring branches or simply entering a niche that consolidation has made available. These niches have opened up frequently in our franchise area: some of our larger competitors have changed their presence here, through consolidation or other means, and we will attempt to fill the niche they leave behind. Part of that niche is a commitment to service. To fill it, we do many of the simple things that add up in the customer's mind. They're all in keeping with maximizing market share by staying true to our identity: that of a profitable, well organized, customer focused community bank. Deregulation will also continue, which is a minus and a plus. Certainly it allows more competitors to enter the ball game. At the same time, it creates opportunities for us in complementary lines of business--and we will continue to look at exploiting those lines of business in ways that make sense to Evergreen. Naturally, the volatility on Wall Street has a big impact on us, especially in terms of fluctuating interest rates. We've addressed this through a formal, systematic risk management process-- regularly reviewing risk criteria and adjusting our financial situation to minimize our exposure. Judging by the results, we've had success. On protecting the franchise: Many financial institutions have relaxed their credit standards, but we haven't--nor will we. Especially with the nationwide rise in delinquencies and bankruptcies, asset quality requires constant vigilance, and we've maintained that by managing the entire process before a loan reaches non-performing status. As a result, non-performing assets are down from the prior year. That's critical to protecting the franchise. So is addressing a major computer issue: the Year 2000. In 1997, Evergreen dedicated a team specifically to this issue. That team has put us ahead of the curve in resolving the problem: in fact, we've completed the planning stage and started implementation of a solution. We're also talking with anyone associated with Evergreen--business customers, retail customers, vendors--to make sure they're compliant, too. All in all, I believe we're on track to resolve this issue by December 31, 1998. And by resolving this issue, we avoid problems that could significantly hinder our continued operations--and therefore our continued growth. On the refocused strategic plan: All these initiatives, of course, flow directly from Evergreen's new strategic plan which we set out at the beginning of 1997. It's actually a continuation of the previous plan in many of its objectives: we still aim to maintain our position as a community bank, achieve profitable growth, enhance operating efficiencies, increase fee income, and protect net interest income. The major difference is that the new plan is focused on the next three years, based on changes in opportunities. What hasn't changed is our basic direction: then, as now, we know who we are, and we know where we're going. On 1998 and beyond: I see us continuing many of the same initiatives that have brought our shareholders such significant rewards over the past few years: Expanding core business in Evergreen's current markets Initiating new products Investigating additional branches Growing market share--especially in the Capital Region Implementing new financial initiatives Continuing our stock repurchase program Finding new sources of fee income Improving efficiency Adding new technology as necessary Continuing to manage risk in every area In short, we want to put things in place to generate enhanced growth in the future. And by "the future", I mean not just tomorrow, but years from now. If we see a solid return in both the long and the short term, we will invest. On the energy at Evergreen: Whenever I talk to anyone--analysts, shareholders, customers--I hear an excitement about our bank. "What are you doing now? Are you going to open branches, or do this or that?" The energy here is contagious. And I believe, with the bank's past performance and future mission--and especially with our commitment to focused growth--there's good reason for all our constituencies to share in that excitement. I certainly do. "The energy here is contagious...especially with our commitment to focused growth-- there's good reason for all our constituencies to share in that excitement. I certainly do." --George W. Dougan, Chairman, President and CEO Growth for Today. Groundwork for Tomorrow. Management Report At certain times, banks find themselves preparing for future growth. At other times, they enjoy the fruits of their preparation. In 1997, Evergreen did both. More than ever, the initiatives of previous years contributed to record earnings for the bank in 1997. Not content simply to enjoy the returns, however, Evergreen management generated a wealth of new initiatives to continue--even accelerate--the bank's growth as it moves ahead. Toward a Higher Profile--and Higher Market Share. Critical to Evergreen's continued growth were the branch openings of 1997. The new locations in Clifton Park and Niskayuna--and the relocation of another branch to a bustling business corridor-- provided Evergreen with a higher profile in a market with high potential: the greater Capital Region of New York State. Whether in actual growth or in efforts to create it, the Capital Region focus has already affected all sectors of the bank. In retail, the new branches have exceeded their deposit goals and generated loan growth. In trust and investment, they have led to profitable relationships that would have been otherwise impossible. And on the commercial side, Evergreen has created a new regional lending group, introduced new products and services, and devoted significant resources to capturing market share in the small business segment. A New Record in Trust & Investment. Evergreen's growth--and its preparation for growth--was also evident in trust and investment. The numbers spoke clearly of the year's success: for the first time ever, the Trust & Investment Group broke $500 million in assets under management. That success, however, came largely from careful preparation. A major driver of asset growth, for instance, was implemented the year before: Evergreen's Private Banking program. In its first full year, the program not only surpassed projections in its own right, but also delivered benefits to all areas of the bank. Indeed, Evergreen gained millions in additional retail deposits alone from Private Banking customers. Such growth is significant in a business sector built on long-term relationships. "The relationship business takes quite a while to nourish," said John M. Fullerton, Executive Vice President, Trust & Investment Group, "so the returns we've seen are especially pleasing, coming so soon after the program's inception." Private Banking was not the only growth driver for trust and investment. Forays into alternative investments have generated non-interest income, which carries a high priority bankwide. New alliances have brought additional products and services to the arena of employee benefits. More broadly, success arose from the Trust & Investment Group's approach to cost effectiveness and tax management. "For a fee less than the fees normally associated with mutual funds, we provide so much more: investments to be sure, but also individual service, financial and estate planning," Fullerton noted. "We can only do that because of our unique approach to controlling costs and taxes. That approach also keeps more of the customer's money working for the customer." "Banks today must be aggressive about providing all the services, especially financial planning. With Private Banking we remain competitive while bringing additional business to the bank." --John M. Fullerton, Executive Vice President, Trust & Investment Group Beyond Expectations in Retail. "Deposits were a major factor," said Daniel J. Burke, Senior Vice President, Retail Banking, of his sector's solid performance in 1997. Indeed, a 6% rise in deposits provided a significant source of funds with which to grow net interest income. While the rise came in part from the strong performance of Evergreen's newest branches, other factors also contributed--including new products and services for the high-potential middle market. The bank attracted a broad range of new depositors with Evergreen Advantage, a value-added checking account similar to Evergreen's Privilege 50 for seniors. Kids Kash encouraged children to start saving in a no-cost account with a preferred interest rate. The bank's new ATM and Check Card are beginning to contribute to fee income, helped by the introduction of new ATM locations. In another market segment, the bank's focus on municipal business--already a strong source of deposits--added substantially to the deposit base. Residential mortgages accounted for the growth in Evergreen's retail lending through strong mortgage originations and higher home equity activity. Here again, Evergreen laid the foundation for further growth with new offerings such as the Good Neighbor Mortgage, designed for first-time homebuyers and homeowners with little equity, and a third- party alliance to help mortgage customers who don't fit Evergreen's traditional credit profile. Building on the initiatives of the past year, the retail division is undertaking new projects for 1998. Among them are an Evergreen credit card and an expanded mortgage origination program. New Products for Business Growth--and Bank Growth. A slow local economy and competitive marketplace didn't stop Evergreen's commercial sector from breaking new ground with innovative products and services. Some of those offerings provide small businesses with tools traditionally enjoyed by their larger counterparts. With BusinessDirect, a PC-based cash management software system, companies can conduct banking right from their own offices. The excitement generated by the product has resulted in new fee income. An ancillary offering, FaxDirect--which provides businesses with a faxed account statement every morning--has tied many customers closer to the bank with what they perceive as an indispensable service. No less fruitful was the bank's continued relationship with the Small Business Administration (SBA). Enjoying a record year for SBA loan closings, Evergreen also applied for and received two designations, Certified Lender and Preferred Lender, that make its SBA program more attractive by reducing turnaround time for loan decisions. Other developments reinforced Evergreen's profile as a stable community bank. Behind the scenes, the bank maintained solid loan loss reserves throughout the year. In a more visible arena, Evergreen furthered its community banking mission in such loan projects as the Downtown Glens Falls Revitalization Program and the Hudson Falls Revitalization Program, through which the bank has dedicated funds to draw businesses into its home communities. "New branches and new products provided incremental growth for the bank, and our mortgage-based business accounted for an increase in loan business. It all added up to a strong year in the retail sector." --Daniel J. Burke, Senior Vice President, Retail Banking "The vigorous stewardship of our resources, together with the plans we put in place over the past few years, have made a major impact." --Anthony J. Koenig, Executive Vice President, Chief Administrative Officer Management Report--continued "Proactive management of the credit process allows us to keep to our fundamental strategy: to generate quality growth-- not just growth for growth's sake." --Thomas C. Crowley, Executive Vice President, Chief Credit Officer Among the initiatives for 1998 is a benchmark research study of current customers. "This survey will provide us insight into the level of service we currently provide to the small business market segment," said Thomas C. Crowley, Executive Vice President, Chief Credit Officer. "Because we build our market share on superior service, our findings will be critical to our efforts toward continued growth." As in past years, Evergreen continued its vigilance in asset quality. "Proactive management of the credit process keeps us poised to take on new business in a responsible manner," Crowley said. "That's in keeping with our fundamental choice: to generate quality growth--not just growth for growth's sake." Underlying all these efforts is a cross-functional committee dedicated to rationalizing all management initiatives for their return on investment. Chaired by George L. Fredette, Executive Vice President, Chief Financial Officer, the so-called Devil's Advocate Committee reviews each initiative the bank undertakes for its return of value to the shareholders. "We are continuously challenging each area of the bank to produce a return," said Fredette. "The process provides another source of insight to ensure the bank's continued performance." Streamlining the Infrastructure. Seamless operation, greater efficiency, customer service--whether visible or invisible to customers--Evergreen's continued strides in technology have enhanced all three. Perhaps no technology initiative of 1997 carried a higher priority than the bank's efforts to resolve the issues raised by the Year 2000. Along with dedicating a team of staff members to the task--and siting them at a special facility--Evergreen has formed employee subcommittees to address various Year 2000 issues. From these efforts came the decision to change the bank's core processing system, "which not only facilitates Year 2000 compliance, but also provides us with the potential for improved efficiencies," said Anthony J. Koenig, Executive Vice President, Chief Administrative Officer. Among the best examples of increased efficiency is the new teller automation system, which Evergreen installed throughout its operations in 1997. "This new system automates the teller process more efficiently, cuts back on losses, improves the audit function, and speeds up proving," explained Koenig. "Because the same system is used bankwide, it gives us more flexibility to move personnel when necessary. All in all, this system should bring us to a new level of operating efficiency at the branch level." Customers may take more immediate notice of recent improvements to the automated telephone banking system. The new upgrades provide 24-hour instant access to account information, as well as more transaction and inquiry options. "For the customer, these improvements mean greater convenience and faster access to accounts--better customer service, in sum," Koenig said. "Given our market niche as a customer-oriented bank, such enhancements are critical to maintaining and growing market share." While less noticeable, other improvements also moved the bank toward greater efficiency. A new loan origination and document scanning system made for faster processing of applications--and faster decisions for customers. This technology, coupled with a computer program to update Evergreen's internal credit review process, further enhanced the bank's ability to process both consumer and commercial loans. Evergreen also centralized its network communication infrastructure, improving bankwide communications. The Growth Continues. The initiatives of 1997 point to a single truth: that one year's record earnings aren't enough. "By no means will we rest on our laurels," emphasizes George Dougan, Evergreen's Chairman, President and CEO. "Instead, we will continue to maximize new market opportunities, fill in our natural geographic area, strive for greater operating efficiency, and remain vigilant in safeguarding asset quality. Increasing the value of the franchise is an ongoing process--a process we will continue to undertake with enthusiasm." "We continuously challenge each area of the bank to produce a return and ensure the bank's continued performance." --George L. Fredette, Executive Vice President, Chief Financial Officer Evergreen's Leadership George W. Dougan Chairman, President and CEO Evergreen Bancorp, Inc. John W. Bishop Construction Executive Retired Carl R. DeSantis, Sr. Vice Chairman and Director Franchise Associates, Inc. Robert F. Flacke President Fort William Henry Corp. Director Finch Pruyn & Co., Inc. Michael D. Ginsburg Partner M & R Ginsburg Partners 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 Director Finch Pruyn & Co., Inc. 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 Harpoon of Hudson, Ltd. Directors Emeriti F. Earl Bach Gerald J. Buckley Dean V. Chandler Donald S. Creal John V. Hallett Donald D. Hanks Samuel P. Hoopes Paul E. Lavine Warren E. Rouillard Bjarne G. Soderstrom Henry J.W. Vanderminden III Executive Officers George W. Dougan Chairman, President and CEO Paul A. Cardinal Executive Vice President, Corporate Secretary and General Counsel Thomas C. Crowley Executive Vice President and Chief Credit Officer George L. Fredette Executive Vice President, Treasurer and Chief Financial Officer Anthony J. Koenig Executive Vice President and Chief Administrative 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 Douglas P. Sturges Vice President, Controller Bank Locations Glens Falls Region Glens Falls Main Office, 237 Glen Street Glens Falls Auto Bank, 28 Maple Street* Bolton Landing 4945 Main Street Corinth 97 Main Street* Granville 6 Main Street* Granville Auto Bank, 100 Quaker Street* Greenwich 146 Main Street* Hudson Falls 124 Main Street Kingsbury Main and Washington Streets* Lake George 350 Canada Street* Queensbury Queensbury Plaza, Quaker Road* Queensbury Evergreen Plaza, Aviation Road* Salem Main Street* South Glens Falls 99 Main Street* Warrensburg 137 Main Street* Capital Region Albany 125 State Street Clifton Park Rt. 146 Shoppers World* Colonie 1256 Central Avenue* East Greenbush 71 Troy Road* Hudson 177 Fairview Avenue* Latham One Old Loudon Road* Mechanicville 3 Park Plaza* Niskayuna St. James Square* *Evergreen ATM locations, 24-hour banking Capital Region Advisory Board J. Eric King Ronald H. Laberge Patrick T. Maney Anthony J. Mashuta Edward P. McConville Jeffrey B. Rivenburg Charles M. Staro Walter Urda Plattsburgh Region Plattsburgh 714 State Route 3* Plattsburgh 136 Margaret Street* Keeseville 1744 Route 22* Peru 2990 Route 22* Chazy 9679 Route 9* Plattsburgh Region Advisory Board James H. Andre Michael P. Brassel Lawrence W. Carpenter Dean V. Chandler Henry J. Fortin, Jr. William O. Morgan Celine R. Paquette Peter R. Prescott Planned for 1998 Current Branches Evergreen Bancorp 237 Glen Street, Glens Falls, New York 12801 518-792-1151 4510-AR-98 EVERGREEN BANCORP, INC. FINANCIAL REVIEW SUMMARY OF SELECTED FINANCIAL DATA
For the year ended December 31, 1997 1996 1995 1994 1993 Summary of Operations: ($000 Omitted) Interest Income $ 76,476 $ 70,533 $ 67,171 $ 60,987 $ 62,612 Interest Expense 34,085 29,349 27,572 21,683 24,532 Net Interest Income 42,391 41,184 39,599 39,304 38,080 Provision for Loan Losses 1,710 1,440 1,800 2,211 15,377 Net Interest Income After Provision for Loan Losses 40,681 39,744 37,799 37,093 22,703 Other Income 7,031 6,387 6,224 7,516 8,106 Other Expenses 30,917 30,143 32,600 33,528 35,360 Income/(Loss) Before Income Taxes 16,795 15,988 11,423 11,081 (4,551) Income Tax Expense/(Benefit) 5,468 5,675 3,043 3,816 (1,225) Net Income/(Loss) $ 11,327 $ 10,313 $ 8,380 $ 7,265 $ (3,326) Per Share: Basic Earnings/(Loss) $ 1.26 $ 1.12 $ .89 $ .77 $ (.35) Diluted Earnings/(Loss) 1.24 1.11 .88 .77 (.35) Cash Dividends .54 .43 .23 .03 .10 Average Balance Sheet Data (unaudited): ($000 Omitted) Total Assets $973,448 $889,372 $849,877 $838,236 $871,418 Loans, Net of Unearned Income and Allowance 647,462 616,602 562,368 560,998 584,577 Deposits 839,974 766,474 739,254 740,176 775,359 Stockholders' Equity 86,442 83,985 78,987 72,235 70,739 Return on Equity and Assets: Return on Average Assets 1.16% 1.16% .99% .87% (.38)% Return on Average Equity 13.10 12.28 10.61 10.06 (4.70) Dividend Payout Ratio 42.99 38.58 25.30 3.25 N/A Average Equity to Average Asset Ratio 8.88 9.44 9.29 8.62 8.12
Dividend Per Share 1995 0.23 1996 0.43 1997 0.54 Return on Assets Per Share 1995 0.99% 1996 1.16% 1997 1.16% Return on Equity 1995 10.61% 1996 12.28% 1997 13.10% Evergreen Bancorp, Inc. OVERVIEW OF PERFORMANCE The principal source of earnings for Evergreen Bancorp, Inc. is its single banking subsidiary, Evergreen Bank, N.A. All discussions herein refer to the activities of the Company's banking subsidiary unless otherwise noted. When used in this annual report, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such events or to reflect the occurrence of anticipated or unanticipated events. In 1997, the Company earned $11,327,000, or basic earnings per share of $1.26, compared to 1996 net income of $10,313,000, or $1.12 per share. This represents a $1,014,000 increase from the prior year. Pretax income in 1997 increased $807,000 to $16,795,000, principally because of increased net interest income of $1,207,000, offset by an increase in the provision for loan losses of $270,000. Other income and other expense increased by similar amounts while taxes declined slightly. Net income for 1996 increased $1,933,000 over 1995 levels due to higher levels of net interest income, a lower provision for loan losses and lower operating expenses. Average assets for 1997 totaled $973.4 million, an increase of $84.1 million, or 9.5% from the 1996 average of $889.4 million. This compares to the 1996 increase over 1995 of $39.5 million dollars, or 4.6%. Total assets of the Company at December 31, 1997 were $1,010.2 million representing the first time in its history that the Company ended a quarter with assets in excess of one billion dollars. The return on average assets for 1997 was 1.16% as compared to 1.16% and .99% in 1996 and 1995, respectively. The return on stockholders' equity improved to 13.1% in 1997 as compared to 12.3% and 10.6% for 1996 and 1995, respectively. The improvement in return on equity is primarily due to increased levels of net income. 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 therein. Net interest income on a taxable equivalent basis for 1997 increased $1,059,000, or 2.5%, from that for 1996. This increase resulted primarily from an increase in average earning assets. Average earning assets increased $85.8 million or 10.2% from 1996 levels. This increase resulted primarily from higher levels of taxable loans and securities, which increased $32.7 million and $48.3 million on average, respectively. The increase in net interest income due to volume was offset by a lower net interest margin. The net interest margin on a tax equivalent basis decreased by 35 basis points to 4.63% in 1997 compared to 4.98% in 1996. The yield on average earning assets decreased 16 basis points from 8.47% in 1996 to 8.31% in 1997. The decrease in yield on taxable loans in 1997 is due to a slightly higher proportion of lower yielding residential mortgage products. Average rates paid on interest bearing liabilities increased 18 basis points to 4.38% in 1997 from 4.20% in 1996. Most of the increased funding in 1997 was provided by higher yielding time deposits, which increased by $69.8 million on average over 1996 levels. The significant increase in reliance on time deposits was related to the Company's promotion of new branches and future increases are not expected to be as meaningful. In addition to the effects of the makeup of the loan portfolio and sources of funding, the margin was also negatively impacted by the relatively flat yield curve in the latter part of 1997. Many of the Company's loan products, such as residential mortgage loans, are priced over longer maturity treasury securities, which did not provide as large an interest rate spread over the Company's shorter term funding sources as in 1996 and 1995. In 1996 the net interest margin decreased 9 basis points from 5.07% in 1995. 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.
($000 Omitted) 1997 vs. 1996 1996 vs. 1995 Total Increase/(Decrease) Total Increase/(Decrease) Increase/ Due to Change in Increase/ Due to Change in (Decrease) Volume Rate (Decrease) Volume Rate Interest Income Earned: Loans Taxable $1,987 $2,939 $ (952) $4,120 $4,863 $ (743) Tax-Exempt (125) (120) (5) (534) (280) (254) Investment Securities Taxable 3,723 3,287 436 707 384 323 Tax-Exempt (236) (121) (115) (745) (874) 129 Federal Funds Sold/Interest Bearing Balances 446 425 21 (562) (436) (126) Change in Total Interest Income 5,795 6,410 (615) 2,986 3,657 (671) Interest Expense Incurred: Regular Savings, Interest Checking and MMDAs 117 115 2 (306) (185) (121) Time Deposits 4,445 3,903 542 1,704 1,783 (79) Short-Term Borrowings 126 128 (2) (351) (257) (94) Long-Term Debt 48 171 (123) 730 709 21 Change in Total Interest Expense 4,736 4,317 419 1,777 2,050 (273) Change in Net Interest Income $1,059 $2,093 $(1,034) $1,209 $1,607 $ (398)
NET INTEREST INCOME -- AVERAGE RATES AND YIELDS
($000 Omitted) 1997 1996 1995 Interest Interest Interest Average Income/ Average Income/ Average Income/ Balance Expense Yield/Rate Balance Expense Yield/Rate Balance Expense Yield/Rate Assets Loans Taxable $647,233 $ 57,978 8.96% $614,558 $ 55,991 9.11% $561,276 $ 51,871 9.24% Tax Exempt 12,995 1,005 7.73 14,552 1,130 7.77 17,840 1,664 9.33 Securities Taxable 233,604 15,966 6.83 185,319 12,243 6.61 179,435 11,536 6.43 Tax Exempt 9,418 798 8.47 10,763 1,034 9.61 19,952 1,779 8.92 Federal Funds Sold/Interest Bearing Balances 22,994 1,262 5.49 15,248 816 5.35 23,237 1,378 5.93 Total Earning Assets 926,244 77,009 8.31 840,440 71,214 8.47 801,740 68,228 8.51 Allowance for Loan Losses (12,766) (12,508) (16,748) Cash and Due from Banks 25,048 30,010 28,436 Other Non-Earning Assets 34,559 31,391 36,396 Total Assets $973,085 $889,333 $849,824 Liabilities and Stockholders' Equity Regular Savings, Interest Checking and MMDAs $345,089 $ 9,612 2.79% $340,951 $ 9,495 2.78% $347,575 $ 9,801 2.82% Time Deposits 401,196 22,514 5.61 331,403 18,069 5.45 298,703 16,365 5.48 Short-Term Borrowings 6,073 307 5.06 3,536 181 5.12 8,220 532 6.47 Long-Term Debt 25,845 1,652 6.39 23,255 1,604 6.90 12,970 874 6.74 Total Interest-Bearing Liabilities 778,203 34,085 4.38 699,145 29,349 4.20 667,468 27,572 4.13 Demand Deposits 93,689 94,120 92,976 Other Liabilities 15,114 12,122 9,098 Stockholders' Equity 86,079 83,946 80,282 Total Liabilities and Stockholders' Equity $973,085 $889,333 $849,824 Net Interest Income (Tax Equivalent Basis) 42,924 41,865 40,656 Tax Equivalent Adjustment (533) (681) (1,057) Net Interest Income $ 42,391 $ 41,184 $ 39,599 Net Interest Rate Spread 3.93% 4.27% 4.38% Net Interest Margin 4.63% 4.98% 5.07%
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 statutory Federal income tax rate of 35% in 1997, 1996, and 1995 along with a statutory State income tax rate of 9%, 9.225%, and 9.675% in 1997, 1996 and 1995 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 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 Company's allowance for loan losses increased $0.4 million from $12.4 million at December 31, 1996 to $12.8 million at December 31, 1997, reflecting a stable net charge-off experience notwithstanding a 4.9% increase in average outstanding loans. At December 31, 1997, the allowance as a percentage of non-performing loans outstanding was 221.64%, which represents a slight decline from 232.12% at December 31, 1996. At December 31, 1996 the allowance increased $0.3 million from $12.1 million at December 31, 1995. The provision for loan losses amounted to $1.7 million for 1997 compared to $1.4 million for 1996, an increase of $0.3 million, or 18.8%. The increased provision, over year earlier levels, was due to increased levels of loan outstandings and a marginal increase in charge-off experience, primarily in the installment loan portfolio. 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, 1997 1996 1995 1994 1993 Amount of Loans Outstanding End of Year (Less Unearned Income) $679,039 $654,888 $592,198 $577,329 $577,351 Average Loans Outstanding During Year (Less Average Unearned Income) $660,228 $629,110 $579,116 $580,478 $603,356 Balance of Allowance at Beginning of Year Loans Charged Off: $ 12,393 $ 12,115 $ 18,752 $ 18,754 $ 13,357 Commercial, Financial and Agricultural (461) (298) (8,569) (4,021) (10,597) Real Estate (321) (189) (227) (283) (321) Installment (1,431) (1,227) (742) (477) (919) Total Loans Charged Off (2,213) (1,714) (9,538) (4,781) (11,837) Recoveries of Loans Previously Charged Off: Commercial, Financial and Agricultural 733 389 881 2,275 1,586 Real Estate 9 12 16 84 43 Installment 199 151 204 209 228 Total Recoveries 941 552 1,101 2,568 1,857 Net Loans Charged Off (1,272) (1,162) (8,437) (2,213) (9,980) Additions to Allowance Charged to Operating Expense 1,710 1,440 1,800 2,211 15,377 Balance of Allowance at End of Year $ 12,831 $ 12,393 $ 12,115 $ 18,752 $ 18,754 Net Charge-Offs as Percent of Average Loans Outstanding During Year (Less Average Unearned Income) .19% .18% 1.46% .38% 1.65% Net Charge-Offs as Percent of Allowance at Beginning of Year 10.26 9.59 44.99 11.80 74.72 Allowance as Percent of Loans Outstanding at End of Year (Less Unearned Income) 1.89 1.89 2.05 3.25 3.25 Allowance as Percent of Non-Performing Loans Outstanding at End of Year (Less Unearned Income) 221.64 232.12 204.92 96.54 50.48
OTHER (NON-INTEREST ) INCOME Non-interest income increased $644,000, or 10.1%, in 1997 and $163,000, or 2.6%, in 1996 from prior year levels. Trust Department fees increased $205,000, or 8.6%, in 1997 and $169,000, or 7.6%, in 1996 from prior year levels. Miscellaneous other income increased $339,000, or 28.3%, in 1997 after a decrease of $158,000 in 1996, or 11.6%. The increase in other income in 1997 versus 1996 primarily relates to a gain on the sale of leased assets of $127,000, rental income on ORE property (since sold) of $101,000 and a newly instituted ATM surcharge that generated $96,000 of income in 1997. The decrease in other income in 1996 versus 1995 relates to gains on the sale of fixed assets and additional letter of credit fees in 1995.
($000 Omitted) 1997 1996 1995 Trust Department Fees $2,587 $2,382 $2,213 Services Charges on Deposit Accounts 2,897 2,812 2,791 Net Gain/(Loss) on Security Transactions 9 (6) (137) Miscellaneous Other Income 1,538 1,199 1,357 Total $7,031 $6,387 $6,224
OTHER (NON-INTEREST) EXPENSE Non-interest expense increased $774,000, or 2.6%, in 1997 but decreased $2,457,000, or 7.5%, in 1996 from 1995 levels. The increase from 1996 to 1997 primarily relates to the cost of operating three additional branches in 1997. The decreases from 1995 to 1996 were primarily due to reductions in FDIC insurance, a reduction in net loss on other real estate and lower professional fees during 1996. Salaries and benefits, which represent over 50% of non-interest expense, increased $100,000, or 0.6%, in 1997 and $232,000, or 1.5%, in 1996. The increase in 1997 expense over 1996 relates to merit increases and the staffing of three new branches established in late 1996 and early 1997, which were partially offset by lower benefits expense and lower levels of staff in other areas in 1997. The increase in 1996 over 1995 was primarily the result of merit increases. The full time equivalent staff was 391, 398 and 392 at year-end 1997, 1996 and 1995, respectively. FDIC insurance expense was essentially eliminated in 1996 and 1997 for "well capitalized" banks. 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 in 1997 was $102,000. Data processing decreased $40,000, or 1.7%, in 1997, after increasing $329,000 or 15.7% in 1996. The decrease in 1997 was a result of renegotiating the contract with the Company's servicer in late 1996. The increase in 1996 relates to the outsourcing of the items processing function in December 1995. Professional fees increased $40,000 or 3.6% in 1997 after decreasing $545,000, or 32.9%, in 1996. The increase in 1997 relates to special cost-saving or revenue enhancing projects that were implemented in 1997. The decrease in 1996 primarily relates to a decreased utilization of outside legal counsel and consultants engaged to assist in the reduction of non-performing assets. Occupancy expense increased $347,000 in 1997 after remaining relatively stable in 1996. The increase in 1997 relates to the three new branches in the network. Total non-interest expense as a percentage of average assets was 3.2%, 3.4% and 3.8% in 1997, 1996 and 1995, respectively. This ratio decreased in 1997 due to the 9.5% growth in average assets compared to the 2.6% increase in non-interest expense. Efficiency Ratio 1995 71.1% 1996 63.4% 1997 62.6%
($000 Omitted) 1997 1996 1995 Salaries & Benefits $16,141 $16,041 $15,809 Data Processing 2,381 2,421 2,092 Professional Services 1,154 1,114 1,659 Occupancy 2,356 2,009 2,017 Furniture & Equipment 2,001 1,856 1,852 Advertising 877 907 729 Supplies and Printing 864 819 1,038 FICO/FDIC Insurance 102 2 1,065 Net Loss/(Gain) on Other Real Estate 27 (86) 781 Miscellaneous Other Expenses 5,014 5,060 5,558 Total $30,917 $30,143 $32,600
INCOME TAXES Income tax expense for 1997 was $5.5 million compared to income tax expense of $5.7 million in 1996. The effective income tax rates were 33%, 35% and 27% for 1997, 1996 and 1995, respectively. The statutory rate for Federal Income Taxes was 35% in 1997 and 1996, and 34% in 1995. 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 non-deductible expenses. The decrease in the effective tax rate for 1997 is primarily a result of somewhat lower state taxes and the continuing re-evaluation of reserves related to federal deferred tax assets. Substantially all of the Company's residential mortgage loan portfolio is held in a real estate investment trust. The trust provides for improved capital alternatives and also led to lower income taxes. Refer to Note 10 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. This Standard requires 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 as of 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 $282.9 million at December 31, 1997, an $85.7 million increase from 1996's balance of $197.2 million. In 1996, the aggregate securities portfolio decreased by $16.7 million from 1995. The increase during 1997 was the result of a combination of low commercial and installment loan demand and a significant increase in deposits. The decrease in the securities portfolio in 1996 was largely attributed to strong retail loan demand during that year. Securities held to maturity comprise approximately 12% of the aggregate securities portfolio at December 31, 1997. This is consistent with management's objective to maintain flexibility and adequate liquidity by classifying most securities as available for sale. A portion of the securities portfolio is pledged to secure public deposits, short-term repurchase agreements and for other purposes. Refer to Note 3 for a further discussion of pledging. 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, 1997: ($000 Omitted) U.S. Government State and & Agency Political Subdivisions Other Total Securities Amortized Fair Amortized Fair Amortized Fair Amortized Fair Cost Yield Value Cost Yield Value Cost Yield Value Cost Yield Value 0-1 year $ 63,744 6.34% $ 63,881 $ 1,382 6.45% $ 1,397 $ 5 5.44% $ 8 $ 65,131 6.34% $ 65,286 1-5 years 115,212 6.88 115,891 6,402 7.44 6,829 2,141 6.31 2,119 123,755 6.90 124,839 5-10 years 61,354 7.17 61,919 3,549 5.81 3,817 -- -- -- 64,903 7.10 65,736 Over 10 years 25,992 7.55 26,444 1,441 5.41 1,526 -- -- -- 27,433 7.44 27,970 Total $266,302 6.88% $268,135 $12,774 6.65% $13,569 $2,146 6.31% $2,127 $281,222 6.87% $283,831 Avg. Maturity: 3.9 years 5.1 years 2.6 years 3.9years Includes $141,792 of mortgage-backed securities which are secured by agencies of the U.S. government.
LOANS The total loan portfolio, net of unearned income, increased $24.2 million to $679.0 million at the end of 1997 compared to $654.9 million at year end 1996. Increases in residential mortgage and commercial loans were offset by decreases in installment loan balances. Commercial loans increased by $7.8 million in 1997 to a balance of $232.8 million, following a decrease of $5.4 million in 1996 to $225.0 million. The increase in the commercial loan portfolio in 1997 is due primarily to the Company's continued expansion into the Capital Region of New York State. The current branch expansion into that area has made it more convenient for previously inaccessible customers to do business with Evergreen. As the economy of the region as a whole remains flat, meaningful growth in the portfolio depends on the Company's ability to attract customers from other financial institutions and/or a significant improvement in the regional economy. The decrease in the commercial loan portfolio in the years prior to 1997 was accompanied by significant improvements in the credit quality of the loan portfolio. Residential mortgage loans increased to $308.8 million at December 31, 1997, a $28.0 million increase over 1996's balance of $280.8 million. In 1996, residential mortgage loans increased by $36.3 million over 1995. The increases in 1997 and 1996 were attributable to improved efforts in residential mortgage loan origination. Installment loans decreased $10.9 million to $135.7 million at December 31, 1997, from $146.5 million as of year end 1996. The decline in installment loan balances was caused by a payoff of approximately $11.7 million of installment loans from a car leasing concern acquired by another commercial bank, combined with average indirect auto demand and below prior year level demand for other consumer products. A great portion of new installment loans continue to be secured by first liens on automobiles. During 1997 the Company explored the possibility of re-entering the credit card receivables business and anticipates doing so in the first part of 1998. The impact on income in 1998 from this new line of business is expected to be nominal. Installment loans increased by $31.7 million in 1996 over 1995 primarily due to increased penetration in the automobile dealer indirect markets and a "Touch-Tone" loan program that made obtaining small personal loans more convenient for consumers.
The following table sets forth the classification of the Evergreen's consolidated loans, net of unearned income, by major category: ($000 Omitted) December 31, 1997 1996 1995 1994 1993 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 non-accrual status, (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 non-accrual status when they are 90 days past due unless they are well secured and in the process of collection, or when management determines that the complete recovery of principal and interest is in doubt. As a matter of general policy, installment 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, installment loans are classified as non-accrual when payments are past due 120 days. Residential mortgage loans are not generally placed on non-accrual status 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 placed on non-accrual status, 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 $7,010,000 at December 31, 1997. This represents a decrease of $23,000 from $7,033,000 at December 31, 1996. Non-performing loans increased $450,000 since December 31, 1996 to $5,789,000 at December 31, 1997. The 1997 decrease in non-performing assets was primarily the result of the sale of certain OREO properties. Other real estate net of transfers, losses and write-downs, decreased $409,000 since December 31, 1996 to $1,067,000 at December 31, 1997. Non-accrual loans increased $1,046,000 from $3,792,000 at December 31, 1996 to $4,838,000 at December 31, 1997. 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, 1997 the Company had no restructured loans.
The following table presents information concerning non-performing assets: ($000 Omitted) December 31, 1997 1996 1995 1994 1993 Commercial Loans Non-Accrual $3,887 $3,425 $4,191 $13,951 $32,299 Past Due 90 Days and Still Accruing 424 45 387 1,053 1,430 Restructured -- 133 138 2,656 1,476 Total Non-Performing Commercial 4,311 3,603 4,716 17,660 35,205 Residential Mortgage Loans Non-Accrual 783 180 334 188 406 Past Due 90 Days and Still Accruing 389 946 491 1,172 1,255 Total Non-Performing Residential Mortgage 1,172 1,126 825 1,360 1,661 Installment Loans Non-Accrual 168 187 46 -- -- Past Due 90 Days and Still Accruing 138 423 325 405 282 Total Non-Performing Installment 306 610 371 405 282 Total Non-Performing Loans 5,789 5,339 5,912 19,425 37,148 Other Real Estate 1,067 1,476 3,784 10,319 2,750 Repossessed Assets - Other 154 218 76 178 606 Total Non-Performing Assets $7,010 $7,033 $9,772 $29,922 $40,504 Non-Performing Assets as a Percent of Total Loans- Net of Unearned Income 1.03% 1.07% 1.65% 5.18% 7.02% Non-Performing loans as a Percent of Total Loans- Net of Unearned Income .85% .82% 1.00% 3.36% 6.43%
Of the $4.8 million of loans in non-accrual status as of December 31, 1997, approximately $3.8 million represents loans which are secured, primarily by real estate. At December 31, 1997, the allowance for loan losses as a percent of total non-performing loans was 221.6 percent which represents a slight decrease from 232.1 percent at December 31, 1996. In addition to the total non-performing loans set forth above, other "classified" loans were $8.0 million at December 31, 1997, compared to $15.6 million at December 31, 1996. 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, 1997, and 1996, stockholders' equity was $88.3 million and $85.4 million, respectively. This represents an increase of $2.8 million, or 3.3%. This compares to an increase of $2.4 million, or 2.9%, for 1996 versus 1995. The 1997 increase primarily represents the retention of $6.5 million of earnings in 1997. During 1997, the Company paid $4.9 million in dividends, or $.54 per share, and purchased approximately 328,500 shares of treasury stock at an aggregate cost of $5.9 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 revised 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. Specifically, 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. Total Capital includes a portion of the allowance 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 (see Note 13 to the financial statements). 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, 1997 and 1996, and the related minimum regulatory guidelines: Evergreen Evergreen Minimum Regulatory Bancorp, Inc. Bancorp, Inc. Regulatory Ratios Dec. 31, 1997 Dec. 31, 1996 Guidelines Leverage 8.6% 9.2% 3.0% Tier 1 Capital 13.5 13.7 4.0 Total Capital 14.8 14.9 8.0 Rate of Internal Capital Generation 1997 1996 1995 Return on Average Assets 1.16% 1.16% .99% Average Equity to Average Assets 8.88 9.44 9.29 Return on Average Equity 13.10 12.28 10.61 Earnings Retention Ratio 57.01 61.42 74.70 Internal Capital Generation Ratio 7.47 7.54 7.93 Return on average equity times the earnings retention ratio equals the 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. 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 has the availability to borrow up to $90.1 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 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 $11.6 million at the Federal Reserve Discount Window along with informal federal funds purchase agreements with correspondent banks of up to $30.5 million. When the Company experiences a net outflow of funds, maturing investments are not reinvested until sufficient excess funds are available. The Company sold on average $22.7 million daily in federal funds during 1997. In contrast, purchases and other short-term borrowings averaged $6.1 million during 1997. Net cash provided by operating activities was $17.0 million for 1997 as compared to $15.3 million for 1996. Net cash used by investing activities was $112.7 million in 1997 compared to net cash used of $49.3 million in 1996. This is primarily a result of increased purchases of securities available for sale and held to maturity of $96.1 million, compared to the prior year. Net cash provided by financing activities increased $19.6 million to $66.2 million in 1997. This increase is primarily a result of a $23.4 million increase in short-term borrowings. The level of cash and cash equivalents was $26.6 million at December 31, 1997. The Parent Company (see Note 18 to the financial statements) held cash and liquid assets of $3.1 million at December 31, 1997. 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 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, 1997: ($000 Omitted) Balance Maturing or Subject to Repricing After 3 Mo. After 1 Year Within But Within But Within After 3 Months 1 Year 5 Years 5 Years Total at December 31, 1997 Interest-Earning Assets: Securities Available for Sale at Amortized Cost $ 44,963 $ 44,092 $143,141 $ 14,371 $ 246,567 Securities Held to Maturity 7,664 14,086 7,915 4,990 34,655 Total Loans 202,778 120,788 266,608 88,865 679,039 Other Earning Assets 162 -- -- -- 162 Total Interest-Earning Assets $255,567 $178,966 $417,664 $108,226 $ 960,423 Excess Fair Value Over Cost of Securities Available for Sale 1,678 Other Assets 48,060 Total Assets $1,010,161 Interest-Bearing Liabilities: Savings, Interest Checking and MMDA $138,113 $ -- $201,357 $ -- $ 339,470 Time Deposits 138,379 141,322 129,140 3,020 411,861 Short-Term Debt 27,108 100 -- -- 27,208 Long-Term Debt 245 215 17,809 7,441 25,710 Total Interest-Bearing Liabilities $303,845 $141,637 $348,306 $ 10,461 $ 804,249 Demand Deposits 102,345 Other Liabilities & Equity 103,567 Total Liabilities & Equity $1,010,161 Interest Rate Sensitivity Gap $(48,278) $37,329 $ 69,358 $ 97,765 Cumulative Interest Rate Sensitivity Gap $(48,278) $(10,949) $58,409 $156,174 $ 156,174
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 of fixed rate mortgage loans has been adjusted to reflect anticipated principal prepayments. All other loans are presented based on contractual terms. Savings, Interest Checking 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, 1997 the Company exhibited a slightly negative, or liability sensitive, cumulative one year gap position. Consequently, if interest rates fall, and all other variables remained fixed, it may be assumed that net interest income would increase. Were rates to increase, net interest income might be expected to decrease 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, 1997, Maturing: 1 Year 1 to 5 Years 5 Years Total Commercial $ 51,916 $ 87,802 $ 93,067 $ 232,785 Real Estate Construction 1,502 -- -- 1,502 Total $ 53,418 $ 87,802 $ 93,067 $ 234,287 Loans Maturing After 1 Year: With Pre-Determined Interest Rate $ 33,559 With Floating Interest Rate 147,310 Total $ 180,869 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A derivative financial instrument includes futures, forwards, interest rate swaps, option contracts, and other financial instruments with similar characteristics. The Company currently does not enter into futures, forwards, swaps, or options. However, the Company is party to 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. These instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. 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 and may require collateral from the borrower if deemed necessary by the Company. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of the customer to a third party up to a stipulated amount and with specified terms and conditions. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Company until the instrument is exercised. The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a reduction in future net interest income and/or a decrease of current fair market values. The objectives are to measure the effect on net interest income in order to appropriately adjust the balance sheet to minimize the inherent risk and at the same time maximize income. Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. Tools used by management include the standard GAP report and interest rate shock simulation reports. The Company has no market risk sensitive instruments held for trading purposes. Management believes the Company's market risk is reasonable at this time.
The following table presents the scheduled maturity of market risk sensitive instruments at December 31, 1997: ($000 Omitted) Table of Market Risk Sensitive Instruments Maturing in: Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter Total Assets Securities $110,805 $ 74,674 $ 49,765 $19,833 $ 6,784 $ 21,039 $282,900 Loans 189,904 95,072 74,097 62,763 38,392 218,811 679,039 Total $300,709 $169,746 $123,862 $82,596 $45,176 $239,850 $961,939 Liabilities Savings, Interest Checking and Money Market Deposits $138,113 $201,357 $ -- $ -- $ -- $ -- $339,470 Time Deposits 279,701 89,462 25,950 8,600 5,128 3,020 411,861 Short-Term Borrowings 27,208 -- -- -- -- -- 27,208 Long-Term Borrowings 460 487 6,604 10,347 371 7,441 25,710 Total $445,482 $291,306 $ 32,554 $18,947 $ 5,499 $ 10,461 $804,249
Table of Market Sensitive Instruments Total Average Interest Rate Estimated Fair Value Assets Securities $282,900 6.87% $283,831 Loans 679,039 8.89 671,630 Liabilities Savings, Interest Checking and Money Market Deposits $339,470 2.78% $339,470 Time Deposits 411,861 5.61 411,663 Short-Term Borrowings 27,208 6.21 27,208 Long-Term Borrowings 25,710 6.39 26,072
CAPITAL EXPENDITURES AND COMMITMENTS During 1997, the Company incurred approximately $2.9 million in capital expenditures. These expenditures included $1.3 million spent on two new branch locations in the Capital Region of New York State, the relocation of a third branch in that region and additional improvements to the regional headquarters in Latham, New York. The balance of capital expenditures was utilized to purchase data processing equipment and software, upgrade teller platforms, replace company vehicles, purchase ATM's and improve building facilities. Capital expenditures of $3.3 million in 1996 consisted of substantially the same type of items as 1997 with the exception of the purchase and refurbishing of the Latham, New York branch and regional headquarters totaling $1.8 million. The Company has committed to certain capital expenditures as of December 31, 1997. The Company anticipates the opening of two new branches in 1998, requiring $0.8 million in capital expenditures. In addition, technology improvements are anticipated to cost $0.5 million while general branch and facilities upgrades and furniture/fixtures and equipment expenditures are estimated at $0.6 million during 1998. Like other financial institutions, the Company expects to incur substantial costs to assure that its computer operating systems are Year 2000 compliant. The Company has developed a detailed plan, involving senior management, staff and outside vendors, designed to bring the Company into compliance by December 1998. As part of the Year 2000 compliance program, management has determined that the Company should convert core computer systems and change item processing vendors during 1998. The new systems will enhance the Company's computer and item processing capabilities and will provide for a base operating system that is Year 2000 compliant. Capitalized costs resulting from the conversions are expected to approximate $0.9 million. In addition, one-time expenses related to the conversions are estimated to total approximately $0.4 million in 1998. These preliminary cost estimates will change as the Company enters into contracts with outside vendors and as assessments of the project are modified. 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., the Company 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 eight 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, 1997 Evergreen Bank, N.A. had assets of $1,002.1 million, deposits of $853.7 million and equity of $83.4 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 Office of 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 installment, residential mortgage and business loans. Evergreen Bank, N.A. offers safe deposit facilities, night depository, debit and 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. CONSOLIDATED STATEMENTS OF INCOME
($000 Omitted) (Except Per Share Data) For the year ended December 31, 1997 1996 1995 Interest Income Interest and Fees on Loans $58,692 $56,794 $52,971 Interest and Dividends on Securities Available for Sale and Held to Maturity: U.S. Government and Agency Obligations 15,212 11,369 10,550 State and Municipal Obligations 872 1,095 1,718 Other 438 459 554 Interest on Balances with Banks 23 4 17 Interest on Federal Funds Sold 1,239 812 1,361 Total Interest Income 76,476 70,533 67,171 Interest Expense Interest on Deposits: Regular Savings, Interest Checking and Money Market Deposit Accounts 9,612 9,495 9,801 Certificates of Deposit (in Denominations of $100,000 or More) 5,060 3,713 3,492 Other Time 17,454 14,356 12,873 Interest on Short-Term Borrowings 307 181 532 Interest on Long-Term Debt 1,652 1,604 874 Total Interest Expense 34,085 29,349 27,572 Net Interest Income 42,391 41,184 39,599 Provision for Loan Losses 1,710 1,440 1,800 Net Interest Income after Provision for Loan Losses 40,681 39,744 37,799 Other Income Trust Department Income 2,587 2,382 2,213 Service Charges on Deposit Accounts 2,897 2,812 2,791 Net Gain/(Loss) on Security Transactions 9 (6) (137) Other 1,538 1,199 1,357 Total Other Income 7,031 6,387 6,224 Other Expense Salaries and Employee Benefits 16,141 16,041 15,809 Data Processing 2,381 2,421 2,092 Professional Services 1,154 1,114 1,659 Net Occupancy Expense of Bank Premises 2,356 2,009 2,017 Furniture and Equipment Expense 2,001 1,856 1,852 Net Loss/(Gain) on Other Real Estate 27 (86) 781 Other 6,857 6,788 8,390 Total Other Expense 30,917 30,143 32,600 Income Before Income Taxes 16,795 15,988 11,423 Income Tax Expense 5,468 5,675 3,043 Net Income $11,327 $10,313 $ 8,380 Average Shares Outstanding 8,995 9,229 9,430 Basic Earnings Per Share $ 1.26 $ 1.12 $ .89 Diluted Earnings Per Share $ 1.24 $ 1.11 $ .88
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CONDITION
($000 Omitted) As of December 31, 1997 1996 Assets Cash and Cash Equivalents: Cash and Due from Banks $ 26,596 $ 33,430 Federal Funds Sold -- 22,700 Total Cash and Cash Equivalents 26,596 56,130 Securities Available for Sale 248,245 177,140 Securities Held to Maturity 34,655 20,028 Loans 680,878 659,153 Less: Allowance for Loan Losses (12,831) (12,393) Less: Unearned Income (1,839) (4,265) Net Loans 666,208 642,495 Bank Premises and Equipment, Net 16,308 15,278 Other Real Estate Owned 1,067 1,476 Other Assets 17,082 16,102 Total Assets $1,010,161 $928,649 Liabilities Deposits: Demand $ 102,345 $ 92,737 Regular Savings, Interest Checking Accounts and Money Market Deposit Accounts 339,470 350,762 Certificates of Deposit (In Denominations of $100,000 or More) 110,189 79,808 Other Time 301,672 277,549 Total Deposits 853,676 800,856 Short-Term Borrowings 27,208 3,846 Accrued Taxes and Other Liabilities 15,311 12,270 Long-Term Debt 25,710 26,238 Total Liabilities 921,905 843,210 Stockholders' Equity Common Stock $3.33 Par Value: Shares Authorized 20,000,000, Shares Issued 9,633,966 in 1997 and 1996 32,113 32,113 Surplus 6,787 6,787 Undivided Profits 59,225 53,149 Market Over Cost of Securities Available For Sale Net of Deferred Tax 1,007 24 Common Stock Subscribed by ESOP (640) (808) Treasury Stock (727,256 shares in 1997 and 514,158 shares in 1996) (10,236) (5,826) Total Stockholders' Equity 88,256 85,439 Total Liabilities and Stockholders' Equity $1,010,161 $928,649
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 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 ($.23 per share) -- -- (2,126) -- -- -- (2,126) Stock Issued (91,460 shares) 152 539 -- -- -- -- 691 Purchase of Treasury Stock ( 205,818 shares) -- -- -- -- -- (1,985) (1,985) Stock Vested in ESOP -- -- -- -- 153 -- 153 Change in Valuation Allowance on Securities Available for Sale -- -- -- 4,331 -- -- 4,331 Balance at December 31, 1995 16,036 6,680 63,065 474 (967) (2,243) 83,045 Net Income--1996 -- -- 10,313 -- -- -- 10,313 Cash Dividends ($.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 Available for Sale -- -- -- (450) -- -- (450) Balance at December 31, 1996 32,113 6,787 53,149 24 (808) (5,826) 85,439 Net Income--1997 -- -- 11,327 -- -- -- 11,327 Cash Dividends ($ .54 per share) -- -- (4,869) -- -- -- (4,869) Stock Grants, Awards and Options Exercised (115,402 shares) -- -- (382) -- -- 1,467 1,085 Purchase of Treasury Stock (328,500 shares) -- -- -- -- -- (5,877) (5,877) Stock Vested in ESOP -- -- -- -- 168 -- 168 Change in Valuation Allowance on Securities Available for Sale -- -- -- 983 -- -- 983 Balance at December 31, 1997 $ 32,113 $ 6,787 $ 59,225 $ 1,007 $ (640) $(10,236) $ 88,256
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 Omitted) For the Year Ended December 31, 1997 1996 1995 Cash Flows from Operating Activities: Net Income $ 11,327 $ 10,313 $ 8,380 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Net Change in Unearned Loan Fees 53 50 52 Net Change in Other Assets and Other Liabilities 1,948 2,308 707 (Gain)/Loss on Sale of Loans, Securities and Other Real Estate (45) (287) 136 (Increase)/Decrease in Net Deferred Tax Asset (541) (932) 1,489 Write-Down of Other Real Estate 144 279 781 Loss on Disposition of Assets 36 164 -- Depreciation 1,791 1,533 1,515 Provision for Loan Losses 1,710 1,440 1,800 Amortization of Premiums & Accretion of Discounts on Securities, Net 583 433 214 Net Cash Provided By Operating Activities 17,006 15,301 15,074 Cash Flows From Investing Activities: Proceeds from Sales of Securities Available for Sale 532 6,753 8,404 Proceeds from Maturities of Securities Available for Sale 54,423 51,517 42,278 Purchases of Securities Available for Sale (124,951) (45,794) (73,505) Proceeds of Maturities of Securities Held to Maturity 7,230 8,077 23,021 Purchases of Securities Held to Maturity (21,903) (4,996) (10,361) Proceeds from Sales of Loans 2,596 3,124 18,480 Change in Check Overdraft Receivables (49) 223 331 Proceeds from Sales of Other Real Estate 1,654 2,911 8,340 Net Increase in Loans (29,376) (67,838) (44,754) Capital Expenditures (2,857) (3,281) (1,263) Net Cash Used by Investing Activities (112,701) (49,304) (29,029) Cash Flows From Financing Activities: Net Increase in Deposits 52,820 50,632 14,403 Net Increase/(Decrease) in Short-Term Borrowings 23,362 586 (1,158) Payments on Long-Term Debt (360) (7,078) (341) Proceeds from Issuance of Long-Term Debt -- 10,000 13,500 Proceeds from Sale of Common or Treasury Stock 1,085 737 691 Payments for Purchase of Treasury Stock (5,877) (4,386) (1,985) Dividends Paid (4,869) (3,979) (2,126) Net Cash Provided by financing Activities 66,161 46,512 22,984 Net (Decrease)/Increase in Cash and Cash Equivalents (29,534) 12,509 9,029 Cash and Cash Equivalents at Beginning of Year 56,130 43,621 34,592 Cash and Cash Equivalents at End of Year $ 26,596 $ 56,130 $ 43,621 Supplemental Disclosure of Cash Flows: Interest Paid $ 33,651 $ 28,973 $ 28,271 Taxes Paid $ 3,803 $ 6,678 $ 3,388
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 $1,374,000, $589,000 and $2,586,000 in 1997, 1996, and 1995, 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 $168,000, $159,000 and $153,000 in 1997, 1996 and 1995, 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 $1,678,000 at December 31, 1997. The adjustment to stockholders' equity for the unrealized gain was $1,007,000 net of deferred income tax expense of $671,000 which is included as a decrease in the deferred tax asset. At December 31, 1996 securities available for sale had an unrealized gain of $41,000. The adjustment to stockholders' equity, net of deferred income tax expense of $17,000, was $24,000. 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 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 non-accrual status unless they are well secured and in the process of collection, or when management determines that the complete recovery of principal and interest is in doubt. Installment loans are generally charged off after they become 120 days past due. Residential mortgage loans are not generally placed on non-accrual status 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 non-accrual status. 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 and recoveries are credited to the allowance for loan losses. In accordance with SFAS No. 114 and SFAS No. 118, the allowance on loans that are identified for evaluation by the standards, primarily commercial loans, is based on discounted cash flows using the 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 the lower of the carrying value of the loan or the fair value less estimated costs to sell. Fair value is determined by appraisal of the asset. Any asset write down within 90 days of 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. Income Taxes In accordance with SFAS No. 109, 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities In June 1996, the Financial Accounting Standards Board (FASB) 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. The Company adopted SFAS No. 125 as of January 1, 1997. The adoption of SFAS No. 125 did not have a material impact on the consolidated financial statements. Earnings Per Share In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which establishes standards for computing and presenting earnings per share (EPS). This Statement supersedes Accounting Principals Board Opinion No. 15, "Earnings per Share," and related interpretations. SFAS No. 128 replaces the presentation of primary EPS with the presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock that then shared in the earnings of the entity. This Statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company adopted SFAS No. 128 and has reported and displayed EPS in accordance with the new Statement. 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 offbalance 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. Recent Accounting Pronouncements In June 1997, the FASB issued Statement of Financial Accounting Standard No. 130 (SFAS No. 130), "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components in financial statements. SFAS No. 130 states that comprehensive income includes reported net income of a company, adjusted for items that are currently accounted for as direct entries to equity, such as the net unrealized gain or loss on securities available for sale. This Statement is effective for both interim and annual periods beginning after December 15, 1997. As required, the Company will adopt the reporting requirements of this Statement in the first quarter of 1998. In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting by public companies about operating segments of their business. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement is effective for periods beginning after December 15, 1997. As required, the Company will adopt the reporting requirements of this Statement in the first quarter of 1998. NOTE 2 CASH BALANCES Cash balances on deposit at the Federal Reserve to meet regulatory requirements amounted to $1,441,000 on December 31, 1997 and $7,207,000 on December 31, 1996. NOTE 3 SECURITIES The amortized cost and estimated fair value of securities available for sale at December 31, 1997 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 $170,394,000 on December 31, 1997 and $159,197,000 on December 31, 1996 were pledged to secure public deposits, short-term repurchase agreements, and for other purposes. Proceeds from sales of securities available for sale during 1997, 1996 and 1995 were $532,000, $6,753,000, and $8,404,000 respectively. Gross gains of $9,000, $31,000 and $31,000 were realized on those sales during 1997, 1996 and 1995, respectively. No gross losses were realized in 1997, and gross losses of $57,000 and $168,000 were realized during 1996 and 1995, respectively.
($000 Omitted) Estimated Amortized Fair Cost Value Due in one year or less $ 63,749 $ 63,889 Due after one year through five years 112,352 112,995 Due after five years through ten years 49,346 49,855 Due after ten years 4,000 4,170 Mortgage-backed securities due after ten years 17,120 17,336 Total $ 246,567 $248,245
Securities Available For Sale at December 31, 1997, and 1996 were as follows: ($000 Omitted) 1997 1996 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 $102,629 $1,008 $ 3 $103,634 $ 33,049 $156 $ 18 $ 33,187 Mortgage-backed Securities 141,792 1,144 452 142,484 141,021 803 858 140,966 Other Securities 2,146 3 22 2,127 3,029 2 44 2,987 Total $246,567 $2,155 $477 $248,245 $177,099 $961 $920 $177,140
Securities Held to Maturity at December 31, 1997 and 1996 were as follows:
($000 Omitted) 1997 1996 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 $21,881 $141 $ 5 $22,017 $ 9,046 $170 $-- $ 9,216 State & Political Subdivisions 12,774 795 -- 13,569 10,982 818 -- 11,800 Total $34,655 $936 $ 5 $35,586 $20,028 $988 $-- $21,016
The amortized cost and estimated fair value of Securities Held to Maturity at December 31, 1997 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 $32,472,000 on December 31, 1997 and $17,744,000 on December 31, 1996 were pledged to secure public deposits, short-term repurchase agreements, and for other purposes. There were no proceeds from sales recorded during 1997, 1996 or 1995. During 1996, gross gains of $20,000 were realized on securities called prior to maturity.
($000 Omitted) Estimated Amortized Fair Cost Value Due in one year or less $ 1,382 $ 1,397 Due after one year through five years 11,403 11,844 Due after five years through ten years 15,557 15,881 Due after ten years 6,313 6,464 Total $34,655 $35,586
NOTE 4 LOANS
Loans at December 31, 1997 and 1996 were as follows: ($000 Omitted) 1997 1996 Commercial $233,296 $225,420 Residential Mortgage 310,839 283,664 Installment 136,480 149,745 Other 263 324 680,878 659,153 Less: Allowance for Loan Losses 12,831 12,393 Unearned Income 1,839 4,265 14,670 16,658 Net Loans $666,208 $642,495
The following table presents information concerning non-performing loans:
($000 Omitted) December 31, 1997 1996 1995 Non-Accrual $ 4,838 $ 3,792 $ 4,571 Past Due 90 Days 951 1,414 1,203 Restructured -- 133 138 Total $ 5,789 $ 5,339 $ 5,912
At December 31, 1997 and 1996 the recorded investment in loans considered to be impaired under SFAS No. 114 was $4,838,000 and $3,792,000, respectively. Included in these amounts is $724,000 and $586,000, respectively, of impaired loans for which the related allowance for credit losses is $310,000 and $134,000, respectively. Also included are $4,114,000 and $3,206,000, respectively of impaired loans, that as a result of write downs, do not have a specific allowance for credit losses. The average recorded investment in impaired loans during the years ended December 31, 1997, 1996 and 1995 was approximately $4,715,000, $4,151,000 and $10,708,000 respectively. For the years ended December 31, 1997, 1996 and 1995 the Company recognized interest income on impaired loans of $380,000, $342,000 and $41,000, respectively, 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 $603,000, $454,000, and $634,000, in 1997, 1996 and 1995, respectively. Of those amounts, $168,000, $140,000, and $195,000 were recognized as interest income. There were no unused loan commitments on non-accrual or restructured loans at December 31, 1997. 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, 1997 and 1996, respectively, amounted to $11,305,000 and $11,800,000. During 1997, $178,000 of new loans were made, and repayments of $673,000 were received. NOTE 5 ALLOWANCES FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1997, 1996 and 1995 were as follows: ($000 Omitted) 1997 1996 1995 Balance at beginning of year $12,393 $12,115 $18,752 Provision for loan losses 1,710 1,440 1,800 Recoveries during period 941 552 1,101 Losses charged to allowance (2,213) (1,714) (9,538) Balance at end of year $12,831 $12,393 $12,115
NOTE 6 BANK PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996 were as follows: ($000 Omitted) 1997 1996 Land $ 2,230 $ 2,230 Buildings 16,267 16,342 Furniture, fixtures and equipment 13,514 11,762 32,011 30,334 Less accumulated depreciation (15,703) (15,056) Premises and equipment, net $ 16,308 $ 15,278 Depreciation expense amounted to $1,791,000 in 1997, $1,533,000 in 1996, and $1,515,000 in 1995.
NOTE 7 TIME DEPOSITS
As of December 31, 1997, contractual maturities of time deposits were as follows: ($000 Omitted) 1998 $279,701 1999 89,462 2000 25,950 2001 8,600 2002 5,128 2003 and years thereafter 3,020 $411,861
NOTE 8 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, 1997, 1996 and 1995 were as follows: ($000 Omitted) 1997 1996 1995 Average Average Average Amount outstanding at December 31, Amount Int. Rate Amount Int. Rate Amount Int. Rate Federal Funds Purchased $19,100 6.81% $ -- --% $ -- --% Securities Sold Under Agreement to Repurchase 5,626 4.59 1,016 4.85 400 5.23 Other 2,482 5.25 2,830 5.15 2,860 5.15 Total $27,208 6.21% $ 3,846 5.07% $ 3,260 5.16% Maximum amount outstanding at any month end $27,208 6.21% $14,997 5.55% $13,225 5.63% Average amount outstanding during the year $ 6,073 5.06% $ 3,536 5.12% $ 8,220 6.47%
The underlying securities associated with securities sold under agreement to repurchase are under the control of the company. NOTE 9 LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of: ($000 Omitted) 1997 1996 Fixed Rate Note $ -- $ 96 Federal Home Loan Bank 25,070 25,334 ESOP Loan 640 808 Total long-term debt $25,710 $26,238
As of December 31, 1997, contractual principal payments due under long-term debt were as follows: ($000 Omitted) 1998 $ 460 1999 487 2000 6,604 2001 10,347 2002 371 2003 and years thereafter 7,441 The ESOP loan is an adjustable rate loan which carried a rate of 8.50% at December 31, 1997, and matures in the year 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 $7,082,000 with a rate of 6.67% and a final maturity in October of the year 2005; an amortizing advance with a current balance of $1,988,000, 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 November of the year 2001. The fixed rate note, issued in connection with the purchase of an operational facility, was paid off in February, 1997. NOTE 10 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) Year Ended December 31, 1997 1996 1995 Current tax expense: Federal $5,489 $5,190 $1,162 State 520 1,417 392 Total current tax expense 6,009 6,607 1,554 Deferred Federal tax (benefit)/expense (541) (932) 1,489 Total income tax expense $5,468 $5,675 $3,043
A reconciliation of tax expense at the statutory rate to the income tax expense included in the Consolidated Statement of Income for the years ended December 31, 1997, 1996 and 1995, is as follows:
($000 Omitted) 1997 1996 1995 % Pretax % Pretax % Pretax Amount Income Amount Income Amount Income Tax expense at statutory rate $ 5,878 35% $ 5,596 35% $ 3,851 34% Effect of tax exempt interest income (295) (1) (408) (3) (699) (6) State income taxes, net of federal income tax benefit 338 2 921 6 259 2 Deferred tax asset valuation reserve decrease (487) (3) (143) (1) (425) (3) Other, net 34 -- (291) (2) 57 -- Total income tax expense $ 5,468 33% $ 5,675 35% $ 3,043 27%
Under SFAS No. 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, 1997, 1996 and 1995 were as follows:
($000 Omitted) 1997 1996 1995 Deductible Taxable Deductible Taxable Deductible Taxable Temporary Temporary Temporary Temporary Temporary Temporary Differences Differences Differences Differences Differences Differences Pension and deferred remuneration $2,915 $ -- $ 2,598 $ -- $ 2,235 $ -- Deferred loan fees, net 192 -- 211 -- 394 -- Provision for loan losses 4,059 -- 3,906 -- 3,700 -- Valuation of other real estate 25 -- 415 -- 395 -- Lease financing -- -- -- -- -- 14 Depreciation -- 381 -- 372 -- 351 Prepaid expenses -- 183 -- 183 -- 291 Other, net 289 -- 287 -- 5 -- Total 7,480 564 7,417 555 6,729 656 Valuation reserve (824) (1,311) -- (1,454) -- Deferred tax asset 6,656 -- 6,106 -- 5,275 -- Deferred tax liability -- $ 564 -- $ 555 -- $ 656 Net deferred tax asset at December 31, 6,092 5,551 4,619 Net deferred tax asset at January 1, 5,551 4,619 6,108 Deferred tax benefit/(expense) year ended December 31, $ 541 $ 932 $(1,489)
The net deferred tax asset, as shown above, does not include the deferred tax liability of $671,000, $17,000, and $316,000 at December 31, 1997, 1996, and 1995 respectively related to the tax effects of the unrealized appreciation in the securities available for sale portfolio. The valuation reserve, established by management at December 31, 1997, 1996 and 1995 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, 1997, 1996 and 1995 does not reflect the potential state deferred tax benefit of the net deductible temporary differences noted above. NOTE 11 OTHER OPERATING EXPENSE
The components of Other Operating Expense are as follows: ($000 Omitted) 1997 1996 1995 FICO/FDIC Insurance $ 102 $ 2 $1,065 Advertising 877 907 729 Supplies and printing 864 819 1,038 Other 5,014 5,060 5,558 Total $6,857 $6,788 $8,390
NOTE 12 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 a 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, 1997, the Company's subsidiary bank could, without approval of the OCC, declare dividends aggregating $3,116,000, plus 1998 income. NOTE 13 STOCKHOLDERS' EQUITY The Company has established stock option plans under which nonqualified and incentive stock options may be granted to employees and directors for the purchase of the Company's stock at fair value as of the date of the grant. All stock options have ten year terms and, except for a one time grant of "opportunity shares" made in 1996, vest and become exercisable one year from the date of grant. Opportunity shares became exercisable on November 24th, 1997 when the closing price of the Company's stock equaled or exceeded $20.75 for three consecutive days. At December 31, 1997 there were 490,463 options outstanding, of these 384,513 are exercisable. At December 31, 1997, there were 674,866 additional shares available for grant under the plans.
The following table summarizes information about stock options as of December 31,: 1997 1996 1995 Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Outstanding at beginning of year 546,432 $ 10.40 367,800 $ 7.42 382,300 $7.27 Granted 109,450 15.62 248,932 13.88 65,000 8.06 Exercised (115,171) 9.38 (70,300) 7.16 (77,500) 7.19 Forfeited (50,248) 15.66 -- -- (2,000) 7.65 Outstanding at end of year 490,463 $ 11.26 546,432 $ 10.40 367,800 $7.42
The following table summarizes information about stock options at December 31, 1997:
Options Outstanding Options Exercisable Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price $5-8 118,750 5.9 years $ 7.00 118,750 $ 7.00 $8-12 185,250 7.1 years 9.55 185,250 9.55 $12-16 186,463 9.0 years 15.67 80,513 15.75 Total 490,463 7.5 years $11.26 384,513 $10.06
The per share weighted average fair value of stock options granted during 1997 and 1996 was $3.98 and $3.71 on the date of grant using the Black Scholes option pricing model. The weighted average assumptions used for 1997 and 1996 included an expected dividend yield of 2.61% and 3.63%, respectively, risk free interest rates of 6.37% and 5.64%, respectively, expected lives of 5.0 and 4.9 years, respectively, and an expected stock volatility of 28.8% and 32.8%, respectively. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly no compensation cost has been recognized in the consolidated financial statements for stock options granted. Had the Company recorded compensation costs based on the estimated 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) (Except Per Share Data) 1997 1996 1995 Net Income - As Reported $11,327 $10,313 $ 8,380 Net Income - Pro Forma 11,066 9,758 8,320 Earnings Per Share: Basic Earnings Per Share Net Income - As Reported 1.26 1.12 .89 Net Income - Pro Forma 1.23 1.06 .88 Diluted Earnings Per Share Net Income - As Reported 1.24 1.11 .88 Net Income - Pro Forma 1.21 1.05 .88
Pro forma net income and earnings per share reflect all options granted in 1997, 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 received 1/3 of the shares granted during 1997 and will receive 1/3 of the shares granted in each 1998 and 1999 depending on their continued employment through those years. On July 18, 1996 the Company indicated its intent to repurchase up to 4% of issued shares or approximately 386,000 shares, at market prices. Under the program, shares were repurchased from time to time, at management's discretion, in the open market. The Company completed this program in the third quarter of 1997 having purchased 385,500 shares at an aggregate cost of $6,168,000, effectively completing the July 1996 program. On October 16, 1997 the Company announced a new repurchase program, authorizing purchases of an additional 5% of issued shares or approximately 482,000 shares at market prices. Since the implementation of the program the Company has purchased 57,000 shares at a cost of $1,352,000. On August 15, 1996 the Company's Board of Directors approved a two-for-one stock split effected 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 market price per share for the Company's stock was $24.88 at December 31, 1997.
The following table shows the reconciliation of basic to diluted earnings per share: ($000 Omitted) (Except Per Share Data) Year Ended December 31, 1997 1996 1995 Basic Earnings Per Share Net Income $11,327 $10,313 $8,380 Average Shares Outstanding 8,995 9,229 9,430 Basic Earnings Per Share $ 1.26 $ 1.12 $ .89 Diluted Earnings Per Share Net Income $11,327 $10,313 $8,380 Average Shares Outstanding 8,995 9,229 9,430 Dilutive Effect of Stock Options 127 95 60 Average Potential Shares 9,122 9,324 9,490 Diluted Earnings Per Share $ 1.24 $ 1.11 $ .88
Regulatory Capital Requirements OCC capital regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 1997, the Bank was required to maintain a minimum leverage ratio of Tier I (core or leverage) 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 (leverage) 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, 1997 and 1996, the Bank and Company met 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, 1997 and 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. For the year ended December 31, 1996 there were approximately 146,000 anti-dilutive shares that were not included in the calculation of diluted earnings per share. There were no anti-dilutive shares for the years ended December 31, 1997 or 1995.
Requirements For Classification 1997 Actual 1996 Actual Minimum Capital As Well ($000 Omitted) Amount Ratio Amount Ratio Adequacy Ratio Capitalized Ratio Leverage Capital: Evergreen Bank, N.A. $82,176 8.2% $81,067 8.8% 3.0% 5.0% Evergreen Bancorp, Inc. 87,049 8.6 85,152 9.2 3.0 5.0 Tier I Capital: Evergreen Bank, N.A. $82,176 12.9% $81,067 13.2% 4.0% 6.0% Evergreen Bancorp, Inc. 87,049 13.5 85,152 13.7 4.0 6.0 Total Capital: Evergreen Bank, N.A. $90,186 14.2% $88,816 14.4% 8.0% 10.0% Evergreen Bancorp, Inc. 95,160 14.8 93,005 14.9 8.0 10.0
NOTE 14 EMPLOYEE BENEFIT PLANS Defined Benefit Plan 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 U.S. Government securities.
The plan's funded status and amounts recognized in the Company's consolidated financial statements are as follows: ($000 Omitted) As of December 31, 1997 1996 1995 Actuarial Present Value of Benefit Obligations: Accumulated benefit obligation, including vested benefits of $10,590 in 1997, $9,451 in 1996, and $9,834 in 1995 $ (10,776) $ (9,547) $ (9,886) Projected benefit obligation for service rendered to date $ (13,236) $(11,496) $(12,298) Plan assets at fair value 15,998 13,777 12,239 Plan assets in excess/(deficit) of projected benefit obligation 2,762 2,281 (59) Unrecognized prior service cost 135 144 153 Unrecognized net gain from past experiences different from that assumed (4,428) (3,846) (1,519) Unrecognized net asset at January 1, 1987 being recognized over 22.5 years (176) (191) (206) Accrued Pension Cost $ (1,707) $ (1,612) $ (1,631) Net Pension Cost Included the Following Components: Service cost-benefits earned during the period $ 594 $ 591 $ 414 Interest cost on projected benefit obligation 848 794 794 Actual return on plan assets (2,968) (2,005) (881) Net amortization and deferral 1,622 1,001 (13) Net Periodic Pension Cost $ 96 $ 381 $ 314
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 7.0 percent and 4.0 percent for 1997, 7.5 percent and 4.0 percent for 1996, and 7.0 percent and 4.0 percent for 1995. The expected long-term rate of return on assets was 9.0 percent in 1997, 8.0 percent in 1996 and 1995. 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 substantially all employees. For the years 1997, 1996 and 1995 there was no provision charged to operations for the profit sharing plan. Supplemental Retirement Plans
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) As of December 31, 1997 1996 1995 Actuarial Present Value of Benefit Obligations: Accumulated benefit obligation including vested benefits of $1,631 in 1997, $1,354 in 1996 and $1,433 in 1995 $ (2,654) $ (1,820) $ (1,509) Projected benefit obligation for service rendered to date $ (2,939) $ (1,957) $ (1,509) Plan assets at fair value -- -- -- Projected benefit obligation in excess of plan assets (2,939) (1,957) (1,509) Unrecognized prior service cost 876 359 -- Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 224 176 250 Unrecognized net obligations at the beginning of the year being recognized over 15 years -- 82 99 Additional liability recognized (815) (480) (349) Accrued Pension Cost $ (2,654) $ (1,820) $ (1,509) Net Pension Cost Included the Following Components: Service cost-benefits earned during the period $ 25 $ 212 $ 76 Interest cost on projected benefit obligation 176 119 97 Net amortization 142 70 16 Net Periodic Pension Cost $ 643 $ 401 $ 189
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.0 percent, 7.5 percent and 7.0 percent for 1997, 1996 and 1995 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 1997, 1996 and 1995. 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 participant's 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. Post Retirement Benefits 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 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 amounts recognized in the Company's consolidated financial statements are as follows: ($000 Omitted) December 31, 1997 1996 1995 Accumulated Postretirement Benefit Obligation: Retirees $(1,634) $(1,804) $(1,716) Fully eligible active plan participants (129) (98) (170) Other active plan participants (309) (299) (294) (2,072) (2,201) (2,180 Plan assets at fair value) -- -- -- Accumulated postretirement benefit obligation (2,072) (2,201) (2,180) Unrecognized transition obligation 1,628 1,736 1,844 Unrecognized past service costs (138) (152) (166) Unrecognized (gain)/loss from changes in assumptions (190) (27) 3 Accrued postretirement benefit cost included in other liabilities $ (772) $ (644) $ (499) Net Periodic Postretirement Benefit Cost Included the Following Components: Service cost $ 35 $ 36 $ 34 Interest cost 139 150 143 Net amortization and deferral of actual results differing from assumptions (19) (14) (14) Net amortization of transition amount 108 108 108 Net periodic postretirement benefit cost $ 263 $ 280 $ 271
The discount rate used in determining the accumulated postretirement benefit obligation was 7.0%, 7.5%, and 7.0% at December 31, 1997, 1996 and 1995, respectively. For measurement purposes, a 6%, 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 1997, 1996 and 1995, 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, 1997, by approximately 7.5% and the net periodic postretirement benefit cost by approximately 9.9%. Other Employee Benefits The Company has an Employee 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 $81,000 for 1997, $101,000 for 1996, and $79,000 for 1995. The Company also maintains a 401(k) plan. All employees are eligible to join after specific service requirements. The Company contributed 25% of the first seven percent of contributions made by each employee for the year. Total 401(k) expense for 1997 was $150,000, the expense for 1996 and 1995 totaled $132,000 and $69,000, respectively. NOTE 15 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 1997, a portion of the borrowing was paid off by the Company releasing approximately 32,000 shares which were allocated to participating employees. The following table represents the expenses related to the ESOP, including principal repayments net of dividends received. ($000 Omitted) 1997 1996 Administration $ 18 $ 19 Interest expense 88 110 Principal repayment, net 191 181 NOTE 16 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 notational 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. Residential mortgage and construction loan commitments are secured by a 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, installment 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 1997 or 1996 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, 1997 and 1996 are as follows: ($000 Omitted) December 31, 1997 1996 Commercial Commitments $ 56,112 $ 51,918 Unused Home Equity Lines 39,444 37,814 Unused Overdraft Lines 6,848 6,879 Mortgage Commitments 4,263 3,502 Standby Letters of Credit 6,168 6,680 Total $112,835 $106,793
NOTE 17 FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Board issued Statement No. 107, Disclosures about Fair Value of Financial Instruments, (SFAS No. 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) 1997 1996 Footnote Carrying Estimated Carrying Estimated Number Value Fair Value Value Fair Value Derivatives None -- -- -- -- Trading instruments None -- -- -- -- Nontrading instruments: Cash and cash equivalents 17 $ 26,596 $ 26,596 $ 56,130 $ 56,130 Loans (net) 4 666,208 671,630 642,495 648,266 Securities 3 282,900 283,831 197,168 198,156 Deposit Liabilities 17 (853,676) (853,478) (800,856) (800,631) Short-Term Borrowings and Long-Term Debt 17 (52,918) (53,280) (30,084) (29,688)
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, installment, 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,: ($000 Omitted) 1997 1996 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Commercial $ 232,785 $224,792 $224,955 $220,206 Real Estate Mortgage 310,325 315,119 283,098 285,854 Installment 135,668 131,458 146,528 141,894 Other 261 261 307 312 Loans (net of unearned income) 679,039 671,630 654,888 648,266 Less: allowance for loan losses (12,831) -- (12,393) -- Total $ 666,208 $671,630 $642,495 $648,266
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. The fair value of performing real estate loans 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. 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 No. 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, money market and checking accounts, is estimated to be the amount payable on demand as of December 31, 1997 and 1996. 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 carrying value at December 31, 1997 and 1996, 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, carrying value approximates fair value.
The following table presents information for deposits and debt at December 31, ($000 Omitted) 1997 1996 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Non-interest bearing demand $102,345 $102,345 $ 92,737 $ 92,737 Savings and Interest Checking 260,916 260,916 261,064 261,064 Money Market Deposit Accounts 78,554 78,554 89,698 89,698 Time Deposits: Maturing in six months or less 194,513 194,541 181,947 181,962 Maturing between six months and one year 85,188 85,176 56,146 56,121 Maturing between one and three years 115,412 115,330 94,660 94,528 Maturing beyond three years 16,748 16,616 24,604 24,521 Short-Term Borrowings and Long-Term Debt 52,918 53,280 30,084 29,688
NOTE 18 PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
Condensed Statements of Income ($000 Omitted) Year Ended December 31, 1997 1996 1995 Income Dividends from Banking Subsidiary $11,100 $8,900 $4,200 Interest on Securities and Time Deposits 22 29 43 Interest on Securities Purchased Under Agreement to Resell 137 89 43 Other Income -- 20 3 Total Income 11,259 9,038 4,289 Expenses Employee Benefits 1,077 644 605 Other Expenses 294 533 668 Total Expenses 1,371 1,177 1,273 Income Before Income Tax Benefit and Equity in Undistributed Net Income of Subsidiaries 9,888 7,861 3,016 Income Tax Benefit 393 382 406 Income Before Equity in Undistributed Net Income of Subsidiaries 10,281 8,243 3,422 Equity in Undistributed Net Income of Subsidiaries 1,046 2,070 4,958 Net Income $11,327 $10,313 $8,380
Condensed Statements of Condition
($000 Omitted) December 31, 1997 1996 Assets Cash $ 50 $ 50 Investments in Subsidiaries 83,382 81,353 Securities 8 258 Securities Purchased Under Agreement to Resell 3,055 1,788 Premises and Equipment 6,316 6,544 Other Assets 1,779 1,767 Total Assets $94,590 $91,760 Liabilities Long-Term Debt $ 640 $ 904 Other Liabilities 5,694 5,417 Total Liabilities 6,334 6,321 Stockholders' Equity 88,256 85,439 Total Liabilities and Stockholders' Equity $94,590 $91,760
Condensed Statements of Cash Flows ($000 Omitted) Year Ended December 31, 1997 1996 1995 Cash Flows from Operating Activities: Net Income $11,327 $10,313 $8,380 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Loss/(Gain) on Sale of Assets -- 2 (3) Decrease in Interest Receivable 4 5 -- Net Amortization 18 5 5 Depreciation 220 211 228 Increase/(Decrease) in Accrued Expenses 450 353 (57) (Decrease)/Increase in Accrued Taxes Payable (173) 217 787 Decrease/(Increase) in Prepaid Expenses 55 (43) 76 Decrease/(Increase) in Taxes Receivable 55 2,290 (1,172) Increase in Cash Surrender Value (144) (130) (95) Undistributed Earnings of Affiliates (1,046) (2,070) (4,958) Liquidation of Subsidiary -- -- 120 Net Cash Provided By Operating Activities 10,766 11,153 3,311 Cash Flows From Investing Activities: Proceeds From Maturities of Investment Securities 250 250 -- Net Change in Short-Term Investments (1,267) (883) (905) Proceeds from Sales of Fixed Assets 8 -- 71 Capital Expenditures -- (1,060) (70) Net Cash Used by Investing Activities (1,009) (1,693) (904) Cash Flows From Financing Activities: Principal Payments on Long-Term Debt (96) (1,832) (260) Payments for Purchase of Treasury Shares (5,877) (4,386) (1,985) Proceeds from Issuance of Common Stock and Treasury Stock 1,085 737 691 Dividends Paid (4,869) (3,979) (2,126) Net Cash Used by Financing Activities (9,757) (9,460) (3,680) Net Change in Cash and Cash Equivalents -- -- (1,273) Cash and Cash Equivalents Beginning of Year 50 50 1,323 Cash and Cash Equivalents End of Year $ 50 $50 $50 Cash and Cash Equivalents are cash in demand deposit accounts at the subsidiary bank. Supplemental disclosure of Cash Flows: Interest Paid $ 62 $186 $242
Supplemental Schedule of Non-Cash Financing Activities: Payments were made on the Company's ESOP loan in the amount of $168,000, $159,000, and $153,000 in 1997, 1996 and 1995, 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 19 UNAUDITED INTERIM FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information for each quarter of 1997 and 1996: ($000 Omitted) (Except Per Share Data) 1997 Quarters Ended 1996 Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 Interest Income $19,611 $19,504 $19,060 $18,301 $18,151 $17,887 $17,296 $17,199 Net Interest Income 10,736 10,792 10,482 10,381 10,406 10,665 10,180 9,933 Provision for Loan Losses 450 450 450 360 360 360 360 360 Income Before Income Taxes 4,486 4,310 3,966 4,033 4,161 4,200 3,854 3,773 Net Income 3,088 2,885 2,672 2,682 2,721 2,694 2,519 2,379 Basic Earnings Per Share .35 .32 .30 .30 .30 .29 .27 .26 Diluted Earnings Per Share .34 .32 .29 .29 .29 .29 .27 .25
INDEPENDENT AUDITORS' REPORT KPMG Peat Marwick LLP Certified Public Accountants 515 Broadway 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP January 23, 1998 EX-21 3 EXHIBIT 21 [Annual Report on Form 10-K] EVERGREEN BANCORP, INC. 1997 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 New York Subsidiaries of the Registrant that are inactive have been omitted. Entity is a Subsidiary of Evergreen Bank, National association.
EX-23 4 Exhibit 23 [Annual Report on Form 10-K] 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. 333-36303) 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 23, 1998, relating to the consolidated statements of condition of Evergreen Bancorp, Inc. and subsidiaries as December 31, 1997 and 1996, 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, 1997 which report appears in the December 31, 1997 Annual Report on Form 10-K of Evergreen Bancorp, Inc. /S/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP March 25, 1998 Albany, NY EX-27 5
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EVERGREEN BANCORP, INC. FINANCIAL DATA SCHEDULE 12-MOS DEC-31-1997 DEC-31-1997 26,434 162 0 0 248,245 34,655 35,586 679,039 12,831 1,010,161 853,676 27,208 15,311 25,710 38,900 0 0 49,356 1,010,161 58,692 16,522 1,262 76,476 32,126 34,085 42,391 1,710 9 30,917 16,795 16,795 0 0 11,327 1.26 1.24 4.63 4,838 951 0 0 12,393 2,213 941 12,831 0 0 12,831
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