-----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, Fp8yLpP/jCacF0D1511rPXutiDyj7KwPtes5zo8qE8x0+hfjAtyiSTgtRfnHUxkj eIGABm3FWBD2t8U0Qvi8Tg== 0000950164-98-000145.txt : 19981102 0000950164-98-000145.hdr.sgml : 19981102 ACCESSION NUMBER: 0000950164-98-000145 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19981030 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COHOES BANCORP INC CENTRAL INDEX KEY: 0001070321 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-63539 FILM NUMBER: 98734394 BUSINESS ADDRESS: STREET 1: 75 REMSEN STREET CITY: COHOES STATE: NY ZIP: 12047 BUSINESS PHONE: 5182336500 MAIL ADDRESS: STREET 1: 75 REMSEN STREET CITY: COHOES STATE: NY ZIP: 12047 S-1/A 1 AMENDMENT NO. 1 As filed with the Securities and Exchange Commission on October 30, 1998 Registration No. 333-63539 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 AMENDMENT NO. ONE TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 COHOES BANCORP, INC. (Exact name of registrant as specified in its charter) Delaware 6035 14-1807865 (State or other (Primary Standard I.R.S. Employer jurisdiction of incoporation Industrial Classification Identification or organization) Code Number) No.) 75 Remsen Street, Cohoes, New York 12047 (518) 233-6500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Harry L. Robinson President and Chief Executive Officer Cohoes Bancorp, Inc. 75 Remsen Street Cohoes, New York 12047 (518) 233-6500 (Name, address, including zip code, and telephone number, including area code, of agent for service) Please send copies of all communications to: Robert L. Freedman, P.C. Martin L. Meyrowitz, P.C. Beth A. Freedman, Esq. James M. Larkins, III, Esq. SILVER, FREEDMAN & TAFF, L.L.P. (A limited liability partnership including professional corporations) 1100 New York Avenue, N.W. Seventh Floor, East Tower Washington, DC 20005 (202) 414-6100 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE Title of Each Class Amount to be Proposed Maximum Offering Proposed Aggregate Maximum Amount of Securities to be Registered Registered Price Per Share (2) Offering Price Registration Fee - --------------------------- ------------ ------------------------- ------------------ ----------------- Common Stock, $.01 par value (1) 12,778,790 shares $10.00 $127,787,900 (3) Participation Interests (4) -- $3,650,942 (5)
- ---------- (1) Estimated solely for the purpose of calculating the registration fee. (2) Includes shares to be issued to the Cohoes Savings Bank Foundation. (3) Registration fee previously paid with Form S-1 filed on September 16, 1998. (4) In addition, this registration statement also covers an indeterminate amount of interest to be offered or sold pursuant to the Cohoes Savings Bank 401(k) Savings Plan. (5) The securities of Cohoes Savings Bank are included in the amount shown for Common Stock. Accordingly, no separate fee is required for the participation interests. In accordance with Rule 457(h) of the Securities Act, as amended, the registration fee has been calculated on the basis of the number of shares of Common Stock that may be purchased with the current assets of such Plan. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ PROSPECTUS SUPPLEMENT - --------------------- COHOES BANCORP, INC. COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST This Prospectus Supplement relates to the offer and sale to participants (the "Participants") in the Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust (the "Plan") of up to __________ shares of Cohoes Bancorp, Inc. (the "Holding Company") common stock, par value $.01 per share (the "Holding Company Stock") and related participation interests in the Plan, as set forth herein. In connection with the proposed conversion of Cohoes Savings Bank ("the "Bank") from mutual to stock form (the "Conversion") and the formation of the Holding Company as the holding company of the Bank, the Plan has been amended to provide for an investment fund consisting of Holding Company Stock as an investment option for the Participants in the Plan (the "Employer Stock Fund"). The amended Plan permits Participants in the Plan to direct the trustee of the Employer Stock Fund (the "Trustee") to purchase Holding Company Stock with amounts in the Plan attributable to the accounts of such Participants. This Prospectus Supplement relates solely to the initial election of a Participant to direct the purchase of Holding Company Stock in the Conversion and not to any future purchases under the Plan or otherwise. The Prospectus dated ________ __, 1998 of the Holding Company (the "Prospectus"), which is being delivered with this Prospectus Supplement, includes detailed information with respect to the Holding Company, the Conversion, the Holding Company Stock and the financial condition, results of operations and business of the Bank. This Prospectus Supplement, which provides detailed information with respect to the Plan, should be read only in conjunction with the Prospectus. Capitalized terms not defined in this Prospectus Supplement have the meanings ascribed to them in the Prospectus. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS. ---------------------- THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY INSURED OR GUARANTEED. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW YORK STATE BANKING DEPARTMENT, OR THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE, OR CORPORATION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus Supplement is ____________, 1998. No person has been authorized to give any information or to make any representation other than as contained in the Prospectus or this Prospectus Supplement in connection with the offering made hereby, and, if given or made, any such other information or representation must not be relied upon as having been authorized by the Holding Company, the Bank or the Plan. This Prospectus Supplement does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus Supplement and the Prospectus nor any sale made hereunder shall under any circumstance create any implication that there has been no change in the affairs of the Holding Company, the Bank or the Plan since the date hereof or that the information herein contained or incorporated herein by reference is correct as of any time subsequent to the date hereof. This Prospectus Supplement should be read only in conjunction with the Prospectus that is delivered herewith and should be retained for future reference. TABLE OF CONTENTS Page ---- The Offering................................................................ 1 Securities Offered........................................................ 1 Election to Purchase Holding Company Stock in the Conversion.............. 1 Method of Directing Transfer.............................................. 1 Time for Directing Transfer............................................... 2 Irrevocability of Transfer Direction...................................... 2 Subsequent Elections...................................................... 2 Purchase Price of Holding Company Stock................................... 2 Nature of a Participant's Interest in the Holding Company Stock........... 2 Voting and Tender Rights of Holding Company Stock......................... 2 Description of the Plan..................................................... 3 Introduction.............................................................. 3 Eligibility and Participation............................................. 4 Investment of Contributions............................................... 4 Financial Data............................................................ 6 Administration of the Plan................................................ 7 Reports to Plan Participants.............................................. 8 Amendment and Termination................................................. 8 Merger, Consolidation or Transfer......................................... 8 Federal Tax Aspects of the Plan........................................... 8 Restrictions on Resale.................................................... 12 Legal Opinions.............................................................. 12 Summary Plan Description (including Summaries of Material Modifications thereto).................... A-1 Financial Statements........................................................ B-1 Election Form i THE OFFERING Securities Offered Up to __________ shares of Holding Company Stock which may be acquired by the Plan for the accounts of employees participating in the Plan, and related participation interests, are offered hereby. The Holding Company is the issuer of such securities. Only employees of the Bank may participate in the Plan. Information relating to the Plan is contained in this Prospectus Supplement and information relating to the Holding Company, the Conversion and the financial condition, results of operations and business of the Bank is contained in the Prospectus delivered herewith. The address of the principal executive office of the Holding Company is 75 Remsen Street, Cohoes, New York 12047 and its telephone number is (518) 233-6575. The address and telephone number of the Bank's principal office are the same as the Holding Company's. Election to Purchase Holding Company Stock in the Conversion In connection with the Bank's Conversion, the Plan has been amended to permit each Participant to direct that all or part of the funds in his or her accounts under the Plan (hereinafter referred to in the aggregate as a Participant's "Accounts") be transferred to the Employer Stock Fund and used to purchase Holding Company Stock in the Conversion. The Trustee of the Employer Stock Fund will follow the Participants' directions and exercise Subscription Rights to purchase Holding Company Stock in the Conversion to the extent provided in the Bank's Plan of Conversion. See "The Offering - Subscription Offering and Subscription Rights" in the Prospectus. Funds not allocated to the purchase of Holding Company Stock will remain invested in accordance with the investment instructions of Participants in effect at such time. Respective purchases by the Plan in the Conversion will be counted as purchases by the individual Participants at whose election they are made to the extent of the funds directed by such Participants to purchase Holding Company Stock, and will be subject to the purchase limitations applicable to such individuals, rather than being counted in determining the maximum amount that the Holding Company's or the Bank's Tax-Qualified Employee Plans (as defined in the Prospectus) may purchase in the aggregate. See "The Offering - Subscription Offering and Subscription Rights" in the Prospectus. Method of Directing Transfer Included with this Prospectus Supplement is an election and investment form (the "Election Form"). If a Participant wishes to direct some or all the funds in his or her Accounts into the Employer Stock Fund to purchase Holding Company Stock in the Conversion, he or she should indicate that decision by checking the appropriate box in Part 2 of the Election Form and completing this Part of the Election Form. If a Participant does not wish to make such an election, he or she should so indicate by checking the appropriate box in Part 2 of the Election Form. See also "Investment of Contributions - Holding Company Stock Investment Election Procedures" below. S-1 Time for Directing Transfer The deadline for submitting a direction to transfer amounts to the Employer Stock Fund in order to purchase Holding Company Stock in the Conversion is __________ __, 1998, unless extended (the "Election Deadline"). A Participant's completed Election Form must be returned to ___________________________ by ____ p.m. Eastern time on such date. Irrevocability of Transfer Direction Once received in proper form, an executed Election Form may not be modified, amended or revoked without the consent of the Bank unless the Conversion has not been completed within 45 days after the end of the Subscription and Community Offering. See also "Investment of Contributions - Holding Company Stock Investment Election Procedures" below. Subsequent Elections After the Election Deadline, Participants initially will not be permitted to direct or redirect any portion of their Accounts into Holding Company Stock; however, the Bank intends to provide for such future investment. Participants will be notified when and to what extent future investments in the Employer Stock Fund may be permitted. Participants may direct the Trustee to sell their shares of Holding Company Stock purchased in the Conversion through the Plan pursuant to the procedures outlined in the Plan by filing a request form with the Plan Administrator. See "Investment of Contributions - Adjusting Your Investment Strategy" below. Purchase Price of Holding Company Stock The funds transferred to the Employer Stock Fund for the purchase of the Holding Company Stock in the Conversion will be used by the Trustee to purchase Holding Company Stock through the exercise of Subscription Rights granted to the Plan under the Bank's Plan of Conversion. The price paid for such shares of Holding Company Stock will be $10.00 per share, the same price as is paid by all other persons who purchase Holding Company Stock in the Conversion. Nature of a Participant's Interest in the Holding Company Stock The Holding Company Stock will be held in the name of the Trustee of the Employer Stock Fund, in its capacity as trustee. The Trustee will maintain individual accounts reflecting each Participant's individual interest in the Employer Stock Fund. Voting and Tender Rights of Holding Company Stock The Trustee will exercise voting and tender rights attributable to all Holding Company Stock held by the Plan Trust (the "Trust") as directed by Participants with interests in the Employer Stock Fund. Shares with respect to which no instructions have been received by the Trustee will not be voted. S-2 DESCRIPTION OF THE PLAN Introduction The Plan was adopted by the Bank as a profit sharing plan with a cash or deferred arrangement described at Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), to encourage employee thrift and savings and to allow eligible employees to share in profits. The Bank intends that the Plan will comply in operation with each of the requirements of the Code which are applicable to a plan qualified under Section 401(a) of the Code and the requirements which are applicable to a qualified cash or deferred arrangement under Section 401(k) of the Code. The Plan is an "individual account plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and a "defined contribution plan" under the Code. As such, the Plan is not subject to the Plan Termination Insurance provisions of Title IV of ERISA. However, the Plan is subject to those provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of ERISA that apply to "individual account plans" and "defined contribution plans" other than "money purchase pension plans." Accordingly, the Plan is not subject to the funding requirements contained in Part 3 of Title I of ERISA or Section 412 of the Code which by their terms do not apply to an individual account plan (other than a money purchase pension plan). In addition, the Plan does not provide for distribution of Participants' Accounts in the form of a qualified joint and survivor annuity or a qualified preretirement survivor annuity. Neither the plan termination insurance provisions, the funding requirements nor the annuity requirements contained in ERISA and/or the Code will be extended to Participants or beneficiaries under the Plan. Reference to Full Text of Plan. The following statements are summaries of certain provisions of the Plan. They are not a complete description of such provisions and are qualified in their entirety by the full text of the Plan which is filed as an exhibit to the registration statement of which this Prospectus Supplement is a part and which is incorporated by reference herein. Copies of the Plan are available to all employees upon request to the Plan Administrator. Each employee is urged to read carefully the full text of the Plan. Reference to Summary Plan Description. Certain information regarding the Plan is contained in the Summary Plan Description (including Summaries of Material Modifications thereto (the "Summary Plan Description"), a copy of which is attached to, and made a part of, this Prospectus Supplement. S-3 Tax and Securities Laws. Participants should consult with legal counsel regarding the tax and securities laws implications of participation in the Plan. Any directors, officers or beneficial owners of more than 10% of the outstanding shares of Holding Company Stock should consider the applicability of Sections 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended, to his or her participation in the Plan. Eligibility and Participation All employees of the Bank who have met the eligibility requirements may participate in the Plan by completing and filing with the Bank an application for participation. See "JOINING THE PLAN - Eligibility" and "- Participation" in the Summary Plan Description attached hereto. As of ________ __, 1998, there were approximately ___ employees eligible to participate in the Plan, and ___ employees had elected to participate in the Plan. Investment of Contributions Investment Options. All amounts credited to Participants' Accounts under the Plan are held in the Trust, which is administered by the Trustee appointed by the Bank's Board of Directors. Each Participant must instruct the Trustee as to how funds held in his or her Accounts are to be invested. In addition to the Employer Stock Fund, Participants may elect to instruct the Trustee to invest such funds in any or all of the following investment options ("Investment Options"): (a) a Core Equity Fund, (b) an Emerging Growth Equity Fund, (c) a Value Equity Fund, (d) an Actively Managed Bond Fund (e) an Intermediate-Term Bond Fund, (f) a Short-Term Investment Fund or (g) an International Equity Fund. Investments in the Employer Stock Fund may be made only through reallocation of existing funds in the six investment options listed above. A brief description of the Employer Stock Fund is set forth below. For descriptions of the other Investment Options available to Plan Participants, see "INVESTING YOUR PLAN ACCOUNT The Investment Funds" in the Summary Plan Description attached hereto. Employer Stock Fund. Effective until __________ __, 1998, or such later date as elected by the Holding Company, Participants in the Plan may elect to direct the Trustee to transfer some or all of the funds in their Accounts to the Employer Stock Fund to purchase Holding Company Stock in the Conversion. The price paid for shares of Holding Company Stock will be the same price as is paid by all other persons who purchase Holding Company Stock in the Conversion. The number of shares, if any, subject to purchase for the Accounts of each Participant who may elect to invest in Holding Company Stock is not currently determinable. Any cash dividends received on Holding Company Stock held by the Plan will be reinvested in accordance with the Participant's investment instructions then in effect. The Plan is intended to comply with the requirements of Section 404(c) of ERISA, whereby the Participants (not the Trustee or other Plan fiduciaries) will be solely responsible for their decision to invest any portion of their Accounts in any one or more of the Investment Options, including the Employer Stock Fund. Please see the Summary Plan Description S-4 attached hereto and the other information provided by the Trustee, the Plan Administrator and other Plan fiduciaries with regard to each Participant's rights and responsibilities pertaining to the investment of his or her Accounts. The investment in Holding Company Stock involves certain risks. No assurance can be given that shares of Holding Company Stock purchased pursuant to the Plan will thereafter be able to be sold at a price equal to or in excess of the purchase price. See also "Risk Factors" in the Prospectus. Holding Company Stock Investment Election Procedures. Participants may instruct the Trustee to purchase Holding Company Stock by redirecting funds from their existing Accounts into the Employer Stock Fund by filing an Election Form with the Plan Administrator on or prior to the Election Deadline. Total funds redirected by each Participant into the Employer Stock Fund must represent whole share amounts (i.e., must be divisible by the $10.00 per share purchase price) and must be allocated in not less than 10% increments from Investment Options containing the Participant's Plan funds. When a Participant instructs the Trustee to redirect the funds in his or her existing Accounts into the Employer Stock Fund in order to purchase Holding Company Stock, the Trustee will liquidate funds from the appropriate Investment Option(s) and apply such redirected funds as requested, in order to effect the new allocation. For example, a Participant may fund an election to purchase 100 shares of Holding Company Stock by redirecting the aggregate purchase price of $1,000 for such shares from the following Investment Options (provided the necessary funds are available in such Investment Options): (i) 10% from the Core Equity Fund, (ii) 30% from the Value Equity Fund, and (iii) 60% from the Intermediate-Term Bond Fund. In such case, the Trustee would liquidate $100 of the Participant's funds from the Core Equity Fund, $300 from funds in the Value Equity Fund and $600 from funds in the Intermediate-Term Bond Fund to raise the $1,000 aggregate purchase price. If a Participant's instructions cannot be fulfilled because the Participant does not have the required funds in one or more of the Investment Options to purchase the shares of Holding Company Stock subscribed for, the Participant will be required to file a revised Election Form with the Plan Administrator by the Election Deadline. Once received in proper form, an executed Election Form may not be modified, amended or rescinded without the consent of the Bank unless the Conversion has not been completed within 45 days after the end of the Subscription and Community Offering. Adjusting Your Investment Strategy. Until changed in accordance with the terms of the Plan, future allocations of a Participant's contributions would remain unaffected by the election to purchase Holding Company Stock through the Plan in the Conversion. A Participant may modify a prior investment allocation election or request the transfer of funds to another investment vehicle by filing a written notice with the Plan Administrator. However, modifications and fund transfers relating to the Employer Stock Fund are permitted only during an "Investment Change Period." An "Investment Change Period" opens at the beginning of the third business day after the Holding Company issues a "Quarterly Earnings Release" and closes at the end of the twelfth business day after such release. The term "Quarterly Earnings Release" means any press release issued by the Holding Company for general distribution which announces, for the first time, the S-5 Holding Company's Results of operations for a particular fiscal quarter. The Bank anticipates these opportunities will occur four times per year. The Bank will attempt to notify Participants of the commencement of each Investment Change Period but will not assume responsibility for doing so. Valuation of Accounts. The Investment Options and the Employer Stock Fund are valued daily. The net value of each Participant's Accounts is valued from time to time by the Trustee, but not less often than monthly. In determining such net value, the Trustee shall value the assets comprising the Trust at their fair market value. When Holding Company Stock is purchased or sold, the cost or net proceeds are charged or credited to the Accounts of Participants affected by the purchase or sale. The Bank expects to pay any brokerage commissions, transfer fees and other expenses incurred in the sale and purchase of Holding Company Stock for the Employer Stock Fund. A Participant's Accounts will be adjusted to reflect changes in the value of shares of Holding Company Stock resulting from stock dividends, stock splits and similar changes. The net gain (or loss) of the Trust from investments (including interest payments, dividends, realized and unrealized gains and losses on securities, and any expenses paid from the Trust) are determined not less often than monthly, and are allocated among the Accounts of Participants according to the balance of each such Accounts as of the end of each quarter. For purposes of such allocations, all assets of the Trust are valued at their fair market value pursuant to the method described in the Plan. Financial Data Employer Contributions. For the Plan Year ended December 31, 1997, the Bank made matching contributions totaling approximately $193,199. The Bank has made no discretionary contributions to the Plan for the fiscal year ended December 31, 1997. See generally "CONTRIBUTIONS TO THE PLAN" in the Summary Plan Description attached hereto. Due to the additional expenses related to the establishment and operation of the ESOP and RRP, the Bank may determine to reduce its matching contribution under the Plan in the future. Performance of Holding Company Stock. As of the date of this Prospectus Supplement, no shares of Holding Company Stock have been issued or are outstanding and there is no established market for the Holding Company Stock. Accordingly, there is no record of the historical performance of the Holding Company Stock. Performance of Investment Options. The following table provides performance data with respect to the Investment Options available under the Plan, based on information provided to the Company by RSI Retirement Trust, the trustee for funds invested in such Investment Options ("RSI"). S-6 The information set forth below with respect to the Investment Options has been reproduced from materials supplied by RSI. The Bank and the Holding Company take no responsibility for the accuracy of such information. Additional information regarding the Investment Options may be available from RSI or the Bank. Participants should review any available additional information regarding these investments before making an investment decision under the Plan.
Net Investment Performance --------------------------------------------------------------- For Twelve-Month Period December 31, 1997 Ended December 31, Annualized ------------------------------------ --------------------- 1997 1996 1995 3 Years 5 Years ---- ---- ---- ------- ------- Core Equity Fund...................... 26.47 21.53 40.17 29.97 20.15 Emerging Growth Equity Fund........... 10.35 27.09 42.83 27.75 22.21 Value Equity Fund..................... 33.14 25.90 33.96 32.03 20.45 Actively Managed Bond Fund............ 10.59 3.15 17.70 10.91 8.14 Intermediate-Term Bond Fund........... 8.19 4.02 13.99 9.38 6.97 Short-Term Investment Fund............ 5.80 4.70 5.39 5.86 5.02 International Equity Fund............. 2.89 10.86 12.46 10.01 12.83
Each Participant should note that past performance is not necessarily an indicator of future results. Administration of the Plan Trustee. The trustee is appointed by the Board of Directors of the Bank to serve at its pleasure. The current trustee for the Investment Options (other than the Employer Stock Fund) is RSI. The Bank's trust department will serve as trustee of the Employer Stock Fund. The Trustees receive and hold the contributions to the Plan in trust and distribute them to Participants and beneficiaries in accordance with the provisions of the Plan. The Trustees are responsible, following Participant direction, for effectuating the investment of the assets of the Trust in the Holding Company Stock and the other Investment Options. Plan Administrator. RSI and the Bank share the duties of Plan Administrator. The Bank is responsible for administration of the Plan and is appointed by and serves at the pleasure of the Board of Directors of the Bank. The Bank may appoint individuals to assist in the administration of the Plan and in carrying out its responsibilities for interpretation of the provisions of the Plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the Plan, furnishing the Bank with reports with respect to the administration of the Plan, receiving, reviewing and keeping on file reports of the financial condition of the Trust, and appointing or employing individuals to assist in the administration of the Plan. RSI is responsible for maintenance of Plan records, preparation and filing of all returns and reports relating to the Plan which are required to be filed with the U.S. Department of Labor and the IRS, and for all disclosures required to be made to Participants and beneficiaries under Sections 104 and 105 of ERISA. S-7 Reports to Plan Participants As of the end of each fiscal quarter, the Plan Administrator will furnish to each Participant a statement showing (i) balances in the Participant's Accounts as of the end of that period, (ii) the amount of contributions and forfeitures allocated to his or her Accounts for that period, and (iii) the adjustments to his or her Accounts to reflect a respective share of dividends on Holding Company Stock, and other income, gains or losses, if any. Amendment and Termination It is the intention of the Bank to continue the Plan indefinitely. Nevertheless, the Bank, by action of its Board of Directors, may terminate the Plan in its sole discretion at any time and for any reason. If the Plan is terminated in whole or in part, then, regardless of other provisions in the Plan, each Participant affected by such termination shall become fully vested in all of his Accounts. The Bank reserves the right to make from time to time any amendment or amendments to the Plan which do not cause any part of the Trust to be used for, or diverted to, any purpose other than the exclusive benefit of Participants or their beneficiaries; provided, however, that the Bank may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA and the Code. Merger, Consolidation or Transfer In the event of the merger or consolidation of the Plan with another plan, or the transfer of the Trust assets to another plan, the Plan requires that each Participant would (if either the Plan or the other plan were then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then been terminated). Federal Tax Aspects of the Plan The Plan will be administered to comply in operation with the requirements (i) for qualification under Section 401(a) of the Code, (ii) for treatment as a qualified cash or deferred arrangement under Section 401(k) of the Code, and (iii) for exclusion of elective deferrals under Section 402(g) of the Code. Assuming that the Plan is administered in accordance with such Sections of the Code, participation in the Plan should have the following implications for federal income tax purposes: (a) Amounts contributed to Participants' Accounts, including Participant elective deferrals, and the investment earnings on these Accounts, are not includable in Participants' gross income for federal income tax purposes until such contributions or earnings are actually distributed or withdrawn from the Plan. However, Participant elective deferrals to the Plan are subject to both FICA and Medicare taxes. Special tax treatment may apply to the taxable portion of any distribution that includes Holding Company Stock, that is paid to another employer's plan or to S-8 an IRA in a "rollover," or that is eligible for special tax treatment for lump sum distributions (as described below). (b) Income earned by the Trust will not be taxable to the Trust. Permitted Rollover Amounts. Most payments from the Plan will be "eligible rollover distributions." This means that they can be rolled over to an IRA or to another employer plan that accepts rollovers. Required minimum payments, beginning generally in the year in which the Participant reaches age 70 1/2 or retires, whichever is later, cannot be rolled over. Direct Rollover. A Participant may choose a direct rollover of all or any portion of a payment that is an "eligible rollover distribution." In a direct rollover, the eligible rollover distribution is paid directly from the Plan to an IRA or another employer plan that accepts rollovers. If the Participant chooses a direct rollover, the rollover amount will not be taxed until it is taken out of the IRA or the employer plan. Payments that are not Rolled Over. A payment made to a Participant is subject to 20% mandatory income tax withholding. This amount is sent to the IRS as income tax withholding, and it will be credited against any income tax owed for the year. The payment is taxed in the year it is received unless, within 60 days, it is rolled over to an IRA or to another plan that accepts rollovers. If the payment is not rolled over, special tax rules may apply (as described below). Sixty-Day Rollover Option. Even if a Participant has an eligible rollover distribution paid to him or her, all or part of it can still be rolled over to an IRA or to another employer plan that accepts rollovers. However, the rollover must be made within 60 days after the payment is received. The portion of the payment that is rolled over will not be taxed until it is taken out of the IRA or the employer plan. The Participant can roll over up to 100% of the payment from the Plan, including an amount equal to the 20% that was withheld, by including other money to replace the 20% that was withheld. On the other hand, if only the 80% that was received is rolled over, the Participant will be taxed on the 20% that was withheld. Additional 10% Tax. If a Participant receives a payment before reaching age 59 1/2 and does not roll it over, then, in addition to the regular income tax, an extra tax equal to 10% of the taxable portion of the payment may be imposed. The additional 10% tax does not apply to the payment if it is (1) paid because the Participant separates from service with the employer during or after the year in which the Participant reaches age 55, (2) paid because of retirement due to disability, (3) paid as equal (or almost equal) payments over the Participant's life or life expectancy (or the Participant's and his or her beneficiary's lives or life expectancies), (4) used to pay certain medical expenses, (5) paid to a beneficiary upon a Participant's death, or (6) paid to an alternate payee pursuant to a qualified domestic relations order. Special Tax Treatment. If an eligible rollover distribution is not rolled over, it will be taxed in the year it is received. However, if it qualifies as a "lump sum distribution," it may be eligible for special tax treatment. A lump sum distribution is a payment, within one year, of the Participant's entire balance under the Plan (and certain other similar plans of the employer) that S-9 is payable because the Participant has reached age 59 1/2, has separated from service with his employer, or has died. For a payment to qualify as a lump sum distribution, the recipient must have been a participant in the Plan for at least 5 years. The special tax treatment for lump sum distributions is described below. Five-Year Averaging. If the Participant receives a lump sum distribution after reaching age 59 1/2, he or she may be able to make a one-time election to figure the tax on the payment by using "5-year averaging." 5-year averaging often reduces the tax owed because it treats the payment much as if it were paid over 5 years. The entire tax (using current tax rates) is paid in the year in which the lump sum distribution is received. Ten-Year Averaging For Those Born Before January 1, 1936. If a Participant receives a lump sum distribution and was born before January 1, 1936, he or she can make a one-time election to figure the tax on the payment by using "10-year averaging" (using 1986 tax rates) instead of 5-year averaging (using current tax rates). Like the 5-year averaging rules, 10-year averaging often reduces the amount of tax owed. Capital Gain Treatment For Those Born Before January 1, 1936. In addition, if a Participant who was born before January 1, 1936, receives a lump sum distribution, he or she may elect to have the portion of the payment that is attributable to pre-1974 participation in the Plan (if any) taxed as long-term capital gain. There are other limits on the special tax treatment for lump sum distributions. For example, a Participant can generally elect this special tax treatment only once during his or her lifetime, and the election applies to all lump sum distributions received in that same year. If the Participant has previously rolled over a payment from the Plan (or certain other similar plans of the employer), he or she cannot use this special tax treatment for later payments from the Plan. If the payment is rolled over to an IRA, the Participant will not be able to use this special tax treatment for later payments from the IRA. Also, if any portion of the payment is rolled over to an IRA, this special tax treatment is not available for the rest of the payment. The special tax treatment for lump sum distributions described above, other than the special rules for those born before January 1, 1936, has been repealed for all such distributions received in tax years beginning after December 31, 1999. Employer Securities. There is a special rule for a payment from the Plan that includes employer securities. To use this special rule, the payment must qualify as a lump sum distribution, as described above (or would qualify except that the Participant has not participated in the Plan for at least 5 years). Under this rule, the Participant has the option of not paying tax on the "net unrealized appreciation" of the securities until they are sold. Net unrealized appreciation generally is the increase in the value of the securities that took place while they were held by the Plan. The Participant may elect not to have the special rule apply to the net unrealized appreciation. In such case, the net unrealized appreciation will be taxed in the year the securities S-10 are received from the Plan (and may be eligible for the special tax treatment described above), unless they are rolled over. The securities (including any net unrealized appreciation) can be rolled over to an IRA or to another employer plan that accepts rollovers. Other Payment Recipients. In general, the rules summarized above that apply to payments to Participants also apply to payments to Participants' surviving spouses and to spouses or former spouses who are alternate payees pursuant to a qualified domestic relations order. Some of the rules summarized above also apply to a deceased Participant's beneficiary who is not a spouse. However, there are some significant exceptions for payments to surviving spouses, alternate payees, and other beneficiaries. A surviving spouse of a deceased Participant may choose to have an eligible rollover distribution paid in a direct rollover to an IRA or paid to the spouse. If the spouse has the payment made to him or her, such spouse can keep it or roll it over to an IRA (but not to an employer plan). An alternate payee has the same choices as the Participant. Thus, an alternate payee can have the payment paid as a direct rollover or paid to the alternate payee. If the alternate payee has it paid to him or her, the alternate payee can either keep it or roll it over to an IRA or to another employer plan that accepts rollovers. A beneficiary other than the surviving spouse cannot roll over the payment under any circumstances. A surviving spouse, alternate payee or another beneficiary may be able to use the special tax treatment for lump sum distributions and the special rule for payments that include employer securities, as described above. A payment that is received because of the Participant's death may be eligible for the special tax treatment available for lump sum distributions if the Participant met the appropriate age requirements, whether or not the Participant had 5 years of participation in the Plan. The foregoing is only a brief summary of certain federal income tax aspects of the Plan which are of general application under the Code and is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the Plan. Accordingly, each Participant may wish to consult a tax advisor concerning the Federal, state and local tax consequences of participating in and receiving distributions from the Plan. Participants subject to taxes imposed by state, local and other taxing authorities, including foreign governments, should also consult with their own attorneys or tax advisers regarding the tax consequences thereunder. S-11 Restrictions on Resale Any person receiving shares of Holding Company Stock under the Plan who is an "affiliate" of the Bank or the Holding Company as the term "affiliate" is used in Rules 144 and 405 under the Securities Act of 1933 (e.g., directors, officers and substantial shareholders of the Bank) may re-offer or resell such shares only pursuant to a registration statement or, assuming the availability thereof, pursuant to Rule 144 or some other exemption of the registration requirements of the Securities Act of 1933. Any person who may be an "affiliate" of the Bank or the Holding Company may wish to consult with counsel before transferring any Holding Company Stock owned by him or her. In addition, Participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934 which may restrict the sale of Holding Company Stock acquired under the Plan, or other sales of Holding Company Stock. LEGAL OPINIONS The validity of the issuance of the Holding Company Stock will be passed upon by Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Washington, D.C. 20005, which firm acted as special counsel for the Holding Company and the Bank in connection with the Bank's Conversion. S-12 COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST FINANCIAL STATEMENTS DECEMBER 31, 1997 TABLE OF CONTENTS Page ---- Independent Auditors' Report .......................................... 1 Statements Of Net Assets Available For Benefits ....................... 2 Statements Of Changes In Net Assets Available For Benefits ............ 3 Notes To Financial Statements ......................................... 4-8 Schedule SUPPLEMENTAL INFORMATION Number - ------------------------ ------ Schedule Of Assets Held For Investment Purposes ....................... I Schedule Of Reportable Transactions ................................... II To The Board Of Trustees Cohoes Savings Bank 401(k) Savings Plan in RSI Retirement Trust Cohoes, New York Independent Auditors' Report We were engaged to audit the financial statements of the Cohoes Savings Bank Retirement Savings Plan as of December 31, 1997 and 1996 and for the years then ended, and the supplemental schedules as of and for the year ended December 31, 1997 as listed in the accompanying table of contents. These financial statements and schedules are the responsibility of the Plan's management. As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the Plan administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the information described in Note 3, which was certified by the Plan's Trustee, Retirement System Group, Inc. for the years ended December 31, 1997 and 1996, except for comparing the information with the related information included in the financial statements and supplemental schedules. We have been informed by the Plan administrator that the Trustee holds the Plan's investment assets and executes investment transactions. The Plan administrator has obtained certifications from the Trustee as of and for the years ended December 31, 1997 and 1996 that the information provided to the Plan administrator by the Trustee is complete and accurate. Because of the significance of the information that we did not audit, we are unable to, and do not, express an opinion on the accompanying financial statements and schedules taken as a whole. The form and content of the information included in the financial statements and schedules, other than that derived from the information certified by the Trustee, have been audited by us in accordance with generally accepted auditing standards and, in our opinion, are presented in compliance with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. Albany, New York July 29, 1998 COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Statements Of Net Assets Available For Benefits December 31 1997 1996 ---- ---- Assets: Investments in registered investment company, at fair value: (Note 4) Core equity fund ................................. $1,186,615 $ 917,304 Emerging growth equity fund ...................... 954,814 819,049 Value equity fund ................................ 551,209 403,755 Short-term investment fund ....................... 353,293 455,680 Actively managed bond fund ....................... 327,026 319,266 Intermediate term bond fund ...................... 314,450 290,029 International equity fund ........................ 34,979 19,354 ---------- ---------- Total investments in registered investment company at fair value ....................... 3,722,386 3,224,437 Loans to participants (Note 5) ....................... 231,608 231,440 ---------- ---------- Total investments at fair value ............... 3,953,994 3,455,877 Receivables: Employer's contributions ........................... 193,199 164,519 Other assets: Cash ............................................... 16,221 6,726 ---------- ---------- Net Assets Available For Benefits ......... $4,163,414 $3,627,122 ========== ========== The accompanying notes are an integral part of these financial statements (2) COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Statements Of Changes In Net Assets Available For Benefits For The Years Ended December 31 1997 1996 ---- ---- Additions: Investment income: Net investment gain (Note 4) ....................... $ 523,925 $ 462,630 Interest on loans .................................. 15,133 14,964 ---------- ---------- Net investment income ......................... 539,058 477,594 ---------- ---------- Contributions: Employer's contributions ........................... 263,137 238,357 Employees' contributions ........................... 194,434 178,409 Rollovers contributed from other plans ............. 21,157 41,141 ---------- ---------- Total contributions ........................... 478,728 457,907 ---------- ---------- Total additions ............................... 1,017,786 935,501 ---------- ---------- Deductions: Benefits paid to participants ...................... 477,811 722,823 Miscellaneous expenses ............................. 3,683 5,645 ---------- ---------- Total deductions .............................. 481,494 728,468 ---------- ---------- Net increase in net assets available for benefits .... 536,292 207,033 Net assets available for benefits - beginning ........ 3,627,122 3,420,089 ---------- ---------- Net Assets Available For Benefits - Ending ........... $4,163,414 $3,627,122 ========== ========== The accompanying notes are an integral part of these financial statements (3) COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Notes To Financial Statements Note 1: Plan Description The following description of the Cohoes Savings Bank 401(k) Savings Plan in RSI Retirement Trust provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. The Plan, which became effective January 1, 1986, is a defined contribution deferred compensation, 401(k) plan covering substantially all salaried full-time employees of the Bank. Employees are eligible to participate in the Plan upon attainment of age 21 and completion of one year of service. The Plan is subject to the provisions of the Employee Retirement Income security Act of 1974 (ERISA). The Plan permits participants to contribute up to 15% of their salary on a pretax basis. Participants may also contribute up to an additional 10% of their salary on an after-tax basis. The Plan Administrator may limit the maximum contributions per participant to comply with Internal Revenue Service regulations. A discretionary matching contribution will be made by the Bank equal to a percentage of the employee contributions. The percentage will be determined annually by the Bank; however, in applying the matching percentage, only employee contributions up to 6% of their compensation will be considered. In addition, the Bank may make additional profit sharing contributions to the Plan, at its sole discretion. All forfeitures of nonvested benefits are used to reduce the employer's contribution. Each participant's account is credited with the participant's contribution and allocations of (a) the Company's contribution and, (b) Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. Participants are immediately vested in their voluntary contributions plus actual earnings thereon. Participants become fully vested in the Bank's contributions according to the following schedule: Years of Service Percentage Less than 2 0% ----------- -- 2 40% 3 60% 4 80% 5 100% On termination of service, participants may receive distributions equal to the value of their vested account balance. The participant's account may be paid out with a lump-sum distribution, purchase of an annuity contract, or any other method providing periodic payments. Participants who die, or become totally and permanently disabled while actively employed, will receive a benefit equal to the value of their account as of the next valuation date. (4) COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Notes To Financial Statements Note 1: Plan Description (Continued) Investment options - Upon enrollment in the Plan, a participant may direct employee contributions in any of seven investment options. Core Equity Fund - Funds are invested in shares of a registered investment company that invests in a broadly diversified group of high-quality, medium-to-large companies. Value Equity Fund - Funds are invested in shares of a registered investment company that invests in a diversified portfolio of stocks with below average price-to-earnings (P/E) ratio and above-average growth prospects. Emerging Growth Equity Fund - Funds are invested in shares of a registered investment company that invests in quality growth stocks of smaller companies) those in the $50 million to $750 million capitalization range at time of purchase). International Equity Fund - Funds are invested in shares of a registered investment company that invests in stocks that are headquartered in foreign countries. Actively Managed Bond Fund - Funds are invested in shares of a registered investment company that invests in high-quality, fixed income securities (bonds and other debt securities) with maturities of up to 30 years. Intermediate - Term Bond Fund - Funds are invested in shares of a registered investment company that invests in high-quality, fixed-income securities that mature within ten years or have expected average lives of ten years or less. Short-Term Investment Fund - Funds are invested in shares of a registered investment company that invests in high-quality, cash equivalent-type securities maturing in one year or less, and U.S. Government instruments with maturities of up to two years. Note 2: Summary Of Significant Accounting Policies Investment valuation - The Plan's investments are stated at fair value. Shares of registered investment companies are valued at quoted market prices which represent the net cost value of shares held by the Plan at year end. Loans to participants are valued at cost which approximates fair value. Securities transactions - Securities purchased and sold are recorded on the respective trade dates. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. (5) COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Notes To Financial Statements Note 2: Summary Of Significant Accounting Policies Administrative expenses - The costs of plan administration are paid by the Bank. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 3: Information Certified By Plan Trustee The Plan trustee, Retirement System Group, Inc., furnished certain information to the Plan Administrator and certified to its accuracy. This information included, but was not limited to, summaries of investments, investment transactions, and investment income received. Note 4: Investment Valuations The Plan's investments are held in a custodial account at Retirement System Group, Inc. The following table presents the fair value of investments at December 31, 1997 and 1996. Investments that represent five percent or more of total plan assets are separately identified. Fair Value Of Investments 1997 1996 ---- ---- Mutual funds: Core Equity Fund ......................... $1,186,615 $ 917,304 Emerging Growth Equity Fund .............. 954,814 819,049 Value Equity Fund ........................ 551,209 403,755 Short-Term Investment Fund ............... 353,293 455,680 Actively Managed Bond Fund ............... 327,026 319,266 Intermediate Term Bond Fund .............. 314,450 290,029 International Equity Fund ................ 34,979 19,354 Loans to participants ...................... 231,608 231,440 ---------- ---------- Total ............................. $3,953,994 $3,455,877 ========== ========== (6) COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Notes To Financial Statements Note 4: Investment Valuations (Continued) A summary of the asset balances and changes in assets for the year ended December 31, 1997 follows:
Emerging Value Actively Intermediate Short-term Core Equity Growth Equity Equity Fund Managed Bond Investment Fund Fund Fund Bond Fund Term Fund Fund ---- ---- ---- --------- --------- ---- Net investment gain .. $ 243,991 $ 83,671 $ 133,069 $ 24,311 $ 21,406 $ 17,760 Interest on loans .... -- -- -- -- -- -- Employer contributions 20,800 21,871 11,852 4,094 6,166 2,218 Employee contributions 56,923 62,458 33,675 10,789 15,131 7,324 Rollovers contributed form other plans ... 6,928 11,132 2,601 -- -- -- Benefits paid to participants ....... (140,538) (119,975) (81,631) (43,601) (18,161) (67,483) Miscellaneous ........ (1,532) (1,005) (538) (359) (105) (72) Forfeitures .......... (3,571) (2,332) (1,651) (975) (147) (269) Net loan activity .... (1,113) 6,829 (42) (2,268) 3,607 3,794 Interfund transfers, net ................. 87,423 73,116 50,119 15,769 (3,476) (65,659) Net assets available for plan benefits - beginning 917,304 819,049 403,755 319,266 290,029 455,680 ----------- ----------- ----------- ----------- ----------- ----------- Net Assets Available For Plan Benefits - Ending .............. $ 1,186,615 $ 954,814 $ 551,209 $ 327,026 $ 314,450 $ 353,293 =========== =========== =========== =========== =========== ===========
Employer International Loans To Contribution Equity Fund Participants Cash Receivable Total ----------- ------------ ---- ---------- ----- Net investment gain .. $ (283) $ -- $ -- $ -- $ 523,925 Interest on loans .... -- 15,133 -- -- 15,133 Employer contributions 2,937 -- -- 193,199 263,137 Employee contributions 8,134 -- -- -- 194,434 Rollovers contributed form other plans ... 496 -- -- -- 21,157 Benefits paid to participants ....... (2,638) (3,784) -- -- (477,811) Miscellaneous ........ (72) -- -- -- (3,683) Forfeitures .......... (550) -- 9,495 -- -- Net loan activity .... 276 (11,083) -- -- -- Interfund transfers, net ................. 7,325 (98) -- (164,519) -- Net assets available for plan benefits - beginning 19,354 231,440 6,726 164,519 3,627,122 ----------- ----------- -------- ----------- ----------- Net Assets Available For Plan Benefits - Ending .............. $ 34,979 $ 231,608 $ 16,221 $ 193,199 $ 4,163,414 =========== =========== ======== =========== ===========
(7) COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Notes To Financial Statements Note 5: Loans To Participants Participants may borrow an amount not in excess of $50,000 or 50% of their vested account balance, whichever is less, with a minimum loan of $1,000. Loans are subject to certain conditions and limitations and stipulated in the Plan document and under Internal Revenue Service regulations. Loans are generally repayable over a maximum of five years through regular payroll deductions. Loans related to the financing of a primary residence may be repaid over a maximum period of fifteen years. The interest rate is the prime rate published in the Wall Street Journal on the day in which the loan is requested, rounded to the nearest quarter percent. Note 6: Plan Termination Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100 percent vested in their accounts. Note 7: Tax Status The Plan obtained its latest determination letter in February, 1995, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan's financial statements. Note 8: Form 5500 The accompanying financial statements differ from the financial information included in Form 5500 for the years ended December 31, 1997 and 1996 due to differences in timing and classification of certain revenue and expense items. (8) SUPPLEMENTAL INFORMATION Schedule I COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Item 27(a) - Schedule Of Assets Held For Investment Purposes December 31, 1997 The Plan's investment in accounts of the Retirement System Group, Inc. and participant loans as of December 31, 1997 are as follows: Units Fair Value ----- ---------- Registered investment company: Core Equity Fund ............................ 15,679.37 $1,186,615 Emerging Growth Equity Fund ................. 13,047.46 954,814 Short-Term Investment Fund .................. 9,544.74 551,209 Value Equity Fund ........................... 16,439.90 353,293 Intermediate Term Bond Fund ................. 9,386.49 327,026 Actively Managed Bond Fund .................. 9,789.84 314,450 International Equity Fund ................... 756.14 34,979 ---------- Total investment in registered investment company .................. 3,722,386 Participants' loans - interest rate - 6.00% - 9.00% ....................... 231,608 ---------- Total Investments .................... $3,953,994 ========== Schedule II COHOES SAVINGS BANK 401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST Item 27(d) - Schedule Of Reportable Transactions December 31, 1997
Current Value Purchase Selling Cost Of Of Asset On Net Gain Price Price Assets Transaction Date Or Loss ----- ----- ------ ---------------- ------- Core Equity Fund ..... $ -- $283,736 $187,835 $283,736 $ 95,901 Core Equity Fund ..... 309,059 -- -- 309,057 -- Emerging Growth Equity Fund ............... -- 221,518 142,505 221,518 79,013 Emerging Growth Equity Fund ............... 273,812 -- -- 273,812 -- Value Equity Fund .... -- 136,144 88,483 136,144 47,661 Value Equity Fund .... 150,529 -- -- 150,529 -- Actively Managed Bond Fund ............... -- 212,853 191,658 212,853 21,195 Actively Managed Bond Fund ............... 196,302 -- -- 196,302 --
Note: Reportable transactions for the purposes of this schedule are: (a) Transactions within the Plan year involving securities of the same issue if within the plan year any series of transactions with respect to such securities, when aggregated, involved an amount in excess of 5% of the fair value of plan assets at the beginning of the Plan year, and (b) Transactions within the Plan year with respect to securities with or in conjunction with a person if any prior or subsequent single transactions within the Plan year with such person with respect to securities exceed 5% of the fair value of plan assets at the beginning of the Plan year. THE COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST PARTICIPANT ELECTION TO INVEST IN HOLDING COMPANY STOCK
1. PARTICIPANT DATA ___________________________________________________________________________________________________________________ Print your full name above (Last, first, middle initial) Social Security Number ___________________________________________________________________________________________________________________ Street Address City State Zip $__________________________________________________________ _____________ ____________ Balance of Participant's Plan Accounts at December 31, 1997 Date of Birth Date of Hire
2. INVESTMENT DIRECTION The Plan is giving participants a special opportunity to invest their account balances in common stock ("Holding Company Stock") issued by Cohoes Bancorp, Inc. (the "Holding Company") in connection with the conversion of Cohoes Savings Bank ("the Bank") from the mutual to the stock form. This election may be made during the Subscription and Community Offering, with respect to the balance in your accounts under the Plan (hereinafter referred to as your "Accounts") as of December 31, 1997. Please review the Subscription and Community Prospectus dated _____________ __, 1998 (the "Prospectus") and the Prospectus Supplement (the "Supplement") dated ____________ ___, 1998 before making any decision. Investing in Holding Company Stock entails some risks, and we encourage you to discuss this investment decision with your spouse and your investment advisor. The Bank, the Plan's Trustee, and the Plan Administrator are not authorized to make any representations about this investment other than what appears in the Prospectus and Supplement, and you should not rely on any information other than what is contained in the Prospectus and Supplement. Any shares purchased by the Plan pursuant to your election will be subject to the conditions or restrictions otherwise applicable to Holding Company Stock, as discussed in the Prospectus and Supplement. In addition, once you have elected to have your Accounts invested in Holding Company Stock, you may have limited opportunities to change this investment decision. Any part of your Accounts invested in Holding Company Stock may be changed to an alternative authorized investment under the Plan only during an "Investment Change Period." An "Investment Change Period" opens at the beginning of the third business day after the Holding Company issues a "Quarterly Earnings Release" and closes at the end of the twelfth business day after such release. The term "Quarterly Earnings Release" means any press release issued by the Holding Company for general distribution which announces, for the first time, the Holding Company's results of operations for a particular fiscal quarter. The Bank anticipates these opportunities will occur four times per year. The Bank will attempt to notify Participants of the commencement of each Investment Change Period but will not assume responsibility for doing so. S-13 [ ] I hereby direct the Trustee to obtain the funds necessary to purchase ____ whole shares of Holding Company Stock at a price of $10.00 per share and a total investment in Holding Company Stock of $________ by using funds in my current Accounts from among the following Investment Options in the following percentages (in not less than 10% increments): [ ] Core Equity Fund ________% [ ] Emerging Growth Equity Fund ________% [ ] Value Equity Fund ________% [ ] Actively Managed Bond Fund ________% [ ] Intermediate-Term Bond Fund ________% [ ] Short-Term Investment Fund ________% [ ] International Equity Fund ________% [ ] I choose not to invest any of my Accounts in Holding Company Stock. 3. PARTICIPANT SIGNATURE AND ACKNOWLEDGMENT - REQUIRED By signing this PARTICIPANT INVESTMENT ELECTION, I authorize and direct the Plan Administrator and Trustee to carry out my instructions. I acknowledge that I have been provided with and read a copy of the Prospectus and Supplement relating to the issuance of Holding Company Stock, and I have read the explanation provided in Part 2 of this form. I am aware of the risks involved in the investment in Holding Company Stock, and understand that the Trustees and Plan Administrator are not responsible for my choice of investment. In addition I understand if my order for Holding Company Stock is unable to be fulfilled either partially or in full, any remaining funds will be allocated to my existing investment option. ________________________________________________________________________________ Participant's Signature Date Signed Signed before me this ________ day of _________, 1998 _________________________ Notary Public My Commission Expires _____________________________ PLEASE COMPLETE AND RETURN BY ______________ __, 1998 IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK CENTER AT (518)_________. S-14 PROSPECTUS [Logo] COHOES BANCORP, INC. (Proposed Holding Company for Cohoes Savings Bank) Minimum of 5,950,000 and Maximum of 8,050,000 Shares of Common Stock Cohoes Savings Bank is converting from the mutual to the stock form of organization. As part of the conversion, Cohoes Savings Bank will become a wholly owned subsidiary of Cohoes Bancorp, Inc. Cohoes Bancorp, Inc. was formed in September, 1998 and upon consummation of the conversion will own all of the shares of Cohoes Savings Bank. The common stock of Cohoes Bancorp, Inc. is being offered for sale to the public in accordance with a plan of conversion which must be approved by the Superintendent of Banks of the State of New York, the Federal Deposit Insurance Corporation and by a majority of the votes eligible to be cast by voting depositors of Cohoes Savings Bank. Terms of the Offering An independent appraiser has estimated the pro forma market value of Cohoes Savings Bank, on a converted basis, to be between $59,500,000 and $80,500,000. Based on this estimate, Cohoes Bancorp, Inc. will offer between 5,950,000 shares and 8,050,000 shares to depositors, trustees and officers of Cohoes Savings Bank, the Employee Stock Ownership Plan and the public. In addition, Cohoes Bancorp, Inc. intends to issue a number of shares equal to 3% of the shares sold in the conversion to a charitable foundation. Cohoes Bancorp, Inc. may increase the number of shares offered up to 9,257,500 shares, subject to regulatory approval. Based on these estimates, we are making the following offering of shares of common stock:
Adjusted Minimum Midpoint Maximum Maximum ------- -------- ------- ------- Per Share Price............................. $10.00 $10.00 $10.00 $10.00 Number of Shares............................ 5,950,000 7,000,000 8,050,000 9,257,500 Underwriting Commission and Other Expenses.. $ 1,595,000 $ 1,711,000 $ 1,826,000 $ 1,959,000 Net Proceeds to Cohoes Bancorp, Inc......... $57,905,000 $68,289,000 $76,674,000 $90,616,000 Net Proceeds Per Share...................... $9.73 $9.76 $9.77 $9.79
Please refer to Risk Factors beginning on page ___ of this document. These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission, the Superintendent of Banks of the State of New York, the New York State Banking Department, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. For information on how to subscribe for common stock, call the Stock Information Center at (518) 235-4000. KEEFE, BRUYETTE & WOODS, INC. -------------------- The date of this Prospectus is ___________________, 1998 [INSERT MAP] SUMMARY This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully, including the financial statements and the notes to the financial statements. References in this document to "Cohoes Savings", the "Bank", "we", "us", and "our" refer to Cohoes Savings Bank either in its present form or as a stock savings bank following the Conversion. In certain circumstances where appropriate, "we," "us," or "our" refer collectively to Cohoes Savings Bank and Cohoes Bancorp, Inc. References in this document to the "Holding Company" refer to Cohoes Bancorp, Inc. All information contained in this Prospectus with respect to the Holding Company, the Bank and its subsidiaries has been supplied by the Holding Company and the Bank. The Holding Company: Cohoes Bancorp, Inc. 75 Remsen Street Cohoes, New York 12047-2892 Cohoes Bancorp, Inc. is not an operating company and has not engaged in any significant business to date. It was formed in September 1998 as a Delaware-chartered corporation to be the holding company for the Bank. The holding company structure will provide greater flexibility in terms of operations, expansion and diversification. See page "Cohoes Bancorp, Inc." on page____. The Bank: Cohoes Savings Bank 75 Remsen Street Cohoes, New York 12047-2892 Cohoes Savings Bank was established in Cohoes, New York in 1851. We are a community and customer oriented New York chartered mutual savings bank serving primarily the Cohoes, New York and surrounding area through 16 full service banking offices located throughout Albany, Saratoga, Schenectady and Rensselaer Counties, and a portion of Warren County in New York. We provide financial services to individuals, families and small businesses. Historically, we have emphasized residential mortgage lending, primarily originating one- to four-family mortgage loans. Our deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. At June 30, 1998, we had total assets of $535.7 million, deposits of $449.5 million, and total equity of $53.3 million. See "Cohoes Savings Bank" on pages ____ to _____. Financial and operational highlights of the Bank include the following: o Focus on Residential lending. A cornerstone of our lending program has long been one- to four-family residential lending. We believe that, in comparison to many other types of assets, one- to four-family residential loans carry acceptable yields and credit risk. In addition, such loans create strong ties to consumers which can be utilized to market other financial products. At June 30, 1998, we had $258.4 million (or 62.1% of total loans) of one- to four-family residential loans and $22.0 million of home equity lines of credit. See "Business of Cohoes Savings Bank - Lending Activities." In recent years, in order to increase the yield on interest-earning assets and to increase the amount of our interest rate sensitive assets, we have increased originations of multi-family and commercial real estate loans which have adjustable rates and/or shorter terms to maturity than one- to four-family residential real estate loans. See "Risk Factors - Risks Associated with Multi-Family and Commercial Real Estate Loans." o Interest Rate Sensitivity. We, like virtually all financial institutions, are vulnerable to changes in interest rates. In managing our asset/liability mix, we may, at times, place more emphasis on enhancing our short-term net interest margin than on limiting interest rate risk. At June 30, 1998, based upon certain assumptions utilized by us in assessing interest rate risk, the value of our net portfolio equity would have declined by 7.7% and 14.8% if there would have been instantaneous increases in interest rates of 100 and 200 basis points, respectively. See "Risk Factors - Interest Rate Risk Exposure" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Cohoes Savings Bank - Asset/Liability Management." o Asset Quality. Our ratio of non-performing assets to total assets was 1.15% and our ratio of non-performing loans to total loans was 1.36% at June 30, 1998. Reflecting our focus on residential lending, our ratio of net charge-offs to average total loans was .24%, .37%, .10%, .06% and .01% for fiscal years 1998, 1997, 1996, 1995, and 1994, respectively. At June 30, 1998, our ratio of allowance for loan losses to total loans was .85% and our ratio of allowance for loan losses to total non-performing loans was 62.54%. See "Business Delinquencies and Non-Performing Assets." o Commitment to Growth. We believe that in order to remain an independent community-based financial institution in the rapidly changing financial services industry, we must be competitive. In order to remain competitive, we are committed to growing the Bank through acquisitions although none are currently contemplated and through other facets of our business, including insurance services, which can increase noninterest income for us. See "Business of Cohoes Savings Bank - Subsidiary and Other Activities." During fiscal 1998, we experienced a 4.7% increase in deposit accounts. In addition, we experienced a $14.5 million increase in loans receivable. See "Business of Cohoes Savings Bank - Lending." The Stock Offering We are offering between 5,950,000 and 8,050,000 shares of common stock at $10.00 per share in the Conversion. We may increase the offering to 9,257,500 shares without further notice to you. Any increase over 9,257,500 shares would require the approval of the Superintendent and the FDIC. You may not change or cancel any stock order previously delivered to us as a result of an increase in the offering within these limits. Stock Purchase Priorities. The shares of Holding Company Common Stock will be offered on the basis of priorities. Our depositors and the ESOP established by us will receive subscription rights to purchase shares of common stock. Any remaining shares not subscribed for may be offered in a direct community offering or a public offering. See "The Conversion - Offering of Holding Company Common Stock" on pages _____ to ____. Prohibition on Transfer of Subscription Rights. You may not sell or assign your subscription rights. Any transfer of subscription rights is prohibited by law and may result in the forfeiture of your subscription rights. Stock Pricing and Number of Shares to be Issued. We set the purchase price per share of the common stock at $10.00. This is the price most commonly used in recent years in stock offerings involving Conversions of mutual savings institutions. The number or range of shares of common stock to be issued in the offering is based on an independent appraisal of the pro forma market value of the common stock by RP Financial, an appraisal firm experienced in appraisals of savings institutions. RP Financial has estimated that as of September 4, 1998, and as updated as of October 23, 1998, the estimated valuation range of Holding Company Common Stock was between $59,500,000 and $80,500,000 (with a midpoint of $70,000,000). The Estimated Valuation Range represents our estimated market value after giving effect to the sale of the common stock in this offering and the issuance of a number of shares equal to 3% of the shares issued in the Conversion to the Foundation. Based on this valuation and the $10.00 per share price, the number of shares of common stock that we will issue in the offering will range from between 5,950,000 shares and 8,050,000 shares. The establishment of, and contribution to, the Cohoes Savings Foundation had the effect of reducing our market valuation. See "Risk Factors - the Expense and Dilutive Effect of the Stock Contribution to the Charitable Foundation" on pages ___ and ___ and "Comparison of Valuation and Pro Forma Information With No Foundation" on pages ___ to ___. The appraisal was based both upon our financial condition and results of operations and upon the effect of the additional capital we will raise in this Offering. The independent appraisal will be updated before we complete the Conversion. Changes in market and financial conditions and demand for the common stock may cause the estimated valuation range to increase by up to 15%, to up to $92,575,000. If this occurs, the maximum number of shares that can be sold in this offering can increase to up to 9,257,500 shares (plus the 277,725 shares to be issued to the Cohoes Savings Foundation). If the Estimated Valuation Range is either below $59,500,000 or above $92,575,000, then you 2 will be notified and will have the opportunity to modify or cancel your order. See "The Conversion Stock Pricing and Number of Shares to be Issued" on pages ____ to ____. The independent valuation prepared by RP Financial is not a recommendation as to the advisability of purchasing the Holding Company Common Stock. Accordingly, you should not buy the Holding Company Common Stock based solely on the independent valuation. Termination of the Offering. The subscription offering will terminate at ___:____ __.m., Cohoes, New York time, on ________________, 1998. Any direct community offering or public offering may terminate at any time without notice, but no later than ________________, 1998, without approval by the Superintendent of Banks of the New York State Banking Department and the FDIC. If the offering is not completed by _____________________, 1998, all subscribers will be notified and will be given the opportunity to cancel or modify their order. Benefits to Management and Employees from the Offering. Our employees will participate in the offering through individual purchases and through purchases of stock through our employee stock ownership plan, which is a type of retirement plan. We also intend to implement a RRP and a Stock Option and Incentive Plan, which may benefit the officers, employees and directors. If we adopt the RRP, such individuals will be awarded stock at no cost to them. The RRP and Stock Option and Incentive Plan may not be adopted until at least six months after the Conversion and are subject to stockholder approval. We also intend to enter into employment agreements with certain executive officers following completion of the offering. See "Management of the Bank - Benefit Plans" on pages ___ to ___. The Charitable Foundation. To further our commitment to the local community, we intend to establish the Foundation as part of the Conversion. We will make a contribution to the Foundation, in the form of common stock, in a total amount equal to a number of shares equal to 3% of the shares issued in the Conversion. The Foundation will be dedicated exclusively to supporting charitable causes and community development in the Bank's primary market area. Due to the issuance of shares of common stock to the Foundation, persons purchasing shares in the offering will have their ownership and voting interest in the Holding Company diluted by 2.9%. We will incur an expense equal to the full amount of the contribution to the Cohoes Savings Foundation, offset in part by a tax benefit, during the quarter in which the contribution is made. Such expense will reduce our earnings. See "Risk Factors - The Expense and Dilutive Effect of the Stock Contribution to the Charitable Foundation" on pages ___ and ___, "Pro Forma Data" on pages ___ to ___ and "The Conversion - Stock Contribution to the Charitable Foundation" on pages ___ to ___. Use of the Proceeds Raised from the Sale of Holding Company Common Stock in the Offering. We will use the net proceeds received from the offering as follows. The percentages used are estimates. o 50% will be used to buy all of the capital stock of the Bank. o 8% will be loaned to the employee stock ownership plan to fund its purchase of common stock. o 42% will be retained and initially be placed in short-term investments, which may later be used as a possible source of funds for stock repurchases, the payment of dividends to stockholders, and for other general corporate purposes. The proceeds received by the Bank will increase our capital and will be available for expansion of our retail banking franchise through future lending and investment, in addition to general corporate purposes. See "Use of Proceeds" on pages ____ and ____. 3 The Holding Company and the Bank Following the Conversion Assuming the Conversion had been consummated as of June 30, 1998, we would have had, on a pro forma basis at the maximum of the estimated valuation range, total consolidated assets of $605.4 million, total consolidated liabilities of $482.4 million, including $449.5 million of deposits, and total consolidated stockholders' equity of $123.0 million. See "Pro Forma Unaudited Financial Information." In addition, at June 30, 1998, the Bank would have had, on a pro forma basis at the maximum of the estimated valuation range, leverage capital of $82.7 million or 14.7% of adjusted total assets and risk-based capital of $86.2 million or 25.4% of total risk-weighted assets, respectively. See "Regulatory Capital." Upon completion of the Conversion, we will be a well capitalized, independent community-oriented financial institution with 17 full service branch offices. Our business strategy will be to operate as a community oriented financial institution dedicated to meeting the borrowing and savings needs of our customers while providing superior service. We will seek to implement this strategy by (i) increasing our origination of loans in our market area and emphasizing retail banking, including the origination of single-family residential mortgage loans and consumer loans; (ii) continuing to expand our insurance and investments activities, which provide alternative sources of income to our traditional banking activities; (iii) maintaining asset quality; (iv) maintaining a high level of capital; and (v) continuing our pattern of controlled growth. 4 As a New York chartered savings bank, we will continue to be subject to comprehensive regulation and examination by the Department, as our chartering authority and primary regulator, and by the FDIC, which administers the Bank Insurance Fund, which will insure our deposits to the maximum extent permitted by law. We will be a member of the FHLB of New York, which is one of the 12 regional banks which comprise the FHLB System. We will be further subject to regulations of the FRB governing reserves required to be maintained against deposits and certain other matters. The Holding Company will be a registered savings and loan holding company and will be subject to examination and regulation by both the OTS and the Department and subject to various reporting and other requirements of the SEC. Our principal executive offices following consummation of the Conversion will be located at 75 Remsen Street, Cohoes, New York, 12047, and our telephone number will be (518) 233-6500. Dividends Cohoes Bancorp, Inc. intends to pay dividends in the future. However, the amount and timing of such payments has yet to be determined. The determination to pay a dividend is dependent upon a number of factors, including (i) the amount of the net proceeds retained by the Holding Company in the Conversion, (ii) investment opportunities available, (iii) capital requirements, (iv) regulatory limitations, (v) results of operations and financial condition, (vi) tax considerations, and (vii) general economic conditions. See "Dividends" on pages ___ and ___. Market for the Common Stock We anticipate the Holding Company Common Stock to be traded on The Nasdaq National Market System under the symbol "COHB". It is possible that an active and liquid trading market, however, may not develop or be maintained. Investors should have a long-term investment intent. Persons purchasing shares may not be able to sell their shares when they desire or sell them at a price equal to or above $10.00. KBW has informed us that it has agreed to make a market in the common stock. KBW will, however, not be subject to any obligation with respect to such efforts. See "Market for the Common Stock" on page ____. 5 Prospectus Delivery and Procedures for Common Stock To ensure that each person or entity is properly identified as to such party's stock purchase priorities, such party must list all deposit accounts on the order form accompanying this prospectus, giving all names on each account and the account numbers at the applicable date. The failure to provide accurate and complete account information on the order form may result in a reduction or elimination of your order. Only orders submitted on original order forms will be accepted for processing. Photocopies or facsimile copies of order forms or the form of certification will not be accepted. Payment by cash, check, money order, bank draft or withdrawal from an existing account at the Bank must accompany your order form. No wire transfers will be accepted. See "The Conversion and the Merger - Method of Payment for Subscriptions" on pages ___ to ___. To ensure that each purchaser receives a Prospectus at least 48 hours prior to the respective expiration dates for the Offering, in accordance with Rule 15c2-8 of the Exchange Act, as amended, no Prospectus will be mailed later than five days prior to such date or hand delivered any later than two days prior to such date. Execution of the stock order form will confirm receipt or delivery in accordance with Rule 15c2-8. Stock order forms will only be distributed with a Prospectus and a certification form requiring each prospective investor to acknowledge, among other things, that the shares of Holding Company Common Stock are not insured by the Bank, the FDIC or any other governmental agency and that such prospective investor has received a copy of this Prospectus, which, among other things, describes the risks involved in the investment in the Holding Company Common Stock. Important Risks in Owning the Holding Company's Common Stock Before you decide to purchase stock in the offering, you should read the "Risk Factors" section on pages ____ to ____ of this document, in addition to the other sections of this Prospectus. The Holding Company Common Stock is subject to investment risk, including the possible loss of the principal of your investment. 6 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COHOES SAVINGS BANK The summary information presented below under "Selected Consolidated Financial Data" and "Selected Operating Data" for, and as of the end of, each of the years ended June 30 is derived from the Bank's audited financial statements. The following information is only a summary and you should read it along with our financial statements and notes beginning on page F-1.
At June 30, ------------------------------------------------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (In Thousands) Selected Consolidated Financial Data: Total assets................................. $ 535,716 $ 491,700 $ 463,363 $ 459,336 $ 403,334 Cash and cash equivalents.................... 14,229 16,664 8,900 15,179 15,235 Loans, net ................................. 412,759 398,530 393,970 379,088 313,419 Investment securities........................ 45,424 25,273 25,969 40,052 48,825 Securities available-for-sale................ 48,720 35,475 20,886 10,433 13,776 Deposits..................................... 449,541 429,390 404,539 398,963 346,459 FHLB borrowings.............................. 19,897 -- 2,116 6,117 105 Total equity................................. 53,282 49,092 44,290 40,130 36,276 Real estate owned............................ 509 1,874 421 396 437 Nonperforming loans.......................... 5,649 6,688 7,793 5,063 4,892
For the Fiscal Year Ended June 30, ------------------------------------------------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (Dollars in Thousands) Selected Operating Data: Total interest income........................ $ 38,423 $ 36,285 $ 35,383 $ 32,100 $ 27,560 Interest expense............................. 19,262 17,821 18,164 15,405 12,388 ------ ------ ------ ------ ------ Net interest income..................... 19,161 18,464 17,219 16,695 15,172 Provision for loan losses.................... 1,400 1,325 490 330 750 ----- ----- ------ ------ ------ Net interest income after provision for loan losses........................ 7,761 17,139 16,729 16,365 14,422 Noninterest income Net gain (loss) on sale of mortgage loans.................................. 81 106 (20) (102) 226 Other................................... 2,662 2,684 2,487 2,293 2,050 Noninterest expense.......................... 13,767 12,314 11,919 12,152 11,114 --------- --------- --------- --------- --------- Income before income taxes................... 6,737 7,615 7,277 6,404 5,584 Income taxes................................. 2,650 2,972 2,882 2,565 2,194 ---------- ---------- ---------- ---------- ---------- Net income.............................. $ 4,087 $ 4,643 $ 4,395 $ 3,839 $ 3,390 ========= ========= ========= ========= ========= Selected Operating Ratios and Other Data: Performance Ratios: Average yield on interest-earning assets..... 7.96% 8.04% 7.98% 7.76% 7.38% Average rate paid on interest-bearing liabilities................................ 4.33 4.27 4.42 3.99 3.57 Average interest rate spread................. 3.63 3.77 3.56 3.77 3.81 Net interest margin (1)...................... 3.97 4.09 3.89 4.04 4.06 Net interest income after provision for loan losses to noninterest expense.......... 129.01 139.18 140.36 134.67 129.76 Noninterest expense as a percent of average assets..................................... 2.75 2.62 2.59 2.82 2.86 Return on average assets (2)................. 0.82 0.99 0.95 0.89 0.87 Return on average equity (3)................. 7.88 9.87 10.28 9.95 9.85 Ratio of average equity to average assets.... 10.35 10.03 9.28 8.95 8.85 Efficiency ratio (4)......................... 62.85 57.94 60.55 64.34 63.70 Asset Quality Ratios: Nonperforming loans as a percent of total loans...................................... 1.36 1.66 1.96 1.32 1.54 Nonperforming assets as a percent of total assets..................................... 1.15 1.74 1.77 1.19 1.32 Allowance for loan losses as a percent of total loans................................ 0.85 0.77 0.82 0.82 0.95 Allowance for loan losses as a percent of nonperforming loans..................... 62.54 46.43 41.69 61.88 61.55 Net loans charged-off to average loans....... 0.24 0.37 0.10 0.06 0.01 Branch Locations: Traditional.................................. 7 7 6 5 4 Supermarket.................................. 9(6) 8 4 4 3 Public accommodation (5)..................... 1 1 1 1 1
(Footnotes on following page) - ------------ (1) Net interest income as a percentage of average interest-earning assets. (2) Ratio of net earnings to average total assets. (3) Ratio of net earnings to average total equity. (4) The Efficiency Ratio is computed by dividing noninterest expense by the sum of net interest income and noninterest income. (5) The public accommodation office is expected to become a full service branch office on October 1, 1998. (6) The Queensbury branch location opened for business in July, 1998. 7 RISK FACTORS In addition to other information in this document, you should consider carefully the following risk factors in evaluating an investment in our common stock. Decreased Return on Average Equity and Increased Expenses Immediately After Conversion As a result of the Conversion, our equity will increase substantially. Expenses are expected to increase due to the costs associated with our employee stock ownership plan, our restricted stock plan, and being a public company. Because of the increases in our equity and expenses, our return on equity may decrease as compared to our performance in previous years. A lower return on equity could limit the trading price potential of the Holding Company Common Stock. See "Use of Proceeds" and "Pro Forma Data." In addition, we intend to initially invest the additional capital being raised through the offering into shorter-term, lower-yielding assets (i.e., federal funds sold) and gradually reinvest the additional capital into longer-term, higher- yielding loans and mortgage-backed securities as opportunities arise. Until the additional capital can be effectively reinvested, our return on equity is expected to decrease from the Bank's historic levels. Dilutive Effect of Issuance of Additional Shares If a RRP is approved by stockholders of the Holding Company, the RRP intends to acquire an amount of Holding Company Common Stock equal to 4% of the Shares sold in the Conversion and including shares issued to the Foundation. If such shares are acquired at a per share price equal to the purchase price, the cost of such shares would be $3.3 million, assuming the number of Conversion Shares sold are equal to the maximum of the Estimated Offering Range. Such shares of Holding Company Common Stock may be acquired in the open market with funds provided by the Holding Company, if permissible, or from authorized but unissued shares of Holding Company Common Stock. In the event that the RRP acquires authorized but unissued shares of Holding Company Common Stock from the Holding Company, the interests of existing stockholders will be diluted. Assuming the issuance of 8,050,000 Shares in the Offering and the contribution of 241,500 shares of Holding Company Common Stock to the Foundation, the issuance of authorized but unissued shares of Holding Company Common Stock to such plan in an amount equal to 4% of the Conversion Shares sold in the Conversion would dilute the voting interests of existing stockholders by approximately 2.8%, and net income per share and stockholders' equity per share would be decreased by a corresponding amount. See "Pro Forma Unaudited Financial Information - Additional Pro Forma Data" and "Management - Benefits - Recognition and Retention Plan." 8 If a Stock Option and Incentive Plan is approved by stockholders of the Holding Company, the Holding Company intends to reserve for future issuance pursuant to such plan a number of shares of Holding Company Common Stock equal to an aggregate of 10% of the Conversion Shares and the contribution of shares to the Foundation (829,150 shares, based on the issuance of the maximum 8,050,000 shares and the contribution of 241,500 shares to the Foundation). Such shares may be authorized but previously unissued shares, treasury shares or shares purchased by the Holding Company in the open market or from private sources. Assuming the issuance of 8,050,000 Conversion Shares and the contribution of 241,500 shares of Holding Company Common Stock to the Foundation, if only authorized but previously unissued shares are used under such plan, the issuance of the total number of shares available under such plan would dilute the voting interests of existing stockholders by approximately 6.7%, and net income per share and stockholders' equity per share would be decreased by a corresponding amount. See "Pro Forma Unaudited Financial Information - Additional Pro Forma Data" and "Management - Benefits." Interest Rate Risk Exposure The Bank's profitability is dependent to a large extent upon its net interest income, which is the difference between its interest and dividend income on earning assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. Changes in the level of interest rates affect the amount of loans originated by the Bank as well as the market value of the Bank's earning assets. Moreover, increases in interest rates also can result in disintermediation, which is the flow of funds away from savings institutions into other investments, such as corporate securities and other investment vehicles, which generally pay higher rates of return than savings institutions. Finally, a flattening of the "yield curve" (i.e., a decline in the difference between long and short term interest rates) or an inverted yield curve (i.e., where short term interest rates are higher than long term interest rates), could adversely impact net interest income. As a result of a decline in the yield earned on average interest-earning assets that exceeded a decline in the rate paid on its average liabilities, the Bank's average interest rate spread decreased from 3.77% for 1997 to 3.63% for 1998. No assurance can be given that the Bank's average interest rate spread will not decrease further in future periods. Any such decrease in the Bank's average interest rate spread could adversely affect the Bank's net interest income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Cohoes Savings Bank - Asset/Liability Management." If an institution's interest-earning assets have longer effective maturities than its interest-bearing liabilities, the yield on the institution's interest-earning assets generally will adjust more slowly than the cost of its interest-bearing liabilities and, as a result, the institutions' net interest income generally would be adversely affected by material and prolonged increases in interest rates and positively affected by comparable declines in interest rates. The Bank attempts to reduce the vulnerability of its operations to changes in interest rates by maintaining significant amounts of liquid assets and assets with relatively short estimated lives. Changes in interest rates also can affect the average life of loans and mortgage-related and other securities. Decreases in interest rates in recent periods have resulted in increased prepayments of loans and mortgage backed securities, as borrowers refinanced to reduce borrowing costs. Under these circumstances, the bank is subject to reinvestment risk to the extent that it is not able to reinvest such prepayments at rates which are comparable to the rates on the maturing loans or securities. See "Business of Cohoes Savings Bank Lending Activities." 9 Risks Related to Multi-Family and Commercial Real Estate Loans; Geographic Concentration of Loans The Bank originates multi-family and commercial real estate loans, which amounted to $93.2 million (or 22.4% of the Bank's loan portfolio) as of June 30, 1998. Multi-family and commercial real estate lending generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances, the dependency on successful operation of the project for repayment, loan terms which often do not require full amortization of the loan over its term and successfully developing and/or selling the property. See "Business of Cohoes Savings Bank - Lending Activities." As of June 30, 1998, the Bank had $823,000 of non-performing multi-family and commercial real estate loans (excluding restructured loans which are performing under the restructured terms). In addition, the Bank had $25.9 million of commercial real estate loans secured by property located in New York City as of June 30, 1998. At that date, the entire commercial real estate loan portfolio located in New York City was performing in accordance with its respective terms. However, no assurance can be made that the New York City economy will continue at current levels or that such loans will continue to perform in accordance with their terms in the future. Competition The Bank experiences significant competition in its local market area in both originating real estate and other loans and attracting deposits. This competition arises from other savings institutions as well as credit unions, mortgage banks, commercial banks, mutual funds and national and local securities firms. Due to their size, many competitors can achieve certain economies of scale and as a result offer a broader range of products and services than the Bank. The Bank attempts to mitigate the effect of such factors by emphasizing customer service and community outreach. Such competition may limit the Bank's growth in the future. See "Business of the Bank - Competition." 10 Takeover Defensive Provisions Holding Company and Bank Governing Instruments. Certain provisions of the Holding Company's Certificate of Incorporation and Bylaws and the Bank's Restated Organization Certificate and Bylaws assist the Holding Company and the Bank in maintaining its status as an independent publicly owned corporation. However, such provisions may also block stockholders from approving a potential takeover of the Holding Company which a majority of such stockholders believe to be in their best interests. These provisions provide for, among other things, limiting voting rights of beneficial owners of more than 10% of the Holding Company Common Stock, staggered terms for directors, noncumulative voting for directors, limits on the calling of special meetings, a fair price/supermajority vote requirement for certain business combinations and certain notice requirements. The 10% vote limitation would not affect the ability of an individual who is not the beneficial owner of more than 10% of the Holding Company Common Stock to solicit revocable proxies in a public solicitation for proxies for a particular meeting of stockholders and to vote such proxies. Any or all of these provisions may discourage potential proxy contests and other takeover attempts, particularly those which have not been negotiated with the Board of Directors. In addition, the Holding Company's certificate of incorporation also authorizes preferred stock with terms to be established by the Board of Directors which may rank prior to the Holding Company Common Stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights and may have a dilutive effect on the ownership interests of holders of the Holding Company Common Stock. See "Restrictions on Acquisition of the Holding Company and the Bank." Provisions in Management Contracts and Benefit Plans. Certain provisions contained in the proposed management contracts and benefit plans that provide for cash payments or the vesting of benefits upon a change of control of the Holding Company or the Bank may have an anti-takeover effect and could discourage an acquisition of the Holding Company. See "Management of the Bank - Employment Agreements." Voting Control of Directors and Executive Officers. The trustees and executive officers (13 persons) of the Bank propose to purchase an aggregate of approximately 310,000 shares, representing approximately 5.2% of the shares offered in the Conversion at the minimum of the Estimated Valuation Range, and 4.0% of the shares offered in the Conversion at the maximum of the Estimated Valuation Range, exclusive of shares that may be attributable to directors and officers through the RRP, the Stock Option and Incentive Plan and the ESOP, 11 which may give directors, executive officers and employees the potential to control the voting of additional Holding Company Common Stock and including shares issued to the Foundation. A number of shares equal to 4% of the shares of Holding Company Common Stock issued in the Conversion, including shares issued to the Foundation, will be available for issuance under the RRP (331,660 shares at the maximum of the Estimated Valuation Range), and a number of shares equal to 10% of the shares issued in the Conversion, including shares issued to the Foundation, will be available for issuance under the Stock Option and Incentive Plan (829,150 shares at the maximum of the Estimated Valuation Range). It is intended that the ESOP will purchase 8% of the shares issued in the Conversion, including shares issued to the Foundation (663,320 shares at the maximum of the Estimated Valuation Range). In connection with the Conversion, the Foundation will receive 241,500 shares of Holding Company Common Stock at the maximum of the Estimated Valuation Range which, if a waiver of the voting restriction imposed on such Holding Company Common Stock is obtained from the FDIC and the Superintendent, may be voted as determined by the Board of Directors of the Foundation who will initially consist of four Directors of the Holding Company and the Bank and two outside directors. Thus, after the Conversion, the aggregate number of shares which may be controlled by directors and executive officers of the Holding Company, including those to be issued to the Foundation and those that may be issued under the Stock Option and Incentive Plan and the RRP totaled 1,712,310 at the maximum of the Estimated Valuation Range, or 18.8% of the total number of shares at the maximum of the Estimated Valuation Range, including shares issued to the Foundation, on a fully diluted basis (including shares available for issuance under the Stock Option and Incentive Plan and RRP). Management's voting control could, together with additional stockholder support, defeat proposals requiring 80% approval of stockholders. As a result, this voting control may preclude takeover attempts that certain stockholders deem to be in their best interest and tend to perpetuate existing management. See "Restrictions on Acquisition of the Holding Company and the Bank--Restrictions in the Holding Company's Certificate of Incorporation and Bylaws." Post-Conversion Compensation and Other Expense After completion of the Conversion, the Holding Company's noninterest expense is likely to increase as a result of the financial accounting, legal and tax expenses usually associated with operating as a public company. See "Regulation" and "Taxation" and "Additional Information." In addition, it is currently anticipated that the Holding Company will record additional expense based on the proposed RRP. See "Pro Forma Data" and "Management of the Bank - Benefit Plans" and "-- RRP." Finally, the Holding Company will also record additional expense as a result of the adoption of the ESOP. See "Management of the Bank - Benefit Plans - Employee Stock Ownership Plan." 12 Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6") requires an employer to record compensation expense in an amount equal to the fair value of shares committed to be released to employees from an employee stock ownership plan. Assuming shares of common stock appreciate in value over time, SOP 93-6 would increase compensation expense relating to the ESOP to be established in connection with the Conversion. It is not possible to determine at this time the extent of such impact on future net income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of New Accounting Standards" and "Pro Forma Data." In addition, the Holding Company will experience additional expense in the quarter in which the Conversion is completed as a result of the shares that are contributed by the Holding Company to the charitable foundation. See "The Conversion -- Establishment of The Cohoes Savings Foundation." Absence of Active Market for the Common Stock The Holding Company, as a newly organized company, has never issued capital stock and, consequently, there is no established market for the Holding Company Common Stock at this time. The Holding Company has received approval to have its common stock listed on The Nasdaq National Market System (the "Nasdaq NMS") under the symbol "COHB" conditioned on the consummation of the Conversion. The Nasdaq NMS requires a minimum of three market makers in order to be eligible for inclusion on the Nasdaq NMS. Keefe Bruyette and Woods has indicated its intention to make a market in the Holding Company's Common Stock following completion of the Conversion. The Company believes it will have additional market makers and will meet the eligibility requirements for inclusion on the Nasdaq NMS. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, the presence of which is dependent upon the individual decisions of buyers and sellers over which neither the Holding Company nor any market maker has control. Accordingly, there can be no assurance that an active and liquid trading market for the Holding Company Common Stock will develop or that, if developed, will continue, nor is there any assurance that purchasers of the Holding Company Common Stock will be able to sell their shares at or above the purchase price for Holding Company Common Stock. In the event a liquid market for the Holding Company Common Stock does not develop or market makers for the Holding Company Common Stock discontinue their activities, such occurrences may have an adverse impact on the liquidity of the Holding Company Common Stock and the market value of the Holding Company Common Stock. See "Market for Common Stock." 13 Year 2000 Compliance The Bank has been following, and will continue to follow, the guidelines provided by the Federal Financial Institutions Examinations Council ("FFIEC"). The Bank has formulated a Year 2000 Plan in which it has conducted a comprehensive review of its computer systems to identify applications that could be affected by the "Year 2000" issue, and has developed and tested an implementation plan to address the issue. The Bank's data processing is performed primarily in-house; however, software and hardware utilized is under maintenance agreements with third party vendors, consequently the Bank is very dependent on those vendors to conduct its business. The Bank has already contacted each vendor to request time tables for Year 2000 compliance and expected costs, if any, to be passed along to the Bank. To date, the Bank has been informed that its primary service providers anticipate that all reprogramming efforts will be completed by December 31, 1998, allowing the Bank adequate time for testing. Certain other vendors have not yet responded; however, the Bank is in the process of developing contingency plans should its primary service providers and other vendors be unable to comply. Management anticipates the costs to become Year 2000 compliant to be approximately $100,000; however, there can be no assurance that the vendors' systems will be Year 2000 compliant . Consequently, the Bank could incur incremental costs to convert to another vendor. The risks associated with this issue go beyond the Bank's own ability to solve Year 2000 problems. Should significant commercial customers fail to address Year 2000 issues effectively, their ability to meet debt service requirements could be impaired, resulting in increased credit risk and potential increases in loan charge offs. In addition, should suppliers of critical services fail in their efforts to become Year 2000 compliant , or if significant third party interfaces fail to be compatible with the Bank's or fail to be Year 2000 compliant, it could have significant adverse affects on the operations and financial results of the Bank. Risks Associated with the Establishment of the Charitable Foundation Pursuant to the Plan of Conversion, the Holding Company and the Bank intend to voluntarily establish a charitable foundation in connection with the Conversion. The Foundation has been incorporated under Delaware law as a non-stock corporation and will be funded with the Stock Contribution. The Stock Contribution will be dilutive to the ownership and voting interests of stockholders and will have an adverse impact on the earnings of the Holding Company on a consolidated basis in the period the Foundation is established. 14 As a condition to receiving the non-objection of the FDIC to the Conversion and the approval of the Conversion by the Superintendent, the Foundation will commit in writing to the FDIC and the Superintendent that all shares of Holding Company Common Stock held by the Foundation will be voted in the same ratio as all other shares of the Holding Company Common Stock on all proposals considered by stockholders of the Holding Company; provided, however, that, consistent with the condition, the FDIC and the Superintendent shall waive this voting restriction under certain circumstances if compliance with the voting restriction would: (i) cause a violation of the laws of the State of Delaware; (ii) cause the Foundation to lose its tax-exempt status, or cause the IRS to deny the Foundation's request for a determination that it is an exempt organization or otherwise have a material and adverse tax consequence on the Foundation; or (iii) cause the Foundation to be subject to an excise tax under Section 4941 of the Code. In order for the FDIC and the Superintendent to waive such voting restriction, the Holding Company's or the Foundation's legal counsel must render an opinion satisfactory to FDIC and the Superintendent that compliance with the voting restriction would have the effect described in clauses (i), (ii) or (iii) above. Under those circumstances, the FDIC and the Superintendent shall grant a waiver of the voting restriction upon submission of such opinion(s) by the Holding Company or the Foundation which are satisfactory to the FDIC and the Superintendent. There can be no assurances that a legal opinion addressing these issues will be rendered, or if rendered, that the FDIC and the Superintendent will grant an unconditional waiver of the voting restriction. As of the date hereof, no event has occurred which would require the Holding Company to seek a waiver from the FDIC and the Superintendent of the voting restriction. Adverse Impact on Earnings. The Stock Contribution will have an adverse impact on the Holding Company's earnings. The Holding Company will recognize an expense in the amount of $2.4 million ($1.4 million net of taxes) in the quarter in which the Conversion is completed based on the issuance of shares at the maximum of the Estimated Valuation Range, which is expected to be the second quarter of fiscal 1999. Such expense will have a material adverse impact on the Holding Company's earnings in the fiscal quarter and year recorded. The Holding Company has been advised by its legal counsel that the Stock Contribution should be tax deductible, subject to a limitation based on 10% 15 of the Holding Company's annual taxable income. If the Stock Contribution had been made at June 30, 1998, the Bank would have reported net income of $2.7 million for the fiscal year rather than net income of $4.1 million. In the future, the Holding Company may make additional contributions to the Foundation, although the Holding Company has no current plans regarding the amount or timing of any such future contributions. The amount of future contributions, if any, will be determined based upon, among other factors, an assessment of the Holding Company's then current financial position, operations, and prospects and on the need for charitable activities in the Bank's market area. Any such contributions, regardless of form, will result in an increase in other operating expense and thus a reduction in net earnings. In addition, any contributions of authorized but unissued shares would dilute the interests of outstanding stockholders. However, the Holding Company currently anticipates that any future contributions of shares by it to the Foundation will be funded through shares repurchased in the open market. Dilution of Stockholders' Interests. The Stock Contribution will involve the donation of a number of shares equal to 3% of the shares of the Holding Company Common Stock issued in the Conversion or up to 241,500 shares of Holding Company Common Stock, par value $0.01 per share or the sale of such shares for their aggregate par value of $2,415 based on the maximum of the Estimated Valuation Range, to the Foundation. Upon completion of the Conversion and the Stock Contribution, the Holding Company will have 8,291,500 shares issued and outstanding at the maximum of the Estimated Valuation Range, of which the Foundation will own 241,500 shares, or 3.0%. As a result, persons purchasing shares in the Conversion will have their share ownership and voting interest in the Holding Company diluted by 2.9%. See "Pro Forma Data." Possible Nondeductibility of the Stock Contribution. It is expected that the IRS will rule that the Foundation is exempt from federal income tax under Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code. As such, the Holding Company will be entitled to a deduction in the amount of the Stock Contribution, subject to an annual limitation based on 10% of the Holding Company's annual taxable income. The Holding Company, however, would be able to carry forward any unused portion of the deduction for five years following the Stock Contribution for Federal and New York income tax purposes. Based on present information, the Holding Company currently estimates that the Stock Contribution should be fully deductible for Federal and New York income tax purposes. However, no assurances can be given that the Holding Company will have sufficient pre-tax income over the five-year period following the year in which the Stock Contribution is made to utilize fully the carryover related to the excess contribution. Potential Change in Valuation and Capital if the Stock Contribution is Not Made. The Stock Contribution was taken into account by RP Financial in determining the estimated pro forma market value of the Holding Company. The aggregate price of the shares of Holding Company Common Stock being offered in the Offering is based upon the Appraisal. The pro forma aggregate price of the shares being offered for sale in the Conversion is currently estimated to be between $59.5 million and $80.5 million, with a midpoint of $70.0 million. If the Stock Contribution is not part of the Conversion, the Estimated Valuation Range of the shares being offered is estimated to be between $62.9 million and $85.1 million. This represents an increase of $4.0 million at the midpoint of the Estimated Valuation Range. In such event the estimated pro forma stockholders' equity of the Holding Company would be approximately $133.8 million at the midpoint based on a pro forma price to book ratio of 79.3% and a pro forma price to earnings ratio of 15.6x. See "Comparison of Valuation and Pro Forma Information with No Stock Contribution." The decrease in the amount of Holding Company Common Stock being offered for sale as a result of the Stock Contribution will not have a significant effect on the Holding Company's or the Bank's capital position. The Bank's regulatory capital is significantly in excess of its regulatory capital requirements and will further exceed such requirements following the Conversion. See "Comparison of Valuation and Pro Forma Information with No Stock Contribution." Potential Anti-Takeover Effect. Upon completion of the Conversion, the Foundation would own 2.9% of the Holding Company's outstanding shares. Such shares will be owned solely by the Foundation; however pursuant to the terms of the Stock Contribution as mandated by the FDIC and the Superintendent, the shares of Holding Company Common Stock must be voted in the same proportion as all other shares of Holding Company Common Stock on all 16 proposals considered by the Holding Company's stockholders. See "The Conversion - - Establishment of Cohoes Savings Foundation." In the event that the FDIC and the Superintendent were to waive this voting restriction, the Foundation's Board of Directors would exercise sole voting power over such shares and would no longer be subject to the voting restriction. However, the FDIC and the Superintendent could impose additional conditions at that time on the composition of the Board of the Foundation or which otherwise relate to control of the Common Stock of the Holding Company held by the Foundation. See "The Conversion - Establishment of The Cohoes Savings Foundation." If a waiver of the voting restriction were granted by the FDIC and the Superintendent and no further conditions were imposed on the Foundation at that time, management of the Holding Company and the Bank could benefit to the extent that the Board of Directors of the Foundation determines to vote the shares of Holding Company Common Stock held by the Foundation in favor of proposals supported by the Holding Company and the Bank. Furthermore, when the Foundation's shares are combined with shares purchased directly by executive officers and directors of the Holding Company, shares issued pursuant to proposed stock benefit plans, and shares held in the Bank's ESOP, the aggregate of such shares could exceed 20% of the Holding Company's outstanding Common Stock, which could enable management to defeat proposals requiring 80% stockholder approval. Consequently, this potential voting control might preclude takeover attempts that other stockholders deem to be in their best interest, and might tend to perpetuate management. Since the ESOP shares are allocated to eligible employees of the Bank, and any unallocated shares will be voted by an independent trustee, and because awards under the proposed stock benefit plans may be granted to employees other than executive officers and directors, management of the Holding Company does not expect to have voting control of all shares held or to be allocated by the ESOP or other stock benefit plans. See "-- Takeover Defensive Provisions." There are no agreements or understandings, written or tacit, with respect to the exercise of either direct or indirect control over the management or policies of the Holding Company by the Foundation, including agreements related to voting, acquisition or disposition of the Holding Company Common Stock. Finally, as the Foundation sells its shares of Holding Company Common Stock over time, its ownership interest and voting power in the Holding Company is expected to decrease. COHOES BANCORP, INC. The Holding Company was formed at the direction of the Bank in September 1998 for the purpose of becoming a savings and loan holding company and owning all of the outstanding stock of the Bank issued in the Conversion. The Holding Company is incorporated under the laws of the State of Delaware. The Holding Company is authorized to do business in the State of New York, and generally is authorized to engage in any activity that is permitted by the Delaware General Corporation Law. The business of the Holding Company initially will consist only of the business of the Bank. The holding company structure will, however, provide the Holding Company with greater flexibility than the Bank has to diversify its business activities, through existing or newly formed subsidiaries, or through acquisitions or Mergers of stock financial institutions, as well as, other companies. Although there are no current arrangements, understandings or agreements regarding any such activity or acquisition, the Holding Company will be in a position after the Conversion, subject to regulatory restrictions, to take advantage of any favorable acquisition opportunities that may arise. The assets of the Holding Company will consist initially of the stock of the Bank, a note evidencing the Holding Company's loan to the ESOP and up to 50% of the net proceeds from the Conversion (less the amount used to fund the ESOP loan). See "Use of Proceeds." Initially, any activities of the Holding Company are anticipated to be funded by such retained proceeds and the income thereon and dividends from the Bank, if any. See "Dividends" and "Regulation - The Holding Company." Thereafter, activities of the Holding Company may also be funded through sales of additional securities, through borrowings and through income generated by other activities of the Holding Company. At this time, there are no plans regarding such other activities other than the intended loan to the ESOP to facilitate its purchase of Holding Company Common Stock in the Conversion. See "Management of the Bank - Benefit Plans Employee Stock Ownership Plan." The executive office of the Holding Company is located at 75 Remsen Street, Cohoes, New York 12047-2892. Its telephone number at that address is (518) 233-6500. 17 COHOES SAVINGS BANK The Bank serves the financial needs of communities in its market area through its main office and 16 other full service branch offices located throughout the Bank's primary market area. Its deposits are insured up to applicable limits by the FDIC. At June 30, 1998, the Bank had total assets of $535.7 million, deposits of $449.5 million and total equity of $53.3 million (or 9.95% of total assets). The Bank has been, and intends to continue to be, an independent, community oriented financial institution. The Bank's business involves attracting deposits from the general public and using such deposits, together with other funds, to originate primarily residential mortgage loans, and to a lesser extent, commercial and multi-family real estate, consumer and commercial business loans. The Bank originates its loans primarily in the Bank's market area and to a lesser extent, it has in the past originated multi-family and commercial real estate loans in New York City. However, depending upon market conditions and as a result of the somewhat depressed economy in the Bank's primary market area, the Bank may explore lending opportunities outside its primary market area in the future. At June 30, 1998, $258.4 million, or 62.07%, of the Bank's total loan portfolio consisted of residential mortgage loans. See "Business of the Bank - Lending Activities." The Bank also invests in government agency and corporate debt securities and other permissible investments. See "Business of the Bank - Investment Activities." The executive office of the Bank is located at 75 Remsen Street, Cohoes, New York 12047-2892. Its telephone number at that address is (518) 233-6500. USE OF PROCEEDS Although the actual net proceeds from the sale of the Conversion Shares cannot be determined until the Conversion is completed, it is presently anticipated that such net proceeds will be between $57.9 million and $76.7 million (or up to $90.6 million in the event of an increase in the aggregate pro forma market value of the Holding Company Common Stock of up to 15% above the maximum of the Estimated Valuation Range). See "Pro Forma Data" and "The Conversion - Stock Pricing" and "--Number of Shares to be Issued" as to the assumptions used to arrive at such amounts. In exchange for all of the common stock of the Bank issued in the Conversion, the Holding Company will contribute approximately 50% of the net proceeds from the sale of the Conversion Shares to the Bank. On an interim basis, the proceeds will be invested by the Holding Company and the Bank in short-term investments similar to those currently in the Bank's portfolio. The specific types and amounts of short-term assets will be determined based on market conditions at the time of the completion of the Conversion. In addition, the Holding Company intends to provide the funding for the ESOP loan. Based upon the initial purchase price of $10.00 per share, the dollar amount of the ESOP loan would range from $4.9 million (based upon the sale of shares at the minimum of the Estimated Valuation Range) to $6.6 million (based upon the sale of shares at the maximum of the Estimated Valuation Range). The interest rate to be charged by the Holding Company on the ESOP loan will be based upon the prime rate of interest as reported in the Wall Street Journal at the time of origination. It is anticipated that the ESOP will repay the loan through periodic tax-deductible contributions from the Bank over a fifteen-year period. The net proceeds received by the Bank will become part of the Bank's general funds for use in its business and will be used to support the Bank's existing operations, subject to applicable regulatory restrictions. Immediately upon the completion of the Conversion, it is anticipated that the Bank will invest such proceeds into short-term assets. Subsequently, the Bank intends to redirect the net proceeds to the origination of loans, subject to market conditions. After the completion of the Conversion, the Holding Company will redirect the net proceeds invested by it in short-term assets into a variety of securities similar to those already held by the Bank, as well as in deposit accounts with the Bank. Also, the Holding Company may use a portion of the proceeds to fund the RRP, subject to stockholder approval of such plan. Compensation expense related to the RRP will be recognized as share awards vest. See "Pro Forma Data." Following stockholder ratification of the RRP, the RRP will be funded either with shares purchased in the open market or with authorized but unissued shares. Based upon the initial purchase price of $10.00 per share, the amount required to fund the RRP through open-market purchases would range from approximately $2.5 million (based 18 upon the sale of shares at the minimum of the Estimated Valuation Range and including shares issued to the Foundation) to approximately $3.3 million (based upon the sale of shares at the maximum of the Estimated Valuation Range). In the event that the per share price of the Holding Company Common Stock increases above the $10.00 per share purchase price following completion of the Offering, the amount necessary to fund the RRP would also increase. The use of authorized but unissued shares to fund the RRP could dilute the holdings of stockholders who purchase Holding Company Common Stock in the Conversion and who receive Exchange Shares in the Merger. See "Business of the Bank - Lending Activities" and " - Investment Activities" and "Management of the Bank - Benefit Plans - Employee Stock Ownership Plan" and "- RRP." The proceeds may also be utilized by the Holding Company to repurchase (at prices which may be above or below the initial offering price) shares of the Holding Company Common Stock through an open market repurchase program subject to applicable regulations, although the Holding Company currently has no specific plan to repurchase any of its stock. In the future, the Board of Directors of the Holding Company will make decisions on the repurchase of the Holding Company Common Stock based on its view of the appropriateness of the price of the Holding Company Common Stock as well as the Holding Company's and the Bank's investment opportunities and capital needs. The Bank may use a portion of the proceeds to fund the creation of one or more new branch offices within its primary market area. In addition, the Holding Company or the Bank might consider expansion through the acquisition of other financial services providers (or branches, deposits or assets thereof), although there are no specific plans, negotiations or written or oral agreements regarding any acquisitions at this time. DIVIDENDS The Holding Company currently plans to pay dividends in the future. However, the amount and timing of such payments has yet to be determined. Dividends, when and if paid, will be subject to determination and declaration by the Board of Directors at its discretion. The Board will take into account the Holding Company's consolidated financial condition, the Bank's regulatory capital requirements, tax considerations, industry standards, economic conditions, regulatory restrictions, general business practices and other factors. It is not presently anticipated that the Holding Company will conduct significant operations independent of those of the Bank for some time following the Conversion. As such, the Holding Company does not expect to have any significant source of income other than earnings on the net proceeds from the Conversion retained by the Holding Company (which proceeds are currently estimated to range from $57.9 million to $76.7 million based on the minimum and the maximum of the Estimated Valuation Range, respectively) and dividends from the Bank, if any. Consequently, the ability of the Holding Company to pay cash dividends to its stockholders will be dependent upon such retained proceeds and earnings thereon, and upon the ability of the Bank to pay dividends to the Holding Company. See "Description of Capital Stock - Holding Company Capital Stock - Dividends." The Bank, like all savings associations regulated by the FDIC, is subject to certain restrictions on the payment of dividends based on its net income, its capital in excess of the regulatory capital requirements and the amount of regulatory capital required for the liquidation account to be established in connection with the Conversion. In addition, under New York state banking law, a New York chartered stock savings bank may declare and pay dividends out of its net profits, unless there is an impairment of capital, but approval of the Department is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments. See "The Conversion - Effects of Conversion -- Deposit Accounts and Loans" and "Regulation - The Bank -- Capital Requirements" and "- Limitations on Dividends." Earnings allocated to the Bank's "excess" bad debt reserves and deducted for federal income tax purposes cannot be used by the Bank to pay cash dividends to the Holding Company without adverse tax consequences. See "Regulation" and "Taxation." 19 MARKET FOR COMMON STOCK The Bank, as a mutual savings bank, and the Holding Company, as a newly organized company, have never issued capital stock. Consequently, there is not at this time an existing market for the Holding Company Common Stock. The Holding Company has been approved for listing of the Holding Company Common Stock on the Nasdaq NMS under the symbol "COHB" upon completion of the Conversion. In order to be quoted on the Nasdaq NMS, among other criteria, there must be at least three market makers for the Holding Company Common Stock. KBW has agreed to act as a market maker for the Holding Company Common Stock following the Conversion, and assist in securing additional market makers to do the same. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the presence in the marketplace of both willing buyers and sellers of the Holding Company Common Stock at any given time. Accordingly, there can be no assurance that an active and liquid market for the Holding Company Common Stock will develop or be maintained or that resales of the Holding Company Common Stock can be made at or above the purchase price. See "The Conversion Stock Pricing" and "-- Number of Shares to be Issued." 20 REGULATORY CAPITAL At June 30, 1998, the Bank exceeded all of the regulatory capital requirements applicable to it. The table below sets forth the historical regulatory capital of the Bank at June 30, 1998 and the pro forma regulatory capital of the Bank after giving effect to the Conversion, based upon the sale of the number of shares shown in the table. The pro forma regulatory capital amounts reflect the receipt by the Bank of 50% of the net Conversion proceeds, minus the amounts to be loaned to the ESOP and contributed to the RRP. The pro forma risk-based capital amounts assume the investment of the net proceeds received by the Bank in assets which have a risk-weight of 20% under applicable regulations, as if such net proceeds had been received at June 30, 1998.
Pro Forma at June 30, 1998 Based on -------------------------------------------------------------------------------------------- Minimum Midpoint Maximum Maximum As Adjusted Cohoes Savings Bank ---------------------- ---------------------- ---------------------- ---------------------- Historical at Conversion Shares Sold Conversion Shares Sold Conversion Shares Sold Conversion Shares Sold June 30, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share -------------------- -------------------- --------------------- ------------------- ------------------ Percent of Percent of Percent of Percent of Percent of Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- (Dollars in Thousands) GAAP Capital..... $53,282 9.95% $74,880 13.32% $78,775 13.86% $82,669 14.46% $87,148 15.10% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Leverage capital: Actual........ $53,270 10.13% $74,868 13.56% $78,763 14.14% $82,657 14.71% $87,136 15.36% Requirement... 21,033 4.00 22,093 4.00 22,283 4.00 22,474 4.00% 22,693 4.00 -------- ------- -------- ------ -------- ------ -------- ------ -------- ------ Excess........ $32,237 6.13% $52,775 9.56% $56,479 10.14% $60,183 10.71% $64,443 11.36% ======= ======= ======= ====== ======= ===== ======= ===== ======= ===== Risk-based capital(2): Actual........ $56,803 17.08% $78,401 23.21% $82,296 24.29% $86,190 25.37% $90,669 26.60% Requirement... 26,601 8.00 27,025 8.00 27,101 8.00 27,177 8.00 27,265 8.00 -------- ------- -------- ------ -------- ------ -------- ------ -------- ------ Excess........ $30,202 9.08% $51,376 15.21% $55,194 16.29% $59,013 17.37% $63,404 18.60% ======= ======= ======= ===== ======= ===== ======= ===== ======= =====
- -------------- (1) Adjusted total or adjusted risk-weighted assets, as appropriate. As of June 30, 1998, the adjusted total and risk-weighted assets of the Bank were $525.8 million and $332.5 million, respectively. (2) Does not reflect the interest rate risk component to be added to the risk-based capital requirements or, in the case of the core capital requirement, the 4.0% requirement to be met in order for an institution to be "adequately capitalized" under applicable laws and regulations. See "Regulation - Regulatory Capital Requirements." 21 CAPITALIZATION The following table presents the historical capitalization of the Bank at June 30, 1998 and the pro forma consolidated capitalization of the Holding Company after giving effect to the Conversion, based upon the sale of shares at the maximum of the Estimated Valuation Range and the other assumptions set forth under "Pro Forma Unaudited Financial Information - Additional Pro Forma Data."
The Holding Company - Pro Forma Consolidated Based Upon Sale at $10.00 Per Share ------------------------------------------------- 9,257,500 5,950,000 7,000,000 8,050,000 Shares(1) Cohoes Savings Shares Shares Shares (15% above Bank (Minimum of (Midpoint of (Maximum of Maximum of Historical Range) Range) Range) Range) ---------- ------ ------ ------ ------ (In Thousands) Deposits(2) ........................... $ 449,541 $ 449,541 $ 449,541 $ 449,541 $ 449,541 Borrowings ............................ 19,897 19,897 19,897 19,897 19,897 --------- --------- --------- --------- --------- Total deposits and borrowings ......... $ 469,438 $ 469,438 $ 469,438 $ 469,438 $ 469,438 ========= ========= ========= ========= ========= Stockholders' equity: Serial preferred stock, $0.01 par value, 25,000,000 shares authorized; none to be outstanding.............. $ -- $ -- $ -- $ -- $ -- Common stock, $0.01 par value, 25,000,000 shares authorized; shares to be issued as reflected(3)........ $ -- 61 72 83 95 Additional paid-in capital ........... -- 59,629 70,317 81,006 93,298 Retained earnings(4)(5) .............. 53,270 52,199 52,010 51,821 51,604 Net unrealized gain on available- for-sale securities, net of taxes ....................... 12 12 12 12 12 Less: Common stock held or to be acquired by the ESOP(6) ..................... -- (4,903) (5,768) (6,633) (7,628) Common stock to be acquired by the RRP(7) ............................. -- (2,451) (2,884) (3,317) (3,814) --------- --------- --------- --------- --------- Total stockholder's equity ............ $ 53,282 $ 104,547 $ 113,759 $ 122,972 $ 133,567 ========= ========= ========= ========= =========
22 - ---------- (1) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the Estimated Valuation Range of up to 15% to reflect changes in market and financial conditions following the commencement of the Offerings. (2) Does not reflect withdrawals from deposit accounts for the purchase of Holding Company Common Stock in the Offerings. Such withdrawals would reduce pro forma deposits by the amount of such withdrawals. (3) Reflects the issuance of the Conversion Shares to be sold in the Offering. No effect has been given to the issuance of additional shares of Holding Company Common Stock pursuant to the proposed Stock Option and Incentive Plan. See "Pro Forma Unaudited Financial Information Additional Pro Forma Data" and "Management - Benefits - Stock Option and Incentive Plan." Also reflects issuance of additional shares of Holding Company Common Stock to the Foundation. (4) The retained earnings of the Bank will be substantially restricted after the Conversion by virtue of the liquidation account to be established in connection with the Conversion. See "The Conversion - Liquidation Rights." In addition, certain distributions from the Bank's retained earnings may be treated as being from its accumulated bad debt reserve for tax purposes, which would cause the Bank to have additional taxable income. See "Taxation." (5) Pro forma stockholders' equity includes the effects of estimated one-time charges of approximately $5.9 million, $4.8 million net of tax effect, and a $1.8 million, $2.1 million, $2.4 million and $2.8 million expense ($1.1 million, $1.3 million, $1.5 million and $1.7 million, net of tax) relating to the contribution of 178,500, 210,000, 245,000 and 277,725 shares of Holding Company Common Stock to the Foundation at the minimum, midpoint, maximum and maximum as adjusted of the valuation range. Since the estimated charges are non-recurring, they have not been reflected in the pro forma combined income statement and related per share calculations. The charges are expected to be incurred shortly following the Conversion. (6) Assumes that an amount equal to 8% of the Holding Company Common Stock sold in the Offerings will be purchased by the ESOP, which is reflected as a reduction of stockholders' equity. The ESOP shares will be purchased with funds loaned to the ESOP by the Holding Company. See "Pro Forma Unaudited Financial Information - Additional Pro Forma Data" and "Management - Benefits - Employee Stock Ownership Plan." (7) The Holding Company intends to adopt the RRP and to submit such plan to stockholders at an annual or special meeting of stockholders held at least six months following the consummation of the Conversion. If the plan is approved by stockholders, the Holding Company intends to purchase a number of shares of Holding Company Common Stock equal to 4% of the Holding Company Common Stock sold in the Offering. Assumes that stockholder approval had been obtained and that the shares have been purchased in the open market at the purchase price. However, in the event the Holding Company issues authorized but unissued shares of Holding Company Common Stock to the RRP in the amount of 4% of the Holding Company Common Stock sold in the Offering (including shares issued to the Foundation), the voting interests of existing stockholders would be diluted approximately 2.8% (assuming the issuance of 8,050,000 Conversion Shares the contribution of 241,500 shares of Holding Company Common Stock to the Foundation). The shares are reflected as a reduction of stockholders' equity. See "Pro Form Unaudited Financial Information - Additional Pro Forma Data" and "Management - Benefits - Recognition and Retention Plan." 23 PRO FORMA The following tables provide unaudited pro forma data with respect to the Holding Company's stockholders' equity, net income and related per share amounts based upon the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. The actual net proceeds from the sale of the Conversion Shares cannot be determined until the Conversion is completed. However, net proceeds are currently estimated to be between $57.9 million and $78.7 million (or $90.6 million in the event the Estimated Valuation Range is increased by 15%) based upon the following assumptions: (i) all Conversion Shares will be sold in the Subscription Offering; (ii) KBW will receive a fee equal to 1.20% of the aggregate purchase price for sales in the Subscription Offering (excluding the sale of shares to the ESOP, employee benefit plans, officers, directors and their immediate families and the Foundation); (iii) the Holding Company will contribute to the Foundation a number of shares equal to 3.0% of the shares of Holding Company Common Stock issued in the Conversion from authorized but unissued shares; and (iv) total expenses, including the marketing fees paid to KBW, of the Conversion will be between $1.6 million and $1.8 million (or $2.0 million in the event the Estimated Valuation Range is increased by 15%). Actual expenses may vary from those estimated. It is also assumed that Conversion Shares had been sold at the beginning of the period and the net proceeds from the Offering had been invested at 5.37% which represents the yield on one-year U.S. Government securities at June 30, 1998. The yield on one-year U.S. Government securities was used rather than the arithmetic average of the average yield on total interest-earning assets and the average rate paid on deposits, because the yields on one-year U.S. Government securities are believed to be more reflective of market interest rates. The effect of withdrawals from deposit accounts at the Bank for the purchase of Conversion Shares in the Offering has not been reflected. A combined effective federal and state income tax rate of 40.0% has been assumed for the period, resulting in an after-tax yield of 3.22% for the year ended June 30, 1998. The following pro forma unaudited information is based, in part, on historical information related to the Holding Company and assumptions as to future events. For these and other reasons, the pro forma unaudited financial data may not be representative of the financial effects of the Conversion at the dates on which such transactions actually occur and should not be taken as indicative of future results of operations. Pro forma stockholders' equity represents the difference between the stated amount of assets and liabilities of the Holding Company computed in accordance with GAAP. Subsequent to June 30, 1998, Cohoes Savings Bank terminated its proposed merger with SFS Bancorp, Inc. and paid an agreed upon fee of $2.0 million to SFS Bancorp, Inc. The payment of this fee is not reflected in any historical or pro forma information presented. The following tables give effect to the issuance of a number of shares equal to 3.0% of the Common Stock of the Holding Company sold in the Conversion from authorized but unissued shares to the Foundation concurrently with the completion of the Conversion. The pro forma stockholders' equity is not intended to represent the fair market value of the Holding Company Common Stock and may be different than amounts that would be available for distribution to stockholders in the event of liquidation. 24 PRO FORMA DATA WITH MERGER
At or For the Year Ended June 30, 1998 ----------------------------------------------------------------------- 5,950,000 7,000,000 8,050,000 9,257,500 Conversion Conversion Conversion Conversion Shares Sold at Shares Sold at Shares Sold at Shares Sold at $10.00 Per $10.00 Per $10.00 Per $10.00 Per Share Share (Minimum Share (Midpoint Share (Maximum (15% above of Range) of Range) of Range) Maximum of Range) --------- --------- --------- ----------------- (Dollars in Thousands, Except Per Share Amounts) Gross proceeds ......................................... $ 59,500 $ 70,000 $ 80,500 $ 92,575 Plus: Shares acquired by Foundation .................... 1,785 2,100 2,415 2,777 --------- --------- --------- --------- Pro forma market capitalization ................... $ 61,285 $ 72,100 $ 82,915 $ 95,352 ========= ========= ========= ========= Gross proceeds ......................................... $ 59,500 $ 70,000 $ 80,500 $ 92,575 Less offering expenses and commissions ................. 1,595 1,711 1,826 1,959 --------- --------- --------- --------- Estimated net proceeds ............................ $ 57,905 $ 68,289 $ 78,674 $ 90,616 Less: Shares purchased by the ESOP ..................... (4,903) (5,768) (6,633) (7,628) Shares purchased by the RRP ....................... (2,451) (2,884) (3,317) (3,814) --------- --------- --------- --------- Total estimated net proceeds, as adjusted(1) ........... $ 50,551 $ 59,637 $ 68,724 $ 79,174 ========= ========= ========= ========= Net income(2): Historical ........................................ $ 4,087 $ 4,087 $ 4,087 $ 4,087 Pro forma income on net proceeds, as adjusted ..... 1,629 1,922 2,214 2,551 Pro forma ESOP adjustment(3) ...................... (196) (231) (265) (305) Pro forma RRP adjustment(4) ....................... (294) (346) (398) (458) --------- --------- --------- --------- Pro forma net income .............................. $ 5,226 $ 5,432 $ 5,638 $ 5,875 ========= ========= ========= ========= Diluted net income per share(2)(5): Historical ........................................ $ 0.72 $ 0.61 $ 0.53 $ 0.46 Pro forma income on net proceeds, as adjusted ..... 0.29 0.29 0.29 0.29 Pro forma ESOP adjustment(3) ...................... (0.03) (0.03) (0.03) (0.03) Pro forma RRP adjustment(4) ....................... (0.05) (0.05) (0.05) (0.05) --------- --------- --------- --------- Pro forma diluted net income per share(4)(6) ...... $ 0.93 $ 0.82 $ 0.74 $ 0.67 ========= ========= ========= ========= Offering price to pro forma diluted net income per share(5) .................................. 10.75x 12.20x 13.51x 14.93x ========= ========= ========= ========= Stockholders' equity: Historical ........................................ $ 53,282 $ 53,282 $ 53,282 $ 53,282 Estimated net proceeds ............................ 57,905 68,289 78,674 90,616 Plus: Shares issued to Foundation ................ 1,785 2,100 2,415 2,777 Less: Contribution to Foundation ................. (1,785) (2,100) (2,415) (2,777) Plus: Tax benefit of contribution to Foundation .. 714 840 966 1,111 Less: Common stock acquired by the ESOP(3) ....... (4,903) (5,768) (6,633) (7,628) Common stock to be acquired by the RRP(4) (2,451) (2,884) (3,317) (3,814) --------- --------- --------- --------- Pro forma stockholders' equity(4)(6)(7) ........... $ 104,547 $ 113,759 $ 122,972 $ 133,567 ========= ========= ========= ========= Stockholders' equity per share(5): Historical ........................................ $ 7.39 $ 6.43 $ 5.59 $ 8.69 Estimated net proceeds ............................ 9.45 9.47 9.49 9.50 Plus: Shares issued to Foundation ................ 0.29 0.29 0.29 0.29 Less: Contribution to Foundation ................. (0.29) (0.29) (0.29) (0.29) Plus: Tax benefit of contribution to Foundation .. 0.12 0.12 0.12 0.12 Less: Common stock acquired by the ESOP(3) ....... (0.80) (0.80) (0.80) (0.80) Common stock to be acquired by the RRP(4) (0.40) (0.40) (0.40) (0.40) --------- --------- --------- --------- Pro forma stockholders' equity per share(4)(6)(7) . $ 17.06 $ 15.78 $ 14.84 $ 14.01 ========= ========= ========= ========= Purchase price as a percentage of pro forma stockholders' equity per share(5) ............ 58.62% 63.37% 67.39% 71.38% ========= ========= ========= =========
- -------------- (1) Estimated net proceeds, as adjusted, consist of the estimated net proceeds from the Offering minus (i) the proceeds attributable to the purchase by the ESOP; and (ii) the value of the shares to be purchased by the RRP, subject to stockholder approval, after the Conversion at an assumed purchase price of $10.00 per share; and (iii) certain one-time Merger-related cash expenses expected to be paid concurrently with consummation of the Conversion and the Merger. For the purposes of this presentation, one-time cash Merger-related expenses of $7.5 million (pre-tax) which are expected to be paid upon consummation of the Conversion and the Merger are reflected as an adjustment to net proceeds for purposes of the pro forma net income and pro forma net income per share information. For purposes of pro forma stockholders' equity and pro forma stockholders' equity per share, $4.8 million of Merger-related non-recurring expenses, net of tax are deducted. (2) Does not give effect to the non-recurring expense that will be recognized in 1998 as a result of the establishment of the Foundation. The Holding Company will recognize an after-tax expense for the amount of the contribution to the Foundation which is expected to be $1.1 million, $1.3 million, $1.4 million and $1.7 million at the minimum, midpoint, maximum and maximum, as adjusted. Assuming the contribution to the Foundation was expensed during the year ended June 30, 1998, pro forma net earnings (loss) per share would be $0.57, $0.51, $0.47 and $0,42, at the minimum, midpoint, maximum and maximum, as adjusted, respectively. Per share net income data is based on 8,982,199, 9,980,063, 10,977,927 and 12,125,471 shares outstanding which represents Conversion Shares sold in the Offering, shares contributed to the Foundation, Exchange Shares issued in the Merger and shares to be allocated or distributed under the ESOP and RRP for the period presented. Additionally, SFS stock options are incorporated into earnings per share calculations based on the treasury method. (Footnotes continued on next page) 25 (3) It is assumed that 8.0% of the Conversion Shares sold in the Offering will be purchased by the ESOP with funds loaned by the Holding Company. The Holding Company and the Bank intend to make annual contributions to the ESOP in an amount at least equal to the principal and interest requirement of the debt. The pro forma net earnings assumes (i) that the loan to the ESOP is payable over 15 years, with the ESOP shares having an average fair value of $10.00 per share in accordance with SOP 93-6, entitled "Employers' Accounting for Employee Stock Ownership Plans," of the AICPA, and (ii) the effective tax rate was 40.0% for the period. See "Management - Benefits - Employee Stock Ownership Plan." (4) It is assumed that the RRP will purchase, following stockholder approval of such plan, a number of shares of Holding Company Common Stock equal to 4.0% of the Conversion Shares for issuance to directors, officers and employees. Funds used by the RRP to purchase the shares initially will be contributed to the RRP by the Holding Company. It is further assumed that the shares were acquired by the RRP at the beginning of the period presented in open market purchases at the purchase price and that 20.0% of the amount contributed, net of taxes, was an amortized expense during the year ended June 30, 1998. The issuance of authorized but unissued shares of Holding Company Common Stock pursuant to the RRP in the amount of 4.0% of the Conversion Shares sold in the Offering would dilute the voting interests of existing stockholders by approximately 3.0% and under such circumstances pro forma net earnings per share for the year ended June 30, 1998 would be $0.68, $0.63, $0.59 and $0.55, at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively, and pro forma stockholders' equity per share at June 30, 1998 would be $12.96, $12.50, $12.13 and $11.78 at the minimum, midpoint, maximum and 15% above the maximum of such range, respectively. There can be no assurance that the actual purchase price of shares purchased by or issued to the RRP will be equal to the purchase price. See "Management - Benefits - Recognition and Retention Plan." (5) The diluted per share calculations are determined by adding the number of Conversion Shares assumed to be issued in the Conversion, Exchange Shares issued in the Merger as well as shares of Holding Company Common Stock to be contributed to the Foundation and, for purposes of calculating earnings per share, in accordance with SOP 93-6, subtracting 473,937 shares, 557,573 shares, 641,209 shares, and 737,391 shares, respectively, representing the ESOP shares which have not been committed for release during the year ended June 30, 1998. The calculation of ESOP shares released assumes that such shares are earned and released ratably over the year, using a 15-year amortization period. Additionally, SFS stock options are incorporated into earnings per share calculations based on the treasury method. Thus, it is assumed at June 30, 1998 that 8,982,199, 9,980,063, 10,977,927 and 12,125,471 shares of Holding Company Common Stock are outstanding at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively. Assuming the uncommitted ESOP shares were not subtracted from the number of shares of Holding Company Common Stock outstanding at June 30, 1998, the offering price as a multiple of pro forma net earnings per share would be 15.35x, 16.55x, 17.67x and 18.89x at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively. For purposes of calculating pro forma stockholders' equity per share, it is assumed that shares outstanding total 9,330,951, 10,412,451, 11,493,951 and 12,737,676 shares at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range. (6) No effect has been given to the issuance of additional shares of Holding Company Common Stock pursuant to the Stock Option and Incentive Plan, which will be adopted by the Holding Company following the Conversion and presented for approval by stockholders at an annual or special meeting of stockholders of the Holding Company held no earlier than six months following the consummation of the Conversion. If the Option Plan is approved by the stockholders, an amount equal to 10% of the Conversion Shares sold in the Offering, including shares issued to the Foundation, or 612,850, 721,000, 829,150 and 953,522 shares at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively, will be reserved for future issuance upon the exercise of options to be granted under the Option Plan. The issuance of Holding Company Common Stock pursuant to the exercise of options under the Option Plan will result in the dilution of existing stockholders' interests. Assuming stockholder approval of the Option Plan, that all these options were exercised at the beginning of the period at an exercise price of $10.00 per share and that the shares to fund the RRP are acquired thorough open market purchases at the purchase price, pro forma diluted net earnings per share for the year ended June 30, 1998 would be $0.66, $0.62, $0.58 and $0.54 at the minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation Range, respectively, and pro forma stockholders' equity per share at June 30, 1998 would be $12.85, $12.40, $12.04 and $11.70 at the minimum, midpoint, maximum and 15% above the maximum of such range, respectively. See "Management - Benefits - Stock Option and Incentive Plan." (7) The retained earnings of the Bank will be substantially restricted after the Conversion by virtue of the liquidation account to be established in connection with the Conversion. See "Dividend Policy" and "The Conversion - Effects of the Conversion - Effects on Liquidation Rights." In addition, certain distributions from the Bank's retained earnings may be treated as begin from its accumulated bad debt reserve for tax purposes, which would cause the Bank to have additional taxable income. See "Taxation - Federal Taxation." Pro forma stockholders' equity and pro forma stockholders' equity per share (i) reflect certain nonrecurring charges, net of tax (see Note 5 to the Pro Forma Unaudited Consolidated Statement of Financial Condition) and (ii) do not give effect to the liquidation account or the bad debt reserves established by the Bank for federal income tax purposes in the event of a liquidation of the Bank. (8) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the Estimated Valuation Range of up to 15% to reflect changes in market and financial conditions following the commencement of the Offering. 26 COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION In the event that the Foundation were not being established as part of the Conversion , RP Financial has estimated that the pro forma aggregate market capitalization of the Holding Company would be approximately $85.1 million at the maximum, which is approximately $2.2 million greater than the pro forma aggregate market capitalization of the Holding Company if the Foundation is included, and would result in an approximately $4.6 million increase in the amount of Holding Company Common Stock offered for sale in the Conversion. The pro forma price to book ratio and pro forma price to earnings ratio would be approximately the same under both the current appraisal and the estimate of the value of the Holding Company without the Foundation. Further, assuming the maximum of the Estimated Valuation Range, pro forma stockholders' equity per share and pro forma earnings per share would be substantially the same at $14.84 and $14.84, respectively, and $0.74 and $0.74 respectively, with the Foundation or without the Foundation. The pro forma price to book ratio and the pro forma price to earnings ratio are substantially the same with and without the Foundation at the maximum at 67.39% and 67.39%, respectively, and 13.51x and 13.51x, respectively. There is no assurance that in the event the Foundation was not formed that the appraisal prepared at the time would have concluded that the pro forma market value of the Holding Company would be the same as that estimated herein. Any appraisals prepared at that time would be based on the facts and circumstances existing at the time, including, among other things, market and economic conditions. For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios, at the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range, assuming the Conversion was completed at June 30, 1998.
At the Maximum At the Minimum At the Midpoint At the Maximum As Adjusted ---------------------- ---------------------- ---------------------- ------------------------ With No With No With No With No Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation ---------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- (Dollars in thousands, except per share amounts) Estimated offering amount ..........$ 59,500 $ 62,900 $ 70,000 $ 74,000 $ 80,500 $ 85,100 $ 92,575 $ 97,865 Pro forma market capitalization .... 61,285 62,900 72,100 74,000 82,915 85,100 95,352 97,865 Total assets ....................... 586,981 589,434 596,193 599,079 605,406 608,724 616,001 619,817 Total liabilities .................. 482,434 482,434 482,434 482,434 482,434 482,434 482,434 482,434 Pro forma stockholders' equity ..... 104,547 107,000 113,759 116,645 122,972 126,290 133,567 137,383 Pro forma consolidated net earnings ...................... 5,226 5,315 5,432 5,537 5,638 5,759 5,875 6,014 Pro forma stockholders' equity per share ......................... 17.06 17.01 15.78 15.76 14.84 14.84 14.01 14.03 Pro forma consolidated net earnings per share ................ 0.93 0.92 0.82 0.82 0.74 0.74 0.67 0.67 Pro forma pricing ratios: Offering price as a percentage of pro forma stockholders' equity per share ............... 58.62% 58.79% 63.37% 63.45% 67.39% 67.39% 71.38% 71.28% Offering price to pro forma net earnings per share(1) ...... 10.75% 10.87% 12.20% 12.20% 13.51% 13.51% 14.93% 14.93% Pro forma market capitalization to assets ...................... 10.44% 10.67% 12.09% 12.35% 13.70% 13.98% 15.48% 15.79% Pro forma financial ratios: Return on assets(2) ............. 0.89% 0.90% 0.91% 0.92% 0.93% 0.95% 0.96% 0.97% Return on stockholders' equity(3) 5.00% 4.97% 4.78% 4.75% 4.58% 4.56% 4.40% 4.38% Stockholders' equity to assets .. 17.81% 18.15% 19.08% 19.47% 20.31% 20.75% 21.68% 22.17%
- --------------- (1) If the contribution to the Foundation had been expensed during the year ended June 30, 1998, the offering price to pro forma net earnings per share would have been 13.58x, 15.90x, 18.20x and 20.81x at the minimum, midpoint, maximum and maximum, as adjusted, respectively. (2) If the contribution to the Foundation had been expensed during the year ended June 30,1998, return on assets would have been 0.71%, 0.70%, 0.69% and 0.69% at the minimum, midpoint, maximum and maximum, as adjusted, respectively. (3) If the contribution to the Foundation had been expensed during the year ended June 30,1998, return on stockholders' equity would have been 3.99%, 3.68%, 3.42% and 3.17% at the minimum, midpoint, maximum and maximum, as adjusted, respectively. 27 COHOES SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (000's omitted)
1998 1997 1996 ---- ---- ---- INTEREST INCOME: Interest and fees on mortgage loans ...................... $ 28,793 $ 28,236 $ 26,587 Consumer and other loans ................................. 4,780 4,930 5,516 Investment securities and securities available for sale .. 4,108 2,847 3,096 Federal funds sold and interest-bearing deposits ......... 742 272 184 ------------- ------------- ------------- Total interest income ....................... 38,423 36,285 35,383 ------------- ------------- ------------- INTEREST EXPENSE: Deposits (Note 11) ....................................... 18,816 17,568 17,741 Mortgagors' escrow deposits .............................. 114 120 126 Borrowings ............................................... 332 133 297 ------------- ------------- ------------- Total interest expense ...................... 19,262 17,821 18,164 ------------- ------------- ------------- Net interest income ......................... 19,161 18,464 17,219 PROVISION FOR LOAN LOSSES (Note 7) ........................... 1,400 1,325 490 ------------- ------------- ------------- Net interest income after provision for loan losses ........................... 17,761 17,139 16,729 ------------- ------------- ------------- NONINTEREST INCOME: Service charges on deposits .............................. 746 765 741 Loan servicing revenue ................................... 495 568 605 Net gain (loss) on sale of mortgage loans ................ 81 106 (20) Other .................................................... 1,421 1,351 1,141 ------------- ------------- ------------- Total noninterest income .................... 2,743 2,790 2,467 ------------- ------------- ------------- NONINTEREST EXPENSE: Compensation and benefits ................................ 7,322 6,253 6,286 Occupancy ................................................ 2,686 2,493 2,247 FDIC deposit insurance premium ........................... 65 37 33 Advertising .............................................. 430 307 291 Other .................................................... 3,264 3,224 3,062 ------------- ------------- ------------- Total noninterest expense ................... 13,767 12,314 11,919 ------------- ------------- ------------- Income before income tax expense ............ 6,737 7,615 7,277 INCOME TAX EXPENSE (Note 15) ................................. 2,650 2,972 2,882 ------------- ------------- ------------- Net income .................................. $ 4,087 $ 4,643 $ 4,395 ============= ============= =============
The accompanying notes are an integral part of these statements. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COHOES SAVINGS General The Holding Company has only recently been formed and accordingly has no results of operations at this time. As a result, the following discussion principally reflects the operations of the Bank and its subsidiaries. The Bank's primary market area, with 16 full-service branches and one public accommodation office (a limited purpose convenience office) which is expected to be converted into a branch office in October, 1998, consists of Albany, Saratoga, Schenectady and Rensselaer counties in New York and a portion of Warren county in New York. The Bank has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. The Bank's principal business is attracting deposits from customers within its market area and investing those funds, together with funds from operations and, to a much lesser extent, borrowings, in primarily residential mortgage loans, including home equity loans, and to a lesser extent, in consumer loans, commercial real estate, construction loans and commercial business loans and government and corporate debt securities. See "Business of the Bank - Lending Activities". The financial condition and operating results of the Bank are dependent on its net interest income which is the difference between the interest income earned on its assets, primarily loans and investments, and the interest expense on its liabilities, primarily deposits and borrowings. Net income is also affected by other operating income, such as loan servicing income, fees on deposit related services, gains on sales of securities, other operating expenses, such as compensation and occupancy expenses, provisions for loan losses, and Federal and state income taxes. The Bank's results of operations are significantly affected by general economic and competitive conditions (particularly changes in market interest rates), government policies, changes in accounting standards and actions of regulatory agencies. Future changes in applicable laws, regulations or government policies may have a material impact on the Bank. Lending activities are substantially influenced by the demand for and supply of housing, competition among lenders, and level of interest rates and the availability of funds. The ability to gather deposits and the cost of funds are influenced by prevailing market interest rates, fees and terms on deposit products, as well as the availability of alternative investments, including mutual funds and stocks. Market Risk and Asset/Liability Management Interest rate risk is the most significant market risk affecting the Bank. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Bank's business activities. Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on the Bank's net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net income. Similarly, when earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net income. In an attempt to manage its exposure to changes in interest rates, management monitors the Bank's interest rate risk. Management's asset/liability committee meets monthly to review the Bank's interest rate risk position and profitability, and to recommend adjustments for consideration by the Board of Trustees. Management also reviews loan and deposit pricing, and the Bank's securities portfolio, formulates investment strategies and oversees the timing and implementation of transactions. Notwithstanding the Bank's interest rate risk management activities, the potential for changing interest rates is an uncertainty that can adversely affect net income. In adjusting the Bank's asset/liability position, the Board and management attempt to manage the Bank's interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Bank's interest rate risk position somewhat in order to increase its net interest margins. The Bank's results of operations and net portfolio values remain vulnerable to changes in interest rates and to fluctuations in the difference between long- and short-term interest rates. 29 Consistent with the asset/liability management philosophy described above, the Bank has taken several steps to manage its interest rate risk. First, the Bank has structured the security portfolio to shorten the maturities of its earning assets. The Bank's recent purchases of securities have had terms to maturity of seven years or less. At June 30, 1998, the Bank had securities with a carrying value of $76.2 million with contractual maturities of five years or less. The Bank's residential real estate portfolio is composed of either one, three or five year adjustable rate mortgages or floating-rate home equity loans, except for approximately $103.5 million of fixed rate products. The Bank also manages interest rate risk by emphasizing lower cost, more stable non-time deposit accounts. In the current low rate environment, longer-term time deposits are welcomed although not particularly popular with the Bank's customer base. One approach used to quantify interest rate risk is the net market value analysis. In essence, this analysis calculates the difference between the present value of liabilities and the present value of expected cash flows from assets and off-balance sheet contracts. A second approach is to quantify the impact on net interest income due to changes in cash flows, interest income and interest expense resulting from shifts in interest rates. The following tables set forth, at June 30, 1998, an analysis of the Bank's interest rate risk as measured by the estimated changes in net market value of its assets and liabilities and net interest income resulting from instantaneous and sustained parallel shifts in interest rates (+ or - 200 basis points, measured in 50 basis point increments). Assumed Change Net in Interest Rates Interest Dollar Percent (Basis Points) Income Change Change ------ ------ ------ -200 $ 19,986 $ 826 4.31% -150 19,770 610 3.18 -100 19,244 84 0.44 -50 19,204 44 0.23 0 19,160 -- 0.00 +50 19,153 (7) (0.04) +100 19,137 (23) (0.12) +150 19,056 (104) (0.54) +200 18,918 (242) (1.26) Assumed Change Net in Interest Rates Market Dollar Percent (Basis Points) Value Change Change ----- ------ ------ -200 $ 99,941 $ 10,985 12.35% -150 97,343 8,387 9.43 -100 94,643 5,687 6.39 -50 91,845 2,889 3.25 0 88,956 -- 0.00 +50 85,741 (3,215) (3.61) +100 82,151 (6,805) (7.65) +150 79,056 (9,900) (11.13) +200 75,804 (13,152) (14.78) Certain assumptions utilized by management in assessing the interest rate risk of the Bank were employed in preparing data included in the preceding table. These assumptions were based upon proprietary data selected by management and are reflective of historical results or current market conditions. These assumptions relate to interest rates, repayment rates, deposit decay rates, and the market values of certain assets under the various interest rate scenarios. Prepayment assumptions for mortgage-backed securities and residential mortgage loans were based upon industry standards for prepayments. The Bank's mortgage-backed securities and residential mortgages are the only assets or liabilities which management assumed possess optionality for purposes of determining market value changes. 30 Management assumed that non-maturity deposits could be maintained with rate adjustments not directly proportionate to the change in market interest rate. These assumptions are based upon management's analysis of its customer base and competitive factors. The net market value and net interest income tables presented above are predicated upon a stable balance sheet with no growth or change in asset or liability mix. In addition, the net market value table is based upon the present value of discounted cash flows using management's estimates of current replacement rates to discount the cash flows. The net interest income table is based upon a cash flow simulation of the Bank's existing assets and liabilities. It was also assumed that delinquency rates would not change as a result of changes in interest rates although there can be no assurance that this will be the case. Even if interest rates change in the designated amounts, there can be no assurance that the Bank's assets and liabilities would perform as set forth above. Also, a change in the US Treasury rates in the designated amounts accompanied by a change in the shape of the Treasury yield curve would cause changes to the net market value and net interest income other than those indicated above. The Bank does not currently engage in trading activities or use derivative instruments to manage interest rate risk. Instruments such as interest rate swaps, caps and floors may be utilized under certain interest rate risk scenarios in order to manage interest rate risk. Such activities may be permitted with the approval of the Board of Trustees, and management continually evaluates the usefulness of such instruments in managing interest rate risk. Analysis of Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. 31 The following table presents, for the periods indicated, the total dollar amount of interest income from the average interest-earning assets and the resultant yields earned, the total dollar amount of interest expense on average interest-bearing liabilities and the resultant rates paid, expressed both in dollars and percentages as well as the weighted average yields earned and rates paid. No tax equivalent adjustments were made. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying zero yield.
Average Year Ended June 30, Yield --------------------------------------------------------------------------------------------- Earned/ 1998 1997 1996 Average ----------------------------- ------------------------------- ---------------------------- Rate Paid at Average Interest Average Interest Average Interest June 30, Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ 1998 Balance Paid Rate Balance Paid Rate Balance Paid Rate ---- ------- ---- ---- ------- ---- ---- ------- ---- ---- (Dollars in Thousands) Interest-earning assets Loans receivable ......... 8.09% $404,781 $ 33,573 8.29% $401,262 $ 33,166 8.27% $390,273 $ 32,104 8.23% Securities available for sale ................ 6.18 30,336 1,933 6.37 19,330 1,253 6.48 14,350 872 6.08 Investment securities .... 6.28 30,372 1,926 6.34 22,240 1,373 6.17 31,950 1,993 6.24 Federal funds sold ....... 5.50 13,321 739 5.55 4,641 245 5.28 2,255 127 5.63 FHLB stock ............... 7.45 3,479 249 7.16 3,400 218 6.41 3,346 230 6.87 Other interest-earning assets .................. 6.00 184 3 1.63 416 30 7.21 967 57 5.89 ------- ------ ------- ------ ------- ------ Total interest-earning assets ................. 7.72 482,473 38,423 7.96 451,289 36,285 8.04 443,141 35,383 7.98 ------ ------ ------ Non-earning assets ........ 18,714 17,919 17,264 ------- ------- ------- Total assets ............ $501,187 $469,208 $460,405 ======== ======== ======== Interest-bearing liabilities Savings accounts ......... 3.00% $120,959 3,623 3.00 $123,518 3,698 2.99 $123,976 3,718 3.00 School savings accounts .. 5.50 15,112 837 5.54 11,895 661 5.56 8,271 460 5.56 Money market accounts .... 3.32 18,163 569 3.13 15,607 447 2.86 17,089 488 2.86 Demand deposits .......... 0.59 47,075 304 0.65 41,124 275 0.67 35,073 246 0.70 Time deposits ............ 5.78 230,794 13,483 5.84 215,183 12,487 5.80 214,420 12,829 5.98 Escrow accounts .......... 2.00 7,065 114 1.61 7,396 120 1.62 7,249 126 1.74 Borrowings ............... 6.05 5,467 332 6.07 2,392 133 5.56 4,694 297 6.33 ------- ------ ------- ------ ------- ------ Total interest-bearing liabilities ........... 4.28 444,635 19,262 4.33 417,115 17,821 4.27 410,772 18,164 4.42 ------ ------ ------ Other liabilities ......... 4,677 5,033 6,898 Net worth ................. 51,875 47,060 42,735 ------- ------- ------ Total liabilities and net worth .............. $501,187 $469,208 $460,405 ======== ======== ======== Net interest income ....... $19,161 $ 18,464 $ 17,219 ======= ======== ======== Net interest rate spread(1) ................ 3.44% 3.63% 3.77% 3.56% ==== ==== ==== ==== Net earning assets(2) ..... $ 37,838 $ 34,174 $ 32,369 ======== ======== ======== Net yield on average interest-earning assets(3) ................ 3.97% 4.09% 3.89% ==== ==== ==== Average interest-earning assets to average interest-bearing liabilities............... 1.09X 1.08X 1.08X
- ---------------- (1) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (2) Net earning assets represents total interest-earning assets less total interest-bearing liabilities. (3) Net yield on average interest-earning assets, or net interest margin, represents net interest income as a percentage of average interest-earning assets. 32 The following schedule presents the dollar amount of changes in interest and dividend income and interest expense for major components of earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to the changes in interest rates. For each category of earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by prior-period rate) and (ii) changes in rate (i.e., changes in rate multiplied by prior-period volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionally to the change due to volume and the change due to rate.
Years Ended June 30, Years Ended June 30, 1998 vs. 1997 1997 vs. 1996 --------------------------------------- --------------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total ----------------------- Increase --------------------- Increase Volume Rate (Decrease) Volume Rate (Decrease) ------ ---- ---------- ------ ---- ---------- (In Thousands) Interest and dividend income from: Loans receivable................ $ 292 $ 115 $ 407 $ 908 $ 154 $ 1,062 Securities available for sale... 701 (21) 680 320 61 381 Investment securities........... 515 38 553 (600) (20) (620) Federal Funds sold.............. 481 13 494 126 (8) 118 FHLB............................ 5 26 31 4 (16) (12) Other interest-earning assets... (11) (16) (27) (38) 11 (27) ----------- ----------- ----------- ----------- ---------- ----------- Total interest and dividend income 1,983 155 2,138 720 182 902 --------- ---------- --------- ---------- ---------- ---------- Interest expense for: Savings accounts................ (78) 2 (75) (14) (6) (20) School savings accounts......... 178 (2) 176 201 -- 201 Money market accounts........... 77 44 122 (42) 1 (41) Demand deposits................. 39 (10) 29 41 (12) 29 Time deposits................... 911 85 996 46 (385) (342) Escrow accounts................. (5) (1) (6) 3 (9) (6) Borrowings...................... 186 13 199 (131) (33) (164) ---------- ----------- ---------- ----------- ------------ ----------- Total interest expense 1,310 131 1,441 104 (447) (343) ---------- ----------- ---------- ----------- ----------- ------------ Net interest income............. $ 673 $ 24 $ 697 $ 616 $ 629 $ 1,245 ========== =========== ========== ========== ========== =========
33 Financial Condition Comparison of June 30, 1998 and June 30, 1997 Assets. Total assets at June 30, 1998 was $535.7 million, up $44.0 million, or 8.9% from the $491.7 million at June 30, 1997. The increase was evenly divided with the loan portfolio, up $14.3 million, securities available for sale up $13.2 million and investment securities up $20.1 million. This growth in earning assets was funded by an increase in deposits from $429.4 million on June 30, 1997 to $449.5 million at June 30, 1998 and an increase in borrowings of $19.9 million over the same period. These increases, as well as fluctuations in other asset and liability categories, are discussed below. Loans. The overall increase in total loans is primarily made up of increases in one to four family real estate and commercial business loans offset by a decrease in consumer loans. One- to four-family real estate loans increased $14.8 million, from $243.6 million to $258.4 million. The growth in this portfolio is primarily a result of the Bank's decision to retain in its portfolio a limited amount of 15 to 30 year fixed rate one to four family real estate loans at a time when adjustable rate loans are less popular. A portion of these loans were retained and match funded using long-term FHLB advances. See "Business of Cohoes Savings Bank -- Borrowings." Commercial business loans increased from $12.1 million at June 30, 1997, to $15.0 million at June 30, 1998. Consumer loans decreased $2.5 million to a balance of $49.7 million at June 30, 1998 from $52.2 million at June 30, 1997. Most of this decrease relates to a reduction in outstanding balances on home equity lines of credit. Allowance for Loan Losses. The allowance for loan losses increased from $3.1 million at June 30, 1997 to $3.5 million at June 30, 1998, an increase of $428,000. This increase is the result of the $1.4 million provision for loan losses taken in the year ended June 30, 1998 offset by $972,000 in net charge-offs for the same period. The adequacy of the allowance for loan losses is evaluated quarterly by management based upon a review of significant loans, with particular emphasis on nonperforming and delinquent loans that management believes warrant special attention. At June 30, 1998 the allowance for loan losses provided coverage of 62.5% of total nonperforming loans, up from 46.4% at June 30, 1997. The balance of the allowance is maintained at a level which is, in management's judgment, reflective of the amount of risk inherent in the loan portfolio. See "Business of the Bank - Asset Quality - Allowance for Loan Losses." Securities Available for Sale and Investment Securities. The balances of securities available for sale and investment securities (collectively "securities") increased from $35.5 million and $25.3 million, respectively, at June 30, 1997 to $48.7 million and $45.4 million, respectively, as of June 30, 1998. These increases were the result of the purchase of securities totaling $82.9 million offset by paydowns, maturities and calls of securities totaling $49.5 million and sales totaling $60,000 during the year ended June 30, 1998. Management's intention is to continue purchasing securities with available funds in excess of loan demand. During the year ended June 30, 1998, loan demand was stronger than in fiscal 1997. Bank Premises and Equipment. The balance of bank premises and equipment decreased from $7.7 million at June 30, 1997 to $7.3 million at June 30, 1998. This decrease was a result of approximately $763,000 in computer-related expenditures offset by $1.1 million in depreciation. Other Real Estate Owned. The balance of other real estate owned decreased from $1.9 million at June 30, 1997 to $509,000 at June 30, 1998, a decrease of approximately $1.4 million. The majority of this decrease relates to the sale in September 1997 of the Bank's largest ORE property that had a balance of $1.0 million at June 30, 1997. Deposits. Total deposits increased $20.1 million, or 4.7%, from $429.4 million at June 30, 1997 to $449.5 million at June 30, 1998. Of this total increase, time deposits increased $743,000 (.3%), savings accounts increased $1.7 million (1.4%), school savings accounts increased $3.3 million (24.1%), money market accounts increased $6.2 million (40.3%), and demand accounts increased $8.1 million (17.7%). Borrowings. The balance of borrowings increased $19.9 million all of which was the result of new borrowings during the year ended June 30, 1998 as the bank matched financed portfolioed fixed-rate loans with these borrowings. 34 Ten year fixed rate, fifteen year amortizing FHLB borrowings were used to fund certain fixed rate one to four family real estate loans. Comparison of June 30, 1997 and June 30, 1996 Assets. Total assets at June 30, 1997 stood at $491.7 million, up $28.3 million, or 6.1%, from $463.4 million at June 30, 1996. The increase was concentrated in the loan portfolio which increased $4.6 million, ending June 30, 1997 at $398.5 million and securities available for sale which increased $14.6 million, ending June 30, 1997 at $35.5 million. This growth in loans and securities was funded by an increase of $24.9 million in deposits from $404.5 million on June 30, 1996 to $429.4 million at June 30, 1997. These increases as well as fluctuations in other asset and liability categories are discussed below. Loans. The overall increase in total loans is primarily made up of increases in one- to four-family real estate loans, offset by decreases in the Bank's commercial real estate and commercial business loans. Total one to four family real estate loans increased $8.7 million, or 3.7%, which increased the level of total residential real estate as a percentage of total loans from 59.1% at June 30, 1996 to 60.6% at June 30, 1997. Commercial real estate loans fell from $96.6 million at June 30, 1996 to $94.0 million at June 30, 1997. At June 30, 1997, commercial real estate loans represented 23.4% of total loans. Commercial business loans decreased $1.2 million to a balance of $12.1 million at June 30, 1997 from $13.3 million at June 30, 1996. Commercial business loans are loans to businesses which are either unsecured or are secured by non-real estate business assets. Allowance for Loan Losses. The allowance for loan losses decreased from $3.2 million at June 30, 1996 to $3.1 million at June 30, 1997, a decrease of $144,000. This decrease is the result of a $1.3 million provision for loan losses taken in the year ended June 30, 1997 offset by $1.5 million in net charge-offs for the same period. At June 30, 1997, the allowance for loan losses provided coverage of 46.4% of total non-performing loans, up slightly from 41.7% at June 30, 1996. The balance of the allowance is maintained at a level which is, in management's judgment, representative of the amount of risk inherent in the Bank's loan portfolio. In determining the appropriate level of the allowance for loan losses, management considers past and anticipated loss experience, evaluations of real estate collateral, current and anticipated economic conditions, geographical concentration of loans, volume and type of lending, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management of the Bank assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses in order to maintain the adequacy of the allowance. See "Business of the Bank - Asset Quality - Allowance for Loan Losses." Securities Available for Sale and Investment Securities. The balance of securities available for sale increased from $20.9 million at June 30, 1996 to $35.5 million as of June 30, 1997. The balance of investment securities decreased slightly from $26.0 million at June 30, 1996 to $25.3 million as of June 30, 1997. The increase in securities available for sale and slight decrease in investment securities (collectively "securities") during the year ended June 30, 1997 were driven by purchases of securities totaling $28.7 million, which were offset by paydowns, maturities and calls of securities totaling $14.7 million and sales totaling $287,000. Bank Premises and Equipment. The balance of Bank premises and equipment increased from $6.9 million at June 30, 1996 to $7.7 million at June 30, 1997. This increase was a result of expenditures totaling $1.8 million for the most part relating to the opening of four new branch locations during the year ended June 30, 1997 offset by $1.1 million in depreciation. Other Real Estate Owned. The balance of other real estate owned increased from $421,000 at June 30, 1996 to $1.9 million at June 30, 1997, an increase of approximately $1.5 million. This increase directly relates to the addition during the year ended June 30, 1997 of an ORE property that had a balance of $1.0 million at June 30, 1997. Deposits. Total deposits increased $24.9 million, or 6.2%, from $404.5 million at June 30, 1996 to $429.4 million at June 30, 1997. Of this total increase, time deposits increased $20.6 million (9.8%), school savings accounts increased $3.3 million (31.1%), demand accounts increased $5.1 million (12.5%), while savings accounts decreased $3.1 million (2.4%) and money market accounts decreased $1.1 million (6.6%). Borrowings. Borrowings decreased $2.1 million during the year ended June 30, 1997. There were no borrowings at June 30, 1997. This decrease was a result of an increase in deposit balances which exceeded loan demand. 35 Operating Results Comparison of Year Ended June 30, 1998 and Year Ended June 30, 1997 Net Income. Net income for the year ended June 30, 1998 was $4.1 million, down from $4.6 million for the year ended June 30, 1997. Noninterest expense increased $1.5 million for the year ended June 30, 1998 as compared to the previous year. This increase was in part offset by an increase in net interest income of $697,000 and a reduction in income tax expense of $322,000. Net Interest Income. Net interest income for the year ended June 30, 1998 was $19.2 million, up $697,000 from the year ended June 30,1997. The increase was primarily the result of the increase of $31.2 million in average earning assets from $451.3 million for the year ended June 30, 1997 to $482.5 million for the same period in 1998. Average interest-bearing liabilities also increased $27.5 million during the same period. The net impact of these volume increases resulted in an increase in net interest income of $673,000. The Bank's net interest margin for the year ended June 30, 1998 was 3.97%, down 12 basis points from 4.09% for the year ended June 30, 1997. The yield on average earning assets decreased from 8.04% to 7.96% , while the rate paid on average interest-bearing liabilities increased from 4.27% to 4.33%, producing a decrease in net interest spread of 14 basis points from 3.77% during fiscal 1997 to 3.63% during fiscal 1998. Interest Income. Interest income for the year ended June 30, 1998 was $38.4 million, up from $36.3 million for the comparable period in 1997. The largest component of the Bank's interest income is interest on loans. Interest on loans increased from $33.2 million for the year ended June 30, 1997 to $33.6 million for the year ended June 30, 1998. This increase of $407,000 is the result of both volume increases and rate increases. The average balance of loans increased $3.5 million to $404.8 million, while the yield on loans increased 2 basis points from 8.27% to 8.29%. The increase in interest earned on loans was supplemented by increases in interest earned on securities available for sale, investment securities and federal funds. Interest income on these categories of earning assets increased $680,000, $553,000 and $494,000, respectively. Substantially all of the increases in interest income on these assets are attributed to increases in volume. The average balance of securities available for sale increased from $19.3 million for the year ended June 30, 1997 to $30.3 million for the year ended June 30, 1998. This increase in volume resulted in an increase in interest income of $701,000. The average balance of investment securities increased from $22.2 million in 1997 to $30.4 million in 1998, resulting in a $515,000 increase in interest income due to volume. The average balance of federal funds increased from $4.6 million in 1997 to $13.3 million in 1998. The increase in the volume of federal funds resulted in a $481,000 increase in interest income in the year ended June 30, 1998 as compared to the year ended June 30, 1997. The changes in rates on securities available for sale, investment securities and federal funds, as well as the changes in volume and rate on other categories of interest-earning assets was not significant. Interest Expense. Interest expense increased during the year ended June 30, 1998 to $19.3 million, up from $17.8 million for the comparable period in 1997. Substantially all of the Bank's interest expense is from the Bank's interest-bearing deposits. The largest category of interest-bearing deposits is time deposits. Interest paid on time deposits for the year ended June 30, 1998 was $13.5 million, up $1.0 million from the $12.5 million in 1997. This increase is the result of an increase in the average balance of time deposits, from $215.2 million in 1997 to $230.8 million in 1998 and an increase of 4 basis points in the rates paid on these deposits from 5.80% in 1997 to 5.84% in 1998, primarily due to competitive market conditions. Interest expense on savings accounts was relatively flat, decreasing $75,000 from 1997 to 1998, almost entirely attributed to a reduction in the average balance of savings accounts of $2.6 million as depositors sought higher yielding investment opportunities. Interest on school savings accounts increased $176,000, from $661,000 for the year ended June 30, 1997 to $837,000 for the year ended June 30, 1998, substantially all of which was the result of an increase in the average balance of school savings accounts of $3.2 million. Interest on money market accounts increased $122,000, from $447,000 for the year ended June 30, 1997 to $569,000 for the year ended June 30, 1998. The increase is attributed to an increase in the average balance of money market accounts of $2.6 million as well as an increase of 27 basis points in the rates paid on these money market accounts, from 2.86% to 3.13% in compliance with the Bank's strategy to attract money market accounts and remain competitive in its primary market area. Interest on borrowings for the year ended June 30, 1998 was $332,000, up from $133,000 in 1997. Most of this increase was attributable to an increase in the average balance of borrowings, from $2.4 36 million in 1997 to $5.5 million in 1998 as the Bank attempted to match fund fixed rate residential loans with borrowings. Fluctuations in interest expense on other categories of interest-bearing liabilities were not significant. Provision for Loan Losses. The provision for loan losses of $1.4 million in the year ended June 30, 1998 remained consistent with the $1.3 million provision in the year ended June 30, 1997. The amount of the provision is attributed to the $13.3 million increase in outstanding loans tempered by the reduction in the level of net charge-offs from $1.5 million for the year ended June 30, 1997 to $972,000 for the year ended June 30, 1998. Noninterest Income. Total noninterest income for the year ended June 30, 1998 was $2.7 million, relatively unchanged from the $2.8 million for the year ended June 30, 1997. Service charges on deposits declined only slightly to $746,000 for the year ended June 30, 1998, from $765,000 for the year ended June 30, 1997. Loan servicing revenue declined $73,000 from $568,000 for the year ended June 30, 1997 to $495,000 for the year ended June 30, 1998. The decline relates to a reduction in the balance of loans serviced for others due to repayments on such loans exceeding loan sales during 1998. Fluctuations in other noninterest income categories were not significant. Noninterest Expense. Total noninterest expense increased $1.5 million to $13.8 million for the year ended June 30, 1998, up from $12.3 million for the comparable period in 1997. Increases in compensation and benefits of $1.1 million, occupancy of $193,000 and advertising of $123,000 were the primary contributors to the overall increase. The increase in compensation and benefits is the result of a decrease in the post-retirement benefit expense based on revised actuarial assumptions in 1997, the recognition of a full year's salary expense for employees at the four new branch locations opened in the year ended June 30, 1997, an increase in the cost of health insurance benefits of $114,000 as well as general merit increases for the Bank's employees during the year ended June 30, 1998. The increase in occupancy is directly attributed to a full year's cost associated with the opening of the four branch locations mentioned above. The increase in advertising is generally the result of the additional cost of customer binders, brochures and media print for the introduction of imaging for all demand account products during the month of June 1998. The remaining categories of noninterest expense did not experience significant fluctuation. Income Tax Expense. Income tax expense decreased from $3.0 million for the year ended June 30, 1997 to $2.7 million for the comparable period in 1998. The reduction is primarily the result of less income before income tax expense, $6.7 million in 1998 as compared to $7.6 million in 1997. Comparison of Year Ended June 30, 1997 and Year Ended June 30, 1996 Net Income. Net income for the year ended June 30, 1997 was $4.6 million, up from $4.4 million for the year ended June 30, 1996. Net interest income increased $1.2 million and noninterest income increased $323,000 for the year ended June 30, 1997 as compared to the previous year. These increases were in part offset by increases in the provision for loan losses of $835,000, noninterest expense of $395,000 and income tax expense of $90,000. Net Interest Income. Net interest income for the year ended June 30, 1997 was $18.5 million, up $1.2 million from the year ended June 30,1996. The increase was partially the result of the increase of $8.2 million in average earning assets from $443.1 million for the year ended June 30, 1996 to $451.3 million for the same period in 1997. Interest-bearing liabilities also increased during the same period, up $6.3 million. The net impact of these volume increases resulted in an increase in net interest income of $616,000. Net interest income also increased by $629,000 due to changes in the yield on average earning assets and rate paid on average interest-bearing liabilities. The yield on average earning assets increased from 7.98% to 8.04%, while the rate paid on average interest-bearing liabilities decreased from 4.42% to 4.27%. The Bank's net interest margin for the year ended June 30, 1997 was 4.09%, up 20 basis points from 3.89% for the year ended June 30, 1996. Interest Income. Interest income for the year ended June 30, 1997 was $36.3 million, up from $35.4 million for the comparable period in 1996. The largest component of interest income is interest on loans. Interest on loans increased from $32.1 million for the year ended June 30, 1996 to $33.2 million for the year ended June 30, 1997. This increase of $1.1 million is primarily the result of an $11.0 million increase in the average balance of loans to $401.3 million, while the yield on loans increased 4 basis points from 8.23% to 8.27%. The increase in interest on loans was complemented by an increase in interest on securities available for sale, offset by a decrease in interest on investment 37 securities. Interest income on securities available for sale increased $381,000 while interest income on investments fell $620,000. Substantially all of the increases in interest income on securities available for sale are attributed to higher volume. The average balance of securities available for sale increased from $14.4 million for the year ended June 30, 1996 to $19.3 million for the year ended June 30, 1997. This increase in volume resulted in an increase in interest income of $320,000. The average balance of investment securities decreased from $32.0 million in 1996 to $22.2 million in 1997, resulting in a $600,000 decrease in interest income due to volume as the Bank used liquidity to fund increased loan demand. The changes in rates on securities available for sale and investment securities account for the remainder of the fluctuations in interest income on these asset categories. The changes in volume and rate on other categories of interest-earning assets were not significant. Interest Expense. Interest expense decreased during the year ended June 30, 1997 to $17.8 million, down from $18.2 million for the comparable period in 1996. Substantially all of the Bank's interest expense is from the Bank's interest-bearing deposits. The largest category of interest-bearing deposits is time deposits. Interest on time deposits for the year ended June 30, 1997 was $12.5 million, down $342,000 from the $12.8 million in 1996. This decrease is primarily the result of a decrease of 18 basis points in the rates paid on these deposits from 5.98% in 1996 to 5.80% in 1997, reflecting the general decline in market interest rates, offset by a slight increase in the average balance of time deposits of $763,000 due to a decline in general market rates. Interest expense on savings accounts was relatively flat, decreasing $20,000 from 1996 to 1997, primarily attributable to a reduction in the average balance of savings accounts of $458,000. Interest on school savings accounts increased $201,000, from $460,000 for the year ended June 30, 1996 to $661,000 for the year ended June 30, 1997, substantially all of which was the result of an increase in the average balance of school savings accounts of $3.6 million. Interest on borrowings for the year ended June 30, 1997 was $133,000, down from $297,000 in 1996. Most of this decrease was attributable to a decrease in the average balance of borrowings, from $4.7 million in 1996 to $2.4 million in 1997. Fluctuations in interest expense on other categories of interest-bearing liabilities were not significant. Provision for Loan Losses. The provision for loan losses increased from $490,000 in the year ended June 30, 1996 to $1.3 million in the year ended June 30, 1997. This increase is primarily the result of increases in net charge-offs from $374,000 for the year ended June 30, 1996 to $1.5 million for the year ended June 30, 1997. The increase in net charge-offs combined with the continued growth of the loan portfolio, continued economic weaknesses in the Bank's market area, declining real estate values securing much of the loan portfolio as well as management's evaluation of the prospects for its market area resulted in the increase in the provision. See "Business of the Bank - Asset Quality Allowance for Loan Losses." Noninterest Income. Total noninterest income increased $323,000 for the year ended June 30, 1997 as compared to the same period in 1996. Income from service charges on deposits increased only slightly to $765,000 for the year ended June 30, 1997, from $741,000 for the year ended June 30, 1996. Loan servicing revenue decreased $37,000 from $605,000 in the year ended June 30, 1996 to $568,000 in the year ended June 30, 1997. The decline relates to a reduction in the balance of loans serviced for others. Net gain (loss) on the sale of mortgage loans increased from a loss of $20,000 for the year ended June 30, 1996 to a gain of $106,000 for the year ended June 30, 1997. Other noninterest income increased from $1.1 million for the year ended June 30, 1996 to $1.4 million for the year ended June 30, 1997. This increase was the result of increases in ATM fees, loan assignment fees, rents collected on ORE properties and gains on the sale of securities. Noninterest Expense. Total noninterest expense increased $395,000 to $12.3 million for the year ended June 30, 1997, up from $11.9 million for the comparable period in 1996. The increase in occupancy of $246,000 and other noninterest expense of $162,000 were the primary contributors to the overall increase. The decrease in compensation and benefits resulted from general merit increases for the Bank's employees during the year ended June 30, 1997, offset by a decrease in the post-retirement benefit expense based on revised actuarial assumptions. The increase in occupancy was directly attributed to the increased lease expense associated with the opening of four new branch locations in the year ended June 30, 1997. The increase in other noninterest expense was generally attributed to an increase in legal fees associated with the collection and foreclosure of delinquent loans. 38 Income Tax Expense. Income tax expense increased from $2.9 million for the year ended June 30, 1996 to $3.0 million for the comparable period in 1997. The increase is the result of more income before income tax expense, $7.6 million in 1997 as compared to $7.3 million in 1996. Liquidity and Capital Resources Liquidity. Liquidity is defined as the ability to generate sufficient cash flow to meet all present and future funding commitments, depositor withdrawals and operating expenses. Management monitors the Bank's liquidity position on a daily basis and evaluates its ability to meet depositor withdrawals or make new loans or investments. The Bank's liquid assets include cash and cash equivalents, investment securities that mature within one year, and its portfolio of securities available for sale. At June 30, 1998, the Bank's liquid assets as a percentage of deposits which have no withdrawal restrictions, time deposits which mature within one year, and short-term borrowings was 16.8%. The Bank's cash inflows result primarily from loan repayments, maturities, calls and paydowns of securities, new deposits, and to a lesser extent, drawing upon the Bank's credit lines with the FHLB of New York. The Bank's cash outflows are substantially new loan originations, securities purchases, and deposit withdrawals. The timing of cash inflows and outflows are closely monitored by management although changes in interest rates, economic conditions, and competitive forces strongly impact the predictability of these cash flows. The Bank attempts to provide stable and flexible sources of funding through the management of its liabilities, including core deposit products offered through its branch network as well as with limited use of borrowings. Management believes that the level of the Bank's liquid assets combined with daily monitoring of inflows and outflows provide adequate liquidity to fund outstanding loan commitments, meet daily withdrawal requirements of our depositors, and meet all other daily obligations of the Bank. Capital. Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain a "well capitalized" institution in accordance with regulatory standards. Total equity was $53.3 million at June 30, 1998, 9.9% of total assets on that date. As of June 30, 1997 and 1996, total equity was $49.1 million and $44.3 million, respectively, or 10.0% and 9.6% of total assets at the respective dates. As of June 30, 1998, the Bank exceeded all of the capital requirements of the FDIC. The Bank's regulatory capital ratios at June 30, 1998 were as follows: Tier I (leverage) capital, 10.6%; Tier I risk-based capital, 16.0%; and Total risk-based capital, 17.1%. The regulatory capital minimum requirements to be considered well capitalized are 5.0%, 6.0%, and 10.0%, respectively. Impact of the Year 2000 The Bank has been following, and will continue to follow, the guidelines provided by the Federal Financial Institutions Examinations Council ("FFIEC"). The Bank has formulated a Year 2000 Plan in which it has conducted a comprehensive review of its computer systems to identify applications that could be affected by the "Year 2000" issue, and has developed and tested an implementation plan to address the issue. The Bank's data processing is performed primarily in-house; however, software and hardware utilized is under maintenance agreements with third party vendors, consequently the Bank is very dependent on those vendors to conduct its business. The Bank has already contacted each vendor to request time tables for Year 2000 compliance and expected costs, if any, to be passed along to the Bank. To date, the Bank has been informed that its primary service providers anticipate that all reprogramming efforts will be completed by December 31, 1998, allowing the Bank adequate time for testing. Certain other vendors have not yet responded; however, the Bank is in the process of developing contingency plans should its primary service providers and other vendors be unable to comply. Management anticipates the costs to become Year 2000 compliant to be approximately $100,000; however, there can be no assurance that the vendors' systems will be Year 2000 compliant. Consequently, the Bank could incur incremental costs to convert to another vendor. The risks associated with this issue go beyond the Bank's own ability to solve Year 2000 problems. Should significant commercial customers fail to address Year 2000 issues effectively, their ability to meet debt service requirements could be impaired, resulting in increased credit risk and potential increases in loan charge offs. In addition, should suppliers of critical services fail in their efforts to become Year 2000 compliant, or if significant third party interfaces fail to be compatible with the Bank's or fail to be Year 2000 compliant, it could have significant adverse affects on the operations and financial results of the Bank. 39 Impact of Inflation and Changing Prices The Bank's consolidated financial statements are prepared in accordance with generally accepted accounting principles which require the measurement of financial condition and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increasing cost of the Bank's operations. Unlike most industrial companies, nearly all assets and liabilities of the Bank are monetary. As a result, interest rates have a greater impact on the Bank's performance than do the effects of general levels of inflation. In addition, interest rates do not necessarily move in the direction, or to the same extent as the price of goods and services. Impact of New Accounting Standards/ Existing Pronouncements to be Adopted by the Holding Company In November 1993, the AICPA issued Statement of Position 93-6 ("SOP 93-6"), "Employers' Accounting for Employee Stock Ownership Plans", which is effective for years beginning after December 15, 1993. SOP 93-6 requires the measure of compensation expense recorded by employers for leveraged ESOPs to be the fair value of ESOP shares committed to be released. The Holding Company has adopted an ESOP in connection with the Conversion, which is expected to purchase 8% of the Holding Company Common Stock issued in the Conversion, including shares issued to the Foundation. Under SOP 93-6, the Holding Company will recognize compensation cost equal to the average fair value of the ESOP shares during the periods in which they become committed to be released. Employers with internally leveraged ESOPs such as the Holding Company will not report the loan receivable from the ESOP as an asset and will not report the ESOP debt from the employer as a liability. The effects of SOP 93-6 on future operating results cannot be determined at this time. In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"). This statement establishes financial accounting standards for stock-based employee compensation plans. SFAS No. 123 permits the Holding Company to choose either a new fair value based method or the Accounting Principles Board ("APB") Opinion 25 intrinsic value based method of accounting for its stock-based compensation arrangements. SFAS No. 123 requires pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied in financial statements of companies that follow accounting for such arrangements under APB Opinion 25. SFAS No. 123 applies to all stock-based employee compensation plans in which an employer grants shares of its stock or other equity instruments to employees except for employee stock ownership plans. SFAS No. 123 also applies to plans in which the employer incurs liabilities to employees in amounts based on the price of the employer's stock, (e.g., stock option plans, stock purchase plans, restricted stock plans, and stock appreciation rights). The Statement also specifies the accounting for transactions in which a company issues stock options or other equity instruments for services provided by non-employees or to acquire goods or services from outside suppliers or vendors. The Holding Company expects to utilize the intrinsic value based method prescribed by APB Opinion No. 25. Accordingly, the impact of adopting this Statement will not be material to the Holding Company's consolidated financial statements. In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS"). This Statement supersedes APB 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 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. Unvested restricted stock awards are considered outstanding common shares and included in the computation of basic EPS as of the date that they are fully vested. 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 or resulted in the issuance of 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, 40 1997, including interim periods. The Holding Company will adopt this Statement for all financial statements prepared after the Conversion. In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure", which establishes standards for disclosure about an entity's capital structure. In accordance with SFAS No. 129, companies will be required to provide in the financial statements a complete description of all aspects of their capital structure, including call and put features, redemption requirements and Conversion options. The disclosures required by SFAS No. 129 are for financial statements for periods ending after December 15, 1997. The Holding Company will adopt this Statement for all financial statements prepared after the Conversion In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting and displaying comprehensive income. SFAS No. 130 states that comprehensive income includes the reported net income of an enterprise adjusted for items that are currently accounted for as direct entries to equity, such as the mark to market adjustment on securities available for sale, foreign currency items and minimum pension liability adjustments. This Statement is effective for both interim and annual periods after December 15, 1997. Management anticipates developing the required information in accordance with this new Statement. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 131 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. At this time, management does not anticipate that the adoption of this Statement will significantly impact the Holding Company's financial reporting. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post- retirement Benefits," which amends the disclosure requirements of SFAS No. 87. "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions." Statement No. 132 standardizes the disclosure requirements of Statements No. 87 and No. 106 to the extent practicable and recommends a parallel format for presenting information about pensions and other post-retirement benefits. This Statement is applicable to all entities and addresses disclosure only. The Statement does not change any of the measurement or recognition provisions provided for in Statements No. 87, No. 88, or No. 106. The Statement is effective for fiscal years beginning after December 15, 1997. Management anticipates providing the required disclosures in the June 30, 1999 consolidated financial statements. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. SFAS No. 133 will not impact the Bank's accounting or disclosures. 41 BUSINESS OF THE HOLDING COMPANY The Holding Company, a Delaware corporation, was organized in September, 1998 at the direction of the Board of Trustees of the Bank for the purpose of owning all of the outstanding capital stock of the Bank upon consummation of the Conversion. Upon consummation of the Conversion, the Holding Company, as the sole stockholder of the Bank, will be a savings and loan holding company regulated by the OTS. See "Regulation--Holding Company Regulation." The Holding Company is currently not an operating company. Following the Conversion, in addition to directing, planning and coordinating the business activities of the Bank, the Holding Company will initially invest the proceeds of the Conversion primarily in federal funds, government and federal agency mortgage-backed securities, other debt securities, equity securities, deposits of or loans to the Bank or a combination thereof. In addition, the Holding Company intends to fund the loan to the ESOP to enable the ESOP to purchase up to 8% of the Common Stock to be issued in the Conversion, including shares issued to the Foundation. See "Use of Proceeds." In the future, the Holding Company may acquire or organize other operating subsidiaries, including other financial institutions, or it may merge with or acquire other financial institutions and financial services related companies, although there are no current plans for any such expansion. Although there are no current arrangements, understandings or agreements regarding any such opportunities or transactions, the Holding Company will be in a position after the Conversion, subject to regulatory limitations and the Holding Company's financial position, to take advantage of any such acquisition and expansion opportunities that may arise. Initially, the Holding Company will neither own nor lease any property but will instead use the premises, equipment and furniture of the Bank. The Holding Company does not currently intend to employ any persons other than certain officers of the Bank who will not be separately compensated by the Holding Company. The Holding Company may utilize the support staff of the Bank from time to time, if needed. Additional employees will be hired as appropriate to the extent the Holding Company expands its business in the future. BUSINESS OF THE BANK General The Bank is a community-oriented mutual savings bank which was chartered by the State of New York in 1851. The principal business of the Bank consists of attracting retail deposits from the general public and using those funds, together with funds from operations and, to a much lesser extent, borrowings, to originate primarily one- to four-family residential mortgage loans, including home equity loans, and, to a lesser extent, multi-family and commercial real estate, consumer and commercial business loans. The Bank originates its loans primarily in its market area and, to a lesser extent, the Bank also originates commercial real estate loans in New York City. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Bank also invests in mortgage-backed securities, U.S. Government and agency obligations and, to a limited extent, corporate debt securities. Revenues are derived primarily from interest on loans and securities. The Bank offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposit accounts are insured up to applicable limits by the FDIC. The Bank only solicits deposits in its primary market area and does not currently solicit brokered deposits. The Bank is a member of the FHLB of New York. Market Area The Bank has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. The Bank's primary market area is comprised of Albany, Saratoga, Schenectady, and Rensselaer Counties, and a portion of Warren County in New York, which are serviced through the Bank's main office and 15 other full service banking offices and one public accommodation office which the Bank has applied to the FDIC and the Department and received approval to convert to a full service banking office. The Bank expects to convert this office to a full service branch office in October, 1998. The Bank's main office and seven of its branch offices are located in Albany County. Based on the most recent information available, the Bank had less than 10% of total bank and thrift deposits in its market area. 42 The Bank's primary market area consists principally of suburban and rural communities with service, wholesale/retail trade, government and manufacturing serving as the basis of the local economy. Service jobs and governmental jobs represent the largest type of employment in the Bank's primary market area, with jobs in wholesale/retail trade accounting for one of the largest employment sectors. Management believes that its market area continues to show economic weakness with declining real estate values. Lending Activities General. The Bank primarily originates fixed- and adjustable-rate, one- to four-family mortgage loans, including home equity lines of credit and second mortgages, secured by the borrower's primary residence. The Bank's general practice is to originate fixed and adjustable rate mortgage loans with terms to maturity between 5 and 30 years and until December 1997, sold substantially all its fixed rate mortgage loans on the secondary market. Currently, the Bank has been retaining its 30-year and 15-year fixed rate mortgage loans for its portfolio as the declining interest rate environment has made it more difficult to originate adjustable-rate loans. The Bank retains all adjustable rate mortgage loans in its portfolio. The Bank also originates multi-family and commercial real estate, consumer and commercial business loans. In-market loan originations are generated by eight on-staff loan originators, the Bank's marketing efforts, which include print, radio and television advertising, lobby displays and direct contact with local civic and religious organizations, as well as by the Bank's present customers, walk-in customers and referrals from real estate agents, brokers and builders. The Bank also has established relationships with certain mortgage brokers that take applications for residential mortgage loans (under Cohoes underwriting guidelines) on behalf of Cohoes. During fiscal 1998, $5.2 million of the Bank's loans were originated through mortgage brokers. At June 30, 1998, the Bank's loan portfolio totaled approximately $416.3 million. The Bank originates fixed and adjustable rate consumer loans. ARM and consumer loans are originated in order to increase the percentage of loans with more frequent terms to repricing or shorter maturities than long-term fixed-rate, one-to four-family mortgage loans. See "--Loan Portfolio Composition" and "-- One- to Four-Family Residential Real Estate Lending." Loan applications are initially considered and approved at various levels of authority, depending on the type and amount of the loan. Bank employees with lending authority are designated, and their lending limit authority defined, by the Board of Trustees. The approval of the Bank's of Trustees is required for any loans over $500,000. Pursuant to the Bank's lending policy, certain senior officers may approve loans up to $500,000. The Bank is not subject to state or federal regulation limiting the aggregate amount of mortgage loans it is permitted to make to one borrower or affiliated groups of borrowers. New York law does require lending policies that avoid imprudent mortgage concentrations. However, the aggregate amount of commercial loans that the Bank is permitted to make to any one borrower or group of related borrowers is generally limited to 15% of unimpaired capital and surplus. At June 30, 1998, the Bank's loans-to-one-borrower limit was approximately $8.0 million. On the same date, the Bank had no borrowers with outstanding balances in excess of this amount. At June 30, 1998, the Bank's largest lending relationship consisted of five loans to a group of borrowers secured by professional buildings and warehouse space, and totaling $3.9 million. The next largest lending relationship consisted of six loans aggregating approximately $3.3 million primarily secured by an office building and a self-storage facility. The third largest lending relationship consisted of eight loans totaling approximately $3.3 million secured by two mobile home parks and a car wash facility. The fourth largest lending relationship consisted of four loans totaling approximately $3.2 million secured by a participation in a shopping center and office/apartment building. The fifth largest lending relationship consisted of eight loans totaling approximately $2.6 million secured by an office building and commercial building lots. As of June 30, 1998, each of the five relationships discussed above were performing in accordance with their applicable terms. The types of loans that the Bank may originate are subject to federal and state laws and regulations. Interest rates charged by the Bank on loans are affected by the demand for such loans, the supply of money available for lending purposes and the rates offered by competitors. These factors are in turn affected by, among other things, economic conditions, monetary policies of the federal government, including the FRB, and tax policies. 43 The following table sets forth the composition of the Bank's loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated.
June 30, ----------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------ ------------------ ------------------- ------------------ ------------------ Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- (Dollars in Thousands) Real estate loans: One- to four-family real estate ............. $258,399 62.07% $243,620 60.62% $234,900 59.06% $227,253 59.38% $179,836 56.79% Multi-family and commercial real estate .. 93,229 22.39 93,979 23.39 96,623 24.29 86,659 22.65 77,642 24.52 -------- ----- -------- ------- -------- ------ -------- ------ -------- ----- Total real estate loans . 351,628 84.46 337,599 84.01 331,523 83.35 313,912 82.03 257,478 81.31 Consumer loans: Home equity lines of credit .................. 21,976 5.28 25,205 6.27 27,342 6.87 30,792 8.05 31,741 10.02 Conventional second mortgages ............... 15,093 3.63 14,069 3.50 11,111 2.79 10,765 2.81 10,444 3.30 Automobile loans .......... 9,783 2.35 9,290 2.31 9,982 2.51 9,790 2.56 7,211 2.28 Credit cards .............. 1,655 0.40 2,152 0.54 2,767 0.70 3,350 0.88 3,093 0.97 Other consumer loans ...... 1,184 0.28 1,438 0.36 1,776 0.45 2,117 0.55 2,131 0.67 -------- ----- -------- ------ ------- ------ -------- ------ -------- ------ Total consumer loans .... 49,691 11.94 52,154 12.98 52,978 13.32 56,814 14.85 54,620 17.24 Commercial business loans ... 14,991 3.60 12,096 3.01 13,250 3.33 11,942 3.12 4,578 1.45 -------- ----- -------- ------ ------- ------ -------- ------ -------- ------ Total loans ............. 416,310 100.00% 401,849 100.00% 397,751 100.00% 382,668 100.00% 316,676 100.00% ====== ====== ====== ====== ====== Less: Net deferred loan origination fees and costs ................... (18) (214) (532) (447) (246) Allowance for loan losses .................. (3,533) (3,105) (3,249) (3,133) (3,011) -------- -------- ------- ------- -------- Total loans, net ........ $412,759 $398,530 $393,970 $379,088 $313,419 ======== ======== ======== ======== ========
44 The following table shows the composition of the Bank's loan portfolio by fixed- and adjustable-rate at the dates indicated.
June 30, ----------------------------------------------------------- 1998 1997 1996 ------------------ ------------------ ----------------- Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- ------- ------- (Dollars in Thousands) Fixed Rate Loans Real estate: One- to four-family real estate ............. $ 88,389 21.23% $ 21,365 5.32% $ 15,975 4.02% Multi-family and commercial real estate ..... 42,274 10.15 51,859 12.90 64,369 16.18 -------- ------ -------- ------ -------- ------ Total real estate loans ................... 130,663 31.38 73,224 18.22 80,344 20.20 Consumer: Home equity lines of credit ................. -- -- -- -- -- -- Conventional second mortgages ............... 15,093 3.63 14,069 3.50 11,111 2.79 Automobile loans ............................ 9,783 2.35 9,290 2.31 9,982 2.51 Credit cards ................................ 1,655 0.40 2,152 0.54 2,767 0.70 Other consumer loans ........................ 1,184 0.28 1,438 0.36 1,776 0.45 -------- ------ -------- ------ -------- ------ Total consumer loans ...................... 27,715 6.66 26,949 6.71 25,636 6.45 Commercial business loans ..................... 5,651 1.36 3,700 0.92 3,280 0.82 -------- ------ -------- ------ -------- ------ Total fixed-rate loans .................... 164,029 39.40 103,873 25.85 109,260 27.47 Adjustable-Rate Loans Real estate: One- to four-family real estate ............. 170,010 40.84 222,255 55.31 218,925 55.04 Multi-family and commercial real estate ..... 50,955 12.24 42,120 10.48 32,254 8.11 -------- ------ -------- ------ -------- ------ Total real estate loans ................... 220,965 53.08 264,375 65.79 251,179 63.15 Consumer: Home equity lines of credit ................. 21,976 5.28 25,205 6.27 27,342 6.87 Conventional second mortgages ............... -- -- -- -- -- -- Automobile loans ............................ -- -- -- -- -- -- Credit cards ................................ -- -- -- -- -- -- Other consumer loans ........................ -- -- -- -- -- -- -------- ------ -------- ------ -------- ------ Total consumer loans ...................... 21,976 5.28 25,205 6.27 27,342 6.87 Commercial business loans ..................... 9,340 2.24 8,396 2.09 9,970 2.51 -------- ------ -------- ------ -------- ------ Total adjustable-rate loans ............... 252,281 60.60 297,976 74.15 288,491 72.53 ------- ------ -------- ------ -------- ------ Total loans ............................... 416,310 100.00% 401,849 100.00% 397,751 100.00% ====== ====== ====== Less: Net deferred loan origination fees and costs .. (18) (214) (532) Allowance for loan losses ..................... (3,533) (3,105) (3,249) -------- -------- -------- Total loans receivable, net ............... $412,759 $398,530 $393,970 ======== ======== ========
45 The following table illustrates the contractual maturity of the Bank's loan portfolio at June 30, 1998. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period in which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.
Real Estate Loans Consumer Loans --------------------------- --------------------------------------------- One- to four- Multi-family Commercial Home equity Conventional Automobile family commercial business loans lines of credit second mortgages Loans ------------- ------------ -------------- --------------- ---------------- ---------- (Dollars in Thousands) Amounts Due: 0 months to 1 year ..... $ 14 $18,965 $ 4,975 $ -- $ 165 $ 460 After 1 year: 1 to 2 years ........... 51 7,874 2,825 -- 456 1,703 2 to 3 years ........... 84 6,488 1,380 -- 810 2,582 3 to 5 years ........... 742 5,395 3,068 -- 4,593 4,982 5 to 10 years .......... 9,401 34,418 1,578 221 7,135 26 10 to 15 years ......... 41,247 10,151 200 3,736 1,926 30 Over 15 years .......... 206,860 9,938 965 18,019 8 -- -------- ------- ------- ------- ------- ------ Total due after 1 year ... 258,385 74,264 10,016 21,976 14,928 9,323 -------- ------- ------- ------- ------- ------ Total amount due ......... $258,399 $93,229 $14,991 $21,976 $15,093 $9,783 ======== ======= ======= ======= ======= ====== Less: Net deferred loan origination fees and costs ............ Allowance for loan losses ............... Total loans receivable, net ....
Consumer Loans Total ----------------------- ------------------ Other Weighted consumer Average Credit cards loans Amount Rate ------------ -------- -------- -------- (Dollars in Thousands) Amounts Due: 0 months to 1 year ..... $1,655 $ 68 $ 26,302 8.52% After 1 year: 1 to 2 years ........... -- 145 13,054 9.40 2 to 3 years ........... -- 224 11,568 8.78 3 to 5 years ........... -- 114 18,894 8.42 5 to 10 years .......... -- 340 53,119 8.48 10 to 15 years ......... -- 100 57,390 7.90 Over 15 years .......... -- 193 235,983 7.87 ------ ------ -------- Total due after 1 year ... -- 1,116 390,008 8.06 ------ ------ -------- Total amount due ......... $1,655 $1,184 416,310 8.09 ====== ====== Less: Net deferred loan origination fees and costs ............ (18) Allowance for loan losses ............... (3,533) -------- Total loans receivable, net .... $412,759 ======== 46 The following table sets forth the dollar amounts in each loan category at June 30, 1998 that are contractually due after June 30, 1999, and whether such loans have fixed or adjustable interest rates. Due after June 30, 1999 ---------------------------------- Fixed Adjustable Total (In Thousands) Residential real estate ................. $ 85,919 $172,466 $258,385 Commercial real estate .................. 26,412 47,852 74,264 -------- -------- -------- Total real estate loans ....... 112,331 220,318 332,649 Commercial business loans ............... 4,984 5,032 10,016 Consumer loans Home equity lines of credit ........ -- 21,976 21,976 Conventional second mortgages ...... 14,928 -- 14,928 Automobile loans ................... 9,323 -- 9,323 Credit cards ....................... -- -- -- Other consumer loans ............... 1,116 -- 1,116 -------- -------- -------- Total consumer loans .......... 25,367 21,976 47,343 -------- -------- -------- Total loans ................... $142,682 $247,326 $390,008 ======== ======== ======== Residential Real Estate Lending Cohoes' residential real estate loans consist of primarily one- to four-family, owner occupied mortgage loans. At June 30, 1998, $258.4 million, or 62.07% of Cohoes' total loans consisted of one- to four-family residential first mortgage loans. At June 30, 1998, approximately $88.4 million or 21.23% of Cohoes' one- to four-family residential first mortgage loans provided for fixed rates of interest and for repayment of principal over a fixed period not to exceed 30 years. Cohoes does not originate fixed-rate loans for terms longer than 30 years. Cohoes' fixed-rate one- to four-family residential mortgage loans are priced competitively with the market. Accordingly, Cohoes attempts to distinguish itself from its competitors based on quality of service. Cohoes generally underwrites its fixed-rate one- to four-family residential first mortgage loans using Fannie Mae guidelines. Until December 1997, the Bank sold substantially all fixed-rate residential mortgage loans it originated to the secondary market, and continues to service the loans it sells. Currently, the Bank generally holds for investment all adjustable and fixed rate one- to four-family residential first mortgage loans it originates. In underwriting one- to four-family residential first mortgage loans, Cohoes evaluates, among other things, the borrower's ability to make monthly payments and the value of the property securing the loan. Properties securing real estate loans made by Cohoes are appraised by independent fee appraisers approved by the Bank's Board of Trustees. Cohoes requires borrowers to obtain title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan or the replacement cost of the dwelling. The Bank currently offers one- and five-year residential ARM loans with an interest rate that adjusts annually after the initial period, based on the change in the corresponding term United States Treasury index. These loans provide for up to a 2.0% periodic cap and a lifetime cap of 6.0% over the initial rate. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as the Bank's cost of funds. Borrowers of ARM loans are generally qualified at the initial interest rate (however, for one-year ARMs, borrowers are qualified at the maximum rate after the first adjustment). The Bank offers one-year ARM loans that are convertible (from the second through the fifth year of the loan) into fixed-rate loans with interest rates based upon the then current market rates. ARM loans generally pose greater credit risks than fixed-rate loans, primarily because as interest rates rise, the required periodic payment by the borrower rises, increasing the potential for default. However, as of June 30, 1998, the Bank had not experienced higher default rates on these loans relative to its other loans. See "--Asset Quality-Non-Performing Assets." 47 The Bank's one- to four-family mortgage loans do not contain prepayment penalties and do not permit negative amortization of principal. Real estate loans originated by the Bank generally contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property. The Bank has waived the due on sale clause on loans held in its portfolio from time to time to permit assumptions of the loans by qualified borrowers. Generally, Cohoes does not originate residential mortgage loans where the ratio of the loan amount to the value of the property securing the loan (i.e., the "loan-to-value" ratio) exceeds 95%. If the loan-to-value ratio exceeds 80%, Cohoes generally requires that the borrower obtain private mortgage insurance in amounts intended to reduce the Bank's exposure to 80% or less of the lower of the appraised value or the purchase price of the property securing the loan. See "-- Loan Origination and Sale of Loans." In addition, on occasion the Bank will make a loan for the construction of the borrower's primary residence. At June 30, 1998 the Bank had $1.7 million in loans outstanding for the construction of the borrower's residence. Multi-Family and Commercial Real Estate Lending The Bank has engaged in multi-family and commercial real estate lending secured primarily by apartment buildings, office buildings, nursing homes, strip shopping centers and mobile home parks located in the Bank's primary market area. At June 30, 1998, the Bank had $93.2 million of multi-family and commercial real estate loans, representing 22.39% of the Bank's total loan portfolio. As of June 30, 1998, $25.8 million of this portfolio was secured by property located in New York City. Multi-family and commercial real estate loans generally have terms to maturity that do not exceed 20 years. Cohoes' current lending guidelines generally require that the property securing a loan generate net cash flows of at least 120% of debt service after the payment of all operating expenses, excluding depreciation, and the loan-to-value ratio not exceed 80% on loans secured by such properties. As a result of a decline in the value of some properties in the Bank's primary market area and due to economic conditions, the current loan-to-value ratio of some commercial real estate loans in the Bank's portfolio may exceed the initial loan-to-value ratio, and the current debt service ratio may exceed the initial debt service ratio. Adjustable rate multi-family and commercial real estate loans are generally written as ten-year balloon loans, which adjust after five years to a margin over the five-year United States Treasury index, and amortize over a term up to 20 years. In underwriting commercial real estate loans, the Bank analyzes the financial condition of the borrower, the borrower's credit history, the reliability and predictability of the net income generated by the property securing the loan and the value of the property itself. The Bank generally requires personal guarantees of the borrowers in addition to the secured property as collateral for such loans. Appraisals on properties securing commercial real estate loans originated by the Bank are performed by independent fee appraisers approved by the Board of Trustees. Multi-family and commercial real estate loans generally present a higher level of risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower's ability to repay the loan may be impaired and the value of the property may be reduced. Consumer Lending The Bank offers a variety of secured and unsecured consumer loans, including home equity lines of credit and second mortgages and, to a lesser extent, automobile and credit card loans. Substantially all of the Bank's consumer loans are originated on property located or for customers residing in the Bank's primary market area. At June 30, 1998, the Bank's consumer loan portfolio totaled $49.7 million, or 11.94% of the Bank's total loan portfolio. 48 The Bank's home equity lines of credit and second mortgages are secured by a lien on the borrower's residence and generally do not exceed $100,000. Cohoes uses the same underwriting standards for home equity lines of credit and second mortgages as it uses for one- to four-family residential mortgage loans. Home equity lines of credit and second mortgages are generally originated in amounts which, together with all prior liens on such residence, do not exceed 80% of the appraised value of the property securing the loan. The interest rates for home equity loans and lines of credit float at a stated margin over the prime rate and second mortgages generally have fixed interest rates. Home equity lines of credit require interest and principal payments on the outstanding balance for the term of the loan. The terms of the Bank's home equity lines of credit are generally 25 years. As of June 30, 1998, the Bank had $22.0 million, or 5.28% of the Bank's total loan portfolio outstanding, in home equity lines of credit, with an additional $12.9 million of unused home equity lines of credit, and $15.1 million, or 3.63% of the Bank's total loan portfolio, in second mortgages. The underwriting standards employed by the Bank for consumer loans other than home equity lines of credit and second mortgages generally include a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes a comparison of the value of the property securing the loan, if any, in relation to the proposed loan amount. The Bank's automobile loans are originated as installment loans with a fixed interest rate and terms of up to 60 months for new vehicles and up to 60 months for certain used vehicles. The Bank originates its automobile loans directly and will loan up to 100% of the value of a new automobile and up to 90% of the value of a used automobile. At June 30, 1998, Cohoes had $9.8 million of automobile loans. The Bank does not originate any consumer loans on an indirect basis (i.e., where loan contracts are purchased from retailers of goods or services which have extended credit to their customers). Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by assets which may decline in value. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of high initial loan-to-value ratios, repossession, rehabilitation and carrying costs, and the greater likelihood of damage, loss or depreciation of the property, and thus are more likely to be affected by adverse personal circumstances. In the case of automobile loans, which may have loan balances in excess of the resale value of the collateral, borrowers may abandon the collateral property making repossession by the Bank and subsequent losses more likely. The application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans, including automobile loans. Commercial Business Lending At June 30, 1998, commercial business loans comprised $15.0 million, or 3.60% of the Bank's total loan portfolio. Most of the Bank's commercial business loans have been extended to finance local businesses and include primarily short term loans to finance machinery and equipment purchases, inventory and accounts receivable. Commercial business loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital needs. The terms of loans extended on machinery and equipment are based on the projected useful life of such machinery and equipment, generally not to exceed seven years. Lines of credit generally are available to borrowers provided that the outstanding balance is paid in full (i.e., the credit line has a zero balance) for at least 30 days every year. All lines of credit are reviewed on an annual basis. In the event the borrower does not meet this 30 day requirement, the line of credit may be terminated and the outstanding balance may be converted into a fixed term loan. The Bank has a few standby letters of credit outstanding which are offered at competitive rates and terms and are generally on a secured basis. Unlike residential mortgage loans, commercial business loans are typically made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the 49 repayment of commercial business loans may be substantially dependent on the success of the business itself (which, in turn, is often dependent in part upon general economic conditions). The Bank's commercial business loans are usually, but not always, secured by business assets. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. The Bank commercial business lending policy includes credit file documentation and analysis of the borrower's background, capacity to repay the loan, the adequacy of the borrower's capital and collateral as well as an evaluation of other conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows is also an important aspect of the Bank's current credit analysis. The Bank generally obtains personal guarantees on its commercial business loans. Nonetheless, such loans are believed to carry higher credit risk than more traditional savings bank loans. Loan Originations and Sales Mortgage and commercial loan originations are developed from the continuing business with depositors and borrowers, soliciting realtors and other brokers and walk-in customers. Residential and commercial loans are originated by the Bank's staff of salaried and commissioned loan personnel, as well as through established relationships with certain mortgage brokers. The Bank currently originates substantially all its mortgage loans to conform with the underwriting standards of Fannie Mae and Freddie Mac. As such, these loans are saleable to the secondary market. While the Bank originates both fixed- and adjustable-rate loans, its ability to originate loans is dependent upon demand for loans in the markets in which it serves. Demand is affected by the applicable local economy and the interest rate environment. Until December 1997, the Bank sold all its fixed-rate loans to the secondary market, servicing retained. Currently, the Bank generally retains its fixed-rate and adjustable-rate real estate loans in its portfolio. At June 30, 1998, the Bank serviced approximately $233.1 million of loans for others. During the year ended June 30, 1998, the Bank originated $180.7 million of loans, compared to $141.5 million in fiscal 1997. In periods of economic uncertainty, the Bank's ability to originate large dollar volumes of loans with acceptable underwriting characteristics may be substantially reduced or restricted which may result in a decrease in operating earnings. 50 The following table shows the loan origination and repayment activities of the Bank for the periods indicated. Year Ended June 30, ---------------------------------- 1998 1997 1996 ---- ---- ---- (In Thousands) Loans at beginning of period ............ $401,849 $397,751 $382,668 -------- -------- -------- Originations by type: Real estate loans: One- to four-family ................ 107,991 74,641 73,829 Multi-family and commercial real estate ...................... 33,171 32,132 20,521 -------- -------- -------- Total real estate loans ...... 141,162 106,773 94,350 Consumer loans: Home equity lines of credit ........ 8,243 9,092 10,108 Conventional second mortgages ...... 5,918 7,069 4,240 Automobile loans ................... 6,766 5,189 6,466 Credit cards ....................... 2,561 3,052 3,408 Other consumer loans ............... 822 814 1,024 -------- -------- -------- Total consumer loans ......... 24,310 25,216 25,246 Commercial business loans .......... 15,195 9,461 10,726 -------- -------- -------- Total loans originated ............. 180,667 141,450 130,322 -------- -------- -------- Less: Principal repayments ............... 155,969 123,732 98,618 Loan sales ......................... 8,105 9,567 15,747 Charge-offs ........................ 1,038 1,376 239 Transfers to ORE ................... 1,094 2,677 635 -------- -------- -------- Total loan reductions ........... 166,206 137,352 115,239 -------- -------- -------- Net Loan Activity ....................... 14,461 4,098 15,083 -------- -------- -------- Loans at end of period .................. $416,310 $401,849 $397,751 ======== ======== ======== 51 Asset Quality Delinquency Procedures. When a borrower fails to make a required payment on a one- to four-family residential mortgage loan, the Bank attempts to cure the deficiency by contacting the borrower. Written contacts are made after payment is 15 days past due and, in most cases, deficiencies are cured promptly. The Bank attempts to contact the borrower by telephone to arrange payment of the delinquency between the 16th and the 30th day. If these efforts have not resolved the delinquency within 45 days after the due date, a second written notice is sent to the borrower, and on the 60th day a notice is sent to the borrower warning that foreclosure proceedings will be commenced unless the delinquent amount is paid. If the delinquency has not been cured within a reasonable period of time after the foreclosure notice has been sent, the Bank may obtain a forbearance agreement or may institute appropriate legal action to foreclose upon the property. If foreclosed, property collateralizing the loan is sold at a public sale and may be purchased by the Bank. If the Bank is in fact the successful bidder at the foreclosure sale, upon receipt of a deed to the property, the Bank generally sells the property at the earliest possible date. Collection efforts on consumer, commercial business and multi-family and commercial real estate loans are similar to efforts on one- to four-family residential mortgage loans, except that collection efforts on consumer and multi-family commercial real estate loans generally begin within 15 days after the payment date is missed. The Bank also maintains periodic contact with commercial loan customers and monitors and reviews the borrowers' financial statements and compliance with debt covenants on a regular basis. Delinquent Loans. The following table sets forth information concerning delinquent loans as June 30, 1998, in dollar amounts and as a percentage of the Bank's loan portfolio. The amounts presented represent the total remaining principal balances of the related loans, rather than the actual payment amounts which are overdue.
June 30, 1998 --------------------------------------------------------------------------------------------------- Total loans delinquent 60-89 days 90 days or more 60 days or more ----------------------------- --------------------------------- -------------------------------- Principal Percent Principal Percent Principal Percent Number Balance of Loan Number Balance of Loan Number Balance of Loan of Loans of Loans Category of Loans of Loans Category of Loans of Loans Category -------- -------- -------- -------- -------- -------- -------- -------- -------- (Dollars in Thousands) Real estate loans: One- to four-family real estate .............. 9 $ 757 0.29% 33 $2,635 1.02% 42 $3,392 1.31% Multi-family and commercial real estate ... 3 263 0.28 6 823 0.88 9 1,086 1.17 --- ------ --- ------ --- ------ Total real estate loans .. 12 1,020 0.29 39 3,458 0.98 51 4,478 1.27 Consumer loans: Home equity lines of credit ................ 1 14 0.06 1 40 0.18 2 54 0.25 Conventional second mortgages ................ 1 41 0.27 3 35 0.23 4 76 0.50 Automobile loans ........... 3 10 0.10 6 32 0.33 9 42 0.43 Credit cards ............... 9 23 1.39 20 57 3.44 29 80 4.83 Other consumer loans ....... 2 2 0.17 8 33 2.79 10 35 2.96 --- --- --- ----- --- ----- Total consumer loans ..... 16 90 0.18 38 197 0.40 54 287 0.58 Commercial business loans ... -- -- -- 1 65 0.43 1 65 0.43 --- ------ --- ------ --- ------ Total delinquent loans ... 28 $1,110 0.27% 78 $3,720 0.89% 106 $4,830 1.16% === ====== ==== === ====== ==== === ====== ====
52 Non-Performing Assets. The table below sets forth the amounts and categories of non-performing assets. Loans are generally placed on non-accrual status when the loan is contractually past due 90 days or more or when the collection of principal and/or interest in full becomes doubtful. When loans are designated as non-accrual, all accrued but unpaid interest is reversed against current period income and, as long as the loan remains on non-accrual status, interest is recognized only when received, if considered appropriate by management. ORE includes assets acquired in settlement of loans.
June 30, --------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (Dollars in Thousands) Non-accrual loans: One- to four-family real estate ......................... $2,635 $2,835 $1,852 $ 441 $ 891 Multi-family and commercial real estate ................. 823 1,246 3,438 1,820 1,299 Conventional second mortgages ........................... 35 62 48 35 84 Consumer loans .......................................... 105 380 245 40 17 Commercial business loans ............................... 65 217 -- -- -- ------ ------ ------ ------ ------ Total non-accrual loans ....................... 3,663 4,740 5,583 2,336 2,291 Loans contractually past due 90 days or more and still accruing interest: Multi-family and commercial real estate ................. -- -- -- 308 317 Consumer loans .......................................... 57 42 158 67 18 ------ ------ ------ ------ ------ Total loans 90 days or more past due and still accruing interest ............. 57 42 158 375 335 Troubled debt restructurings ................................. 1,929 1,906 2,052 2,352 2,266 ------ ------ ------ ------ ------ Total non-performing loans .................... 5,649 6,688 7,793 5,063 4,892 Real estate owned (ORE) ...................................... 509 1,874 421 396 437 ------ ------ ------ ------ ------ Total non-performing assets ................... $6,158 $8,562 $8,214 $5,459 $5,329 ====== ====== ====== ====== ====== Allowance for loan losses .................................... $3,533 $3,105 $3,249 $3,133 $3,011 ====== ====== ====== ====== ====== Coverage of non-performing loans ............................. 62.54% 46.43% 41.69% 61.88% 61.55% ====== ====== ====== ====== ====== Total non-performing loans as a percentage of total loans .............................................. 1.36% 1.66% 1.96% 1.32% 1.54% ====== ====== ====== ====== ====== Total non-performing loans as a percentage of total assets ............................................. 1.05% 1.36% 1.68% 1.10% 1.21% ====== ====== ====== ====== ======
53 Non-Accruing Loans. At June 30, 1998, the Bank had approximately $3.7 million in non-accruing loans, which constituted 0.9% of the Bank's total loan portfolio. As of such date, there were no non-accruing loans or aggregate non-accruing loans-to-one-borrower in excess of $750,000. For the year ended June 30, 1998 accumulated interest income on nonaccrual loans of approximately $214,000 was not recognized as income. Accruing Loans Contractually Past Due 90 Days or More. As of June 30, 1998, the Bank had approximately $57,000 in accruing loans contractually past due 90 days or more. Troubled Debt Restructurings. As of June 30, 1998, the Bank had approximately $1.9 million of troubled debt restructurings (which involve forgiving a portion of interest or principal on the loan or restructuring a loan to a rate materially less than that of market rates). At that date, there were no troubled debt restructurings in excess of $750,000. ORE. As of June 30, 1998, the Bank had $509,000 of ORE. At that date, ORE consisted of 14 residential and one commercial property located in the Bank's primary market area. Real estate and other assets acquired by the Bank as a result of foreclosure or by deed-in-lieu of foreclosure or repossession are classified as ORE until sold. When property is classified as ORE, it is recorded at the lower of cost or fair value (net of disposition costs) at that date and any writedown resulting therefrom is charged to the allowance for loan losses. Subsequent writedowns are charged to operating expenses. Net expense from ORE is expensed as incurred. Other Loans of Concern. As of June 30, 1998, there was $636,000 of other loans not included in the table or discussed above where known information about the possible credit or other problems of borrowers caused management to have doubts as to the ability of the borrower to comply with present loan repayment terms. These loans have been considered by management in conjunction with the analysis of the adequacy of the allowance for loan losses. Allowance for Loan Losses. The allowance for loan losses is replenished through a provision for loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Recoveries on loans previously charged-off are credited to the allowance for loan losses. The allowance is an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectible. Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the historical loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect borrowers' ability to pay. Although management believes that it uses the best information available to determine the allowance, unforeseen market conditions could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in determining the level of the allowance. Future additions to the Bank's allowance will be the result of periodic loan, property and collateral reviews and thus cannot be predicted in advance. In addition, regulatory agencies, as an integral part of the examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based upon their judgment of the information available to them at the time of their examination. At June 30, 1998, the Bank had a total allowance for loan losses of $3.5 million, representing 62.5% of total non-performing loans. 54 The following table sets forth an analysis of the Bank's allowance for loan losses at the dates and for the periods indicated.
At or for the fiscal year ended June 30, ------------------------------------------------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (Dollars in Thousands) Allowance for loan losses, beginning period ............. $ 3,105 $ 3,249 $ 3,133 $ 3,011 $ 2,308 Charged-off loans: Real estate loans One- to four-family real estate ..................... 432 619 128 79 35 Multi-family and commercial real estate ............. 93 343 21 -- -- ------- ------- ------- ------- ------- Total real estate loan charge-offs ............... 525 962 149 79 35 Commercial business loans charge-offs ................. 218 105 4 -- -- Consumer loans Home equity lines of credit ......................... 84 39 18 -- -- Conventional second mortgages ....................... 16 1 -- -- 7 Automobile loans .................................... 121 55 23 28 1 Credit cards ........................................ 212 353 132 91 1 Other consumer loans ................................ 41 56 75 37 14 ------- ------- ------- ------- ------- Total consumer loan charge-offs .................. 474 504 248 156 23 ------- ------- ------- ------- ------- Total charged-off loans .......................... 1,217 1,571 401 235 58 Recoveries on loans previously charged-off: One- to four-family real estate ..................... 78 28 4 -- -- Multi-family and commercial real estate ............. 93 40 13 -- -- ------- ------- ------- ------- ------- Total real estate loan recoveries ................ 171 68 17 -- -- Commercial business loan recoveries ................. 35 -- 1 -- -- Consumer loans Home equity lines of credit ....................... -- 4 -- -- -- Conventional second mortgages ..................... -- -- 3 8 -- Automobile loans .................................. 8 5 -- 3 1 Credit cards ...................................... 23 16 4 2 -- Other consumer loans .............................. 8 9 2 14 10 ------- ------- ------- ------- ------- Total consumer loan recoveries .................. 39 34 9 27 11 ------- ------- ------- ------- ------- Total recoveries ................................ 245 102 27 27 11 ------- ------- ------- ------- ------- Net loans charged-off ................................... (972) (1,469) (374) (208) (47) Provision for loan losses ............................... 1,400 1,325 490 330 750 ------- ------- ------- ------- ------- Allowance for loan losses, end of period ................ $ 3,533 $ 3,105 $ 3,249 $ 3,133 $ 3,011 ======= ======= ======= ======= ======= Net charged-off loans to average loans .................. 0.24% 0.37% 0.10% 0.06% 0.01% ======= ======= ======= ======= ======= Allowance for loan losses to total loans ................ 0.85% 0.77% 0.82% 0.82% 0.95% ======= ======= ======= ======= ======= Allowance for loan losses to nonperforming loans ................................... 62.54% 46.43% 41.69% 61.88% 61.55% ======= ======= ======= ======= ======= Net charged-off loans to allowance for loan losses ................................. 27.51% 47.31% 11.51% 6.64% 1.56% ======= ======= ======= ======= ======= Recoveries to charged-offs .............................. 20.13% 6.49% 6.73% 11.49% 18.97% ======= ======= ======= ======= =======
55 Allocation of the Allowance for Loan Losses The following table sets forth the allocation of the allowance for loan losses by category as prepared by the Bank. This allocation is based on management's assessment as of a given point in time of the risk characteristics of each of the component parts of the total loan portfolio and is subject to changes as and when the risk factors of each such component part change. The allocation is not indicative of either the specific amounts or the loan categories in which future charge-offs may be taken, nor should it be taken as an indicator of future loss trends. The allocation to each category does not restrict the use of the allowance to absorb losses in any category.
June 30, ---------------------------------------------------------------------------------------------- 1998 1997 1996 ------------------------------ ------------------------------ ------------------------------ Percent Percent Percent of Loans of Loans of Loans Percent of in Each Percent of in Each Percent of in Each Allowance Allowance Category Allowance Allowance Category Allowance Allowance Category for Loan to Total to Total for Loan to Total to Total for Loan to Total to Total Losses Allowance Allowance Losses Allowance Allowance Losses Allowance Allowance --------- ---------- --------- --------- ---------- --------- --------- ---------- --------- (Dollars in Thousands) Real estate loans One- to four-family real estate ... $ 649 18.37% 62.07% $ 493 15.88% 60.62% $ 591 18.19% 59.06% Multi-family and commercial real estate ..................... 1,438 40.70 22.39 1,339 43.12 23.39 1,848 56.88 24.29 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total real estate loans ....... 2,087 59.07 84.46 1,832 59.00 84.01 2,439 75.07 83.35 Consumer loans Home equity lines of credit ....... 41 1.16 5.28 24 0.77 6.27 158 4.86 6.87 Conventional second mortgages ..... 26 0.74 3.63 22 0.71 3.50 9 0.28 2.79 Automobile loans .................. 74 2.09 2.35 35 1.13 2.31 40 1.23 2.51 Credit cards ...................... 154 4.36 0.40 132 4.25 0.54 183 5.63 0.70 Other consumer loans .............. 45 1.27 0.28 56 1.80 0.36 102 3.14 0.45 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total consumer loans .......... $ 340 9.62 11.94 269 8.66 12.98 492 15.14 13.32 Commercial business loans ........... 164 4.64 3.60 215 6.93 3.01 227 6.99 3.33 Unallocated ......................... 942 26.67 -- 789 25.41 -- 91 2.80 -- ------ ------ ------ ------ ------ ------ ------ ------ ------ Total ......................... $3,533 100.00% 100.00% $3,105 100.00% 100.00% $3,249 100.00% 100.00% ====== ====== ====== ====== ====== ====== ====== ====== ======
June 30, ------------------------------------------------------------------ 1995 1994 -------------------------------- -------------------------------- Percent Percent of Loans of Loans Percent of in Each Percent of in Each Allowance Allowance Category Allowance Allowance Category for Loan to Total to Total for Loan to Total to Total Losses Allowance Allowance Losses Allowance Allowance --------- ---------- --------- --------- ---------- --------- (Dollars in Thousands) Real estate loans One- to four-family real estate ... $ 861 27.48% 59.38% $ 292 9.70% 56.78% Multi-family and commercial real estate ..................... 1,426 45.52 22.65 1,610 53.47 24.52 ------ ------ ------ ------ ------ ------ Total real estate loans ....... 2,287 73.00 82.03 1,902 63.17 81.30 Consumer loans Home equity lines of credit ....... -- -- 8.05 -- -- 10.02 Conventional second mortgages ..... 75 2.39 2.81 15 0.50 3.30 Automobile loans .................. 66 2.11 2.56 15 0.50 2.28 Credit cards ...................... 382 12.19 0.88 263 8.73 0.98 Other consumer loans .............. 158 5.04 0.55 71 2.36 0.67 ------ ------ ------ ------ ------ ------ Total consumer loans .......... 681 21.73 14.85 364 12.09 17.25 Commercial business loans ........... 102 3.26 3.12 -- -- 1.45 Unallocated ......................... 63 2.01 -- 745 24.74 -- ------ ------ ------ ------ ------ ------ Total ......................... $3,133 100.00% 100.00% $3,011 100.00% 100.00% ====== ====== ====== ====== ====== ======
56 Investment Activities The Bank is authorized to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, the Bank may also invest its assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that the Bank is otherwise authorized to make directly. Generally, the investment policy of the Bank is to invest funds among various categories of investments and maturities based upon the Bank's need for liquidity, to achieve the proper balance between its desire to minimize risk and maximize yield, and, to a much lesser extent, to provide collateral for borrowings and to fulfill the Bank's asset/liability management policies. To date, the Bank's investment strategy has been directed toward high-quality assets (primarily federal agency obligations and mortgage-backed securities) with short and intermediate terms (five years or less) to maturity. At June 30, 1998, the weighted average term to maturity or repricing of the security portfolio was 3.8 years. This did not take into account securities which may be called prior to their contractual maturity or repricing. See Notes 5 and 6 of the Notes to Consolidated Financial Statements for information regarding the maturities of the Bank's investment and mortgage-backed securities. Management determines the appropriate classification of securities at the time of purchase. If management has the intent and ability to hold debt securities to maturity, they are stated at amortized 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 marketable equity securities are classified as securities available for sale and are reported at fair value, with net unrealized gains or losses reported, net of income taxes, as a separate component of equity. As a member of the FHLB of New York, the Bank is required to hold stock in the FHLB of New York which is carried at cost since there is no readily available market value. Historically, the Bank has not held any securities considered to be trading securities. 57 The following table sets forth the composition of the Bank's securities available for sale and investment securities at the dates indicated.
June 30, -------------------------------------------------------------- 1998 1997 1996 ------------------ ------------------ ------------------ Carrying % of Carrying % of Carrying % of Value Total Value Total Value Total -------- ------- -------- ------- -------- ------- (Dollars in Thousands) Securities available for sale, at fair value: Debt securities US Government and Agency obligations ...... $23,237 47.69% $18,437 51.97% $ 7,302 34.96% Other obligations ......................... 276 0.57 493 1.39 764 3.65 Mortgage-backed securities ................ 16,946 34.78 6,762 19.06 -- -- Collateralized mortgage obligations ....... 4,003 8.22 6,302 17.77 9,404 45.03 ------- ------ ------- ------ ------- ------ Total debt securities ................... 44,462 91.26 31,994 90.19 17,470 83.64 Equity securities ........................... 4,258 8.74 3,481 9.81 3,416 16.36 ------- ------ ------- ------ ------- ------ Total securities available for sale ..... $48,720 100.00 $35,475 100.00 $20,886 100.00 ======= ====== ======= ====== ======= ====== Investment securities at amortized cost: US Government and Agency obligations ...... $22,025 48.49 6,049 23.93 10,339 39.81 Other obligations ......................... 388 0.85 848 3.36 1,923 7.41 Mortgage-backed securities ................ 23,011 50.66 18,376 72.71 12,073 46.49 Industrial and financial .................. -- -- -- -- 1,634 6.29 ------- ------ ------- ------ ------- ------ Total investment securities ............. $45,424 100.00% $25,273 100.00% $25,969 100.00% ------- ====== ------- ====== ------- ====== Investment securities at fair value ......... $45,547 $25,186 $25,520 ======= ======= =======
58 The following table sets forth information regarding the scheduled maturities, amortized cost, and weighted average yields for the Bank's securities portfolios at June 30, 1998 by contractual maturity. The table does not take into consideration the effects of scheduled repayments or possible prepayments.
At June 30, 1998 ---------------------------------------------------------------------------------- Less than 1 year 1 to 5 years 5 to 10 years Over 10 years ------------------- ------------------- ------------------- ------------------- Weighted Weighted Weighted Weighted Amortized Average Amortized Average Amortized Average Amortized Average Cost Yield Cost Yield Cost Yield Cost Yield --------- -------- --------- -------- --------- -------- --------- -------- (Dollars in Thousands) Securities available for sale: US Government and Agency obligations .... $ -- --% $23,296 6.05% $ -- --% $ -- --% Other obligations ....................... -- -- 71 5.09 200 6.60 -- -- Mortgage-backed securities .............. -- -- 16,855 6.39 -- -- -- -- Collateralized mortgage obligations ..... 179 6.91 2,432 5.85 1,408 6.65 -- -- Other equity securities ................. -- -- -- -- -- -- 708 5.63 ---- ---- ------- ---- ------- ---- ------ ---- Sub-total ............................. 179 6.91 42,654 6.17 1,608 6.64 708 5.63 FHLB stock .............................. -- -- -- -- -- -- 3,552 7.45 ---- ---- ------- ---- ------- ---- ------ ---- Total securities available for sale ... $179 6.91 $42,654 6.17 $ 1,608 6.64 $4,260 7.15 ==== ==== ======= ==== ======= ==== ====== ==== Investment securities: US Government and Agency obligations .... $ 25 7.38 $22,000 6.08 $ -- -- $ -- -- Other obligations ....................... -- -- 271 6.40 117 7.25 -- -- Mortgage-backed securities .............. 657 6.85 10,452 6.68 11,519 6.23 383 7.05 ---- ---- ------- ---- ------- ---- ------ ---- Total investment securities ........... $682 6.87% $32,723 6.27% $11,636 6.24% $ 383 7.05% ==== ==== ======= ==== ======= ==== ====== ====
At June 30, 1998 ---------------------------- Total Securities ---------------------------- Weighted Amortized Average Fair Cost Yield Value --------- -------- ------- (Dollars in Thousands) Securities available for sale: US Government and Agency obligations .... $23,296 6.05% $23,237 Other obligations ....................... 271 6.20 276 Mortgage-backed securities .............. 16,855 6.39 16,946 Collateralized mortgage obligations ..... 4,019 6.18 4,003 Other equity securities ................. 708 5.63 706 ------- ---- ------- Sub-total ............................. 45,149 6.18 45,168 FHLB stock .............................. 3,552 7.45 3,552 ------- ---- ------- Total securities available for sale ... $48,701 6.27 $48,720 ======= ==== ======= Investment securities: US Government and Agency obligations .... $22,025 6.08 $21,999 Other obligations ....................... 388 6.66 389 Mortgage-backed securities .............. 23,011 6.47 23,159 ------- ---- ------- Total investment securities ........... $45,424 6.28% $45,547 ======= ==== =======
59 Sources of Funds General. The Bank's primary sources of funds are deposits, amortization and prepayment of loan principal, maturities of securities, short-term investments, funds provided from operations and borrowings. Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank's deposits consist of savings accounts, school savings accounts (the largest "Save For America" school savings program in the U.S., a volunteer program in which students are given the opportunity to open and maintain a savings account while at school in order to teach wise money management), money market accounts, demand deposit accounts and time deposits currently ranging in terms from three months to five years. The Bank only solicits deposits from its primary market area and does not currently solicit brokered deposits. The Bank relies primarily on competitive pricing policies, advertising and customer service to attract and retain these deposits. At June 30, 1998, the Bank's deposits totaled $450.0 million, of which $413.4 million were interest-bearing deposits. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition. The variety of deposit accounts offered by the Bank has allowed it to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. The Bank has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. The Bank manages the pricing of its deposits in keeping with its asset/liability management, liquidity and profitability objectives. Based on its experience, the Bank believes that its savings, school savings, money market and demand deposit accounts are relatively stable sources of deposits. However, the ability of the Bank to attract and maintain time deposits and the rates paid on these deposits has been and will continue to be significantly affected by market conditions. 60 The following table sets forth the distribution and deposit activity of the Bank's deposit accounts for the periods indicated.
School Money Demand Time Total Number Savings Savings Market Deposits Deposits Total of Accounts --------- ------- -------- -------- -------- -------- ------------ (Dollars in Thousands) Balance as of June 30, 1995 ... $127,333 $ 6,813 $18,966 $33,432 $212,419 $398,963 74,668 Net deposits (withdrawals) .... (2,094) 3,499 (2,886) 5,001 (15,575) (12,055) Interest credited ............. 3,722 310 487 250 12,862 17,631 -------- ------- ------- ------- -------- -------- Balance as of June 30, 1996 ... 128,961 10,622 16,567 38,683 209,706 404,539 79,283 Net deposits (withdrawals) .... (8,780) 2,698 (1,565) 6,887 7,990 7,230 Interest credited ............. 3,700 589 448 274 12,610 17,621 -------- ------- ------- ------- -------- -------- Balance as of June 30, 1997 ... 123,881 13,909 15,450 45,844 230,306 429,390 86,741 Net deposits (withdrawals) .... (1,898) 2,558 5,653 7,806 (12,778) 1,341 Interest credited ............. 3,629 788 569 303 13,521 18,810 -------- ------- ------- ------- -------- -------- Balance as of June 30, 1998 ... $125,612 $17,255 $21,672 $53,953 $231,049 $449,541 89,370 ======== ======= ======= ======= ======== ========
61 The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by the Bank as of the dates indicated.
Balance as of June 30, --------------------------------------------------------------- 1998 1997 1996 ------------------- -------------------- ------------------- Percent Percent Percent Amount of Total Amount of Total Amount of Total -------- -------- -------- -------- -------- -------- (Dollars in Thousands) Savings accounts (3.0%) ................. $125,612 27.94% $123,881 28.85% $126,951 31.38% School savings accounts (5.5%) .......... 17,255 3.84 13,909 3.24 10,622 2.63 Money market accounts (2.75% to 3.93%) .. 21,672 4.82 15,450 3.60 16,567 4.10 Demand deposits (0% to 1.75%) ........... 53,953 12.00 45,844 10.68 40,693 10.06 Time deposits: 2.00-2.99% ............................ -- -- -- -- 5 0.00 3.00-3.99% ............................ 2 0.00 14 0.00 3,470 0.86 4.00-4.99% ............................ 4,105 0.91 10,325 2.40 47,062 11.63 5.00-5.99% ............................ 190,539 42.39 166,966 38.88 81,589 20.17 6.00-6.99% ............................ 17,664 3.93 25,244 5.88 47,513 11.74 7.00-7.99% ............................ 18,709 4.16 27,727 6.46 30,067 7.43 8.00-8.99% ............................ 30 0.01 30 0.01 -- -- -------- ------ -------- ------ -------- ------ Total time deposits ................. 231,049 51.40 230,306 53.63 209,706 51.83 -------- ------ -------- ------ -------- ------ Total deposits .......................... $449,541 100.00% $429,390 100.00% $404,539 100.00% ======== ====== ======== ====== ======== ======
62 The following table shows rate and maturity information for the Bank's time deposits as of June 30, 1998.
Amount Due ----------------------------------------------------------------------------------------------- 12 months 12 months 12 months 12 months 12 months ended ended ended ended ended June 30, 1999 June 30, 2000 June 30, 2001 June 30, 2002 June 30, 2003 Thereafter Total ------------- ------------- ------------- ------------- ------------- ---------- -------- (In Thousands) Interest Rate 3.00-3.99% .... $ -- $ -- $ -- $ -- $ 2 $ -- $ 2 4.00-4.99% .... 4,080 -- -- -- -- 25 4,105 5.00-5.99% .... 140,476 32,594 6,540 3,073 7,856 -- 190,539 6.00-6.99% .... 8,284 5,681 1,308 1,865 526 -- 17,664 7.00-7.99% .... 6,680 11,768 135 126 -- -- 18,709 8.00-8.99% .... 30 -- -- -- -- -- 30 -------- ------- ------ ------ ------ ---- -------- Total ....... $159,550 $50,043 $7,983 $5,064 $8,384 $ 25 $231,049 ======== ======= ====== ====== ====== ==== ========
The following table indicates the amount of the Bank's time deposits by the time remaining until maturity as of June 30, 1998.
Maturity --------------------------------------------------- Over Over 3 Months 3 to 6 6 to 12 Over or Less Months Months 12 Months Total -------- ------- ------- --------- -------- (In Thousands) Time deposits less than $100,000 ..... $38,586 $45,097 $54,798 $61,440 $199,921 Time deposits $100,000 or more ....... 5,204 7,791 8,074 10,059 31,128(1) ------- ------- ------- ------- -------- Total time deposits .............. $43,790 $52,888 $62,872 $71,499 $231,049 ======= ======= ======= ======= ========
- ---------- (1) Substantially all time deposits of $100,000 or more are maintained at negotiated rates. Borrowings. Although deposits are the Bank's primary source of funds, the Bank's practice has been to utilize borrowings when they are a less costly source of funds, can be invested at a positive interest rate spread or when the Bank needs additional funds to satisfy loan demand. Cohoes' borrowings historically have consisted primarily of advances from the FHLB of New York and securities sold under agreements to repurchase. FHLB advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The Bank currently maintains available lines of credit and is currently authorized to borrow up to $49.2 million on lines of credit with the FHLB of New York. At June 30, 1998, the Bank had outstanding $19.9 million in other borrowings from the FHLB of New York. See Note 12 of the Notes to Consolidated Financial Statements. 63 The following table sets forth the maximum month-end balance and average balance of FHLB advances and other borrowings for the periods indicated. Year Ended June 30, ------------------------ 1998 1997 1996 ------- ------- ------ (In Thousands) Maximum Balance: FHLB advances ..................................... $19,983 $16,145 $7,100 Securities sold under agreements to repurchase .... -- -- 6,054 Other borrowings .................................. -- 12 59 Average Balance: FHLB advances ..................................... $ 5,467 $ 2,390 $1,955 Securities sold under agreements to repurchase .... -- -- 2,700 Other borrowings .................................. -- 2 39 The following table sets forth the amount and rate of the Bank's borrowings at the dates indicated. June 30, ------------------------ 1998 1997 1996 ------- ------- ------ (Dollars in Thousands) FHLB advances ....................................... $19,897 $ -- $2,100 Other borrowings .................................... -- -- 16 ------- ------- ------ Total borrowings ................................ $19,897 $ -- $2,116 ======= ======= ====== Weighted average interest rate of FHLB advances ..... 6.07% 5.56% 5.78% ==== ==== ==== Weighted average interest rate of securities sold under agreements to repurchase .................... -- -- 6.67% ==== ==== ==== Weighted average interest rate of other borrowings .. -- 9.50% 9.50% ==== ==== ==== 64 Subsidiary and Other Activities The Bank maintains three wholly-owned subsidiaries: CSB Financial Services, Inc., CSB Funding, Inc. and CSB Services Agency, Inc. CSB Financial Services, Inc. earns commission income through the sale of securities, mutual funds, annuities and other insurance products. During the fiscal year ended June 30, 1998, CSB Financial Services had revenues of $348,000 and net income of $16,000. As of June 30, 1998, CSB Funding, Inc. was inactive. CSB Services Agency, Inc. owns a 50 percent interest in Community Bank Insurance Brokers of New York, which is a joint venture formed for the purpose of selling property and casualty insurance to the Bank's customers and to the general public. The joint venture was formed in July 1998. The joint venture has entered into a service agreement with the insurance agency which owns the other 50% joint venture interest in Community Bank Insurance Brokers of New York. Such agency will provide administrative services and support directly to the joint venture. Competition Cohoes faces strong competition, both in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers making loans secured by real estate located in the Bank's primary market area. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. The Bank attracts all of its deposits through its branch offices, primarily from the communities in which those branch offices are located; therefore, competition for those deposits is principally from mutual funds and other savings institutions, commercial banks and credit unions located in the same communities. The Bank competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours, and convenient branch locations with interbranch deposit and withdrawal privileges. Automated teller machine facilities are also available. Employees At June 30, 1998, the Bank had 169 full-time employees and 53 part-time employees. The Bank's employees are not represented by any collective bargaining group. Management considers its employee relations to be good. Properties The Bank conducts its business at its main office and 16 other banking offices. The following table sets forth information relating to each of the Bank's offices as of June 30, 1998. The net book value of the Bank's premises and equipment (including land, building and leasehold improvements and furniture, fixtures and equipment) at June 30, 1998 was $7.3 million. See Note 9 of the Notes to Consolidated Financial Statements. 65
Net Book Value Original Total of Property or Leased Year Date of Approximate Leasehold or Leased or Leased Square Improvements at Locations Owned Acquired Expiration Footage June 30, 1998 - ------------------------------- ------ --------- ---------- ----------- --------------- (In thousands) Cohoes Loan Center Owned 1992 N/A 10,500 $ 683 50 Mohawk Street Cohoes, NY 12047 Annex Owned 1981 N/A 3,723 174 60 Remsen Street Cohoes, NY 12047 Operation Center Owned 1987 N/A 11,190 332 244 North Mohawk Street Cohoes, NY 12047 Community Outreach Center Leased 1995 01/16/99 200 -- Urban League Headquarters 95 Livingston Avenue Albany, NY Building Adjacent Latham Office Owned 1986 N/A 3,024 80 Storage Facility 771 New Loudon Road Latham, NY 12110 Branch Offices: Main Office Owned 1924 N/A 15,223 332 75 Remsen Street Cohoes, NY 12047 Cohoes/I-787 Office (2) Owned 1976 N/A 988 141 New Courtland Street Cohoes, NY 12047 Latham Office Owned 1967 N/A 9,041 533 Corner of Pine & Route 9 Latham, NY 12110 Clifton Park Office Owned 1972 N/A 5,297 334 525 Visher Ferry Road Clifton Park, NY 12065 Delmar Office Owned 1994 N/A 4,768 1,476 197 Delaware Avenue Delmar, NY 12182 Lansingburgh Office Owned 1976 N/A 3,216 270 820 Second Avenue Troy, NY 12182 Loudonville Office Leased 1996 07/31/01 4,000 2 475 Albany-Shaker Road Loudonville, NY 12211 Guilderland Office Leased 1995 10/31/05 3,500(1) 1 1973 Western Avenue Albany, NY 12203
- ---------- (1) 3,500 square feet of which 1,265 square feet is subleased by Noreast Real Estate. (2) The public accommodation office is expected to become a branch office in October, 1998. 66 PROPERTIES (Continued)
Net Book Value Original Total of Property or Leased Year Date of Approximate Leasehold or Leased or Leased Square Improvements at Locations Owned Acquired Expiration Footage June 30, 1998 - ------------------------------- ------ --------- ---------- ----------- --------------- (In thousands) Supermarket Branches: Glenville Leased 1993 10/31/03 323 $ 72 290 Saratoga Road Scotia, NY 12302 Rotterdam Leased 1993 03/31/03 350 82 1879 Altamont Avenue Schenectady, NY 12303 Colonie Leased 1993 09/30/03 336 77 1892 central Avenue Colonie, NY 12205 Westgate Leased 1995 04/30/00 565 80 911 Central Avenue Albany, NY 12206 Brunswick Leased 1996 10/31/01 304 83 716 Hoosick Road Brunswick, NY 12180 Bethlehem Leased 1997 05/31/02 312 76 1395 New Scotland Road Slingerlands, NY 12159 Malta Leased 1996 05/31/01 524 123 1 Kendall Way Malta, NY 12020 Niskyuna Leased 1996 06/30/01 544 123 2333 Nott Street East Niskayuna, NY 12309 Queensbury (1) Leased 1998 05/31/03 360 1 677 Upper Glen Street Queensbury, NY 12804
- ---------- (1) Opened in July, 1998. Legal Proceedings The Bank is involved as plaintiff or defendant in various legal actions arising in the normal course of its business. While the ultimate outcome of these proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing the Bank in the proceedings, that the resolution of these proceedings should not have a material effect on the Bank's results of operations. 67 REGULATION Set forth below is a brief description of certain laws and regulations which are applicable to the Holding Company and the Bank. The description of the laws and regulations hereunder, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. The Holding Company General. Upon consummation of the Conversion, the Holding Company will become subject to regulation as a savings and loan holding company under the HOLA, instead of being subject to regulation as a bank holding company under the Bank Holding Company Act of 1956 because the Bank has made an election under Section 10(1) of HOLA to be treated as a "savings association" for purposes of Section 10(e) of HOLA. As a result, the Holding Company will be required to register with the OTS and will be subject to OTS regulations, examinations, supervision and reporting requirements relating to savings and loan holding companies. The Holding Company will also be required to file certain reports with, and otherwise comply with the rules and regulations of, the NYBB and the SEC. As a subsidiary of a savings and loan holding company, the Bank will be subject to certain restrictions in its dealings with the Holding Company and affiliates thereof. Activities Restrictions. Upon consummation of the Conversion, the Bank will be the sole savings association subsidiary of the Holding Company. There are generally no restrictions on the activities of a savings and loan holding company which holds only one subsidiary savings institution. However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings institution, he may impose such restrictions as are deemed necessary to address such risk, including limiting (i) payment of dividends by the savings institution; (ii) transactions between the savings institution and its affiliates; and (iii) any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings institution subsidiary of such a holding company fails to meet the QTL test, as discussed under "--Qualified Thrift Lender Test," then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings institution requalifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. See "--Qualified Thrift Lender Test." If the Holding Company were to acquire control of another savings institution, other than through Merger or other business combination with the Bank, the Holding Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings institution meets the QTL test, as set forth below, the activities of the Holding Company and any of its subsidiaries (other than the Bank or other subsidiary savings institutions) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings institution shall commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof any business activity other than: (i) furnishing or performing management services for a subsidiary savings institution; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies, those activities authorized by the FRB as permissible for bank holding companies. Those activities described in clause (vii) above also must be approved by the Director of the OTS prior to being engaged in by a multiple savings and loan holding company. Qualified Thrift Lender Test. Under Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, a savings association can comply with the QTL test by either meeting the QTL test set forth in the HOLA and implementing regulations or qualifying as a domestic building and loan association as defined in Section 68 7701(a)(19) of the Internal Revenue Code of 1986, as amended. A savings bank subsidiary of a savings and loan holding company that does not comply with the QTL test must comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the institution shall be restricted to those of a national bank, (iii) the institution shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. Upon the expiration of three years from the date the savings institution ceases to meet the QTL test, it must cease any activity and divest any investment not permissible for a national bank and immediately repay any outstanding FHLB advances (subject to safety and soundness considerations). The QTL test set forth in the HOLA requires that qualified thrift investments ("QTLs") represent 65% of portfolio assets of the savings institution and its consolidated subsidiaries. Portfolio assets are defined as total assets less intangibles, property used by a savings association in its business and liquidity investments in an amount not exceeding 20% of assets. Generally, QTLs are residential housing related assets. The 1996 amendments to allow small business loans, credit card loans, student loans and loans for personal, family and household purposes to be included without limitation as qualified investments. At June 30, 1998, approximately 82.5% of the Bank's assets were invested in QTLs, which was in excess of the percentage required to qualify the Bank under the QTL test in effect at that time. Limitations on Transactions with Affiliates. Transactions between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution is any company or entity which controls, is controlled by or is under common control with the savings institution. In a holding company context, the parent holding company of a savings institution (such as the Holding Company) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or, at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions. In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22 (h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution's loans to one borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution's unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At June 30, 1998, the Bank was in compliance with the above restrictions. Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director, (i) control of any other savings institution or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings institution or holding company thereof which is not a subsidiary. Except with the prior approval of the Director, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock, may acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company. The Director may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings institutions in more than one state if (i) the multiple savings and loan holding company 69 involved controls a savings institution which operated a home or branch office located in the state of the institution to be acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire control of the savings institution pursuant,,to the emergency acquisition provisions of the FDIA; or (iii) the statutes of the state in which the institution to be acquired is located specifically permit institutions to be acquired by the state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state chartered savings institutions). Federal Securities Laws. The Holding Company has filed with the SEC a registration statement under the Securities Act, for the registration of the Holding Company Common Stock to be issued pursuant to the Conversion. Upon completion of the Conversion, the Holding Company Common Stock will be registered with the SEC under Section 12(g) of the Securities Exchange Act of 1934, as amended. The Holding Company will then be subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Exchange Act. The registration under the Securities Act of shares of the Holding Company Common Stock to be issued in the Conversion does not cover the resale of such shares. Shares of Holding Company Common Stock purchased by persons who are not affiliates of the Holding Company may be sold without registration. Shares purchased by an affiliate of the Holding Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Holding Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Holding Company who complies with the other conditions of Rule 144 (including those that require the affiliate's sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of the Holding Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks. The Bank General. The Bank is subject to extensive regulation and examination by the Department, as its chartering authority, and by the FDIC, as the insurer of its deposits, and, upon Conversion, will be subject to certain requirements established by the OTS as a result of the Holding Company's savings and loan holding company status. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The Bank must file reports with the NYBB and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as establishing branches and Mergers with, or acquisitions of, other depository institutions. There are periodic examinations by the NYBB and the FDIC to test the Bank's compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the NYBB, the FDIC or as a result of the enactment of legislation, could have a material adverse impact on the Holding Company, the Bank and their operations. Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks which, like the Bank, will not be members of the Federal Reserve System. The FDIC's capital regulations establish a minimum 3.0% Tier I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's regulation, the highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and are rated composite I under the Uniform Financial Institutions Rating System. 70 Leverage or core capital is defined as the sum of common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain mortgage servicing rights. The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based capital standard for savings banks requires the maintenance of total capital (which is defined as Tier 1 capital and supplementary (Tier 2) capital) to risk-weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off- balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier I capital are equivalent to those discussed above under the 3% leverage capital standard. The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At June 30, 1998 the Bank met each of its capital requirements. In August 1995, the FDIC, along with the other federal banking agencies, adopted a regulation providing that the agencies will take account of the exposure of a bank's capital and economic value to changes in interest rate risk in assessing a bank's capital adequacy. According to the agencies, applicable considerations include the quality of the bank's interest rate risk management process, the overall financial condition of the bank and the level of other risks at the bank for which capital is needed. Institutions with significant interest rate risk may be required to hold additional capital. The agencies recently issued a joint policy statement providing guidance on interest rate risk management, including a discussion of the critical factors affecting the agencies' evaluation of interest rate risk in connection with capital adequacy. The agencies have determined not to proceed with a previously issued proposal to develop a supervisory framework for measuring interest rate risk and an explicit capital component for interest rate risk. See "Regulatory Capital Requirements" for information with respect to the Bank's historical leverage and risk- based capital at June 30, 1998 and pro forma after giving effect to the issuance of shares in the Offerings. Activities and Investments of New York-Chartered Savings Banks. The Bank derives its lending, investment and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the Department, as limited by FDIC regulations and other federal laws and regulations. See "--Activities and Investments of Insured State--Chartered Banks." These New York laws and regulations authorize savings banks, including the Bank, to invest in real estate mortgages, consumer and commercial loans, certain types of debt securities, including certain corporate debt securities and obligations of federal, State and local governments and agencies, certain types of corporate equity securities and certain other assets. Under the statutory authority for investing in equity securities, a savings bank may directly invest up to 7.5% of its assets in certain corporate stock and may also invest up to 7.5% of its assets in certain mutual fund securities. Investment in stock of a single corporation is limited to the lesser of 2% of the outstanding stock of such corporation or 1% of the savings bank's assets, except as set forth below. Such equity securities must meet certain tests of financial performance. A savings bank's lending powers are not subject to percentage of asset limitations, although there are limits applicable to single borrowers. A savings bank may also, pursuant to the "leeway" authority, make investments not otherwise permitted under the New York State Banking Law. This authority permits investments in otherwise impermissible investments of up to 1% of the savings bank's assets in any single investment, subject to certain restrictions and to an aggregate limit for all such investments of up to 5% of assets. Additionally, in lieu of investing in such securities in accordance with the reliance upon the specific investment authority set forth in the New York State Banking Law, savings banks are authorized to elect to invest under a "prudent person" standard in a wider range of debt and equity securities as compared to the types of investments permissible under such specific investment authority. However, in the event a savings bank elects to utilize the "prudent person" standard, it will be unable to avail itself of the other provisions of the New York State Banking Law and regulations which set forth specific investment authority. A New York chartered stock savings bank may also exercise trust powers upon approval of the Department. Under recently enacted legislation, the Department has been granted the authority to maintain the power of state-chartered banks reciprocal with those of a national bank. Under the terms of the legislation, the Department is granted such authority for only one year unless legislation is adopted within such period which extends the effective 71 period of such power. However, any regulations adopted by the Department pursuant to the authority granted by such legislation would be effective regardless of whether legislation is enacted extending the effective period. New York-chartered savings banks may also invest in subsidiaries under their service corporation investment power. A savings bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus any additional activities which may be authorized by the Department. Investment by a savings bank in the stock, capital notes and debentures of its service corporations is limited to 3% of the bank's assets, and such investments, together with the bank's loans to its service corporations, may not exceed 10% of the savings bank's assets. With certain limited exceptions, a New York-chartered savings bank may not make loans or extend credit for commercial, corporate or business purposes (including lease financing) to a single borrower, the aggregate amount of which would be in excess of 15% of the bank's net worth. The Bank currently complies with all applicable loans-to-one- borrower limitations. Activities and Investments of FDIC-Insured State-Chartered Banks. The activities and equity investments of FDIC-insured, state-chartered banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. In addition, an FDIC-insured state-chartered bank may not directly, or indirectly through a subsidiary, engage as "principal" in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Regulatory Enforcement Authority. Applicable banking laws include substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. Under the New York State Banking Law, the Superintendent may issue an order to a New York-chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices and to keep prescribed books and accounts. Upon a finding by the Superintendent that any director, trustee or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee or officer may be removed from office by the Superintendent after notice and an opportunity to be heard. The Bank does not know of any past or current practice, condition or violation that might lead to any proceeding by the Department against the Bank or any of its directors or officers. The Superintendent also may take possession of a banking organization under specified statutory criteria. Prompt Corrective Action. Section 38 of the FDIA provides the federal banking regulators with broad power to take "prompt corrective action" to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Under regulations adopted by the federal banking regulators, an institution shall be deemed to be (i) "well capitalized" if it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure, (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% 72 or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized," (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. The regulations also provide that a federal banking regulator may, after notice and an opportunity for a hearing, reclassify a "well capitalized" institution as "adequately capitalized" and may require an "adequately capitalized" institution or an "undercapitalized" institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or engaging in an unsafe or unsound practice. The federal banking regulator may not, however, reclassify a "significantly undercapitalized" institution as "critically undercapitalized." An institution generally must file a written capital restoration plan which meets specified requirements, as well as a performance guaranty by each company that controls the institution, with an appropriate federal banking regulator within 45 days of the date that the institution receives notice or is deemed to have notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Immediately upon becoming undercapitalized, an institution becomes subject to statutory provisions which, among other things, set forth various mandatory and discretionary restrictions on the operations of such an institution. At June 30, 1998, the Bank had capital levels which qualified it as a "well capitalized" institution. FDIC Insurance Premiums. The Bank is a member of the BIF administered by the FDIC. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC. The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Bank's deposit insurance. Brokered Deposits. The FDIA restricts the use of brokered deposits by certain depository institutions. Under the FDIA and applicable regulations, (i) a "well capitalized insured depository institution" may solicit and accept, renew or roll over any brokered deposit without restriction, (ii) an "adequately capitalized insured depository institution" may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the FDIC and (iii) an "undercapitalized insured depository institution" may not (x) accept, renew or roll over any brokered deposit or (y) solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution's normal market area or in the market area in which such deposits are being solicited. The Bank had $992,000 in brokered deposits outstanding at June 30, 1998. However, it is not currently soliciting brokered deposits. Community Investment and Consumer Protection Laws. In connection with its lending activities, the Bank is subject to a variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. Included among these are the federal Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and CRA. The CRA requires insured institutions to define the communities that they serve, identify the credit needs of those communities and adopt and implement a "Community Reinvestment Act Statement" pursuant to which they offer credit products and take other actions that respond to the credit needs of the community. The responsible federal banking regulator (in the case of the Bank, the FDIC) must conduct regular CRA examinations of insured financial 73 institutions and assign to them a CRA rating of "outstanding," "satisfactory," "needs improvement" or "unsatisfactory." The Bank's current federal CRA rating is "satisfactory." The Bank is also subject to provisions of the New York State Banking Law which impose continuing and affirmative obligations upon banking institutions organized in New York State to serve the credit needs of its local community ("NYCRA"), which are similar to those imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA reports with the Department. The NYCRA requires the Department to make an annual written assessment of a bank's compliance with the NYCRA, utilizing a four-tiered rating system, and make such assessment available to the public. The NYCRA also requires the Department to consider a bank's NYCRA rating when reviewing a bank's application to engage in certain transactions, including Mergers, asset purchases and the establishment of branch offices or automated teller machines, and provides that such assessment may serve as a basis for the denial of any such application. The Bank's latest NYCRA rating, received from the Department was "satisfactory." Limitations on Dividends. The Holding Company is a legal entity separate and distinct from the Bank. The Holding Company's principal source of revenue consists of dividends from the Bank. The payment of dividends by the Bank is subject to various regulatory requirements including a requirement, as a result of the Holding Company's savings and loan holding company status, that the Bank notify the Director not less than 30 days in advance of any proposed declaration by its directors of a dividend. Under New York State Banking Law, a New York-chartered stock savings bank may declare and pay dividends out of its net profits, unless there is an impairment of capital, but approval of the Department is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments. Miscellaneous. The Bank is subject to certain restrictions on loans to the Holding Company or its non-bank subsidiaries, on investments in the stock or securities thereof, on the taking of such stock or securities as collateral for loans to any borrower, and on the issuance of a guarantee or letter of credit on behalf of the Holding Company or its non-bank subsidiaries. The Bank also is subject to certain restrictions on most types of transactions with the Holding Company or its non-bank subsidiaries, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms. FHLB System. The Bank is a member of the FHLB of New York, which is one of 12 regional FHLBs that administers the home financing credit function of savings institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. The Bank had $19.9 million of FHLB advances at June 30, 1998. As a FHLB member, the Bank is required to purchase and maintain stock in the FHLB of New York in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its advances from the FHLB of New York, whichever is greater. At June 30, 1998, the Bank had approximately $3.6 million in FHLB stock, which resulted in its compliance with this requirement. The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid in the past and could continue to do so in the future. These contributions also could have an adverse effect on the value of FHLB stock in the future. Federal Reserve System. The FRB requires all depository institutions to maintain reserves against their transaction accounts (primarily checking accounts, including NOW and Super NOW accounts) and non-personal time deposits. As of June 30, 1998, the Bank was in compliance with applicable requirements. However, because required 74 reserves must be maintained in the form of vault cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce an institution's earning assets. TAXATION Federal Taxation General. The Holding Company and the Bank will be subject to federal income taxation in the same general manner as other corporations with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Bank. The Bank's federal income tax returns have been audited or closed without audit by the Internal Revenue Service through December 31, 1994. Method of Accounting. For federal income tax purposes, the Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending June 30 for filing its consolidated federal income tax returns. The 1996 Act eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the specific charge off method in computing its bad debt deduction beginning with its 1996 Federal tax return. In addition, the federal legislation requires the recapture (over a six year period) of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987. The amount of such reserve subject to recapture as of June 30, 1998 is approximately $1.5 million. As discussed more fully below, the Bank and subsidiaries file combined New York State Franchise tax returns. The basis of the determination of the tax is the greater of a tax on entire net income (or on alternative entire net income) or a tax computed on taxable assets. However, for state purposes, New York State enacted legislation in 1996, which among other things, decoupled the Federal and New York State tax laws regarding thrift bad debt deductions and permits the continued use of the bad debt reserve method under section 593 of the Code. Thus, provided the Bank continues to satisfy certain definitional tests and other conditions, for New York State income tax purposes, the Bank is permitted to continue to use the special reserve method for bad debt deductions. The deductible annual addition to the state reserve may be computed using a specific formula based on the Bank's loss history ("Experience Method") or a statutory percentage equal to 32% of the Bank's New York State taxable income ("Percentage Method"). Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income should the Bank fail to meet certain thrift asset and definitional tests. New federal legislation eliminated these thrift related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should the Bank make certain non-dividend distributions, dividend distributions in excess of historical earnings and profits or cease to maintain a bank charter. At June 30, 1998 the Bank's total federal base-year reserve was approximately $3.7 million. These reserves reflect the cumulative effects of federal tax deductions by the Bank for which no Federal income tax provision has been made. Minimum Tax. The Code imposes an AMT at a rate of 20% on a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI is in excess of an exemption amount and regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Bank has not been subject to the alternative minimum tax and has no such amounts available as credits for carryover. 75 Net Operating Loss Carryovers. For the years beginning after August 5, 1997, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At June 30, 1998, the Bank had no net operating loss carryforwards for federal income tax purposes. Corporate Dividends-Received Deduction. The Holding Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. State and Local Taxation New York State Taxation. The Holding Company and the Bank will report income on a combined basis utilizing a fiscal year. New York State Franchise Tax on corporations is imposed in an amount equal to the greater of (a) 9% of "entire net income" allocable to New York State (b) 3% of "alternative entire net income" allocable to New York State (c) 0.01% of the average value of assets allocable to New York State or (d) nominal minimum tax. Entire net income is based on federal taxable income, subject to certain modifications. Delaware State Taxation. As a Delaware holding company not earning income in Delaware, the Holding Company is exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. The tax is imposed as a percentage of the capital base of the Holding Company with an annual maximum of $150,000. MANAGEMENT OF THE HOLDING COMPANY Directors and Executive Officers The Board of Directors of the Holding Company currently consists of eleven members, each of whom is also a trustee of the Bank. As discussed below, upon consummation of the Conversion, the current trustees of the Bank will continue to be directors of the stock-chartered Bank. See "Management of the Bank -- Trustees." Each director of the Holding Company has served as such since the Holding Company's incorporation in September 1998. Directors of the Holding Company will serve three-year staggered terms so that one-third of the directors will be elected at each annual meeting of stockholders. One class of directors, consisting of Duncan S. Mac Affer, Arthur E. Bowen, Walter H. Speidel, and Harry L. Robinson has a term of office expiring at the Holding Company's first Annual Meeting of Stockholders, a second class, consisting of R. Douglas Paton, J. Timothy O'Hearn, Chester C. DeLaMater, and Peter G. Casabonne has a term of office expiring at the Holding Company's second Annual Meeting of Stockholders, and a third class, consisting of Michael L. Crotty, Donald A. Wilson, and Frederick G. Field, Jr., has a term expiring at the Holding Company's third Annual Meeting of Stockholders. For biographical information regarding each director of the Holding Company, see "Management of the Bank -- Trustees." The executive officers of the Holding Company are elected annually and hold office until their respective successors have been elected and qualified or until death, resignation or removal by the Board of Directors. The executive officers of the Holding Company are Harry L. Robinson, President and Chief Executive Officer and Richard A. Ahl, Executive Vice President, Chief Financial Officer and Secretary. It is not anticipated that the executive officers of the Holding Company will receive any remuneration in their capacity as Holding Company executive officers. For information regarding compensation of trustees and executive officers of the Bank, see "Management of the Bank-- Meetings and Committees of the Board of Trustees of the Bank" and "--Executive Compensation." Indemnification The certificate of incorporation of the Holding Company provides that a director or officer of the Holding Company shall be indemnified by the Holding Company to the fullest extent authorized by the General Corporation Law of the State of Delaware against all expenses, liability and loss reasonably incurred or suffered by such person in connection with his activities as a director or officer or as a director or officer of another company, if the director or 76 officer held such position at the request of the Holding Company. Delaware law requires that such director, officer, employee or agent, in order to be indemnified, must have acted in good faith and in a manner reasonably believed to be not opposed to the best interests of the Holding Company and, with respect to any criminal action or proceeding, did not have reasonable cause to believe his conduct was unlawful. The certificate of incorporation of the Holding Company and Delaware law also provide that the indemnification provisions of such certificate and the statute are not exclusive of any other right which a person seeking indemnification may have or later acquire under any statute, or provision of the certificate of incorporation, bylaws of the Holding Company, agreement, vote of stockholders or disinterested directors or otherwise. These provisions may have the effect of deterring stockholder derivative actions, since the Holding Company may ultimately be responsible for expenses for both parties to the action. In addition, the certificate of incorporation of the Holding Company and Delaware law also provide that the Holding Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Holding Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Holding Company has the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The Holding Company intends to obtain such insurance. MANAGEMENT OF THE BANK Trustees Board of Trustees of the Bank. Prior to the Conversion, the direction and control of the Bank, as a mutual savings bank, was vested in its Board of Trustees. Upon Conversion of the Bank to stock form, each of the trustees of the Bank will continue to serve as directors of the converted Bank. The Board of Trustees of the Bank currently consists of eleven members. Each Trustee of the Bank has served as such at least since January, 1992, except for Frederick G. Field, Jr., who was appointed in September, 1995. The trustees serve until their 72nd birthday. Because the Holding Company will own all of the issued and outstanding shares of capital stock of the Bank after the Conversion, the directors of the Holding Company will elect the directors of the Bank. 76 The following table sets forth certain information regarding the trustees of the Bank.
Director Name Position(s) Held With the Bank Age(1) Since ---- ------------------------------ ------ ----- Duncan S. Mac Affer Trustee 63 1964 Arthur E. Bowen Trustee 59 1966 Walter H. Speidel Trustee 70 1970 Harry L. Robinson President, Chief Executive Officer and Trustee 58 1973 R. Douglas Paton Trustee 62 1980 J. Timothy O'Hearn Trustee 57 1983 Chester C. DeLaMater Trustee 58 1983 Peter G. Casabonne Trustee 66 1985 Michael L. Crotty Trustee 52 1986 Donald A. Wilson Trustee 54 1991 Frederick G. Field, Jr. Trustee 66 1995
- ---------- (1) At June 30, 1998. The business experience of each trustee of the Bank for at least the past five years is set forth below. Duncan S. Mac Affer. Mr. Mac Affer is a licensed attorney practicing in the State of New York. He is currently a Village Justice in the Village of Menands, New York and recently retired after serving as counsel to the New York Senate Finance Committee. Arthur E. Bowen. Mr. Bowen is the President and Funeral Director with Bowen Funeral Home, Inc. Walter H. Speidel. Mr. Speidel is a retired past President of Cohoes Savings Bank Bank. Harry L. Robinson. Mr. Robinson is a licensed attorney. He is, also, President and Chief Executive Officer of Cohoes Savings Bank Bank. R. Douglas Paton. Mr. Paton is a retired Stockbroker. J. Timothy O'Hearn. Mr. O'Hearn is President of the Century House, Inc., a restaurant, food catering and lodging company. Chester C. DeLaMater. Mr. DeLaMater is a retired Executive Vice President and Secretary of Cohoes Savings Bank Bank. Peter G. Casabonne. Mr. Casabonne is a Managing Partner of Fuller Realty, Inc., a company which leases manufacturing and office space. Michael L. Crotty. Mr. Crotty is President of Capitol Equipment, Inc., which is a seller of heavy construction and recycling equipment. Donald A. Wilson. Mr. Wilson, a Certified Public Accountant, is President of Wilson & Stark CPA, PC. Frederick G. Field, Jr. Mr. Field is a retired Supervisor of the Town of Colonie. He is currently President of Capitol Hill Management, Inc., a company providing lobbying and management services to associations. 77 Executive Officers Who Are Not Directors. Each of the executive officers of the Bank will retain his or her office in the converted Bank. Officers are elected annually by the Board of Trustees of the Bank. The business experience of the executive officers who are not also trustees is set forth below. Richard A. Ahl, age 50. Mr. Ahl is currently serving as Executive Vice President and Chief Financial Officer. Mr. Ahl joined the Bank in 1996. Mr. Ahl is a CPA with 20 years of financial and banking experience. Albert J. Picchi, age 36. Mr. Picchi is currently serving as Vice President and Senior Loan Officer. Mr. Picchi joined the Bank in January of 1994. Mr. Picchi has 14 years of experience in the financial services industry. Meetings and Committees of the Board of Trustees of the Bank The Bank's Board of Trustees meets on a monthly basis. The Board of Trustees met 13 times during fiscal 1998. During fiscal 1998, no trustee of the Bank attended fewer than 75% of the aggregate of the total number of Board meetings and the total number of meetings held by the committees of the Board of Trustee on which he or she served. The Bank has standing Executive, Loan Review, Nominating, Salary, Trustee Qualification and Examining Committees. The Executive Committee provides oversight of Board-related matters in-between regularly scheduled Board Meetings. In addition, the Committee has the authority to make investments, acquire or sell real estate and to take any other action not otherwise reserved for the Board of Trustees. The Executive Committee is comprised of five Trustees, which membership rotates each month. This committee did not meet during fiscal 1998. The Loan Review Committee is comprised of two trustees which rotates each month and Harry L. Robinson. This Committee oversees and reviews real estate loans between $500,001 and $749,000, and commercial business loans between $200,001 and $300,000. The Nominating Committee proposes nominations for Chairman and Vice Chairman of the Board, Officers, Trustee Emeriti and the appointment of the Bank's legal counsel. This committee is comprised of three trustees serving for a three year term, meeting once each year. The current members of the committee are Donald A. Wilson (Chairman), Frederick G. Field, Jr., and Duncan S. Mac Affer. The Salary Committee is comprised of three trustees serving for a three year term meeting once a quarter to review compensation and benefit practices of the Bank to ensure internal and external market competitiveness. The current members of the committee are J. Timothy O'Hearn (Chairman), Chester C. DeLaMater, and Peter G. Casabonne. The Trustee Qualification Committee is comprised of the three senior Trustees meeting as necessary to review candidates for the vacancies on the Board. The current members of the committee are Duncan S. Mac Affer (Chairman), Arthur E. Bowen, and Walter H. Speidel. The Examining Committee is comprised of three trustees serving for a three year term, meeting once a quarter to provide oversight to the Bank's Internal Audit Department and for the review of the Bank's annual audit report prepared by the Bank's independent auditors. The current members of the committee are Peter G. Casabonne (Chairman), Michael L. Crotty, and Donald A. Wilson. Trustee Compensation Trustees of the Bank are paid a monthly fee for each board meeting attended of $2,625. Trustees receive $500 for each committee meeting attended. 78 Trustees Emeritus Under the Bank's Bylaws, a retiring Trustee may, with the approval of the Board of Trustees, serve as a Trustee Emeritus of the Bank. A Trustee Emeritus is entitled to attend all meetings of the Board of Trustees, participate in all discussions and receive the same fees as a Trustee. Trustees Emeriti are not, however, entitled to vote or meet as a separate body. Robert L. Knoop and Charles R. Crotty currently serve as Trustees Emeritus of the Bank. Executive Compensation The following table sets forth information concerning the compensation paid to the Bank's Chief Executive Officer and the Bank's only other executive officer whose salary and bonus for fiscal 1998 exceeded $100,000.
Summary Compensation Table - ------------------------------------------------------------------------------------------------------------------------------ Long Term Compensation Annual Compensation Awards -------------------------------------- -------------------------- Other Annual Restricted Stock Options All Other Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($)(1) (#)(1) Compensation($) - -------------------------------- ---- ---------- --------- -------------- ---------------- ------- -------------- Harry L. Robinson, President and 1998 $295,072(2) $59,063(2) $--- N/A N/A $17,243(3) Chief Executive Officer Richard A. Ahl, Executive Vice 1998 146,224(2) 31,250(2) --- N/A N/A 4,212(3) President, Chief Financial Officer and Secretary
- ---------- (1) As a mutual institution, the Bank does not have any stock options or restricted stock plans. (2) $27,323 and $21,220 was deferred under the Bank's deferred salary arrangement for Mr. Robinson and Mr. Ahl, respectively. Both Mr. Robinson and Mr. Ahl elected to have their entire bonuses deferred. (3) Includes 401(k) and profit-sharing contributions of $6,043 and $11,200, respectively, for Mr. Robinson and $2,849 and $1,363 respectively, for Mr. Ahl. Employment Agreements Upon the Conversion, the Bank intends to enter into employment agreements with Harry L. Robinson, Richard A. Ahl and Albert J. Picchi of the Bank (individually, the "Executive") and the Holding Company intends to enter into employment agreements with Harry L. Robinson and Richard A. Ahl. The employment agreements are intended to ensure that the Bank and the Holding Company will be able to maintain a stable and competent management base after the Conversion. The continued success of the Bank and the Holding Company depends to a significant degree on the skills and competence of the above referenced officers. The employment agreements provide for either three-year or two-year terms for each Executive. The terms of the employment agreements shall be extended on a daily basis unless written notice of non-renewal is given by the Board of Directors. The employment agreements provide that the executive's base salary will be reviewed annually. The base salary which will be effective for such Employment Agreement for Harry L. Robinson and Richard A. Ahl will be $400,000 and $200,000, respectively. In addition to the base salary, the employment agreements provide for, among other things, participation in stock benefits plans and other fringe benefits applicable to executive personnel. The agreements provide for termination by the Bank or the Holding Company for cause, as defined in the employment agreements, at any time. In the event the Bank or the Holding Company chooses to terminate the executive's employment for reasons other than for cause, or in the event of the executive's resignation from the Bank and the Holding Company upon; (i) failure to re-elect the executive to his current offices; (ii) a material change in the executive's functions, duties or responsibilities; (iii) a reduction in the benefits and perquisites being provided to the executive under the Employment Agreement; (iv) liquidation or dissolution of the Bank or the Holding Company; or (v) a breach of the agreement by the Bank or the Holding Company, the executive or, in the event of death, his beneficiary would be entitled to receive an amount equal to the remaining base salary payments due to the executive for the remaining term of the Employment Agreement and the contributions that would have been made on the executive's behalf to any employee benefit plans of the Bank and the Holding Company during the remaining term of 79 the agreement. The Bank and the Holding Company would also continue and pay for the executive's life, health, dental and disability coverage for the remaining term of the Agreement. Upon any termination of the executive, other than following a change in control, the executive is subject to a one year non-competition agreement. Under the employment agreements, if voluntary or involuntary termination follows a change in control of the Bank or the Holding Company, the executive or, in the event of the executive's death, his beneficiary, would be entitled to the payment of base salary, plan contributions and other forms of compensation to which the executive is entitled for the remaining term of the Employment Agreement, plus a severance payment equal to the greater of: (i) the payments due for the remaining terms of the agreement; or (ii) three times the average of the five preceding taxable years' annual compensation. The Bank and the Holding Company would also continue the executive's life, health, and disability coverage for thirty-six months in the case of Messrs. Robinson and Ahl and twenty-four months in the case of Mr. Picchi. Under the employment agreements, a voluntary termination following a change in control means the executive's voluntary resignation following any demotion, loss of title, office authority or responsibility, a reduction in compensation or benefits or relocation. Notwithstanding that both the Bank and Holding Company employment agreements provide for a severance payment in the event of a change in control, the executive would only be entitled to receive a severance payment under one agreement. Payments to the executive under the Bank's Employment Agreement will be guaranteed by the Holding Company in the event that payments or benefits are not paid by the Bank. Payment under the Holding Company's Employment Agreement would be made by the Holding Company. The Holding Company's Employment Agreement also provides that the Holding Company will compensate the executive for excise taxes imposed on any "excess parachute payments," as defined under section 280G of the Code, made thereunder, and any additional income and excise taxes imposed as a result of such compensation. All reasonable costs and legal fees paid or incurred by the executive pursuant to any dispute or question of interpretation relating to the employment agreements shall be paid by the Bank or Holding Company, respectively, if the executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. The employment agreements also provide that the Bank and the Holding Company shall indemnify the executive to the fullest extent allowable under New York and Delaware law, respectively. Assuming a change in control of the Bank or the Holding Company occurred effective June 30, 1998, the total amount of payments due under the Agreements, based solely on cash compensation paid to the officers who will receive employment agreements over the past five fiscal years and excluding any benefits under any employee benefit plan which may be payable, would be approximately $3.0 million. Change in Control Agreements Upon Conversion, the Bank intends to enter into one-year Change in Control agreements with four officers of the bank, none of whom will be covered by employment contracts. Commencing on the first anniversary date and continuing on each anniversary thereafter, the Bank Change in Control agreements may be renewed by the Board of Directors of the Bank for an additional year. The Bank's Change in Control agreements will provide that in the event voluntary or involuntary termination follows a change in control of the Holding Company or the Bank, the officer would be entitled to receive a severance payment equal to the officer's current annual compensation. The Bank would also continue and pay for the officer's life, health and disability coverage for twelve months following termination. Under the Change in Control agreements, a voluntary termination following a change in control means the executive's voluntary resignation following any demotion, loss of title, office authority or responsibility, a reduction in compensation or benefits or relocation. In the event of a change in control of the Holding Company or the Bank, the total payments that would be due under the Change in Control agreements, based solely on the current annual compensation paid to the officers covered by the Change in Control agreements and excluding any benefits under any employee benefit plan which may be payable, would be approximately $250,000. Employee Severance Compensation Plan The Bank's Board of Directors intends to, upon Conversion, establish the Severance Plan which will provide eligible employees selected by the Board of Directors with severance pay benefits in the event of a change in control of the Bank or the Holding Company following Conversion. Management personnel with employment agreements or Change in Control agreements are not eligible to participate in the severance plan. Generally, employees are eligible to participate in the severance plan if they have completed at least one year of service with the Bank. The Severance Plan vests in each participant a contractual right to the benefits such participant is entitled to thereunder. Under the 80 severance plan, in the event of a change in control of the Bank or the Holding Company, eligible employees who are terminated from or terminate their employment within one year (for reasons specified under the severance plan), will be entitled to receive a severance payment. If the participant, whose employment has terminated, has completed at least one year of service, the participant will be entitled to a cash severance payment equal to two weeks of annual compensation for each year of service up to a maximum of six months of annual compensation. Such payments may tend to discourage takeover attempts by increasing costs to be incurred by the Bank in the event of a takeover. In the event the provisions of the severance plan are triggered, the total amount of payments that would be due thereunder, based solely upon current salary levels, would be approximately $202,000. However, it is management's belief that substantially all of the Bank's employees would be retained in their current positions in the event of a change in control, and that any amount payable under the severance plan would be considerably less than the total amount that could possibly be paid under the severance plan. Independent Compensation Expert Pursuant to NYBB regulations, an independent compensation expert must review the total compensation for the executive officers and trustees of the Bank as a whole and on an individual basis and determine whether such compensation is reasonable and proper in comparison to the compensation provided to executive officers, directors or trustees of similar publicly-traded financial institutions. William M. Mercer, Incorporated has conducted such review on behalf of the Bank and determined that, based upon published professional survey data of similarly situated publicly-traded financial institutions operating in the relevant markets, with respect to the total cash compensation for executive officers and total remuneration for trustees of the Bank, such compensation, viewed as a whole and on an individual basis, is reasonable and proper in comparison to the compensation provided to similarly situated publicly-traded financial institutions, and that, with respect to the amount of shares of Holding Company Common Stock to be reserved under the ESOP, and expected to be reserved under the RRP and the Stock Option and Incentive Plan, as a whole, such amounts reserved for granting are reasonable in comparison to similar publicly-traded financial institutions. Benefit Plans General. The Bank currently provides health care benefits to its employees, including medical, dental and life insurance, subject to certain deductibles and copayments by employees. 401(k) Savings and Profit-Sharing Plan. The Bank has a qualified, tax-exempt savings and profit-sharing plan with a cash or deferred feature qualifying under Section 401(k) of the Code (the "401(k) Plan"). All salaried employees who have attained age 21 and completed one year of employment, during which they worked at least 1,000 hours, are eligible to participate. Participants are permitted to make salary reduction contributions to the 401(k) Plan of between 2% to 15% of the participant's annual salary. Each participant's salary reduction contribution is matched by the Bank in an amount equal to 50% of the participant's before-tax contribution up to a maximum contribution by the Bank of 3% of such participant's annual salary for the Plan Year. All participant contributions and earnings are fully and immediately vested. All matching contributions are vested at a rate of 20% per year over a five year period commencing after one year of employment with the Bank. However, in the event of retirement, permanent disability or death, a participant will automatically become 100% vested in the value of all matching contributions and earnings thereon, regardless of the number of years of employment with the Bank. Participants may invest amounts contributed to their 401(k) Plan accounts in one or more investment options available under the 401(k) Plan in multiples of 10%. Changes in investment directions among the funds are permitted on a continuous basis pursuant to procedures established by the Plan Administrator. Each participant receives a quarterly statement which provides information regarding, among other things, the market value of his investments and contributions made to the 401(k) Plan on his behalf. Participants are permitted to borrow against their account balance in the 401(k) Plan. For the year ended June 30, 1998, the Bank's contributions to the 401(k) Plan on behalf of Messrs. Robinson and Ahl were $17,243 and $4,212, respectively. 81 Employee Stock Ownership Plan. The Board of Trustees of the Bank and the Board of Directors of the Holding Company have approved the adoption of an ESOP for the benefit of eligible employees of the Bank. The ESOP is designed to meet the requirements of an employee stock ownership plan as described at Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA, and, as such, the ESOP is empowered to borrow in order to finance purchases of the Holding Company Common Stock. It is anticipated that the ESOP will be initially funded with a loan from the Holding Company. The proceeds from this loan are expected to be used by the ESOP to purchase 8% of the Holding Company Common Stock issued in the Conversion, including shares issued to the Foundation. After the Conversion, as a qualified employee pension plan under Section 401(a) of the Code, the ESOP will be in the form of a stock bonus plan and will provide for contributions, predominantly in the form of either Holding Company Common Stock or cash, which will be used within a reasonable period after the date of contributions primarily to purchase the Holding Company Common Stock. The maximum tax-deductible contribution by the Bank in any year is an amount equal to the maximum amount that may be deducted by the Bank under Section 404 of the Code, subject to reduction based on contributions to other tax-qualified employee plans. Additionally, the Bank will not make contributions if such contributions would cause the Bank to violate its regulatory capital requirements. The assets of the ESOP will be invested primarily in Holding Company Common Stock. The Bank will receive a tax deduction equal to the amount it contributes to the ESOP. From time to time the ESOP may purchase additional shares of Holding Company Common Stock for the benefit of plan participants through purchases of outstanding shares in the market, upon the original issuance of additional shares by the Holding Company or upon the sale of shares held in treasury by the Holding Company. Such purchases, which are not currently contemplated, would be subject to then-applicable laws, regulations and market conditions. All employees of the Bank are eligible to participate in the ESOP after they attain age 21 and complete on year of service with the Bank. Employees will be credited for years of service to the Bank prior to the adoption of the ESOP for participation and vesting purposes. The Bank's contribution to the ESOP is allocated among participants on the basis of compensation. Each participant's account will be credited with cash and shares of Holding Company Common Stock based upon compensation earned during the year with respect to which the contribution is made. A participant will become vested in his or her ESOP account at a rate of 20% per year and after completing five years of service a participant will be 100% vested in his or her ESOP account. ESOP participants are entitled to receive distributions from their ESOP accounts only upon termination of service. Distribution will be made in cash and in whole shares of Holding Company Common Stock. Fractional shares will be paid in cash. Participants will not incur a tax liability until a distribution is made. Participating employees are entitled to instruct the trustee of the ESOP as to how to vote the shares held in their account. The trustee, who has dispositive power over the shares in the Plan, will not be affiliated with the Holding Company or the Bank. The ESOP may be amended by the Board of Directors of the Holding Company, except that no amendment may be made which would reduce the interest of any participant in the ESOP trust fund or divert any of the assets of the ESOP trust fund to purposes other than the benefit of participants or their beneficiaries. Stock Option and Incentive Plan. Among the benefits to the Bank and the Holding Company anticipated from the Conversion is the ability to attract and retain directors and key personnel through stock option and other stock-related incentive programs. A Stock Option and Incentive Plan is intended to be adopted by the Board of Directors of the Holding Company and then submitted to the Holding Company's stockholders for their approval (at a meeting to be held no earlier than six months following the Conversion). The Holding Company anticipates reserving an amount equal to 10% of the shares of Holding Company Common Stock issued in the Conversion, including shares issued to the Foundation (or 829,150 shares based upon the issuance of 8,291,500 shares), for issuance under the Stock Option and Incentive Plan. If the Holding Company implements an option plan within one year following completion of the Conversion, NYBB regulations provide that no individual officer or employee of the Bank may receive more than 25% of the options granted under the plan and non-employee directors may not receive more than 5% individually, or 30% in the aggregate, of the options granted under the plan. NYBB and FDIC regulations also provide that the exercise price of any options granted under any such 82 plan implemented within one year after the Conversion must equal or exceed the market price of the Holding Company Common Stock as of the date of grant. Additionally, OTS regulations, as applied by the FDIC, provide that with respect to any stock option plan adopted within one year after Conversion, the vesting or the exercisability of any options granted under such a plan may not be accelerated except upon death or disability. It is anticipated that the Stock Option and Incentive Plan will allow for the granting of: (i) stock options for employees intended to qualify as incentive stock options under Section 422 of the Code ("Incentive Stock Options"), and (ii) options for all plan participants that do not qualify as incentive stock options ("Non-Statutory Stock Options") . All such awards will be granted at no cost to the recipient. Unless sooner terminated, the Stock Option and Incentive Plan will remain in effect for a period of fifteen years from the later of adoption by the Board of Directors or approval by the Holding Company's stockholders. The Stock Option and Incentive Plan will be administered by a committee (the "Compensation Committee") the members of which are each "non-employee directors," as defined in the SEC's regulations, and "outside directors," as defined under Section 162(m) of the Code and the regulations thereunder. The Compensation Committee will determine which directors, officers and employees may receive options , whether such options will qualify as Incentive Stock Options, the number of shares subject to each option , the exercise price of each option, the manner of exercise of the options and the time when such options will become exercisable. Options granted pursuant to the Stock Option and Incentive Plan will remain exercisable for the lesser of (a) three years following such termination of service or (b) until the expiration of the Option by its terms, following the date on which a participant ceases to perform services for the Bank or the Holding Company, except in the event of death or disability, in which case options would accelerate and become fully vested and remain exercisable for up to one year thereafter, or such longer period as determined by the Compensation Committee. However, any Incentive Stock Option exercised more than three months following the date on which an employee ceased to perform services as an employee, other than termination due to death or disability, would not be treated for tax purposes as an Incentive Stock Option. It is intended that the Stock Option Plan would provide that the Compensation Committee, if requested by the optionee, could elect, in exchange for vested options, to pay the optionee, or beneficiary in the event of death, the amount by which the fair market value of the Holding Company Common Stock exceeds the exercise price of the options on the date of the employee's termination of employment. Recognition and Retention Plan. Following consummation of the Conversion, the Board of Directors of the Holding Company intends to adopt a RRP for directors, officers and employees. The objective of the RRP will be to enable the Holding Company to provide directors, officers and employees with a proprietary interest in the Holding Company as an incentive to contribute to its success. Awards made pursuant to the RRP will be granted to eligible participants based on their position and responsibilities to the Holding Company or the Bank, the value of their services to the Holding Company and the Bank, length of service and other factors the compensation committee may deem relevant at the time such awards are made. The Holding Company intends to present the RRP to stockholders for their approval at a meeting of stockholders which, pursuant to applicable NYBB and FDIC regulations, may be held no earlier than six months subsequent to completion of the Conversion. The RRP will be administered by the Compensation Committee of the Board of Directors. The Holding Company will contribute funds to the RRP to enable it to acquire in the open market or from authorized but unissued shares, following stockholder ratification of such plan, an amount of stock equal to 4% of the shares of Holding Company Common Stock issued in the Conversion, including shares issued to the Foundation (representing 331,660 shares in the aggregate, having a value of $3,316,600 based on the Offering Price per share of $10.00). Although no specific award determinations have been made, the Holding Company anticipates that it will provide stock awards at no cost to participants, the directors, executive officers and employees of the Holding Company or the Bank or their affiliates to the extent permitted by applicable regulations. NYBB regulations provide that, to the extent the Holding Company implements the RRP within one year after Conversion, no individual employee may receive more than 25% 83 of the shares of any plan and non-employee directors may not receive more than 5% of any plan individually or 30% in the aggregate for all directors. Additionally, OTS regulations, as applied by the FDIC, provide that Awards granted under the RRP may not be accelerated except upon death or disability for plans adopted within one year after Conversion. Under the terms of the proposed RRP, awards ("Awards") can be granted to key employees in the form of shares of Holding Company Common Stock held by the RRP. Awards are non-transferable and non-assignable. Recipients will earn (i.e., become vested in), in equal installments over a five year period, the shares of Holding Company Common Stock covered by the Award. Benefit Restoration Plan. The Holding Company also maintains a non-qualified deferred compensation plan, known as the Benefit Restoration Plan. The Benefit Restoration Plan provides certain officers and highly compensated executives of the Holding Company and the Bank with supplemental retirement income when such amounts cannot be paid from the tax-qualified 401(k) Plan or ESOP. Participants in the Benefit Restoration Plan receive a benefit equal to the amount they would have received under the 401(k) Plan and the ESOP, but for reductions in such benefits imposed by operation of Sections 401(a)(17), 401(m), 401(k)(3), 402(g) and 415 of the Code. In addition, the Benefit Restoration Plan is intended to make up benefits lost under the ESOP allocation procedures to certain Participants named by the Compensation Committee who retire prior to the complete repayment of the ESOP loan. At the retirement of a Participant, the restored ESOP benefits under the Benefit Restoration Plan are determined by first: (i) projecting the number of shares that would have been allocated to the Participant under the ESOP if they had been employed throughout the period of the ESOP loan (measured from the Participant's first date of ESOP participation); and (ii) first reducing the number determined by (i) above by the number of shares actually allocated to the Participant's account under the ESOP; and second, by multiplying the number of shares that represent the difference between such figures by the average fair market value of the Common Stock over the preceding five years. Benefit Restoration Plan Participant's benefits are payable upon the retirement or other termination of service of the Participant in the form of a lump sum. Payment of a deceased Participant's benefits will be made to his or her designated beneficiary. Certain Transactions The Bank follows a policy of granting loans to the Bank's employees and residential loans and mortgages to officers. The loans to executive officers and trustees are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions prevailing at the time, in accordance with the Bank's underwriting guidelines and do not involve more than the normal risk of collectibility or present other unfavorable features. All loans to executive officers cannot exceed $25,000 or 5% of the Bank's capital and unimpaired surplus, whichever is greater, unless a majority of the Board of Trustees approves the credit in advance and the individual requesting the credit abstains from voting. Under the Bank's policy the Bank will not make preferred rate loans to executive officers, directors, or employees. All loans by the Bank to its directors and executive officers are subject to regulations restricting loans and other transactions with affiliated persons of the Bank. Federal law currently requires that all loans to directors and executive officers be made on terms and conditions comparable to those for similar transactions with non-affiliates. At June 30, 1998 there were no loans outstanding to any trustee or executive officer of the Bank. 84 Proposed Purchases by Executive Officers and Trustees The following table sets forth the number of shares of Common Stock that the executive officers and trustees, and their associates, propose to purchase in the Offerings, assuming shares of Common Stock are issued at $10.00 per share at the minimum ($59,500,000) and maximum ($80,500,000) of the Estimated Valuation Range and that sufficient shares will be available to satisfy their orders. The table also sets forth the total expected beneficial ownership of Common Stock as to all trustees and executive officers as a group.
At the Minimum of the At the Maximum of the Estimated Valuation Range(1) Estimated Valuation Range(1) ---------------------------- ---------------------------- Number of As a Percent of Number of As a Percent of Name Amount Shares Shares Offered Shares Shares Offered - ------------------------------- ---------- --------- --------------- --------- -------------- Duncan S. Mac Affer ............. $ -- --% -- --% -- Arthur E. Bowen ................. 180,000 18,000 0.3 18,000 0.2 Walter H. Speidel ............... 200,000 20,000 0.3 20,000 0.2 Harry L. Robinson ............... 500,000 50,000 0.8 50,000 0.6 Donald A. Wilson ................ 75,000 7,500 0.1 7,500 0.1 Frederick G. Field, Jr .......... 80,000 8,000 0.1 8,000 0.1 R. Douglas Paton ................ 300,000 30,000 0.5 30,000 0.4 J. Timothy O'Hearn .............. 250,000 25,000 0.4 25,000 0.3 Chester C. DeLaMater ............ 250,000 25,000 0.4 25,000 0.3 Peter G. Casabonne .............. -- -- -- -- -- Michael L. Crotty ............... 125,000 12,500 0.2 12,500 0.2 Richard A. Ahl .................. 300,000 30,000 0.5 30,000 0.4 Albert J. Picchi ................ 150,000 15,000 0.3 15,000 0.2 ---------- ---------- --- ----------- --- All directors and executive officers as a group (13 persons) $2,410,000 241,000 4.1% 241,000 3.0% ========== ========== === ========== ===
- --------- (1) Includes proposed subscriptions, if any, by associates. Does not include subscription orders by the ESOP. Intended purchases by the ESOP are expected to be 8% of the shares issued in the Conversion, including shares issued to the Foundation. Also does not include shares to be contributed to the Foundation equal to 3% of the Holding Company Common Stock sold or 178,500 and 241,500 shares at the minimum and the maximum, respectively of the Estimated Valuation Range, Holding Company Common Stock which may be awarded under the RRP to be adopted equal to 4% of the Holding Company Common Stock issued in the Conversion, including shares issued to the Foundation (or 245,140 shares and 331,660 shares at the minimum and the maximum, respectively, of the Estimated Valuation Range), and Holding Company Common Stock which may be purchased pursuant to options which may be granted under the Stock Option and Incentive Plan equal to 10% of the number of shares of Common stock issued in the Conversion, including shares issued to the Foundation (or 612,850 shares or 829,150 shares at the minimum and the maximum, respectively, of the Estimated Valuation Range.) 85 THE CONVERSION THE BOARD OF TRUSTEES OF THE BANK AND THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAVE APPROVED THE PLAN OF CONVERSION, SUBJECT TO APPROVAL BY THE BANK'S DEPOSITORS ENTITLED TO VOTE ON THE PLAN AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE SUPERINTENDENT. General On May 21, 1998, the Bank's Board of Trustees unanimously adopted the Plan of Conversion pursuant to which the Bank will be converted from a New York mutual savings bank to a New York stock savings bank. It is currently intended that all of the outstanding capital stock issued by the Bank pursuant to the Plan will be held by the Holding Company, which is incorporated under Delaware law. The Plan was approved by the Superintendent, and the Bank has received a notice of intent not to object to the Plan from the FDIC, subject to, among other things, approval of the Plan by the Bank's voting depositors. A special meeting of depositors has been called for this purpose to be held on _________________________, 1998. The Holding Company has received approval from the OTS to become a savings and loan holding company and to acquire all of the capital stock of the Bank to be issued in the Conversion. The Holding Company plans to retain 50% of the net proceeds from the sale of the Conversion Shares and to use the remaining net proceeds to purchase all of the then issued and outstanding capital stock of the Bank. The Conversion will be effected only upon completion of the sale of all of the shares of Holding Company Common Stock to be issued pursuant to the Plan. The Plan provides that the Board of Trustees of the Bank may, at any time prior to the issuance of the Holding Company Common Stock and for any reason, decide not to use the holding company form of organization. Such reasons may include possible delays resulting from overlapping regulatory processing or policies which could adversely affect the Bank's or the Holding Company's ability to consummate the Conversion and transact its business as contemplated herein and in accordance with the Bank's operating policies. In the event such a decision is made, the Bank will withdraw the Holding Company's registration statement from the SEC and take steps necessary to complete the Conversion without the Holding Company, including filing any necessary documents with the Department and the FDIC. In such event, and provided there is no regulatory action, directive or other consideration upon which basis the Bank determines not to complete the Conversion, if permitted by the Department, the Bank will issue and sell the common stock of the Bank and subscribers will be notified of the elimination of a holding company and will be solicited (i.e., be permitted to affirm their orders, in which case they will need to affirmatively reconfirm their subscriptions prior to the expiration of the resolicitation offering or their funds will be promptly refunded with interest at the Bank's passbook rate of interest; or be permitted to modify or rescind their subscriptions), and notified of the time period within which the subscriber must affirmatively notify the Bank of such subscriber's intention to affirm, modify or rescind such subscriber's subscription. The following description of the Plan assumes that a holding company form of organization will be used in the Conversion. In the event that a holding company form of organization is not used, all other pertinent terms of the Plan as described below will apply to the Conversion of the Bank from the mutual to stock form of organization and the sale of the Bank's common stock. The Plan provides generally that (i) the Bank will convert from a mutual savings bank to a capital stock savings bank and (ii) the Holding Company will offer shares of Holding Company Common Stock for sale in the Subscription Offering to the Bank's Eligible Account Holders, Employee Plans, including the ESOP and Supplemental Eligible 86 Account Holders. The Plan also provides that shares not subscribed for in the Subscription Offering may be offered in a Community Offering to certain members of the general public. It is anticipated that all shares not subscribed for in the Subscription and Community Offerings will be offered for sale by the Holding Company to the general public in a Syndicated Community Offering. The Holding Company and the Bank have reserved the right to accept or reject, in whole or in part, any orders to purchase shares of the Holding Company Common Stock received in the Community Offering or in the Syndicated Community Offering. See "-Community Offering" and "- Syndicated Community Offering." The aggregate price of the shares of Holding Company Common Stock to be issued in the Conversion within the Estimated Valuation Range, currently estimated to be between $59,500,000 and $80,500,000 is based upon an independent appraisal of the estimated pro forma market value of the Holding Company Common Stock prepared by RP Financial, a consulting firm experienced in the valuation and appraisal of savings institutions. All shares of Holding Company Common Stock to be issued and sold in the Conversion will be sold at the same price. The independent appraisal will be affirmed or, if necessary, updated at the completion of the Offerings. See "- Stock Pricing" for additional information as to the determination of the estimated pro forma market value of the Holding Company Common Stock. The following is a brief summary of pertinent aspects of the Plan. The summary is qualified in its entirety by reference to the provisions of the Plan. A copy of the Plan is available from the Bank upon written request and is available for inspection at the offices of the Bank and at the office of the Superintendent. The Plan is also filed as an Exhibit to the Registration Statement of which this Prospectus is a part, copies of which may be obtained from the SEC. Purposes of Conversion The Bank, as a New York mutual savings bank, does not have stockholders and has no authority to issue capital stock. By converting to the capital stock form of organization, the Bank will be structured in the form used by commercial banks, other business entities and a growing number of savings institutions. The Conversion will be important to the future growth and performance of the Bank by providing a larger capital base on which the Bank may operate, enhanced future access to capital markets, enhanced ability to diversify into other financial services related activities and enhanced ability to render services to the public. The holding company form of organization, if used, would provide additional flexibility to diversify the Bank's business activities through newly-formed subsidiaries, or through acquisitions of or Mergers with both mutual and stock institutions, as well as other companies. Although there are no current arrangements, understandings or agreements, written or oral, regarding any such opportunities, the Holding Company will be in a position after the Conversion, subject to regulatory limitations and the Holding Company's financial position, to take advantage of any such opportunities that may arise. While there are benefits associated with the holding company form of organization, such form of organization may involve additional costs associated with its maintenance and regulation as a savings and loan holding company, such as additional administrative expenses, taxes and regulatory filings or examination fees. The potential impact of the Conversion upon the Bank's capital base is significant. The Bank had Tier I Leverage Capital of $53.3 million, or 10.13% of assets, at June 30, 1998. Assuming that $78,572,400 million of net proceeds are realized from the sale of Holding Company Common Stock (being the maximum of the Estimated Valuation Range established by the Board of Directors based on the Valuation Range which has been estimated by RP Financial to be from a minimum of $59,500,000 to a maximum of $80,500,000 (see "Pro Forma Data" for the basis of this assumption)) and assuming that $39,286,200 million of the net proceeds are used by the Holding Company to purchase the capital stock of the Bank, the Bank's Tier I Leverage capital ratio, on a pro forma basis, will increase to 15.35% after the Conversion. The investment of the net proceeds from the sale of the Holding Company Common Stock will provide the Bank with additional income to further enhance its capital position. The additional capital may also assist the Bank in offering new programs and expanded services to its customers. 87 After completion of the Conversion, the unissued common and preferred stock authorized by the Holding Company's Certificate of Incorporation will permit the Holding Company, subject to market conditions and regulatory approval, to raise additional equity capital through further sales of securities and to issue securities in connection with possible acquisitions. At the present time, the Holding Company has no plans with respect to additional offerings of securities, other than the issuance of additional shares to the Foundation or upon exercise of stock options granted pursuant to the Stock Option and Incentive Plan or the possible issuance of authorized but unissued shares pursuant to the RRP. Following the Conversion, the Holding Company will also be able to use stock-related incentive programs to attract and retain executive and other personnel for itself and its subsidiaries. See "Management of the Bank - Executive Compensation." Effects of Conversion General. Each depositor in a mutual savings bank has both a deposit account in the institution and a pro rata ownership interest in the equity of the institution based upon the balance in such depositor's account, which interest may only be realized in the event of a liquidation of the institution. However, this ownership interest is tied to the depositor's account and has no tangible market value separate from such deposit account. Any depositor who opens a deposit account obtains a pro rata ownership interest in the equity of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes such an account receives the balance in the account but receives nothing for such depositor's ownership interest in the equity of the institution, which is lost to the extent that the balance in the account is reduced. 88 Consequently, depositors of a mutual savings bank have no way to realize the value of their ownership interest, which has realizable value only in the unlikely event that the mutual savings bank is liquidated. In such event, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves after other claims, including claims of depositors to the amounts of their deposits, are paid. When a mutual savings bank converts to stock form, permanent non-withdrawable capital stock is created to represent the ownership of the institution's equity and the former pro rata ownership of, depositors is thereafter represented exclusively by their liquidation rights. See "-- Liquidation Rights." Such common stock is separate and apart from deposit accounts and cannot be and is not insured by the FDIC or any other governmental agency. Certificates are issued to evidence ownership of the capital stock. The stock certificates are transferable, and, therefore, the stock may be sold or traded if a purchaser is available with no effect on any account the seller may hold in the institution. Continuity. While the Conversion is being accomplished, and after the consummation of the Conversion, the normal business of the Bank of accepting deposits and making loans will continue without interruption. The Bank will continue to be subject to regulation by the Superintendent and the FDIC. After Conversion, the Bank will continue to provide services for depositors and borrowers under current policies by its present management and staff. The trustees serving the Bank immediately before the Conversion will serve as directors of the Bank after the Conversion. The directors of the Holding Company will consist of all of the individuals currently serving on the Board of Trustees of the Bank. It is anticipated that all officers of the Bank serving immediately before the Conversion will retain their positions after the Conversion. See "Management of the Holding Company" and "Management of the Bank." Deposit Accounts and Loans. Under the Plan, each depositor in the Bank and at the time of Conversion will automatically continue as a depositor after the Conversion, and each such deposit account will remain the same with respect to deposit balance, interest rate and other terms, except to the extent affected by withdrawals made to purchase Holding Company Common Stock in the Conversion. See "-- Procedure for Purchasing Shares in Subscription and Community Offerings." Each such account will be insured by the FDIC to the same extent as before the Conversion (i.e., up to $100,000 per depositor). Depositors will continue to hold their existing certificates of deposit, passbooks and other evidences of their accounts. Furthermore, no loan outstanding from the Bank will be affected by the Conversion, and the amount, interest rate, maturity and security for each loan will remain as they were contractually fixed prior to the Conversion. Voting Rights. In its current mutual form, voting rights and control of the Bank are vested exclusively in the Board of Trustees. After the Conversion, direction of the Bank will be under the control of the Board of Directors of the Bank. The Holding Company, as the holder of all of the outstanding capital stock of the Bank, will have exclusive voting rights with respect to any matters concerning the Bank requiring stockholder approval, including the election of directors of the Bank. After the Conversion, subject to the rights of the holders of preferred stock that may be issued in the future, the holders of the Holding Company Common Stock will have exclusive voting rights with respect to any matters concerning the Holding Company. Each holder of Holding Company Common Stock will, subject to the restrictions and limitations set forth in the Holding Company's Certificate of Incorporation discussed below, be entitled to vote on any matters to be considered by the Holding Company's stockholders, including the election of directors of the Holding Company. Liquidation Rights. In the unlikely event of a complete liquidation of the Bank in its present mutual form, each depositor would receive such depositor's pro rata share of any assets of the Bank remaining after payment of claims of 89 all creditors (including the claims of all depositors to the withdrawal value of their accounts). Each depositor's pro rata share of such remaining assets would be in the same proportion as the value of such depositor's deposit account was to the total value of all deposit accounts in the Bank at the time of liquidation. After the Conversion, each depositor, in the event of a complete liquidation, would have a claim as a creditor of the same general priority as the claims of all other general creditors of the Bank. However, except as described below, such depositor's claim would be solely in the amount of the balance in such depositor's deposit account plus accrued interest. Such depositor would not have an interest in the value or assets of the Bank above that amount. The Plan provides for the establishment, upon the completion of the Conversion, of a special "liquidation account" (which is a memorandum account only) for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the surplus and reserves of the Bank as of the date of its latest balance sheet contained in the final Prospectus used in connection with the Conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder, if such account holder were to continue to maintain such account holder's deposit account at the Bank, would be entitled, on a complete liquidation of the Bank after the Conversion, to an interest in the liquidation account prior to any payment to the stockholders of the Bank, whether or not such Eligible Account Holder or Supplemental Eligible Account Holder purchased Holding Company Common Stock in the Conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each deposit account, including passbook accounts, demand accounts, money market deposit accounts and time deposits, with an aggregate balance of $100 or more held in the Bank on March 31, 1997 (with respect to an Eligible Account Holder) and September 30, 1998 (with respect to a Supplemental Eligible Account Holder) (each a "Qualifying Deposit"). Each Eligible Account Holder and Supplemental Eligible Account Holder will have a pro rata interest in the total liquidation account for such account holder's deposit accounts based on the proportion that the aggregate balance of such person's Qualifying Deposits on the Eligibility Record Date or Supplemental Eligibility Record Date, as applicable, bore to the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders. If, however, on any annual closing date (i.e., the anniversary of the Eligibility Record Date or the Supplemental Eligibility Record Date, as applicable) of the Bank, commencing on or after the effective date of the Conversion, the amount in any deposit account is less than the amount in such deposit account on March 31, 1997 (with respect to an Eligible Account Holder), or September 30, 1998 (with respect to a Supplemental Eligible Account Holder), or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. For purposes of the liquidation account, time deposit accounts shall be deemed to be closed upon maturity regardless of renewal. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to the Holding Company as the sole stockholder of the Bank. Tax Aspects. Consummation of the Conversion is expressly conditioned upon the receipt by the Bank of either a favorable ruling from the IRS and New York taxing authorities or opinions of counsel with respect to federal and New York income taxation, to the effect that the Conversion will not be a taxable transaction to the Holding Company, the Bank, Eligible Account Holders or Supplemental Eligible Account Holders, except as noted below. No private ruling will be received from the IRS with respect to the proposed Conversion. Instead, the Bank has received an opinion of its counsel, Silver, Freedman & Taff, L.L.P., based on customary certificates delivered by management of the Holding Company and the Bank, that for federal income tax purposes, among other matters: (i) the Bank's change in form from mutual to stock ownership will constitute a reorganization under section 368(a)(1)(F) of the Code, (ii) neither the Bank nor the Holding Company will recognize any gain or loss as a result of the Conversion; (iii) no gain or loss will be recognized by the Bank or the Holding Company upon the purchase of the Bank's capital stock by the Holding Company or by the Holding Company upon the purchase of its Holding Company Common Stock in the Conversion; (iv) no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Accounts Holders upon the issuance to them of deposit accounts in the Bank in its stock form plus their interests in the liquidation account in exchange for their deposit accounts in the Bank; (v) the tax basis of the depositors' deposit accounts in the Bank immediately after the Conversion will be the same as the basis of their deposit accounts 90 immediately prior to the Conversion; (vi) the tax basis of each Eligible Account Holder's and each Supplemental Eligible Account Holders interest in the liquidation account will be zero; (vii) no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon the distribution to them of non-transferable subscription rights to purchase shares of the Holding Company Common Stock, provided, that the amount to be paid for the Holding Company Common Stock is equal to the fair market value of such stock; and (viii) the tax basis to the stockholders of the Holding Company Common Stock purchased in the Conversion pursuant to the subscription rights will be the amount paid therefor and the holding period for the shares of Holding Company Common Stock purchased by such persons will begin on the date on which their subscription rights are exercised. Arthur Andersen has also opined, subject to the limitations and qualifications in its opinion, that the Conversion will not be a taxable transaction to the Holding Company or to the Bank for New York income and franchise tax purposes or to Eligible Account Holders or to Supplemental Eligible Account Holders for New York income tax purposes. The opinions of Silver, Freedman & Taff, L.L.P. and Arthur Andersen have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Unlike private rulings, opinions of counsel or other professionals are not binding on the IRS or the New York taxing authorities and the IRS or the New York taxing authorities could disagree with conclusions reached therein. In the event of such disagreement, there can be no assurance that the IRS or the New York taxing authorities would not prevail in a judicial or administrative proceeding. Certain portions of both the federal and the state tax opinions are based upon the letter of RP Financial that subscription rights issued in connection with the Conversion will have no value. In the letter of RP Financial, which opinion is not binding on the IRS or the New York taxing authorities, the subscription rights do not have any value based on the fact that such rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the Holding Company Common Stock at a price equal to its estimated fair market value, which will be the same price as the Purchase Price for the unsubscribed shares of Holding Company Common Stock. If the subscription rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors are deemed to have an ascertainable value, such Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors could be taxed upon the receipt or exercise of the subscription rights in an amount equal to such value, and the Bank could recognize gain on such distribution. Eligible Account Holders, Supplemental Eligible Account Holders and Other Depositors are encouraged to consult with their own tax advisors as to the tax consequences in the event that such subscription rights are deemed to have an ascertainable value. Establishment of Cohoes Savings Foundation General. In furtherance of the Bank's commitment to its local community, the Plan of Conversion provides for the establishment of a charitable foundation in connection with the Conversion. The Plan provides that the Bank and the Holding Company will incorporate the Foundation under Delaware law as a non-stock corporation and will fund the Foundation with Holding Company Common Stock, as further described below. The Holding Company and the Bank believe that the funding of the Foundation with Holding Company Common Stock is a means to establish a common bond between the Bank and its community, enabling the Bank's community to share in the potential growth and success of the Holding Company over the long term. By further enhancing the Bank's visibility and reputation in its local community, the Bank believes that the Foundation will enhance the long-term value of the Bank's community 91 banking franchise. The Foundation will be dedicated to charitable purposes within the Bank's local community, including community development activities. Purpose of the Foundation. The purpose of the Foundation is to provide funding to support charitable causes and community development activities. In recent years, the Bank has emphasized community lending and community development activities within the Bank's local community. The Bank received a "satisfactory" CRA rating in its last CRA examination. The Bank intends to continue to emphasize community lending and community development activities following the Conversion. However, such activities are not the Bank's sole corporate purpose. The Foundation will be completely dedicated to community activities and the promotion of charitable causes, and may be able to support such activities in ways that are not presently available to the Bank. In this regard, the Board of Trustees believes the establishment of a charitable foundation is consistent with the Bank's commitment to community service. The Board further believes that the funding of the Foundation with Holding Company Common Stock is a means of enabling the Bank's community to share in the potential growth and success of the Holding Company long after completion of the Conversion. The Foundation will accomplish that goal by providing for continued ties between the Foundation and the Bank, thereby forming a partnership with the Bank's community. The establishment of the Foundation will also enable the Holding Company and the Bank to develop a unified charitable donation strategy and will centralize the responsibility for administration and allocation of corporate charitable funds. Charitable foundations have been formed by other financial institutions for this purpose, among others. Although the Board of Trustees of the Bank and the Board of Directors of the Holding Company have carefully considered each of the above factors, the establishment of a charitable foundation in connection with a mutual to stock Conversion is a relatively new concept that has been implemented by only a few other converting institutions. Accordingly, certain persons may raise challenges as to the validity of the establishment of the Foundation that, if not resolved promptly, could delay the consummation of the Conversion or result in the elimination of the Foundation. Structure of the Foundation. The Foundation was incorporated under Delaware law as a non-stock corporation. The Foundation's Certificate of Incorporation provides that it is organized exclusively for charitable purposes, including community development, as set forth in Section 501(c)(3) of the Code. The Foundation's Certificate of Incorporation further provides that no part of the net earnings of the Foundation will inure to the benefit of, or be distributable to its directors, officers or members. The Board of Directors of the Foundation will consist of four individuals who are officers or trustees of the Bank, and two individuals who are civic and community leaders within the Bank's local community. A Nominating Committee of such Board, which is to be comprised of a minimum of three members of the Board, will nominate individuals eligible for election to the Board of Directors. The members of the Foundation, who are comprised of its Board members, will elect the directors at the annual meeting of the Foundation from those nominated by the Nominating Committee. Only persons serving as directors of the Foundation qualify as members of the Foundation, with voting authority. Directors will be divided into three classes with each class appointed for three-year terms. The authority for the affairs of the Foundation will be vested in the Board of Directors of the Foundation. The directors of the Foundation will be responsible for establishing the policies of the Foundation with respect to grants or donations by the Foundation, consistent with the purposes for which the Foundation was established. Although no formal policy governing Foundation grants exists at this time, the Foundation's Board of Directors will adopt such a policy upon establishment of the Foundation. As directors of a non-profit corporation, directors of the Foundation will at all times be bound by their fiduciary duty to advance the Foundation's charitable goals, to protect the assets of the Foundation and to act in a manner consistent with the charitable purpose for which the Foundation is established. The directors of the Foundation will also be responsible for directing the activities of the Foundation, including the management of the Holding Company Common Stock held by the Foundation. However, as a condition to receiving the non-objection of the FDIC to the Bank's Conversion and the approval of the Conversion by the Superintendent, the Foundation will commit in writing to the FDIC and the Superintendent that all shares of Holding Company Common Stock held by the Foundation will be voted in the same ratio as all other shares of the Holding Company Common Stock on all proposals considered by stockholders of the Holding Company; provided, however, that, consistent with the condition, the FDIC and the Superintendent shall waive this voting restriction under certain circumstances if compliance with the voting restriction would: (i) cause a violation of the law of the State of Delaware; (ii) cause the Foundation to lose its tax-exempt status, or cause the IRS to deny the Foundation's request for a determination that it is an exempt 92 organization or otherwise have a material and adverse tax consequence on the Foundation; or (iii) cause the Foundation to be subject to an excise tax under Section 4941 of the Code. In order for the FDIC and the Superintendent to waive such voting restriction, the Holding Company's or the Foundation's legal counsel must render an opinion satisfactory to the FDIC and the Superintendent that compliance with the voting restriction would have an effect described in clauses (i), (ii) or (iii) above. Under those circumstances, the FDIC and the Superintendent shall grant a waiver of the voting requirement upon submission of such legal opinion(s) by the Holding Company or the Foundation that are satisfactory to the FDIC and the Superintendent. In the event that the FDIC and the Superintendent were to waive such voting requirement, the directors would direct the voting of the Holding Company Common Stock held by the Foundation. However, the Superintendent may, in the case of a waiver, impose additional conditions regarding the composition of the Board of Directors. As of the date hereof, no event has occurred which would require the Holding Company to seek a waiver of the voting restriction. The Foundation's place of business will be located at the Bank's administrative offices and initially the Foundation is expected to have no employees but will utilize the staff of the Holding Company and the Bank. The Board of Directors of the Foundation will appoint such officers as may be necessary to manage the operations of the Foundation. In this regard, the Bank has provided the FDIC with a commitment that, to the extent applicable, the Bank will comply with the affiliate restrictions set forth in Sections 23A and 23B of the Federal Reserve Act with respect to any transactions between the Bank and the Foundation. The Holding Company intends to capitalize the Foundation with Holding Company Common Stock in an amount equal to 3% of the total amount of Holding Company Common Stock to be sold in connection with the Conversion. At the minimum, midpoint and maximum of the Estimated Valuation Range, the contribution to the Foundation would equal 178,500, 210,000 and 241,500 shares, which would have a market value of $1.8 million, $2.1 million and $2.4 million, respectively, assuming the Purchase Price of $10.00 per share. The Holding Company and the Bank determined to fund the Foundation with Holding Company Common Stock rather than cash because it desired to form a bond with its community in a manner that would allow the community to share in the potential growth and success of the Holding Company and the Bank over the long term. The funding of the Foundation with stock also provides the Foundation with a potentially larger endowment than if the Holding Company contributed cash to the Foundation since, as a stockholder, the Foundation will share in the potential growth and success of the Holding Company. As such, the contribution of stock to the Foundation has the potential to provide a self-sustaining funding mechanism which reduces the amount of cash that the Holding Company, if it were not making the stock donation, would have to contribute to the Foundation in future years in order to maintain a level amount of charitable grants and donations. The Foundation will receive working capital from any dividends that may be paid on the Holding Company Common Stock in the future, and subject to applicable federal and state laws, loans collateralized by the Holding Company Common Stock or from the proceeds of the sale of any of the Holding Company Common Stock in the open market from time to time as may be permitted to provide the Foundation with additional liquidity. As a private foundation under Section 501(c)(3) of the Code, the Foundation will be required to distribute annually in grants or donations, a minimum of 5% of the average fair market value of its net investment assets. One of the conditions imposed on the gift of Holding Company Common Stock by the Holding Company is that the amount of Holding Company Common Stock that may be sold by the Foundation in any one year shall not exceed 5% of the average market value of the assets held by the Foundation, except where the Board of Directors of the Foundation determines that the failure to sell an amount of common stock greater than such amount would result in a long-term reduction of the value of the Foundation's assets and as such would jeopardize the Foundation's capacity to carry out its charitable purposes. Upon completion of the Conversion and the contribution of shares to the Foundation immediately following the Conversion, the Holding Company would have 6,128,500, 7,210,000and 8,291,500 shares issued and outstanding at the minimum, midpoint and maximum of the Estimated Valuation Range. Because the Holding Company will have an increased number of shares outstanding, the voting and ownership interests of stockholders in the Holding Company's common stock would be diluted by 2.9%, as compared to their interests in the Holding Company if the Foundation were not established. For additional discussion of the dilutive effect of the contribution of Holding Company Common Stock to the Foundation, see "Pro Forma Data." 93 Tax Considerations. The Holding Company and the Bank have received an opinion of Silver, Freedman & Taff, L.L.P. that an organization created for the above purposes would qualify as an organization exempt from taxation under Section 501(c)(3) of the Code, and would likely be classified as a private foundation. The Foundation will submit an application to the IRS to be recognized as an exempt organization. If the Foundation files such an application within 15 months from the date of its organization, and if the IRS approves the application, the effective date of the Foundation's status as a Section 501(c)(3) organization will be retroactive to the date of its organization. Silver, Freedman & Taff, L.L.P., however, has not rendered any advice on the condition to the contribution to be agreed to by the Foundation which requires that all shares of Holding Company Common Stock held by the Foundation must be voted in the same ratio as all other outstanding shares of Holding Company Common Stock on all proposals considered by stockholders of the Holding Company. Consistent with this condition, in the event that the Holding Company or the Foundation receives an opinion of its legal counsel that compliance with this voting restriction would have the effect of causing the Foundation to lose its tax-exempt status or otherwise have a material and adverse tax consequence on the Foundation, or subject the Foundation to an excise tax for "self-dealing" under Section 4941 of the Code, the Holding Company would request a waiver from the FDIC and the Superintendent of such voting restriction upon submission by the Holding Company or the Foundation of a legal opinion(s) to that effect satisfactory to the FDIC and the Superintendent. However, no assurance can be given that such waiver would be granted. See "- Regulatory Conditions Imposed on the Foundation." Under the Code, the Holding Company is entitled to a deduction for charitable contributions in an amount not exceeding 10% of its taxable income (computed without regard to the contributions) for the year of the contribution, and any contributions in excess of the deductible amount may be carried forward and deducted in the Holding Company's five succeeding taxable years, subject, in each such year, to the 10% of taxable income limitation. The Holding Company and the Bank believe that the Conversion presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised in the Conversion. In making such a determination, the Holding Company and the Bank considered the dilutive impact of the contribution of Holding Company Common Stock to the Foundation on the amount of Holding Company Common Stock available to be offered for sale in the Conversion. Based on such consideration, the Holding Company and Bank believe that the contribution to the Foundation in excess of the 10% annual limitation is justified given the Bank's capital position and its earnings, the substantial additional capital being raised in the Conversion and the potential benefits of the Foundation to the Bank's community. In this regard assuming the sale of the Holding Company Common Stock at the maximum of the Estimated Valuation Range, the Holding Company would have pro forma consolidated capital of $87.1 million or 15.1% of pro forma consolidated assets and the Bank's pro forma leverage and risk-based capital ratios would be 11.01% and 21.20%, respectively. See "Regulation - The Bank - Capital Requirements," "Capitalization," and "Comparison of Valuation and Pro Forma Information with No Stock Contribution." Thus, the amount of the contribution will not adversely impact the financial condition of the Holding Company and the Bank, and the Holding Company and the Bank therefore believe that the amount of the charitable contribution is reasonable and will not raise safety and soundness concerns. The Holding Company and the Bank have received the opinion of Silver, Freedman & Taff, L.L.P. that the Holding Company's contribution of its own stock to the Foundation would not constitute an act of self-dealing, and that the Holding Company will be entitled to a deduction in the amount of the fair market value of the stock at the time of the contribution, subject to the 10% of taxable income limitation. As discussed above, the Holding Company will be able to carry forward and deduct any portion of the contribution in excess of such 10% limitation for five years following the year of the contribution. If the Holding Company and the Foundation had been established in the fiscal year ended June 30, 1998, the Holding Company would have been entitled to a charitable contribution deduction in its taxable year ended December 31, 1998 of approximately $674,000 and would have been able to carry forward and deduct approximately $1.7 million over its next succeeding five taxable years (based on the Bank's estimated pre-tax income for 1998 and a contribution in 1998 of Holding Company Common Stock equal to $2.4 million). Assuming the close of the Offering at the maximum of the Estimated Valuation Range, the Holding Company estimates that the entire amount of the contribution should be deductible over a six-year period. Neither the Holding Company nor the Bank expect to make any further contributions to the Foundation within the first five years following the initial contribution. After that time, the Holding Company and the Bank may consider future contributions to the Foundation. Any such decisions would be based on an assessment of, among other factors, the financial condition of the Holding Company and the Bank at that time, the interests of stockholders and depositors of the Holding Company and the Bank, and the financial condition and operations of the Foundation. 94 Although the Holding Company and the Bank have received the opinion of Silver, Freedman & Taff, L.L.P. that the Holding Company is entitled to a deduction for the charitable contribution, there can be no assurances that the IRS will recognize the Foundation as an organization exempt from taxation under section 501(c)(3) of the Code or that the deduction will be permitted. If the IRS successfully maintains that the Foundation is not so exempt or that the deduction is not permitted, the Holding Company's tax benefit related to the contribution to the Foundation would be expensed without tax benefit, resulting in a reduction in earnings in the year in which the IRS makes such a determination. See "Risk Factors - Establishment of the Charitable Foundation." In general, the income of a private foundation is exempt from federal and state taxation. However, investment income, such as interest, dividends and capital gains, will be subject to a federal excise tax of 2.0%. The Foundation will be required to make an annual filing with the IRS within four and one-half months after the close of the Foundation's taxable year to maintain its tax-exempt status. The Foundation will also be required to publish a notice that the annual information return will be available for public inspection for a period of 180 days after the date of such public notice. The information return for a private foundation must include, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the Foundation's managers, and a concise statement of the purpose of each grant. The Foundation will also be required to file an annual report with the Charities Bureau of the Office of the Attorney General of the State of New York. Regulatory Conditions Imposed on the Foundation. Establishment of the Foundation is subject to the following conditions to be agreed to by the Foundation in writing as a condition to receiving the FDIC's nonobjection of the Bank's Conversion and the approval of the Conversion by the Superintendent: (i) the Foundation will be subject to examination by the FDIC and the Superintendent; (ii) the Foundation must comply with supervisory directives imposed by the FDIC and the Superintendent; (iii) the Foundation will operate in accordance with written policies adopted by its Board of Directors, including a conflict of interest policy; and (iv) any shares of Holding Company Common Stock held by the Foundation must be voted in the same ratio as all other outstanding shares of Holding Company Common Stock on all proposals considered by stockholders of the Holding Company; provided, however that, consistent with this condition, the FDIC and the Superintendent shall waive this voting restriction under certain circumstances if compliance with the voting restriction would: (a) cause a violation of the law of the State of Delaware; (b) would cause the Foundation to lose its tax-exempt status or otherwise have a material and adverse tax consequence on the Foundation; or (c) would cause the Foundation to be subject to an excise tax under Section 4941 of the Code. In order for the FDIC and the Superintendent to waive such voting restriction, the Holding Company's or the Foundation's legal counsel must render an opinion satisfactory to FDIC and the Superintendent that compliance with the voting restriction would have the effect described in clauses (a), (b) or (c) above. Under those circumstances, the FDIC and the Superintendent shall grant a waiver of the voting restriction upon submission of such opinion(s) by the Holding Company or the Foundation which are satisfactory to the FDIC and the Superintendent. There can be no assurances that a legal opinion addressing these issues will be rendered, or if rendered, that the FDIC and the Superintendent will grant an unconditional waiver of the voting restriction. If the Superintendent waives the voting restriction, the Department may (1) impose a condition that a certain portion of the members of the Foundation's Board of Directors shall be persons who are not directors, officers or employees of the Bank or the Holding Company or any affiliate thereof or (2) impose such other condition relating to control of the Holding Company Common Stock held by the Foundation as determined by the Department to be appropriate. In no event will the voting restriction survive the sale of shares of the Holding Company Common Stock held by the Foundation. 95 Required Approvals for the Conversion Various approvals of the Superintendent and the FDIC are required in order to consummate the Conversion. The Superintendent and the FDIC have approved the Plan of Conversion, subject to approval by the Bank's voting depositors. In addition, consummation of the Conversion is subject to OTS approval of the Holding Company's holding company application to acquire all of the Bank common stock . Applications for these approvals have been filed and are currently pending. Pursuant to Department and FDIC regulation, the Plan of Conversion must be approved by at least a majority of the total number of votes eligible to be cast by the Bank's voting depositors and by at least seventy-five percent (75%) in amount of deposit liabilities of Voting Depositors represented in person or by proxy at the special meeting to be held on _____________________, 1998 (the "Special Meeting"). The Holding Company is required to make certain filings with state securities regulatory authorities in connection with the issuance of Holding Company Common Stock in the Conversion. Certain Restrictions on Purchase or Transfer of Shares After the Conversion All Conversion Shares owned by any director or executive officer of the Holding Company and/or the Bank will be subject to a restriction that the shares not be sold for a period of one year following the Conversion, except in the event of the death of such director or executive officer or pursuant to a Merger or similar transaction approved by the Department and the FDIC. Each certificate for restricted shares will bear a legend giving notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within such time period of any certificate or record ownership of such shares other than as provided above is a violation of the restriction. Any shares of Holding Company Common Stock issued at a later date within this one year period as a stock dividend, stock split or otherwise with respect to such restricted stock will be subject to the same restrictions. Purchases of Holding Company Common Stock by directors, executive officers and their associates during the three-year period following completion of the Conversion may be made only through a broker or dealer registered with the SEC, except with the prior written approval of the Department and the FDIC. This restriction does not apply, however, to negotiated transactions involving more than 1% of the outstanding Holding Company Common Stock or to certain purchases of stock pursuant to an employee stock benefit plan. Pursuant to FDIC regulations, the Holding Company will generally be prohibited from repurchasing any shares of the Holding Company Common Stock within one year following the consummation of the Conversion, although the FDIC under its current policies may approve a request to repurchase shares of Holding Company Common Stock following the six-month anniversary of the Conversion. During the second and third years following consummation of the Conversion, the Holding Company may not repurchase any shares of its Holding Company Common Stock other than pursuant to (i) an offer to all stockholders on a pro rata basis which is approved by the FDIC; (ii) the repurchase of qualifying shares of a director, if any; (iii) purchases in the open market by a tax-qualified or non-tax-qualified employee stock benefit plan in an amount reasonable and appropriate to fund the plan; or (iv) purchases that are part of an open-market stock repurchase program not involving more than 5% of its outstanding capital stock during a 12- month period, if the repurchases do not cause the Bank to become undercapitalized and the Bank provides to the FDIC written notice containing a full description of the program to be undertaken and such program is not disapproved by the FDIC. The FDIC may permit stock repurchases in excess of such amounts prior to the third anniversary of the Conversion if exceptional circumstances are shown to exist. 96 Liquidation Rights In the unlikely event of a complete liquidation of the Bank in its present mutual form, each depositor of the Bank would receive his pro rata share of any assets of the Bank remaining after payment of claims of all creditors including the claims of all depositors to the withdrawal value of their accounts. Each depositor's pro rata share of such remaining assets would be in the same proportion as the value of his or her deposit account was to the total value of all deposit accounts in the Bank at the time of liquidation. After the Conversion, each depositor, in the event of a complete liquidation of the Bank, would have a claim as a creditor of the same general priority as the claims of all other general creditors of the Bank. However, except as described below, his or her claim would be solely in the amount of the balance in his deposit account plus accrued interest. He or she would not have an interest in the value or assets of the Bank above that amount. The Plan provides for the establishment, upon the completion of the Conversion, of a special "Liquidation Account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the Bank's net worth as of the date of its latest statement of financial condition contained in the final prospectus utilized in the Conversion. As of June 30, 1998, the initial balance of the liquidation account would be approximately $53.3 million. Each Eligible Account Holder and Supplemental Eligible Account Holder, if he or she were to continue to maintain his or her deposit account at the Bank, would be entitled, upon a complete liquidation of the Bank after the Conversion, to an interest in the liquidation account prior to any payment to the Holding Company as the sole stockholder of the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in such liquidation account for each deposit account, including passbook accounts, NOW accounts, money market deposit accounts, and certificates of deposit, held in the Bank at the close of business on March 31, 1997 or September 30, 1998, as the case may be. Each Eligible Account Holder and Supplemental Eligible Account Holder will have a pro rata interest in the total liquidation account for each of his or her deposit accounts based on the proportion that the balance of each such deposit account on the March 31, 1997 Eligibility Record Date (or the September 30, 1998 Supplemental Eligibility Record Date, as the case may be) bore to the balance of all deposit accounts in the Bank on such dates. If, however, on any June 30 annual closing date of the Bank, commencing June 30, 1999, the amount in any deposit account is less than the amount in such deposit account on March 31, 1997 or September 30, 1998, as the case may be, or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Any assets remaining after the claims of general creditors (including the claims of all depositors to the withdrawal value of their accounts) and the above liquidation rights of the Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to the Holding Company as the sole stockholder of the Bank. THE OFFERING Stock Pricing The Plan of Conversion requires that the purchase price of the Holding Company Common Stock must be based on the appraised pro forma market value of the Holding Company Common Stock, as determined on the basis of an independent valuation. The Bank and the Holding Company have retained RP Financial to make such valuation. For its services in making such appraisal, RP Financial will receive a fee of $47,500, plus out-of-pocket expenses. The Bank and the Holding Company have agreed to indemnify RP Financial and its employees and affiliates against certain losses (including any losses in connection with claims under the federal securities laws) arising out of its services as appraiser, except where RP Financial's liability results from its negligence or bad faith. 97 An appraisal has been made by RP Financial in reliance upon the information contained in this Prospectus, including the financial statements. RP Financial also considered the following factors, among others: the present and projected operating results and financial condition of the Holding Company and the Bank, and the economic and demographic conditions in the Bank's existing market area; certain historical, financial and other information relating to the Bank; a comparative evaluation of the operating and financial statistics of the Bank with those of other similarly situated publicly-traded savings associations and savings institutions located in the Bank's market area and the State of New York; the aggregate size of the offering of the Holding Company Common Stock; the impact of the Conversion on the Bank's equity and earnings potential; the proposed dividend policy of the Holding Company and the Bank; and the trading market for securities of comparable institutions and general conditions in the market for such securities. On the basis of the foregoing, RP Financial has advised the Holding Company and the Bank that, in its opinion, dated as of September 4, 1998, and as updated as of October 23, 1998, the estimated pro forma market value of the Holding Company Common Stock ranged from a minimum of $59,500,000 to a maximum of $80,500,000 with a midpoint of $70,000,000. The Board of Trustees of the Bank held a meeting to review and discuss the appraisal report prepared by RP Financial. A representative of RP Financial participated in the meeting to explain the contents of the appraisal report. In connection with its review of the reasonableness and adequacy of such appraisal consistent with NYBB and FDIC regulations and policies, the Board of Trustees reviewed the methodology that RP Financial employed to determine the pro forma market value of the Holding Company Common Stock and the appropriateness of the assumptions that RP Financial used in determining this value. Based upon the Valuation Range and the Purchase Price of $10.00 per share for the Holding Company Common Stock established by the Board of Trustees, the Board of Trustees has established the Estimated Valuation Range of $59,500,000 to $80,500,000, with a midpoint of $70,000,000, and the Holding Company expects to issue between 5,950,000 and 8,050,000 shares of Holding Company Common Stock. The Estimated Valuation Range may 98 be amended with the approval of the Superintendent and FDIC (if required), if necessitated by subsequent developments in the financial condition of the Holding Company or the Bank or market conditions generally. The valuation prepared by RP Financial is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing such shares. RP Financial did not independently verify the financial statements and other information provided by the Bank, nor did RP Financial value independently the assets or liabilities of the Bank. The valuation considers the Bank as a going concern and should not be considered as an indication of the liquidation value of the Bank. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing such shares in the Conversion will thereafter be able to sell such shares at prices at or above the Purchase Price or in the range of the foregoing valuation of the pro forma market value thereof. Following commencement of the Subscription Offering or Community Offering, if any, the maximum of the Estimated Valuation Range may be increased up to 15% and the number of shares of Holding Company Common Stock to be issued in the Conversion may be increased to 9,257,500 shares due to regulatory considerations, changes in the market and general financial and economic conditions, without the resolicitation of subscribers. See "-- Limitations on Common Stock Purchases" as to the method of distribution and allocation of additional shares that may be issued in the event of an increase in the Estimated Valuation Range to fill unfilled orders in the Subscription and Community Offerings. No sale of shares of Holding Company Common Stock may be consummated unless, prior to such consummation, RP Financial confirms to the Bank, Holding Company, Superintendent and FDIC that, to the best of its knowledge, nothing of a material nature has occurred which, taking into account all relevant factors, would cause RP Financial to conclude that the value of the Holding Company Common Stock at the price so determined is incompatible with its estimate of the pro forma market value of the Holding Company Common Stock at the conclusion of the Subscription Offering and Community Offering, if any. If, based on RP Financial's estimate, the pro forma market value of the Holding Company Common Stock, as of the date that RP Financial so confirms, is not more than 15% above the maximum and not less than the minimum of the Estimated Valuation Range then, (1) with the approval of the Superintendent, if required, and the FDIC, the number of shares of Holding Company Common Stock to be issued in the Conversion may be increased or decreased, pro rata to the increase or decrease in value, without resolicitation of subscriptions, to no more than 9,257,500 shares or no less than 5,950,000 shares, and (2) all shares purchased in the Subscription and Community Offerings will be purchased for the Purchase Price of $10.00 per share. If the number of shares issued in the Conversion is increased due to an increase of up to 15% in the Estimated Valuation Range to reflect changes in market or financial conditions, persons who subscribed for the maximum number of shares will not be given the opportunity to subscribe for an adjusted maximum number of shares, except for the Employee Plans which will be able to subscribe for such adjusted amount up to their 10% subscription. See "- Limitations on Common Stock Purchases." If the pro forma market value of the Holding Company Common Stock is either more than 15% above the maximum of the Estimated Valuation Range or less than the minimum of the Estimated Valuation Range, the Bank and the Holding Company, after consulting with the Superintendent and the FDIC, may terminate the Plan and return all funds promptly with interest at the Bank's passbook rate of interest on payments made by check, draft or money order, extend or hold new Subscription and Community Offerings, establish a new Estimated Valuation Range, commence a resolicitation of subscribers or take such other actions as permitted by the Superintendent and the FDIC in order to complete the Conversion. In the event that a resolicitation is commenced, unless an affirmative response is received within a reasonable period of time, all funds will be promptly returned to investors as described above. A resolicitation, if any, following the conclusion of the Subscription and Community Offerings would not exceed 45 days unless such resolicitation is further extended by the Superintendent and the FDIC for periods of up to 60 days not to extend beyond _________________________, 2000. If all shares of Holding Company Common Stock are not sold through the Subscription and Community Offerings, then the Bank and the Holding Company expect to offer the remaining shares in a Syndicated Community 99 Offering, which would occur as soon as practicable following the close of the Subscription Offering or Community Offering, if any, but may commence during the Subscription Offering and Community Offering, if any, subject to the prior rights of subscribers. All shares of Holding Company Common Stock will be sold at the same price per share in the Syndicated Community Offering as in the Subscription and Community Offerings. See "--Syndicated Community Offering." No sale of shares of Holding Company Common Stock may be consummated unless, prior to such consummation, RP Financial confirms to the Bank, the Holding Company, Superintendent and the FDIC that, to the best of its knowledge, nothing of a material nature has occurred which, taking into account all relevant factors, including those which would be involved in a cancellation of the Syndicated Community Offering, would cause RP Financial to conclude that the aggregate value of the Holding Company Common Stock at the Purchase Price is incompatible with its estimate of the pro forma market value of the Holding Company Common Stock of the Holding Company at the time of the Syndicated Community Offering. Any change which would result in an aggregate purchase price which is below, or more than 15% above, the Estimated Valuation Range would be subject to Superintendent and FDIC approval. If such confirmation is not received, the Bank may extend the Conversion, extend, reopen or commence new Subscription and Community Offerings or a Syndicated Community Offering, establish a new Estimated Valuation Range and commence a resolicitation of all subscribers with the approval of the Superintendent and FDIC or take such other actions as permitted by the Superintendent and FDIC in order to complete the Conversion, or terminate the Plan and cancel the Subscription and Community Offerings and/or the Syndicated Community Offering. In the event market or financial conditions change so as to cause the aggregate purchase price of the shares to be below the minimum of the Estimated Valuation Range or more than 15% above the maximum of such range, and the Holding Company and the Bank determine to continue the Conversion, subscribers will be resolicited (i.e., be permitted to continue their orders, in which case they will need to affirmatively reconfirm their subscriptions prior to the expiration of the resolicitation offering or their subscription funds will be promptly refunded with interest at the Bank's passbook rate of interest, or be permitted to decrease or cancel their subscriptions). Any change in the Estimated Valuation Range must be approved by the Superintendent and FDIC. A resolicitation, if any, following the conclusion of the Subscription Offering or the Community Offering would not exceed 45 days, or if following the Syndicated Community Offering, 60 days, unless further extended by the Superintendent for periods up to 60 days not to extend beyond ______________________ , 2000. If such resolicitation is not effected, the Bank will return with interest all funds promptly at the Bank's passbook rate of interest on payments made by check, savings bank draft or money order. Copies of the appraisal report of RP Financial, including any amendments thereto, and the detailed memoran dum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at the offices of the Bank and the other locations specified under "Additional Information." Number of Shares to be Issued Depending upon market or financial conditions following the commencement of the Subscription Offering and Community Offering, if any, the total number of shares to be issued in the Conversion may be increased or decreased without a resolicitation of subscribers; provided, that the product of the total number of shares times the price per share is not below the minimum or more than 15% above the maximum of the Estimated Valuation Range, and the total number of shares to be issued in the Conversion is not less than 5,950,000 or greater than 8,050,000 (or 9,257,500 if the Estimated Valuation Range is increased by 15%). In the event market or financial conditions change so as to cause the aggregate purchase price of the shares to be below the minimum of the Estimated Valuation Range or more than 15% above the maximum of such range, if the Plan is not terminated by the Holding Company and the Bank after consultation with the Superintendent and FDIC, purchasers will be resolicited (i.e., permitted to continue their orders, in which case they will need to affirmatively reconfirm their subscriptions prior to the expiration of the resolicitation offering or their subscription funds will be promptly refunded, or be permitted to modify or rescind their subscriptions). Any change in the Estimated Valuation Range must be approved by the Superintendent and FDIC. If the number of shares issued in the Conversion is increased due to an increase of up to 15% in the Estimated Valuation Range to reflect changes in market or financial conditions, persons who subscribed for the maximum number of shares will not be given the opportunity to subscribe for an 100 adjusted maximum number of shares, except for the Employee Plans, which will be able to subscribe for such adjusted amount up to their 10% subscription. See "-- Limitations on Common Stock Purchases." An increase in the number of shares to be issued in the Conversion as a result of an increase in the estimated pro forma market value would decrease both a subscriber's ownership interest and the Holding Company's pro forma net earnings and stockholders' equity on a per share basis while increasing pro forma net earnings and stockholders' equity on an aggregate basis. A decrease in the number of shares to be issued in the Conversion would increase both a subscriber's ownership interest and the Holding Company's pro forma net earnings and stockholders' equity on a per share basis while decreasing pro forma net earnings and stockholders' equity on an aggregate basis. For a presentation of the effects of such changes see "Pro Forma Data." To fund the Foundation, the number of shares to be issued and outstanding as a result of the sale of Holding Company Common Stock in the Conversion will be increased by a number of shares equal to 3% of the Holding Company Common Stock sold in the Conversion. Assuming the sale of shares in the Offerings at the maximum of the Estimated Valuation Range, the Holding Company will contribute 241,500 shares of its Holding Company Common Stock from authorized but unissued shares to the Foundation immediately following the completion of the Conversion. In that event, the Holding Company will have total shares of Holding Company Common Stock outstanding of 8,291,500 shares. Funding the Foundation with authorized but unissued shares will have the effect of diluting the ownership and voting interests of persons purchasing shares in the Conversion by 2.9% since a greater number of shares will be outstanding upon completion of the Conversion than would be if the Foundation were not established. See "Pro Forma Data." Subscription Offering and Subscription Rights In accordance with the Plan of Conversion, rights to subscribe for the purchase of Holding Company Common Stock have been granted under the Plan of Conversion to the following persons in the following order of descending priority: (1) depositors whose deposits in qualifying accounts in the Bank totaled $100 or more on March 31, 1997 ("Eligible Account Holders"); (2) the Employee Plans, including the ESOP; and (3) depositors whose deposits in qualifying accounts in the Bank totaled $100 or more on September 30, 1998, other than (i) those depositors who would otherwise qualify as Eligible Account Holders or (ii) trustees or executive officers of the Bank or their Associates, (as defined herein) ("Supplemental Eligible Account Holders"). All subscriptions received will be subject to the availability of Holding Company Common Stock after satisfaction of all subscriptions of all persons having prior rights in the Subscription Offering and to the maximum and minimum purchase limitations set forth in the Plan of Conversion and as described below under "- Limitations on Common Stock Purchases." Priority 1: Eligible Account Holders. Each Eligible Account Holder will receive, without payment therefor, first priority, non-transferable subscription rights to subscribe for Holding Company Common Stock in the Subscription Offering up to the greatest of (i) the amount permitted to be purchased in the Community Offering, which amount is currently $250,000 of the Holding Company Common Stock offered, (ii) one-tenth of one percent (0.10%) of the total offering of shares of Holding Company Common Stock or (iii) fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Holding Company Common Stock to be issued by a fraction the numerator of which is the amount of the Eligible Account Holder's qualifying deposit and the denominator of which is the total amount of qualifying deposits of all Eligible Account Holders ($______________________ ), in each case on the Eligibility Record Date, subject to the overall maximum and minimum purchase limitations and exclusive of an increase in the shares issued pursuant to an increase in the Estimated Valuation Range of up to 15%. See "- Limitations on Common Stock Purchases." In the event that Eligible Account Holders exercise subscription rights for a number of shares in excess of the total number of shares eligible for subscription, the shares will be allocated so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make such Eligible Account Holder's total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated among the remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total amount of qualifying deposits of all remaining Eligible Account Holders whose subscriptions remain unfilled. 101 To ensure a proper allocation of stock, each Eligible Account Holder must list on his or her stock order form all accounts in which such Eligible Account Holder has an ownership interest. Failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. The subscription rights of Eligible Account Holders who are also trustees or executive officers of the Bank or their Associates will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits in the one-year period preceding the Eligibility Record Date. Priority 2: The Employee Plans. To the extent that there are sufficient shares remaining after satisfaction of the subscriptions by Eligible Account Holders, the Employee Plans, including the ESOP, will receive, without payment therefor, second priority, non-transferable subscription rights to purchase up to 10% of the Holding Company Common Stock to be issued in the Conversion, including shares to be issued to the Foundation, subject to the purchase limitations set forth in the Plan of Conversion and as described below under "- Limitations on Common Stock Purchases." As an Employee Plan, the ESOP intends to purchase 8% of the shares to be issued in the Conversion, or 490,280 shares and 663,320 shares, based on the issuance of 6,128,500 shares and 8,291,500 shares, respectively, at the minimum and the maximum of the Estimated Valuation Range, including the shares of Holding Company Common Stock to be issued to the Foundation. Subscriptions by the ESOP will not be aggregated with shares of Holding Company Common Stock purchased directly by or which are otherwise attributable to any other participants in the Subscription and Community Offerings, including subscriptions of any of the Bank's trustees, officers, employees or associates thereof. See "Management of the Bank--Benefit Plans--Employee Stock Ownership Plan." Priority 3.- Supplemental Eligible Account Holders. To the extent that there are sufficient shares remaining after satisfaction of the subscriptions by the Eligible Account Holders and Employee Plans, Supplemental Eligible Account Holders will receive, without payment therefor, third priority, non-transferable subscription rights to subscribe for Holding Company Common Stock in the Subscription Offering up to the greatest of (i) the amount permitted to be subscribed for in the Community Offering, which amount is currently $250,000 of the Holding Company Common Stock offered, (ii) one-tenth of one, percent (0.10%) of the total offering of shares of Holding Company Common Stock or (iii) fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Holding Company Common Stock to be issued by a fraction of which the numerator is the amount of the Supplemental Eligible Account Holder's qualifying deposit and the denominator is the total amount of qualifying deposits of all Supplemental Eligible Account Holders ($______________________), in each case on the Supplemental Eligibility Record Date, subject to the overall maximum and minimum purchase limitations and exclusive of an increase in the shares issued pursuant to an increase in the Estimated Valuation Range of up to 15%. See "--Limitations on Common Stock Purchases." In the event that Supplemental Eligible Account Holders exercise subscription rights for a number of shares in excess of the total number of shares eligible for subscription, the shares will be allocated so as to permit each subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make such Supplemental Eligible Account Holder's total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated among the remaining subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total amount of qualifying deposits of all remaining Supplemental Eligible Account Holders whose subscriptions remain unfilled. To ensure a proper allocation of stock, each Supplemental Eligible Account Holder must list on his or her stock order form all accounts in which such Supplemental Eligible Account Holder has an ownership interest. Failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. Expiration Date for the Subscription Offering. The Subscription Offering will expire at 12:00 noon, Eastern time, on ______________________, 1998, unless extended for an initial period of up to 45 days by the Bank or an additional 60 day periods with the approval of the Superintendent and if necessary, the FDIC. Subscription rights which have not been exercised prior to the Expiration Date will become void. The Bank will not execute orders until all shares of Holding Company Common Stock have been subscribed for or otherwise sold. If all shares have not been subscribed for or sold within 45 days after the Subscription Expiration 102 Date, unless such period is extended with the consent of the Superintendent, all funds delivered to the Bank pursuant to the Subscription Offering will be returned with interest promptly to the subscribers and all withdrawal authorizations will be canceled. If an extension beyond the 45-day period following the Subscription Expiration Date is granted, the Bank will notify subscribers of the extension of time and of any rights of subscribers to modify or rescind their subscriptions. Each such extension may not exceed 60 days, and such extensions, in the aggregate, may not last beyond ______________________, 2000. Persons in Non-qualified States or Foreign Countries. The Holding Company and the Bank will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock pursuant to the Plan reside. However, the Bank and the Holding Company are not required to offer stock in the Subscription Offering to any person who resides in a foreign country. Community Offering Upon completion of the Subscription Offering, to the extent that shares remain available for purchase after satisfaction of all subscriptions of the Eligible Account Holders, the Employee Plans and the Supplemental Eligible Account Holders, the Bank will offer shares pursuant to the Plan in the Community Offering to certain members of the general public to whom a copy of this prospectus has been delivered, with a preference given to those natural persons residing in the Local Community, the geographic area encompassing counties in which the Bank has offices, subject to the right of the Holding Company and the Bank to accept or reject any such orders, in whole or in part, in its sole discretion. The Community Offering, if any, shall commence upon the completion of the Subscription Offering and shall terminate seven days after the close of the Subscription Offering unless extended by the Bank and the Holding Company, with the approval of the Superintendent and the FDIC, if necessary. Such persons, together with associates of and persons acting in concert with such persons, may purchase up to $250,000 of Holding Company Common Stock subject to the maximum purchase limitation. See "- Limitations on Common Stock Purchases." This amount may be increased to up to a maximum of 5% or decreased to less than $250,000 of Holding Company Common Stock at the discretion of the Holding Company and the Bank. The opportunity to subscribe for shares of Holding Company Common Stock in the Community Offering category is subject to the right of the Bank and the Holding Company, in their sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the Expiration Date. However, no such rejection will be in contravention of any applicable law or regulation. If the Holding Company or the Bank rejects a subscription in part, the subscriber will not have the right to cancel the remainder of his or her subscription. Subject to the foregoing, if the amount of stock remaining is insufficient to fill the orders of subscribers in the Community Offering after completion of the Subscription and Community Offerings, such stock will be allocated first to each subscriber whose order is accepted by the Bank, in an amount equal to 2% of the shares offered in the Conversion. Syndicated Community Offering As a final step in the Conversion, the Plan provides that, if feasible, all shares of Holding Company Common Stock not purchased in the Subscription Offering or the Community Offering, if any, will be offered for sale to the general public in a Syndicated Community Offering through a syndicate of registered broker-dealers to be formed and managed by KBW acting as agent of the Holding Company. There are no known agreements between KBW and any broker-dealer in connection with a possible Syndicated Community Offering. The Holding Company and the Bank have reserved the right to reject orders in whole or in part in their sole discretion in the Syndicated Community Offering. However, no such rejection will be in contravention of any applicable law or regulation. If the Holding Company or the Bank rejects an order in part, the subscriber will not have the right to cancel the remainder of his or her subscription. Neither KBW nor any registered broker-dealer shall have any obligation to take or purchase any shares of the Holding Company Common Stock in the Syndicated Community Offering; however, KBW has agreed to use its best efforts in the sale of shares in the Syndicated Community Offering. The price at which Holding Company Common Stock is sold in the Syndicated Community Offering will be determined as described above under "- Stock Pricing." Subject to overall purchase limitations, no person, together with any associate or group of persons acting in concert, will be permitted to subscribe in the Syndicated Community 103 Offering for more than 1% of the Holding Company Common Stock offered in the Conversion; provided, however, that shares of Holding Company Common Stock purchased in the Community Offering by any persons, together with associates of or persons acting in concert with such persons, will be aggregated with purchases in the Syndicated Community Offering and be subject to a maximum purchase limitation of 1% of the Holding Company Common Stock offered. Payments made in the form of a check, bank draft, money order or in cash will earn interest at the Bank's passbook rate of interest from the date such payment is actually received by the Bank until completion or termination of the Conversion. In addition to the foregoing, if a syndicate of broker-dealers ("selected dealers") is formed to assist in the Syndicated Community Offering, a purchaser may pay for his or her shares with funds held by or deposited with a selected dealer. If an order form is executed and forwarded to the selected dealer or if the selected dealer is authorized to execute the order form on behalf of a purchaser, the selected dealer is required to forward the order form and funds to the Bank for deposit in a segregated account on or before noon of the business day following receipt of the order form or execution of the order form by the selected dealer. Alternatively, selected dealers may solicit indications of interest from their customers to place orders for shares. Such selected dealers shall subsequently contact their customers who indicated an interest and seek their confirmation as to their intent to purchase. Those indicating an intent to purchase shall execute order forms and forward them to their selected dealer or authorize the selected dealer to execute such forms. The selected dealer will acknowledge receipt of the order to its customer in writing on the following business day and will debit such customer's account on the third business day after the customer has confirmed his or her intent to purchase ("debit date") and on or before noon of the next business day following the debit date, will send order forms and funds to the Bank for deposit in a segregated account. Although purchasers' funds are not required to be in their accounts with selected dealers until the debit date, in the event that such alternative procedure is employed once a confirmation of an intent to purchase has been received by the selected dealer, the purchaser has no right to rescind his or her order. Certificates representing shares of Holding Company Common Stock purchased, together with any refund due, will be mailed to purchasers at the address specified in the order form, as soon as practicable following consummation of the sale of the Holding Company Common Stock. Any certificates returned as undeliverable will be disposed of in accordance with applicable law. The Syndicated Community Offering will terminate no more than 45 days following the Subscription Expiration Date, unless extended by the Holding Company with the approval of the Superintendent and FDIC. Such extensions may not be beyond ____________, 2000. See "- Stock Pricing" above for a discussion of rights of subscribers, if any, in the event an extension is granted. Marketing and Underwriting Arrangements The Bank and the Holding Company have engaged KBW as a financial and marketing advisor in connection with the offering of the Holding Company Common Stock and KBW has agreed to use its best efforts to assist the Holding Company with the solicitation of subscriptions and purchase orders for shares of Holding Company Common Stock in the Offerings. Based upon negotiations between the Bank and the Holding Company, KBW will receive a fee for services provided in connection with the Offerings equal to 1.20% of the aggregate Purchase Price of Holding Company Common Stock sold in the Offerings. No fees will be paid to KBW with respect to any shares of Holding Company Common Stock purchased by any trustee, director, executive officer or employee of the Bank or the Holding Company or members of their immediate families or any employee benefit plan of the Holding Company or the Bank. In the event of a Syndicated Community Offering, KBW will negotiate with the Holding Company for the receipt of an additional fee to be remitted to selected dealers under one or more selected dealer agreements to be entered into by KBW with certain dealers; provided, however, that the aggregate fees payable to KBW and any selected dealers in connection with any Syndicated Community Offering will not exceed 5.5% of the aggregate Purchase Price of the Holding Company Common Stock sold in the Syndicated Community Offering. Fees to KBW and to any other broker-dealer may be deemed to be underwriting fees and KBW and such broker-dealer may be deemed to be underwriters. KBW will also be reimbursed for its reasonable out-of pocket expenses, including legal fees and expenses, up to a 104 maximum of $75,000. Notwithstanding the foregoing, in the event the Offerings are not consummated or KBW ceases, under certain circumstances after the subscription solicitation activities are commenced, to provide assistance to the Holding Company, KBW will be entitled to reimbursement for its reasonable out-of-pocket expenses as described above. The Holding Company and the Bank have agreed to indemnify KBW for costs and expenses in connection with certain claims or liabilities related to or arising out of the services to be provided by KBW pursuant to its engagement by the Bank and the Holding Company as financial advisor in connection with the Conversion, including certain liabilities under the Securities Act. Total marketing fees to KBW are estimated to be $__________ million and $__________ million at the minimum and the maximum of the Estimated Valuation Range, respectively. See "Pro Forma Data" for the assumptions used to arrive at these estimates. Directors, trustees and executive officers of the Holding Company and the Bank may participate in the solicitation of offers to purchase Holding Company Common Stock. Questions of prospective purchasers will be directed to executive officers or registered representatives. Other employees of the Bank may participate in the Offerings in ministerial capacities or provide clerical work in effecting a sales transaction. Such other employees have been instructed not to solicit offers to purchase Holding Company Common Stock or provide advice regarding the purchase of Holding Company Common Stock. The Holding Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Holding Company Common Stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, trustees, directors and employees to participate in the sale of Holding Company Common Stock. No officer, director or employee of the Holding Company or the Bank will be compensated in connection with his or her participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the Holding Company Common Stock. Procedure for Purchasing Shares in Subscription and Community Offerings To ensure that each purchaser receives a Prospectus at least 48 hours prior to the respective expiration dates for the Offerings, in accordance with Rule 15c2-8 of the Exchange Act, no Prospectus will be mailed later than five days prior to such date or hand delivered any later than two days prior to such date. Execution of the stock order form will confirm receipt or delivery in accordance with Rule 15c2-8. Stock order forms will only be distributed with a Prospectus and a certification form requiring each prospective investor to acknowledge, among other things, that the shares of Holding Company Common Stock are not insured by the Bank, the FDIC or any other governmental agency and that such prospective investor has received a copy of this Prospectus, which, among other things, describes the risks involved in the investment in the Holding Company Common Stock. To purchase shares in the Subscription Offering and, if a Community Offering is held, the Community Offering, an executed order form with the required payment for each share subscribed for, or with appropriate authorization for withdrawal from the Bank's deposit account (which may be given by completing the appropriate blanks in the stock order form), must be received by the Bank at its office by 12:00 noon, Eastern time, on the Expiration Date, in the case of the Subscription Offering, or 7 days after the close of the Subscription Offering, in the case of the Community Offering. Stock order forms which are not received by such time or are executed defectively or are received without full payment (or appropriate withdrawal instructions) are not required to be accepted. In addition, the Holding Company and Bank are not obligated to accept orders submitted on photocopied or facsimile order forms and will not accept order forms unaccompanied by an executed certification form. The Holding Company and the Bank have the power to waive or permit the correction of incomplete or improperly executed forms, but do not represent that they will do so. Once received, an executed order form may not be modified, amended or rescinded without the consent of the Bank unless the Conversion has not been completed within 45 days after the end of the Subscription and Community Offerings, unless such period has been extended. In order to ensure that Eligible Account Holders and Supplemental Eligible Account Holders are properly identified as to their stock purchase priorities, depositors must list all accounts on the stock order form giving all names in each account and the account numbers. Payment for subscriptions may be made (i) in cash if delivered in person to the office of the Bank, (ii) by check, bank draft or money order, or (iii) by authorization of withdrawal from deposit accounts maintained with the Bank. No wire transfers will be accepted. Interest will be paid on payments made by cash, check, cashier's check or money order 105 at the Bank's passbook rate of interest from the date payment is received until the completion or termination of the Conversion. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the Conversion, but a hold will be placed on such funds, thereby making them unavailable to the depositor until completion or termination of the Conversion. Notwithstanding the foregoing, the Holding Company shall have the right, in its sole discretion, to permit institutional investors to submit irrevocable orders together with a legally binding commitment for payment and to thereafter pay for the shares of Holding Company Common Stock for which they subscribe in the Community Offering at any time prior to 48 hours before the completion of the Conversion. If a subscriber authorizes the Bank to withdraw the amount of the purchase price from such subscriber's deposit account, the Bank will do so as of the effective date of the Conversion. The Bank will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time that the funds actually are transferred under the authorization, the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will be converted into a passbook account and will earn interest at the passbook rate. Upon completion of the Conversion, funds withdrawn from depositors' accounts for stock purchases will no longer be insured by the FDIC. The ESOP will not be required to pay for the shares subscribed for at the time it subscribes but, rather, may pay for such shares of Holding Company Common Stock subscribed for at the Purchase Price upon consummation of the Offerings; provided, that there is in force from the time of its subscription until such time, a loan commitment acceptable to the Holding Company from an unrelated financial institution or the Holding Company to lend to the ESOP, at such time, the aggregate Purchase Price of the shares for which it subscribed. The Holding Company intends to provide such a loan to the ESOP. Owners of self-directed IRAs may use the assets of such IRAs to purchase shares of Holding Company Common Stock in the Subscription and Community Offerings. Persons with IRAs maintained at the Bank must have their accounts transferred to an unaffiliated institution or broker to purchase shares of Holding Company Common Stock in the Subscription and Community Offerings. In addition, the provisions of ERISA and IRS regulations require that officers, trustees and ten percent stockholders who use self-directed IRA funds to purchase shares of Holding Company Common Stock in the Subscription and Community Offerings make such purchases for the exclusive benefit of the IRAs. Certificates representing shares of Holding Company Common Stock purchased will be mailed to purchasers at the last address of such persons appearing on the records of the Bank, or to such other address specified in properly completed order forms, as soon as practicable following consummation of the sale of all shares of Holding Company Common Stock. Any certificates returned as undeliverable will be disposed of in accordance with applicable law. Restrictions on Transfer of Subscription Rights Prior to the completion of the Conversion, the NYBB Conversion regulations prohibit any person with subscription rights (i.e., the Eligible Account Holders, the Employee Plans, the Supplemental Eligible Account Holders and the Other Depositors) from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the Plan or the shares of Holding Company Common Stock to be issued upon their exercise. Certificates representing shares of Holding Company Common Stock purchased in the Subscription Offering must be registered in the name of the Eligible Account Holder, Supplemental Eligible Account Holder or Other Depositor, as the case may be. Joint registrations will be allowed only if the qualifying deposit account is so registered. Such rights may be exercised only by the person to whom they are granted and only for such person's account. Each person exercising such subscription rights will be required to certify that such person is purchasing shares solely for such person's own account and that such person has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or an intent to make an offer to purchase such subscription rights or shares of Holding Company Common Stock prior to the completion of the Conversion. 106 The Bank and the Holding Company will pursue any and all legal and equitable remedies (including forfeiture) in the event they become aware of the transfer of subscription rights and will not honor orders known by them to involve the transfer of such rights. Limitations on Holding Company Common Stock Purchases The Plan includes the following limitations on the number of shares of Holding Company Common Stock which may be purchased in the Conversion: (1) No subscription for fewer than 25 shares will be accepted; (2) Each Eligible Account Holder may subscribe for and purchase Holding Company Common Stock in the Subscription Offering in an amount up to the greatest of (a) the amount permitted to be purchased in the Community Offering, currently $250,000 of the Holding Company Common Stock offered, (b) one-tenth of one percent (0.10%) of the total offering of shares of Holding Company Common Stock or (c) fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Holding Company Common Stock to be issued in the Conversion by a fraction the numerator of which is the amount of the qualifying deposit of the Eligible Account Holder and the denominator of which is the total amount of qualifying deposits of all Eligible Account Holders in each case on the Eligibility Record Date, subject to the overall limitation in (8) below and exclusive of an increase in the total number of shares issued due to an increase in the Estimated Valuation Range of up to 15%; (3) The Employee Plans are permitted to purchase up to 10% of the shares of Holding Company Common Stock issued in the Conversion and as an Employee Plan, the ESOP intends to purchase 8% of the shares of Holding Company Common Stock issued in the Conversion, in each case, including shares to be issued to the Foundation; (4) Each Supplemental Eligible Account Holder may subscribe for and purchase Holding Company Common Stock in the Subscription Offering in an amount up to the greatest of (a) the amount permitted to be purchased in the Community Offering, currently $250,000 of the Holding Company Common Stock offered, (b) one-tenth of one percent (0.10%) of the total offering of shares of Holding Company Common Stock or (c) fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Holding Company Common Stock to be issued in the Conversion by a fraction the numerator of which is the amount of the qualifying deposit of the Supplemental Eligible Account Holder and the denominator of which is the total amount of qualifying deposits of all Supplemental Eligible Account Holders in each case on the Supplemental Eligibility Record Date, subject to the overall limitation in (8) below and exclusive of an increase in the total number of shares issued due to an increase in the Estimated Valuation Range of up to 15%; (5) Persons purchasing shares of Holding Company Common Stock in the Community Offering, together with associates of and groups of persons acting in concert with such persons, may purchase Holding Company Common Stock in the Community Offering in an amount up to $250,000 of the Holding Company Common Stock offered in the Conversion subject to the overall limitation in (8) below; (6) Persons purchasing shares of Holding Company Common Stock in the Syndicated Community Offering, together with associates of and persons acting in concert with such persons, may purchase Holding Company Common Stock in the Syndicated Offering in an amount up to $250,000 of the shares of Holding Company Common Stock offered in the Conversion subject to the overall limitation in (8) below; provided, that shares of Holding Company Common Stock purchased in the Community Offering by any persons, together with associates of and persons acting in concert with such persons, will be aggregated with purchases by such persons in the Syndicated Community Offering in applying the $250,000 purchase limitation; (7) Eligible Account Holders, Supplemental Eligible Account Holders, Other Depositors and certain members of the general public may purchase stock in the Community Offering and Syndicated Community Offering subject to the purchase limitations described in (6) and (7) above; provided, that, except for the Employee Plans, the maximum number of shares of Holding Company Common Stock subscribed for or purchased in all categories of the 107 Conversion by any person, together with associates of and groups of persons acting in concert with such persons, shall not exceed 1.0% of the shares of Holding Company Common Stock offered for sale in the Conversion; and (8) The directors and officers of the Bank and their associates in the aggregate, excluding purchases by the Employee Plans, may purchase up to 25% of shares offered for sale in the Conversion. Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the depositors of the Bank, both the individual amount permitted to be subscribed for and the overall maximum purchase limitation may be increased to up to a maximum of 5% of the shares offered for sale in the Offering at the sole discretion of the Holding Company and the Bank. It is currently anticipated that the overall maximum purchase limitation may be increased if, after a Community Offering, the Holding Company has not received subscriptions for an aggregate amount equal to at least the minimum of the Estimated Valuation Range. If such amount is increased, subscribers for the maximum amount will be, and certain other large subscribers in the sole discretion of the Holding Company and the Bank may be, given the opportunity to increase their subscriptions up to the then applicable limit. Requests to purchase additional shares of Holding Company Common Stock under this provision will be determined by the Board of Directors of the Holding Company and the Board of Trustees of the Bank and, if approved, allocated on a pro rata basis giving priority in accordance with the priority rights set forth in the Plan and described herein. The overall maximum purchase limitation may not be reduced to less than 1.0%; the individual amount permitted to be subscribed for in the Offerings, however, may be reduced by the Bank to less than $250,000 of the Holding Company Common Stock offered. An individual Eligible Account Holder, Supplemental Eligible Account Holder or Other Depositor may not purchase individually in the Subscription Offering the overall maximum purchase limitation of 1.0% of the shares offered for sale, but may make such purchase, together with associates of and persons acting in concert with such person, by also purchasing in other available categories of the Conversion, subject to availability of shares and the maximum overall purchase limitation for purchases in the Conversion. In the event of an increase in the total number of shares offered in the Conversion due to an increase in the Estimated Valuation Range of up to 15% ("Adjusted Maximum"), the additional shares will be allocated in the following order of priority in accordance with the Plan: (i) in the event that there is an oversubscription by Eligible Account Holders, to fill unfilled subscriptions of Eligible Account Holders; (ii) to fill the Employee Plans' subscription of up to 8% of the Adjusted Maximum number of shares; (iii) in the event that there is an oversubscription by Supplemental Eligible Account Holders, to fill unfilled subscriptions of Supplemental Eligible Account Holders; (iv) in the event that there is an oversubscription by Other Depositors, to fill unfulfilled subscriptions of Other Depositors; and (v) to fill unfilled subscriptions in the Community Offering, each to the extent possible. The term "Associate" of a person is defined to mean: (i) any corporation or organization (other than the Holding Company, the Bank or a majority-owned subsidiary of the Bank) of which such person is an officer, partner or is directly or indirectly, either alone or with one or more members of his or her immediate family, the beneficial owner of 10% or more of any class of equity securities; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, except that the term "Associate" does not include any employee stock benefit plan maintained by the Holding Company or the Bank in which a person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and except that, for purposes of aggregating total shares that may be acquired or held by officers and directors and their Associates, the term "Associate" does not include any tax-qualified employee stock benefit plan; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the Holding Company or the Bank. Trustees, directors and officers are not treated as associates of each other solely by virtue of holding such positions. For a further discussion of limitations on purchases of a converting institution's stock at the time of Conversion and subsequent to Conversion, see "- Certain Restrictions on Purchase or Transfer of Shares After Conversion," "Management of the Bank - Subscriptions by Executive Officers and Directors" and "Restrictions on Acquisition of the Holding Company and the Bank." 108 Interpretation, Amendment and Termination All interpretations of the Plan by the Board of the Bank will be final, subject to the authority of the Superintendent and FDIC. The Plan provides that, if deemed necessary or desirable by the Board of Trustees of the Bank, the Plan may be substantively amended prior to the solicitation of proxies from depositors by a vote of the Board of Trustees; amendment of the Plan thereafter requires the approval of the Superintendent and FDIC. The Plan will terminate if the sale of all shares of stock being offered pursuant to the Plan is not completed prior to 24 months after the date of the approval of the Plan by the Superintendent unless a longer time period is permitted by governing laws and regulations. The Plan may be terminated by a vote of the Board of Trustees of the Bank at any time prior to the Special Meeting, and thereafter by such a vote with the approval of the Superintendent and FDIC. RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE BANK General The Bank's Plan of Conversion provides for the Conversion of the Bank from the mutual to the stock form of organization and, in connection therewith, a Restated Organization Certificate and Bylaws to be adopted by depositors of the Bank. The Plan also provides for the concurrent formation of a holding company, which form of organization may or may not be utilized at the option of the Board of Trustees of the Bank. See "The Conversion and the Merger General." In the event that the holding company form of organization is utilized, as described below, certain provisions in the Holding Company's Certificate of Incorporation and Bylaws and in its management remuneration plans and agreements entered into in connection with the Conversion, together with provisions of the DGCL, may have anti-takeover effects. In the event that the holding company form of organization is not utilized, the Bank's Restated Organization Certificate and Bylaws and management remuneration plans and agreements entered into in connection with the Conversion may have anti-takeover effects as described below. In addition, regulatory restrictions may make it difficult for persons or companies to acquire control of either the Holding Company or the Bank. Restrictions in the Holding Company's Certificate of Incorporation and Bylaws The following discussion is a general summary of certain provisions of the Holding Company's Certificate of Incorporation and Bylaws and certain other statutory and regulatory provisions relating to stock ownership and transfers, the Board of Directors and business combinations, that might have a potential "anti-takeover" effect. The Certificate of Incorporation and Bylaws of the Holding Company are filed as exhibits to the Registration Statement, of which this Prospectus is a part, and the descriptions herein of such documents are qualified in their entirety by reference to such documents. A number of provisions of the Holding Company's Certificate of Incorporation and Bylaws deal with matters of corporate governance and certain rights of stockholders. These provisions might have the effect of discouraging future takeover attempts which are not approved by the Board of Directors but which individual Holding Company stockholders may deem to be in their best interests or in which stockholders may receive substantial premiums for their shares over then current market prices. As a result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. Such provisions will also render the removal of the current Board of Directors or management of the Holding Company more difficult. The following description of certain of the provisions of the Certificate of Incorporation and Bylaws of the Holding Company is necessarily general and reference should be made in each case to such Certificate of Incorporation and Bylaws, which are incorporated herein by reference. See "Additional Information" as to how to obtain a copy of these documents. Limitation on Voting Rights. The Certificate of Incorporation of the Holding Company provides that any record owner of any outstanding Holding Company Common Stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the then outstanding shares of Holding Company Common Stock ("Limit") shall be entitled or permitted to only one one-hundredth (1 /100) of a vote with respect of each share held in excess of the Limit. Beneficial ownership of shares includes shares beneficially owned by such person or any of his affiliates, shares which such person or his affiliates have the right to acquire upon the exercise of Conversion rights or options and shares as to which such person and his affiliates have or share investment or voting power, but shall not include shares beneficially owned by the ESOP or shares that are subject to a revocable proxy and that are not otherwise 109 beneficially owned or deemed by the Holding Company to be beneficially owned by such person and his affiliates. The Certificate of Incorporation further provides that this provision limiting voting rights may only be amended upon (i) the approval of the Board of Directors, and (ii) the affirmative vote of the holders of a majority of the total votes eligible to be cast by the holders of all outstanding shares of capital stock entitled to vote thereon and (iii) by the affirmative vote of either (1) not less than a majority of the authorized number of directors and, if one or more Interested Stockholders exist, by not less than a majority of the Disinterested Directors (as defined in the Certificate of Incorporation) or (2) the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of the capital stock of the Holding Company entitled to vote thereon and, if the amendment is proposed by or on behalf of an Interested Stockholder or a director who is an Affiliate or Associate of an Interested Stockholder, by the affirmative vote of the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares entitled to vote thereon not beneficially owned by an Interested Stockholder or an Affiliate or Associate thereof. Board of Directors. The Board of Directors of the Holding Company is divided into three classes, each of which shall contain approximately one-third of the total number of members of the Board. Each class shall serve a staggered term, with approximately one-third of the total number of directors being elected each year. The Holding Company's Certificate of Incorporation and Bylaws provide that the size of the Board shall be determined by a majority of the directors but shall not be less than seven nor more than 20. The Certificate of Incorporation and the Bylaws provide that any vacancy occurring in the Board, including a vacancy created by an increase in the number of directors or resulting from death, resignation, retirement, disqualification, removal from office or other cause, shall be filled for the remainder of the unexpired term exclusively by a majority vote of the directors then in office. The classified Board is intended to provide for continuity of the Board of Directors and to make it more difficult and time consuming for a stockholder group to fully use its voting power to gain control of the Board of Directors without the consent of the incumbent Board of Directors of the Holding Company. The Certificate of Incorporation of the Holding Company provides that a director may be removed from the Board of Directors prior to the expiration of his term only for cause, upon the affirmative vote of at least 80% of the outstanding shares of voting stock. In the absence of these provisions, the vote of the holders of a majority of the shares could remove the entire Board, with or without cause, and replace it with persons of such holders' choice. Cumulative Voting, Special Meetings and Action by Written Consent. The Certificate of Incorporation does not provide for cumulative voting for any purpose. Moreover, special meetings of stockholders of the Holding Company may be called only by resolution of at least three-fourths of the Board of Directors then in office or by the Chairman, if one has been elected by the Board, or the Chief Executive Officer of the Holding Company. The Certificate of Incorporation also provides that any action required or permitted to be taken by the stockholders of the Holding Company may be taken only at an annual or special meeting and prohibits stockholder action by written consent in lieu of a meeting. Authorized Shares. The Certificate of Incorporation authorizes the issuance of thirty million (30,000,000) shares of capital stock, consisting of twenty-five million (25,000,000) shares of Holding Company Common Stock and five million (5,000,000) shares of preferred stock ("Preferred Stock"). The shares of Holding Company Common Stock and Preferred Stock were authorized in an amount greater than that to be issued in the Conversion to provide the Holding Company's Board of Directors with as much flexibility as possible to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and employee stock options. However, these additional authorized shares may also be used by the Board of Directors, consistent with its fiduciary duty, to deter future attempts to gain control of the Holding Company. The Board of Directors also has sole authority to determine the terms of any one or more series of Preferred Stock, including voting rights, Conversion rates, and liquidation preferences. As a result of the ability to fix voting rights for a series of Preferred Stock, the Board has the power, to the extent consistent with its fiduciary duty, to issue a series of Preferred Stock to persons friendly to management in order to attempt to block a post- tender offer Merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. The Holding Company's Board of Directors currently has no plans for the issuance of additional shares, other than the issuance of additional shares pursuant to the terms of the RRP and upon exercise of stock options to be issued pursuant to the terms of the Stock Option Plan, all of which, if implemented prior to the first anniversary of the Conversion, will be presented to stockholders for approval at a meeting of stockholders to be held no earlier than six months after completion of the Conversion. 110 Stockholder Vote Required to Approve Business Combinations with Principal Stockholders. The Certificate of Incorporation requires the approval of the holders of at least 80% of the Holding Company's outstanding shares of voting stock, together with the affirmative vote of at least 50% of the Holding Company's outstanding shares of voting stock not beneficially owned by an Interested Stockholder (as defined below) to approve certain "Business Combinations," as defined therein, and related transactions. Under Delaware law, absent this provision, Business Combinations, including Mergers, consolidations and sales of all or substantially all of the assets of a corporation must, subject to certain exceptions, be approved by the vote of the holders of only a majority of the outstanding shares of Holding Company Common Stock and any other affected class of stock. Under the Certificate of Incorporation, at least 80% approval of stockholders is required in connection with any transaction involving an Interested Stockholder except (i) in cases where the proposed transaction has been approved in advance by a majority of those members of the Holding Company's Board of Directors who are unaffiliated with the Interested Stockholder and were directors prior to the time when the Interested Stockholder became an Interested Stockholder or (ii) if the proposed transaction meets certain conditions set forth therein which are designed to afford the stockholders a fair price in consideration for their shares in which case, if a stockholder vote is required, approval of only a majority of the outstanding shares of voting stock would be sufficient. The term "Interested Stockholder" is defined to include any individual, corporation, partnership or other entity (other than the Holding Company or its subsidiary or any employee benefit plan maintained by the Holding Company or its subsidiary) which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of voting stock of the Holding Company. This provision of the Certificate of Incorporation applies to any "Business Combination," which is defined to include (i) any Merger or consolidation of the Holding Company or any of its subsidiaries with or into any Interested Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an Interested Stockholder-, (ii) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or with any Interested Stockholder or Affiliate of 5% or more of the assets of the Holding Company or combined assets of the Holding Company and its subsidiary; (iii) the issuance or transfer to any Interested Stockholder or its Affiliate by the Holding Company (or any subsidiary) of any securities of the Holding Company other than on a pro rata basis to all stockholders; (iv) the adoption of any plan for the liquidation or dissolution of the Holding Company proposed by or on behalf of any Interested Stockholder or Affiliate thereof, (v) any reclassification of securities, recapitalization, Merger or consolidation of the Holding Company which has the effect of increasing the proportionate share of Holding Company Common Stock or any class of equity or convertible securities of the Holding Company owned directly or indirectly by an Interested Stockholder or Affiliate thereof-, and (vi) the acquisition by the Holding Company or its subsidiary of any securities of an Interested Stockholder or its Affiliates or Associates. The trustees and executive officers of the Bank are purchasing in the aggregate approximately 4.0% of the shares of the Holding Company Common Stock at the maximum of the Estimated Valuation Range. In addition, the ESOP intends to purchase 8% of the Holding Company Common Stock to be issued in the Conversion, including shares to be issued to the Foundation. Additionally, if, the proposed RRP and Stock Options Plan are implemented, the Holding Company expects to acquire 4% of the Holding Company Common Stock issued in the Conversion, including shares to be issued to the Foundation, on behalf of the RRP and expects to issue an amount equal to 10% of the Holding Company Common Stock issued in the Conversion, including shares to be issued to the Foundation, under the Stock Option Plan to directors, executive officers and employees. As a result, assuming the RRP and Stock Option Plan are implemented, the directors, executive officers and employees have the potential to control the voting of approximately 25% of the Holding Company Common Stock, on a fully diluted basis at the maximum of the Estimated Valuation Range, thereby enabling them to prevent the approval of the transactions requiring the approval of at least 80% of the Holding Company's outstanding shares of voting stock described herein above, Amendment of Certificate of Incorporation and Bylaws. The Certificate of Incorporation provides that certain provisions of the Certificate of Incorporation may not be altered, amended, repealed or rescinded without the affirmative vote of either (1) not less than a majority of the authorized number of directors and, if one or more Interested Stockholders exist, by not less than a majority of the Disinterested Directors (as defined in the Certificate of Incorporation) or (2) the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of the capital stock of the Holding Company entitled to vote thereon and, if the alteration, amendment, repeal, or rescission is proposed by or on behalf of an Interested Stockholder or a director who is an Affiliate or Associate of an Interested Stockholder, by the affirmative vote of the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares entitled to vote thereon not beneficially owned by an Interested Stockholder or an Affiliate or Associate thereof. Amendment of the provision relating to business 111 combinations must also be approved by either (i) a majority of the Disinterested Directors, or (ii) the affirmative vote of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock, voting together as a single class, together with the affirmative vote of not less than fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned by any Interested Stockholder or Affiliate or Associate thereof, voting together as a single class. Furthermore, the Holding Company's Certificate of Incorporation provides that provisions of the Bylaws that contain supermajority voting requirements may not be altered, amended, repealed or rescinded without a vote of the Board or holders of capital stock entitled to vote thereon that is not less than the supermajority specified in such provision. Absent these provisions, the DGCL provides that a corporation's certificate of incorporation and bylaws may be amended by the holders of a majority of the corporation's outstanding capital stock. The Certificate of Incorporation also provides that the Board of Directors is authorized to make, alter, amend, rescind or repeal any of the Holding Company's bylaws in accordance with the terms thereof, regardless of whether the Bylaw was initially adopted by the stockholders. However, this authorization neither divests the stockholders of their right, nor limits their power to adopt, amend, rescind or repeal any Bylaw under the DGCL. These provisions could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through Bylaw amendments is an important element of the takeover strategy of the acquiror. Certain By-Law Provisions. The Bylaws of the Holding Company also require a stockholder who intends to nominate a candidate for election to the Board of Directors, or to raise new business at an annual stockholder meeting to give approximately 90 days notice in advance of the anniversary of the prior year's annual stockholders' meeting to the Secretary of the Holding Company. The notice provision requires a stockholder who desires to raise new business to provide certain information to the Holding Company concerning the nature of the new business, the stockholder and the stockholder's interest in the business matter. Similarly, a stockholder wishing to nominate any person for election as a director must provide the Holding Company with certain information concerning the nominee and the proposing stockholder. Anti-Takeover Effects of the Holding Company's Certificate of Incorporation and Bylaws and Certain Benefit Plans Adopted in the Conversion The provisions described above are intended to reduce the Holding Company's vulnerability to takeover attempts and certain other transactions which have not been negotiated with and approved by members of its Board of Directors. The provisions of the employment agreements, the ESOP, the RRP and the Stock Option and Incentive Plan to be established may also discourage takeover attempts by increasing the costs to be incurred by the Bank and the Holding Company in the event of a takeover. See "Management of the Bank--employment agreements," and "- Benefits - Employee Stock Ownership," "Benefits - Stock Option Plan" and "- Benefits - RRP." The Board of Directors believes that the provisions of the Certificate of Incorporation, Bylaws and management remuneration plans to be established are in the best interests of the Holding Company and its stockholders. An unsolicited non-negotiated proposal can seriously disrupt the business and management of a corporation and cause it great expense. Accordingly, the Board of Directors believes it is in the best interests of the Holding Company and its stockholders to encourage potential acquirers to negotiate directly with management and that these provisions will encourage such negotiations and discourage non-negotiated takeover attempts, It is also the Board of Directors' view that these provisions should not discourage persons from proposing a Merger or other transaction at a price that reflects the true value of the Holding Company and that otherwise is in the best interests of all stockholders. Delaware Corporate Law The State of Delaware has a statute designed to provide Delaware corporations with additional protection against hostile takeovers. The takeover statute, which is codified in Section 203 of the DGCL ("Section 203"), is intended to discourage certain takeover practices by impeding the ability of a hostile acquiror to engage in certain transactions with the target company. In general, Section 203 provides that a "Person" (as defined therein) who owns 15% or more of the outstanding voting stock of a Delaware corporation (a "DGCL Interested Stockholder") may not consummate a Merger or other 112 business combination transaction with such corporation at any time during the three-year period following the date such "Person" became a DGCL Interested Stockholder. The term "business combination" is defined broadly to cover a wide range of corporate transactions including Mergers, sales of assets, issuances of stock, transactions with subsidiaries and the receipt of disproportionate financial benefits. The statute exempts the following transactions from the requirements of Section 203: (i) any business combination if, prior to the date a person became a DGCL Interested Stockholder, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming a DGCL Interested Stockholder; (ii) any business combination involving a person who acquired at least 85% of the outstanding voting stock in the transaction in which he became a DGCL Interested Stockholder, with the number of shares outstanding calculated without regard to those shares owned by the corporation's directors who are also officers and by certain employee stock plans; (iii) any business combination with an Interested Stockholder that is approved by the Board of Directors and by a two-thirds vote of the outstanding voting stock not owned by the DGCL Interested Stockholder; and (iv) certain business combinations that are proposed after the corporation had received other acquisition proposals and which are approved or not opposed by a majority of certain continuing members of the Board of Directors. A corporation may exempt itself from the requirement of the statute by adopting an amendment to its Certificate of Incorporation or Bylaws electing not to be governed by Section 203 of the DGCL. At the present time, the Board of Directors does not intend to propose any such amendment. Restrictions in the Bank's Restated Organization Certificate and Bylaws Although the Board of Trustees of the Bank is not aware of any effort that might be made to obtain control of the Bank after the Conversion, the Board of Directors believes that it is appropriate to adopt certain provisions permitted by the Banking Law and the Conversion regulations of the NYBB to protect the interests of the converted Bank and its stockholders from any hostile takeover. Such provisions may, indirectly, inhibit a change in control of the Holding Company, as the Bank's sole stockholder. See "Risk Factors - Certain Anti-Takeover Provisions." In the event that the Holding Company is not formed and the subscription rights are deemed to be subscriptions to purchase the common stock of the Bank, the provisions contained in the Restated Organization Certificate and Bylaws of the Bank, to be effective on the effective date of the Conversion, will govern corporate procedure and certain rights of stockholders. The anti-takeover effects of such provisions are generally similar to those described above for the Holding Company, except that the issuance of any additional capital stock of the Bank would require the prior approval of the NYBB, and the consent of the holders of two-thirds of the outstanding shares of capital stock of the Bank would be required prior to effecting a Merger of, or certain acquisitions of assets by, the Bank. Limitation on Voting Rights. The Bank's Restated Organization Certificate will contain a provision whereby the acquisition of or offer to acquire beneficial ownership of more than 10% of the issued and outstanding shares of any class of equity securities of the Bank by any person (i.e., any individual, corporation, group acting in concert, trust, partnership, joint stock company or similar organization), either directly or indirectly, will be prohibited for a period of three years following the date of completion of the Conversion. Any stock in excess of 10% acquired in violation of this provision will not be counted as outstanding for voting purposes. This limitation shall not apply to (a) any offer or sale with a view towards public resale made exclusively by the Bank to any underwriter acting on behalf of the Bank in connection with a public offering of the common stock of the Bank; (b) any corporation formed by the Bank in connection with its Conversion from mutual to stock form to acquire all of the shares of stock of the Bank to be issued in connection with such Conversion; or (c) any reclassification of securities (including any reverse stock split), or recapitalization of the Bank, or any Merger or consolidation of the Bank with any of its subsidiaries or any other transaction or reorganization (including a transaction in which the Bank shall form a holding company) that does not have the effect, directly or indirectly, of changing the beneficial ownership interests of the Bank's stockholders, other than pursuant to the exercise of any appraisal rights. In the event that holders of revocable proxies for more than 10% of the shares of the Holding Company Common Stock seek, among other things, to elect one-third or more of the Holding Company's Board of Directors, to cause the Holding Company's stockholders to approve the acquisition or corporate reorganization of the Holding Company or to exert a continuing influence on a material aspect of the business operations of the Holding Company, 113 which actions could indirectly result in a change in control of the Bank, the Board of Directors of the Bank will be able to assert this provision of the Bank's Restated Organization Certificate against such holders. Although the Board of Directors of the Bank is not currently able to determine when and if it would assert this provision of the Bank's Restated Organization Certificate, the Bank's Board of Directors, in exercising its fiduciary duty, may assert this provision if it were deemed to be in the best interests of the Bank, the Holding Company and its stockholders. It is unclear, however, whether this provision, if asserted, would be successful against such persons in a proxy contest which could result in a change in control of the Bank indirectly through a change in control of the Holding Company. Board of Directors. The Board of Directors of the Bank is divided into three classes, each of which shall contain approximately one-third of the total number of members of the Board of Directors. Each class shall serve a staggered term, with approximately one-third of the total number of directors being elected each year. The staggered terms of the Bank's Board of Directors could have an anti-takeover effect by making it more difficult for a majority of shares to force an immediate change in the Board since only one-third of the Board is elected each year. The purpose of these provisions is to assure stability and continuity of management of the Bank in the years immediately following the Conversion. In addition, stockholders will not be permitted to cumulate their votes in the election of directors. The Restated Organization Certificate and Bylaws of the Bank provide that any director, or the entire Board of Directors, may be removed at any time, but only for cause and only by the affirmative vote of at least 80% of the outstanding shares of voting stock. The Restated Organization Certificate and Bylaws of the Bank also provide that any vacancy occurring in the Board of Directors, including any vacancy created by an increase in the number of directors, shall be filled by the stockholders of the Bank, except that vacancies not exceeding one-third of the entire Board of Directors may be filled by the affirmative vote of a majority of the directors then holding office. Preferred Stock. Although the Bank has no arrangements, understandings or plans at the present time, the Board of Directors believes that the availability of unissued shares of Preferred Stock will provide the Bank with increased flexibility in structuring possible future financings and acquisitions and in meeting other corporate needs which may arise. In the event of a proposed Merger, tender offer or other attempt to gain control of the Bank of which management does not approve, it might be possible for the Bank's Board of Directors to authorize the issuance of one or more series of Preferred Stock with rights and preferences which could impede the completion of such a transaction. An effect of the possible issuance of such Preferred Stock, therefore, may be to deter a future takeover attempt. The Bank's Board of Directors does not intend to issue any Preferred Stock except on terms which the Board deems to be in the best interests of the Bank and its then existing stockholders. Stockholder Vote Required for Certain Business Combinations. The Bank's Restated Organization Certificate contains provisions requiring a higher stockholder vote for certain business combinations, which provisions are substantially identical to those contained in the Holding Company's Certificate of Incorporation. See "- Restrictions in the Holding Company's Certificate of Incorporation and Bylaws - Stockholder Vote Required to Approve Business Combinations with Principal Stockholders." Evaluation of Offers. The Restated Organization Certificate of the Bank also provides that the Board of Directors of the Bank, when evaluating any offer to the Bank or to the stockholders of the Bank from another party relating to a change or potential change in control of the Bank, including, without limitation, any offer to (a) purchase for cash or exchange any securities or property for any outstanding equity securities of the Bank, (b) merge or consolidate the Bank with another corporation or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Bank, shall, in connection with the exercise of its judgment in determining what is in the best interest of the Bank and its stockholders, give due consideration not only to the price or other consideration being offered, but also to all other relevant factors including, without limitation, (1) both the long-term and the short-term interests of the Bank and its stockholders and (2) the effects that the Bank's actions may have in the short-term or in the long-term upon any of the following: (i) the prospects for potential growth, development, productivity and profitability of the Bank; (ii) the Bank's current employees; (iii) the Bank's retired employees and other beneficiaries receiving or entitled to receive retirement, welfare or similar benefits from or pursuant to any plan sponsored, or agreement entered into, by the Bank; (iv) the Bank's customers and creditors; and (v) the ability of the Bank to provide, as a going concern, goods, services, employment opportunities and employment benefits and otherwise to contribute to the communities in which is does business. By having these standards in the Restated Organization Certificate, the Board of Directors of the Bank may be in a stronger position to oppose such a transaction if the Board concludes that the transaction would 114 not be in the best interests of the Bank, even if the price offered is significantly greater than the then market price of any equity security of the Bank. Amendment of Restated Organization Certificate and Bylaws. The Bank's Restated Organization Certificate provides that certain provisions of the Restated Organization Certificate may not be altered, amended, repealed or rescinded without the affirmative vote of either (i) not less than a majority of the authorized number of directors and, if one or more Interested Stockholders exist, by not less than a majority of the Disinterested Directors, or (ii) the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of capital stock entitled to vote thereon and, if the alteration, amendment, repeal or rescission is proposed by or on behalf of an Interested Stockholder or a director who is an Affiliate or Associate of an Interested Stockholder, the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares of capital stock entitled to vote thereon not beneficially owned by an Interested Stockholder or an Affiliate or Associate thereof. In addition, provisions of the Bylaws of the Bank that contain supermajority voting requirements may not be altered, amended, repealed or rescinded without a vote of the Board or holders of capital stock entitled to vote thereon that is not less than the supermajority specified in such provision. Regulatory Restrictions New York State Banking Board Conversion Regulations. NYBB regulations prohibit any person, prior to the completion of the Conversion, from transferring, or from entering into any agreement or understanding to transfer, to the account of another, legal or beneficial ownership of the subscription rights issued under the Plan of Conversion or the Holding Company Common Stock to be issued upon their exercise. The NYBB regulations also prohibit any person, prior to the completion of the Conversion, from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or Holding Company Common Stock. See "The Conversion Restrictions on Transfer of Subscription Rights and Shares." For one year following the Conversion, NYBB regulations prohibit any person from acquiring or making an offer to acquire more than 10% of the stock of any converted savings institution, except with the prior approval of the Superintendent. OTS Regulations. In addition, any proposal to acquire 10% of any class of equity security of the Holding Company generally would be subject to approval by the OTS under the Change in Bank Control Act (the "CBCA") and the HOLA. The OTS requires all persons seeking control of a savings institution, either directly or indirectly through its holding company, to obtain regulatory approval prior to offering to obtain control. Federal law generally provides that no "person," acting directly or indirectly or through or in concert with one or more other persons, may acquire directly or indirectly "control," as that term is defined in OTS regulations, of an OTS-regulated savings and loan holding company without giving at least 60 days' written notice to the OTS and providing the OTS an opportunity to disapprove the proposed acquisition. Such acquisitions of control may be disapproved if it is determined, among other things, that (i) the acquisition would substantially lessen competition; (ii) the financial condition of the acquiring person might jeopardize the financial stability of the savings institution or prejudice the interests of its depositors; or (iii) the competency, experience or integrity of the acquiring person or the proposed management personnel indicates that it wold not be in the interest of the depositors or the public to permit the acquisition of control by such person. Such change in control restrictions on the acquisition of the holding company stock are not limited to a set time period but will apply for as long as the CBCA is in effect. Persons holding revocable or irrevocable proxies may be deemed to be beneficial owners of such securities under OTS regulations and therefore prohibited from voting all or the portion of such proxies in excess of 10% aggregate beneficial ownership limit. Such regulatory restrictions may prevent or inhibit proxy contests for control of the Holding Company or the Bank which have not received prior regulatory approval. Acquisitions of control of a savings bank are subject to the approval of the FDIC under the CBCA. However, transactions involving the Holding Company for which OTS approval must be sought under HOLA are exempted from this requirement. New York State Bank Holding Company Regulation. Under New York Banking Law, the prior approval of the NYBB is required before: (1) any action is taken that causes any company to become a bank holding company; (2) any action is taken that causes any banking institution to become or be merged or consolidated with a subsidiary of a bank holding company; (3) any bank holding company acquires direct or indirect ownership or control of more than 5% of 115 the voting stock of a banking institution; (4) any bank holding company or subsidiary thereof acquires all or substantially all of the assets of a banking institution; or (5) any action is taken that causes any bank holding company to merge or consolidate with another bank holding company. See "Regulation -- Holding Company Regulation -- New York State Holding Company Regulation." Accordingly, the prior approval of the NYBB would be required before any bank holding company, as defined in the banking law, could acquire 5% of more of the common stock of the Holding Company New York State Change in Control Regulation. Prior approval of the NYBB is also required before any action is taken that causes any company to acquire direct or indirect control of a banking institution. Control is presumed to exist if any company directly or indirectly owns, controls or holds with power to vote 10% or more of the voting stock of a banking institution or of any company that owns, controls or holds with power to vote 10% or more of the voting stock of a banking institution. Accordingly, prior approval of the NYBB would be required before any company could acquire 10% or more of the Holding Company Common Stock. Federal Reserve Board Regulations. In the event the Bank does not qualify to be QTL and does not elect to be treated as a "savings association" under Section 10 of HOLA, attempts to acquire control of the Bank become subject to regulations of the Federal Reserve Board under the CBCA. DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY General The Holding Company is authorized to issue thirty million (30,000,000) shares of Holding Company Common Stock having a par value of $.0l per share and twenty-five million (25,000,000) shares of Preferred Stock having a par value of $.0l per share. In connection with the Conversion, the Holding Company currently expects to issue 8,050,000 shares of Holding Company Common Stock (or 9,257,500 in the event of an increase of 15% in the Estimated Valuation Range) and does not expect to issue any shares of Preferred Stock. Except as discussed above in "Restrictions on Acquisition of the Holding Company and the Bank," each share of the Holding Company Common Stock will have the same relative rights as, and will be identical in all respects with, each other share of Holding Company Common Stock. Upon payment of the Purchase Price for the Holding Company Common Stock, in accordance with the Plan, all such stock will be duly authorized, fully paid and non-assessable. The Holding Company Common Stock will represent non-withdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC. Holding Company Common Stock Dividends. The Holding Company can pay dividends out of statutory surplus or from certain net profits if, as and when declared by its Board of Directors. The payment of dividends by the Holding Company is subject to limitations which are imposed by law and applicable regulation. See "Dividend Policy" and "Regulation and Supervi sion." The holders of Holding Company Common Stock will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors of the Holding Company out of funds legally available therefor. If the Holding Company issues Preferred Stock, the holders thereof may have a priority over the holders of the Holding Company Common Stock with respect to dividends. Voting Rights. Upon Conversion, the holders of Holding Company Common Stock will possess exclusive voting rights in the Holding Company. They will elect the Holding Company's Board of Directors and act on such other matters as are required to be presented to them under Delaware law or the Holding Company's Certificate of Incorporation or as are otherwise presented to them by the Board of Directors. Except as discussed in "Restrictions on Acquisition of the Holding Company and the Bank," each holder of Holding Company Common Stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If the Holding Company issues Preferred Stock, holders of the Preferred Stock may also possess voting rights. Certain matters require an 80% or two-thirds stockholder vote. See "Restrictions on Acquisition of the Holding Company and the Bank." 116 As a New York mutual savings bank, corporate powers and control of the Bank are vested in its Board of Trustees, who elect the officers of the Bank and who fill any vacancies on the Board of Trustees as it exists upon Conversion. Subsequent to Conversion, voting rights will be vested exclusively in the owners of the shares of capital stock of the Bank, which owner will be the Holding Company, and voted at the direction of the Holding Company's Board of Directors. Consequently, the holders of the Holding Company Common Stock will not have direct control of the Bank. Liquidation. In the event of any liquidation, dissolution or winding up of the Bank, the Holding Company, as holder of the Bank's capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of the Bank (including all deposit accounts and accrued interest thereon) and after distribution of the balance in the special liquidation account, which is a memorandum account only, to Eligible Account Holders and Supplemental Eligible Account Holders (see "The Conversion - Effects of Conversion - Liquidation Rights"), all assets of the Bank available for distribution in cash or in kind. In the event of liquidation, dissolution or winding up of the Holding Company, the holders of its Holding Company Common Stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of the Holding Company available for distribution. If Preferred Stock is issued, the holders thereof may have a priority over the holders of the Holding Company Common Stock in the event of the liquidation or dissolution of the Holding Company. Preemptive Rights. Holders of the Holding Company Common Stock will not be entitled to preemptive rights with respect to any shares which may be issued. The Holding Company Common Stock is not subject to redemption. Preferred Stock None of the shares of the Holding Company's authorized Preferred Stock will be issued in the Conversion. Such stock may be issued with such preferences and designations as the Board of Directors may from time to time determine. The Board of Directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and Conversion rights which could dilute the voting strength of the holders of the Holding Company Common Stock and may assist management in impeding an unsolicited takeover or attempted change in control. 117 DESCRIPTION OF CAPITAL STOCK OF THE BANK General The Restated Organization Certificate of the Bank, to be effective upon the Conversion, authorizes the issuance of capital stock consisting of twenty-five million (25,000,000) shares of common stock, par value $.0l per share, and five million (5,000,000) shares of preferred stock, par value $.01 per share, which preferred stock may be issued in series and classes having such rights, preferences, privileges and restrictions as the Board of Directors may determine. Except as discussed above in "Restrictions on Acquisition of the Holding Company and the Bank," each share of common stock of the Bank will have the same relative rights as, and will be identical in all respects with, each other share of common stock. After the Conversion, the Board of Directors will be authorized to approve the issuance of Holding Company Common Stock up to the amount authorized by the Restated Organization Certificate without the approval of the Bank's stockholders, except to the extent that such approval is required by governing law. All of the issued and outstanding common stock of the Bank will be held by the Holding Company as the Bank's sole stockholder. The capital stock of the Bank will represent non-withdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC. Holding Company Common Stock Dividends. The holders of the Bank's common stock (the Holding Company upon consummation of the Conversion) will be entitled to receive and to share equally in such dividends as may be declared by the Board of Directors of the Bank out of funds legally available therefor. See "Dividend Policy" for certain restrictions on the payment of dividends and "Federal and State Taxation - Federal Taxation" for a discussion of the consequences of the payment of cash dividends from income appropriated to bad debt reserves. 118 Voting Rights. Immediately after the Conversion, the holders of the Bank's common stock (the Holding Company upon consummation of the Conversion) will possess exclusive voting rights in the Bank. Each holder of shares of common stock will be entitled to one vote for each share held. Cumulation of votes will not be permitted. See "Restrictions on Acquisition of the Holding Company and the Bank - Anti-Takeover Effects of the Holding Company's Articles of Incorporation and Bylaws and Management Remuneration Plans Adopted in Conversion." Liquidation. In the event of any liquidation, dissolution, or winding up of the Bank, the holders of its common stock (the Holding Company upon consummation of the Conversion) will be entitled to receive, after payment of all debts and liabilities of the Bank (including all deposit accounts and accrued interest thereon), and distribution of the balance in the special liquidation account, which is a memorandum account only, to Eligible Account Holders and Supplemental Eligible Account Holders (see "The Conversion - Effects of Conversion - Liquidation Rights"), all assets of the Bank available for distribution in cash or in kind. If preferred stock is issued subsequent to the Conversion, the holders thereof may also have priority over the holders of common stock in the event of liquidation or dissolution. Preemptive Rights and Redemption. Holders of the common stock of the Bank (the Holding Company upon consummation of the Conversion) will not be entitled to preemptive rights with respect to any shares of the Bank which may be issued. The common stock will not be subject to redemption. Upon receipt by the Bank of the full specified purchase price therefor, the common stock will be fully paid and non-assessable. Preferred Stock None of the shares of the Bank's authorized preferred stock will be issued in the Conversion. Such stock may be issued with such preferences and designations as the Board of Directors may from time to time determine. The Board of Directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and Conversion rights. EXPERTS The consolidated financial statements of the Bank as of June 30, 1998 and 1997 and for each of the years in the three-year period ended June 30, 1998, included in this Prospectus have been audited by Arthur Andersen LLP independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. RP Financial has consented to the publication herein of the summary of its report to the Bank and Holding Company setting forth its opinion as to the estimated pro forma market value of the Holding Company Common Stock upon Conversion and its opinion with respect to subscription rights. LEGAL AND TAX OPINIONS The legality of the Holding Company Common Stock and the federal income tax consequences of the Conversion will be passed upon for the Bank and the Holding Company by Silver, Freedman & Taff, L.L.P., Washington, D.C., special counsel to the Bank and the Holding Company. The New York State income tax consequences of the Conversion will be passed upon for the Bank and the Holding Company by Wertime, Ries and Van Ullen, P.C. Certain legal matters will be passed upon for KBW by Serchuk & Zelermyer, White Plains, New York. 119 ADDITIONAL INFORMATION The Holding Company has filed with the SEC a registration statement under the Securities Act with respect to the Holding Company Common Stock offered hereby. As permitted by the rules and regulations of the SEC, this Prospectus does not contain all the information set forth in the registration statement. Such information, including the Conversion Valuation Appraisal Report, which is an exhibit to the Registration Statement, can be examined without charge at the public reference facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can be obtained from the SEC at prescribed rates. In addition, the SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including the Holding Company. The Conversion Valuation Appraisal Report may also be inspected by Eligible Account Holders at the offices of the Bank during normal business hours. Copies of the appraisal may also be requested by Eligible Account Holders or Supplemental Eligible Account Holders; provided, however, that such Eligible Account Holders or Supplemental Eligible Account Holders shall be responsible for all costs associated with the copying and transmittal of such appraisal. This Prospectus contains a description of the material terms and features of all material contracts, reports or exhibits to the registration statement required to be described; however, the statements contained in this Prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions thereof and are not necessarily complete; each such statement is qualified by reference to such contract or document. The Bank has filed an application for approval of conversion with the Superintendent and the FDIC. Pursuant to the rules and regulations of the Superintendent, this Prospectus omits certain information contained in that application. The application may be examined at the principal office of the Superintendent, Two Rector Street, New York, New York, 10006. The Holding Company has filed with the OTS an Application to Form a Holding Company. This prospectus omits certain information contained in such Application. Such Application may be inspected at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552. In connection with the Conversion, the Holding Company will register its Holding Company Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such registration, the Holding Company and the holders of its stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Exchange Act. Under the Plan, the Holding Company has undertaken that it will not terminate such registration for a period of at least three years following the Conversion. In the event that the Bank amends the Plan to eliminate the concurrent formation of the Holding Company as part of the Conversion, the Bank will register its stock with the FDIC under Section 12(g) of the Exchange Act and, upon such registration, the Bank and the holders of its stock will become subject to the same obligations and restrictions. A copy of the Certificate of Incorporation and the Bylaws of the Holding Company and the Restated Organization Certificate and Bylaws of the Bank are available without charge from the Bank. See "Restrictions on Acquisition of the Holding Company and the Bank," "Description of Capital Stock of the Holding Company" and "Description of Capital Stock of the Bank." The Bank's principal office is located at 75 Remsen Street, Cohoes, New York 12047-2892, and its telephone number is (518) 233-6500. 120 GLOSSARY AICPA American Institute of Certified Public Accountants. AMTI Alternative Minimum Taxable Income. APB Accounting Practice Bulletin. ARM Adjustable Rate Mortgage. Associate The term "Associate" of a person is defined to mean (i) any corporation or organization (other than the Bank or its subsidiaries or the Holding Company) of which such person is a director, officer, partner or 10% shareholder; (ii) any trust or other estate in which such person has a substantial beneficial interest or serves as trustee or in a similar fiduciary capacity; provided, however that such term shall not include any employee stock benefit plan of the Holding Company or the Bank in which such a person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such person, or relative of such spouse, who either has the same home as such person or who is a director or officer of Lincoln Federal or its subsidiaries or the Holding Company. ATM Automated Teller Machine. Bank Cohoes Savings Bank. Board of Directors Board of Directors of Cohoes Bancorp, Inc. Board of Trustees Board of Trustees of Cohoes Savings Bank. Bylaws Bylaws of Cohoes Bancorp, Inc. Code The Internal Revenue Code of 1986, as amended. Conversion Simultaneous conversion of Cohoes Savings Bank to stock form, the issuance of Cohoes Savings Bank's outstanding capital stock to Cohoes Bancorp and Cohoes Bancorp's offer and sale of Holding Company Common Stock. Conversion Shares Shares of Cohoes Bancorp, Inc. offered to complete conversion of Cohoes Savings Bank to stock form. CRA Community Reinvestment Act. Department The New York State Banking Department. DCGL Delaware General Corporations Law. Eligible Account Holders Savings account holders of Cohoes Savings Bank with account balances of at least $100 as of the close of business on March 31, 1998. ERISA Employee Retirement Income Security Act of 1974, as amended. 121 Estimated Valuation Range Estimated pro forma market value of the Common Stock ranging from $59,500,000 to $80,500,000. ESOP Cohoes Bancorp, Inc. Employee Stock Ownership Plan. Exchange Act Securities Exchange Act of 1934, as amended. FASB Financial Accounting Standards Board. FDIA Federal Deposit Insurance Act. FDIC Federal Deposit Insurance Corporation. FHLB Federal Home Loan Bank. FHLMC Federal Home Loan Mortgage Corporation. FNMA Federal National Mortgage Association. Foundation The Cohoes Savings Bank Charitable Foundation, Inc. FRB Federal Reserve Board. Freddie Mac Federal Home Loan Mortgage Corporation. GAAP Generally Accepted Accounting Practices. HOLA Home Owners' Loan Act. Holding Company Cohoes Bancorp, Inc. Holding Company Common Stock Shares of Cohoes Bancorp, Inc. IRS Internal Revenue Services. KBW Keefe, Bruyette & Woods, Inc. Merger Merger of SFS Bancorp with and into Cohoes Bancorp, Inc. NASD National Association of Securities Dealers, Inc. Nasdaq National Association of Securities Dealers Automated Quotation System--National Market. NPV Net portfolio value. NYBB New York Banking Board. OCC Office of the Comptroller of the Currency. Offering The offering of between 5,950,000 and 8,050,000 shares of Cohoes Bancorp, Inc. common stock at $10.00 per share in the Conversion. 122 ORE Other Real Estate Owned. OTS Office of Thrift Supervision. Plan or Plan of Conversion Plan of Cohoes Savings Bank to convert from a New York chartered mutual savings bank to a New York chartered stock savings bank and the issuance of all of Cohoes Savings Bank 's outstanding capital stock to Cohoes Bancorp, Inc. and the issuance of Cohoes Bancorp, Inc.'s Common Stock to the public. QTL Qualified thrift lender. ROA Return On Average Assets. ROE Return On Average Equity. RP Financial RP Financial, LC., independent appraiser. RRP Recognition and Retention Plan to be submitted for approval at a meeting of the Holding Company's shareholders to be held at least six months after the completion of the Conversion. SAIF Savings Association Insurance Fund of the FDIC. SEC Securities and Exchange Commission. Securities Act Securities Act of 1933, as amended. SFAS Statement of Financial Accounting Standard. Stock Contribution Shares contributed to Cohoes Savings Foundation. Stock Option and Incentive Plan The Cohoes Bancorp, Inc. Stock Option and Incentive Plan for directors and officers to be submitted for approval at a meeting of the Holding Company's shareholders to be held at least six months after the completion of the Conversion. Subscription Offering Offering of non-transferable rights to subscribe for the Common Stock, in order of priority, to Eligible Account Holders, the ESOP, and Supplemental Eligible Account Holders. Superintendent Superintendent of Banks of the New York State Banking Department. Voting Record Date The close of business on March 31, 1998, the date for determining voting depositors entitled to vote at the Special Meeting. 123 COHOES SAVINGS BANK AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS JUNE 30, 1998 AND 1997 Page ---- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ................................ F-1 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF JUNE 30, 1998 AND 1997 .......................................... F-2 CONSOLIDATED STATEMENTS OF OPERATIONS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 .......................... CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS AND UNDIVIDED PROFITS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 .... F-3 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 .......................... F-4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............................. F-6 NOTE: All schedules are omitted because the required information applicable is included in the consolidated financial statements or related notes. The financial statements of Cohoes Bancorp, Inc. have been omitted because the Company has not yet issued any stock, has no assets, no liabilities and has not conducted any business other than of an organizational nature. 124 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Examining Committee of the Board of Trustees of Cohoes Savings Bank: We have audited the accompanying consolidated statements of financial condition of Cohoes Savings Bank and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of operations, changes in surplus and undivided profits and cash flows for each of the years in the three-year period ended June 30, 1998. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Cohoes Savings Bank and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998, in conformity with generally accepted accounting principles. New York, New York August 12, 1998 F-1 COHOES SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1998 AND 1997 (000's omitted) ASSETS 1998 1997 - ------ ---- ---- CASH AND CASH EQUIVALENTS: Cash and due from banks ................................ $ 8,653 $ 10,795 Federal funds sold ..................................... 5,000 5,770 Interest-bearing deposits with banks ................... 576 99 -------- -------- Total cash and cash equivalents ................... 14,229 16,664 MORTGAGE LOANS HELD FOR SALE ............................. 38 175 SECURITIES AVAILABLE FOR SALE, amortized cost of $48,701 and $35,621 at June 30, 1998 and 1997, respectively (Note 5) .................................. 48,720 35,475 INVESTMENT SECURITIES, approximate fair value of $45,547 and $25,186 at June 30, 1998 and 1997, respectively (Note 6) .................................. 45,424 25,273 NET LOANS RECEIVABLE (Note 7) ............................ 412,759 398,530 ACCRUED INTEREST RECEIVABLE (Note 8) ..................... 3,482 3,210 BANK PREMISES AND EQUIPMENT (Note 9) ..................... 7,303 7,657 OTHER REAL ESTATE OWNED .................................. 509 1,874 MORTGAGE SERVICING RIGHTS (Note 10) ...................... 1,042 1,146 OTHER ASSETS ............................................. 2,210 1,696 -------- -------- Total assets ...................................... $535,716 $491,700 ======== ======== LIABILITIES, SURPLUS AND UNDIVIDED PROFITS LIABILITIES: Due to depositors (Note 11) ............................ $449,541 $429,390 Mortgagors' escrow deposits ............................ 8,994 9,062 Borrowings (Note 12) ................................... 19,897 -- Other liabilities ...................................... 4,002 4,156 -------- -------- Total liabilities ................................. 482,434 442,608 -------- -------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 16) ......... SURPLUS AND UNDIVIDED PROFITS (Note 14): Surplus ................................................ 10,378 10,378 Undivided profits ...................................... 42,892 38,805 Net unrealized gain (loss) on securities available for sale, net of income taxes ........................ 12 (91) -------- -------- Total surplus and undivided profits .............. 53,282 49,092 -------- -------- Total liabilities, surplus and undivided profits . $535,716 $491,700 ======== ======== The accompanying notes are an integral part of these statements. F-2 COHOES SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS AND UNDIVIDED PROFITS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (000's omitted)
Net Unrealized Gain (Loss) on Securities Available for Undivided Sale, Net of Surplus Profits Income Taxes Total ------- ------- ------------ ----- BALANCE, June 30, 1995 ........................ $ 10,378 $ 29,767 $ (15) $ 40,130 Change in unrealized gain (loss) on securities available for sale, net of income taxes ........................ -- -- (234) (234) Net income for the year ended June 30, 1996 -- 4,395 -- 4,395 -------- -------- -------- -------- BALANCE, June 30, 1996 ........................ 10,378 34,162 (249) 44,291 Change in unrealized gain (loss) on securities available for sale, net of income taxes ........................ -- -- 158 158 Net income for the year ended June 30, 1997 -- 4,643 -- 4,643 -------- -------- -------- -------- BALANCE, June 30, 1997 ........................ 10,378 38,805 (91) 49,092 Change in unrealized gain (loss) on securities available for sale, net of income taxes ........................ -- -- 103 103 Net income for the year ended June 30, 1998 -- 4,087 -- 4,087 -------- -------- -------- -------- BALANCE, June 30, 1998 ........................ $ 10,378 $ 42,892 $ 12 $ 53,282 ======== ======== ======== ========
The accompanying notes are an integral part of these statements. F-3 COHOES SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (000's omitted)
1998 1997 1996 ---- ---- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,087 $ 4,643 $ 4,395 ------------- ------------- ------------- Adjustments to reconcile net income to net cash provided by operating activities- Depreciation .................................................. 1,117 1,101 1,015 Amortization of purchased and originated mortgage servicing rights .................................................... 185 169 165 Provision for loan losses ..................................... 1,400 1,325 490 Provision for real estate owned losses ........................ - - 153 Provision for deferred tax (benefit) expense .................. (317) 1 (252) Net gain on investment securities redeemed .................... - (3) - Net (gain) loss on securities available for sale redeemed ..... 1 (37) (10) Net premium amortization of investment securities ............. 33 49 69 Net premium (discount) amortization of securities available for sale .................................................. 4 (16) (14) Net gain on sale of mortgage loans ............................ (81) (106) 20 Proceeds from sale of loans held for sale ..................... 8,304 7,265 24,379 Loans originated for sale ..................................... (8,087) (6,745) (24,719) Increase in interest receivable ............................... (272) (87) (311) (Increase) decrease in other assets, net of deferred tax (benefit) expense ......................................... (197) (547) 1,310 Increase (decrease) in other liabilities ...................... (154) 856 (1,479) Net loss on sale/writedowns of other real estate owned ........ 644 55 31 ------------- ------------- ------------- Total adjustments ................................... 2,580 3,280 847 ------------- ------------- ------------- Net cash provided by operating activities ........... 6,667 7,923 5,242 ------------- ------------- -------------
F-4
1998 1997 1996 ---- ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of investment securities ..................... $ 1,000 $ 3,559 $ 113 Proceeds from investment securities called .......................... 12,000 3,065 3,669 Purchase of investment securities ................................... (40,591) (10,194) (14,774) Proceeds from the maturity of securities available for sale ......... 550 - 2,000 Proceeds from securities available for sale called .................. 23,100 - 1,000 Proceeds from the sale of securities available for sale ............. 60 287 10,024 Purchase of securities available for sale ........................... (42,305) (18,552) (8,512) Proceeds from principal reduction in investment securities .......... 7,408 4,219 6,242 Proceeds from principal reduction in securities available for sale .. 5,448 3,887 3,588 Net loans made to customers ......................................... (16,723) (8,418) (15,893) Originated mortgage servicing rights ................................ (81) (104) - Proceeds from sale of other real estate owned ....................... 1,815 1,239 380 Capital expenditures ................................................ (763) (1,827) (704) ------------- ------------- ------------- Net cash used in investing activities ............... (49,082) (22,839) (12,867) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in mortgagors' escrow deposits ......................... (68) (71) (276) Net increase (decrease) in borrowings ............................... 19,897 (2,100) (3,954) Net increase in deposits ............................................ 20,151 24,851 5,576 ------------- ------------- ------------- Net cash provided by financing activities ........... 39,980 22,680 1,346 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents ..................................... (2,435) 7,764 (6,279) CASH AND CASH EQUIVALENTS, beginning of year ............................ 16,664 8,900 15,179 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, end of year .................................. $ 14,229 $ 16,664 $ 8,900 ============= ============= ============= ADDITIONAL DISCLOSURE RELATIVE TO CASH FLOWS: Interest paid .................................................... $ 19,235 $ 17,664 $ 17,819 Taxes paid ....................................................... 2,780 3,113 2,457 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Transfer of loans to other real estate owned ..................... $ 1,094 $ 2,677 $ 635
The accompanying notes are an integral part of these statements. F-5 COHOES SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998, 1997 AND 1996 (000's omitted) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements of Cohoes Savings Bank and subsidiaries (the "Bank") conform, in all material respects, to generally accepted accounting principles and to general practice within the savings bank industry. The Bank utilizes the accrual method of accounting for financial reporting purposes. Principles of Consolidation The consolidated financial statements include the accounts of the Bank, its wholly owned financial services subsidiary and its wholly owned insurance subsidiary. Intercompany accounts and transactions have been eliminated. Use of Estimates In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported assets and liabilities as of the date of the consolidated statements of financial condition. The same is true of revenues and expenses reported for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate acquired in connection with foreclosures. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for significant properties. Investment Securities and Securities Available for Sale In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," management determines the appropriate classification of securities, including mortgage-backed securities, at the time of purchase. If management has the positive intent and ability to hold debt securities to maturity, they are classified as investment securities held to maturity and are stated at amortized 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 or losses reported, net of income taxes, as a separate component of surplus and undivided profits. Gains and losses on disposition of all investment securities are based on the adjusted cost of the specific security sold. At June 30, 1998 and 1997, the Bank did not hold any securities considered to be trading securities. F-6 Unrealized losses on securities which reflect a decline in value which is other than temporary, if any, are charged to income and reported as a component of "net (loss) gain on securities transactions" in the consolidated statements of operations. The cost of securities is adjusted for amortization of premium and accretion of discount, which is calculated on an effective interest method. Loans Receivable and Loan Fees Loans receivable are reported at the principal amount outstanding, net of unearned discount, net deferred loan fees and an allowance for possible loan losses. Discounts on loans are accreted to income using a method which approximates the level yield interest method. Interest income on loans is not recognized when considered doubtful of collection by management. The Bank accounts for fees and costs associated with loan originations in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating and Acquiring Loans and Initial Direct Costs of Leases." Fees received from loan originations and certain related costs are deferred and are amortized into income so as to provide for a level-yield of interest on the underlying loans. Allowance for Loan Losses A substantial portion of the Bank's loans are secured by real estate located in the Albany, New York area and the Metropolitan New York City area. In addition, a substantial portion of the other real estate owned is located in those same markets. Accordingly, the ultimate collectibility of a substantial portion of the Bank's loan portfolio and the recovery of a substantial portion of the carrying amount of other real estate owned are dependent upon market conditions in these market areas. Management believes that the allowance for loan losses is adequate and that other real estate owned is recorded at its fair value less an estimated cost to sell these properties. While management uses available information to recognize losses on loans and other real estate owned, future additions to the allowance or write-downs of other real estate owned 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 Bank's allowance for loan losses and other real estate owned. Such agencies may require the Bank to recognize additions to the allowance or write down other real estate owned based on their judgments about information available to them at the time of their examination, which may not be currently available to management. The allowance for loan losses is established through a provision for loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the historical loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect borrowers' ability to pay. F-7 SFAS No. 114 defines an impaired loan as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. The Bank applies the impairment criteria to all loans, except for large groups of smaller balance homogenous loans that are collectively evaluated for impairment, such as residential mortgages and consumer installment loans. Income recognition and charge-off policies were not changed as a result of this statement. Mortgage Loans Held for Sale Management determines the appropriate classification of mortgage loans at the time that rate lock agreements are entered into with the customer. If management has the intent and the Bank has the ability at the time of rate lock to hold the loans to maturity, they are classified as mortgage loans and carried at the amount of unpaid principal, net of deferred fees, reduced by the allowance for loan losses. Mortgage loans not intended to be held to maturity are classified as "held for sale" and carried at the lower of aggregate cost or fair value as determined by outstanding commitments from investors or current market prices for loans with no commitments. Loan servicing revenues and expenses are recognized when service fees are earned and expenses are incurred. The mortgage loans being serviced are not included in these consolidated financial statements as they are not assets of the Bank. Purchased mortgage servicing rights represent the costs of acquiring the rights to service mortgage loans originated by other institutions; such costs are capitalized and amortized into servicing fee income over the estimated period of net servicing income, adjusted for significant prepayments and payoffs of the underlying serviced loans. Gains or losses on sales of mortgage loans held for sale are recognized based upon the difference between the selling price and the carrying value of the related mortgage loans sold. Such gains and losses are increased or decreased by the amount of excess servicing fees recorded, if any. Net deferred origination fees are recognized at the time of sale in the gain or loss determination. Gains and losses are decreased or increased for commissions and legal fees on loan closings, and direct employee costs related to loan originations. These costs amounted to $36, $34 and $104, for the years ended June 30, 1998, 1997 and 1996, respectively. Bank Premises and Equipment Bank premises and equipment are carried at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Other Real Estate Owned Other real estate owned includes foreclosed real estate properties. Other real estate owned is recorded at the lower of cost or the fair value of the asset acquired less an estimate of the costs to sell the asset. Fair value of other real estate owned is generally determined through independent appraisals. At the time of foreclosure, the excess, if any, of the loan value over the estimated fair value of the asset received less costs to sell, is charged to the allowance for loan losses. Subsequent declines in the fair value of such assets, or increases in the estimated costs to sell the properties and net operating expenses of such assets, are charged directly to other noninterest expense. At June 30, 1998 and 1997, these properties consisted of residential and commercial mortgage properties located in the Albany, New York area. F-8 Income Taxes For federal income and New York State franchise tax purposes, the Bank utilizes the accrual basis method of accounting. The Bank utilizes the asset and liability method of accounting for income taxes required under SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability method of SFAS No. 109, deferred tax assets are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. To the extent that current available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance must be established. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Statutory Transfer of Surplus A required quarterly transfer of 10% of net income is to be made to the surplus fund in accordance with New York State Banking Regulations. No transfer is required if net worth as a percent of deposits exceeds 10% at the end of each quarter. Financial Instruments In the normal course of business, the Bank is a party to certain financial instruments with off-balance sheet risk such as commitments to extend credit, unused lines of credit and letters of credit. The Bank's policy is to record such instruments when funded. Cash and Cash Equivalents For purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash, due from banks, federal funds sold and interest-bearing deposits with banks. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130 "Reporting Comprehensive Income." This statement is effective for fiscal years beginning after December 31, 1997 and restatement of financial statements or information for earlier periods provided for comparative purposes is required. The provisions of this statement will not affect the Bank's results of operations or financial condition. F-9 In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures About Pensions and Other Postretirement Benefits." SFAS No. 132 supersedes the disclosure requirements for pension and other postretirement plans as set forth in SFAS No. 87 "Employers' Accounting for Pension," SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does not address measurement or recognition for pension and other postretirement benefit plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required unless the information is not readily available, in which case the notes to the financial statements shall include all available information and a description of the information not available. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. SFAS No. 133 will not impact the Bank's accounting or disclosures. Reclassifications Amounts in the prior year's consolidated financial statements are reclassified whenever necessary to conform with the current year's presentation. 2. CONVERSION TO STOCK FORM OF OWNERSHIP On May 21,1998, the Board of Trustees adopted a Plan of Conversion ("Plan") to convert the Bank from a New York mutual savings bank to a New York stock savings bank and to become a wholly owned subsidiary of a new Delaware corporation ("Company") to be organized at the direction of the Bank. Pursuant to the Plan, the Company will issue and offer for sale shares of its common stock and use up to 50% of the net proceeds of such sale to acquire all of the capital stock of the Bank. The proposed transaction is subject to the approval of the Superintendent of Banks of New York State and of the Federal Deposit Insurance Corporation, as well as to a vote of the Bank's voting depositors. In addition, the Company will file a registration statement with the Securities and Exchange Commission ("SEC") with respect to the offering of its common stock and will seek the permission of the Office of Thrift Supervision ("OTS") to acquire the stock of the Bank to be issued upon the Bank's conversion. At the time of conversion, the Bank will establish a liquidation account in an amount equal to the retained income of the Bank as of the date of the most recent financial statements contained in the final conversion prospectus. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an eligible account holder's interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders' equity to be reduced below applicable regulatory capital maintenance requirements, the amount required for the liquidation account, or if such declaration and payment would otherwise violate regulatory requirements. F-10 Pursuant to the Plan, the Company intends to establish a Charitable Foundation, Employee Stock Ownership Plan (ESOP), Stock Option Plan, Recognition and Retention Plan and Employment and Retention Agreements as discussed below. The Company proposes to fund the Charitable Foundation by contributing to the Charitable Foundation, immediately following the conversion, a number of shares of authorized but unissued shares of the Common Stock equal to approximately 3% of Common Stock sold in the Offering. Such contribution, once made, will not be recoverable by the Company or the Bank. The Company will recognize the full expense equal to the fair value of the stock, in the amount of the contribution in the quarter in which it occurs. Such expense will reduce earnings and have a material impact on the Company's and the Bank's earnings for such quarter and for the year. The Company plans to set up an ESOP, a tax-qualified benefit plan for officers and employees of the Company and the Bank. It is anticipated that an amount equal to 8% of the shares of Common Stock sold in the Offering (including shares issued to the Foundation) will be purchased by the ESOP with funds loaned by the Company. The Company and the Bank intend to make annual contributions to the ESOP in an amount equal to the principal and interest requirement of the debt. Following consummation of the conversion, the Company intends to adopt a Stock Option Plan and a Recognition and Retention Plan, pursuant to which the Company intends to reserve a number of shares of Common Stock equal to an aggregate of 10% and 4%, respectively, of the Common Stock issued in the conversion for issuance pursuant to stock options and stock appreciation rights and stock. The Stock Option Plan and Recognition and Retention Plan will not be implemented prior to receipt of stockholder approval of the Plan. Upon consummation of the conversion, the Company and the Bank intend to enter into employment agreements with certain senior management personnel and change in control agreements with other key employees. Conversion costs will be deferred and reduce the proceeds from the shares sold in the conversion. If the conversion is not completed, all costs will be charged as an expense. As of June 30, 1998, approximately $59 conversion costs had been incurred. The conversion will not affect the terms of any loans held by borrowers of the Bank or the balances, interest rates, federal deposit insurance or maturities of deposit accounts at the Bank. 3. SUBSEQUENT EVENT - MERGER On July 31, 1998, Cohoes Savings Bank and SFS Bancorp, Inc. ("SFS"), parent of Schenectady Federal Savings Bank, executed an Agreement and Plan of Merger pursuant to which SFS will merge into a newly formed holding company of the Bank to be organized in connection with the Bank's conversion from a mutual to a stock institution. Under the terms of the agreement, each share of SFS will be exchanged for a number of shares of common stock of the holding company equal to the lesser of $26.50 divided by the initial public offering price of the holding company common stock or $35.00 divided by the average closing price of that stock for the first ten trading days. The transaction is expected to constitute a tax-free reorganization under the Internal Revenue Code, so that shareholders of SFS who receive holding company common stock will not recognize gain or loss in connection with the exchange. This merger will be accounted for as a pooling-of-interest transaction. Refer to footnote 18 for updated unaudited information. F-11 Consummation of the merger is subject to the approval of the shareholders of SFS, the conversion of the Bank and the receipt of all required regulatory approvals. The transaction is anticipated to close in the fourth quarter of 1998. 4. REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of June 30, 1998, that the Bank meets all capital adequacy requirements to which it is subject. As of June 30, 1998, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank's actual capital amounts and ratios are also presented in the following table:
To Be Well Capitalized For Capital Adequacy Under Prompt Corrective Actual Purposes Action Provisions ------ -------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 1998: Total capital (to risk weighted assets) $ 56,803 17.1% $ 26,601 greater than 8.0% $ 33,251 greater than 10.0% Tier 1 Capital (to risk weighted assets) 53,270 16.0 13,300 greater than 4.0 19,951 greater than 6.0 Tier 1 Capital (to average assets) 53,270 10.6 20,063 greater than 4.0 25,079 greater than 5.0
F-12
To Be Well Capitalized For Capital Adequacy Under Prompt Corrective Actual Purposes Action Provisions ------ -------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 1997: Total capital (to risk weighted assets) $ 52,288 16.4% $ 25,519 greater than 8.0% $ 31,898 greater than 10.0% Tier 1 Capital (to risk weighted assets) 49,183 15.4 12,759 greater than 4.0 19,139 greater than 6.0 Tier 1 Capital (to average assets) 49,183 10.1 19,455 greater than 4.0 24,319 greater than 5.0
To Be Well Capitalized For Capital Adequacy Under Prompt Corrective Actual Purposes Action Provisions ------ -------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 1996: Total capital (to risk weighted assets) $ 47,789 15.1% $ 25,310 greater than 8.0% $ 31,637 greater than 10.0% Tier 1 Capital (to risk weighted assets) 44,540 14.1 12,655 greater than 4.0 18,982 greater than 6.0 Tier 1 Capital (to average assets) 44,540 9.7 13,842 greater than 3.0 23,070 greater than 5.0
5. SECURITIES AVAILABLE FOR SALE The amortized cost of securities available for sale and their related estimated fair values at June 30, 1998 and 1997, are as follows:
June 30, 1998 ------------------------------------------------------------------ Gross Gross Unrealized Unrealized Estimated Fair Amortized Cost Gains Losses Value -------------- ----- ------ ----- Debt securities: U.S. Government and agencies ......... $ 23,296 $ - $ (59) $ 23,237 Other obligations .................... 271 5 - 276 Mortgage-backed securities ........... 16,855 91 - 16,946 Collateralized mortgage obligations .. 4,019 8 (24) 4,003 ------------- ------------- ------------- ------------- Total debt securities ...... 44,441 104 (83) 44,462 Equity securities .................... 4,260 - (2) 4,258 ------------- ------------- ------------- ------------- Total securities available for sale ................ $ 48,701 $ 104 $ (85) $ 48,720 ============= ============= ============= =============
F-13
June 30, 1997 ------------------------------------------------------------------- Gross Gross Unrealized Unrealized Estimated Fair Amortized Cost Gains Losses Value -------------- ----- ------ ----- Debt securities: U.S. Government and agencies ......... $ 18,551 $ 9 $ (123) $ 18,437 Other obligations .................... 488 7 (2) 493 Mortgage-backed securities ........... 6,724 38 - 6,762 Collateralized mortgage obligations .. 6,377 14 (89) 6,302 ------------- ------------- ------------- ------------- Total debt securities ...... 32,140 68 (214) 31,994 Equity securities .................... 3,481 - - 3,481 ------------- ------------- ------------- ------------- Total securities available for sale ................. $ 35,621 $ 68 $ (214) $ 35,475 ============= ============= ============= =============
The equity investment securities at June 30, 1998 and 1997 consist primarily of common stock of the Federal Home Loan Bank of New York. These securities are nonmarketable and are, therefore, stated at cost. A summary of maturities of debt securities available for sale at June 30, 1998 is as follows: Estimated Fair Amortized Cost Value -------------- ----- Within one year ...................... $ 179 $ 178 From one to five years ............... 42,654 42,669 After five years to ten years ........ 1,608 1,615 After ten years ...................... - - ------------- ------------- $ 44,441 $ 44,462 ============= ============= During the years ended June 30, 1998 and 1997, there were no sales of debt securities available for sale. During the year ended June 30, 1996, proceeds of sales of debt securities available for sale totaled $10,024. Gross gains of $34 and gross losses of $24 were realized on those sales. 6. INVESTMENT SECURITIES The carrying values of securities held for investment and their related estimated fair values at June 30, 1998 and 1997 are as follows:
June 30, 1998 ------------------------------------------------------------------- Gross Gross Unrealized Unrealized Estimated Fair Amortized Cost Gains Losses Value -------------- ----- ------ ----- Investment securities: U.S. Government and agencies ...... $ 22,025 $ 6 $ (32) $ 21,999 Other obligations ................. 388 1 - 389 Mortgage-backed securities ........ 23,011 153 (5) 23,159 ------------- ------------- ------------- ------------- Total investment securities $ 45,424 $ 160 $ (37) $ 45,547 ============= ============= ============= =============
F-14
June 30, 1997 ------------------------------------------------------------------ Gross Gross Unrealized Unrealized Estimated Fair Amortized Cost Gains Losses Value -------------- ----- ------ ----- Investment securities: U.S. Government and agencies ...... $ 6,049 $ 3 $ (52) $ 6,000 Other obligations ................. 848 - (2) 846 Mortgage-backed securities ........ 18,376 53 (89) 18,340 -------------- -------------- ----------- -------------- Total investment securities $ 25,273 $ 56 $ (143) $ 25,186 =============== ============== =========== ==============
A summary of maturities of debt securities held for investment at June 30, 1998 is as follows: Estimated Fair Amortized Cost Value -------------- -------------- Within one year ................... $ 682 $ 687 From one to five years ............ 32,723 32,801 After five years to ten years ..... 11,636 11,672 After ten years ................... 383 387 -------------- -------------- $ 45,424 $ 45,547 ============== ============== There were no sales of securities held for investment during the three years ended June 30, 1998. 7. NET LOANS RECEIVABLE A summary of loans at June 30, 1998 and 1997 is as follows: 1998 1997 ---- ---- Mortgage loans on real estate: Residential adjustable rate loans . $ 170,010 $ 222,255 Commercial real estate ............ 93,229 93,979 Residential fixed rate loans ...... 87,715 20,470 FHA and VA insured loans .......... 674 895 ----------- ----------- 351,628 337,599 ----------- ----------- Other loans: Conventional second mortgages ... 15,093 14,069 Home equity lines of credit ...... 21,976 25,205 Commercial business loans ........ 14,991 12,096 Home improvement loans ........... 547 662 Auto loans ....................... 9,783 9,290 Credit card loans ................ 1,655 2,152 Personal loans, secured and unsecured 409 576 Other loans ...................... 228 200 ------------ ------------ 64,682 64,250 ------------ ------------ Less: Deferred loan origination fees and costs (18) (214) Allowance for loan losses ......... (3,533) (3,105) ------------ ------------ Net loans ............... $ 412,759 $ 398,530 ============ ============ F-15 Changes in the allowance for loan losses for the years ended June 30, 1998 and 1997 were as follows: 1998 1997 1996 ---- ---- ---- Allowance for loan losses at beginning of year ................ $ 3,105 $ 3,249 $ 3,133 Provision charged to operations .. 1,400 1,325 490 Loans charged-off, net ........... (972) (1,469) (374) -------- -------- -------- Allowance for loan losses at year-end $ 3,533 $ 3,105 $ 3,249 ======== ======== ======== The following table sets forth the information with regard to nonperforming mortgage loans at June 30, 1998 and 1997: 1998 1997 ---- ---- Loans on nonaccrual status and in the process of foreclosure ............................... $ 2,545 $ 3,382 Loans on nonaccrual status but not in the process of foreclosure ............................... 997 1,063 Loans past due 90 days or more and still accruing interest ............................ - - Loans restructured as to payment terms and/or interest rates ............................... 1,929 1,906 ---------- ---------- Total nonperforming mortgage loans .. $ 5,471 $ 6,351 ========== ========== The following table sets forth the information with regard to nonperforming other loans at June 30, 1998 and 1997: 1998 1997 ---- ---- Nonaccrual loans .................................. $ 121 $ 295 Loans past due 90 days or more and still accruing interest ........................... 57 42 Loans restructured as to payment terms and/or interest rates .............................. - - --------- -------- Total nonperforming other loans ..... $ 178 $ 337 ======== ======== Accumulated interest income on nonaccrual loans of approximately $214, $262 and $441 was not recognized as income in the years ended June 30, 1998, 1997 and 1996, respectively. There are no commitments to extend further credit on nonperforming loans. F-16 As of June 30, 1998 and 1997, the Bank's recorded investment in impaired loans and the related valuation allowance calculated under SFAS No. 114 are as follows:
1998 1997 ------------------------------- -------------------------------- Recorded Valuation Recorded Valuation Investment Allowance Investment Allowance ---------- --------- ---------- --------- Valuation allowance required $ 1,638 $ 344 $ 1,261 $ 198 Valuation allowance not required 630 - 645 - -------------- -------------- -------------- ------------- $ 2,268 $ 344 $ 1,906 $ 198 ============== ============== ============== ==============
This allowance is included in the allowance for loan losses on the consolidated statements of financial condition. The average recorded investment in impaired loans for the years ended June 30, 1998 and 1997 was approximately $2,087 and $1,979, respectively. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining investment is doubtful in which case payments received are recorded as reductions of principal. The Bank recognized interest of $215, $185 and $189 on impaired loans for the years ended June 30, 1998, 1997 and 1996, respectively. Accumulated interest income on impaired loans of approximately $15, $18 and $19 was not recognized as income in the years ended June 30, 1998, 1997 and 1996, respectively. 8. ACCRUED INTEREST RECEIVABLE Accrued interest receivable consists of the following at June 30, 1998 and 1997: 1998 1997 ---- ---- Loans ................................ $ 2,531 $ 2,558 Investment securities and securities available for sale ............ 951 652 ------------ ------------ $ 3,482 $ 3,210 ============ ============ 9. BANK PREMISES AND EQUIPMENT Bank premises and equipment consist of the following at June 30, 1998 and 1997: 1998 1997 ---- ---- Land ................................... $ 1,529 $ 1,529 Building and leasehold improvements .... 6,553 6,335 Furniture, fixtures and equipment ...... 6,284 5,736 -------------- -------------- 14,366 13,600 Less- Accumulated depreciation ......... (7,063) (5,943) -------------- -------------- $ 7,303 $ 7,657 ============== ============== F-17 Amount charged to depreciation expense was $1,117, $1,101 and $1,015 for the years ended June 30, 1998, 1997 and 1996, respectively. 10. MORTGAGE SERVICING RIGHTS The following is a summary of the mortgage servicing rights activity during the years ended June 30, 1998 and 1997: 1998 1997 1996 Balance, beginning of year .................... $ 1,146 $ 1,211 $ 1,376 Mortgage servicing rights originated from unrelated third parties ................ 81 104 - Amortization of mortgage servicing rights included as a reduction of servicing fee income in the consolidated statements of operations ............................. (185) (169) (165) -------- -------- -------- Balance, end of year .......................... $ 1,042 $ 1,146 $ 1,211 ======== ======== ======== Serviced Loans The total loans serviced by the Bank for unrelated third parties were approximately $233.1 million, $256.9 million and $288.2 million at June 30, 1998, 1997 and 1996, respectively. 11. DUE TO DEPOSITORS Due to depositors account balances as of June 30, 1998 and 1997 are summarized as follows: Range of Interest Rate 1998 1997 ------------- ---- ---- Savings accounts 3.0%-5.5% $ 142,867 $ 137,790 Money market accounts 2.8-3.9 21,672 15,450 ----------------- ----------------- 164,539 153,240 Time deposits 3.8-8.5 231,049 230,306 Commercial deposits 0.0-1.8 15,957 11,250 Demand accounts 0.0-1.8 37,996 34,594 ----------------- ----------------- $ 449,541 $ 429,390 ================= ================= Time deposits over $100,000 amounted to approximately $31.1 million and $35.2 million at June 30, 1998 and 1997, respectively. F-18 The approximate amount of contractual maturities of time deposits for the years subsequent to June 30, 1998 is as follows: Years ending June 30: 1999 ........................ $ 159,550 2000 ........................ 50,043 2001 ........................ 7,983 2002 ........................ 5,064 2003 and thereafter ......... 8,409 ----------- $ 231,049 Interest expense on deposits for the years ended June 30, 1998, 1997 and 1996, is summarized as follows: 1998 1997 1996 ---- ---- ---- Savings accounts ...... $ 4,459 $ 4,359 $ 4,177 Money market accounts . 569 447 488 Time deposits ......... 13,484 12,487 12,830 Demand accounts ....... 304 275 246 --------------- --------------- --------------- $ 18,816 $ 17,568 $ 17,741 =============== =============== =============== 12. BORROWINGS Information concerning borrowings, which primarily consist of Federal Home Loan Bank ("FHLB") advances, for the years ended June 30, 1998, 1997 and 1996 is summarized as follows: 1998 1997 1996 ---- ---- ---- Average balance during the year $ 5,467 $ 2,392 $ 4,682 Average interest rate during the year 6.07% 5.56% 6.34% Maximum month-end balance during the year $ 19,983 $ 16,157 $ 13,213 Interest expense on borrowings $ 332 $ 133 $ 297 FHLB advances are made at fixed rates with remaining maturities of approximately ten years as of June 30, 1998. FHLB advances are collateralized by all FHLB stock owned by the Bank in addition to a blanket pledge of eligible assets in an amount required to be maintained so that the estimated fair value of such eligible assets exceeds, at all times, 110% of the outstanding advances. 13. EMPLOYEE BENEFITS 401(k) Retirement Savings Plan The Bank sponsors a 401(k) Retirement Savings Plan which is available to all full-time employees who have been employed by the Bank for a minimum of one year and are at least 21 years of age. The Plan allows employees to defer up to 15% of their salary on a pretax basis through contributions to the Retirement Savings Plan. The Bank matches 50% of employee contributions up to a maximum of 6% of the amount deferred by the employee. The maximum contribution an employee may make which is subject to matching by the Bank is set annually by the Board of Trustees. F-19 Employees may also make additional voluntary after-tax contributions to the Plan, which are not matched by the Bank, up to an additional 10% of the employee's salary. Total 401(k) Plan expenses for the years ended June 30, 1998, 1997 and 1996 were approximately $378, $319 and $285, respectively. Postretirement Medical and Life Insurance Benefits The Bank provides postretirement medical and life insurance benefits for full-time employees. All employees who meet the criteria for either normal or early retirement and have at least 10 years of service are eligible. Retired employees are required to contribute toward the cost of coverage as established by the Bank, based on medical and life insurance costs. Benefit and premium payments are made when they are due and are not funded in advance. The Bank's estimated accrued postretirement obligation at June 30, 1998 and 1997 is as follows: 1998 1997 ---- ---- Accrued postretirement obligation: Retired employees .................................. $ 530 $ 532 Fully eligible active employees .................... 72 67 Other active employees ............................. 114 96 -------- -------- 716 695 Unrecognized net gain from actual experience different from assumed, amortized over 12.3 years ................. 281 327 -------- -------- Total accrued postretirement obligation .. $ 997 $ 1,022 ======== ======== Net periodic postretirement benefit cost included the following components: 1998 1997 1996 ---- ---- ---- Service cost ............................ $ 12 $ 10 $ 19 Interest cost ........................... 49 48 64 Amortization of net gain from actual experience different from assumed ... (61) (58) (17) --------- --------- --------- $ - $ - $ 66 ======== ========= ========= The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% as of June 30, 1998 and 1997 and 7.75% as of June 30, 1996. For measurement purposes, the assumed health care cost trend rate of 10% decreases gradually until an ultimate trend rate of 5.5% is reached over 10 years. In accordance with the terms of the Postretirement Medical Benefit Plan, once costs are 150% of the 1993 level, additional increases become the responsibility of the retiree. F-20 The health care cost trend rate assumption has a significant effect on the amount of obligation and expense reported. To illustrate, increasing the health care trend rate by one percent each year would increase the accumulated postretirement benefit obligation as of June 30, 1998 and 1997 by approximately $2 and $2, respectively, and would have no material effect on the net periodic postretirement benefit cost for the three years ended June 30, 1998. 14. SURPLUS AND UNDIVIDED PROFITS In accordance with State of New York Banking Law, surplus is subject to certain restrictions, including a prohibition of its use for payment of dividends, except with the approval of the Superintendent of Banks. The balance in surplus includes approximately $5.2 million at December 31, 1997, the latest date from which this calculation is available, which has been designated as a reserve for bad debts under federal income tax regulations and has resulted in income tax deductions in prior years. Any use of this amount other than as provided for in those regulations would result in taxable income at the then current rate. 15. INCOME TAX EXPENSE The components of the income tax expense (benefit) are as follows: 1998 1997 1996 Current tax expense: Federal .................... $ 2,450 $ 2,440 $ 2,601 State ...................... 517 531 533 Deferred tax expense (benefit) . (317) 1 (252) ------------ ------------ ------------ $ 2,650 $ 2,972 $ 2,882 ============ ============ ============ The provision for income taxes differs from that computed at the federal statutory rate as follows: 1998 1997 1996 ---- ---- ---- Tax at federal statutory rate ...... $ 2,291 $ 2,589 $ 2,474 State taxes, net of federal benefit. 341 350 352 Other, net ......................... 18 33 56 ----------- ----------- ----------- Total income tax expense ... $ 2,650 $ 2,972 $ 2,882 =========== =========== =========== Effective rate ..................... 39.34% 39.03% 39.60% ===== ===== ===== F-21 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1998 and 1997 are presented below: 1998 1997 ---- ---- Deferred tax assets: Differences in reporting the provision for loan losses $ 1,519 $ 1,335 Differences in reporting certain accrued expenses .... 789 771 Other ................................................ 297 167 --------- --------- Total gross deferred tax assets ............ 2,605 2,273 --------- --------- Deferred tax liabilities: Differences in reporting the provision for loan losses 385 513 Deferred net loan origination fees ................... 218 92 Differences in reporting depreciation ................ 107 117 Differences in reporting certain accrued expenses .... 296 269 Other ................................................ 4 4 --------- --------- Total gross deferred tax liabilities ....... 1,010 995 --------- --------- Net deferred tax asset at end of year ...... 1,595 1,278 Net deferred tax asset at beginning of year .............. 1,278 1,279 --------- --------- Deferred tax expense (benefit) for the year $ (317) $ 1 ========= ========= The total deferred tax asset as of June 30, 1998 and 1997 is considered by the Bank to be more likely than not realizable based upon the historical level of taxable income in the prior years as well as the time period during which the items giving rise to the deferred tax assets are expected to turn around. In addition to the deferred tax assets and liabilities described above, the Bank also has a deferred tax liability of approximately $19 and a deferred tax asset of approximately $146 at June 30, 1998 and 1997, respectively, related to the net unrealized gain (loss) on securities available for sale. Under Section 593 of the Internal Revenue Code, thrift institutions such as the Bank which met certain definitional tests, primarily relating to their assets and the nature of their business, were permitted to establish a tax reserve for bad debts and to make annual additions thereto, which additions may, within specified limitations, be deducted in arriving at their taxable income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, could have been computed using an amount based on the Bank's actual loss experience (the "Experience Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI Method"), computed without regard to this deduction and with additional modifications and reduced by the amount of any permitted addition to the nonqualifying reserve. Similar deductions or additions to the Bank's bad debt reserve are permitted under the New York State Bank Franchise Tax; however, for purposes of these taxes, the effective allowable percentage under the PTI Method is approximately 32% rather than 8%. Effective January 1, 1997, Section 593 was amended, and the Bank is unable to make additions to its tax bad debt reserve, is permitted to deduct bad debts only as they occur and is additionally required to recapture (that is, take into taxable income) over a multiyear period, beginning with the Bank's taxable year beginning on January 1, 1997, the excess of the balance of its bad debt reserves as of December 31, 1995 over the balance of such reserves as of December 31, 1987, or over a lesser amount if the Bank's loan portfolio has decreased since December 31, 1987. Such recapture requirements would be deferred for each of the two successive taxable years beginning January 1, 1997, in which the Bank originates a minimum amount of certain residential loans based upon the average of the principal amounts of such loans originated by the Bank during its six taxable years preceding January 1, 1997. This amendment has no impact on the Bank's results of operations for federal income tax purposes. The New York State tax law has been amended to prevent a similar recapture of the Bank's bad debt reserve, and to permit continued future use of the bad debt reserve method for purposes of determining the Bank's New York State tax liability. F-22 In addition, the Bank has accumulated bad debt reserves for tax purposes of $3.7 million under Section 593 through December 31, 1987 for which no deferred taxes have been provided. Under the tax laws as amended, the event that would result in taxation of these reserves is the failure of the Bank to maintain a specified qualifying-assets ratio or meet other thrift definition tests for New York State tax purposes. 16. COMMITMENTS AND CONTINGENT LIABILITIES Off-Balance Sheet Financing and Concentrations of Credit The 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 the Bank's commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated statements of financial condition. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank's exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Unless otherwise noted, the Bank does not require collateral or other security to support financial instruments with credit risk. Contract amounts of financial instruments that represent credit risk as of June 30, 1998 and 1997 at fixed and variable interest rates are as follows:
1998 -------------------------------------------- Fixed Variable Total ----- -------- ----- Financial instruments whose contract amounts represent credit risk (including unused lines of credit and unadvanced funds): Commercial business loans ......................... $ - $ 14,897 $ 14,897 Conventional mortgages ............................ 11,971 1,338 13,309 Commercial mortgage loans ......................... - 11,991 11,991 Construction loans ................................ - 890 890 Credit card loans ................................. - 2,996 2,996 Consumer loans .................................... 203 12,886 13,089 ------------- ------------- ------------- $ 12,174 $ 44,998 $ 57,172 ============= ============= =============
F-23
1997 -------------------------------------------------- Fixed Variable Total ----- -------- ----- Financial instruments whose contract amounts represent credit risk (including unused lines of credit and unadvanced funds): Commercial business loans ......................... $ - $ 10,172 $ 10,172 Conventional mortgages ............................ 1,531 4,315 5,846 Commercial mortgage loans ......................... - 4,622 4,622 Construction loans ................................ - 830 830 Credit card loans ................................. - 3,300 3,300 Consumer loans .................................... 393 12,438 12,831 ---------------- ------------- ------------- $ 1,924 $ 35,677 $ 37,601 ============= ============= =============
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 certain commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral, if any, required by the Bank upon the extension of credit is based on management's credit evaluation of the customer. Mortgage and construction loan commitments are secured by a first lien on real estate. Commitments to extend credit may be written on a fixed rate basis, thus exposing the Bank to interest rate risk, given the possibility that market rates may change between commitment and actual extension of credit. Certain mortgage loans are written on an adjustable basis and include interest rate caps which limit annual and lifetime increases in the interest rates on such loans. Generally, adjustable rate mortgages have an annual rate increase cap of 2% and lifetime rate increase cap of 4.5% to 6.75%. These caps expose the Bank to interest rate risk should market rates increase above these limits. As of June 30, 1998 and 1997, $221.0 million and $262.4 million, respectively, of mortgage loans had interest rate caps. The Bank generally enters into rate lock agreements at the time that loan applications are made. These rate lock agreements fix the interest rate at which the loan, if ultimately made, will be originated. Such agreements may exist with borrowers with whom commitments to extend credit have been made, as well as with individuals who have not yet received a commitment. At June 30, 1998 and 1997, the Bank had rate lock agreements related to commitments to extend credit as well as uncommitted loan applications amounting to approximately $841 and $900, respectively. In order to reduce the interest rate risk associated with these items as well as its portfolio of loans held for sale, the Bank enters into agreements to sell loans in the secondary market to unrelated investors. At June 30, 1998 and 1997, the Bank has $0 and $175, respectively, of commitments to sell loans to unrelated investors. Concentrations of Credit The Bank primarily grants consumer and residential loans to customers located in the New York State counties of Albany, Rensselaer, Schenectady and Saratoga. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts are dependent upon the real estate and construction-related sectors of the economy. F-24 Borrowing Arrangements The Bank has lines of credit available with a correspondent bank totaling approximately $49.2 million. These lines of credit expire on October 28, 1998. As of June 30, 1998, there was no outstanding balances on these lines. Leases The Bank leases certain branches, equipment and automobiles under various noncancelable operating leases. The future minimum payments by year and the aggregate, under all significant noncancelable operating leases with initial or remaining terms of one year or more, are as follows: Operating Leases ------ Year ending June 30: 1999 ........................... $ 395 2000 ........................... 413 2001 ........................... 341 2002 ........................... 248 2003 and thereafter ............ 127 ----------- $ 1,524 =========== Total lease expense was approximately $383, $298 and $176 for the years ended June 30, 1998, 1997 and 1996, respectively. Contingent Liabilities In the ordinary course of business, there are various legal proceedings pending against the Bank. Based on consultation with outside counsel, management considers that the aggregate exposure, if any, arising from such litigation would not have a material adverse effect on the Bank's statement of financial condition. 17. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures About the Fair Value of Financial Instruments," requires that the Bank disclose estimated fair values for financial instruments. Fair value estimates, methods and assumptions are set forth below. 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 Bank's entire holdings of a particular financial instrument. The fair value estimates of a significant portion of the Bank's financial instruments were based on judgments regarding future expected net cash flow, current economic conditions, risk characteristics of various financial instruments and other factors. These F-25 estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. 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 estimate of fair value under SFAS No. 107. Short-Term Financial Instruments The fair value of certain financial instruments is estimated to approximate their carrying values because the remaining term to maturity of the financial instruments is less than 90 days or the financial instrument reprices in 90 days or less. Such financial instruments include cash and due from banks, federal funds sold, interest-bearing deposits with banks and accrued interest receivable. Securities Available for Sale and Investment Securities Fair values are based upon market prices. If a quoted market price is not available for a particular security, the fair value is determined by reference to quoted market prices for securities with similar characteristics. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including residential real estate, commercial real estate and other consumer loans. The estimated fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the respective loan portfolio. Estimated fair value for nonperforming loans is based on estimated cash flows 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. Management has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the estimated fair value would be indicative of the value negotiated in an actual sale. Loans Held for Sale The estimated fair value of loans held for sale is calculated by either using quoted market rates or, in the case where a firm commitment has been made to sell the loan, the firm committed price was used. At June 30, 1998 and 1997, the estimated fair value of loans held for sale approximated their book value. F-26 Deposit Liabilities The estimated fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and money market accounts, is regarded to be the amount payable on demand as of June 30, 1998 and 1997. The estimated fair value of time deposits 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 for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities as compared to the cost of borrowing funds in the market. Borrowings The estimated fair value of FHLB borrowings is based on the discounted value of their contractual cash flows. The discount rate used in the present value computation is estimated by comparison to the current interest rates charged by the FHLB for advances of similar remaining maturities. Table of Financial Instruments The carrying values and estimated fair values of financial instruments as of June 30, 1998 and 1997 are as follows:
1998 1997 ---------------------------------- ----------------------------------- Estimated Fair Estimated Fair Carrying Value Value Carrying Value Value -------------- ----- -------------- ----- Financial assets: Cash and cash equivalents ............ $ 14,229 $ 14,229 $ 16,664 $ 16,664 Mortgage loans held for sale ......... 38 38 175 175 Securities available for sale ........ 48,720 48,720 35,475 35,475 Investment securities ................ 45,424 45,547 25,273 25,186 Loans ................................ 416,292 425,774 401,635 401,855 Less- Allowance for loan losses ... (3,533) - (3,105) - --------------- --------------- --------------- -------------- Net loans receivable ....... 412,759 425,774 398,530 401,855 --------------- --------------- --------------- --------------- Accrued interest receivable .............. 3,482 3,482 3,210 3,210
F-27
1998 1997 ---------------------------------- ----------------------------------- Estimated Fair Estimated Fair Carrying Value Value Carrying Value Value -------------- ----- -------------- ----- Financial liabilities: Due to depositors- Demand, savings and money market accounts ........................ $ 218,492 $ 218,492 $ 199,084 $ 199,084 Time deposits ...................... 231,049 246,220 230,306 231,081 Mortgagors' escrow deposits ........ 8,994 8,994 9,062 9,062 Borrowings ......................... 19,897 18,858 - -
Commitments to Extend Credit, Unused Lines of Credit and Standby Letters of Credit The fair value of commitments to extend credit, unused lines of credit and standby letters of 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 commitments to extend credit and unused lines of credit, fair value also considers the difference between current levels of interest rates and the committed rates. Based upon the estimated fair value of commitments to extend credit and unused lines of credit, there are no significant unrealized gains or losses associated with these financial instruments. 18. MERGER TERMINATION (UNAUDITED) On October 23, 1998, Cohoes Savings Bank and SFS terminated the merger. In connection with the termination Cohoes Savings Bank paid an agreed-upon breakup fee of $2.0 million. F-28 ================================================================================ No person has been authorized to give any information or to make any representation other than as contained in this Prospectus in connection with the offering made hereby, and, if given or made, such other information or representation must not be relied upon as having been authorized by the Holding Company or the Bank. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Holding Company or the Bank since any of the dates as of which information is furnished herein or since the date hereof. TABLE OF CONTENTS Page ---- Summary................................................... Selected Consolidated Financial and Other Data of Cohoes Savings Bank...................... Risk Factors.............................................. Cohoes Bancorp, Inc....................................... Cohoes Savings Bank....................................... Use of Proceeds........................................... Dividends................................................. Market for Common Stock................................... Regulatory Capital........................................ Capitalization............................................ Pro Forma Data ........................................... Comparison of Valuation and Pro Forma Information With No Foundation .................................... Management's Discussion and Analysis of Financial Condition and Results of Operations of Cohoes Savings ..................................... Business of the Holding Company........................... Business of the Bank...................................... Regulation................................................ Taxation.................................................. Management of the Holding Company......................... Management of the Bank.................................... The Conversion ........................................... The Offering.............................................. Restrictions on Acquisitions of the Holding Company and the Bank........................................... Description of Capital Stock of the Holding Company....... Description of Capital Stock of the Bank.................. Experts................................................... Legal and Tax Opinions.................................... Additional Information.................................... Glossary.................................................. Index to Consolidated Financial Statements................ Until the later of __________________, 1998 or 25 days after commencement of the offering of Holding Company Common Stock, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution Set forth below is an estimate of the amount of fees and expenses (other than underwriting discounts and commissions) to be incurred in connection with the issuance of the shares. SEC registration fees................................................. 37,698 NASD fee.............................................................. 18,841 Nasdaq registration fee............................................... 84,875 New York State Banking Department filing fee.......................... 5,000 Counsel fees and expenses............................................. 200,000 Accounting fees and expenses.......................................... 100,000 Appraisal and business plan fees and expenses......................... 70,000 Conversion agent fees and expenses.................................... 30,000 Marketing agent's expenses............................................ 50,000 Marketing agent's fees (1)............................................ 826,000 Printing, postage and mailing......................................... 360,000 Blue sky fees and expenses............................................ 10,000 Other expenses........................................................ 33,586 --------- TOTAL............................................................ 1,826,000 - ---------- (1) Based on maximum of Estimated Valuation Range and assumptions set forth under "Pro Forma Data" in the Prospectus. Item 14. Indemnification of Directors and Officers Article ELEVENTH of the Holding Company's Certificate of Incorporation provides for indemnification of directors and officers of the Holding Company against any and all liabilities, judgments, fines and reasonable settlements, costs, expenses and attorneys' fees incurred in any actual, threatened or potential proceeding, except to the extent that such indemnification is limited by Delaware law and such law cannot be varied by contract or bylaw. Article ELEVENTH also provides for the authority to purchase insurance with respect thereto. Section 145 of the General Corporation Law of the State of Delaware authorizes a corporation's Board of Directors to grant indemnity under certain circumstances to directors and officers, when made, or threatened to be made, parties to certain proceedings by reason of such status with the corporation, against judgments, fines, settlements and expenses, including attorneys' fees. In addition, under certain circumstances such persons may be indemnified against II-1 expenses actually and reasonably incurred in defense of a proceeding by or on behalf of the corporation. Similarly, the corporation, under certain circumstances, is authorized to indemnify directors and officers of other corporations or enterprises who are serving as such at the request of the corporation, when such persons are made, or threatened to be made, parties to certain proceedings by reason of such status, against judgments, fines, settlements and expenses, including attorneys' fees; and under certain circumstances, such persons may be indemnified against expenses actually and reasonably incurred in connection with the defense or settlement of a proceeding by or in the right of such other corporation or enterprise. Indemnification is permitted where such person (i) was acting in good faith; (ii) was acting in a manner he reasonably believed to be in or not opposed to the best interests of the corporation or other corporation or enterprise, as appropriate; (iii) with respect to a criminal proceeding, has no reasonable cause to believe his conduct was unlawful; and (iv) was not adjudged to be liable to the corporation or other corporation or enterprise (unless the court where the proceeding was brought determines that such person is fairly and reasonably entitled to indemnity). Unless ordered by a court, indemnification may be made only following a determination that such indemnification is permissible because the person being indemnified has met the requisite standard of conduct. Such determination may be made (i) by the Board of Directors of the Holding Company by a majority vote of a quorum consisting of directors not at the time parties to such proceeding; or (ii) if such a quorum cannot be obtained or the quorum so directs, then by independent legal counsel in a written opinion; or (iii) by the stockholders. Section 145 also permits expenses incurred by directors and officers in defending a proceeding to be paid by the corporation in advance of the final disposition of such proceedings upon the receipt of an undertaking by the director or officer to repay such amount if it is ultimately determined that he is not entitled to be indemnified by the corporation against such expenses. Item 15. Recent Sales of Unregistered Securities The Registrant is newly incorporated, solely for the purpose of acting as the holding company of Cohoes Savings Bank pursuant to the Plan of Conversion (filed as Exhibit 2 herein), and no sales of its securities have occurred to date. II-2 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits: 1.1 Letter Agreement regarding marketing and consulting services* 1.2 Form of Agency Agreement 2.1 Plan of Conversion* 3.1 Certificate of Incorporation of the Holding Company* 3.2 Bylaws of the Holding Company* 3.3 Restated Organization Certificate of Cohoes Savings Bank in stock form* 3.4 Bylaws of Cohoes Savings Bank in stock form* 4 Form of Stock Certificate of the Holding Company* 5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of stock 8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax consequences of the Conversion 8.2 Opinion of Wertime, Ries and Van Ullen, P.C. with respect to New York income tax consequences of the Conversion 8.3 Letter of RP Financial LC. with respect to Subscription Rights* 10.1 Form of proposed Employment Agreement between Cohoes Savings Bank and certain executive officers* 10.2 Form of proposed Employment Agreement between Cohoes Bancorp, Inc. and certain executive officers* 10.3 Form of Change-In-Control Severance Agreement with certain officers of Cohoes Savings Bank* 10.4 Cohoes Savings Bank Employee Severance Compensation Plan* 10.5 Employee Stock Ownership Plan* 10.6 Form of Cohoes Savings Bank 401(k) Savings Plan 10.7 Benefit Restoration Plan* 10.8 Stock Option and Incentive Plan 10.9 Recognition and Retention Plan* 21 Subsidiaries of Cohoes Bancorp, Inc.* 23.1 Consent of Silver, Freedman & Taff, L.L.P. 23.2 Consent of Arthur Andersen 23.3 Consent of RP Financial* 23.4 Conset of Wertime, Ries and Van Ullen, P.C. 24 Power of Attorney (set forth on signature page) 27 Financial Data Schedule* 99.1 Appraisal and Appraisal Update** 99.2 Draft of Cohoes Savings Bank Foundation Gift Instrument* 99.3 Marketing Materials 99.4 Stock Order Form 99.6 Form of Proxy Statement and Proxy Card * Previously filed. ** Exempt under rule 202 of Regulation S-T. II-3 Item 17. Undertakings The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and it will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant II-4 to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Cohoes, New York on September 14, 1998. COHOES BANCORP, INC. By: /s/ Harry L. Robinson -------------------------------- Harry L. Robinson, President and Chief Executive Officer (Duly Authorized Representative) KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Harry L. Robinson his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. /s/ Harry L. Robinson /s/ Duncan S. Mac Affer - -------------------------------------- ----------------------------- Harry L. Robinson, Director, President Duncan S. Mac Affer, Director and Chief Executive Officer (Principal Executive and Operating Officer) Date: October 30, 1998 Date: October 30, 1998 ------------------------------------- ----------------------- II-6 /s/ Arthur E. Bowen /s/ Walter H. Speidel - ----------------------------- ----------------------------- Arthur E. Bowen, Director Walter H. Speidel, Director Date: October 30, 1998 Date: October 30, 1998 ----------------------- ----------------------- /s/ Donald A. Wilson /s/ Frederick G. Field, Jr. - ----------------------------- ----------------------------- Donald A. Wilson, Director Frederick G. Field, Jr., Director Date: October 30, 1998 Date: October 30, 1998 ----------------------- ----------------------- /s/ R. Douglas Paton /s/ J. Timothy O'Hearn - ----------------------------- ----------------------------- R. Douglas Paton, Director J. Timothy O'Hearn, Director Date: October 30, 1998 Date: October 30, 1998 ----------------------- ----------------------- /s/ Chester C. DeLaMater /s/ Peter G. Casabonne - ----------------------------- ----------------------------- Chester C. DeLaMater, Director Peter G. Casabonne, Director Date: October 30, 1998 Date: October 30, 1998 ----------------------- ----------------------- /s/ Michael L. Crotty /s/ Richard A. Ahl - ----------------------------- ----------------------------- Michael L. Crotty, Director Richard Ahl, Chief Financial Officer (Principal Financial and Accounting Officer) Date: October 30, 1998 Date: October 30, 1998 ----------------------- ----------------------- II-7 As filed with the Securities and Exchange Commission on October 30, 1998 Registration No.333-63539 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------- EXHIBITS TO AMENDMENT NO. ONE TO FORM S-1 UNDER THE SECURITIES ACT OF 1933 -------------------- COHOES BANCORP, INC. 75 Remsen Street Cohoes, New York 12047 ================================================================================ EXHIBIT INDEX 1.1 Letter Agreement regarding marketing and consulting services* 1.2 Form of Agency Agreement 2.1 Plan of Conversion* 3.1 Certificate of Incorporation of the Holding Company* 3.2 Bylaws of the Holding Company* 3.3 Restated Organization Certificate of Cohoes Savings Bank in stock form* 3.4 Bylaws of Cohoes Savings Bank in stock form* 4 Form of Stock Certificate of the Holding Company* 5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of stock 8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax consequences of the Conversion 8.2 Opinion of Wertime, Ries and Van Ullen, P.C. with respect to New York income tax consequences of the Conversion 8.3 Letter of RP Financial LC. with respect to Subscription Rights* 10.1 Form of proposed Employment Agreement between Cohoes Savings Bank and certain executive officers* 10.2 Form of proposed Employment Agreement between Cohoes Bancorp, Inc. and certain executive officers* 10.3 Form of Change-In-Control Severance Agreement with certain officers of Cohoes Savings Bank* 10.4 Cohoes Savings Bank Employee Severance Compensation Plan* 10.5 Employee Stock Ownership Plan* 10.6 Form of Cohoes Savings Bank 401(k) Savings Plan 10.7 Benefit Restoration Plan* 10.8 Stock Option and Incentive Plan 10.9 Recognition and Retention Plan* 21 Subsidiaries of Cohoes Bancorp, Inc.* 23.1 Consent of Silver, Freedman & Taff, L.L.P. 23.2 Consent of Arthur Andersen 23.3 Consent of RP Financial* 23.4 Consent of Wertime, Ries and Van Ullen, P.C. 24 Power of Attorney (set forth on signature page)* 27 Financial Data Schedule* 99.1 Appraisal and Appraisal Update** 99.2 Draft of Cohoes Savings Bank Foundation Gift Instrument* 99.3 Marketing Materials 99.4 Stock Order Form 99.5 Form of Proxy Statement and Proxy Card - ---------- * Previously filed. ** Exempt under Rule 202 of Regulation S-T. EX-1 2 EXHIBIT 1.2 Exhibit 1.2 Form of Agency Agreement Exhibit 1.2 COHOES BANCORP, INC. 8,050,000 Shares COMMON STOCK (Par Value $.01 Per Share) Subscription Price $10.00 Per Share AGENCY AGREEMENT , 1998 Keefe, Bruyette & Woods, Inc. 211 Bradenton Drive Dublin, Ohio 43017-5034 Ladies and Gentlemen: Cohoes Bancorp, Inc., a Delaware corporation (the "Company") and Cohoes Savings Bank., a New York state chartered mutual savings bank (the "Bank", references to which include the Bank in the mutual or stock form, as indicated by the context), with its deposit accounts insured by the Bank Insurance Fund ("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC")), hereby confirm their agreement with Keefe, Bruyette & Woods, Inc. ("KBW" or "the Agent"), as follows: Section 1. The Offering. The Bank, in accordance with its plan of conversion adopted by its Board of Trustees (the "Plan"), intends to convert from a New York State chartered mutual savings bank to a New York State chartered stock savings bank, and will issue all of its issued and outstanding capital stock to the Company. In addition, pursuant to the Plan, the Company will offer and sell up to 8,050,000 shares of its common stock, par value, $.01 per share (the "Shares" or "Common Shares"), in a subscription offering (the "Subscription Offering") to (1) depositors of the Bank with Qualifying Deposits (as defined in the Bank's Plan) as of March 31, 1997 ("Eligible Account Holders"), (2) the Tax-Qualified Employee Plans, as defined in the Plan ("Employee Plans"), and (3) depositors of the Bank with Qualifying Deposits as of September 30, 1998 ("Supplemental Eligible Account Holders"). Subject to the prior subscription rights of the above-listed parties, the Company may offer for sale in a community offering (the "Community Offering" and when referred to together with the Subscription Offering, the "Subscription and Community Offering") conducted concurrently with or subsequent to the Subscription Offering, the Shares not so subscribed for or ordered in the Subscription Offering to members of the general public to whom a copy of the Prospectus (as hereinafter defined) is delivered ("Other Subscribers"), with a preference given to natural persons who reside in the Bank's local community which includes Albany, Saratoga, Schenectady and Rensselaer Counties and a portion of Warren County in New York (all such offerees being referred to in the aggregate as "Eligible Offerees"). It is anticipated that shares not subscribed for in the Subscription and Community Offering will be offered to certain members of the general public on a best efforts basis through a selected dealers arrangement (the "Syndicated Community Offering") (the Subscription Offering, Community Offering and Syndicated Community Offering are collectively referred to as the "Offering"). It is acknowledged that the purchase of Shares in the Offering is subject to the maximum and minimum purchase limitations as described in the Plan and that the Company and the Bank may reject, in whole or in part, any orders received in the Community Offering or Syndicated Community Offering. Collectively, these transactions are referred to herein as the "Conversion." The shares will be sold in the Offering for a purchase price of $10.00 per Share (the "Purchase Price). In connection with the Conversion and pursuant to the terms of the Plan as described in the Prospectus (as defined below), immediately following the consummation of the Conversion, subject to the approval of the depositors of the Bank and compliance with certain conditions as may be imposed by regulatory authorities, the Company will contribute to the Cohoes Savings Foundation, a charitable foundation (the "Foundation") a number of shares equal to 3% of the Shares sold in the Offering, or between 178,500 and 241,500 Shares (subject to increase in certain circumstances to 277,725 Shares). Such Shares are hereinafter referred to as the "Foundation Shares." The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (File No. 333-63539) (the "Registration Statement") containing a prospectus relating to the Offering for the registration of the Shares and the Foundation Shares under the Securities Act of 1933 (the "1933 Act"), and has filed such amendments thereof and such amended prospectuses as may have been required to the date hereof. The term "Registration Statement" shall include all exhibits thereto, as amended, including post-effective amendments. The prospectus, as amended, on file with the Commission at the time the Registration Statement initially became effective is hereinafter called the "Prospectus," except that if any Prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") differing from the prospectus on file at the time the Registration Statement initially becomes effective, the term "Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c) from and after the time said prospectus is filed with the Commission. In accordance with Part 86 of the General Regulations of the Banking Board of the State of New York (the "Banking Board") and the rules and regulations of the Federal Deposit Insurance Corporation ("FDIC") governing the conversion of New York State chartered mutual savings banks to New York State chartered stock savings banks (the "Conversion Regulations"), the Bank has filed with the Superintendent of Banks (the "Superintendent") of the New York State Banking Department (the "Banking Department") an Application for Conversion on Form 86-AC (the "Conversion Application"), including the Prospectus, the Bank's Proxy Statement dated _____, 1998 for the solicitation of proxies from depositors for the special meeting to approve the Plan ("Proxy Statement") and the Conversion Valuation Appraisal Report prepared by RP Financial, LC (the 2 "Appraisal") and has filed such amendments thereto as may have been required by the Banking Department. The Conversion Application has been approved by the Superintendent, including the Proxy Statement and Prospectus, and the waiver of certain provisions of regulations specified in such approval with respect to the establishment of and contribution of the Foundation Shares to the Foundation and with respect to the differences between the Conversion Regulations and FDIC policy. The FDIC has issued a letter of intent not to object to the Conversion Application. In addition, the Company has filed with the Office of Thrift Supervision ("OTS") an application for approval of its acquisition of the Bank on Form [H-(e)1-S] (the "Holding Company Application") to become a registered savings and loan holding company under the Home Owners' Loan Act as amended ("HOLA") and the regulations promulgated thereunder, and such application has been approved. Section 2. Retention of Agent; Compensation; Sale and Delivery of the Shares. Subject to the terms and conditions herein set forth, the Company and the Bank hereby appoint the Agent as their exclusive financial advisor and marketing agent (i) to utilize its best efforts to solicit subscriptions for Shares of the Company's Common Stock and to advise and assist the Company and the Bank with respect to the Company's sale of the Shares in the Offering and (ii) to participate in the Offering in the areas of market making, research coverage and in syndicate formation (if necessary). On the basis of the representations, warranties, and agreements herein contained, but subject to the terms and conditions herein set forth, the Agent accepts such appointment and agrees to consult with and advise the Company and the Bank as to the matters set forth in the letter agreement ("Letter Agreement"), dated June 8, 1998 between the Bank and KBW (a copy of which is attached hereto as Exhibit A). It is acknowledged by the Company and the Bank that the Agent shall not be required to purchase any Shares or be obligated to take any action which is inconsistent with all applicable laws, regulations, decisions or orders. The obligations of the Agent pursuant to this Agreement (other than those set forth in Sections 8 and 9 hereof) shall terminate upon the completion or termination or abandonment of the Plan by the Company or upon termination of the Offering, but in no event later than the date (the "End Date") which is 45 days after the Closing Date (as hereinafter defined). All fees or expenses due to the Agent but unpaid will be payable to the Agent in next day funds at the earlier of the Closing Date (as hereinafter defined) or the End Date. In the event the Offering is extended beyond the End Date, the Company, the Bank and the Agent may agree to renew this Agreement under mutually acceptable terms. In the event the Company is unable to sell a minimum of 5,950,000 Shares (or such lesser amount approved by the Superintendent and the FDIC) within the period herein provided, this Agreement shall terminate and the Company shall refund to any persons who have subscribed for any of the Shares, the full amount which it may have received from them plus accrued interest as set 3 forth in the Prospectus; and none of the parties to this Agreement shall have any obligation to the other parties hereunder, except as set forth in this Section 2 and in Sections 6, 8 and 9 hereof. In the event the Offering is terminated, the Agent shall be reimbursed for its actual accountable out-of-pocket expenses (including its counsel's fees) due to the date of such termination pursuant to this section. If all conditions precedent to the consummation of the Conversion, including, without limitation, the sale of all Shares required by the Plan to be sold, are satisfied, the Company agrees to issue, or have issued, the Shares sold in the Offering and to release for delivery certificates for such Shares on the Closing Date (as hereinafter defined) against payment to the Company by any means authorized by the Plan; provided, however, that no funds shall be released to the Company until the conditions specified in Section 7 hereof shall have been complied with to the reasonable satisfaction of the Agent and its counsel. The release of Shares against payment therefor shall be made on a date and at a place acceptable to the Company, the Bank and the Agent. Certificates for shares shall be delivered directly to the purchasers in accordance with their directions. The date upon which the Company shall release or deliver the Shares sold in the Offering, in accordance with the terms herein, is called the "Closing Date." The Agent shall receive the following compensation for its services hereunder: (a) A management fee of $40,000 payable in four consecutive monthly installments of $10,000 (previous receipt of which is hereby acknowledged). Such fees shall be deemed to have been earned when due. Should the Conversion be terminated for any reason not attributable to the action or inaction of the Agent, the Agent shall have earned and be entitled to be paid fees accruing through the stage at which the termination occurred. (b) A Success Fee of 1.20% of the aggregate Purchase Price of Common Shares sold in the Offering (excluding shares purchased by the Bank's officers, directors, or employees (or members of their immediate families) plus any employee plans, tax-qualified or stock based compensation plans (except IRA's) or similar plan created by the Bank for some or all of its directors or employees. The management fee described in (a) above will be applied against the Success Fee. (c) If any of the Shares remain available after the Subscription Offering, at the request of the Bank, KBW will seek to form a syndicate of registered broker-dealers to assist in the sale of such Common Shares on a best efforts basis, subject to the terms and conditions set forth in the selected dealers agreement. KBW will endeavor to distribute the Common Shares among dealers in a fashion which best meets the distribution objectives of the Bank and the Plan. KBW will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of the Shares sold in the Syndicated Community Offering. KBW will pass onto selected broker-dealers, who assist in the Syndicated Community offering, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market 4 environment. Fees with respect to purchases effected with the assistance of a broker/dealer other than KBW shall be transmitted by KBW to such broker/dealer. The decision to utilize selected broker-dealers will be made by the Bank upon consultation with KBW. In the event, with respect to any purchases of Shares, fees are paid pursuant to this subparagraph 2(c), such fees shall be in lieu of, and not in addition to, payment pursuant to subparagraph 2(a) and 2(b). (d) The Bank and the Company hereby agree to reimburse the Agent, from time to time upon the Agent's request, for its reasonable out-of-pocket expenses, which the Agent shall document, including, without limitation, legal fees up to a maximum aggregate amount of $75,000. The Bank will bear the expenses of the Offering customarily borne by issuers including, without limitation, Banking Department, FDIC, SEC, OTS, "Blue Sky," and NASD filings and registration fees; the fees of the Bank's accountants, conversion agent, attorneys, appraiser, transfer agent and registrar, printing, mailing and marketing expenses associated with the Conversion; and the fees set forth under this Section 2. Full payment of Agent's actual and accountable expenses, advisory fees and compensation shall be made in next day funds on the earlier of the Closing Date or a determination by the Bank to terminate or abandon the Plan. Section 3. Prospectus; Offering. The Shares are to be initially offered in the Offering at the Purchase Price as defined and set forth on the cover page of the Prospectus. Section 4. Representations and Warranties of the Company and the Bank. The Company and the Bank jointly and severally represent and warrant to and agree with the Agent as follows: (a) The Registration Statement which was prepared by the Company and the Bank and filed with the Commission was declared effective by the Commission on November ___, 1998. At the time the Registration Statement, including the Prospectus contained therein (including any amendment or supplement), became effective, the Registration Statement contained all statements that were required to be stated therein in accordance with the 1933 Act and the 1933 Act Regulations, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and the Registration Statement, including the Prospectus contained therein (including any amendment or supplement thereto), and any information regarding the Company or the Bank contained in Sales Information (as such term is defined in Section 8 hereof) authorized by the Company or the Bank for use in connection with the Offering, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and at the time any Rule 424(b) or (c) Prospectus was filed with the Commission and at the Closing Date referred to in Section 2, the Registration Statement, including the Prospectus contained therein (including any amendment or supplement thereto), and any information regarding the Company or the Bank contained in Sales Information (as such term is defined in Section 8 5 hereof) authorized by the Company or the Bank for use in connection with the Offering will contain all statements that are required to be stated therein in accordance with the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this Section 4(a) shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Bank by the Agent or its counsel expressly regarding the Agent for use in the Prospectus under the caption "The Offering - Marketing and Underwriting Arrangements" or statements in or omissions from any Sales Information or information filed pursuant to state securities or blue sky laws or regulations regarding the Agent. (b) The Conversion Application which was prepared by the Company and the Bank and filed with the Banking Department and the FDIC and was approved by the Superintendent on __________, 1998 and the related Prospectus and Proxy Statement has been authorized for use by the Superintendent. At the time of the approval of the Conversion Application, including the Prospectus (including any amendment or supplement thereto), by the Superintendent and at all times subsequent thereto until the Closing Date, the Conversion Application, including the Prospectus (including any amendment or supplement thereto), will comply in all material respects with the Conversion Regulations, except to the extent waived in writing by the Superintendent. The Conversion Application, including the Prospectus (including any amendment or supplement thereto), does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this Section 4(b) shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Bank by the Agent or its counsel expressly regarding the Agent for use in the Prospectus contained in the Conversion Application under the caption "The Offering-Marketing and Underwriting Arrangements". The FDIC has issued a letter of intent not to object to the Conversion Application, and such letter remains in full force and effect and no order has been issued by the FDIC suspending or revoking such letter, and no proceedings therefor have been initiated or, to the knowledge of the Company and the Bank, threatened by the FDIC. At the date of such approval by the Superintendent and the issuance of the letter of intent not to object by the FDIC, and at the Closing Date, the Conversion Application complied and will comply in all material respects with the Conversion Regulations. (c) The Company has filed with the OTS the Holding Company Application, and such application was approved by the OTS and remains in full force and effect and no order has been issued by the OTS suspending or revoking such approval, and no proceedings have been initiated or, to the knowledge of the Company or the Bank, threatened by the OTS. As of the date of such approval and the Closing Date, the Holding Company Application complied and will comply in all material respects with the applicable provisions of the HOLA and the regulations promulgated thereunder. 6 (d) At the time of their use, the Proxy Statement and any other proxy solicitation materials will comply in all material respects with the applicable provisions of the Conversion Regulations and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) No order has been issued by the Superintendent or the FDIC preventing or suspending the use of the Prospectus, and no action by or before any such government entity to revoke any approval, authorization or order of effectiveness related to the Conversion is, to the best knowledge of the Company or the Bank, pending or threatened. (f) At the Closing Date, the Plan will have been adopted by the Board of Trustees and Directors, respectively, of the Bank and the Company and approved by the depositors of the Bank, and the offer and sale of the Shares will have been conducted in all material respects in accordance with the Plan, the Conversion Regulations, and all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and provisions precedent to the Conversion imposed upon the Company or the Bank by the Superintendent, the Commission, the FDIC, the OTS or any other regulatory authority and in the manner described in the Prospectus. No person has sought to obtain review of the final action of the Superintendent in approving the Plan and the Conversion Application or the OTS in approving the Holding Company Application pursuant to the HOLA, or any other statute or regulation. (g) The Bank, as of the date hereof, has been organized and is a validly existing New York State chartered savings bank in mutual form of organization and upon the Conversion will become a duly organized and validly existing New York chartered savings bank in capital stock form of organization, in both instances duly authorized to conduct its business and own its property as described in the Registration Statement and the Prospectus and to enter into and perform its obligations under this Agreement. The Bank has obtained all material licenses, permits and other governmental authorizations currently required for the conduct of its business; all such licenses, permits and governmental authorizations are in full force and effect, and the Bank is in all material respects complying with all laws, rules, regulations and orders applicable to the operation of its business. The Bank does not own equity securities or any equity interest in any other business enterprise except as described in the Prospectus or as would not be material to the operations of the Bank. Upon completion of the sale by the Company of the Shares contemplated by the Prospectus, (i) the Bank will be converted pursuant to the Plan to a New York chartered stock savings bank, (ii) all of the issued and outstanding capital stock of the Bank will be owned by the Company, and (iii) the Company will have no direct subsidiaries other than the Bank. The Conversion will have been effected in all material respects in accordance with all applicable statutes, regulations, decisions and orders; and, except with respect to the filing of certain post-sale, post-Conversion reports, and documents in compliance with the 1933 Act Regulations, the Superintendent's resolutions or letters of approval and the FDIC's resolutions or non-objection letters, all terms, conditions, requirements and provisions with respect to the Conversion imposed by the Commission, the Superintendent and 7 the FDIC, if any, will have been complied with by the Company and the Bank in all material respects or appropriate waivers will have been obtained and all material notice and waiting periods will have been satisfied, waived or elapsed. (h) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and at the Closing Date the Company will be qualified to do business as a foreign corporation in each jurisdiction in which the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the business, operations or income of the Company. The Company has obtained all material licenses, permits and other governmental authorizations currently required for the conduct of its business; all such licenses, permits and governmental authorizations are in full force and effect, and the Company is in all material respects complying with all laws, rules, regulations and orders applicable to the operation of its business. (i) Each direct and indirect subsidiary of the Bank has been incorporated and is validly existing as a corporation in good standing under the laws of the jurisdication of its incorporation, has full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus and is duly qualified as a foreign corporation in each jurisdiction in which such qualification is required, except where the failure to so qualify would not have a material adverse effect on the assets or properties, business, results of operations, prospects or conditions (financial or otherwise) of the Company, the Bank and their subsidiaries, considered as a whole. The activities of each such subsidiary are permitted to subsidiaries of a New York State chartered savings bank by the Banking Law of the State of New York and the rules and regulations promulgated thereunder (the "Banking Law") and by the rules, regulations, resolutions and practices of the OTS and the FDIC. All of the issued and outstanding capital stock of each such subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Bank, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (j) The Bank is a member in good standing of the Federal Home Loan Bank of New York ("FHLB-New York"). The deposit accounts of the Bank are insured by the FDIC up to the applicable limits; and no proceedings for the termination or revocation of such insurance are pending or, to the best knowledge of the Company or the Bank, threatened. Upon consummation of the Conversion, the liquidation account for the benefit of Eligible Account Holders will be duly established in accordance with the requirements of the Conversion Regulations. (k) The Company and the Bank have good and marketable title to all real property and good title to all other assets material to the business of the Company and the Bank, taken as a whole, and to those properties and assets described in the Registration Statement and Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are 8 described in the Registration Statement and Prospectus, or are not material to the business of the Company and the Bank, taken as a whole; and all of the leases and subleases material to the business of the Company and the Bank, taken as a whole, under which the Company or the Bank hold properties, including those described in the Registration Statement and Prospectus, are in full force and effect. (l) The Company and the Bank have received an opinion of their special counsel, Silver, Freedman & Taff ("Silver, Freedman") with respect to the federal income tax consequences of the Conversion and an opinion of Arthur Andersen LLP ("Arthur Andersen") with respect to New York income tax consequences of the Conversion; all material aspects of the opinions of Silver, Freedman and Arthur Andersen are accurately summarized in the Registration Statement and are accurately summarized in the Prospectus; and further represent and warrant that the facts upon which such opinions are based are truthful, accurate and complete. (m) The Company and the Bank have all such power, authority, authorizations, approvals and orders as may be required to enter into this Agreement, to carry out the provisions and conditions hereof and to issue and sell the Shares to be sold by the Company and contribute the Foundation Shares to the Foundation as provided herein and as described in the Prospectus subject to the satisfaction of conditions imposed by the Superintendent, the FDIC, and the OTS in connection with their respective approvals of the Conversion Application and the Holding Company Application as the case may be, and except as may be required under the securities or "blue sky" laws of various jurisdictions, and, in the case of the Company, as of the Closing Date, will have such approvals and orders to issue and sell the Shares to be sold by the Company as provided herein, and, in the case of the Bank, as of the Closing Date, will have such approvals and orders to issue and sell the shares of its capital stock to be sold to the Company as provided in the Plan, subject to the approval of the Bank's restated organization certificate by the Superintendent. The consummation of the Conversion, the execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated have been duly and validly authorized by all necessary corporate action on the part of the Company and the Bank and this Agreement has been validly executed and delivered by the Company and the Bank and is the valid, legal and binding agreement of the Company and the Bank enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship, receivership or similar laws now or hereafter in effect relating to or affecting the enforcement of creditors' rights generally or the rights of creditors of New York State savings institutions and savings and loan holding companies, (ii) general equitable principles, (iii) laws relating to the safety and soundness of insured depository institutions, and (iv) applicable law or public policy with respect to the indemnification and/or contribution provisions contained herein, and except that no representation or warranty need be made as to the effect or availability of equitable remedies or injunctive relief (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except to the extent if any, that the provisions of Sections 8 and 9 hereof may be unenforceable as against public policy. 9 (n) None of the Company, the Bank or their subsidiaries are in violation of any directive received from the Superintendent or the FDIC, or any other agency to make any material change in the method of conducting their businesses so as to comply in all material respects with all applicable statutes and regulations (including, without limitation, regulations, decisions, directives and orders of the Superintendent and the FDIC) and, except as may be set forth in the Registration Statement and the Prospectus, there is no suit or proceeding, labor dispute or charge or action before or by any court, regulatory authority or governmental agency or body, pending or, to the best knowledge of the Company or the Bank, threatened, which might materially and adversely affect the Conversion, the performance of this Agreement or the consummation of the transactions contemplated in the Plan and as described in the Registration Statement and the Prospectus or which might result in any material adverse change in the condition (financial or otherwise), earnings, capital or properties of the Company, the Bank or their subsidiaries considered as a whole, or which would materially affect their properties and assets. (o) The financial statements, schedules and notes related thereto which are included in the Prospectus fairly present the consolidated balance sheet, income statement, statement of changes in equity and cash flows of the Bank at the respective dates indicated and for the respective periods covered thereby and comply as to form in all material respects with the applicable accounting requirements of Title 12 of the Code of Federal Regulations and generally accepted accounting principles (including those requiring the recording of certain assets at their current market value). Such financial statements, schedules and notes related thereto have been prepared in accordance with generally accepted accounting principles consistently applied through the periods involved, present fairly in all material respects the information required to be stated therein and are consistent with the most recent financial statements and other reports filed by the Bank with the Banking Department and FDIC. The other financial, statistical and pro forma information and related notes included in the Prospectus present fairly the information shown therein on a basis consistent with the audited and unaudited financial statements of the Bank included in the Prospectus, and as to the pro forma adjustments, the adjustments described therein have been properly applied on the basis described therein. (p) Since the respective dates as of which information is given in the Registration Statement including the Prospectus: (i) there has not been any material adverse change, financial or otherwise, in the condition of the Company or the Bank and its subsidiaries considered as one enterprise, or in the earnings, capital or properties of the Company or the Bank, whether or not arising in the ordinary course of business; (ii) there has not been any material increase in the long-term debt of the Bank or in the principal amount of the Bank's assets which are classified by the Bank as substandard, doubtful or loss or in loans past due 90 days or more or real estate acquired by foreclosure, by deed-in-lieu of foreclosure or deemed in-substance foreclosure or any material decrease in retained earnings or total assets of the Bank nor has the Company or the Bank issued any securities (other than in connection with the incorporation of the Company) or incurred any liability or obligation for borrowing other than in the ordinary course of business; (iii) there have not been any material transactions entered into by the Company or the Bank; (iv) there has not been any 10 material adverse change in the aggregate dollar amount of the Bank's deposits or its consolidated net worth; (v) there has been no material adverse change in the Company's or the Bank's relationship with its insurance carriers, including, without limitation, cancellation or other termination of the Company's or the Bank's fidelity bond or any other type of insurance coverage; (vi) except as disclosed in the Prospectus there has been no material change in management of the Company or the Bank, neither of which has any material undisclosed liability of any kind, contingent or otherwise; (vii) the Company or the Bank has not sustained any material loss or interference with its respective business or properties from fire, flood, windstorm, earthquake, accident or other calamity, whether or not covered by insurance; (viii) the Company or the Bank is not in default in the payment of principal or interest on any outstanding debt obligations; (ix) the capitalization, liabilities, assets, properties and business of the Company and the Bank conform in all material respects to the descriptions thereof contained in the Prospectus; and (x) neither the Company, the Bank nor its wholly owned subsidiary has any material contingent liabilities, except as set forth in the Prospectus. All documents made available to or delivered or to be made available to or delivered by the Bank or the Company or their representatives in connection with the issuance and sale of the Shares, including records of account holders, depositors and borrowers of the Bank, or in connection with the Agent's exercise of due diligence, except for those documents which were prepared by parties other than the Bank, the Company or their representatives, to the best knowledge of the Bank and the Company, were on the dates on which they were delivered, or will be on the dates on which they are to be delivered, true, complete and correct in all material respects. (q) As of the date hereof and as of the Closing Date, neither the Company nor the Bank is (i) in breach or violation of its certificate of incorporation or organization certificate, respectively, or bylaws, (and the Bank will not be in violation of its restated organization certificate or bylaws in capital stock form upon consummation of the Conversion), or (ii) in default in the performance or observance of any material obligation, agreement, covenant, or condition contained in any material contract, lease, loan agreement, indenture or other instrument to which it is a party or by which it or any of its property may be bound. The consummation of the transactions herein contemplated will not: (i) conflict with or constitute a breach of, or default under, or result in the creation of any material lien, charge or encumbrance (with the exception of the liquidation account established in the Conversion) upon any of the assets of the Company, the Bank or their subsidiaries pursuant to the certificate of incorporation of the Company and the subsidiaries or the organization certificate and bylaws of the Bank (in either mutual or capital stock form), or any material contract, lease or other instrument to which the Company or the Bank has a beneficial interest, or any applicable law, rule, regulation or order; (ii) violate any authorization, approval, judgement, decree, order, statute, rule or regulation applicable to the Company or the Bank, except for such violations which would not have a material adverse effect on the financial condition and results of operations of the Company and the Bank on a consolidated basis; or (iii) with the exception of the liquidation account established in the Conversion, result in the creation of any material lien, charge or encumbrance upon any property of the Company or the Bank. (r) No default exists, and no event has occurred which with notice or lapse of time, or 11 both, would constitute a default, on the part of the Company or the Bank in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, note, bank loan or credit agreement or any other instrument or agreement to which the Company or the Bank is a party or by which any of them or any of their property is bound or affected, except such defaults which would not have a material adverse affect on the financial condition or results of operations of the Company and the Bank on a consolidated basis; such agreements are in full force and effect; and no other party to any such agreements has instituted or, to the best knowledge of the Company and the Bank, threatened any action or proceeding wherein the Company or the Bank would or might be alleged to be in default thereunder. (s) Upon consummation of the Conversion, the authorized, issued and outstanding equity capital of the Company will be within the range set forth in the Prospectus under the caption "Capitalization," and no Shares have been or will be issued and outstanding prior to the Closing Date. The issuance and sale of the Shares and the contribution of the Foundation Shares to the Foundation will have been duly and validly authorized for issuance and, when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and in the Prospectus, the Shares and the Foundation Shares will be duly and validly issued, fully paid and non-assessable. Except to the extent that subscription rights and priorities pursuant thereto exist pursuant to the Plan, no preemptive or similar rights exist with respect to the Shares and the Foundation Shares; and the terms and provisions of the Shares and the Foundation Shares will conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus. Upon the issuance of the Shares, good title to the Shares and the Foundation Shares will be transferred from the Company to the purchasers thereof against payment therefor, subject to such claims as may be asserted against the purchasers thereof by third-party claimants. The certificates representing the Shares and the Foundation Shares will conform in all material respects with the requirements of all applicable laws and regulations. The issuance and sale of the capital stock of the Bank to the Company has been duly authorized by all necessary action of the Bank and approved by the Superintendent and the FDIC (subject to the satisfaction of various conditions imposed in connection with the Superintendent's approval of, and the FDIC's non- objection to, the Conversion Application), and such capital stock, when issued in accordance with the terms of the Plan, will be fully paid, nonassessable and free of preemptive or similar rights and will conform in all material respects to the description thereof contained in the Prospectus. All such capital stock of the Bank will be owned beneficially and of record by the Company free and clear of all claims, encumbrances, security interests and liens against the Bank whatsoever. Except as disclosed in the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and there is no commitment, plan or arrangement to issue any share of capital stock of the Company or the Bank or any security convertible into, or exercisable or exchangeable, for such capital stock. (t) No approval of any regulatory or supervisory or other public authority is required in connection with the execution and delivery of this Agreement or the issuance of the Shares, except for the approval of the Commission, the Superintendent, the FDIC and any necessary qualification, 12 notification, registration or exemption under the securities or blue sky laws of the various states in which the Shares are to be offered, and except as may be required under the rules and regulations of the NASD and/or The Nasdaq Stock Market ("Nasdaq"). (u) Arthur Andersen which has certified the consolidated audited financial statements and schedules of the Bank included in the Prospectus, has advised the Company and the Bank in writing that they are, with respect to the Company and the Bank, independent public accountants within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants and Title 12 of the Code of Federal Regulations and Section 571.2(c)(3). (v) RP Financial, LC, which has prepared the Bank's Conversion Valuation Appraisal Report as of , 1998, as amended or supplemented, (the "Appraisal"), has advised the Company in writing that it is independent of the Company and the Bank within the meaning of the Conversion Regulations. (w) The Company and the Bank have timely filed all required federal, state and local tax returns; the Company and the Bank have paid all taxes that have become due and payable in respect of such returns, except where permitted to be extended, have made adequate reserves for similar future tax liabilities and no deficiency has been asserted with respect thereto by any taxing authority. (x ) The Company and the Bank will comply with any and all material terms, conditions, requirements and provisions with respect to the Conversion imposed by the Commission, the Superintendent, the FDIC, the OTS, the Conversion Regulations, the HOLA and regulations promulgated thereunder, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with prior to or subsequent to the Closing Date and when the Prospectus is required to be delivered, the Company and the Bank will comply, at their own expense, with all material requirements imposed upon them by the Commission, the Superintendent, the FDIC, the OTS, the Conversion Regulations, or the HOLA, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, in each case as from time to time in force, so far as necessary to permit the continuance of sales or dealing in shares of Common Stock during such period in accordance with the provisions hereof and the Prospectus. (y) The Foundation has been or will be prior to the Closing Date duly incorporated and validly existing as a non-profit corporation in good standing under the laws of the State of Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus. The Foundation will not be a bank holding company within the meaning of the HOLA and 12 C.F.R. Part 225 as a result of the issuance of the Foundation Shares to it in accordance with the terms of the Plan and in the amounts as described in the Prospectus. All approvals required to establish the Foundation and to contribute the Foundation Shares thereto have been received and, except as specifically disclosed in the Prospectus and the Proxy Statement, there are no agreements or understandings, written or oral, between the Company or the Bank and the Foundation with respect to the control, directly or 13 indirectly, over the voting and the acquisition or disposition of the Foundation Shares to be contributed by the Company to the Foundation. (z) The Bank is in compliance in all material respects with the applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and the regulations and rules thereunder. (aa) To the knowledge of the Company and the Bank, neither the Company, the Bank nor any of their respective employees funds of the Company or the Bank or otherwise extended credit or made any other payment of funds prohibited by law, to any person to purchase the Shares, and no funds have been set aside to be used for any payment prohibited by law. (bb) Prior to the Conversion, neither the Company nor the Bank has: (i) issued any securities within the last 18 months (except for notes to evidence other bank loans and reverse repurchase agreements or other liabilities in the ordinary course of business or as described in the Prospectus, and except for any shares issued in connection with the incorporation of the Company); (ii) had any material dealings within the 12 months prior to the date hereof with any member of the NASD, or any person related to or associated with such member, other than discussions and meetings relating to the proposed Offering and routine purchases and sales of United States government and agency securities; (iii) entered into a financial or management consulting agreement except as contemplated hereunder; and (iv) engaged any intermediary between the Agent and the Company and the Bank in connection with the offering of the Shares, and no person is being compensated in any manner for such service. Appropriate arrangements have been made for placing the funds received from subscriptions for Shares in a special interest-bearing account with the Bank until all Shares are sold and paid for as provided in the Plan, with provision for refund to the purchasers in the event that the Conversion is not completed for whatever reason or for delivery of the funds to the Company if all Shares are sold. (cc ) The Company and the Bank have not relied upon the Agent or its legal counsel or other advisors for any legal, tax or accounting advice in connection with the Conversion. (dd) The Company is not required to be registered under the Investment Company Act of 1940, as amended. (ee) Neither the Company, the Bank nor its subsidiaries, nor any properties owned or operated by any of them is in violation of or liable under any Environmental Law (as defined below), except for such violations or liabilities that, individually or in the aggregate, would not have a material adverse effect on the financial condition, results of operations or business affairs of the Company, the Bank and the subsidiaries considered as one enterprise. There are no actions, suits or proceedings, or demands, claims, notices, demand letters or requests for information from any environmental agency instituted or pending, or to the knowledge of the Company or the Bank, threatened, relating to the liability of any property owned or operated by the Company or the Bank, 14 or their respective subsidiaries, under any Environmental Law. For purposes of this subsection, the term "Environmental Law" means any federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any regulatory authority relating to (i) the protection, preservation or restoration of the environment (including, without limitation, air, water, vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (ii) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by type or by quantity, including any material containing any such substance as a component. (ff) Any certificates signed by an officer of the Company or the Bank pursuant to the conditions of this Agreement and delivered to the Agent or their counsel that refers to this Agreement shall be deemed to be a representation and warranty by the Company or the Bank to the Agent as to the matters covered thereby with the same effect as if such representation and warranty were set forth herein. Section 5. Representations and Warranties of the Agent. KBW represents and warrants to the Company and the Bank that: (i) it is a corporation and is validly existing in good standing under the laws of the State of New York with full power and authority to provide the services to be furnished to the Bank and the Company hereunder. (ii) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Agent, and this Agreement has been duly and validly executed and delivered by the Agent and is a legal, valid and binding agreement of the Agent, enforceable in accordance with its terms. (iii) Each of the Agent and its employees, agents and representatives who shall perform any of the services hereunder shall be duly authorized and empowered, and shall have all licenses, approvals and permits necessary to perform such services. (iv) The execution and delivery of this Agreement by the Agent, the consummation of the transactions contemplated hereby and compliance with the terms and provisions hereof will not conflict with, or result in a breach of, any of the terms, provisions or conditions of, or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, the certificate of incorporation of the Agent or any agreement, indenture or other instrument to which the Agent is a party or by which it or its property is bound. 15 (v) No approval of any regulatory or supervisory or other public authority is required in connection with the Agent's execution and delivery of this Agreement, except as may have been received. (vi) There is no suit or proceeding or charge or action before or by any court, regulatory authority or government agency or body or, to the knowledge of the Agent, pending or threatened, which might materially adversely affect the Agent's performance under this Agreement. Section 5.l Covenants of the Company and the Bank. The Company and the Bank hereby jointly and severally covenant with KBW as follows: (a) The Company will not, at any time after the date the Registration Statement is declared effective, file any amendment or supplement to the Registration Statement without providing the Agent and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement the Agent or its counsel shall reasonably object. (b) The Bank will not, at any time after the Conversion Application is approved by the Superintendent and not objected to by the FDIC, file any amendment or supplement to such Conversion Application without providing the Agent and its counsel an opportunity to review such amendment or supplement or file any amendment or supplement to which amendment or supplement the Agent or its counsel shall reasonably object. (c) The Company will not, at any time before the Holding Company Application is approved by the OTS, file any amendment or supplement to such Holding Company Application without providing the Agent and its counsel an opportunity to review the nonconfidential portions of such amendment or supplement or file any amendment or supplement to which amendment or supplement the Agent or its counsel shall reasonably object. (d) The Company and the Bank will use their best efforts to cause any post-effective amendment to the Registration Statement to be declared effective by the Commission and any post-effective amendment to the Conversion Application to be approved by the the Superintendent and the FDIC and will immediately upon receipt of any information concerning the events listed below notify the Agent: (i) when the Registration Statement, as amended, has become effective; (ii) when the Conversion Application, as amended, has been approved by the Superintendent and the FDIC; (iii) of any comments from the Commission, the Superintendent the FDIC or any other governmental entity with respect to the Conversion or the transactions contemplated by this Agreement; (iv) of the request by the Commission, the Superintendent, the FDIC, the OTS or any other governmental entity for any amendment or supplement to the Registration Statement, the Conversion Application or the Holding Company Application or for additional information; (v) of the issuance by the Commission, the Superintendent, the FDIC or any other governmental entity of 16 any order or other action suspending the Offering or the use of the Registration Statement or the Prospectus or any other filing of the Company or the Bank under the Conversion Regulations, or other applicable law, or the threat of any such action; (vi) the issuance by the Commission, the Superintendent, the FDIC or any authority of any stop order suspending the effectiveness of the Registration Statement or of the initiation or threat of initiation or threat of any proceedings for that purpose; or (vii) of the occurrence of any event mentioned in paragraph (h) below. The Company and the Bank will make every reasonable effort (i) to prevent the issuance by the Commission, the Superintendent, the FDIC or any state authority of any such order and, if any such order shall at any time be issued, (ii) to obtain the lifting thereof at the earliest possible time. (e) The Company and the Bank will deliver to the Agent and to its counsel two conformed copies of the Registration Statement, the Conversion Application, and the Holding Company Application, as originally filed and of each amendment or supplement thereto, including all exhibits. Further, the Company and the Bank will deliver such additional copies of the foregoing documents to counsel to the Agent as may be required for any NASD and "blue sky" filings. (f) The Company and the Bank will furnish to the Agent, from time to time during the period when the Prospectus (or any later prospectus related to this offering) is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of such Prospectus (as amended or supplemented) as the Agent may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the rules and regulations promulgated under the 1934 Act (the "1934 Act Regulations"). The Company authorizes the Agent to use the Prospectus (as amended or supplemented, if amended or supplemented) in any lawful manner contemplated by the Plan in connection with the sale of the Shares by the Agent. (g) The Company and the Bank will comply with any and all material terms, conditions, requirements and provisions with respect to the Conversion and the transactions contemplated thereby imposed by the Commission, the Superintendent, the FDIC or the Conversion Regulations or the HOLA and regulations promulgated thereunder, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with prior to or subsequent to the Closing Date and when the Prospectus is required to be delivered, and during such time period the Company and the Bank will comply, at their own expense, with all material requirements imposed upon them by the Commission, the Superintendent, the FDIC or the OTS or the Conversion Regulations, the HOLA and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, including, without limitation, Rule 10b-5 under the 1934 Act, in each case as from time to time in force, so far as necessary to permit the continuance of sales or dealing in the Common Shares during such period in accordance with the provisions hereof and the Prospectus. (h) If, at any time during the period when the Prospectus relating to the Shares and the Foundation Shares is required to be delivered, any event relating to or affecting the Company or the Bank shall occur, as a result of which it is necessary or appropriate, in the opinion of counsel for the Company and the Bank or in the reasonable opinion of the Agent's counsel, to amend or supplement 17 the Registration Statement or Prospectus in order to make the Registration Statement or Prospectus not misleading in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, the Company and the Bank will immediately so inform the Agent and prepare and file, at their own expense, with the Commission, the Banking Department and the FDIC and furnish to the Agent a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Registration Statement or Prospectus (in form and substance reasonably satisfactory to the Agent and its counsel after a reasonable time for review) which will amend or supplement the Registration Statement or Prospectus so that as amended or supplemented it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. For the purpose of this Agreement, the Company and the Bank each will timely furnish to the Agent such information with respect to itself as the Agent may from time to time reasonably request. (i) The Company and the Bank will take all necessary actions, in cooperating with the Agent, and furnish to whomever the Agent may direct, such information as may be required to qualify or register the Shares for offering and sale by the Company or to exempt such Shares from registration, or to exempt the Company as a broker-dealer and its officers, Trustees and employees as broker-dealers or agents under the applicable securities or blue sky laws of such jurisdictions in which the Shares are required under the Conversion Regulations to be sold or as the Agent and the Company and the Bank may reasonably agree upon; provided, however, that the Company shall not be obligated to file any general consent to service of process, to qualify to do business in any jurisdiction in which it is not so qualified, or to register its Trustees or officers as brokers, dealers, salesmen or agents in any jurisdiction. In each jurisdiction where any of the Shares shall have been qualified or registered as above provided, the Company will make and file such statements and reports in each fiscal period as are or may be required by the laws of such jurisdiction. (j) The liquidation account for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders will be duly established and maintained in accordance with the requirements of the Banking Department and FDIC, and such Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their savings accounts in the Bank will have an inchoate interest in their pro rata portion of the liquidation account which shall have a priority superior to that of the holders of the Common Shares in the event of a complete liquidation of the Bank. (k) The Company and the Bank will not sell or issue, contract to sell or otherwise dispose of, for a period of ___ days after the Closing Date, without the Agent's prior written consent, any Common Shares other than the Shares or other than in connection with any plan or arrangement described in the Prospectus, including existing stock benefit plans. (l) The Company shall register its Common Stock under Section 12(g) of the 1934 Act on or prior to the Closing Date pursuant to the Plan and shall request that such registration be 18 effective prior to or upon completion of the Conversion. The Company shall maintain the effectiveness of such registration for not less than three years or such shorter period as may be required by the OTS and the Banking Department. (m) During the period during which the Company's Common Shares are registered under the 1934 Act or for three (3) years from the date hereof, whichever period is greater, the Company will furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report of the Company (including a consolidated balance sheet and statements of consolidated income, shareholders' equity and cash flows of the Company and its subsidiaries as at the end of and for such year, certified by independent public accountants in accordance with Regulation S-X under the 1933 Act and the 1934 Act). (n) During the period of three years from the date hereof, the Company will furnish to the Agent: (i) as soon as practicable after such information is publicly available, a copy of each report of the Company furnished to or filed with the Commission under the 1934 Act or any national securities exchange or system on which any class of securities of the Company is listed or quoted (including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and all proxy statements and annual reports to stockholders), (ii) a copy of each other non-confidential report of the Company mailed to its stockholders or filed with the Commission, the Banking Department any other supervisory or regulatory authority or any national securities exchange or system on which any class of securities of the Company is listed or quoted, each press release and material news items and additional documents and information with respect to the Company or the Bank as the Agent may reasonably request; and (iii) from time to time, such other nonconfidential information concerning the Company or the Bank as the Agent may reasonably request. (o) The Company and the Bank will use the net proceeds from the sale of the Shares in the manner set forth in the Prospectus under the caption "Use of Proceeds." (p) Other than as permitted by the Conversion Regulations, the HOLA, the 1933 Act, the 1933 Act Regulations, and the laws of any state in which the Shares are registered or qualified for sale or exempt from registration, neither the Company nor the Bank will distribute any prospectus, offering circular or other offering material in connection with the offer and sale of the Shares. (q) The Company will use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for the Shares and (ii) list and maintain quotation of the Shares on a national or regional securities exchange or on Nasdaq effective on or prior to the Closing Date. (r) The Bank will maintain appropriate arrangements for depositing all funds received from persons mailing subscriptions for or orders to purchase Shares in the Offering on an interest-bearing basis at the rate described in the Prospectus until the Closing Date and satisfaction of all conditions precedent to the release of the Bank's obligation to refund payments received from persons subscribing for or ordering Shares in the Offering in accordance with the Plan and as 19 described in the Prospectus or until refunds of such funds have been made to the persons entitled thereto or withdrawal authorizations canceled in accordance with the Plan and as described in the Prospectus. The Bank will maintain such records of all funds received to permit the funds of each subscriber to be separately insured by the FDIC (to the maximum extent allowable) and to enable the Bank to make the appropriate refunds of such funds in the event that such refunds are required to be made in accordance with the Plan and as described in the Prospectus. (s) The Company will promptly take all necessary action to register as a savings and loan holding company under the HOLA within 90 days of the Closing Date. (t) The Company and the Bank will take such actions and furnish such information as are reasonably requested by the Agent in order for the Agent to ensure compliance with the NASD's "Interpretation Relating to Free Riding and Withholding." (u) Neither the Company nor the Bank will amend the Plan of Conversion without notifying the Agent prior thereto. (v) If, at any time during the period when the Prospectus relating to the Shares is required to be delivered, any event relating to or affecting the Company, the Bank or a Subsidiary shall occur, as a result of which it is necessary or appropriate, in the opinion of counsel for the Company and the Bank to amend or supplement the Registration Statement or Prospectus in order to make the Registration Statement or Prospectus not misleading in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, the Company and the Bank, at their expense, shall prepare and file with the Commission and the Banking Department, and furnish to KBW a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Registration Statement and Prospectus (in form and substance satisfactory to KBW and its counsel after a reasonable time for review) which will amend or supplement the Registration Statement and Prospectus so that as amended or supplemented it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. For the purpose of this Agreement, the Company and the Bank each will timely furnish to KBW such information with respect to itself as KBW may from time to time reasonably request. (w) At the Closing Date referred to in Section 2, the Plan will have been adopted by the Board of Directors of the Company and the Board of Trustees of the Bank and the offer and sale of the Shares will have been conducted in all material respects in accordance with the Plan, the Conversion Regulations, and all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and provisions precedent to the Conversion imposed upon the Company or the Bank by the Commission, the Superintendent, FDIC or any other regulatory authority and in the manner described in the Prospectus. (x) Upon completion of the sale by the Company of the Shares contemplated by the 20 Prospectus, (i) the Bank will be converted pursuant to the Plan to a stock chartered stock savings bank, (ii) all of the authorized and outstanding capital stock of the Bank will be owned by the Company, and (iii) the Company will have no direct subsidiaries other than the Bank. The Conversion will have been effected in all material respects in accordance with all applicable statutes, regulations, decisions and orders; and, except with respect to the filing of certain post-sale, post- Conversion reports, and documents in compliance with the 1933 Act Regulations, and all terms, conditions, requirements and provisions with respect to the Conversion (except those that are conditions subsequent) imposed by the Commission and the Superintendent, and FDIC, if any, will have been complied with by the Company and the Bank in all material respects or appropriate waivers will have been obtained and all material notice and waiting periods will have been satisfied, waived or elapsed. (y) The Foundation is a duly incorporated and validly existing non-profit corporation in good standing under the laws of the State of Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus. The Foundation is not a bank holding company within the meaning of the 12 U.S.C. Section 1467a (a)(1)(D) a result of the issuance of the Foundation Shares to it in accordance with the terms of the Plan and in the amounts as described in the Prospectus. All approvals required to establish the Foundation and to contribute to the Foundation Shares have been received and, except as specifically disclosed in the Prospectus and the Proxy Statement, there are no agreements or understandings, written or oral, between the Company or the Bank and the Foundation with respect to the control, directly or indirectly, over the voting and the acquisition or disposition of the Foundation Shares to be contributed by the Company to the Foundation. (z) The Company and the Bank will take all necessary actions, in cooperation with KBW, and furnish to whomever KBW may direct, such information as may be required to qualify or register the Shares for offering and sale by the Company or to exempt such Shares from registration, or to exempt the Company as a broker-dealer and its officers, directors and employees as broker-dealers or agents under the applicable securities or blue sky laws of such jurisdiction in which the Shares are to be offered and sold as KBW and the Company and the Bank may reasonably agree upon; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify to do business in any jurisdiction in which it is not so qualified. In each jurisdiction where any of the Shares shall have been qualified or registered as above provided, the Company will make and file such statements and reports in each fiscal period as are or may be required by the laws of such jurisdiction. (aa) The Company shall assist the Agent, if necessary, in connection with the allocation of the Shares in the event of an oversubscription and shall provide the Agent with any information necessary to assist the Company in allocating the Shares in such event and such information shall be accurate and reliable in all material respects. (bb) Prior to the Closing Date, the Company and the Bank will inform the Agent of any 21 event or circumstances of which it is aware as a result of which the Registration Statement and/or Prospectus, as then amended or supplemented, would contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. (cc) Subsequent to the date the Registration Statement is declared effective by the Commission and prior to the Closing Date, except as otherwise may be indicated or contemplated therein or set forth in an amendment or supplement thereto, neither the Company nor the Bank will have: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, except borrowings from the same or similar sources indicated in the Prospectus in the ordinary course of its business, or (ii) entered into any transaction which is material in light of the business and properties of the Company and the Bank, taken as a whole. (dd) The facts and representations provided to Silver Freedman & Taff, L.L.P. by the Bank and the Company and upon which Serchuk & Zelermyer, LLP will base its opinion under Section 7(c)(1) are and will be truthful, accurate and complete. Section 6. Payment of Expenses. Whether or not the Conversion is completed or the sale of the Shares by the Company is consummated, the Company and the Bank jointly and severally agree to pay or reimburse the Agent for: (a) all filing fees in connection with all filings with the NASD related to the Offering; (b) any stock issue or transfer taxes which may be payable with respect to the sale of the Shares; (c) all reasonable expenses of the Conversion, including but not limited to the Company's and the Bank's, and the Agent's attorneys' fees and expenses, blue sky fees, transfer agent, registrar and other agent charges, fees relating to auditing and accounting or other advisors and costs of printing all documents necessary in connection with the Conversion; and (d) all reasonable out-of-pocket expenses incurred by the Agent (exclusive of legal fees not to exceed $75,000). Such out-of-pocket expenses include, but are not limited to, travel, lodging, meals, communication and postage. However, such out-of-pocket expenses do not include expenses incurred with respect to the matters set forth in (a) or (b) above. In the event the Company is unable to sell a minimum of 5,950,000 Shares or the Conversion is terminated or otherwise abandoned, the Company and the Bank shall promptly reimburse the Agent in accordance with Section 2 hereof. Section 7. Conditions to the Agent's Obligations. The obligations of the Agent hereunder, as to the Shares to be delivered at the Closing Date, are subject, to the extent not waived in writing by the Agent, to the condition that all representations and warranties of the Company and the Bank herein are, at and as of the commencement of the Offering and at and as of the Closing Date, true and correct in all material respects, the condition that the Company and the Bank shall have performed all of their obligations hereunder to be performed on or before such dates, and to the following further conditions: (a) At the Closing Date, the Company and the Bank shall have conducted the Conversion in all material respects in accordance with the Plan, the Conversion Regulations, and all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and 22 provisions precedent to the Conversion imposed upon them by the Banking Department and FDIC. (b) The Registration Statement shall have been declared effective by the Commission and the Conversion Application approved by the Superintendent and not objected to by the FDIC not later than 5:30 p.m. on the date of this Agreement, or with the Agent's consent at a later time and date; and at the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefore initiated or threatened by the Commission or any state authority, and no order or other action suspending the authorization of the Prospectus or the consummation of the Conversion shall have been issued or proceedings therefore initiated or, to the Company's or the Bank's knowledge, threatened by the Commission, the Banking Department, the FDIC, or any state authority. (c) At the Closing Date, the Agent shall have received: (1) The favorable opinion, dated as of the Closing Date and addressed to the Agent and for its benefit, of Silver, Freedman & Taff, L.L.P., special counsel for the Company and the Bank, in form and substance to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation under the laws of the state of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus. (iii) The Bank has been organized and is a validly existing New York chartered savings bank in capital stock form of organization, authorized to conduct its business and own its property as described in the Registration Statement and the Prospectus. All of the outstanding capital stock of the Bank upon completion of the Conversion will be duly authorized and, upon payment therefor, will be validly issued, fully paid and non-assessable and will be owned by the Company, free and clear of any liens, encumbrances, claims or other restrictions. (iv) Each subsidiary of the Bank has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is not required to be qualified as a foreign corporation in any other jurisdiction, or the failure to so qualify would not have a material adverse effect upon the financial condition, results of operations or business of the Bank and the subsidiary taken as a whole; the activities of the subsidiaries are permitted to subsidiaries of a savings and loan holding company and of a New York chartered savings bank by the rules, regulations, resolutions and practices of the Banking Department and Banking Board; all of the issued and outstanding capital stock of each of the subsidiaries has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company free and clear of any security, interest, mortgage, pledge, lien, encumbrance, claim or equity. 23 (v) The Bank is a member in good standing of the FHLB-New York. The deposit accounts of the Bank are insured by the FDIC up to the maximum amount allowed under law and no proceedings for the termination or revocation of such insurance are pending or, to such counsel's Actual knowledge, threatened; the description of the liquidation account as set forth in the Prospectus under the captions "The Conversion - Liquidation Rights," to the extent that such information constitutes matters of law and legal conclusions, has been reviewed by such counsel and is accurately described in all material respects. (vi) Upon consummation of the Conversion, the authorized, issued and outstanding capital stock of the Company will be within the range set forth in the Prospectus under the caption "Capitalization," and no shares of Common Stock have been issued prior to the Closing Date. The issuance and sale of the shares and the contribution of the Foundation Shares to the Foundation will have been duly and validly authorized for issuance, and when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and Prospectus, will be duly and validly issued and fully paid and non-assessable. The issuance of the Shares is not subject to preemptive rights and the terms and provisions of the Shares and the Foundation Shares conform in all material respects to the description thereof contained in the Registration Statement and Prospectus. To such counsel's actual knowledge, upon the issuance of the Shares and the Foundation Shares, good title to the Shares and the Foundation Shares will be transferred from the Company to the purchasers thereof against payment therefor, subject to such claims as may be asserted against the purchasers thereof by third-party claimants. The certificates representing the Shares and the Foundation Shares will conform in all material respects with the requirements of all applicable laws and regulations. The issuance and sale of the capital stock of the Bank to the Company has been duly authorized by all necessary action of the Bank and approved by the Superintendent and the FDIC (subject to the satisfaction of various conditions imposed in connection with the Superintendent's approval of, and the FDIC's non-objection to, the Conversion Application), and such capital stock, when issued in accordance with the terms of the Plan, will be fully paid, nonassessable and free of preemptive or similar rights and will conform in all material respects to the description thereof contained in the Prospectus. All such capital stock of the Bank will be owned beneficially and of record by the Company free and clear of all claims, encumbrances, security interests and liens against the Bank whatsoever. Except as disclosed in the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and there is no commitment, plan or arrangement to issue any share of capital stock of the Company or the Bank or any security convertible into, or exercisable or exchangeable, for such capital stock. (viii) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Company and the Bank; and this Agreement is a valid and binding obligation of the Company and the Bank, enforceable in accordance with its terms, except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, conservatorship, 24 receivership or other similar laws now or hereafter in effect relating to or affecting the enforcement of creditors' rights generally or the rights of creditors of savings institutions, the deposits of which are insured by the FDIC and their holding companies, (ii) general equitable principles, (iii) laws relating to the safety and soundness of insured depository institutions and their holding companies, and (iv) applicable law or public policy with respect to the indemnification and/or contribution provisions contained herein, including without limitation the provisions of Sections 23A and 23B of the Federal Reserve Act and except that no opinion need be expressed as to the effect or availability of equitable remedies or injunctive relief (regardless of whether such enforceability is considered in a proceeding in equity or at law). (ix) The Conversion Application has been approved by the Superintendent and the FDIC has issued a letter of non-objection, and the Prospectus has been authorized for use by the Superintendent and the FDIC. The OTS has approved the Holding Company Application and issued its order of approval under the savings and loan holding company provisions of the HOLA, the purchase by the Company of all of the issued and outstanding capital stock of the Bank has been authorized by the Superintendent and the FDIC. No action has been taken, and, to such counsel's actual knowledge, none is pending or threatened, to revoke any such authorization or approval. (x) The Plan has been duly adopted by the required vote of the trustees of the Bank and the directors of the Company, and based upon the certificate of the inspector of election, by the depositors of the Bank. (xi) Subject to the satisfaction of the conditions to the Superintendent's approval and the FDIC's non-objection of the Conversion and the OTS's approval of the Holding Company Application, no further approval, registration, authorization, consent or other order of any federal or state agency is required in connection with the execution and delivery of this Agreement, the issuance of the Shares and the consummation of the Conversion, except as may be required under the securities or blue sky laws of various jurisdictions (as to which no opinion need be rendered) and except as may be required under the rules and regulations of the NASD and/or the Nasdaq National Market (as to which no opinion need be rendered). To such counsel's actual knowledge, the Conversion has been consummated in all material respects in accordance with all applicable provisions of the HOLA and the Conversion Regulations, except that no opinion is rendered with respect to (a) the Conversion Application, the Registration Statement or Prospectus, which are covered by other clauses of this opinion, (b) the satisfaction of the post-Conversion conditions in the Conversion Regulations or in the Superintendent or FDIC approvals of the Conversion Application and the OTS's approval of the Holding Company Application, (c) the securities or "blue sky" laws of various jurisdictions, and (d) the rules and regulations of the NASD and/or Nasdaq National Market. (xii) The Registration Statement is effective under the 1933 Act, and no stop order suspending the effectiveness has been issued under the 1933 Act or proceedings therefor initiated or, to such counsel's actual knowledge, threatened by the Commission. 25 (xiii) At the time the Conversion Application, including the Prospectus contained therein, was approved by the Banking Department and the FDIC, the Conversion Application, including the Prospectus contained therein, complied as to form in all material respects with the requirements of the Conversion Regulations, federal law and all applicable rules and regulations promulgated thereunder (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein, as to which no opinion need be rendered). (xiv) The activities of the subsidiary as described in the Prospectus are permitted to subsidiaries of a savings and loan holding company and of a New York chartered savings bank by the rules, regulations, resolutions and practices of the Banking Department. (xv) At the time that the Registration Statement became effective, (i) the Registration Statement (as amended or supplemented) (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein, as to which no opinion need be rendered), complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations, and (ii) the Prospectus (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations, the Conversion Regulations and federal law. (xvi) The terms and provisions of the Shares of the Company conform, in all material respects, to the description thereof contained in the Registration Statement and Prospectus, and the form of certificate used to evidence the Shares is in due and proper form. (xvii) There are no legal or governmental proceedings pending or, to such counsel's actual knowledge, threatened which are required to be disclosed in the Registration Statement and Prospectus, other than those disclosed therein, and to such counsel's actual knowledge, all pending legal and governmental proceedings to which the Company or the Bank is a party or of which any of their property is the subject, which are not described in the Registration Statement and the Prospectus, including ordinary routine litigation incidental to the Company's or the Bank's business, are, considered in the aggregate, not material. (xviii) To such counsel's actual knowledge, there are no material contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Conversion Application, the Registration Statement or the Prospectus or required to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto in the Conversion Application, the Registration Statement or the Prospectus. The description in the Conversion Application, the Registration Statement and the Prospectus of such documents and exhibits is accurate in all material respects and fairly presents the information required to be shown. (xix) To such counsel's actual knowledge , the Company and the Bank have conducted the 26 Conversion, in all material respects, in accordance with all applicable requirements of the Plan and applicable federal and New York law, except that no opinion is rendered with respect to (a) the Conversion Application, the Registration Statement or Prospectus, which are covered by other clauses of this opinion, (b) the satisfaction of the post-Conversion conditions in the Superintendent of the Banking Department and FDIC approvals of the Conversion Application and the OTS approval of the Holding Company Application, (c) the securities of "blue sky" laws of various jurisdictions, and (d) the rules and regulations of the NASD and/or Nasdaq National Market. The Plan complies in all material respects with all applicable federal laws, rules, regulations, decisions and orders including, but not limited to, the Conversion Regulations; no order has been issued by the Superintendent, the Commission, the FDIC, or any state authority to suspend the Offering or the use of the Prospectus, and no action for such purposes has been instituted or, to such counsel's actual knowledge, threatened by the Banking Department, the Commission, the FDIC, or any state authority and, to such counsel's actual knowledge, no person has sought to obtain regulatory or judicial review of the final action of the Superintendent, the FDIC or the OTS approving the Plan, the Conversion Application, the Holding Company Application or the Prospectus. (xx) To such counsel's actual knowledge, the Company and the Bank have obtained all material licenses, permits and other governmental authorizations currently required under federal banking laws and Delaware corporate and banking law for the conduct of their businesses and all such licenses, permits and other governmental authorizations are in full force and effect, and the Company and the Bank are in all material respects complying therewith, except where the failure to have such licenses, permits and other governmental authorizations or the failure to be in compliance therewith would not have a material adverse effect on the business or operations of the Bank and the Company, taken as a whole. (xxi) To such counsel's actual knowledge, neither the Company, the Bank nor any of the subsidiaries is in violation of its certificate of incorporation and bylaws or its Organization Certificate and bylaws, as appropriate or, to such counsel's actual knowledge, in default or violation of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its property may be bound, except for such defaults or violations which would not have a material adverse impact on the financial condition or results of operations of the Company and the Bank on a consolidated basis; to such counsel's actual knowledge, the execution and delivery of this Agreement, the occurrence of the obligations herein set forth and the consummation of the transactions contemplated herein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, the Bank or any of the subsidiaries pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company, the Bank or any of the subsidiaries is a party or by which any of them may be bound, or to which any of the property or assets of the Company, the Bank or any of the subsidiaries are subject (other than the establishment of the liquidation account); and, such action will not result in any violation of the provisions of the certificate of incorporation or bylaws of the Company or the Organization Certificate or bylaws of 27 the Bank or, to such counsel's actual knowledge, result in any violation of any applicable federal law, act, regulation (except that no opinion with respect to the securities and blue sky laws of various jurisdictions or the rules or regulations of the NASD and/or the Nasdaq Stock Market need be rendered) or order or court order, writ, injunction or decree. (xxii) The Company's certificate of incorporation and bylaws comply in all material respects with the General Corporation Law ("GCL") of the State of Delaware. The Bank's organization certificate and restated organization certificate and bylaws comply in all material respects with the rules and regulations of the Banking Department. (xxiii) To such counsel's actual knowledge, neither the Company nor the Bank is in violation of any directive from the Superintendent or the FDIC to make any material change in the method of conducting its respective business. (xxiv) The information in the Prospectus under the captions "Regulation," "The Conversion," "Restrictions on Acquisition of the Company and the Bank" and "Description of Capital Stock of the Holding Company," to the extent that such information constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by such counsel and is correct in all material respects. The description of the Conversion process under the caption "The Conversion" in the Prospectus has been reviewed by such counsel and fairly describes such process in all material respects. The discussion of statutes or regulations described or referred to in the Prospectus are accurate summaries and fairly present the information required to be shown. The information under the caption "The Conversion - Tax Considerations" has been reviewed by such counsel and fairly describes the opinions rendered by Silver, Freedman & Taff, L.L.P. to the Company and the Bank with respect to such matters. In addition, such counsel shall state that during the preparation of the Conversion Application, the Registration Statement and the Prospectus, they participated in conferences with certain officers of, the independent public and internal accountants for, and other representatives of the Company and the Bank, at which conferences the contents of the Conversion Application, the Registration Statement and the Prospectus and related matters were discussed and, while such counsel have not confirmed the accuracy or completeness of or otherwise verified the information contained in the Conversion Application, the Registration Statement or the Prospectus, and do not assume any responsibility for such information, based upon such conferences and a review of documents deemed relevant for the purpose of rendering their view (relying as to materiality as to factual matters on certificates of officers and other factual representations by the Company and the Bank), nothing has come to their attention that would lead them to believe that the Conversion Application, the Registration Statement, the Prospectus, or any amendment or supplement thereto (other than the financial statements, the notes thereto, and other tabular, financial, statistical and appraisal data included therein as to which no view need be rendered) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 28 In giving such opinion, such counsel may rely as to all matters of fact on certificates of officers or directors or trustees of the Company and the Bank, respectively, and certificates of public officials. Such counsel's opinion shall be limited to matters governed by federal banking and securities laws and by the New York Business Corporation Law and New York Banking Law. With respect to matters involving the application of New York law, such counsel may rely, to the extent it deems proper and as specified in its opinion, solely upon the opinion of local counsel. The opinion of Silver, Freedman & Taff, L.L.P. shall be governed by the Legal Opinion Accord ("Accord") of the American Bar Bank Section of Business Law (1991). The term "actual knowledge" as used herein shall have the meaning set forth in the Accord. For purposes of such opinion, no proceedings shall be deemed to be pending, no order or stop order shall be deemed to be issued, and no action shall be deemed to be instituted unless, in each case, a director or executive officer of the Company or the Bank shall have received a copy of such proceedings, order, stop order or action. In addition, such opinion may be limited to present statutes, regulations and judicial interpretations and to facts as they presently exist; in rendering such opinion, such counsel need assume no obligation to revise or supplement it should the present laws be changed by legislative or regulatory action, judicial decision or otherwise; and such counsel need express no view, opinion or belief with respect to whether any proposed or pending legislation, if enacted, or any proposed or pending regulations or policy statements issued by any regulatory agency, whether or not promulgated pursuant to any such legislation, would affect the validity of the Conversion or any aspect thereof. Such counsel may assume that any agreement is the valid and binding obligation of any parties to such agreement other than the Company or the Bank. The favorable opinion, dated as of the Closing Date and addressed to the Agent and for their benefit, of the Bank's local counsel, in form and substance to the effect that, to the best of such counsel's knowledge, (i) the Company and the Bank have good and marketable title to all properties and assets which are material to the business of the Company and the Bank and to those properties and assets described in the Registration Statement and Prospectus, as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Registration Statement and Prospectus, or are not material in relation to the business of the Company and the Bank considered as one enterprise; (ii) all of the leases and subleases material to the business of the Company and the Bank under which the Company and the Bank hold properties, as described in the Registration Statement and Prospectus, are in full force and effect; and (iii) the Bank is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which its ownership of property or leasing of property or the conduct of its business requires such qualification, unless the failure to be so qualified in one or more of such jurisdictions would not have a material adverse effect on the condition, financial or otherwise, or the business, operations or income of the Bank. (d) At the Closing Date, the Agent shall have received the favorable opinion, dated as of the Closing Date, of Serchuk & Zelermyer, LLP, the Agent's counsel, with respect to such matters as the Agent may reasonably require. Such opinion may rely upon the opinions of counsel to the 29 Company and the Bank, and as to matters of fact, upon certificates of officers and directors and trustees respectively, of the Company and the Bank delivered pursuant hereto or as such counsel shall reasonably request. (e) At the Closing Date, the Agent shall receive a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company and the Bank in form and substance reasonably satisfactory to the Agent's Counsel, dated as of such Closing Date, to the effect that: (i) they have carefully reviewed the Prospectus and, in their opinion, at the time the Prospectus became authorized for final use, the Prospectus did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) since the date the Prospectus became authorized for final use, no event has occurred which should have been set forth in an amendment or supplement to the Prospectus which has not been so set forth, including specifically, but without limitation, any material adverse change in the condition, financial or otherwise, or in the earnings, capital, properties or business of the Company or the Bank, and the conditions set forth in this Section 7 have been satisfied; (iii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has been no material adverse change in the condition, financial or otherwise, or in the earnings, capital or properties of the Company or the Bank, independently, or of the Company and the Bank, considered as one enterprise, whether or not arising in the ordinary course of business; (iv) the representations and warranties in Section 4 are true and correct with the same force and effect as though expressly made at and as of the Closing Date; (v) the Company and the Bank have complied in all material respects with all agreements and satisfied all conditions on their part to be performed or satisfied at or prior to the Closing Date and will comply in all material respects with all obligations to be satisfied by them after the Conversion; (vi) no stop order suspending the effectiveness of the Registration Statement has been initiated or, to the best knowledge of the Company or the Bank, threatened by the Commission or any state authority; (vii) no order suspending the Offering, the Conversion, the acquisition of all of the shares of the Bank by the Company or the effectiveness of the Prospectus has been issued and no proceedings for that purpose are pending or, to the best knowledge of the Company or the Bank, threatened by the Superintendent, the Commission, the FDIC, or any state authority; and (viii) to the best knowledge of the Company or the Bank, no person has sought to obtain review of the final action of the Superintendent approving the Plan. (f) Prior to and at the Closing Date: (i) in the reasonable opinion of the Agent, there shall have been no material adverse change in the condition, financial or otherwise, or in the earnings or business of the Company or the Bank independently, or of the Company and the Bank, considered as one enterprise, from that as of the latest dates as of which such condition is set forth in the Prospectus other than transactions referred to or contemplated therein; (iii) the Company or the Bank shall not have received from the Superintendent or the FDIC or the OTS any direction (oral or written) to make any material change in the method of conducting their business with which it has not complied (which direction, if any, shall have been disclosed to the Agent) or which materially and adversely would affect the business, operations or financial condition or income of the Company 30 and the Bank taken as a whole; (iv) the Company and the Bank or their subsidiaries shall not have been in default (nor shall an event have occurred which, with notice or lapse of time or both, would constitute a default) under any provision of any agreement or instrument relating to any outstanding indebtedness; (v) no action, suit or proceeding, at law or in equity or before or by any federal or state commission, board or other administrative agency, shall be pending or, to the knowledge of the Company or the Bank, threatened against the Company or the Bank or affecting any of their properties wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, operations, financial condition or income of the Company and the Bank taken as a whole; and (vi) the Shares have been qualified or registered for offering and sale or exempted therefrom under the securities or blue sky laws of the jurisdictions as the Agent shall have reasonably requested and as agreed to by the Company and the Bank. (g) Concurrently with the execution of this Agreement, the Agent shall receive a letter from Arthur Andersen as of the date of the Prospectus and addressed to the Agent: (i) confirming that Arthur Andersen is a firm of independent public accountants within the meaning of Rule 101 of the Code of Professional Ethics of the American Institute of Certified Public Accountants and applicable regulations of the Banking Board and stating in effect that in its opinion the consolidated financial statements, schedules and related notes of the Bank as of June 30, 1998 and 1997 and for each of the two years in the period ended June 30, 1998, as are included in the Prospectus and covered by their opinion included therein, comply as to form in all material respects with the applicable accounting requirements and related published rules and regulations of the Banking Board regulations and the 1933 Act; (ii) stating in effect that, on the basis of certain agreed upon procedures (but not an audit in accordance with generally accepted auditing standards) consisting of a reading of the latest available unaudited interim consolidated financial statements of the Bank prepared by the Bank, a reading of the minutes of the meetings of the Board of Trustees of the Bank and the minutes of the meetings of the Board of Directors of the Company since its inception and consultations with officers of the Bank responsible for financial and accounting matters, nothing came to their attention which caused them to believe that: (A) the unaudited financial statements included in the Prospectus are not in conformity with the 1933 Act, applicable accounting requirements of the Banking Department and generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Prospectus; or (B) during the period from the date of the latest unaudited consolidated financial statements included in the Prospectus to a specified date not more than three business days prior to the date of the Prospectus, except as has been described in the Prospectus, there was any increase in borrowings, other than normal deposit fluctuations, by the Bank or more than $10 million in the consolidated long-term or short-term debt of the Bank and its subsidiaries; or (C) there was any decrease in the consolidated net assets of the Bank, the allowance for loan losses or net worth of the Bank and its subsidiaries or a decrease of more than 2% in total deposits (exclusive of amounts withdrawn by subscribers to purchase Shares in the Subscription Offering) at the date of such letter as compared with amounts shown in the latest unaudited consolidated statement of condition included in the Prospectus; or (D) during the period of December 31, 1997 to a specific date not more than five days prior to the date of this Agreement there were any decreases, as compared with 31 the corresponding period in the preceding year, in total interest income, net interest income and net interest income after provision for loan losses, income before income tax expense or net income of the Bank and its subsidiaries except in all instances for increases or decreases which the Prospectus disclosed have occurred or may occur and (iii) stating that, in addition to the audit referred to in their opinion included in the Prospectus and the performance of the procedures referred to in clause (ii) above, they have compared with the general accounting records of the Bank, which are subject to the internal controls of the Bank, the accounting system and other data prepared by the Bank, directly from such accounting records, to the extent specified in such letter, such amounts and/or percentages set forth in the Prospectus as the Agent may reasonably request; and they have reported on the results of such comparisons. (h) At the Closing Date, the Agent shall receive a letter dated the Closing Date, addressed to the Agent, confirming the statements made by Arthur Andersen in the letter delivered by it pursuant to subsection (g) of this Section 7, the "specified date" referred to in clause (ii) of subsection (f) thereof to be a date specified in such letter, which shall not be more than three business days prior to the Closing Date. (i) At the Closing Date, the Agent shall receive a letter from RP Financial, LC, dated the date thereof and addressed to counsel for the Agent (i) confirming that said firm is independent of the Company and the Bank and is experienced and expert in the area of corporate appraisals within the meaning of Title 12 of the Code of Federal Regulations, Section 563b.7(f)(1)(i), (ii) stating in effect that the Appraisal prepared by such firm complies in all material respects with the applicable requirements of Title 12 of the Code of Federal Regulations, and (iii) further stating that their opinion of the aggregate pro forma market value of the Company and the Bank expressed in their Appraisal dated as of ___________, 1998, and most recently updated, remains in effect. (j) The Company and the Bank shall not have sustained since the date of the latest financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Registration Statement and Prospectus and since the respective dates as of which information is given in the Registration Statement and Prospectus, there shall not have been any change in the long-term debt of the Company or the Bank other than debt incurred in relation to the purchase of Shares by the Bank's Eligible Plans, or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or the Bank, otherwise than as set forth or contemplated in the Registration Statement and Prospectus, the effect of which, in any such case described above, is in KBW's reasonable judgment sufficiently material and adverse as to make it impracticable or inadvisable to proceed with the Subscription Offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus. 32 (k) At or prior to the Closing Date, the Agent shall receive: (i) a copy of the letter from the Superintendent approving the Conversion Application and the FDIC's letter non-objection of the same and authorizing the use of the Prospectus and Proxy Statement; (ii) a copy of the order from the Commission declaring the Registration Statement effective; (iii) a certificate from the Banking Department evidencing the existence of the Bank; (iv) certificate of good standing from the State of Delaware evidencing the good standing of the Company; (v) a certificate from the FDIC evidencing the Bank's insurance of accounts; (vi) a certificate of the FHLB-New York evidencing the Bank's membership thereof; (vii) a copy of the letter from the OTS approving the Company's Holding Company Application; (viii) a copy of the Bank's Restated Organization Certificate and (ix) certificate from the State of New York evidencing the status of the Company as a foreign corporation. (l) Subsequent to the date hereof, there shall not have occurred any of the following: (i) a suspension or limitation in trading in securities generally on the New York Stock Exchange or in the over-the-counter market, or quotations halted generally on the Nasdaq Stock Market, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required by either of such exchanges or the NASD or by order of the Commission or any other governmental authority; (ii) a general moratorium on the operations of commercial banks, New York savings institutions or federal savings institutions or a general moratorium on the withdrawal of deposits from commercial banks, New York savings institutions or federal savings institutions declared by federal or state authorities; (iii) the engagement by the United States in hostilities which have resulted in the declaration, on or after the date hereof, of a national emergency or war; or (iv) a material decline in the price of equity or debt securities if the effect of such a declaration or decline, in the Agent's reasonable judgement, makes it impracticable or inadvisable to proceed with the Offering or the delivery of the shares on the terms and in the manner contemplated in the Registration Statement and the Prospectus. (m) At the Closing Date, KBW shall have received the Officers' Certificates certifying as to the accuracy of the representations and warranties contained in Section 4 hereof. (n) At or prior to the Closing Date, counsel to the Agent shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the sale of the Shares as herein contemplated and related proceedings or in order to evidence the occurrence or completeness of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company or the Bank in connection with the Conversion and the sale of the Shares as herein contemplated shall be satisfactory in form and substance to KBW and its counsel. Section 8. Indemnification. (a) The Company and the Bank jointly and severally agree to indemnify and hold harmless the Agent, its respective officers and Trustees, employees and agents, and each person, if 33 any, who controls the Agent within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to settlement expenses), joint or several, that the Agent or any of them may suffer or to which the Agent and any such persons may become subject under all applicable federal or state laws or otherwise, and to promptly reimburse the Agent and any such persons upon written demand for any expense (including reasonable fees and disbursements of counsel) incurred by the Agent or any of them in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), the Holding Company Application or any instrument or document executed by the Company or the Bank or based upon written information supplied by the Company or the Bank filed in any state or jurisdiction to register or qualify any or all of the Shares or to claim an exemption therefrom, or provided to any state or jurisdiction to exempt the Company as a broker-dealer or its officers, Trustees and employees as broker-dealers or agent, under the securities laws thereof (collectively, the "Blue Sky Application"), or any document, advertisement, oral statement or communication ("Sales Information") prepared, made or executed by or on behalf of the Company or the Bank with their consent or based upon written or oral information furnished by or on behalf of the Company or the Bank, whether or not filed in any jurisdiction, in order to qualify or register the Shares or to claim an exemption therefrom under the securities laws thereof; (ii) arise out of or are based upon the omission or alleged omission to state in any of the foregoing documents or information, a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; or (iii) arise from any theory of liability whatsoever relating to or arising from or based upon the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), any Blue Sky Application or Sales Information or other documentation distributed in connection with the Conversion; provided, however, that no indemnification is required under this paragraph (a) to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue material statement or alleged untrue material statement in, or material omission or alleged material omission from, the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application, any Blue Sky Application or Sales Information made in reliance upon and in conformity with information furnished in writing to the Company or the Bank by the Agent or its counsel regarding the Agent provided, that it is agreed and understood that the only information furnished in writing to the Company or the Bank by the Agent regarding the Agent is set forth in the Prospectus under the caption "The Offering-Marketing and Underwriting Arrangements"; and, provided further, that such indemnification shall be to the extent permitted by the Commissioner, the Superintendent, the FDIC and the OTS. The indemnification provided for in this paragraph (a) shall not be applicable with respect to any loss, liability, claim, damage, or expense whatsoever if it is determined by final judgment of a court having jurisdiction over the 34 matter that such loss, liability, claim, damage or expense was primarily a result of the Agent's willful misconduct or gross negligence. (b) The Agent agrees to indemnify and hold harmless the Company and the Bank, their directors and trustees, respectively, and officers and each person, if any, who controls the Company or the Bank within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to settlement expenses), joint or several, which they, or any of them, may suffer or to which they, or any of them may become subject under all applicable federal and state laws or otherwise, and to promptly reimburse the Company, the Bank, and any such persons upon written demand for any expenses (including reasonable fees and disbursements of counsel) incurred by them, or any of them, in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), the preliminary or final Prospectus (or any amendment or supplement thereto), any Blue Sky Application or Sales Information, (ii) are based upon the omission or alleged omission to state in any of the foregoing documents a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) arise from any theory of liability whatsoever relating to or arising from or based upon the Registration Statement (or any amendment or supplement thereto), preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), or any Blue Sky Application or Sales Information or other documentation distributed in connection with the Conversion; provided, however, that the Agent's obligations under this Section 8(b) shall exist only if and only to the extent (i) that such untrue statement or alleged untrue statement was made in, or such material fact or alleged material fact was omitted from, the Registration Statement (or any amendment or supplement thereto), the preliminary or final Prospectus (or any amendment or supplement thereto), the Conversion Application (or any amendment or supplement thereto), any Blue Sky Application or Sales Information in reliance upon and in conformity with information furnished in writing to the Company or the Bank by the Agent or its counsel regarding the Agent. Provided, that it is agreed and understood that the only information furnished in writing to the Company or the Bank by the Agent regarding the Agent is set forth in the Prospectus under the caption "The Offering-Marketing and Underwriting Arrangements". The indemnification provided for in this paragraph (b) shall not be applicable with respect to any loss, liability, claim, damage, or expense whatsoever if it is determined by final judgment of a court having jurisdiction over the matter that such loss, liability, claim, damage or expense was primarily a result of the Company's or the Bank's willful misconduct or gross negligence. (c) Each indemnified party shall give prompt written notice to each indemnifying party of any action, proceeding, claim (whether commenced or threatened), or suit instituted against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party 35 shall not relieve it from any liability which it may have on account of this Section 8 or otherwise. An indemnifying party may participate at its own expense in the defense of such action. In addition, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume defense of such action with counsel chosen by it and approved by the indemnified parties that are defendants in such action, unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them that are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action, proceeding or claim, other than reasonable costs of investigation. In no event shall the indemnifying parties be liable for the fees and expenses of more than one separate firm of attorneys (and any special counsel that said firm may retain) for each indemnified party in connection with any one action, proceeding or claim or separate but similar or related actions, proceedings or claims in the same jurisdiction arising out of the same general allegations or circumstances. (d) The agreements contained in this Section 8 and in Section 9 hereof and the representations and warranties of the Company and the Bank set forth in this Agreement shall remain operative and in full force and effect regardless of: (i) any investigation made by or on behalf of agent or their officers, trustees, directors or controlling persons, agent or employees or by or on behalf of the Company or the Bank or any officers, trustees, directors or controlling persons, agent or employees of the Company or the Bank; (ii) delivery of and payment hereunder for the Shares; or (iii) any termination of this Agreement. Section 9. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 8 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company, the Bank or the Agent, the Company, the Bank and the Agent shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding of any claims asserted, but after deducting any contribution received by the Company, the Bank or the Agent from persons other than the other party thereto, who may also be liable for contribution) in such proportion so that the Agent is responsible for that portion represented by the percentage that the fees paid to the Agent pursuant to Section 2 of this Agreement (not including expenses) bears to the gross proceeds received by the Company from the sale of the Shares in the Offering, and the Company and the Bank shall be responsible for the balance. If, however, the allocation provided above is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 8 above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative fault of the Company and the Bank on the one hand and the Agent on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions, proceedings or claims in respect thereto), but also the relative benefits received by the Company and the Bank on the one 36 hand and the Agent on the other from the Offering (before deducting expenses). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and/or the Bank on the one hand or the Agent on the other and the parties' relative intent, good faith, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Bank and the Agent agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro-rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above in this Section 9. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions, proceedings or claims in respect thereof) referred to above in this Section 9 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action, proceeding or claim. It is expressly agreed that the Agent shall not be liable for any loss, liability, claim, damage or expense or be required to contribute any amount which in the aggregate exceeds the amount paid (excluding reimbursable expenses) to the Agent under this Agreement. It is understood that the above stated limitation on the Agent's liability is essential to the Agent and that the Agent would not have entered into this Agreement if such limitation had not been agreed to by the parties to this Agreement. No person found guilty of any fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. The obligations of the Company and the Bank under this Section 9 and under Section 8 shall be in addition to any liability which the Company and the Bank may otherwise have. For purposes of this Section 9, each of the Agent's, the Company's or the Bank's officers and trustees and each person, if any, who controls the Agent or the Company or the Bank within the meaning of the 1933 Act and the 1934 Act shall have the same rights to contribution as the Agent, the Company or the Bank. Any party entitled to contribution, promptly after receipt of notice of commencement of any action, suit, claim or proceeding against such party in respect of which a claim for contribution may be made against another party under this Section 9, will notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any other obligation it may have hereunder or otherwise than under this Section 9. Section 10. Survival of Agreements, Representations and Indemnities. The respective indemnities of the Company, the Bank and the Agent and the representations and warranties and other statements of the Company, the Bank and the Agent set forth in or made pursuant to this Agreement shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of the Agent, the Company, the Bank or any controlling person referred to in Section 8 hereof, and shall survive the issuance of the Shares, and any successor or assign of the Agent, the Company, the Bank, and any such controlling person shall be entitled to the benefit of the respective agreements, indemnities, warranties and representations. 37 Section 11. Termination. The Agent may terminate this Agreement by giving the notice indicated below in this Section 11 at any time after this Agreement becomes effective as follows: (a) In the event the Company fails to sell the required minimum number of the Shares by , 1998, and in accordance with the provisions of the Plan or as required by the Conversion Regulations, and applicable law, this Agreement shall terminate upon refund by the Company to each person who has subscribed for or ordered any of the Shares the full amount which it may have received from such person, together with interest as provided in the Prospectus, and no party to this Agreement shall have any obligation to the other hereunder, except for payment by the Company and/or the Bank as set forth in Sections 2(a), 6, 8 and 9 hereof. (b) If any of the conditions specified in Section 7 shall not have been fulfilled when and as required by this Agreement unless waived in writing, or by the Closing Date, this Agreement and all of the Agent's obligations hereunder may be cancelled by the Agent by notifying the Company and the Bank of such cancellation in writing or by telegram at any time at or prior to the Closing Date, and any such cancellation shall be without liability of any party to any other party except as otherwise provided in Sections 2(a), 6, 8 and 9 hereof. (c) If the Agent elects to terminate this Agreement as provided in this Section, the Company and the Bank shall be notified promptly by telephone or telegram, confirmed by letter. The Company and the Bank may terminate this Agreement in the event the Agent is in material breach of the representations and warranties or covenants contained in Section 5 and such breach has not been cured after the Company and the Bank have provided KBW with notice of such breach. This Agreement may also be terminated by mutual written consent of the parties hereto. Section 12. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be mailed in writing and if sent to the Agent shall be mailed, delivered or telegraphed and confirmed to Keefe, Bruyette & Woods, Inc., 211 Bradenton Avenue, Dublin, Ohio 43017-5034, Attention: Patricia A. McJoynt (with a copy to Serchuk & Zelermyer, L.L.P, Attention: Clifford S. Weber, Esq. and, if sent to the Company and the Bank, shall be mailed, delivered or telegraphed and confirmed to the Company and the Bank at Cohoes Bancorp, Inc., 75 Remsen Street, Cohoes, New York 12047-2892, Attention: Harry L. Robinson, President (with a copy to Silver, Freedman & Taff, L.L.P., Attention: Martin L. Meyrowitz, P.C.). Section 13. Parties. The Company and the Bank shall be entitled to act and rely on any request, notice, consent, waiver or agreement purportedly given on behalf of the Agent when the same shall have been given by the undersigned. The Agent shall be entitled to act and rely on any request, notice, consent, waiver or agreement purportedly given on behalf of the Company or the Bank, when the same shall have been given by the undersigned or any other officer of the Company 38 or the Bank. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Agent, the Company, the Bank, and their respective successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. It is understood and agreed that this Agreement is the exclusive agreement among the parties hereto, and supersedes any prior agreement among the parties and may not be varied except in writing signed by all the parties. Section 14. Closing. The closing for the sale of the Shares shall take place on the Closing Date at such location as mutually agreed upon by the Agent and the Company and the Bank. At the closing, the Company and the Bank shall deliver to the Agent in next day funds the commissions, fees and expenses due and owing to the Agent as set forth in Sections 2 and 6 hereof and the opinions and certificates required hereby and other documents deemed reasonably necessary by the Agent shall be executed and delivered to effect the sale of the Shares as contemplated hereby and pursuant to the terms of the Prospectus. Section 15. Partial Invalidity. In the event that any term, provision or covenant herein or the application thereof to any circumstance or situation shall be invalid or unenforceable, in whole or in part, the remainder hereof and the application of said term, provision or covenant to any other circumstances or situation shall not be affected thereby, and each term, provision or covenant herein shall be valid and enforceable to the full extent permitted by law. Section 16. Construction. This Agreement shall be construed in accordance with the laws of the State of New York. Section 17. Counterparts. This Agreement may be executed in separate counterparts, each of which so executed and delivered shall be an original, but all of which together shall constitute but one and the same instrument. If the foregoing correctly sets forth the arrangement among the Company, the Bank and the Agent, please indicate acceptance thereof in the space provided below for that purpose, whereupon this letter and the Agent's acceptance shall constitute a binding agreement. 39 Section 18. Entire Agreement. This Agreement, including schedules and exhibits hereto, which are integral parts hereof and incorporated as though set forth in full, constitutes the entire agreement between the parties pertaining to the subject matter hereof superseding any and all prior or contemporaneous oral or prior written agreements, proposals, letters of intent and understandings, and cannot be modified, changed, waived or terminated except by a writing which expressly states that it is an amendment, modification or waiver, refers to this Agreement and is signed by the party to be charged. No course of conduct or dealing shall be construed to modify, amend or otherwise affect any of the provisions hereof. Very truly yours, COHOES BANCORP, INC. COHOES SAVINGS BANK By Its Authorized By Its Authorized Representative: Representative: ___________________________ ___________________________ Harry L. Robinson Harry L. Robinson President President Accepted as of the date first above written Keefe, Bruyette & Woods, Inc. By Its Authorized Representative: ____________________________ Patricia A. McJoynt Executive Vice President 40 EX-5 3 EXHIBIT 5 Exhibit 5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of stock Exhibit 5 [SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD] October 28, 1998 The Board of Directors Cohoes Bancorp, Inc. 75 Remsen Street Cohoes, NY 12042 Re: Registration Statement Under the Securities Act of 1933 -------------------------------- Gentlemen: This opinion is rendered in connection with the Registration Statement to be filed on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933 relating to the 12,788,790 shares of Common Stock of Cohoes Bancorp, Inc. (the "Company"), par value $.01 per share, to be issued. As counsel, we have reviewed the Certificate of Incorporation of the Company and such other documents as we have deemed appropriate for the purpose of this opinion. We are rendering this opinion as of the time the Registration Statement referred to above becomes effective. Based on the foregoing, we are of the opinion that the shares of Common Stock of the Company covered by the aforesaid Registration Statement will, when sold, be validly issued, fully paid and non-assessable shares of Common Stock of the Company. Very truly yours, /s/ Silver, Freedman & Taff, L.L.P. ----------------------------------- SILVER FREEDMAN & TAFF, L.L.P. EX-8 4 EXHIBIT 8.1 Exhibit 8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax consequences of the Conversion [SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD] October 29, 1998 Board of Trustees Cohoes Savings Bank 75 Remsen Street Cohoes, New York 12047 RE: Federal Income Tax Opinion Relating To The Conversion Of Cohoes Savings Bank From A State-Chartered Mutual Savings Institution To A State-Chartered Stock Savings Institution Under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, As Amended -------------------------------------------------------------- Gentlemen: In accordance with your request set forth hereinbelow is the opinion of this firm relating to the federal income tax consequences of the conversion of Cohoes Savings Bank ("Mutual") from a New York chartered mutual savings institution to a New York chartered stock savings institution ("Stock Institution") pursuant to the provisions of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms used herein which are not expressly defined herein shall have the meaning ascribed to them in the Plan of Conversion dated May 21, 1998 (the "Plan"). The following assumptions have been made in connection with our opinions hereinbelow: 1. The Conversion is implemented in accordance with the terms of the Plan and all conditions precedent contained in the Plan shall be performed or waived prior to the consummation of the Conversion. Board of Trustees Cohoes Savings Bank October 29, 1998 Page 2 - -------------------------------------------------------------------------------- 2. No amount of the savings accounts and deposits of Mutual, as of the Eligibility Record Date or the Supplemental Eligibility Record Date, will be excluded from participating in the liquidation account of Stock Institution. To the best of the knowledge of the management of Mutual there is not now, nor will there be at the time of the Conversion, any plan or intention, on the part of the depositors in Mutual to withdraw their deposits following the Conversion. Deposits withdrawn immediately prior to or immediately subsequent to the Conversion (other than maturing deposits) are considered in making these assumptions. 3. Holding Company and Stock Institution each have no plan or intention to redeem or otherwise acquire any of the Holding Company Common Stock to be issued in the proposed transaction. 4. Immediately following the consummation of the proposed transaction, Stock Institution will possess the same assets and liabilities as Mutual held immediately prior to the proposed transaction, plus substantially all of the net proceeds from the sale of its stock to Holding Company except for assets used to pay expenses of the Conversion. The liabilities transferred to Stock Institution were incurred by Mutual in the ordinary course of business. 5. No cash or property will be given to deposit account holders in lieu of Subscription Rights or an interest in the liquidation account of Stock Institution. 6. Following the Conversion, Stock Institution will continue to engage in its business in substantially the same manner as Mutual engaged in business prior to the Conversion, and it has no plan or intention to sell or otherwise dispose of any of its assets, except in the ordinary course of business. 7. There is no plan or intention for Stock Institution to be liquidated or merged with another corporation following the consummation of the Conversion. Board of Trustees Cohoes Savings Bank October 29, 1998 Page 3 - -------------------------------------------------------------------------------- 8. The fair market value of each savings account plus an interest in the liquidation account of Stock Institution will, in each instance, be approximately equal to the fair market value of each savings account of Mutual plus the interest in the residual equity of Mutual surrendered in exchange therefor. 9. Holding Company has no plan or intention to sell or otherwise dispose of the stock of Stock Institution received by it in the proposed transaction. 10. Both Stock Institution and Holding Company have no plan or intention, either currently or at the time of Conversion, to issue additional shares of common stock following the proposed transaction, other than (a) shares that may be issued to employees, directors and/or trustees pursuant to certain stock option and stock incentive plans or that may be issued to employee benefit plans and (b) up to 3% of Holding Company Common Stock to the Cohoes Savings Foundation, a charitable organization created under Section 501(c)(3) of the Code (the "Foundation"). 11. Assets used to pay expenses of the Conversion and all distributions (except for regular, normal interest payments and other payments in the normal course of business made by Mutual immediately preceding the transaction) will in the aggregate constitute less than 1% of the net assets of Mutual, and any such expenses and distributions will be paid from the proceeds of the sale of Holding Company Common Stock. 12. All distributions to deposit account holders in their capacity as deposit account holders (except for regular, normal interest payments made by Mutual), will, in the aggregate, constitute less than 1% of the fair market value of the net assets of Mutual. 13. At the time of the proposed transaction, the fair market value of the assets of Mutual on a going concern basis (including intangibles) will equal or exceed the amount of its liabilities plus the amount of liabilities to which such assets are subject. Mutual will have a positive regulatory net worth at the time of the Conversion. 14. Mutual is not under the jurisdiction of a court in a Title 11 or similar case Board of Trustees Cohoes Savings Bank October 29, 1998 Page 4 - -------------------------------------------------------------------------------- within the meaning of Section 368(a)(3)(A) of the Code. The proposed transaction does not involve a receivership, foreclosure, or similar proceeding before a federal or state agency involving a financial institution to which Section 585 of the Code applies. 15. Mutual's Eligible Account Holders and Supplemental Eligible Account Holders will pay expenses of the Conversion solely attributable to them, if any. 16. The liabilities of Mutual assumed by Stock Institution plus the liabilities, if any, to which the transferred assets are subject were incurred by Mutual in the ordinary course of its business and are associated with the assets being transferred. 17. There will be no purchase price advantage for Mutual's deposit account holders who purchase Holding Company Common Stock. 18. None of the compensation to be received by any deposit account holder- employees of Mutual or Holding Company will be separate consideration for, or allocable to, any of their deposits in Mutual. No interest in the liquidation account of Stock Institution will be received by any deposit account holder-employee as separate consideration for, or will otherwise be allocable to, any employment agreement, and the compensation paid to each deposit account holder-employee, during the twelve-month period preceding or subsequent to the Conversion, will be for services actually rendered and will be commensurate with amounts paid to the third parties bargaining at arm's-length for similar services. No shares of Holding Company Common Stock will be issued to or purchased by any deposit account holder-employee of Mutual or Holding Company at a discount or as compensation in the proposed transaction. 19. No creditors of Mutual or the depositors in their role as creditors, have taken any steps to enforce their claims against Mutual by instituting bankruptcy or other legal proceedings, in either a court or appropriate regulatory agency, that would eliminate the proprietary interests of depositors prior to the Conversion of Mutual as the equity holders of Mutual. 20. The proposed transaction does not involve the payment to Stock Institution Board of Trustees Cohoes Savings Bank October 29, 1998 Page 5 - -------------------------------------------------------------------------------- or Mutual of financial assistance from federal agencies within the meaning of Notice 89-102, 1989-40 C.B. 1. 21. On a per share basis, the purchase price of Holding Company Common Stock will be equal to the fair market value of such stock at the time of the completion of the proposed transaction. 22. Mutual has received or will receive an opinion from RP Financial LC. ("Appraiser's Opinion"), which concludes that the Subscription Rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and other eligible subscribers do not have any ascertainable fair market value, since they are acquired by the recipients without cost, are non-transferable and of short duration, and afford the recipients a right only to purchase Holding Company Common Stock at a price equal to its estimated fair market value, which will be the same price as the Public Offering Price for unsubscribed shares of Holding Company Common Stock. 23. Mutual will not have any net operating losses, capital loss carryovers or built-in losses at the time of the Conversion. As part of the Conversion, Holding Company intends to donate to the Foundation up to 3% shares of its common stock. The Plan states that the Foundation is intended to complement Mutual's existing community reinvestment activities and to support the communities in which Mutual operates. The Foundation will be dedicated to the promotion of charitable purposes within the communities in which Mutual operates, including, but not limited to grants or donations to support not-for-profit medical facilities, cultural activities, community groups and other types of organizations or projects. The Foundation will annually distribute total grants and donations to assist charitable organizations or to fund projects of not less than five percent (5%) of its net investment assets. Board of Trustees Cohoes Savings Bank October 29, 1998 Page 6 - -------------------------------------------------------------------------------- OPINION Based solely on the assumptions set forth hereinabove and our analysis and examination of applicable federal income tax laws, rulings, regulations, judicial precedents and the Appraiser's Opinion, we are of the opinion that if the transaction is undertaken in accordance with the above assumptions: (1) The Conversion will constitute a reorganization within the meaning of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Institution will recognize any gain or loss as a result of the transaction (Rev. Rul. 80-105, 1980-1 C.B. 78). Mutual and Stock Institution will each be a party to a reorganization within the meaning of Section 368(b) of the Code. (2) Stock Institution will recognize no gain or loss upon the receipt of money and other property, if any, in the Conversion, in exchange for its shares. (Section 1032(a) of the Code.) (3) No gain or loss will be recognized by Holding Company upon the receipt of money for Holding Company Common Stock. (Section 1032(a) of the Code.) (4) The basis of Mutual's assets in the hands of Stock Institution will be the same as the basis of those assets in the hands of Mutual immediately prior to the transaction. (Section 362(b) of the Code.) (5) Mutual, Stock Institution and Holding Company are each corporations within the meaning of Section 7701(a)(3) of the Code. (6) Mutual and Stock Institution are not investment companies as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code. (7) Stock Institution's holding period of the assets of Mutual will include the period during which such assets were held by Mutual prior to the Conversion. (Section 1223(2) of the Code). Board of Trustees Cohoes Savings Bank October 29, 1998 Page 7 - -------------------------------------------------------------------------------- (8) The tax year of Mutual will not end on the effective date of the Conversion. The part of the tax year of Mutual before the Conversion will be includible in the tax year of Stock Institution after the Conversion. Therefore, Mutual will not have to file a federal income tax return for the portion of the tax year prior to the Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126). (9) Depositors will realize gain, if any, upon the constructive issuance to them of withdrawable deposit accounts of Stock Institution, Subscription Rights and/or interests in the liquidation account of Stock Institution. Any gain resulting therefrom will be recognized, but only in an amount not in excess of the fair market value of the liquidation accounts and/or Subscription Rights received. The liquidation accounts will have nominal, if any, fair market value. Based solely on the accuracy of the conclusion reached in the Appraiser's Opinion, and our reliance on such opinion, that the Subscription Rights have no value at the time of distribution or exercise, no gain or loss will be required to be recognized by depositors upon receipt or distribution of Subscription Rights. (Section 1001 of the Code); See Paulsen v. Commissioner, 469 U.S. 131,139 (1985). Likewise, based solely on the accuracy of the aforesaid conclusion reached in the Appraiser's Opinion, and our reliance thereon, we give the following opinions: (a) no taxable income will be recognized by the trustees, officers and employees of Mutual upon the distribution to them of Subscription Rights or upon the exercise or lapse of the Subscription Rights to acquire Holding Company Common Stock at fair market value; (b) no taxable income will be realized by the depositors of Mutual as a result of the exercise or lapse of the Subscription Rights to purchase Holding Company Common Stock at fair market value (Rev. Rul. 56-572, 1956-2 C.B. 182); and (c) no taxable income will be realized by Mutual, Stock Institution or Holding Company on the issuance or distribution of Subscription Rights to depositors of Mutual to purchase shares of Holding Company Common Stock at fair market value. (Section 311 of the Code.) Notwithstanding the Appraiser's Opinion, if the Subscription Rights are subsequently found to have a fair market value, income may be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and Holding Company and/or Stock Institution may be taxable on the distribution of the Subscription Rights. (Section 311 of the Code). In this regard, the Subscription Rights may be taxed partially or entirely at ordinary income tax rates. Board of Trustees Cohoes Savings Bank October 29, 1998 Page 8 - -------------------------------------------------------------------------------- (10) The creation of the liquidation account on the records of Stock Institution will have no effect on Mutual's or Stock Institution's taxable income, deductions, or tax bad debt reserve. (11) A depositor's basis in the savings deposits of Stock Institution will be the same as the basis of his savings deposits in Mutual. (Section 1012 of the Code). Based upon the Appraiser's Opinion, the basis of the Subscription Rights will be zero. The basis of the interest in the liquidation account of Stock Institution received by Eligible Account Holders and Supplemental Eligible Account Holders will be equal to the cost of such property, i.e., the fair market value of the proprietary interest in Mutual, which in this transaction we assume to be zero. (12) The basis of Holding Company Common Stock to its shareholders will be the purchase price thereof. (Section 1012 of the Code). (13) Regardless of any book entries that are made for the establishment of a liquidation account, the reorganization will not diminish the accumulated earnings and profits of Mutual available for the subsequent distribution of dividends, within the meaning of Section 316 of the Code. (Section 1.312-11(b) and (c) of the Regulations). Stock Institution will succeed to and take into account the earnings and profits or deficit in earnings and profits, of Mutual as of the date of Conversion. The above opinions are effective to the extent that Mutual is solvent. No opinion is expressed about the tax treatment of the transaction if Mutual is insolvent. Whether or not Mutual is solvent will be determined at the end of the taxable year in which the transaction is consummated. Board of Trustees Cohoes Savings Bank October 29, 1998 Page 9 - -------------------------------------------------------------------------------- No opinion is expressed as to the tax treatment of the transaction under the provisions of any of the other sections of the Code and Income Tax Regulations which may also be applicable thereto, or to the tax treatment of any conditions existing at the time of, or effects resulting from, the transaction which are not specifically covered by the opinions set forth above. No opinion is expressed as to the tax treatment of the establishment or funding of the Foundation. Respectfully submitted, SILVER, FREEDMAN & TAFF, L.L.P. /s/ Gary A. Lax, P.C. --------------------------------- EX-8 5 EXHIBIT 8.2 Exhibit 8.2 Opinion of Wertime, Ries and Van Ullen, P.C. with respect to New York income tax consequences of the Conversion [Wertime, Ries & Van Ullen, P.C. Letterhead] October 29, 1998 Board of Trustees Cohoes Savings Bank 75 Remsen Street Cohoes, New York 12047 Board Members: You have requested our opinion as to the New York State franchise and New York State personal income tax consequences relating to the proposed conversion of Cohoes Savings Bank from a state chartered mutual savings bank to a state chartered stock savings bank (Stock Bank) and the formation of Cohoes Bancorp Inc., which will acquire all of the outstanding stock of Stock Bank. You have submitted to us a copy of the federal income tax opinion ("Federal Opinion") dated October 29, 1998 relating to the federal income tax consequences of the proposed transaction prepared by your counsel, Silver, Freedman & Taff, L.L.P. Our opinion regarding the New York State franchise and New York State personal income tax consequences of the proposed transaction is based on the same facts, assumptions and conditions contained in the Federal Opinion. It is also based on existing New York Tax Law which is subject to change. We have not reviewed the legal documents necessary to effectuate the steps to be undertaken, and we assume that all steps will be properly effectuated under state and federal law and will be consistent with the legal documentation. In our opinion, the New York State franchise and New York State personal income tax consequences of the proposed transaction are consistent with the federal income tax consequences of the proposed transaction opined upon the Federal Opinion. For the purposes of the franchise tax the State of New York has adopted federal taxable income (Internal Revenue Code Sec. 63), as currently amended, as the starting point for computing New York entire net income (NYS Tax Law Sec. 1453). Franchise tax terms are defined in relation to the Internal Revenue Code of 1986, as amended. Taxpayers are required to use federal taxable income as the starting point for the computation of entire net income. Several specific modifications to federal taxable income are enumerated in the New York Tax Law and the Banking Corporation Regulations in determining income taxable for New York State franchise tax purposes. There are, however, no specific modifications which apply to the proposed transaction (see New York State Tax Law Article 32, Section 1453 (b) through (o) and Regulation Sections 18-2.3, 18-2.4 and 18-2.5 of the Franchise Tax on Banking Corporations). Board of Trustees October 29, 1998 Page 2 The State of New York has adopted federal adjusted gross income (IRC Sec. 62), as currently amended, as the starting point for computing New York taxable income (NYS Tax Law Sec. 612) for personal income tax purposes. Income tax terms are defined in relation to the Internal Revenue Code of 1986, as amended. New York modifications to federal taxable income are enumerated in the Statutes in determining income taxable for New York State personal income tax purposes. There are, however, no specific modifications applicable to the proposed transactions (see New York State Tax Law Article 22, Sections 612 (b) through (t) and Regulation Sections 1 12.2 through 1 12.13 of the Personal Income Tax). Our opinion expressed above is rendered only with respect to the New York franchise and New York State personal income tax consequences of the matters specifically discussed herein. We express no opinion with respect to any other New York franchise, income or transfer tax matter or any other federal, state, local or foreign tax matter relating to the proposed transaction. Our opinion is based on the facts and conditions as stated herein, whether directly or by reference to the Federal Opinion. It is expressly understood and agreed to by Cohoes Savings Bank that Wertime, Ries & Van Ullen, P.C. is relying solely on the Federal Opinion in all respects, relating to the federal tax consequences of the matters described herein. Wertime, Ries & Van Ullen, P.C. has not independently verified the accuracy of any fact, representation, opinion of other matter contained in the Federal Tax Opinion and should any fact, representation, opinion or other matter addressed therein not be correct, it could cause the opinion contained herein regarding New York State franchise and income taxes, to also be incorrect. If any of the facts and conditions are not entirely complete or accurate, it is imperative that we be informed immediately, as the inaccuracy or incompleteness could have a material effect on our conclusions. In rendering our opinion, we are relying upon the relevant provisions of the Internal Revenue Code of 1986, as amended, and New York Statutes, as amended, the regulations and rules thereunder and judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative, or judicial decisions. Any such changes could also have an effect on the validity of our opinion. We undertake no responsibility to update or supplement our opinion after its issuance. This opinion is not binding upon any tax authority or any court and no assurance can be given that a position contrary to that expressed herein will not be asserted by a tax authority and ultimately sustained by a court. Very truly yours, WERTIME, RIES & VAN ULLEN, P.C. /s/ Charles B. Ries ------------------------------- EX-10 6 EXHIBIT 10.6 Exhibit 10.6 Form of Cohoes Savings Bank 401(k) Savings Plan ================================================================================ Cohoes Savings Bank 401(k) Retirement Savings Plan In RSI Retirement Trust (As Amended And Restated Effective April 1, 1993 And As Further Amended Through January 1, 1994) ================================================================================ TABLE OF CONTENTS Table Of Contents ........................................................... i Introduction ........................................................... 1 Article I -- Definitions..................................................... 2 Article II -- Eligibility and Participation.................................. 12 2.1 Eligibility...................................................... 12 2.2 Ineligible Employees............................................. 12 2.3 Participation.................................................... 12 2.4 Termination of Participation..................................... 13 2.5 Eligibility upon Reemployment.................................... 13 Article III -- Contributions and Limitations on Contributions................ 15 3.1 Basic Contributions.............................................. 15 3.2 Limitation on Basic Contributions................................ 15 3.3 Changes in Basic Contributions................................... 17 3.4 Matching Contributions........................................... 17 3.5 Special Contributions............................................ 18 3.6 Discretionary Employer Contributions............................. 18 3.7 Post-Tax Contributions........................................... 19 3.8 Changes in Post-Tax Contributions................................ 19 3.9 Limitation on Matching Contributions and Post-Tax Contributions.. 20 3.10 Aggregate Limit; Multiple Use of Alternative Limitation.......... 21 3.11 Interest on Excess Contributions................................. 22 3.12 Payment of Contributions to the Trust............................ 23 3.13 Rollover Contributions........................................... 24 3.14 Section 415 Limits on Contributions.............................. 24 Article IV -- Vesting and Forfeitures........................................ 28 4.1 Vesting.......................................................... 28 4.2 Forfeitures...................................................... 29 4.3 Vesting upon Reemployment........................................ 30 Article V -- Trust Fund and Investment Accounts.............................. 31 5.1 Trust Fund....................................................... 31 5.2 Interim Investments.............................................. 31 5.3 Account Values................................................... 31 Article VI -- Investment Directions, Changes of Investment Directions and Transfers Between Investment Accounts...................... 33 6.1 Investment Directions............................................ 33 6.2 Change of Investment Directions.................................. 33 6.3 Transfers Between Investment Accounts............................ 33 6.4 Employees Other than Participants................................ 33 i Article VII -- Payment of Benefits........................................... 35 7.1 General.......................................................... 35 7.2 Spousal Consent Requirements - Change From Life Annuity, Optional Forms of Benefit Payments, Beneficiaries.............. 36 7.3 Non-Hardship Withdrawals......................................... 37 7.4 Hardship Distributions........................................... 37 7.5 Distribution of Benefits Following Retirement, Disability Or Termination of Service......................................... 40 7.6 Payments upon Retirement or Disability........................... 41 7.7 Payments upon Termination of Service for Reasons Other Than Retirement or Disability....................................... 44 7.8 Payments Upon Death.............................................. 46 7.9 Direct Rollover of Eligible Rollover Distributions............... 49 7.10 Latest Commencement of Benefits.................................. 50 Article VIII --Loans to Participants......................................... 51 8.1 Definitions and Conditions....................................... 51 8.2 Loan Amount...................................................... 51 8.3 Term of Loan..................................................... 51 8.4 Operational Provisions........................................... 52 8.5 Repayments....................................................... 53 8.6 Default.......................................................... 54 8.7 Coordination of Outstanding Account and Payment of Benefits...... 54 Article IX -- Administration................................................. 56 9.1 General Administration of the Plan............................... 56 9.2 Designation of Named Fiduciaries................................. 56 9.3 Responsibilities of Fiduciaries.................................. 56 9.4 Plan Administrator............................................... 57 9.5 Committee........................................................ 57 9.6 Powers and Duties of the Committee............................... 58 9.7 Certification of Information..................................... 59 9.8 Authorization of Benefit Payments................................ 59 9.9 Payment of Benefits to Legal Custodian........................... 59 9.10 Service in More Than One Fiduciary Capacity...................... 60 9.11 Payment of Expenses.............................................. 60 ii Article X -- Benefit Claims Procedure........................................ 61 10.1 Definition....................................................... 61 10.2 Claims........................................................... 61 10.3 Disposition of Claim............................................. 61 10.4 Denial of Claim.................................................. 61 10.5 Inaction by Plan Administrator................................... 62 10.6 Right to Full and Fair Review.................................... 62 10.7 Time of Review................................................... 62 10.8 Final Decision................................................... 62 Article XI -Amendment, Termination, and Withdrawal........................... 63 11.1 Amendment and Termination........................................ 63 11.2 Withdrawal from the Trust Fund................................... 63 Article XII -Top-Heavy Plan Provisions....................................... 64 12.1 Introduction..................................................... 64 12.2 Definitions...................................................... 64 12.3 Minimum Contributions............................................ 68 12.4 Impact on Section 415 Maximum Benefits........................... 69 12.5 Vesting.......................................................... 70 Article XIII -- Miscellaneous Provisions..................................... 71 13.1 No Right to Continued Employment................................. 71 13.2 Merger, Consolidation, or Transfer............................... 71 13.3 Nonalienation of Benefits........................................ 71 13.4 Missing Payee.................................................... 71 13.5 Affiliated Employers............................................. 72 13.6 Successor Employer............................................... 72 13.7 Return of Employer Contributions................................. 72 13.8 Adoption of Plan by Affiliated Employer.......................... 72 13.9 Construction of Language......................................... 73 13.10 Headings......................................................... 73 13.11 Governing Law.................................................... 73 iii INTRODUCTION Effective as of January 1, 1986, Cohoes Savings Bank ("Employer") adopted the Cohoes Savings Bank Retirement Savings Plan ("Prior Plan"). Effective as of April 1, 1993, the Employer adopted resolutions wherein RSI Retirement Trust was named successor trustee and the RSI Retirement Trust Agreement and Declaration of Trust ("Agreement") was adopted. Effective as of April 1, 1993, the Prior Plan was amended and restated in its entirety. It incorporates the applicable provisions of the Tax Reform Act of 1986 and subsequent legislation and regulations through the Omnibus Budget Reconciliation Act of 1993. The amended and restated plan shall be known as the Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), shall contain the terms and conditions set forth herein, and shall in all respects be subject to the provisions of the Agreement which are incorporated herein and made a part hereof. The Plan as amended and restated hereunder incorporates a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended ("Code"). The Plan shall constitute a profit-sharing plan within the meaning of Section 401(a) of the Code, without regard to current or accumulated profits of the Employer, as provided in Section 401(a)(27) of the Code. Subject to any amendments that may subsequently be adopted by the Employer prior to his Termination of Service, the provisions set forth in this Plan shall apply to an Employee who is in the employment of the Employer on or after April 1, 1993. Except to the extent specifically required to the contrary under the terms of this Plan, for terminations of employment prior to April 1, 1993, the rights and benefits of a former participant shall be determined in accordance with the provisions of the Prior Plan as in effect on the date of the former participant's termination of employment. The Employer has herein restated the Plan with the intention that (a) the Plan shall at all times be qualified under Section 401(a) of the Code, (b) the Agreement shall be tax-exempt under Section 501(a) of the Code, and (c) Employer contributions under the Plan shall be tax deductible under Section 404 of the Code. The provisions of the Plan and the Agreement shall be construed to effectuate such intentions. Article I Definitions - -------------------------------------------------------------------------------- ARTICLE I -- DEFINITIONS The following words and phrases shall have the meanings hereinafter ascribed to them. Those words and phrases which have limited application are defined in the respective Articles in which such terms appear. 1.1 Accounts means the Basic Contribution Account (including Special Contributions, if any), Matching Contribution Account, Discretionary Employer Contribution Account, Post-Tax Contribution Account, and Rollover Contribution 1.2 Actual Contribution Percentage means the ratio (expressed as a percentage) of the sum of Matching Contributions and Post-Tax Contributions under the Plan which are made on behalf of an Eligible Employee for the Plan Year to such Eligible Employee's compensation (as defined under Section 414(s) of the Code) for the Plan Year. An Eligible Employee's compensation hereunder shall include compensation receivable from the Employer for that portion of the Plan Year during which the Employee is an Eligible Employee, up to a maximum of $200,000, adjusted as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code. Commencing January 1, 1994, the amount of Compensation taken into account for a Plan Year shall not exceed $150,000, adjusted in multiples of $10,000 for increases in the cost-of-living as prescribed by the Secretary of the Treasury under Section 401(a)(17)(B) of the Code. In determining compensation, the rules of Section 414(q)(6) of the Code shall apply except that the term "family" shall include only the Spouse and those lineal descendants of the Employee who have not attained age nineteen (19) before the close of the Plan Year. 1.3 Actual Deferral Percentage means the ratio (expressed as a percentage) of the sum of Basic Contributions, and those Qualified Nonelective Contributions taken into account under the Plan for the purpose of determining the Actual Deferral Percentage, which are made on behalf of an Eligible Employee for the Plan Year to such Eligible Employee's compensation (as defined under Section 414(s) of the Code) for the Plan Year. An Eligible Employee's compensation hereunder shall include compensation receivable from the Employer for that portion of the Plan Year during which the Employee is an Eligible Employee, up to a maximum of $200,000, adjusted as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code. Commencing January 1, 1994, the amount of Compensation taken into account for a Plan Year shall not exceed $150,000, adjusted in multiples of $10,000 for increases in the cost-of-living as prescribed by the Secretary of the Treasury under Section 401(a)(17)(B) of the Code. In determining compensation, the rules of Section 414(q)(6) of the Code shall apply except that the term "family" shall include only the Spouse and those lineal descendants of the Employee who have not attained age nineteen (19) before the close of the Plan Year. 1.4 Affiliated Employer means a member of an affiliated service group (as defined under Section 414(m) of the Code), a controlled group of corporations (as defined under Section 414(b) of the Code), a group of trades or businesses under common control (as defined under Section 414(c) of the Code) of which the Employer is a member, any leasing organization (as defined under Section 414(n) of the Code) providing the services of Leased Employees to the Employer, or any other group provided for under any and all Income Tax Regulations promulgated by the Secretary of the Treasury under Section 414(o) of the Code. 2 Article I -- Definitions - -------------------------------------------------------------------------------- 1.5 Affiliated Service means employment with an employer during the period that such employer is an Affiliated Employer. 1.6 Agreement means the RSI Retirement Trust Agreement and Declaration of Trust as amended and restated August 1, 1990, as amended from time to time. The Agreement shall be incorporated herein and constitute a part of the Plan. 1.7 Average Actual Contribution Percentage means the average of the Actual Contribution Percentages of (a) the group comprised of Eligible Employees who are Highly Compensated Employees or (b) the group comprised of Eligible Employees who are Non-Highly Compensated Employees, whichever is applicable. 1.8 Average Actual Deferral Percentage means the average of the Actual Deferral Percentages of (a) the group comprised of Eligible Employees who are Highly Compensated Employees or (b) the group comprised of Eligible Employees who are Non-Highly Compensated Employees, whichever is applicable. 1.9 Basic Contribution Account means the separate, individual account established on behalf of a Participant to which Basic Contributions and Special Contributions, if any, and "Deferred Salary Elective Deferrals" from the Prior Plan, if any, made on his behalf are credited, together with all earnings and appreciation thereon, and against which are charged any withdrawals, loans and other distributions made from such account and any losses, depreciation or expenses allocable to amounts credited to such account. 1.10 Basic Contributions means the contributions of the Employer made in accordance with the Compensation Reduction Agreements of Participants pursuant to Section 3.1. 1.11 Beneficiary means any person who is receiving or is eligible to receive a benefit under Section 7.8 of the Plan upon the death of an Employee or former Employee. 1.12 Board means the board of trustees, directors or other governing body of the Employer. 1.13 Code means the Internal Revenue Code of 1986, as amended from time to time. 1.14 Committee means the person or persons appointed by the Employer in accordance with Section 9.2(b). 1.15 Compensation means an Employee's wages, salary, fees and other amounts defined as compensation in Section 415(c)(3) of the Code and Income Tax Regulations Sections 1.415-2(d)(2) and (3), received for personal services actually rendered in the course of employment with the 3 Article I -- Definitions - -------------------------------------------------------------------------------- Employer for the calendar year, prior to any reduction pursuant to a Compensation Reduction Agreement. Compensation shall include overtime, bonuses, (except bonuses earned under the "Officer's Bonus Plan"), wage continuation payments to an Employee absent due to illness or disability of a short-term nature, amounts paid or reimbursed by the Employer for Employee moving expenses (to the extent not deductible by the Employee), and the value of any nonqualified stock option granted to an Employee by the Employer (to the extent includable in gross income for the year granted). Compensation does not include commissions, contributions made by the Employer to any other pension, deferred compensation, welfare or other employee benefit plan, amounts realized from the exercise of a nonqualified stock option or the sale of a qualified stock option, and other amounts which receive special tax benefits. Compensation shall not exceed $200,000, adjusted as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code. Commencing January 1, 1994, Compensation shall not exceed $150,000, adjusted in multiples of $10,000 for increases in the cost-of-living as prescribed by the Secretary of the Treasury under Section 401(a)(17)(B) of the Code. In determining the dollar limitation hereunder, compensation received from any Affiliated Employer shall be recognized as Compensation and the rules of Section 414(q)(6) of the Code shall apply except that the term "family" shall include only the Spouse and those lineal descendants of the Employee who have not attained age nineteen (19) before the close of the Plan Year. 1.16 Compensation Reduction Agreement means an agreement between the Employer and an Eligible Employee whereby the Eligible Employee agrees to reduce his Compensation during the applicable payroll period by an amount equal to any whole percentage thereof and the Employer agrees to contribute to the Trust, on behalf of such Eligible Employee, an amount equal to the specified reduction in Compensation. 1.17 Disability means a physical or mental condition which renders the Participant eligible for benefits under the Employer's long term disability plan. 1.18 Discretionary Employer Contribution Account means the separate, individual account established on behalf of a Participant to which Discretionary Employer Contributions, if any, and "Company Optional Contributions" from the Prior Plan, if any, are credited, together with all earnings and appreciation thereon, and against which are charged any withdrawals, loans and other distributions made from such account, as well as any losses, depreciation, or expenses allocable to amounts credited to such account. 1.19 Discretionary Employer Contributions means the amounts, if any, contributed by the Employer on behalf of a Participant, pursuant to Section 3.6. 1.20 Early Retirement Date means the first day of any month coincident with or following (a) the Participant's completion of a consecutive five (5) year Period of Service and (b) the earlier of the Participant's (i) attainment of age sixty (60) or (ii) the date as of which the sum of the Participant's attained age and Period of Service equals or exceeds 4 Article I -- Definitions - -------------------------------------------------------------------------------- seventy-five (75). If a Participant incurs a Termination of Service after having completed a consecutive five (5) year Period of Service but before attaining age (i) sixty (60) or (ii) the age which, when added to the Participant's Period of Service, would produce a sum which equals or exceeds seventy-five (75), the Participant's Early Retirement Date shall be the date as of which the Participant attains the earlier of the ages listed in Section 1.20(i) or (ii) above. 1.21 Earned Income means the net earnings of an individual from self-employment in the trade or business with respect to which the Plan is established, for which personal services of such individual are a material income producing factor. Net earnings of an individual shall be determined without regard to (a) items not included in such individual's gross income, (b) deductions allocable to such items, and (c) the deduction allowed such individual by Section 164(f) of the Code. Net earnings of an individual shall be reduced by contributions made by the Employer to a qualified plan maintained on behalf of such individual, to the extent such contributions are deductible under Section 404 of the Code. 1.22 Effective Date means January 1, 1986. 1.23 Eligible Employee means an Employee who is eligible to participate in the Plan pursuant to the provisions of Article II. 1.24 Employee means any person employed by the Employer. 1.25 Employer means and any Participating Affiliate or any successor organization which shall continue to maintain the Plan set forth herein. 1.26 Employer Resolutions means resolutions adopted by the Board. 1.27 Employment Commencement Date means the date on which an Employee first performs an Hour of Service for the Employer upon initial employment or, if applicable, upon reemployment. 1.28 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.29 Forfeitures means any amounts forfeited pursuant to Section 4.2 by a Participant whose Termination of Service occurs prior to such Participant's being fully vested in the Net Value of his Account. 1.30 Hardship means the condition described in Section 7.4. 1.31 Highly Compensated Employee means, with respect to a Plan Year, an Employee or an employee of an Affiliated Employer who is such an Employee or employee during the Plan Year for which a determination is being made and who: 5 Article I -- Definitions - -------------------------------------------------------------------------------- (a) during the Plan Year immediately preceding the Plan Year for which a determination is being made: (i) received compensation as defined under Section 414(q)(7) of the Code ("Section 414(q) Compensation") from the Employer of greater than $75,000, adjusted as prescribed by the Secretary of the Treasury under Section 415(d) of the Code, or (ii) received Section 414(q) Compensation from the Employer of greater than $50,000, adjusted as prescribed by the Secretary of the Treasury under Section 415(d) of the Code, and was a member of the top-paid group of Employees (as defined under Section 414(q)(4) of the Code) ("Top-Paid Group"), or (iii) was an officer (as determined in accordance with Section 414(q)(5) of the Code) of the Employer who received Section 414(q) Compensation from the Employer of greater than fifty percent (50%) of the dollar limitation in effect under Section 415(b)(1)(A) of the Code, or if no such officer of the Employer satisfied such compensation was the highest paid officer for such year, or (b) during the Plan Year for which a determination is being made, satisfies the requirements of subsection (a)(i), (ii) or (iii), determined without regard to "during the Plan Year immediately preceding the Plan Year for which a determination is made", and is a member of the group consisting of the one hundred (100) Employees receiving the highest Section 414(q) Compensation from the Employer during such Plan Year ("Top 100 Employees"), or (c) at any time during the Plan Year for which a determination is being made or at any time during the Plan Year immediately preceding the Plan Year for which a determination is being made, was a five-percent owner as described under Section 414(q)(3) of the Code. Highly Compensated Employee also means a former Employee who (A) incurred a Termination of Service prior to the Plan Year of the determination, (B) is not credited with an Hour of Service during the Plan Year of the determination and (C) satisfied the requirements of subsection (a), (b) or (c) during either the Plan Year of his Termination of Service or any Plan Year ending coincident with or subsequent to the Employee's attainment of age fifty-five (55). If, during either the Plan Year of the determination or the preceding Plan Year, an Employee is a Family Member of either (1) a five-percent owner (as defined under Section 414(q)(3) of the Code), or (2) a Highly Compensated Employee who is among the ten (10) highly compensated Employees receiving the highest Section 414(q) Compensation from the Employer during such Plan Year, the Section 414(q) Compensation and the Accounts of the Family Member shall be aggregated with the Section 414(q) Compensation and the Accounts of such Highly Compensated Employee and the Family Member and the Highly Compensated Employee shall be treated as a single Employee. For purposes of this Section 1.31, Family Member includes the Spouse, lineal ascendants and descendants of the Employee or former Employee and the spouse of a lineal ascendant or descendant. 6 Article I -- Definitions - -------------------------------------------------------------------------------- The determination of the number and identity of Employees in the Top-Paid Group, the Top 100 Employees, and the number of Employees treated as officers shall be made in accordance with Section 414(q) of the Code and regulations promulgated thereunder by the Secretary of the Treasury. For purposes of this Section 1.31, if either (aa) the Plan Year for which a determination is being made or (bb) the Plan Year immediately preceding the Plan Year for which a determination is being made, is a short Plan Year, the determination shall be made for the twelve (12) month period which commences on the first day of such short Plan Year. 1.32 Hour of Service means each hour for which an Employee is paid or entitled to be paid by the Employer for the performance of duties. 1.33 Investment Accounts means any and all of the investment accounts established by a separate written agreement between the Employer and the Trustees for the purpose of investing contributions made to the Trust Fund in accordance with the provisions of the Agreement. The securities and other property in which contributions to the Investment Accounts of the Trust Fund may be invested shall be specified in the Agreement and the rights of the Trustees shall be established in accordance with the provisions of such Agreement. 1.34 Leased Employee means any individual (other than an Employee of the Employer or an employee of an Affiliated Employer) who, pursuant to an agreement between the Employer or any Affiliated Employer and any other person ("leasing organization"), has performed services for the Employer or any Affiliated Employer on a substantially full-time basis for a period of at least one (1) year, and such services are of a type historically performed by employees in the business field of the Employer or any Affiliated Employer. A determination as to whether a Leased Employee shall be treated as an Employee of the Employer or an Affiliated Employer shall be made in accordance with Section 414(n) of the Code and any and all Income Tax Regulations promulgated thereunder. 1.35 Matching Contribution Account means the separate, individual account established on behalf of a Participant to which the Matching Contributions and "Company Matching Contributions" from the Prior Plan, if any, made on such Participant's behalf are credited, together with all earnings and appreciation thereon, and against which are charged any withdrawals, loans and other distributions made from such account and any losses, depreciation or expenses allocable to amounts credited to such account. 1.36 Matching Contributions means the contributions made by the Employer pursuant to Section 3.4. 7 Article I -- Definitions - -------------------------------------------------------------------------------- 1.37 Named Fiduciaries means the Trustees and the Committee designated by the Employer to control and manage the operation and administration of the Plan. 1.38 Net Value means the value of an Employee's Accounts as determined as of the Valuation Date coincident with or next following the event requiring such determination. 1.39 Non-Highly Compensated Employee means, with respect to a Plan Year, an Employee who is neither a Highly Compensated Employee nor a family member as provided in Section 414(q)(6) of the Code. 1.40 Normal Retirement Age means the date an Employee attains age sixty-five (65). 1.41 Normal Retirement Date means the first day of the month coincident with or next following the Participant's Normal Retirement Age. 1.42 One Year Period of Severance means a twelve (12) consecutive month period following an Employee's Termination of Service with the Employer during which the Employee did not perform an Hour of Service. Notwithstanding the foregoing, if an Employee is absent from employment for maternity or paternity reasons, such absence during the twenty-four (24) month period commencing on the first date of such absence shall not constitute a One Year Period of Severance. An absence from employment for maternity or paternity reasons means an absence (a) by reason of pregnancy of the Employee, or (b) by reason of a birth of a child of the Employee, or (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 1.43 Participant means an Eligible Employee who, in accordance with the provisions of Section 2.3, has elected to participate in the Plan and whose participation in the Plan has not been terminated in accordance with the provisions of Section 2.4. 1.44 Participating Affiliate means any corporation that is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which the Sponsoring Employer is a member and any unincorporated trade or business that is a member of a group of trades or businesses under common control (within the meaning of Section 414(c) of the Code) of which the Sponsoring Employer is a member, which, with the prior approval of the Sponsoring Employer and subject to such terms and conditions as may be imposed by such Sponsoring Employer and the Trustees, shall adopt this Plan in accordance with the provisions of Section 13.8 and the Agreement. Such entity shall continue to be a Participating Affiliate until such entity terminates its participation in the Plan in accordance with Section 13.8. 8 Article I -- Definitions - -------------------------------------------------------------------------------- 1.45 Period of Service means a period commencing with an Employee's Employment Commencement Date and ending on the date such Employee first incurs a Termination of Service. Notwithstanding the foregoing, the period between the first and second anniversary of the first date of a maternity or paternity absence described under Section 1.42 shall not be included in determining a Period of Service. A period during which an individual was not employed by the Employer shall nevertheless be deemed to be a Period of Service if such individual incurred a Termination of Service and: (a) such Termination of Service was the result of resignation, discharge or retirement and such individual is reemployed by the Employer within one (1) year after such Termination of Service; or (b) such Termination of Service occurred when the individual was otherwise absent for less than one (1) year and he was reemployed by the Employer within one (1) year after the date such absence began. All Periods of Service not disregarded under Sections 2.5 and 4.3 shall be aggregated. Wherever used in the Plan, a Period of Service means the quotient obtained by dividing the days in all Periods of Service not disregarded hereunder by 365 and disregarding any fractional remainder. 1.46 Plan means the Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust, as herein restated and as it may be amended from time to time. 1.47 Plan Administrator means the person or persons who have been designated as such by the Employer in accordance with the provisions of Section 9.4. 1.48 Plan Funds means the assets of the Plan held in the Trust Fund. 1.49 Plan Year means the calendar year. 1.50 Postponed Retirement Date means the first day of the month coincident with or next following a Participant's date of actual retirement which occurs after his Normal Retirement Date. 1.51 Post-Tax Contribution Account means the separate, individual account established on behalf of a Participant to which Post-Tax Contributions, if any, and "Participant Nondeductible Voluntary Contributions" from the Prior Plan, if any, are credited, together with all earnings and appreciation thereon, and against which are charged any withdrawals, loans and other distributions made from such account, as well as any losses, depreciation, or expenses allocable to amounts credited to such account. 9 Article I -- Definitions - -------------------------------------------------------------------------------- 1.52 Post-Tax Contribution Election Agreement means an agreement between the Employer and an Eligible Employee whereby the Eligible Employee elects to make Post-Tax Contributions to the Plan in accordance with the provisions of Section 3.7. 1.53 Post-Tax Contributions means the amounts, if any, contributed by a Participant under a Post-Tax Contribution Election Agreement pursuant to Section 3.7. Such contributions shall be made on a post-tax basis. 1.54 Prior Plan means the as in effect on the date immediately preceding the Restatement Date. 1.55 Qualified Nonelective Contributions means contributions, other than Matching Contributions and Discretionary Employer Contributions, made by the Employer, which (a) Participants may not elect to receive in cash in lieu of their being contributed to the Plan; (b) are one hundred percent (100%) nonforfeitable when made; and (c) are not distributable under the terms of the Plan to Participants or their Beneficiaries until the earliest of: (i) the Participant's death, Disability or separation from service for other reasons; (ii) the Participant's attainment of age fifty-nine and one-half (59-1/2); or (iii) termination of the Plan. Special Contributions defined under Section 1.60 are Qualified Nonelective Contributions. 1.56 Restatement Date means April 1, 1993. 1.57 Retirement Date means the Participant's Normal Retirement Date, Early Retirement Date or Postponed Retirement Date, whichever is applicable. 1.58 Rollover Contribution means (a) a contribution to the Plan of money received by an Employee from a qualified plan or (b) a contribution to the Plan of money transferred directly from another qualified plan on behalf of the Employee, which the Code permits to be rolled over into the Plan. 1.59 Rollover Contribution Account means the separate, individual account established on behalf of an Employee to which his Rollover Contributions are credited together with all earnings and appreciation thereon, and against which are charged any withdrawals, loans and other distributions made from such account and any losses, depreciation or expenses allocable to amounts credited to such account. 1.60 Special Contributions means the contributions made by the Employer pursuant to Section 3.5. Special Contributions are Qualified Nonelective Contributions as defined under Section 1.55. 10 Article I -- Definitions - -------------------------------------------------------------------------------- 1.61 Sponsoring Employer means or any successor organization which shall continue to maintain the Plan set forth herein. 1.62 Spouse means a person to whom the Employee was legally married and which marriage had not been dissolved by formal divorce proceedings that had been completed prior to the date on which payments to the Employee are scheduled to commence. 1.63 Termination of Service means the earlier of (a) the date on which an Employee's service is terminated by reason of his resignation, retirement, discharge, death or Disability or (b) the first anniversary of the date on which such Employee's active service ceases for any other reason. Service in the Armed Forces of the United States of America shall not constitute a Termination of Service but shall be considered to be a period of employment by the Employer provided that (i) such military service is caused by war or other emergency or the Employee is required to serve under the laws of conscription in time of peace, (ii) the Employee returns to employment with the Employer within six (6) months following discharge from such military service and (iii) such Employee is reemployed by the Employer at a time when the Employee had a right to reemployment at his former position or substantially similar position upon separation from such military duty in accordance with seniority rights as protected under the laws of the United States of America. A leave of absence granted to an Employee by the Employer shall not constitute a Termination of Service provided that the Participant returns to the active service of the Employer at the expiration of any such period for which leave has been granted. Notwithstanding the foregoing, an Employee who is absent from service with the Employer beyond the first anniversary of the first date of his absence for maternity or paternity reasons set forth in Section 1.42 shall incur a Termination of Service for purposes of the Plan on the second anniversary of the date of such absence. 1.64 Trust means the trust established or maintained under the Agreement with respect to the Plan. 1.65 Trust Fund means the assets held in accordance with the Agreement. 1.66 Trustees means the Trustees of the RSI Retirement Trust. 1.67 Units means the units of measure of an Employee's proportionate undivided beneficial interest in one or more of the Investment Accounts, valued as of the close of business. 1.68 Valuation Date means each business day. 11 Article II -- Eligibility and Participation - -------------------------------------------------------------------------------- ARTICLE II -- ELIGIBILITY AND PARTICIPATION 2.1 Eligibility (a) Every Employee who was a Participant in the Prior Plan immediately prior to the Restatement Date shall continue to be a Participant on the Restatement Date. (b) Every other Employee who is not excluded under the provisions of Section 2.2 shall become an Eligible Employee upon satisfying each of the following conditions: (i) completion of a Period of Service of one (1) year; and (ii) attainment of age twenty-one (21); and (iii) classification as a salaried Employee. (c) For purposes of determining (i) if an Employee completed a Period of Service of one (1) year and (ii) Periods of Service pursuant to Section 2.5, employment with an Affiliated Employer shall be deemed employment with the Employer. (d) An Employee who otherwise satisfies the requirements of this Section 2.1 but who is excluded under the provisions of Section 2.2 shall become an Eligible Employee immediately upon classification as an Employee under the provisions of subsection (b)(iii). 2.2 Ineligible Employees The following classes of Employees are ineligible to participate in the Plan: (a) Employees compensated on an hourly, daily, commission, fee, or retainer basis; (b) Leased Employees; (c) Employees in a unit of Employees covered by a collective bargaining agreement with the Employer pursuant to which employee benefits were the subject of good faith bargaining and which agreement does not expressly provide that Employees of such unit be covered under the Plan. 2.3 Participation An Eligible Employee shall be eligible to participate in the Plan as of the Monday nearest the first day of any calendar month following satisfaction of the eligibility requirements set forth in Section 2.1, provided such Eligible Employee meets the conditions of (a) or (b) as follows: 12 Article II -- Eligibility and Participation - -------------------------------------------------------------------------------- (a) An Eligible Employee may elect to have Basic Contributions, as described in Section 3.1, made to his Basic Contribution Account as of the first day of any payroll period following satisfaction of the eligibility requirements set forth in Section 2.1. Such election shall be evidenced by completing and filing the form prescribed by the Committee not less than ten (10) days prior to the date payroll deductions are to commence. Such form shall include, but not be limited to, a Compensation Reduction Agreement, a designation of Beneficiary, and an investment direction as described in Section 6.1. By completing and filing such form, the Eligible Employee authorizes the Employer to make the applicable payroll deductions from Compensation, commencing on the first applicable payday coincident with or next following the effective date of the Eligible Employee's election; and/or (b) An Eligible Employee may elect to have Post-Tax Contributions, as described in Section 3.7, made to his Post-Tax Contribution Account as of the first day of any payroll period following satisfaction of the eligibility requirements set forth in Section 2.1. Such election shall be evidenced by completing and filing a Post-Tax Contribution Election Agreement prescribed by the Committee not less than ten (10) days prior to the date such contributions are to commence. Such form shall include, but not be limited to, the percentage of Compensation to be contributed as Post-Tax Contributions, a designation of Beneficiary, and an investment direction as described in Section 6.1. By completing and filing such form, the Eligible Employee authorizes the Employer to make the applicable payroll deductions from Compensation, commencing on the first applicable payday coincident with or next following the effective date of the Eligible Employee's election. 2.4 Termination of Participation Participation in the Plan shall terminate on the earlier of the date a Participant dies or the entire vested interest in the Net Value of such Participant's Accounts has been distributed. 2.5 Eligibility upon Reemployment If an Employee incurs a One Year Period of Severance prior to satisfying the eligibility requirements of Section 2.1, service prior to such One Year Period of Severance shall be disregarded and such Employee must satisfy the eligibility requirements of Section 2.1 as a new Employee. If an Employee incurs a One Year Period of Severance after satisfying the eligibility requirements of Section 2.1 and: (a) if such Employee is not vested in any Matching Contributions or Discretionary Employer Contributions, incurs a One Year Period of Severance and again performs an Hour of Service, the Employee shall receive credit for Periods of Service prior to 13 Article II -- Eligibility and Participation - -------------------------------------------------------------------------------- a One Year Period of Severance only if the number of consecutive One Year Periods of Severance is less than the greater of: (i) five (5) years or (ii) the aggregate number of such Employee's Periods of Service credited before his One Year Period of Severance. If such former Employee's Periods of Service prior to his One Year Period of Severance are recredited under this Section 2.5, such former Employee shall be eligible to participate immediately upon reemployment, provided such Employee is not excluded from participating under the provisions of Section 2.2. If such former Employee's Periods of Service prior to his One Year Period of Severance are not recredited under this Section 2.5, such Employee must satisfy the eligibility requirements of Section 2.1 as a new Employee. (b) if such Employee is vested in any Matching Contributions and/or Discretionary Employer Contributions, incurs a One Year Period of Severance and again performs an Hour of Service, the Employee shall receive credit for Periods of Service prior to his One Year Period of Severance and shall be eligible to participate in the Plan immediately upon reemployment, provided such Employee is not excluded from participating under the provisions of Section 2.2. 14 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE III -- CONTRIBUTIONS AND LIMITATIONS ON CONTRIBUTIONS 3.1 Basic Contributions The Employer shall make Basic Contributions for each payroll period in an amount equal to the amount by which a Participant's Compensation has been reduced with respect to such period under his Compensation Reduction Agreement. Subject to the limitations set forth in Sections 3.2 and 3.14, the amount of reduction authorized by the Eligible Employee shall be limited to whole percentages of Compensation and shall not be less than two percent (2%) nor greater than fifteen percent (15%). The Basic Contributions made on behalf of a Participant shall be credited to such Participant's Basic Contribution Account and shall be invested in accordance with Article VI of the Plan. 3.2 Limitation on Basic Contributions (a) The percentage of Basic Contributions made on behalf of a Participant who is a Highly Compensated Employee shall be limited so that the Average Actual Deferral Percentage for the group of such Highly Compensated Employees for the Plan Year does not exceed the greater of: (i) the Average Actual Deferral Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) the Average Actual Deferral Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year, multiplied by two (2); provided that the difference in the Average Actual Deferral Percentage for eligible Highly Compensated Employees and eligible Non-Highly Compensated Employees does not exceed two percent (2%). Use of this alternative limitation shall be subject to the provisions of Income Tax Regulations Section 1.401(m)-2 regarding the multiple use of the alternative deferral tests set forth in Sections 401(k) and 401(m) of the Code. If the Average Actual Deferral Percentage for the group of eligible Highly Compensated Employees exceeds the limitations set forth in the preceding paragraph, the amount of excess Basic Contributions for a Highly Compensated Employee shall be determined by "leveling" the highest Actual Deferral Percentage until the Average Actual Deferral Percentage for the group of eligible Highly Compensated Employees complies with such limitations. For purposes of this paragraph, "leveling" means reducing the Actual Deferral Percentage of the Highly Compensated Employee with the highest Actual Deferral Percentage to the extent required to: (A) enable the Average Actual Deferral Percentage limitations to be met, or 15 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (B) cause such Highly Compensated Employee's Actual Deferral Percentage to equal the Actual Deferral Percentage of the Highly Compensated Employee with the next highest Actual Deferral Percentage and repeating such process until the Average Actual Deferral Percentage for the group of eligible Highly Compensated Employees complies with the Average Actual Deferral Percentage limitations. If Basic Contributions made on behalf of a Participant during any Plan Year exceed the maximum amount applicable to a Participant as set forth above, any such contributions, including any earnings thereon as determined under Section 3.11, shall be characterized as Compensation payable to the Participant and shall be paid to the Participant from his Basic Contribution Account no later than two and one-half (2-1/2) months after the close of such Plan Year. In the event that the Plan satisfies the requirements of Section 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Section 410(b) of the Code only if aggregated with the Plan, then this Section 3.2 shall be applied by determining the Actual Deferral Percentages of Eligible Employees as if all such plans were a single plan. (b) Basic Contributions and elective deferrals (as defined under Section 402(g) of the Code) under all other plans, contracts or arrangements of the Employer made on behalf of any Participant during the 1993 Plan Year shall not exceed $8,994. For Plan Years commencing after December 31, 1993, Basic Contributions and elective deferrals (as defined under Section 402(g) of the Code) under all other plans, contracts or arrangements of the Employer shall not exceed $7,000, adjusted as prescribed by the Secretary of the Treasury under Section 415(d) of the Code. (c) If Basic Contributions made on behalf of a Participant during any Plan Year exceed the dollar limitation set forth in subsection (b), such contributions, including any earnings thereon as determined under Section 3.11, shall be characterized as Compensation payable to the Participant and shall be paid to the Participant from his Basic Contribution Account no later than April 15th of the calendar year following the close of such Plan Year. (d) Subject to the requirements of Sections 401(a) and 401(k) of the Code, the maximum amounts under subsections (a) and (b) may differ in amount or percentage as between individual Participants or classes of Participants, and any Compensation Reduction Agreement may be terminated, amended, or suspended without the consent of any such Participant or Participants in order to comply with the provisions of such subsections (a) and (b). 16 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 3.3 Changes in Basic Contributions Unless (a) an election is made to the contrary, or (b) a Participant receives a Hardship distribution pursuant to Section 7.4(c)(iii), the percentage of Basic Contributions made under Section 3.1 shall continue in effect so long as the Participant has a Compensation Reduction Agreement in force. A Participant may, by completing the applicable form, prospectively increase or decrease the rate of Basic Contributions made on his behalf to any of the percentages authorized under Section 3.1 or suspend Basic Contributions without withdrawing from participation in the Plan. Such form must be filed at least ten (10) days prior to the first day of the payroll period with respect to which such change is to become effective. A Participant who has Basic Contributions made on his behalf suspended may resume such contributions by completing and filing the applicable form. Only once in any calendar quarter may an election be made which would prospectively increase, decrease, suspend or resume Basic Contributions made on behalf of a Participant. Notwithstanding the foregoing, a Participant who receives a Hardship distribution pursuant to Section 7.4(c)(iii) shall have his Compensation Reduction Agreement deemed null and void and all Basic Contributions made on behalf of such Participant shall be suspended until the later to occur of: (i) twelve (12) months after receipt of the Hardship distribution and (ii) the first payroll period which occurs ten (10) days following the completion and filing of a Compensation Reduction Agreement authorizing the resumption of Basic Contributions to be made on his behalf. Basic Contributions following a Hardship distribution made pursuant to Section 7.4(c)(iii) shall be subject to the following limitations: (A) Basic Contributions for the Participant's taxable year immediately following the taxable year of the Hardship distribution shall not exceed the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of such Participant's Basic Contributions for the taxable year of the Hardship distribution, and (B) the percentage of Basic Contributions for the twelve (12) month period following the mandatory twelve (12) month suspension period shall not exceed the percentage of Basic Contributions made on behalf of the Participant as set forth in the last Compensation Reduction Agreement in effect prior to the Hardship distribution. Basic Contributions based on Compensation for the period during which such contributions had been suspended or decreased may not be made up at a later date. 3.4 Matching Contributions (a) The Employer shall make contributions on behalf of each Participant in an amount equal to fifty percent (50%) of such Participant's Basic Contributions up to a maximum of three percent (3%) of the Participant's Compensation. (b) Matching Contributions shall be credited to the Participant's Matching Contribution Account and shall be invested in accordance with Article VI of the Plan. 17 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (c) If a Participant terminates his Basic Contributions, Matching Contributions attributable to such contributions will also cease. If Basic Contributions are suspended, the Matching Contributions attributable to such contributions will be suspended for the same period. Subject to the limitations set forth in subsection (a), if Basic Contributions are increased or decreased, Matching Contributions attributable to such contributions will be increased or decreased during the same period. Matching Contributions for the period during which Basic Contributions had been suspended or decreased may not be made up at a later date. (d) Matching Contributions will be reviewed from time to time and may be modified by the Employer's Board. 3.5 Special Contributions In addition to any other contributions, the Employer may, in its discretion, make Special Contributions for a Plan Year to the Basic Contribution Account of any Eligible Employees. Such Special Contributions may be limited to the amount necessary to insure that the Plan complies with the requirements of Section 401(k) of the Code. The Special Contributions made on behalf of a Participant shall be invested in accordance with Article VI of the Plan. The Employer may provide that Special Contributions be made only on behalf of each Eligible Employee who is a Non-Highly Compensated Employee on the last day of the Plan Year. Such Special Contributions shall be allocated in proportion to each such Eligible Employee's Compensation for the Plan Year. Any other provision of the Plan to the contrary notwithstanding, no Matching Contributions shall be made with respect to any Special Contributions. 3.6 Discretionary Employer Contributions Subject to the limitations of Section 3.14, the Employer may, in its sole and absolute discretion, make Discretionary Employer Contributions to the Plan for a Plan Year. Discretionary Employer Contributions shall be credited in an amount determined by the Board and expressed as a percentage of the Compensation of each Eligible Employee (a) who has competed one thousand (1,000) Hours of Service during the Plan Year for which such Discretionary Employer Contribution is being made, and (b) who is in the employ of the Employer on the last day of such Plan Year and (c) on whose behalf Basic Contributions and/or Post-Tax Contributions are being made to the Plan. The Discretionary Employer Contributions allocated to each Participant shall be credited to such Participant's Discretionary Employer Contribution Account and shall be invested in accordance with Article VI of the Plan. Any and all withdrawals, distributions or payments from a Participant's Discretionary Employer Contribution Account shall be made in accordance with Article VII, or Article VIII of the Plan, whichever is applicable. 18 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 3.7 Post-Tax Contributions (a) Subject to the limitations of Section 3.9 and 3.14, a Participant may, by completing and filing a Post-Tax Contribution Election Agreement, authorize Post-Tax Contributions be made on his behalf. Post-Tax Contributions shall be limited to whole percentages of Compensation and shall not be less than one percent (1%) nor greater than ten percent (10%). (b) A Participant's Post-Tax Contributions shall be credited to such Participant's Post-Tax Contribution Account and shall be invested in accordance with Article VI of the Plan. 3.8 Changes in Post-Tax Contributions (a) Unless (i) an election is made to the contrary or (ii) a Participant receives a Hardship distribution pursuant to Section 7.4(c)(iii), the percentage of Post-Tax Contributions made on behalf of a Participant under a Post-Tax Contribution Election Agreement entered into pursuant to Section 3.7(a) shall continue in effect so long as the Participant continues to have a Post-Tax Contribution Election Agreement in effect. A Participant may, by completing the applicable form, increase or decrease the rate of his Post-Tax Contributions to any of the percentages authorized pursuant to Section 3.7(a), or suspend his Post-Tax Contributions hereunder without withdrawing from participation in the Plan. Such form must be filed at least ten (10) days prior to the first day of the payroll period with respect to which such change is to become effective. A Participant who has suspended his Post-Tax Contributions may resume such contributions by completing and filing the applicable form. Only once in any calendar quarter may an election be made which would increase, decrease, suspend, or resume a Participant's Post-Tax Contributions. (b) Notwithstanding the foregoing, a Participant who receives a Hardship distribution pursuant to Section 7.4(c)(iii) shall have his Post-Tax Contribution Election Agreement deemed null and void and all Post-Tax Contributions shall be suspended until the later to occur of: (i) twelve (12) months after receipt of the Hardship distribution and (ii) the payroll period which occurs ten (10) days following the completion and filing of a Post-Tax Contribution Election Agreement. (c) Post-Tax Contributions based on Compensation for the period during which such contributions had been suspended or decreased may not be made up at a later date. 3.9 Limitation on Matching Contributions and Post-Tax Contributions The Actual Contribution Percentage made on behalf of a Participant who is a Highly Compensated Employee shall be limited so that the Average Actual Contribution Percentage for the group of such Highly Compensated Employees for the Plan Year shall not exceed the greater of: 19 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (a) the Average Actual Contribution Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or (b) the Average Actual Contribution Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year, multiplied by two (2); provided that the difference in the Average Actual Contribution Percentage for Highly Compensated Employees and Non-Highly Compensated Employees does not exceed two percent (2%). Use of this alternative limitation shall be subject to the provisions of Income Tax Regulations Section 1.401(m)-2 regarding the multiple use of the alternative deferral tests set forth in Sections 401(k) and 401(m) of the Code. If the Average Actual Contribution Percentage for the group of eligible Highly Compensated Employees exceeds the limitations set forth in the preceding paragraph, the amount of excess Matching Contributions and/or Post-Tax Contributions for a Highly Compensated Employee shall be determined by "leveling" the highest Actual Contribution Percentage until the Average Actual Contribution Percentage for the group of eligible Highly Compensated Employees complies with such limitations. For purposes of this paragraph, "leveling" means reducing the Actual Contribution Percentage of the Highly Compensated Employee with the highest Actual Contribution Percentage to the extent required to: (i) enable the Average Actual Contribution Percentage limitations to be met, or (ii) cause such Highly Compensated Employee's Actual Contribution Percentage to equal the Actual Contribution Percentage of the Highly Compensated Employee with the next highest Actual Contribution Percentage and repeating such process until the Average Actual Contribution Percentage for the group of eligible Highly Compensated Employees complies with the Average Actual Contribution Percentage limitations. If Matching Contributions and/or Post-Tax Contributions during any Plan Year exceed the maximum amount applicable to a Participant as set forth above, any such contributions, including any earnings thereon as determined under Section 3.11, shall, to the extent vested, be characterized as Compensation payable to the Participant and any such vested Matching Contribution and/or Post-Tax Contribution, including earnings thereon as determined under Section 3.11, shall be paid to the Participant from the applicable Account no later than two and one-half (2-1/2) months after the close of such Plan Year. In the event that the Plan satisfies the requirements of Section 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Section 410(b) of the Code only if aggregated with the Plan, then this Section 3.9 shall be applied by determining the Actual Contribution Percentages of Eligible Employees as if all such plans were a single plan. 20 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 3.10 Aggregate Limit; Multiple Use of Alternative Limitation Multiple use of the alternative limitation in determining the Average Actual Deferral Percentage and Average Actual Contribution Percentage shall not be permitted. Multiple use of the alternative limitation occurs if, for the group of Eligible Employees who are Highly Compensated Employees, the sum of the Average Actual Deferral Percentage and the Average Actual Contribution Percentage exceeds the Aggregate Limit. For purposes of this Section 3.10, Aggregate Limit shall mean the greater of (a) or (b), where (a) and (b) are as follows: (a) the sum of: (i) one hundred twenty-five percent (125%) of the greater of: (A) the Average Actual Deferral Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year; or (B) the Average Actual Contribution Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year; and (ii) two (2) plus the lesser of subsection (a)(i)(A) or (a)(i)(B). In no event shall this amount exceed two hundred percent (200%) of the lesser of subsection (a)(i)(A) or (a)(i)(B). (b) the sum of: (i) one hundred twenty-five percent (125%) of the lesser of: (A) the Average Actual Deferral Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year; or (B) the Average Actual Contribution Percentage for the group of Eligible Employees who are Non-Highly Compensated Employees for the Plan Year; and (ii) two (2) plus the greater of subsection (b)(i)(A) or (b)(i)(B). In no event shall this amount exceed two hundred percent (200%) of the greater of subsection (b)(i)(A) or (b)(i)(B). 21 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- If multiple use of the alternative limitation occurs, the Average Actual Deferral Percentage for all Highly Compensated Employees under the Plan shall be reduced in accordance with the provisions of Income Tax Regulations Section 1.401(m)-2(c). 3.11 Interest on Excess Contributions In the event Basic Contributions, Matching Contributions and/or Post-Tax Contributions made on behalf of a Participant during a Plan Year exceed the maximum allowable amount as described in Section 3.2(a), 3.2(b) or 3.9 ("Excess Contributions") and such Excess Contributions and earnings thereon are payable to the Participant under the applicable provisions of the Plan, earnings on such Excess Contributions for the period commencing with the first day of the Plan Year in which the Excess Contributions were made and ending with the date of payment to the Participant ("Allocation Period") shall be determined in accordance with the provisions of this Section 3.11. The earnings allocable to excess Basic Contributions for an Allocation Period shall be equal to the sum of (a) plus (b) where (a) and (b) are determined as follows: (a) The amount of earnings attributable to the Participant's Basic Contribution Account for the Plan Year multiplied by a fraction, the numerator of which is the excess Basic Contributions and Special Contributions for the Plan Year, and the denominator of which is the sum of (i) the Net Value of the Participant's Basic Contribution Account as of the last day of the immediately preceding Plan Year and (ii) the contributions (including the Excess Contributions) made to the Basic Contribution Account on the Participant's behalf during such Plan Year. (b) The amount of earnings attributable to the Participant's Basic Contribution Account for the period commencing with the first day of the Plan Year in which payment is made to the Participant and ending with the date of payment to the Participant multiplied by a fraction, the numerator of which is the excess Basic Contributions and Special Contributions made to the Basic Contribution Account on the Participant's behalf during the Plan Year immediately preceding the Plan Year in which the payment is made to the Participant, and the denominator of which is the Net Value of the Participant's Basic Contribution Account on the first day of the Plan Year in which the payment is made to the Participant. The earnings allocable to excess Matching Contributions and/or Post-Tax Contributions for an Allocation Period shall be equal to the sum of (A) and (B) where (A) and (B) are determined as follows: (A) The amount of earnings attributable to the Participant's Matching Contribution Account and/or Post-Tax Contribution Account for the Plan Year multiplied by a fraction, the numerator of which is the excess Matching Contributions and/or Post-Tax Contributions for the Plan Year, and the denominator of which is the sum of (I) the Net Value of the Participant's Matching Contribution Account and/or Post-Tax Contribution Account as of the last day of the immediately preceding Plan Year and (II) the 22 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- contributions (including the Excess Contributions) made to the Matching Contribution Account and/or Post-Tax Contribution Account on the Participant's behalf during such Plan Year. (B) The amount of earnings attributable to the Participant's Matching Contribution Account and/or Post-Tax Contribution Account for the period commencing with the first day of the Plan Year in which payment is made to the Participant and ending with the date of payment to the Participant multiplied by a fraction, the numerator of which is the excess Matching Contributions and/or Post-Tax Contributions made to the Matching Contribution Account and/or Post-Tax Contribution Account on the Participant's behalf during the Plan Year immediately preceding the Plan Year in which the payment is made to the Participant, and the denominator of which is the Net Value of the Participant's Matching Contribution Account and/or Post-Tax Contribution Account on the first day of the Plan Year in which the payment is made to the Participant. 3.12 Payment of Contributions to the Trust As soon as possible after each payroll period, but not less often than once a month, the Employer shall deliver to the Trustees: (a) the Basic Contributions required to be made to the Trust during such payroll period under the applicable Compensation Reduction Agreements, (b) the amount of all Matching Contributions required to be made to the Trust for such payroll period and (c) the amount of all Post-Tax Contributions required to be made to the Trust during such payroll period under the applicable Post-Tax Contribution Election Agreements. Special Contributions and Discretionary Employer Contributions to the Trust shall be forwarded by the Employer to the Trustees no later than the time for filing the Employer's federal income tax return, plus any extensions thereon, for the Plan Year to which they are attributable. 3.13 Rollover Contributions Subject to such terms and conditions as may from time to time be established by the Committee and the Trustees, an Employee, whether or not a Participant, may contribute a Rollover Contribution to the Plan Fund; provided, however, that such Employee shall submit a written certification, in form and substance satisfactory to the Committee, that the contribution qualifies as a Rollover Contribution. The Committee shall be entitled to rely on such certification and shall accept the contribution on behalf of the Trustees. Rollover Contributions shall be credited to an Employee's Rollover Contribution Account and shall be invested in accordance with Article VI of the Plan. 23 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 3.14 Section 415 Limits on Contributions (a) For purposes of this Section 3.14, the following terms and phrases shall have the meanings hereafter ascribed to them: (i) "Annual Additions" shall mean the sum of the following amounts credited to a Participant's Accounts for the Limitation Year: (A) Employer contributions, including Basic Contributions, Matching Contributions and Discretionary Employer Contributions; (B) Post-Tax Contributions and any other Employee contributions; (C) forfeitures; and (D) contributions attributable to medical benefits as described in Sections 415(1)(1) and 419A(d)(2) of the Code. Annual Additions include the following contributions credited to a Participant's Accounts for the Limitation Year, regardless of whether such contributions have been distributed to the Participant: (I) Basic Contributions which exceed the limitations set forth in Section 3.2(a); (II) Basic Contributions made on behalf of a Highly Compensated Employee which exceed the limitations set forth in Section 3.2(b); and (III) Matching Contributions and Post-Tax Contributions made on behalf of a Highly Compensated Employee which exceed the limitations set forth in Section 3.9. (ii) "Current Accrued Benefit" shall mean a Participant's annual accrued benefit under a defined benefit plan, determined in accordance with the meaning of Section 415(b)(2) of the Code, as if the Participant had separated from service as of the close of the last Limitation Year beginning before January 1, 1987. In determining the amount of a Participant's Current Accrued Benefit, the following shall be disregarded: (A) any change in the terms and conditions of the defined benefit plan after May 5, 1986; and (B) any cost of living adjustment occurring after May 5, 1986. (iii) "Defined Benefit Plan" and "Defined Contribution Plan" shall have the meanings set forth in Section 415(k) of the Code. (iv) "Defined Benefit Plan Fraction" for a Limitation Year shall mean a fraction, (A) the numerator of which is the aggregate projected annual benefit (determined as of the last day of the Limitation Year) the 24 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- Participant under all defined benefit plans (whether or not terminated) maintained by the Employer, and (B) the denominator of which is the lesser of: (I) the product of 125 (or such adjustment as required under Section 12.4) and the dollar limitation in effect under Section 415(b)(1)(A) of the Code, adjusted as prescribed by the Secretary of the Treasury under Section 415(d) of the Code, or (II) the product of 1.4 and the amount which may be taken into account with respect to such Participant under Section 415(b)(1)(B) of the Code for such Limitation Year. Notwithstanding the above, if the Participant was a participant in one or more defined benefit plans of the Employer in existence on May 6, 1986, the dollar limitation of the denominator of this fraction will not be less than the Participant's Current Accrued Benefit. (v) "Defined Contribution Plan Fraction" for a Limitation Year shall mean a fraction, (A) the numerator of which is the sum of the Participant's Annual Additions under all defined contribution plans (whether or not terminated) maintained by the Employer for the current year and all prior Limitation Years (including annual additions attributable to the Participant's nondeductible employee contributions to all defined benefit plans (whether or not terminated) maintained by the Employer), and (B) the denominator of which is the sum of the maximum aggregate amounts for the current year and all prior Limitation Years with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). Maximum aggregate amounts" shall mean the lesser of (I) the product of 1.25 (or such adjustment as required under Section 12.4) and the dollar limitation in effect under Section 415(c)(1)(A) of the Code, adjusted as prescribed by the Secretary of the Treasury under Section 415(d) of the Code, or (II) the product of 1.4 and the amount that may be taken into account under Section 415(c)(1)(B) of the Code; provided, however, that the Committee may elect, on a uniform and nondiscriminatory basis, to apply the special transition rule of Section 415(e)(6) of the Code applicable to Limitation Years ending before January 1, 1983 in determining the denominator of the Defined Contribution Plan Fraction. (vi) "Limitation Year" shall mean the calendar year. (vii) "Section 415 Compensation" shall be a Participant's remuneration as defined in Income Tax Regulations Sections 1.415-2(d)(2), (3) and (6). (b) For purposes of applying the Section 415 limitations, the Employer and all members of a controlled group of corporations (as defined under Section 414(b) of the Code as modified by Section 415(h) of the Code), all commonly controlled trades or businesses (as defined under Section 414(c) of the Code as modified by Section 415(h) of the Code), all affiliated service groups (as defined under Section 414(m) of the Code) of which the Employer is a member, any leasing organization (as defined under Section 414(n) of the Code) that employs any 25 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- person who is considered an Employee under Section 414(n) of the Code and any other group provided for under any and all Income Tax Regulations promulgated by the Secretary of the Treasury under Section 414(o) of the Code, shall be treated as a single employer. (c) If the Employer maintains more than one qualified Defined Contribution Plan on behalf of its Employees, such plans shall be treated as one Defined Contribution Plan for purposes of applying the Section 415 limitations of the Code. (d) Notwithstanding anything contained in the Plan to the contrary, in no event shall the Annual Additions to a Participant's Accounts for a Limitation Year exceed the lesser of: (i) $30,000 or, if greater, one-fourth (1/4th) of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code as in effect for the Limitation Year; or (ii) twenty-five percent (25%) of the Participant's Section 415 Compensation for such Limitation Year. For purposes of this subsection (d)(ii), Section 415 Compensation shall not include (A) any contribution for medical benefits within the meaning of Section 419A(f)(2) of the Code after separation from service, which is otherwise treated as an Annual Addition, and (B) any amount otherwise treated as an Annual Addition under Section 415(1)(1) of the Code. (e) If the Annual Additions to a Participant's Accounts for a Limitation Year exceed the limitation set forth in subsection (d) above during the Limitation Year, any or all of the following contributions on behalf of such Participant shall be immediately adjusted to that amount which will result in such Annual Additions not exceeding the limitation set forth in subsection (d): (i) Discretionary Employer Contributions; (ii) Post-Tax Contributions; (iii) Basic Contributions; (iv) Special Contributions; and (v) Matching Contributions. (f) If the Annual Additions to a Participant's Accounts for a Limitation Year exceed the limitations set forth in subsection (d) above at the end of a Limitation Year, such excess amounts shall not be treated as Annual Additions in such Limitation Year but shall instead be used to reduce the Basic Contributions, Matching Contributions, Discretionary Employer 26 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- Contributions and/or Special Contributions to be made on behalf of such Participant in the succeeding Limitation Year, provided that such Participant is an Eligible Employee during such succeeding Limitation Year. If such Participant is not an Eligible Employee or ceases to be an Eligible Employee during such succeeding Limitation Year, any remaining excess amounts from the preceding Limitation Year shall be allocated during such succeeding Limitation Year to each Participant then actively participating in the Plan. Such allocation shall be in proportion to the Basic Contributions made to date on his behalf for such Limitation Year, or the prior Limitation Year with respect to an allocation as of the beginning of a Limitation Year, before any other contributions are made in such succeeding Limitation Year. (g) If a Participant participates in both (i) the Plan and/or any other defined contribution plan maintained by the Employer and (ii) any defined benefit plan or plans maintained by the Employer, the sum of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction shall not exceed the sum of 1.0. (h) If the sum determined under subsection (g) for any Participant exceeds 1.0, the Defined Contribution Plan Fraction of such Participant as provided in the defined contribution plan or plans maintained by the Employer shall be reduced in order that such sum shall not exceed 1.0. 27 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE IV -- VESTING AND FORFEITURES 4.1 Vesting (a) An Employee shall always be fully vested in the Net Value of his Basic Contribution Account, the Net Value of his Post-Tax Contribution Account, and the Net Value of his Rollover Contribution Account. (b) A Participant shall become fully vested in the Net Value of his Discretionary Employer Contribution Account and the Net Value of his Matching Contribution Account upon the earlier of such Participant's (i) Normal Retirement Age or (ii) termination of employment by reason of death, Disability or reaching his Retirement Date. (c) A Participant who is not fully vested under subsection (b) shall be vested in the Net Value of his Discretionary Employer Contribution Account and the Net Value of his Matching Contribution Account in accordance with the following schedule: Vested Period of Service Percentage ----------------- ---------- Less than 2 years 0% 2 years but less than 3 years 40% 3 years but less than 4 years 60% 4 years but less than 5 years 80% 5 or more years 100% For purposes of determining a Participant's Period of Service under this subsection (c) and under Section 4.3, employment with an Affiliated Employer shall be deemed employment with the Employer. For purposes of determining a Participant's vested percentage of the Net Value of his Discretionary Employer Contribution Account and the Net Value of his Matching Contribution Account, all Periods of Service shall be included. (d) The vested Net Value of a Participant's Matching Contribution Account and Discretionary Employer Contribution Account shall be determined as follows: (i) the Participant's Matching Contribution Account and Discretionary Employer Contribution Account shall first be increased to include (A) that portion of such Accounts which had been previously withdrawn in accordance with Sections 7.3 and 7.4 and (B) that 28 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- portion of such Accounts which had been borrowed in accordance with Article VIII and is outstanding on the date of this determination; (ii) the applicable vested percentage determined in accordance with subsection (c) shall then be applied to such Accounts as determined in accordance with clause (i); (iii) the amount determined in accordance with clause (ii) shall then be reduced by (A) that portion of such Accounts which had been previously withdrawn in accordance with Sections 7.3 and 7.4 and (B) that portion of such Accounts which had been borrowed in accordance with Article VIII and is outstanding on the date of this determination. 4.2 Forfeitures If a Participant who is not fully vested in the Net Value of his Accounts terminates employment, the Units representing the nonvested portion of his Accounts shall constitute Forfeitures. Forfeitures shall be reallocated as soon as administratively possible following the last day of the Plan Year to the Discretionary Employer Contribution Account of each Eligible Employee who is in the employment of the Employer on the last day of such Plan Year, or who terminated employment during such Plan Year due to retirement or disability, in the same proportion that such Eligible Employee's Compensation bears to the aggregate Compensation of all Eligible Employees as of the last day of the Plan Year. If a former Participant who is not fully vested in the Net Value of his Accounts receives a distribution of his vested interest in the Net Value of his Accounts and is subsequently reemployed by the Employer prior to incurring five (5) consecutive One Year Periods of Severance, he shall have the Net Value of his Accounts as of the date he previously terminated employment reinstated provided he repays the full amount of his distribution before the end of the five (5) consecutive One Year Periods of Severance commencing with the date of distribution. The reinstated amount shall be unadjusted by any gains or losses occurring subsequent to the Participant's termination of employment and prior to repayment of such distribution. Any forfeited amounts required to be reinstated hereunder shall be made by an additional Employer contribution for such Plan Year. If such former Participant does not repay the full amount of his distribution before the end of the five (5) consecutive One Year Periods of Severance commencing with the date of distribution, the Net Value of his Accounts as of the date he previously terminated employment shall not be reinstated. 29 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- If a former Participant who is not fully vested in the Net Value of his Accounts elects to defer distribution of his vested account interest or elects to receive installment payments pursuant to Section 7.6(e) or 7.7(d), the nonvested portion of such former Participant's Account shall be forfeited as of the date of his Termination of Service; provided, however, that if such former Participant is reemployed before incurring five (5) consecutive One Year Periods of Severance, the nonvested portion of his Accounts shall be reinstated in its entirety, unadjusted by any gains or losses occurring subsequent to the distribution. 4.3 Vesting upon Reemployment (a) For purposes of this Section 4.3, "Period of Service" means an Employee's Period of Service determined in accordance with Section 4.1(c). (b) For the purpose of determining a Participant's vested interest in the Net Value of his Discretionary Employer Contribution Account and/or Matching Contribution Account: (i) if an Employee is not vested in any Discretionary Employer Contributions and/or Matching Contributions, incurs a One Year Period of Severance and again performs an Hour of Service, such Employee shall receive credit for his Periods of Service prior to his One Year Period of Severance only if the number of consecutive One Year Periods of Severance is less than the greater of: (A) five (5) years or (B) the aggregate number of his Periods of Service credited before his One Year Period of Severance. (ii) if a Participant is partially vested in any Discretionary Employer Contributions and/or Matching Contributions, incurs a One Year Period of Severance and again performs an Hour of Service, such Participant shall receive credit for his Periods of Service prior to his One Year Period of Severance; provided, however, that after five (5) consecutive One Year Periods of Severance, a former Participant's vested interest in the Net Value of the Discretionary Employer Contribution Account and/or Matching Contribution Account attributable to Periods of Service prior to his One Year Period of Severance shall not be increased as a result of his Periods of Service following his reemployment date. (iii) if a Participant is fully vested in any Discretionary Employer Contributions and/or Matching Contributions, incurs a One Year Period of Severance and again performs an Hour of Service, such Participant shall receive credit for all his Periods of Service prior to his One Year Period of Severance. 30 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE V -- TRUST FUND AND INVESTMENT ACCOUNTS 5.1 Trust Fund The Employer has adopted the Agreement as the funding vehicle with respect to the Investment Accounts. All contributions forwarded by the Employer to the Trustees pursuant to the Agreement shall be held by them in trust and shall be used to purchase Units on behalf of the Plan in accordance with the terms and provisions of the Agreement. Contributions designated for investment in any Investment Account of the Trust Fund shall be allocated proportionately to and among the classes of Units so selected for such Investment Account. All assets of the Plan shall be held for the exclusive benefit of Participants, Beneficiaries or other persons entitled to benefits. No part of the corpus or income of the Trust Fund shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants, Beneficiaries or other persons entitled to benefits and for defraying reasonable administrative expenses of the Plan and Trust. No person shall have any interest in or right to any part of the earnings of the Trust Fund, or any rights in, to or under the Trust Fund or any part of its assets, except to the extent expressly provided in the Plan. The Trustees shall invest and reinvest the Trust Fund, and the income therefrom, without distinction between principal and income, in accordance with the terms and provisions of the Agreement. The Trustees may maintain such part of the Trust Fund in cash uninvested as they shall deem necessary or desirable. The Trustees shall be the owner of and have title to all the assets of the Trust Fund and shall have full power to manage the same, except as otherwise specifically provided in the Agreement. 5.2 Interim Investments The Trustees may temporarily invest any amounts designated for investment in any of the Investment Accounts of the Trust Fund identified herein in the Investment Account which provides for short-term investments and retain the value of such contributions therein pending the allocation of such values to the Investment Accounts designated for investment. 5.3 Account Values The Net Value of the Accounts of an Employee means the sum of the total Net Value of each Account maintained on behalf of the Employee in the Trust as determined as of the Valuation Date coincident with or next following the event requiring the determination of such Net Value. The assets of any Account shall consist of the Units credited to such Account. The Units shall be valued from time to time by the Trustees in 31 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- accordance with the Agreement, but not less often than monthly. On the basis of such valuations, each Employee's Accounts shall be adjusted to reflect the effect of income collected and accrued, realized and unrealized profits and losses, expenses and all other transactions during the period ending on the applicable Valuation Date. Upon receipt by the Trustees of Basic Contributions, Matching Contributions, and, if applicable, Post-Tax Contributions, Discretionary Employer Contributions, Rollover Contributions and Special Contributions, such contributions shall be applied to purchase Units for such Employee's Account, using the value of such Units as of the close of business on the date received. Whenever a distribution is made to a Participant, Beneficiary or other person entitled to benefits, the appropriate number of Units credited to such Employee shall be reduced accordingly and each such distribution shall be charged against the Units of the Investment Accounts of such Employee pro rata according to their respective values. For the purposes of this Section 5.3, fractions of Units as well as whole Units may be purchased or redeemed for the Account of an Employee. 32 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE VI -- INVESTMENT DIRECTIONS, CHANGES OF INVESTMENT DIRECTIONS AND TRANSFERS BETWEEN INVESTMENT ACCOUNTS 6.1 Investment Directions Upon electing to participate, each Participant shall direct that the contributions made to his Accounts shall be applied to purchase Units in any one or more of the Investment Accounts of the Trust Fund. Such direction shall indicate the percentage, in multiples of ten percent (10%), in which Basic Contributions, Matching Contributions, Special Contributions, Discretionary Employer Contributions, Post-Tax Contributions and Rollover Contributions shall be made to the designated Investment Accounts. To the extent a Participant shall fail to make an investment direction, contributions made on his behalf shall be applied to purchase Units in the Investment Account which provides for short-term investments. 6.2 Change of Investment Directions A Participant may change any investment direction not more often than once in any calendar quarter by completing and filing a notice in the form and manner prescribed by the Committee at least ten (10) days prior to the effective date of such direction. Any such change shall be subject to the same conditions as if it were an initial direction and shall be applied only to any contributions to be invested on or after the effective date of such direction. 6.3 Transfers Between Investment Accounts By filing a notice in the form and manner prescribed by the Committee at least ten (10) days prior to the effective date of such change, a Participant or Beneficiary may, not more often than once in any calendar quarter, direct that multiples of ten percent (10%) of the Net Value of any one or more Investment Accounts be transferred to any one or more of the other Investment Accounts. The requisite transfers shall be valued as of the Valuation Date on which the direction is received by the Trustees and shall be affected within seven (7) days of the Trustees' receipt of such direction. 6.4 Employees Other than Participants (a) Investment Direction An Employee who is not a Participant but who has made a Rollover Contribution in accordance with the provisions of Section 3.13, shall direct, in the form and manner prescribed by the Committee, that such contribution be applied to the purchase of Units in any one or more of the Investment Accounts. Such direction shall indicate the percentage, in 33 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- multiples of ten percent (10%), in which contributions shall be made to the designated Investment Accounts. To the extent any Employee shall fail to make an investment direction, the Rollover Contributions shall be applied to the purchase of Units in the Investment Account which provides for short-term investments. (b) Transfers Between Investment Accounts An Employee who is not a Participant may, subject to the provisions of Section 6.3, not more often than once in any calendar quarter, direct that multiples of ten percent (10%) of the Net Value of any one or more Investment Accounts be transferred to any one or more of the other Investment Accounts. The requisite transfers shall be valued as of the Valuation Date on which the direction is received by the Trustees and shall be affected within seven (7) days of the Trustees' receipt of such direction. 34 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE VII -- PAYMENT OF BENEFITS 7.1 General (a) For purposes of this Article VII, the following terms and phrases shall have the meanings hereinafter ascribed to them: (i) "Beneficiary" shall mean (A) in the case of a married Participant, the Spouse. Notwithstanding the foregoing, such Participant may, subject to the spousal consent requirements of Section 7.2(a), effectively elect to designate a person or persons other than the Spouse as Beneficiary; (B) in the case of a single Participant, a person or persons who have been designated under the Plan by such Participant or who are otherwise entitled to a benefit under the Plan. (ii) "Life Annuity" shall mean the benefit payable under subsection (iii) or (iv) hereunder. (iii) "Straight Life Annuity" shall mean a benefit payable in equal monthly installments to the Participant for his life with no benefits payable after his death. (iv) "50% Joint and Survivor Annuity" shall mean a benefit payable in equal monthly installments to the Participant for his life with a benefit equal to one-half (l/2) of the benefit paid to the Participant continuing after his death to and for the life of a surviving Beneficiary. (b) The vested interest in the Net Value of any one or more of the Accounts of a Participant, Beneficiary or any other person entitled to benefits under the Plan shall be paid only at the times, to the extent, in the manner, and to the persons provided in this Article VII. (c) Notwithstanding the foregoing, if payments are to be made on a monthly basis and if, in the judgment of the Committee, payments are too small to warrant monthly payments, the Committee, in its sole discretion, may determine to make such payments in a lump sum or in quarterly, semi-annual, or annual installments. (d) The Net Value of any one or more of the Accounts of a Participant shall be subject to the provisions of Section 8.7. (e) Notwithstanding any provisions of the Plan to the contrary, any and all withdrawals, distributions or payments made under the provisions of this Article VII shall be made in accordance with Section 401(a)(9) of the Code and any and all Income Tax Regulations promulgated thereunder. 35 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (f) Any distribution of the vested interest in the Net Value of a Participant's Accounts which is made by the purchase of any Life Annuity shall be made by the purchase of a nontransferable annuity contract from a legal reserve life insurance company licensed to do business in the state of Cohoes Savings Bank. Such Life Annuity contract shall comply with the provisions of this Plan. (g) Notwithstanding any provisions of the Plan to the contrary, the provisions of this Article VII shall also apply to a person who is not a Participant but who has made a contribution to and maintains a Rollover Contribution Account under the Plan. 7.2 Spousal Consent Requirements - Change From Life Annuity, Optional Forms of Benefit Payments, Beneficiaries (a) An election by the Participant (i) to receive benefit payments in another form after a Life Annuity option has been elected under Section 7.6(f) or 7.7(e), (ii) to designate a Life Annuity Beneficiary who is other than his Spouse, or (iii) under any other provision of the Plan which is subject to spousal consent, shall not be effective unless: (A) the Participant's Spouse irrevocably consents to such election in writing, (B) such election designates a Beneficiary or form of benefit payment, which may not be changed without spousal consent unless the consent of the Spouse expressly permits designation by the Participant without any requirement of further consent by the Spouse, (C) the Spouse's consent acknowledges understanding of the effect of such election, and (D) the consent is witnessed by a Plan representative or a notary public. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of the Plan representative that such written consent cannot be obtained because there is no Spouse or the Spouse cannot be located, such election shall be deemed a qualified election. Any consent necessary under this provision shall be valid only with respect to the Spouse who signs the consent. (b) A Participant who has submitted to the Committee an election form in accordance with the provisions of subsection (a)(ii), may, without the consent of his Spouse, revoke such prior election by submitting written notification of such revocation to the Committee before the date benefit payments are scheduled to commence. Such revocation shall result in the reinstatement of the Spouse as the designated Life Annuity Beneficiary unless the Participant effectively designates another person as the Life Annuity Beneficiary in accordance with the provisions of subsection (a) and Section 7.1 (a)(i). The number of election forms and revocations shall not be limited. (c) The terms and conditions of any election form shall, unless otherwise indicated, become effective on the date benefit payments are scheduled to commence, or, if applicable, the date of distribution. 36 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 7.3 Non-Hardship Withdrawals (a) Subject to the terms and conditions contained in this Section 7.3, upon ten (10) days prior written notice to the Committee each Participant, or each Employee who solely maintains a Rollover Contribution Account, shall be entitled to withdraw all or any portion of his Accounts in the following order of priority not more often than once during any Plan Year: (i) the Net Value of his Post-Tax Contribution Account; (ii) the Net Value of his Basic Contribution Account, upon the Participant's attainment of age 59-1/2; (iii) the Net Value of the Employee's Rollover Contribution Account, upon the Employee's attainment of age 59-1/2, provided that such Employee shall have satisfied such additional terms and conditions as the Committee may deem necessary; (iv) that portion of the Participant's vested interest in the Net Value of his Matching Contribution Account, upon the Participant's attainment of age 59-1/2; and (v) that portion of the Participant's vested interest in the Net Value of his Discretionary Employer Contribution Account, upon the Participant's attainment of age 59-1/2. (b) Withdrawals under this Section 7.3 shall be made by the redemption of Units from each of the Participant's Accounts on a pro rata basis from the Investment Accounts selected by the Participant pursuant to Article VI. 7.4 Hardship Distributions (a) For purposes of this Section 7.4, a "Hardship" distribution shall mean a distribution that is (i) made on account of a condition which has given rise to immediate and heavy financial need of a Participant and (ii) necessary to satisfy such financial need. A determination of the existence of an immediate and heavy financial need and the amount necessary to meet the need shall be made by the Committee in accordance with uniform nondiscriminatory standards with respect to similarly situated persons. (b) Immediate and Heavy Financial Need: A Hardship distribution shall be deemed to be made on account of an immediate and heavy financial need if the distribution is on account of: (i) expenses for medical care described under Section 213(d) of the Code which were previously incurred by the Participant, the Participant's Spouse or any of the Participant's dependents as defined under Section 152 of the Code or expenses which are necessary to obtain medical care described under Section 213(d) of the Code for the Participant, the Participant's Spouse or any of the Participant's dependents as defined under Section 152 of the Code; or 37 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (ii) purchase (excluding mortgage payments) of a principal residence of the Participant; or (iii) payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, the Participant's Spouse, children or any of the Participant's dependents as defined under Section 152 of the Code; or (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (v) any other condition which the Commissioner of Internal Revenue, through the publication of revenue rulings, notices and other documents of general applicability, deems to be an immediate and heavy financial need. (c) Necessary to Satisfy Such Financial Need: (i) A distribution will be treated as necessary to satisfy an immediate and heavy financial need of a Participant if: (A) the amount of the distribution is not in excess of (1) the amount required to relieve the financial need of the Participant and (2) if elected by the Participant, an amount necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution, and (B) such need may not be satisfied from other resources that are reasonably available to the Participant. (ii) A distribution will be treated as necessary to satisfy a financial need if the Committee reasonably relies upon the Participant's representation that the need cannot be relieved: (A) through reimbursement or compensation by insurance or otherwise, (B) by reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need, (C) by cessation of Basic Contributions or Employee contributions, if any, under the Plan, or (D) by other distributions or nontaxable loans from plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms. 38 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- For purposes of this subsection (c)(ii), the Participant's resources shall be deemed to include those assets of his Spouse and minor children that are reasonably available to the Participant. (iii) Alternatively, a Hardship distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant if (A) or (B) are met: (A) all of the following requirements are satisfied: (I) the distribution is not in excess of (1) the amount of the immediate and heavy financial need of the Participant and (2) if elected by the Participant, an amount necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution; (II) the Participant has obtained all distributions, other than Hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer; (III) the Plan, and all other plans maintained by the Employer, provide that the Participant's elective contributions and Employee contributions, if any, will be suspended for at least twelve (12) months after receipt of the Hardship distribution; and (IV) the Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective contributions for the Participant's taxable year immediately following the taxable year of the Hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of such Participant's elective contributions for the taxable year of the Hardship distribution; or (B) the requirements set forth in additional methods, if any, prescribed by the Commissioner of Internal Revenue (through the publication of revenue rulings, notices and other documents of general applicability) are satisfied. (d) A Participant who has withdrawn the maximum amounts available to such Participant under Section 7.3 or a Participant who is not eligible for a withdrawal thereunder, may, in case of Hardship (as defined under this Section 7.4), apply not more often than once in any Plan Year to the Committee for a Hardship distribution. Any application for a Hardship distribution shall be made in writing to the Committee at 39 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- least ten (10) days prior to the requested date of payment. Hardship distributions may be made by a distribution of all or a portion of an Employee's (i) Basic Contributions, (ii) earnings on Basic Contributions which accrued prior to January 1, 1989, (iii) Net Value of his Rollover Contribution Account, (iv) vested interest in the Net Value of his Matching Contribution Account, and (v) vested interest in the Net Value of his Discretionary Employer Contribution Account. (e) Distributions under this Section 7.4 shall be made in the following order of priority: (i) the Net Value of the Participant's Basic Contribution Account, including earnings on Basic Contributions which accrued prior to January 1, 1989; and (ii) the Net Value of the Employee's Rollover Contribution Account, provided that such Employee shall have satisfied such additional terms and conditions as the Committee may deem necessary; and (iii) that portion of the Participant's vested interest in the Net Value of his Matching Contribution Account; and (iv) that portion of the Participant's vested interest in the Net Value of his Discretionary Employer Contribution Account. (f) Distributions under this Section 7.4 shall be made by the redemption of Units from each of the Participant's Accounts on a pro rata basis from the Investment Accounts selected by the Participant pursuant to Article VI. (g) A Participant who receives a Hardship distribution under this Section 7.4 may have his Basic Contributions and Post-Tax Contributions suspended in accordance with Section 3.3 or 3.7. 7.5 Distribution of Benefits Following Retirement, Disability Or Termination of Service (a) If an Employee incurs a Termination of Service for any reason other than death, a distribution of the vested interest in the Net Value of his Accounts shall be made to the Employee in accordance with the provisions of Section 7.6, 7.7 or 7.9. The amount of such distribution shall be the vested interest in the Net Value of his Accounts as of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation acceptable to the Trustees for such purpose. (b) An election by an Employee to receive the vested interest in the Net Value of his Accounts in a form other than in the normal form of benefit payment set forth in Sections 7.6(b) and (c) and Section 7.7(b) may not be revoked or amended by him after he terminates his employment. Notwithstanding the foregoing, an Employee who elected to receive payment of 40 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- benefits as of a deferred Valuation Date, in the form of installments, or in the form of a Life Annuity, may, by completing and filing the forms prescribed by the Committee, and subject to Section 7.2 where an Employee elected to receive payment of benefits in the form of a Life Annuity, change to another form of benefit payment. (c) An Employee who incurs a Termination of Service and is reemployed by the Employer prior to the distribution of all or part of the entire vested interest in the Net Value of his Accounts in accordance with the provisions of Section 7.6 or 7.7, shall not be eligible to receive or to continue to receive such distribution during his period of reemployment with the Employer. The foregoing sentence shall not apply if the distribution was in the form of a Life Annuity as defined under Section 7.1(a)(ii). Upon such Employee's subsequent Termination of Service, his prior election to receive a distribution in a form other than the normal form of benefit payment shall be null and void and the vested interest in the Net Value of his Accounts shall be distributed to him in accordance with the provisions of Section 7.6, 7.7 or 7.9. 7.6 Payments upon Retirement or Disability (a) If an Employee incurs a Termination of Service as of a Retirement Date or due to Disability and the Net Value of the Employee's Accounts, as determined by the Trustees, is equal to or less than $3,500, a lump sum distribution of the Net Value of his Accounts shall be made to the Employee within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating that the Employee incurred a Termination of Service. (b) If an Employee incurs a Termination of Service as of his Normal Retirement Date or his Postponed Retirement Date, and the Net Value of the Employee's Accounts, as determined by the Trustees, exceeds $3,500, a lump sum distribution of the Net Value of his Accounts shall be made to the Employee within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating that the Employee incurred a Termination of Service as of such Retirement Date. (c) If an Employee incurs a Termination of Service as of his Early Retirement Date or, subsequent to his Termination of Service, attains his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or if an Employee incurs a Termination of Service due to Disability, a lump sum distribution of the vested interest in the Net Value of his Accounts shall be made to the Employee within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating the date the Employee would have attained his Normal Retirement Date if he were still employed by the Employer. (d) In lieu of the normal form of benefit payment set forth in subsections (a), (b) and (c), an Employee who incurs a Termination of Service as of his Early Retirement Date or, subsequent to his Termination of Service, attains his Early 41 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service due to Disability, may file an election form to receive the vested interest in the Net Value of his Accounts as a lump sum distribution as of some other Valuation Date following his Termination of Service and prior to his Normal Retirement Date. Subject to the required minimum distribution provisions of Sections 7.10(b) and 7.10(c), the vested interest in the Net Value of his Accounts shall be distributed to such Employee as a lump sum distribution within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating the Employee's distribution date. (e) In lieu of the normal form of benefit payment set forth in subsections (a), (b) and (c), an Employee who incurs a Termination of Service as of his Retirement Date or, subsequent to his Termination of Service, attains his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service due to Disability may, subject to the required minimum distribution provisions of Sections 7.10(b) and 7.10(c), file an election form to receive the vested interest in the Net Value of his Accounts in the form of installments over a period not to exceed twenty (20) years. The vested interest in the Net Value of his Accounts shall be determined as of such Valuation Date or Valuation Dates in each such Plan Year as may be elected by such Employee and shall be based on the respective values of the Employee's Units in each Investment Account as of such Valuation Date or Valuation Dates. The amount of the installment payment shall be distributed by the redemption of Units from the Employee's Accounts on a pro rata basis among such Employee's Investment Accounts. Any portion of the vested interest in the Net Value of the Accounts of such former Employee which shall not have been so paid shall continue to be held for his benefit or for the benefit of his Beneficiary in the Employee's Investment Accounts. If an Employee elects to receive his benefit pursuant to this subsection (e), the installment period may not extend beyond the life expectancy of such Employee or the life expectancy of such Employee and his Beneficiary. (f) In lieu of the normal form of benefit payment set forth in subsections (a), (b) and (c), an Employee who incurs a Termination of Service as of his Retirement Date or, subsequent to his Termination of Service, attains his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service due to Disability may file an election form to receive a distribution of the vested interest in the Net Value of his Accounts by the purchase of a Life Annuity. Subject to Section 7.2(a), such form may include an election to designate a Beneficiary who is other than his Spouse. Payment of benefits to the Participant shall commence as of the later of the Participant's Normal Retirement Date or his Postponed Retirement Date. Notwithstanding the foregoing sentence, such form may include an election to receive a 42 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- distribution commencing on any date coincident with or next following his Early Retirement Date or, if applicable, the date of his Disability. (g) In lieu of the normal form of benefit payment set forth in subsections (a), (b) and (c), an Employee who incurs a Termination of Service as of his Retirement Date or, subsequent to his Termination of Service, attains his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service due to Disability may elect to defer receipt of the vested interest in the Net Value of his Accounts beyond his Normal Retirement Date or Postponed Retirement Date. The applicable form must be filed at least ten (10) days prior to the Employee's Retirement Date. If such an election is made, the vested interest in the Net Value of his Accounts shall continue to be held in the Trust Fund. Subject to the required minimum distribution provisions of Sections 7.10(b) and 7.10(c), the vested interest in the Net Value of his Accounts shall (i) be distributed to such Employee as a lump sum distribution within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating the Employee's deferred distribution date or (ii), upon the election of the Employee, commence to be distributed in installments in accordance with the provisions of subsection (e). (h) In lieu of the normal form of benefit payment set forth in subsections (a), (b) and (c), an Employee who incurs a Termination of Service as of his Retirement Date or, subsequent to his Termination of Service, attains his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service due to Disability may, at least ten (10) days prior to the date on which his benefit is scheduled to be paid, file an election form that a lump sum distribution equal to the vested interest in the Net Value of his Accounts be made payable to the trustee of another qualified pension or profit-sharing plan designated by the Employee. Such lump sum distribution shall be made within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation. 7.7 Payments upon Termination of Service for Reasons Other Than Retirement or Disability (a) If an Employee incurs a Termination of Service as of a date other than a Retirement Date, and does not, subsequent to his Termination of Service, attain his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service for reasons other than Disability, has not elected to receive his benefit pursuant to an optional form of benefit payment in accordance with the provisions of subsection (c), (d), (e) or (f) and the vested interest in the 43 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- Net Value of the Employee's Accounts, as determined by the Trustees in accordance with subsection (g), is equal to or less than $3,500, a lump sum distribution of the vested interest in the Net Value of his Accounts shall be made to the Employee within seven (7) days of the Valuation Dates set forth in subsection (g)(i) and (g)(ii). (b) If an Employee incurs a Termination of Service as of a date other than a Retirement Date and does not, subsequent to his Termination of Service, attain his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service for reasons other than Disability, has not elected to receive his benefit pursuant to an optional form of benefit payment in accordance with the provisions of subsection (c), (d), (e) or (f) and the vested interest in the Net Value of the Employee's Accounts, as determined by the Trustees in accordance with subsection (g), exceeds $3,500, a lump sum distribution of the vested interest in the Net Value of his Accounts shall be made to the Employee within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating the date the Employee would have attained his Normal Retirement Date if he were still employed by the Employer. (c) In lieu of the normal form of benefit payment set forth in subsections (a) and (b), an Employee who incurs a Termination of Service as of a date other than a Retirement Date and does not, subsequent to his Termination of Service, attain his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service for reasons other than Disability may, subject to the provisions of Sections 7.10(b) and 7.10(c), file an election form to receive the vested interest in the Net Value of his Accounts as a lump sum distribution as of some other Valuation Date following his termination; provided, however, that the Valuation Date may not be later than thirteen (13) months following his Termination of Service. Subject to the required minimum distribution provisions of Sections 7.10(b) and 7.10(c), the vested interest in the Net Value of his Accounts shall be distributed to such Employee as a lump sum distribution within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating the Employee's distribution date. (d) In lieu of the normal form of benefit payment set forth in subsections (a) and (b), an Employee who incurs a Termination of Service as of a date other than his Retirement Date and does not, subsequent to his Termination of Service, attain his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service for reasons other than Disability may file an election form to receive the vested interest in the Net Value of his Accounts in the form of installments over a period not to exceed twenty (20) years. The vested interest in the Net Value of his Accounts shall be 44 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- determined as of such Valuation Date or Valuation Dates in each such Plan Year as may be elected by such Employee and shall be based on the respective values of the Employee's Units in each Investment Account as of such Valuation Date or Valuation Dates. The amount of the installment payment shall be distributed by the redemption of Units from the Employee's Accounts on a pro rata basis among such Employee's Investment Accounts. Any portion of the vested interest in the Net Value of the Accounts of such former Employee which shall not have been so paid shall continue to be held for his benefit or for the benefit of his Beneficiary in the Employee's Investment Accounts. If an Employee elects to receive his benefit pursuant to this subsection (d), the installment period may not extend beyond the life expectancy of such Employee or the life expectancy of such Employee and his Beneficiary. (e) In lieu of the normal form of benefit payment set forth in subsections (a) and (b), an Employee who incurs a Termination of Service as of a date other than his Retirement Date and does not, subsequent to his Termination of Service, attain his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service for reasons other than death or Disability, may file an election form to receive a distribution of the vested interest in the Net Value of his Accounts by the purchase of a Life Annuity. Subject to Section 7.2(a), such form may include an election to designate a Beneficiary who is other than his Spouse. Payment of benefits to the Participant shall commence as of the Participant's Normal Retirement Date. Notwithstanding the foregoing sentence, such form may include an election to receive a distribution commencing on any date coincident with or next following his Termination of Service and prior to his Normal Retirement Date. (f) In lieu of the normal form of benefit payment set forth in subsections (a) and (b), an Employee who incurs a Termination of Service as of a date other than his Retirement Date and does not, subsequent to his Termination of Service, attain his Early Retirement Date in accordance with the provisions of Section 1.20 before receiving or filing an election form to receive the vested interest in the Net Value of his Accounts, or incurs a Termination of Service for reasons other than Disability may, at least ten (10) days prior to the date on which his benefit is scheduled to be paid, file an election form that a lump sum distribution equal to the vested interest in the Net Value of his Accounts be made payable to the trustee of another qualified pension or profit-sharing plan designated by the Employee. Such lump sum distribution shall be made within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation. 45 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (g) If an Employee incurs a Termination of Service as of a date other than a Retirement Date or for reasons other than Disability and has not elected to receive the vested interest in the Net Value of his Accounts pursuant to an optional form of benefit payment in accordance with subsection (c), (d), (e) or (f), the Employer shall notify the Trustees of such termination. The Trustees shall determine the vested interest in the Net Value of the Accounts of such Employee as of the later of: (i) the Valuation Date which occurs thirteen (13) months following his Termination of Service or (ii) the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating that he incurred a Termination of Service. 7.8 Payments Upon Death (a) In the case of a married Participant, the Spouse shall be the designated Beneficiary. Notwithstanding the foregoing, such Participant may effectively elect to designate a person or persons other than the Spouse as Beneficiary. Such an election shall not be effective unless (i) such Participant's Spouse irrevocably consents to such election in writing, (ii) such election designates a Beneficiary which may not be changed without spousal consent or the consent of the Spouse expressly permits designation by the Participant without any requirement of further consent by the Spouse, (iii) the Spouse's consent acknowledges understanding of the effect of such election and (iv) the consent is witnessed by a Plan representative or acknowledged before a notary public. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of the Plan representative that such written consent cannot be obtained because there is no Spouse or the Spouse cannot be located, the consent hereunder shall not be required. Any consent necessary under this provision shall be valid only with respect to the Spouse who signs the consent. (b) In the case of a single Participant, Beneficiary means a person or persons who have been designated under the Plan by such Participant or who are otherwise entitled to a benefit under the Plan. (c) The designation of a Beneficiary who is other than a Participant's Spouse and the designation of any contingent Beneficiary shall be made in writing by the Participant in the form and manner prescribed by the Committee and shall not be effective unless filed prior to the death of such person. If more than one person is designated as a Beneficiary or a contingent Beneficiary, each designated Beneficiary in such Beneficiary classification shall have an equal share unless the Participant directs otherwise. For purposes of this Section 7.8, "person" includes an individual, a trust, an estate, or any other person or entity designated as a Beneficiary. 46 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (d) A married Participant who has designated a person or persons other than the Spouse as Beneficiary may, without the consent of such Spouse, revoke such prior election by submitting written notification of such revocation. Such revocation shall result in the reinstatement of the Spouse as the designated Beneficiary unless the Participant effectively designates another person as Beneficiary in accordance with the provisions of subsection (a). The number of election forms and revocations shall not be limited. (e) Upon the death of a Participant the remaining vested interest in the Net Value of his Accounts shall become payable, in accordance with the provisions of subsection (g), to his Beneficiary or contingent Beneficiary. If there is no such Beneficiary, the remaining vested interest in the Net Value of his Accounts shall be payable to the executor or administrator of his estate, or, if no such executor or administrator is appointed and qualifies within a time which the Committee shall, in its sole and absolute discretion, deem to be reasonable, then to such one or more of the descendants and blood relatives of such deceased Participant as the Committee, in its sole and absolute discretion, may select. (f) If a designated Beneficiary entitled to payments hereunder shall die after the death of the Participant but before the entire vested interest in the Net Value of Accounts of such Participant has been distributed, then the remaining vested interest in the Net Value of Accounts of such Participant shall be paid, in accordance with the provisions of subsection (g), to the surviving Beneficiary who is not a contingent Beneficiary, or, if there are no such surviving Beneficiaries then living, to the designated contingent Beneficiaries as shall be living at the time such payment is to be made. If there is no designated contingent Beneficiary then living, the remaining interest in the Net Value of his Accounts shall be paid to the executor or administrator of the estate of the last to die of the Beneficiaries who are not contingent Beneficiaries. (g) If a Participant dies before his entire vested interest in the Net Value of his Accounts has been distributed to him, the remainder of such vested interest shall be paid to his Beneficiary or, if applicable, his contingent Beneficiary, in the following manner: (i) if the Participant had begun receiving a distribution in the form of installments, over the remaining installment period, at the times set forth in such election; (ii) if the Participant had begun receiving a distribution in the form of a Life Annuity, distributions shall continue in accordance with such election. (iii) under all other circumstances, in a lump sum distribution as soon as practicable following the 47 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- date of the Participant's death unless the Participant so elected prior to his death or the Beneficiary so elects to receive such distribution: (A) in a lump sum distribution as of any such Valuation Date which occurs within one (1) year of the death of the Participant; or (B) in the form of installments over a period not to exceed twenty (20) years. The Net Value of his Accounts shall be determined as of such Valuation Date or Valuation Dates in each such Plan Year as may be elected by such Beneficiary and shall be based on the respective values of the Beneficiary's Units in each Investment Account as of such Valuation Date or Valuation Dates. The amount of the installment payment shall be distributed by the redemption of Units from the Beneficiary's Accounts on a pro rata basis among such Beneficiary's Investment Accounts. Any portion of the vested interest in the Net Value of the Accounts of such Beneficiary which shall not have been so paid shall continue to be held for his benefit or for the benefit of the contingent Beneficiary in the Beneficiary's Investment Accounts. If a Beneficiary elects to receive his benefit pursuant to this subsection (g)(iii)(B), the installment period may not extend beyond the life expectancy of such Beneficiary; or (C) in the form of a Life Annuity. Payment of benefits to the Beneficiary shall commence as of the Participant's Normal Retirement Date or, if applicable, his Postponed Retirement Date. Notwithstanding the foregoing sentence, such form may include an election to receive a distribution commencing on any date coincident with or next following the Participant's date of death. If the Beneficiary is the Participant's Spouse and if benefits are payable to such Beneficiary as an immediate or deferred lump sum distribution, such Spouse may defer the distribution up to the date on which the Participant would have attained age seventy and one-half (70-1/2). If such Spouse dies prior to such distribution, the prior sentence shall be applied as if the Spouse were the Participant. (h) Notwithstanding anything in the Plan to the contrary, the provisions of subsections (a) through (g) shall also apply to a person who is not a Participant but who has made a contribution to and maintains a Rollover Contribution Account under the Plan. 7.9 Direct Rollover of Eligible Rollover Distributions For purposes of this Section 7.9, the following definitions shall apply: 48 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (a) "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. (b) "Distributee" means an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's Spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the Spouse or former spouse. (c) "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (d) "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) or the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten(10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). This Section 7.9 applies to distributions made on or after April 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 7.10 Latest Commencement of Benefits (a) Unless the Employee elects otherwise in accordance with the Plan, in no event shall the payment of benefits commence later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occur: (i) the attainment by the Employee of age sixty-five (65), (ii) the tenth (10th) anniversary of the year in which the Participant commenced participation in the Plan or Prior Plan, or (iii) the termination of the Employee's employment with the Employer; provided, however, that if the amount of the payment 49 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- required to commence on the date determined under this sentence cannot be ascertained by such date, a payment retroactive to such date may be made no later than sixty (60) days after the earliest date on which the amount of such payment can be ascertained under the Plan. (b) Distributions to five-percent owners: The vested interest in the Net Value of the Accounts of a five-percent owner (as described in Section 416(i) of the Code and determined with respect to the Plan Year ending in the calendar year in which such individual attains age seventy and one-half (70-1/2)) must be distributed or commence to be distributed no later than the first day of April following the calendar year in which such individual attains age seventy and one-half (70-1/2). The vested interest in the Net Value of the Accounts of an Employee who is not a five-percent owner (as described in Section 416(i) of the Code) for the Plan Year ending in the calendar year in which such person attains age seventy and one-half (70-1/2) but who becomes a five-percent owner (as described in Section 416(i) of the Code) for a later Plan Year must be distributed or commence to be distributed no later than the first day of April following the last day of the calendar year that includes the last day of the first Plan Year for which such individual is a five-percent owner (as described in Section 416(i) of the Code). (c) Distributions to other than five-percent owners: The vested interest in the Net Value of the Accounts of an Employee who is not a five-percent owner and who attained age seventy and one-half (70-1/2) prior to January 1, 1988, must be distributed or commence to be distributed no later than the first day of April following the calendar year in which occurs the later of: (i) his termination of employment or (ii) his attainment of age seventy and one-half (70-1/2). The vested interest in the Net Value of the Accounts of any Employee who attains age seventy and one-half (70-1/2) after December 31, 1987, must be distributed or commence to be distributed no later than the first day of April following the calendar year in which such individual attains age seventy and one-half (70-1/2). 50 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE VIII -- LOANS TO PARTICIPANTS 8.1 Definitions and Conditions (a) For purposes of this Article VIII, the following terms and phrases shall have the meanings hereafter ascribed to them: (i) "Borrower" means a Participant or a "Party in Interest" (as defined under Section 3(14) of ERISA) who maintains an Account, provided such Participant or Party in Interest is not receiving a benefit payment in accordance with the provisions of Section 7.6(e), 7.6(f), 7.7(d), 7.7(e) or 7.8. (ii) "Loan Account" means the separate, individual account established on behalf of a Borrower in accordance with the provisions of Section 8.4(d). (b) To the extent permitted under the provisions of this Article VIII and subject to the terms and conditions set forth herein, a Borrower may request a loan from his Accounts. Any loans made in accordance with this Article shall not be subject to the provisions of Article VI. 8.2 Loan Amount Upon a finding by the Committee that all requirements hereunder have been met, a Borrower may request a loan from his Accounts in an amount up to the lesser of: (a) fifty percent (50%) of the Net Value as of the close of business on the date the loan is processed of the Basic Contribution Account, vested Matching Contribution Account, vested Discretionary Employer Contribution Account, Post-Tax Contribution Account and Rollover Contribution Account, or (b) $50,000, reduced by the highest outstanding loan balance during the preceding twelve (12) months. The minimum loan permitted shall be $1,000. 8.3 Term of Loan All loans shall be for a fixed term of not more than five (5) years, except that a loan which shall be used to acquire any dwelling which within a reasonable time is to be used as the principal residence of the Participant, may, in the discretion of the Committee, be made for a term of not more than fifteen (15) years. Interest on a loan shall be based on the prime rate as published in The Wall Street Journal on the day in which the loan is requested, rounded to the nearest one quarter of one percent (1/4 of 1%). Such rate shall remain in effect until the Loan Account is closed. 51 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 8.4 Operational Provisions (a) An application for a loan shall be filed in the form and manner prescribed by the Committee ten (10) days prior to the Valuation Date as of which such loan is requested. If the Committee shall approve such application, the Committee shall establish the amount of such loan and such loan shall be effected as of such Valuation Date. (b) The amount of the loan shall be distributed from the Investment Accounts in which the Borrower's Accounts are invested in the following order of priority: (i) Post-Tax Contribution Account; (ii) Basic Contribution Account; (iii) Rollover Contribution Account; (iv) vested Matching Contribution Account; (v) vested Discretionary Employer Contribution Account. Distributions from each of the foregoing Accounts shall be made on a pro rata basis among the Investment Accounts selected pursuant to Section 6.1. (c) The proceeds of a loan shall be distributed to the Borrower as soon as practicable after the Valuation Date as of which the loan is processed; provided, however, that the Borrower shall have satisfied such reasonable conditions as the Committee shall deem necessary, including, without limitation: (i) the delivery of an executed promissory note for the amount of the loan, including interest, payable to the order of the Trustees; (ii) an assignment to the Plan of such Borrower's interest in his Accounts to the extent of such loan; and (iii) if the Borrower is actively employed by the Employer, an authorization to the Employer to make payroll deductions in order to repay his loan to the Plan. The aforementioned promissory note shall be duly acknowledged and executed by the Borrower and shall be held by the Trustees, or the Committee as agent for the Trustees, as an asset of the Borrower's Loan Account pursuant to subsection (d). (d) A Loan Account shall be established for each Borrower with an outstanding loan pursuant to this Article VIII. Each Loan Account shall be comprised of a Borrower's (i) executed promissory note and (ii) installment payments of principal and interest made pursuant to Section 8.5(a). Upon full payment and satisfaction of the outstanding Loan Account balance, a Borrower's promissory note shall be marked paid in full, returned to the Borrower, and his Loan Account thereupon closed. (e) As of each Valuation Date coincident with or next succeeding each payment of principal and interest on a loan, the then current balance of each Borrower's Loan Account shall be debited by the amount of such payment and such amount shall be transferred for investment in accordance with Section 8.5(c) to the appropriate Borrower's Account. If the Committee 52 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- established a lien against the Borrower's Accounts pursuant to Section 8.6(c), and foreclosure of such lien is deferred until the Borrower's Termination of Service pursuant to Section 8.6(c)(i), for each month that foreclosure of the lien is deferred, the then current balance of the Borrower's Loan Account shall be charged with interest on the unpaid principal and interest thereon. (f) Only one (1) loan shall be outstanding to any Borrower under this Article VIII at any time. 8.5 Repayments (a) If the Borrower is on the payroll of the Employer and unless otherwise agreed to by the Committee, repayments of loan principal, or the unpaid balance thereof, and interest thereon shall be made through payroll deductions. The first repayment shall be deducted as of the first payroll date occurring no later than three (3) weeks after the Committee submits the loan form for processing. If the Borrower is not on the payroll of the Employer and unless otherwise agreed to by the Committee, repayments of loan principal, or the unpaid balance thereof, and interest thereon, shall be made in cash or cash equivalencies to the Employer in equal monthly installments for payment to his Loan Account. (b) Any amount repaid to the Plan by a Borrower with respect to a loan, including interest thereon, shall be invested as if such amount were a contribution to be invested in accordance with Section 6.1. (c) With respect to each Borrower's Loan Account, any repayment of principal and interest made by a Borrower shall be credited, as of the Valuation Date coincident with or next succeeding such payment, to the Borrower's Accounts in the order of priority established under Section 8.4(b). No Account having a lesser degree of priority shall be credited until the Account having the immediately preceding degree of priority has been restored by an amount equal to that which had been borrowed from such Account. (d) A Borrower may prepay his entire loan, plus all interest accrued and unpaid thereon, as of any Valuation Date. Alternatively and subject to such other terms and conditions as may be established from time to time by the Committee, a Borrower may prepay a portion of his loan on any Valuation Date. Such prepayment shall be applied first to all accrued and unpaid interest on the outstanding balance of the loan. After any partial prepayment of principal, interest will only be charged on the remaining outstanding balance of the loan. 53 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (e) In the event the Plan is terminated, the entire unpaid principal amount of the loan hereunder, together with any accrued and unpaid interest thereon, shall become immediately due and payable. 8.6 Default (a) If a Borrower fails to make any payment on any loan when due under this Article VIII, the entire unpaid principal amount of such loan, together with any accrued and unpaid interest thereon, shall be deemed in default and become due and payable ninety (90) days after the initial date of payment delinquency. (b) If a Borrower fails to make any payment on a loan and is deemed to be in default pursuant to subsection (a), the Committee shall establish a lien against the Borrower's Accounts in an amount equal to any unpaid principal and interest. The lien shall be foreclosed by applying the value of the Borrower's Loan Account (determined as of the next Valuation Date immediately following foreclosure) in satisfaction of said unpaid principal and interest as follows: (i) if the Borrower is in the employment of the Employer, upon the Borrower's Termination of Service; or (ii) if the Borrower is not in the employment of the Employer, immediately upon default. Thereupon, the vested interest in the balance of the Borrower's Accounts shall be distributed in accordance with the applicable provisions of the Plan. (c) The Committee may, in accordance with uniform rules established by it, restrict the right of any Borrower who has defaulted on a loan from the Plan to: (i) make withdrawals and/or loans from his Matching Contribution Account, Basic Contribution Account, Post-Tax Contribution Account, Discretionary Employer Contribution Account and/or Rollover Contribution Account for a period not exceeding twelve (12) months or (ii) if the Borrower is an Eligible Employee, authorize Basic Contributions or Post-Tax Contributions to be made on his behalf or make any other contributions to the Plan for a period not exceeding twelve (12) months. 8.7 Coordination of Outstanding Account and Payment of Benefits (a) If the Borrower has an outstanding Loan Account and is either (i) scheduled to receive or elects to receive a lump sum distribution or Life Annuity in accordance with the provisions of Article VII, or (ii) scheduled to receive the last installment payment under a previous election made in accordance with the provisions of Article VII to receive 54 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- payments in a form other than the normal form of benefit payments, then, at the time of the distribution or payment under clause 8.6(b)(i) or (ii) above, the entire unpaid principal amount of the loan together with any accrued and unpaid interest thereon, shall become immediately due and payable. No Plan distribution, except as permitted under Section 7.3 or Section 7.4, shall be made to any Borrower unless and until such Borrower's Loan Account, including accrued interest thereunder, has been liquidated and closed. If a Borrower fails to pay the outstanding balance of his Loan Account hereunder, such loan shall be satisfied as if a default had occurred pursuant to Section 8.6. (b) Any reference in the Plan to the Net Value of Units in a Borrower's Accounts available for distribution to any Borrower, shall mean the value after the satisfaction of the entire unpaid principal loan amount and any accrued, unpaid interest thereon, as provided in this Article VIII. 55 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE IX -- ADMINISTRATION 9.1 General Administration of the Plan The operation and administration of the Plan shall be subject to the management and control of the Named Fiduciaries and Plan Administrator designated by the Employer. The designation of such Named Fiduciaries and Plan Administrator, the terms of their appointment, and their duties and responsibilities allocated among them shall be as set forth in this Article IX. 9.2 Designation of Named Fiduciaries The management and control of the operation and administration of the Plan shall be allocated in the following manner: (a) The Employer shall designate the Trustees as a Named Fiduciary to perform those functions set forth in the Agreement or the Plan that are assigned to the Trustees. (b) The Employer shall designate one or more individuals to serve as member(s) of an employee benefits Committee to perform those functions set forth in the Agreement or the Plan that are assigned to such Committee. (c) A Trust Participant (as defined under the Agreement) may delegate to a person or persons the duties and responsibilities for voting Units set forth under the Agreement. 9.3 Responsibilities of Fiduciaries The Named Fiduciaries and Plan Administrator shall have only those powers, duties, responsibilities and obligations that are specifically allocated to them under the Plan or the Agreement. To the extent permitted by ERISA, each Named Fiduciary and Plan Administrator may rely upon any direction, information or action of another Named Fiduciary, Plan Administrator or the Employer as being proper under the Plan or the Agreement and is not required to inquire into the propriety of any such direction, information or action and no Named Fiduciary or Plan Administrator shall be responsible for any act or failure to act of another Named Fiduciary, Plan Administrator or the Employer. No Named Fiduciary, Plan Administrator or the Employer guarantees the Trust Fund in any manner against investment loss or depreciation in asset value. 56 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- The allocation of responsibility between the Trustees and the Employer may be changed by written agreement. Such reallocation shall be evidenced by Employer Resolutions and shall not be deemed an amendment to the Plan. 9.4 Plan Administrator The Employer shall designate the Trustees as the Trustee Administrator and shall designate one or more persons to act as Plan Administrator and to perform those functions set forth in the Agreement or the Plan that are assigned to the Plan Administrator. The duties and responsibilities of a plan administrator under ERISA shall be allocated between the Plan Administrator and the Trustee Administrator as set forth herein or in the Agreement. Such allocation may be changed only by written agreement between the parties and shall not be deemed an amendment to the Plan. The Plan Administrator shall be solely responsible for monitoring and notifying the Trustees of an Employee's age for all purposes under the Plan. The Plan Administrator is designated as the Plan's agent for the service of legal process. 9.5 Committee The members of the Committee designated by the Employer under Section 9.2(b) shall serve for such term(s) as the Employer shall determine and until their successors are designated and qualified. The term of any member of the Committee may be renewed from time to time without limitation as to the number of renewals. Any member of the Committee may (a) resign upon at least sixty (60) days written notice to the Employer or (b) be removed from office but only for his failure or inability, in the opinion of the Employer, to carry out his responsibilities in an effective manner. Termination of employment with the Employer shall be deemed to give rise to such failure or inability. The powers and duties allocated to the Committee shall be vested jointly and severally in its members. Notwithstanding specific instructions to the contrary, any instrument or document signed on behalf of the Committee by any member of the Committee may be accepted and relied upon by the Trustees as the act of the Committee. The Trustees shall not be required to inquire into the propriety of any such action taken by the Committee nor shall they be held liable for any actions taken by them in reliance thereon. The Employer may, pursuant to Employer Resolutions and upon notice to the Trustees, change the number of individuals comprising the Committee, their terms of office or other conditions of their incumbency provided that there shall be at all times at least one individual member of the Committee. Any such change shall not be deemed an amendment to the Plan. 57 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 9.6 Powers and Duties of the Committee The Committee shall have authority to perform all acts it may deem necessary or appropriate in order to exercise the duties and powers imposed or granted by ERISA, the Plan, the Agreement or any Employer Resolutions. Such duties and powers shall include, but not be limited to, the following: (a) Power to Construe - Except as otherwise provided in the Agreement, the Committee shall have the power to construe the provisions of the Plan and to determine any questions of fact which may arise thereunder. (b) Power to Make Rules and Regulations - The Committee shall have the power to make such reasonable rules and regulations as it may deem necessary or appropriate to perform its duties and exercise its powers. Such rules and regulations shall include, but not be limited to, those governing (i) the manner in which the Committee shall act and manage its own affairs, (ii) the procedures to be followed in order for Employees or Beneficiaries to claim benefits, and (iii) the procedures to be followed by Participants, Beneficiaries or other persons entitled to benefits with respect to notifications, elections, designations or other actions required by the Plan or ERISA. All such rules and regulations shall be applied in a uniform and nondiscriminatory manner. (c) Powers and Duties with Respect to Information - The Committee shall have the power and responsibility: (i) to obtain such information as shall be necessary for the proper discharge of its duties; (ii) to furnish to the Employer, upon request, such reports as are reasonable and appropriate; (iii) to receive, review and retain periodic reports of the financial condition of the Trust Fund; and (iv) to receive, collect and transmit to the Trustees all information required by the Trustees in the administration of the Accounts of the Employee as contemplated in Section 9.7. (d) Power of Delegation - The Committee shall have the power to delegate fiduciary responsibilities (other than trustee responsibilities defined under Section 405(c)(3) of ERISA) to one or more persons who are not members of the Committee. Unless otherwise expressly indicated by the Employer, the Committee must reserve the right to terminate such delegation upon reasonable notice. (e) Power of Allocation - Subject to the written approval of the Employer, the Committee shall have the power to allocate among its members specified fiduciary responsibilities (other than 58 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- trustee responsibilities defined under Section 405(c)(3) of ERISA). Any such allocation shall be in writing and shall specify the persons to whom such allocation is made and the terms and conditions thereof. (f) Duty to Report - Any member of the Committee to whom specified fiduciary responsibilities have been allocated under subsection (e) shall report to the Committee at least annually. The Committee shall report to the Employer at least annually regarding the performance of its responsibilities as well as the performance of any persons to whom any powers and responsibilities have been further delegated. (g) Power to Employ Advisors and Retain Services - The Committee may employ such legal counsel, enrolled actuaries, accountants, pension specialists, clerical help and other persons as it may deem necessary or desirable in order to fulfill its responsibilities under the Plan. 9.7 Certification of Information The Committee shall certify to the Trustees on such periodic or other basis as may be agreed upon, but in no event later than ten (10) days before any Valuation Date as of which the Trustees must effect any action with respect to any Accounts held under the provisions of the Plan, relevant facts regarding the establishment of the Accounts of an Employee, periodic contributions with respect to such Accounts, investment elections and modifications thereof and withdrawals and distributions therefrom. The Trustees shall be fully protected in maintaining individual Account records and in administering the Accounts of the Employee on the basis of such certifications and shall have no duty of inquiry or otherwise with respect to any transactions or communications between the Committee and Employees relating to the information contained in such certifications. 9.8 Authorization of Benefit Payments The Committee shall forward to the Trustees any application for payment of benefits within a reasonable time after it has approved such application. The Trustees may rely on any such information set forth in the approved application for the payment of benefits to the Participant, Beneficiary or any other person entitled to benefits. 9.9 Payment of Benefits to Legal Custodian Whenever, in the Committee's opinion, a person entitled to receive any benefit payment is a minor or deemed to be physically, mentally or legally incompetent to receive such benefit, the Committee may direct the Trustees to make payment for his benefit to such individual or institution having legal custody of such person or to his legal representative. Any benefit payment made in accordance with the provisions of this Section 9.9 shall operate as a valid and complete discharge of any liability for payment of such benefit under the provisions of the Plan. 59 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 9.10 Service in More Than One Fiduciary Capacity Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan, regardless of whether any such person is an officer, employee, agent or other representative of a party in interest. 9.11 Payment of Expenses The Employer will pay the ordinary administrative expenses of the Plan and compensation of the Trustees to the extent required, except that any expenses directly related to the Trust Fund, such as transfer taxes, brokers' commissions, registration charges, or administrative expenses of the Trustees (including expenses of counsel retained by it in accordance with the Agreement), shall be paid from the Trust Fund or from such Investment Account to which such expenses directly relate. The Employer may charge Employees all or part of the reasonable expenses associated with withdrawals and other distributions, loans or Account transfers. The Employer will charge Employees loan origination fees and all annual maintenance fees associated with loans. 60 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE X -- BENEFIT CLAIMS PROCEDURE 10.1 Definition For purposes of this Article X, "Claimant" shall mean any Participant, Beneficiary or any other person entitled to benefits under the Plan or his duly authorized representative. 10.2 Claims A Claimant may file a written claim for a Plan benefit with the Plan Administrator on the appropriate form to be supplied by the Plan Administrator. The Plan Administrator shall, in its sole and absolute discretion, review the Claimant's application for benefits and determine the disposition of such claim. 10.3 Disposition of Claim The Plan Administrator shall notify the Claimant as to the disposition of the claim for benefits under this Plan within ninety (90) days after the appropriate form has been filed unless special circumstances require an extension of time for processing. If such an extension of time is required, the Plan Administrator shall furnish written notice of the extension to the Claimant prior to the termination of the initial ninety (90) day period. The extension notice shall indicate the special circumstances requiring the extension of time and the date the Plan Administrator expects to render a decision. In no event shall such extension exceed a period of one hundred-eighty (180) days from the receipt of the claim. 10.4 Denial of Claim If a claim for benefits under this Plan is denied in whole or in part by the Plan Administrator, a notice written in a manner calculated to be understood by the Claimant shall be provided by the Plan Administrator to the Claimant and such notice shall include the following: (a) a statement that the claim for the benefits under this Plan has been denied; (b) the specific reasons for the denial of the claim for benefits, citing the specific provisions of the Plan which set forth the reason or reasons for the denial; (c) a description of any additional material or information necessary for the Claimant to perfect the claim for benefits under this Plan and an explanation of why such material or information is necessary; and (d) appropriate information as to the steps to be taken if the Claimant wishes to appeal such decision. 61 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 10.5 Inaction by Plan Administrator A claim for benefits shall be deemed to be denied if the Plan Administrator shall not take any action on such claim within ninety (90) days after receipt of the application for benefits by the Claimant or, if later, within the extended processing period established by the Plan Administrator by written notice to the Claimant, in accordance with Section 10.3. 10.6 Right to Full and Fair Review A Claimant who is denied, in whole or in part, a claim for benefits under the Plan may file an appeal of such denial. Such appeal must be made in writing by the Claimant or his duly authorized representative and must be filed with the Committee within sixty (60) days after receipt of the notification under Section 10.4 or the date his claim is deemed to be denied under Section 10.5. The Claimant or his representative may review pertinent documents and submit issues and comments in writing. 10.7 Time of Review The Committee, independent of the Plan Administrator, shall conduct a full and fair review of the denial of claim for benefits under this Plan to a Claimant within sixty (60) days after receipt of the written request for review described in Section 10.6; provided, however, that an extension, not to exceed sixty (60) days, may apply in special circumstances. Written notice shall be furnished to the Claimant prior to the commencement of the extension period. 10.8 Final Decision The Claimant shall be notified in writing of the final decision of such full and fair review by such Committee. Such decision shall be written in a manner calculated to be understood by the Claimant, shall state the specific reasons for the decision and shall include specific references to the pertinent Plan provisions upon which the decision is based. In no event shall the decision be furnished to the Claimant later than sixty (60) days after the receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within one hundred-twenty (120) days after receipt of such request for review. 62 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE XI - AMENDMENT, TERMINATION, AND WITHDRAWAL 11.1 Amendment and Termination The Employer expects to continue the Plan indefinitely, but specifically reserves the right, in its sole and absolute discretion, at any time, by appropriate action of the Board, to terminate its Plan or to amend (subject to the approval of the Trustees), in whole or in part, any or all of the provisions of the Plan. Subject to the provisions of Section 13.7, no such amendment or termination shall permit any part of the Trust Fund to be used for or diverted to purposes other than for exclusive benefit of Participants, Beneficiaries or other persons entitled to benefits, and no such amendment or termination shall reduce the interest of any Participant, Beneficiary or other person who may be entitled to benefits, without his consent. In the event of a termination or partial termination of the Plan, or upon complete discontinuance of contributions under the Plan, the Accounts of each affected Participant shall become fully vested and shall be distributable in accordance with the provisions of Article VII. In the event of a complete termination of the Plan, the Accounts of each affected Participant shall become fully vested and shall be distributable as a lump sum distribution within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating the Participant's distribution date. If any amendment changes the vesting schedule, any Participant who has a Period of Service of three (3) or more years may, by filing a written request with the Employer, elect to have his vested percentage computed under the vesting schedule in effect prior to the amendment. The period during which the Participant may elect to have his vested percentage computed under the prior vesting schedule shall commence with the date the amendment is adopted and shall end on the latest of: (a) sixty (60) days after the amendment is adopted; (b) sixty (60) days after the amendment becomes effective; or (c) sixty (60) days after the Participant is issued written notice of the amendment from the Employer. 11.2 Withdrawal from the Trust Fund An Employer may withdraw its Plan from the Trust Fund in accordance with and subject to the provisions of the Agreement. 63 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE XII - TOP-HEAVY PLAN PROVISIONS 12.1 Introduction Any other provisions of the Plan to the contrary notwithstanding, the provisions contained in this Article XII shall be effective with respect to any Plan Year in which this Plan is a Top-Heavy Plan, as hereinafter defined. 12.2 Definitions For purposes of this Article XII, the following words and phrases shall have the meanings stated herein unless a different meaning is plainly required by the context. (a) "Account," for the purpose of determining the Top-Heavy Ratio, means the sum of (i) a Participant's Accounts as of the most recent Valuation Date and (ii) an adjustment for contributions due as of the Determination Date. (b) "Determination Date" means, with respect to any Plan Year, the last day of the preceding Plan Year. With respect to the first Plan Year, "Determination Date" means the last day of such Plan Year. (c) "Five-Percent Owner" means, if the Employer is a corporation, any Employee who owns (or is considered as owning within the meaning of Section 318 of the Code modified by Section 416(i)(1)(B)(iii) of the Code) more than five percent (5%) of the value of the outstanding stock of, or more than five percent (5%) of the total combined voting power of all the stock of, the Employer. If the Employer is not a corporation, a Five-Percent Owner means any Employee who owns more than five percent (5%) of the capital or profits interest in the Employer. (d) "Key Employee" means any Employee or former Employee (or, where applicable, such person's Beneficiary) in the Plan who, at any time during the Plan Year containing the Determination Date or any of the preceding four (4) Plan Years, is: (i) an Officer having Top-Heavy Earnings from the Employer of greater than fifty percent (50%) of the dollar limitation in effect under Section 415(b)(1)(A) of the Code; (ii) one of the ten (10) Employees having Top-Heavy Earnings from the Employer of more than the dollar limitation in effect under Section 415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of Section 318 of the Code modified by 64 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- Section 416(i)(1)(B)(iii) of the Code) both more than a one-half of one percent (1/2%) interest in value and the largest interests in the value of the Employer; (iii) a Five-Percent Owner of the Employer; or (iv) a One-Percent Owner of the Employer having Top-Heavy Earnings from the Employer greater than $150,000. For purposes of computing the Top-Heavy Earnings in subsections (d)(i), (d)(ii) and (d)(iv), the aggregation rules of Sections 414(b), (c), (m) and (o) of the Code shall apply. (e) "Non-Key Employee" means an Employee or former Employee (or, where applicable, such person's Beneficiary) who is not a Key Employee. (f) "Officer" means an Employee who is an administrative executive in the regular and continued service of his Employer; any Employee who has the title but not the authority of an officer shall not be considered an Officer for purposes of this Article XII. Similarly, an Employee who does not have the title of an officer but has the authority of an officer shall be considered an Officer. For purposes of this Article XII, the maximum number of Officers that must be taken into consideration shall be determined as follows: (i) three (3), if the number of Employees is less than thirty (30); (ii) ten percent (10%) of the number of Employees, if the number of Employees is between thirty (30) and five hundred (500); or (iii) fifty (50), if the number of Employees is greater than five hundred (500). In determining such limit, the term "Employer" shall be determined in accordance with Sections 414(b), (c), (m) and (o) of the Code and "Employee" shall include Leased Employees and exclude employees described in Section 414(q)(8) of the Code. (g) "One-Percent Owner" means, if the Employer is a corporation, any Employee who owns (or is considered as owning within the meaning of Section 318 of the Code modified by Section 416(i)(1)(B)(iii) of the Code) more than one percent (1%) of the value of the outstanding stock of, or more than one percent (1%) of the total combined voting power of all the stock of, the Employer. If the Employer is not a corporation, a One-Percent Owner means any Employee who owns more than one percent (1%) of the capital or profits interest in the Employer. (h) A "Permissive Aggregation Group" consists of one or more plans of the Employer that are part of a Required Aggregation Group, plus one or more plans that are not part of a Required Aggregation Group but that satisfy the requirements of Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group. If two (2) or more defined benefit plans are included in the aggregation group, the same actuarial assumptions must be used with respect to all such plans in determining the Present Value of Accrued Benefits. (i) "Present Value of Accrued Benefits" shall be determined in accordance with the actuarial assumptions set forth in the defined benefit plan and the assumed benefit commencement date shall be determined taking into account any nonproportional subsidy. (j) "Related Rollover Contributions" means rollover contributions received by the Plan that are not initiated by the Employee nor made from another plan maintained by the Employer. 65 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (k) A "Required Aggregation Group" consists of each plan of the Employer (whether or not terminated) in which a Key Employee participates or participated at any time during the Plan Year containing the Determination Date or any of the four (4) preceding Plan Years and each other plan of the Employer (whether or not terminated) which enables any plan in which a Key Employee participates or participated to meet the requirements of Section 401(a)(4) or 410 of the Code. If two (2) or more defined benefit plans are included in the aggregation group, the same actuarial assumptions must be used with respect to all such plans in determining the Present Value of Accrued Benefits. (l) A "Super Top-Heavy Plan" means a Plan in which, for any Plan Year: (i) the Top-Heavy Ratio (as defined under subsection (o)) for the Plan exceeds ninety percent (90%) and the Plan is not part of any Required Aggregation Group (as defined under subsection (k)) or Permissive Aggregation Group (as defined under subsection (h)); or (ii) the Plan is a part of a Required Aggregation Group (but is not part of a Permissive Aggregation Group) and the Top-Heavy Ratio for the group of plans exceeds ninety percent (90%); or (iii) the Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds ninety percent (90%). (m) "Top-Heavy Earnings" means, for any year, compensation as defined under Section 414(q)(7) of the Code, up to a maximum of $200,000 adjusted as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code. Commencing January 1, 1994, the maximum compensation taken into account for any year shall be $150,000, adjusted in multiples of $10,000 for increases in the cost-of-living, as prescribed by the Secretary of the Treasury under Section 401(a)(17)(B) of the Code. In determining Top-Heavy Earnings, the rules of Section 414(q)(6) of the Code shall apply except that the term "family" shall include only the Spouse and those lineal descendants of the Employee who have not attained age nineteen (19) before the close of the Plan Year. (n) A "Top-Heavy Plan" means a Plan in which, for any Plan Year: (i) the Top-Heavy Ratio (as defined under subsection (o)) for the Plan exceeds sixty percent (60%) and the Plan is not part of any Required Aggregation Group (as defined under subsection (k)) or Permissive Aggregation Group (as defined under subsection (h)); or 66 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- (ii) the Plan is a part of a Required Aggregation Group but is not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds sixty percent (60%); or (iii) the Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds sixty percent (60%). (o) "Top-Heavy Ratio" means: (i) if the Employer maintains one or more qualified defined contribution plans and the Employer has not maintained any qualified defined benefit plans which during the five (5) year period ending on the Determination Date have or have had accrued benefits, the Top-Heavy Ratio for the Plan alone or for the Required Aggregation Group or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the Account balances under the aggregated defined contribution plan or plans for all Key Employees as of the Determination Date, including any part of any Account balance distributed in the five (5) year period ending on the Determination Date but excluding distributions attributable to Related Rollover Contributions, if any, and the denominator of which is the sum of all Account balances under the aggregated qualified defined contribution plan or plans for all Participants as of the Determination Date, including any part of any Account balance distributed in the five (5) year period ending on the Determination Date but excluding distributions attributable to Related Rollover Contributions, if any, determined in accordance with Section 416 of the Code and the regulations thereunder. (ii) if the Employer maintains one or more qualified defined contribution plans and the Employer maintains or has maintained one or more qualified defined benefit plans which during the five (5) year period ending on the Determination Date have or have had any accrued benefits, the Top-Heavy Ratio for any Required Aggregation Group or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the Account balances under the aggregated qualified defined contribution plan or plans for all Key Employees, determined in accordance with (i) above, and the sum of the Present Value of Accrued Benefits under the aggregated qualified defined benefit plan or plans for all Key Employees as of the Determination Date, and the denominator of which is the sum of the Account balances under the aggregated qualified defined contribution plan or plans determined in accordance with (i) above, for all Participants and the sum of the Present Value of Accrued Benefits under the aggregated qualified defined benefit plan or plans for all Participants as of the Determination Date, all determined in 67 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a qualified defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are adjusted for any distribution of an accrued benefit made in the five (5) year period ending on the Determination Date. (iii) For purposes of (i) and (ii) above, the value of Account balances and the Present Value of Accrued Benefits will be determined as of the most recent Valuation Date that falls within the twelve (12) month period ending on the Determination Date, except as provided in Section 416 of the Code and the regulations thereunder for the first and second Plan Years of a qualified defined benefit plan. The Account balances and Present Value of Accrued Benefits of a Participant (A) who is a Non-Key Employee but who was a Key Employee in a prior year, or (B) who has not been credited with at least an Hour of Service with any employer maintaining the Plan at any time during the five (5) year period ending on the Determination Date will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. When aggregating plans, the value of Account balances and the Present Value of Accrued Benefits will be calculated with reference to the Determination Date that falls within the same calendar year. (p) "Valuation Date", for the purpose of computing the Top-Heavy Ratio (as defined under subsection (o)) under subsections (1) and (n) means the last date of the Plan Year. For purposes of subsections (h), (j) and (k), the rules of Sections 414(b), (c), (m) and (o) of the Code shall be applied in determining the meaning of the term "Employer". 12.3 Minimum Contributions If the Plan becomes a Top-Heavy Plan, then any provision of Article III to the contrary notwithstanding, the following provisions shall apply: (a) Subject to subsection (b), the Employer shall contribute on behalf of each Participant who is employed by the Employer on the last day of the Plan Year and who is a Non-Key Employee an amount with respect to each Top-Heavy year which, when added to the amount of Matching Contributions, Special Contributions, Discretionary Employer Contributions and Forfeitures made on behalf of such Participant, shall not be less than the lesser of: (i) three percent (3%) of such Participant's Section 415 Compensation (as defined under Section 3.14(a)(vii) of the Plan and modified by Section 401(a)(17) of the Code), or (ii) if the Employer has no defined benefit plan which is designated to satisfy Section 416 of the Code, the largest of Matching Contributions, Special Contributions Discretionary Employer Contributions and forfeitures, as a percentage of Key Employees' Top-Heavy 68 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- Earnings; provided, however, that in no event shall any contributions be made under this Section 12.3 in an amount which will cause the percentage of contributions made by the Employer on behalf of any Participant who is a Non-Key Employee to exceed the percentage at which contributions are made by the Employer on behalf of the Key Employee for whom the percentage of Matching Contributions is highest in such Top-Heavy year. Any such contribution shall be allocated to the Matching Contribution Account of each such Participant and, for purposes of vesting and withdrawals only, shall be deemed to be a Matching Contribution. (b) Notwithstanding the foregoing, this Section 12.3 shall not apply to any Participant to the extent that such Participant is covered under any other plan or plans of the Employer (determined in accordance with Sections 414(b), (c), (m) and (o) of the Code) and such other plan provides that the minimum allocation or benefit requirement will be met by such other plan should this Plan become Top-Heavy. (c) For purposes of this Article XII, the following shall be considered as a contribution made by the Employer: (i) Qualified Nonelective Contributions; (ii) Matching Contributions made by the Employer on behalf of Key Employees; (iii) Basic Contributions made by the Employer on behalf of Key Employees; and (iv) Discretionary Employer Contributions on behalf of Key Employees. (d) Subject to the provisions of subsection (b), all Non-Key Employee Participants who are employed by the Employer on the last day of the Plan Year shall receive the defined contribution minimum provided under subsection (a). A Non-Key Employee may not fail to accrue a defined contribution minimum merely because such Employee was excluded from participation or failed to accrue a benefit because (i) his Compensation is less than a stated amount, or (ii) he failed to make Basic Contributions. 12.4 Impact on Section 415 Maximum Benefits For any Plan Year in which the Plan is a Super Top-Heavy Plan, Sections 3.14(a)(iv) and (v) shall be read by substituting the number 1.0 for the number 1.25 wherever it appears therein. For any Plan Year in which the Plan is a Top-Heavy Plan but not a Super Top-Heavy Plan, the Plan shall be treated as a Super Top-Heavy Plan under this Section 12.4, unless each Non-Key Employee who is entitled to a minimum contribution or benefit receives an additional minimum contribution or benefit. If the Non-Key Employee is entitled to a minimum contribution under Section 12.3(a), the Plan shall not be treated as a Super Top-Heavy Plan under this Section 12.4 if the minimum contribution satisfies Section 12.3(a) when four percent (4%) is substituted for three percent (3%) in Section 12.3(a)(i). 69 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 12.5 Vesting If the Plan becomes a Top-Heavy Plan, then the Vested Percentage of a Participant who has at least one (1) Hour of Service with the Employer after the Plan becomes Top-Heavy shall not be less than the following Vested Percentage of his accrued benefit, determined in accordance with the following table: Period of Service Vested Percentage ----------------- ----------------- Less than 2 years 0% 2 years but less than 3 years 20% 3 years but less than 4 years 40% 4 years but less than 5 years 60% 5 years but less than 6 years 80% 6 years or more 100% Notwithstanding the foregoing provision, each Participant with at least three (3) years of Vested Service with the Employer shall at all times have his vested percentage computed under the greater of the provisions of this Section 12.5 or the provisions of Section 4.1(c). For those Plan Years in which the Plan ceases to be a Top-Heavy Plan, the vesting schedule shall be determined in accordance with the provisions of Section 4.1(c), except that the vested percentage of a Participant's accrued benefit before the Plan ceased to be a Top-Heavy Plan shall not be reduced. 70 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- ARTICLE XIII -- MISCELLANEOUS PROVISIONS 13.1 No Right to Continued Employment Neither the establishment of the Plan, nor any provisions of the Plan or of the Agreement establishing the Trust nor any action of any Named Fiduciary, Plan Administrator or the Employer, shall be held or construed to confer upon any Employee any right to a continuation of his employment by the Employer. The Employer reserves the right to dismiss any Employee or otherwise deal with any Employee to the same extent and in the same manner that it would if the Plan had not been adopted. 13.2 Merger, Consolidation, or Transfer The Plan shall not be merged or consolidated with, nor transfer its assets or liabilities to, any other plan unless each Employee, Participant, Beneficiary and other person entitled to benefits under the Plan, would (if such other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive if the Plan had terminated immediately before the merger, consolidation or transfer. 13.3 Nonalienation of Benefits Benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, garnish, execute, levy or otherwise affect any right to benefits payable hereunder, shall be void. Notwithstanding the foregoing, the Plan shall permit the payment of benefits in accordance with a qualified domestic relations order as defined under Section 414(p) of the Code. 13.4 Missing Payee Any other provision in the Plan or Agreement to the contrary notwithstanding, if the Trustees are unable to make payment to any Employee, Participant, Beneficiary or other person to whom a payment is due ("Payee") under the Plan because the identity or whereabouts of such Payee cannot be ascertained after reasonable efforts have been made to identify or locate such person (including mailing a certified notice of the payment due to the last known address of such Payee as shown on the records of the Employer), such payment and all subsequent payments otherwise due to such Payee shall be forfeited twenty-four (24) months after the date such payment first became due. However, such payment and any subsequent payments shall be reinstated retroactively, without interest, no later than sixty (60) days after the date on which the Payee is identified and located. 71 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- 13.5 Affiliated Employers All employees of all Affiliated Employers shall, for purposes of the limitations in Article XII and for measuring Hours of Service and Periods of Service, be treated as employed by a single employer. No employee of an Affiliated Employer shall become a Participant of this Plan unless employed by the Employer or an Affiliated Employer which has adopted the Plan. 13.6 Successor Employer In the event of the dissolution, merger, consolidation or reorganization of the Employer, the successor organization may, upon satisfying the provisions of the Agreement and the Plan, adopt and continue this Plan. Upon adoption, the successor organization shall be deemed the Employer with all its powers, duties and responsibilities and shall assume all Plan liabilities. 13.7 Return of Employer Contributions Any other provision of the Plan or Agreement to the contrary notwithstanding, upon the Employer's request and with the consent of the Trustees, a contribution to the Plan by the Employer which was (a) made by mistake of fact, or (b) conditioned upon initial qualification of the Plan with the Internal Revenue Service, or (c) conditioned upon the deductibility by the Employer of such contributions under Section 404 of the Code, shall be returned to the Employer within one (1) year after: (i) the payment of a contribution made by mistake of fact, or (ii) the denial of such qualification or (iii) the disallowance of the deduction (to the extent disallowed), as the case may be. Any such return shall not exceed the lesser of (A) the amount of such contributions (or, if applicable, the amount of such contribution with respect to which a deduction is denied or disallowed) or (B) the amount of such contributions net of a proportionate share of losses incurred by the Plan during the period commencing on the Valuation Date as of which such contributions are made and ending on the Valuation Date as of which such contributions are returned. All such refunds shall be limited in amount, circumstances and timing to the provisions of Section 403(c) of ERISA. 13.8 Adoption of Plan by Affiliated Employer An Affiliated Employer of the Sponsoring Employer may adopt the Plan and Agreement upon satisfying the requirements set forth in the Agreement. Upon such adoption, such Affiliated Employer shall become a Participating Affiliate in the Plan, which Plan shall be deemed a "single plan" within the meaning of Income Tax Regulations Section 1.414(1)-1(b)(1). For purposes of Article IX, Employer shall mean only the Sponsoring Employer and each Participating Affiliate shall be deemed to accept and designate the Named Fiduciaries, Committee, Plan Administrator, Trustee Administrator and voter of Units designated by the Sponsoring Employer to act on its behalf in accordance with the provisions of the Plan and Agreement. 72 Article XIII -- Miscellaneous Provisions - -------------------------------------------------------------------------------- The Sponsoring Employer shall solely exercise for and on behalf of such Participating Affiliate the powers reserved to the Employer under Articles IX and XI. However, such Participating Affiliate may at anytime terminate its future participation in the Plan for the purposes and in the manner set forth in the Agreement. 13.9 Construction of Language Wherever appropriate in the Plan, words used in the singular may be read in the plural; words used in the plural may be read in the singular; and words importing the masculine gender shall be deemed equally to refer to the female gender. Any reference to a section number shall refer to a section of this Plan, unless otherwise indicated. 13.10 Headings The headings of articles and sections are included solely for convenience of reference, and if there be any conflict between such headings and the text of the Plan, the text shall control. 13.11 Governing Law The Plan shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to the choice of law or conflict of law rules recognized by such state, except to the extent that such laws are preempted by the Federal laws of the United States of America. 73 (2 of 2) AMENDMENT NUMBER ONE TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective October 1, 1996: 1. ARTICLE I - The first paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentences to the end thereof: Commencing October 1, 1996, Compensation shall also include commissions paid to commission-paid Employees. With respect to commission-paid Employees, Compensation (including any draw against commissions) shall not exceed thirty thousand dollars ($30,000). 2. ARTICLE I - The second paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentence to the end thereof: Commencing October 1, 1996, Compensation does not include amounts (including any draw against commissions) in excess of thirty thousand dollars ($30,000) paid to commissioned Employees. 3. ARTICLE II - Section 2.1(b)(iii) shall be amended in its entirety to read as follows: (iii) classification as (A) a salaried Employee or (B) commencing October 1, 1996, a commission-paid Employee. 4. ARTICLE II - Section 2.2(a) shall be amended by adding the following at the end thereof: however, commencing October 1, 1996, employees compensated on a commission basis shall be eligible to participate in the Plan; 5. ARTICLE III - Section 3.4(a) shall be amended by adding the following sentence at the end thereof: Notwithstanding the foregoing, a Participant who became a Participant in accordance with Section 2.1(b)(iii)(B) shall be ineligible to receive a Matching Contribution under this Section 3.4. 6. ARTICLE VIII - Section 8.5(d) shall be amended by adding the following sentence at the end thereof: However, commencing on or after September 1, 1996, a Borrower will not be permitted to make partial prepayments to his or her Loan Accounts. (2 of 2) AMENDMENT NUMBER ONE TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective October 1, 1996: 1. ARTICLE I - The first paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentences to the end thereof: Commencing October 1, 1996, Compensation shall also include commissions paid to commission-paid Employees. With respect to commission-paid Employees, Compensation (including any draw against commissions) shall not exceed thirty thousand dollars ($30,000). 2. ARTICLE I - The second paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentence to the end thereof: Commencing October 1, 1996, Compensation does not include amounts (including any draw against commissions) in excess of thirty thousand dollars ($30,000) paid to commissioned Employees. 3. ARTICLE II - Section 2.1(b)(iii) shall be amended in its entirety to read as follows: (iii) classification as (A) a salaried Employee or (B) commencing October 1, 1996, a commission-paid Employee. 4. ARTICLE II - Section 2.2(a) shall be amended by adding the following at the end thereof: however, commencing October 1, 1996, employees compensated on a commission basis shall be eligible to participate in the Plan; 5. ARTICLE III - Section 3.4(a) shall be amended by adding the following sentence at the end thereof: Notwithstanding the foregoing, a Participant who became a Participant in accordance with Section 2.1(b)(iii)(B) shall be ineligible to receive a Matching Contribution under this Section 3.4. 6. ARTICLE VIII - Section 8.5(d) shall be amended by adding the following sentence at the end thereof: However, commencing on or after September 1, 1996, a Borrower will not be permitted to make partial prepayments to his or her Loan Accounts. (2 of 2) AMENDMENT NUMBER ONE TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective October 1, 1996: 1. ARTICLE I - The first paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentences to the end thereof: Commencing October 1, 1996, Compensation shall also include commissions paid to commission-paid Employees. With respect to commission-paid Employees, Compensation (including any draw against commissions) shall not exceed thirty thousand dollars ($30,000). 2. ARTICLE I - The second paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentence to the end thereof: Commencing October 1, 1996, Compensation does not include amounts (including any draw against commissions) in excess of thirty thousand dollars ($30,000) paid to commissioned Employees. 3. ARTICLE II - Section 2.1(b)(iii) shall be amended in its entirety to read as follows: (iii) classification as (A) a salaried Employee or (B) commencing October 1, 1996, a commission-paid Employee. 4. ARTICLE II - Section 2.2(a) shall be amended by adding the following at the end thereof: however, commencing October 1, 1996, employees compensated on a commission basis shall be eligible to participate in the Plan; 5. ARTICLE III - Section 3.4(a) shall be amended by adding the following sentence at the end thereof: Notwithstanding the foregoing, a Participant who became a Participant in accordance with Section 2.1(b)(iii)(B) shall be ineligible to receive a Matching Contribution under this Section 3.4. 6. ARTICLE VIII - Section 8.5(d) shall be amended by adding the following sentence at the end thereof: However, commencing on or after September 1, 1996, a Borrower will not be permitted to make partial prepayments to his or her Loan Accounts. (1 of 1) AMENDMENT NUMBER FOUR TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective January 1, 1996: ARTICLE III - The first paragraph of Section 3.6 shall be amended in its entirety to read as follows: Subject to the limitations of Section 3.14, the Employer may, in its sole and absolute discretion, make Discretionary Employer Contributions to the Plan for a Plan Year. Prior to January 1, 1996, Discretionary Employer Contributions shall be credited in an amount determined by the Board and expressed as a percentage of the Compensation of each Eligible Employee (a) who has competed one thousand (1,000) Hours of Service during the Plan Year for which such Discretionary Employer Contribution is being made, and (b) who is in the employ of the Employer on the last day of such Plan Year and (c) on whose behalf Basic Contributions and/or Post-Tax Contributions are being made to the Plan. Effective January 1, 1996, Discretionary Employer Contributions shall be credited in an amount determined by the Board and expressed as a percentage of the Compensation (as hereafter determined) of each Eligible Employee during the Plan Year, who is in the employ of the Employer on December 1st of the Plan Year for which such Discretionary Employer Contribution is being made. Only Compensation for the portion of the Plan Year during which an Employee is an Eligible Employee shall be used in determining a Discretionary Employer Contribution hereunder. Notwithstanding the foregoing, an Eligible Employee who became an Eligible Employee in accordance with Section 2.1(b)(iii)(B) shall be ineligible to receive a Discretionary Employer Contribution under this Section 3.6. (1 of 1) AMENDMENT NUMBER FIVE TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows: 1. ARTICLE VI -Section 6.3 shall be amended by adding the following as the second sentence thereof and the former second sentence shall follow accordingly: Commencing July 1, 1997, a Participant or Beneficiary may, at any time, direct that multiples of ten percent (10%) of the Net Value of any one or more Investment Accounts be transferred to any one or more of the other Investment Accounts. 2. ARTICLE VI -Section 6.4(b) shall be amended by adding the following as the second sentence thereof and the former second sentence shall follow accordingly: Commencing July 1, 1997, an Employee who is not a Participant may, subject to the provisions of Section 6.3, at any time, direct that multiples of ten percent (10%) of the Net Value of any one or more Investment Accounts be transferred to any one or more of the other Investment Accounts. (2 of 2) AMENDMENT NUMBER SIX TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective January 1, 1998 unless otherwise indicated: 1. ARTICLE I -Effective April 1, 1993, the first paragraph of the definition of Compensation, Section 1.15 shall be amended by adding "and bonuses classified as "monthly incentive bonuses" immediately following the words "Officer's Bonus Plan". 2. ARTICLE I - The first paragraph of the definition of Compensation, Section 1.15 shall be further amended by adding the following sentence to the end thereof to read as follows: Commencing January 1, 1998, with respect to commission-paid Employees, Compensation (including draw against commissions) shall not exceed seventy-five thousand dollars ($75,000). 3. ARTICLE I - The second paragraph of the definition of Compensation, Section 1.15 shall be amended by adding the following sentence to the end thereof to read as follows: Commencing January 1, 1998, Compensation does not include amounts (including any draw against commissions) in excess of seventy-five thousand dollars ($75,000) paid to commissioned Employees. 4. ARTICLE III - Section 3.4(a) shall be amended by adding the following sentence to the end thereof to read as follows: Commencing January 1, 1998, a Participant who becomes a Participant in accordance with Section 2.1(b)(iii)(B) shall be eligible to receive a Matching Contribution under this Section 3.4. 5. ARTICLE III - The first paragraph of Section 3.6 shall be amended by adding the following sentence to the end thereof to read as follows: Commencing January 1, 1998, an Eligible Employee described under Section 2.1(b)(iii)(B) shall be eligible to receive a Discretionary Employer Contribution under this Section 3.6. (1 of 1) AMENDMENT NUMBER SEVEN TO COHOES SAVINGS BANK 401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective September 1, 1998: 1. ARTICLE VII -Section 7.7(a) shall be amended by adding the following sentence to the end thereof to read as follows: Effective September 1, 1998, such lump sum distribution of the vested interest in the Net Value of his Accounts shall be made to the Employee within seven (7) days of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating that he incurred a Termination of Service. 2. ARTICLE VII - Section 7.7(c) shall be amended by adding the following as the second sentence thereof and the former second sentence shall follow accordingly: Effective September 1, 1998, the thirteen (13) month restriction on lump sum distributions hereunder, shall no longer apply 3. ARTICLE VII - Section 7.7(g) shall be amended by adding the following sentence to the end thereof to read as follows: Effective September 1, 1998, the Trustees shall determine the vested interest in the Net Value of the Accounts of such Employee as of the Valuation Date coincident with the date of receipt by the Trustees of the proper documentation indicating that he incurred a Termination of Service. EX-10 7 EXHIBIT 10.8 Exhibit 10.8 Stock Option and Incentive Plan COHOES BANCORP, INC. 1999 Stock Option and Incentive Plan 1. Plan Purpose. The purpose of the Plan is to promote the long-term interests of the Corporation and its stockholders by providing a means for attracting and retaining directors, advisory directors and employees of the Corporation and its Affiliates. 2. Definitions. The following definitions are applicable to the Plan: "Affiliate" -- means any "parent corporation" or "subsidiary corporation" of the Corporation, as such terms are defined in Section 424(e) and (f), respectively, of the Code. "Award" -- means the grant by the Committee of an Incentive Stock Option, a Non-Qualified Stock Option or any combination thereof, as provided in the Plan. "Award Agreement" -- means the agreement evidencing the grant of an Award made under the Plan. "Board" -- means the board of directors of the Corporation. "Cause" -- means Termination of Service by reason of personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties or gross negligence. "Code" -- means the Internal Revenue Code of 1986, as amended. "Committee" -- means the Committee referred to in Section 3 hereof. "Corporation" -- means Cohoes Bancorp, Inc., a federally-chartered corporation, and any successor thereto. "Financial Institution" -- means Cohoes Savings Bank or any successor entity. "Incentive Stock Option" -- means an option to purchase Shares granted by the Committee which is intended to qualify as an incentive stock option under Section 422(b) of the Code. Unless otherwise set forth in the Award Agreement, any Option which does not qualify as an Incentive Stock Option for any reason shall be deemed ab initio to be a Non-Qualified Stock Option. "Market Value" -- means the average of the high and low quoted sales price on the date in question (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred) of a Share on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if on such date the Shares are not quoted on the Composite Tape, on the New York Stock Exchange, or if the Shares are not listed or admitted to trading on such Exchange, on the 1 principal United States securities exchange registered under the Securities Exchange Act of 1934 (the "Exchange Act") on which the Shares are listed or admitted to trading, or, if the Shares are not listed or admitted to trading on any such exchange, the mean between the closing high bid and low asked quotations with respect to a Share on such date on the Nasdaq Stock Market, or any similar system then in use, or, if no such quotations are available, the fair market value on such date of a Share as the Committee shall determine. "Non-Qualified Stock Option" -- means an option to purchase Shares granted by the Committee which does not qualify, for any reason, as an Incentive Stock Option. "Option" -- means an Incentive Stock Option or a Non-Qualified Stock Option. "Participant" -- means any director, advisory director or employee of the Corporation or any Affiliate who is selected by the Committee to receive an Award. "Plan" -- means this Cohoes Bancorp, Inc. 1999 Stock Option and Incentive Plan. "Related" -- means (i) in the case of a Right, a Right which is granted in connection with, and to the extent exercisable, in whole or in part, in lieu of, an Option or another Right and (ii) in the case of an Option, an Option with respect to which and to the extent a Right is exercisable, in whole or in part, in lieu thereof. "Shares" -- means the shares of common stock of the Corporation. "Termination of Service" -- means cessation of service, for any reason, whether voluntary or involuntary, so that the affected individual is not either (i) an employee of the Corporation or any Affiliate for purposes of an Incentive Stock Option, or (ii) a director, advisory director or employee of the Corporation or any Affiliate for purposes of any other Award. 3. Administration. The Plan shall be administered by a Committee consisting of two or more members of the Board, each of whom (i) shall be an "outside director," as defined under Section 162(m) of the Code and the Treasury regulations thereunder, and (ii) shall be a "non-employee director," as defined under Rule 16(b) of the Securities Exchange Act of 1934 or any similar or successor provision. The members of the Committee shall be appointed by the Board. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion to (i) select Participants and grant Awards; (ii) determine the number of Shares to be subject to types of Awards generally, as well as to individual Awards granted under the Plan; (iii) determine the terms and conditions upon which Awards shall be granted under the Plan; (iv) prescribe the form and terms of Award Agreements; (v) establish from time to time regulations for the administration of the Plan; and (vi) interpret the Plan and make all determinations deemed necessary or advisable for the administration of the Plan. 2 A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be acts of the Committee. 4. Shares Subject to Plan. (a) Subject to adjustment by the operation of Section 6, the maximum number of Shares with respect to which Awards may be made under the Plan is 10% of the total Shares sold in the Financial Institution's conversion to the capital stock form. As long as the Plan is subject to the applicable requirements of government regulations, no Participant shall receive Awards under the Plan that represent in the aggregate more than 25% of the Shares with respect to which Awards may be made under the Plan, and directors who are not employees of the Corporation or any Affiliate shall not receive Awards that represent, for any one such director, more than 5%, or, for all such directors in the aggregate, more than 30% of the Shares with respect to which Awards may be made under the Plan. The Shares with respect to which Awards may be made under the Plan may be either authorized and unissued Shares or previously issued Shares reacquired and held as treasury Shares. Shares which are subject to Related Rights and Related Options shall be counted only once in determining whether the maximum number of Shares with respect to which Awards may be granted under the Plan has been exceeded. An Award shall not be considered to have been made under the Plan with respect to any Option or Right which terminates, and new Awards may be granted under the Plan with respect to the number of Shares as to which such termination has occurred. (b) During any calendar year, no Participant may be granted Awards under the Plan with respect to more than ________ Shares, subject to adjustment as provided in Section 6. 5. Awards. (a) Options. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan and the requirements of applicable law and government regulations as the Committee shall determine, including the granting of Options in tandem with other Awards under the Plan: (i) Exercise Price. The exercise price per Share for an Option shall be determined by the Committee; provided, however, that such exercise price shall not be less than 100% of the Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the Committee, but shall be no greater than 10 years in the case of an Incentive Stock Option or 15 years in the case of a Non-Qualified Stock Option. (iii) Time and Method of Exercise. Except as provided in subsection (c) below, the Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without 3 limitation, cash, Shares, other Awards or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. (iv) Incentive Stock Options. Incentive Stock Options may be granted by the Committee only to employees of the Corporation or its Affiliates. (v) Termination of Service. Unless otherwise determined by the Committee and set forth in the Award Agreement evidencing the grant of the Option, upon Termination of Service of the Participant for any reason other than for Cause, all Options then currently exercisable shall remain exercisable for the lesser of (A) three years following such Termination of Service or (B) until the expiration of the Option by its terms. Upon Termination of Service for Cause, all Options not previously exercised shall immediately be forfeited. (b) Additional Terms of Awards. As long as the Plan is subject to the requirements of the government regulations, every Award granted pursuant to this Plan shall vest, beginning not earlier than the one-year anniversary of the grant date, in annual installments of not more than 20%, and such vesting shall not be accelerated except in the event of death or disability. 6. Adjustments Upon Changes in Capitalization. In the event of any change in the outstanding Shares subsequent to the effective date of the Plan by reason of any reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in the corporate structure or Shares of the Corporation, the maximum aggregate number and class of shares and exercise price of the Award, if any, as to which Awards may be granted under the Plan and the number and class of shares and exercise price of the Award, if any, with respect to which Awards have been granted under the Plan shall be appropriately adjusted by the Committee, whose determination shall be conclusive. Except as otherwise provided herein, any Award which is adjusted as a result of this Section 6 shall be subject to the same terms and conditions as the original Award. 4 7. Effect of Merger on Options. In the case of any merger, consolidation or combination of the Corporation (other than a merger, consolidation or combination in which the Corporation is the continuing corporation and which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof), any Participant to whom an Option has been granted shall have the additional right (subject to the provisions of the Plan and any limitation applicable to such Option), thereafter and during the term of each such Option , to receive upon exercise of any such Option an amount equal to the excess of the fair market value on the date of such exercise of the securities, cash or other property, or combination thereof, receivable upon such merger, consolidation or combination in respect of a Share over the exercise price of such Option, multiplied by the number of Shares with respect to which such Option shall have been exercised. Such amount may be payable fully in cash, fully in one or more of the kind or kinds of property payable in such merger, consolidation or combination, or partly in cash and partly in one or more of such kind or kinds of property, all in the discretion of the Committee. 8. Assignments and Transfers. No Incentive Stock Option granted under the Plan shall be transferable other than by will or the laws of descent and distribution. Any other Award shall be transferable by will, the laws of descent and distribution, a "domestic relations order," as defined in Section 414(p)(1)(B) of the Code, or a gift to any member of the Participant's immediate family or to a trust for the benefit of one or more of such immediate family members. During the lifetime of an Award recipient, an Award shall be exercisable only by the Award recipient unless it has been transferred as permitted hereby, in which case it shall be exercisable only by such transferee. For the purpose of this Section 8, a Participant's "immediate family" shall mean the Participant's spouse, children and grandchildren. 9. Employee Rights Under the Plan. No person shall have a right to be selected as a Participant nor, having been so selected, to be selected again as a Participant, and no employee or other person shall have any claim or right to be granted an Award under the Plan or under any other incentive or similar plan of the Corporation or any Affiliate. Neither the Plan nor any action taken thereunder shall be construed as giving any employee any right to be retained in the employ of the Corporation or any Affiliate. 10. Delivery and Registration of Stock. The Corporation's obligation to deliver Shares with respect to an Award shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Participant to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933 or any other federal, state or local securities legislation. It may be provided that any representation requirement shall become inoperative upon a registration of the Shares or other action eliminating the necessity of such representation under such Securities Act or other securities legislation. The Corporation shall not be required to deliver any Shares under the Plan prior to (i) the admission of such Shares to listing on any stock exchange on which Shares may then be listed and (ii) the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable. 5 11. Withholding Tax. Where a Participant or other person is entitled to receive Shares pursuant to the exercise of an Option pursuant to the Plan, the Corporation shall have the right to require the Participant or such other person to pay the Corporation the amount of any taxes which the Corporation is required to withhold with respect to such Shares, or, in lieu thereof, to retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. All withholding decisions pursuant to this Section 11 shall be at the sole discretion of the Committee or the Corporation. 12. Amendment or Termination. (a) Except to the extent prohibited by applicable regulations, the Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of shareholders or Participants, except that any such action will be subject to the approval of the Corporation's shareholders if, when and to the extent such shareholder approval is necessary or required for purposes of any applicable federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted, or if the Board, in its discretion, determines to seek such shareholder approval. (b) Except to the extent prohibited by applicable regulations, the Committee may waive any conditions of or rights of the Corporation or modify or amend the terms of any outstanding Award. The Committee may not, however, amend, alter, suspend, discontinue or terminate any outstanding Award without the consent of the Participant or holder thereof, except as otherwise provided herein. 13. Effective Date and Term of Plan. The Plan shall become effective upon the later of its adoption by the Board or its approval by the shareholders of the Corporation. It shall continue in effect for a term of fifteen years thereafter unless sooner terminated under Section 12 hereof. 6 EX-23 8 EXHIBIT 23.1 Exhibit 23.1 Consent of Silver, Freedman & Taff, L.L.P. Exhibit 23.1 October 28, 1998 The Board of Trustees Cohoes Savings Bank 75 Remsen Street Cohoes, New York 12047 CONSENT OF SILVER FREEDMAN & TAFF, L.L.P. Ladies and Gentlemen: We hereby consent to the references to this firm and our opinions in: the Registration Statement on Form S-1 filed by Cohoes Savings Bank, Cohoes, New York, and all amendments thereto; in the Form H-(e)l for Cohoes Bancorp, Inc., and all amendments thereto; and in the Application for Conversion on Form 86-AC filed by Cohoes Savings Bank (the "Bank"), and all amendments thereto, and in the Notice and Application for Cohoes Savings Bank filed with the Federal Deposit Insurance Corporation and all amendments thereto, relating to the conversion of the Bank from a New York State chartered mutual savings bank to a New York State chartered stock savings bank, the concurrent issuance of the Bank's outstanding capital stock to Cohoes Bancorp, Inc., a holding company formed for such purpose, and the offering of Cohoes Bancorp, Inc.'s common stock. /s/ Silver, Freedman & Taff, L.L.P. ----------------------------------- SILVER, FREEDMAN & TAFF, L.L.P. EX-23 9 EXHIBIT 23.2 Exhibit 23.2 Consent of Arthur Andersen ARTHUR ANDERSEN ------------------------ Arthur Andersen LLP ------------------------ 1345 Avenue of the Americas New York, NY 10105-0032 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated August 12, 1998 (and to all references to our Firm) included in or made part of this Prospectus which is included in the Application for Conversion on Form 86-AC, the Notice and Application for Conversion for Cohoes Savings Bank, the Registration Statement on Form S-1, and related Prospectus of Cohoes Bancorp, Inc., and all amendments thereto. /s/ Arthur Andersen LLP New York, New York October 28, 1998 EX-23 10 EXHIBIT 23.4 Exhibit 23.4 Consent of Wertime, Ries and Van Ullen, P.C. Exhibit 23.4 [WERTIME, RIES & VAN ULLEN, P.C. LETTERHEAR] October 28, 1998 The Board of Trustees Cohoes Savings Bank 75 Remsen Street Cohoes, New York 12407 CONSENT OF WERTIME, RIES & VAN ULLEN, P.C. Ladies and Gentlemen: We hereby consent to the references to this firm and our opinions in the Registration Statement on Form S-1 filed by Cohoes Savings Bank, Cohoes, New York, and all amendments thereto; in the Form H-(e)1 for Cohoes Bancorp, Inc., and all amendments thereto; and in the Application for Conversion on Form 86-AC filed by Cohoes Savings Bank (the "Bank"), and all amendments thereto, and in the Notice and Application for Cohoes Savings Bank filed with the Federal Deposit Insurance Corporation and all amendments thereto, relating to the conversion of the Bank from a New York State chartered mutual savings bank to a New York State chartered stock savings bank, the concurrent issuance of the Bank's outstanding capital stock to Cohoes Bancorp, Inc., a holding company formed for such purpose, and the offering of Cohoes Bancorp, Inc.'s stock. /s/ Wertime, Ries & Van Ullen, P.C. ----------------------------------- WERTIME, RIES & VAN ULLEN, P.C. EX-99 11 EXHIBIT 99.3 Exhibit 99.3 Marketing Materials COHOES BANCORP, INC. Community Investor Meeting November xx, 1998 The shares of common stock being offered are not savings accounts or deposits and are not insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund or any other government agency. This is not an offer to sell or a solicitation of an offer to buy stock. The offer is made only by the Prospectus. MANGEMENT OF THE BANK o Harry L. Robinson, President and Chief Executive Officer o Richard A. Ahl, Executive Vice President and Chief Financial Officer o Albert J. Picchi, Vice President and Senior Loan Officer TOTAL ASSETS [GRAPHIC OMITTED] ASSET MIX Other 3.4% Cash and cash equivalents 2.7% As of June 30, 1998 LOANS RECEIVABLE, NET [GRAPHIC OMITTED] LOAN PORTFOLIO MIX Other real estate 22.4% One- to four-family 62.1% Commercial 3.6% Consumer 11.9% As of June 30, 1998 TOTAL DEPOSITS [GRAPHIC OMITTED] TOTAL RETAINED EARNINGS [GRAPHIC OMITTED] CAPITAL REQUIREMENTS [GRAPHIC OMITTED] AVERAGE RETAINED EARNINGS TO AVERAGE ASSETS [GRAPHIC OMITTED] NET INCOME [GRAPHIC OMITTED] RETURN ON AVERAGE ASSETS [GRAPHIC OMITTED] RETURN ON AVERAGE RETAINED EARNINGS [GRAPHIC OMITTED] NET INTEREST RATE SPREAD [GRAPHIC OMITTED] NET INTEREST MARGIN [GRAPHIC OMITTED] BRANCH MAP [GRAPHIC OMITTED] DEPOSIT MARKET SHARE Albany County HC 6/97 Branches Deposits Holding Company in List ($000s) % of List - --------------- ------- ------- --------- 1 Fleet Financial Group ........ 16 2,256,635 37.50 2 Keycorp ...................... 28 862,526 14.33 3 Charter One Financial ........ 14 817,837 13.59 4 Trustco Bank Corp of NY ...... 16 752,815 12.51 5 Cohoes Savings Bank .......... 8 320,268 5.32 6 Hsbc Holdings Plc ............ 9 256,572 4.26 7 Pioneer Savings Bank ......... 2 205,135 3.41 8 M&T Corporation .............. 6 201,135 3.35 9 Troy Savings Bank ............ 4 111,189 1.85 10 Banknorth Group Inc .......... 3 53,850 0.89 11 6 Others ..................... 8 178,998 2.96 --------- --------- ------ Total ......................... 114 6,017,550 100.00 ========= ========= ====== DEPOSIT MARKET SHARE Rensselaer County HC 6/97 Branches Deposits Holding Company in List ($000s) % of List - --------------- ------- ------- --------- 1 Troy Savings Bank .............. 3 326,501 21.80 2 Keycorp ........................ 9 208,637 13.93 3 M&T Corporation ................ 5 184,595 12.33 4 Hsbc Holdings Plc .............. 5 173,848 11.61 5 Trustco Bank Corp of NY ........ 4 128,731 8.60 6 Charter One Financial .......... 3 117,216 7.83 7 Pioneer Savings Bank ........... 1 111,342 7.44 8 Fleet Financial Group .......... 8 105,515 7.05 9 Cohoes Savings Bank ............ 2 54,658 3.65 10 Hudson City Savings Inst ....... 2 47,222 3.15 11 Banknorth Group Inc. ........... 1 39,191 2.62 ------- --------- ------ Total ......................... 43 1,497,456 100.00 ======= ========= ====== DEPOSIT MARKET SHARE Saratoga County HC 6/97 Branches Deposits Holding Company in List ($000s) % of List - --------------- ------- ------- --------- 1 473 Broadway Holding ............ 5 301,502 19.20 2 Fleet Financial Group ........... 5 241,444 15.37 3 Trustco Bank Corp of NY ......... 10 178,264 11.35 4 Keycorp ......................... 6 143,364 9.13 5 Arrow Financial Corp. ........... 4 129,291 8.23 6 Ballston Spa Bancorp Inc. ....... 6 118,620 7.55 7 Hsbc Holdings Plc ............... 3 96,909 6.17 8 Charter One Financial ........... 4 96,122 6.12 9 Banknorth Group Inc. ............ 3 76,278 4.86 10 Troy Savings Bank ............... 2 57,774 3.68 11 Ambanc Holding Co. .............. 4 48,703 3.10 12 Cohoes Savings Bank ............. 3 46,150 2.94 13 Gloversville Fs & La ............ 1 16,017 1.02 14 Pioneer Savings Bank ............ 2 14,013 0.89 15 First National Bank Scotia ...... 1 5,958 0.38 ------ --------- ------ Total ......................... 59 1,570,409 100.00 ====== ========= ====== DEPOSIT MAARKET SHARE Schenectady County HC 6/97 Branches Deposits Holding Company in List ($000s) % of List - --------------- ------- ------- --------- 1 Trustco Bank Corp of NY ........ 12 716,554 34.15 2 Fleet Financial Group .......... 8 639,480 30.48 3 Keycorp ........................ 4 169,561 8.08 4 SFS Bancorp, Inc. .............. 4 147,934 7.05 5 First National Bank Scotia ..... 6 112,709 5.37 6 Pioneer Savings Bank ........... 1 86,447 4.12 7 Charter One Financial .......... 2 60,000 2.86 8 Cnb Financial Corp. ............ 3 36,911 1.76 9 Troy Savings Bank .............. 1 31,192 1.49 10 Ballston Spa Bancorp Inc. ...... 1 24,247 1.16 11 Hsbc Holdings Plc .............. 1 18,187 0.87 12 Cohoes Savings Bank ............ 3 418,138 0.86 13 4 Others ....................... 4 36,612 1.75 --------- --------- ------ Total ....................... 50 2,097,972 100.00 ========= ========= ====== PRO FORMA DATA 15% above Minimum Midpoint Maximum Maximum ------- -------- ------- ------- Gross Proceeds(000s) ..... $ 59,500 $ 70,000 $ 80,500 $ 92,575 Stockholders' Equity(000s) $104,547 $113,759 $122,972 $133,567 Book Value Per Share ..... $ 17.06 $ 15.78 $ 14.84 $ 14.01 Net Income (000s) ........ $ 5,226 $ 5,432 $ 5,638 $ 5,875 Earnings Per Share ....... $ 0.93 $ 0.82 $ 0.74 $ 0.67 Price to Book ............ 58.62% 63.37% 67.39% 71.38% Price to Earnings ........ 10.75x 12.20x 13.51x 14.93x PREFERENCE CATEGORIES (1) Eligible Account Holders (2) Employee Stock Ownership Plan (ESOP) (3) Supplemental Eligible Account Holders (4) Residents of Local Community (5) General Public We thank you for your interest in COHOES BANCORP, INC. NASDAQ National Market: "XXXX" [LOGO] KEEFE, BRUYETTE & WOODS, INC. November xx, 1998 To Members and Friends of Cohoes Savings Bank - -------------------------------------------------------------------------------- Keefe, Bruyette & Woods, Inc., a member of the National Association of Securities Dealers, Inc. ("NASD"), is assisting Cohoes Savings Bank ("Cohoes Savings" or the "Bank") in its conversion from a state-chartered mutual savings bank to a state-chartered stock savings bank (the "Conversion") and the concurrent offering of common shares by Cohoes Bancorp, Inc.. (the "Holding Company"), the newly formed corporation that will become the holding company of Cohoes Savings following the Conversion. At the request of the Holding Company, we are enclosing materials explaining this process and your options, including an opportunity to invest in the Holding Company's common shares being offered to the customers of Cohoes Savings Bank. Please read the enclosed offering materials carefully. The Holding Company has asked us to forward these documents to you in view of certain requirements of the securities laws in your state. If you have any questions, please visit our Stock Sales Center located at 244 N. Mohawk Street, Cohoes, New York or feel free to call the Stock Sales Center at (518) 235-4000. Very truly yours, Keefe, Bruyette & Woods, Inc. THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. November xx, 1998 Dear Friend: We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is converting from a state-chartered mutual savings bank to a state-chartered stock savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes Bancorp, Inc., the newly-formed corporation that will become the holding company for Cohoes Savings, is offering common shares in a subscription offering (the "Offering") to certain depositors and our Employee Stock Ownership Plan, pursuant to a Plan of Conversion. Because we believe you may be interested in learning more about the merits of the common shares of Cohoes Bancorp, Inc. as an investment, we are sending you the following materials which describe the Offering. PROSPECTUS: This document provides detailed information about operations at Cohoes Savings and the Offering. QUESTIONS AND ANSWERS: Key questions and answers about the Offering are found in this pamphlet. STOCK ORDER FORM & CERTIFICATION FORM: This form is used to purchase stock by returning it with your payment in the enclosed business reply envelope. The deadline for ordering stock is 12:00 noon, Eastern Time, on December xx, 1998. As a friend of Cohoes Savings, you will have the opportunity to buy common shares directly from Cohoes Bancorp, Inc. in the Conversion without paying a commission or a fee. If you have additional questions regarding the Conversion and the Offering, please call us at (518-) 235-4000 Monday through Friday from 9:00 a.m. to 5:00 p.m., or stop by the Stock Sales Center at 244 N. Mohawk Street, Cohoes, New York. We are pleased to offer you this opportunity to become a shareholder of Cohoes Bancorp, Inc. Best regards, Harry L. Robinson President and Chief Executive Officer THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. November xx, 1998 Dear Member: We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is converting from a state-chartered mutual savings bank to a state-chartered stock savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes Bancorp, Inc., the newly-formed corporation that will become the holding company for Cohoes Savings, is offering common shares in a subscription offering (the "Offering") to certain of our depositors and our Employee Stock Ownership Plan, pursuant to a Plan of Conversion. To accomplish this Conversion, we need your participation in an important vote. Enclosed is a proxy statement describing the Plan of Conversion and your voting and subscription rights. Cohoes Savings' Plan of Conversion has been approved by the Superintendent of Banks of the State of New York and now must be approved by you. YOUR VOTE IS VERY IMPORTANT. Enclosed, as part of the proxy materials, is your proxy card, located behind the window of your mailing envelope. This proxy card should be signed and returned to us prior to the Special Meeting to be held on December xx, 1998. Please take a moment now to sign the enclosed proxy card and return it to us in the postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING AGAINST THE CONVERSION. The Board of Directors of Cohoes Savings feels that the Conversion will offer a number of advantages, such as an opportunity for depositors of Cohoes Savings to become shareholders. Please remember: o Your accounts at Cohoes Savings will continue to be insured up to the maximum legal limit by the Federal Deposit Insurance Corporation ("FDIC"). o There will be no change in the balance, interest rate, or maturity of any deposit accounts because of the Conversion, unless you choose to purchase shares using your account balances. o Members have a right, but no obligation, to subscribe for common shares before they are offered to the public. Voting for the Conversion does not obligate you to purchase stock. o Like all stock, the common shares issued in the Offering WILL NOT BE INSURED BY THE FDIC. Enclosed are materials describing the Offering. We urge you to read these materials carefully. If you are interested in purchasing the common shares of Cohoes Bancorp, Inc., your Stock Order Form and Certification Form and payment must be received by Cohoes Savings prior to 12:00 Noon, Eastern Time, on December xx, 1998. If you have additional questions regarding the Offering, please call us at (518) 235-4000, Monday through Friday from 9:00 a.m. to 5:00 p.m., or stop by the Stock Sales Center at 244 N. Mohawk Street, Cohoes, New York. Best regards, Harry L. Robinson President and Chief Executive Officer THE COMMON SHARES BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS. November xx, 1998 Dear Member: We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is converting from a state-chartered mutual savings bank to a state-chartered stock savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes Bancorp, Inc., the newly-formed corporation that will become the holding company for Cohoes Savings, is offering common shares in a subscription offering. Unfortunately, Cohoes Bancorp, Inc. is unable to either offer or sell its common shares to you because the small number of eligible subscribers in your jurisdiction makes registration or qualification of the common shares under the securities laws of your jurisdiction impractical, for reasons of cost or otherwise. Accordingly, this letter should not be considered an offer to sell or a solicitation of an offer to buy the common shares of Cohoes Bancorp, Inc. However, as a member of Cohoes Savings, you have the right to vote on the Plan of Conversion at the Special Meeting of Members to be held on December xx, 1998. Enclosed is a proxy card, a Proxy Statement (which includes the Notice of the Special Meeting), a Prospectus (which contains information incorporated into the Proxy Statement) and a return envelope for your proxy card. I invite you to attend the Special Meeting on December xx, 1998. However, whether or not you are able to attend, please complete the enclosed proxy card and return it in the enclosed envelope. Best Regards, Harry L. Robinson President and Chief Executive Officer November xx, 1998 Dear Prospective Investor: We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is converting from a state-chartered mutual savings bank to a state-chartered stock savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes Bancorp, Inc., the newly-formed corporation that will become the holding company for Cohoes Savings, is offering common shares in a subscription offering and community offering (collectively, the "Offering"). We have enclosed the following materials which will help you learn more about the merits of Cohoes Bancorp, Inc. as an investment. Please read and review the materials carefully. PROSPECTUS: This document provides detailed information about operations at Cohoes Savings and the Offering. QUESTIONS AND ANSWERS: Key questions and answers about the Offering are found in this pamphlet. STOCK ORDER FORM & CERTIFICATION FORM: This form is used to purchase common shares by returning it with your payment in the enclosed business reply envelope. The deadline for ordering common shares is 12:00 noon, Eastern Time, on December xx, 1998. We invite our loyal customers and local community members to become shareholders of Cohoes Bancorp, Inc.. Through the Offering you have the opportunity to buy common shares directly from Cohoes Bancorp, Inc., without paying a commission or a fee. If you have additional questions regarding the Conversion and the Offering, please call us at (518) 235-4000, Monday through Friday from 9:00 a.m. to 5:00 p.m., or stop by the Stock Sales Center at 244 N. Mohawk Street, Cohoes, New York. Best regards, Harry L. Robinson President and Chief Executive Officer THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. FACTS ABOUT CONVERSION The Board of Directors of Cohoes Savings Bank ("Cohoes Savings") unanimously adopted a Plan of Conversion to convert from a state-chartered mutual savings bank to a state-chartered stock savings bank (the "Conversion"). This brochure answers some of the most frequently asked questions about the Conversion and about your opportunity to invest in common shares of Cohoes Bancorp, Inc. (the "Holding Company"), the newly-formed corporation that will become the holding company for Cohoes Savings following the Conversion. Investment in the common shares of Cohoes Bancorp, Inc. involves certain risks. For a discussion of these risks and other factors, including a complete description of the offering, investors are urged to read the accompanying Prospectus, especially the discussion under the heading "Risk Factors" on page xx. WHY IS COHOES SAVINGS CONVERTING TO STOCK FORM? - ----------------------------------------------- The stock form of ownership is used by most business corporations and an increasing number of savings institutions: o The stock form of organization offers many competitive advantages, including growth opportunities and increased capital levels. o The Conversion will permit the Bank's customers and members of the local community to become equity owners and to share in the future of the Company and the Bank. WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS? - --------------------------------------------------------------- No. The Conversion and Merger will have no effect on the balance or terms of any savings account or loan, and your deposits will continue to be federally insured by the Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit. Your savings account is not being converted into stock. WHO IS ELIGIBLE TO PURCHASE COMMON SHARES IN THE SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING? - -------------------------------------------------------------------------------- Certain past and present depositors of Cohoes Savings and the Holding Company's Employee Stock Ownership Plan are eligible to purchase common shares in the subscription offering. HOW MANY COMMON SHARES ARE BEING OFFERED AND AT WHAT PRICE? - ----------------------------------------------------------- Cohoes Bancorp, Inc. is offering up to 9,257,500 common shares, subject to adjustment as described in the Prospectus, at a price of $10.00 per share through the Prospectus. HOW MANY SHARES MAY I BUY? - -------------------------- The minimum order is 25 common shares. The maximum amount of shares that a person may purchase in any particular priority category in the Offering is generally limited to 25,000 shares. No person, together with associates and persons acting in concert with such person, may purchase more than 1.0% of the common shares sold in the Offering. WILL THE COMMON SHARES BE INSURED? - ---------------------------------- No. Like any other common shares, the Holding Company's common shares will not be insured. DO MEMBERS HAVE TO BUY COMMON SHARES? - ------------------------------------- No. However, the Conversion will allow depositors of Cohoes Savings an opportunity to buy common shares and become shareholders of the holding company for the local financial institution with which they do business. HOW DO I ORDER COMMON SHARES? - ----------------------------- You must complete the enclosed Stock Order Form and Certification Form. Instructions for completing your Stock Order Form and Certification Form are contained in this packet. Your order must be received by 12:00 Noon, Eastern Time on December xx, 1998. HOW MAY I PAY FOR MY COMMON SHARES? - ----------------------------------- First, you may pay for common shares by check, cash or money order. Interest will be paid by Cohoes Savings on these funds at the passbook rate, which is currently 3.0%, from the day the funds are received until the completion or termination of the Conversion. Second, you may authorize us to withdraw funds from your deposit account or certificate of deposit at Cohoes Savings for the amount of funds you specify for payment. You will not have access to these funds from the day we receive your order until completion or termination of the Conversion. CAN I PURCHASE SHARES USING FUNDS IN MY COHOES SAVINGS IRA ACCOUNT? - ------------------------------------------------------------------- Federal regulations do not permit the purchase of common shares in connection with the Conversion from your existing Cohoes Savings IRA account. To accommodate our depositors, we have made arrangements with an outside trustee to allow such purchases. Please call our Stock Sales Center for additional information. WILL DIVIDENDS BE PAID ON THE COMMON SHARES? - -------------------------------------------- The Board of Directors of the Holding Company will consider whether to pay a cash dividend in the future, subject to regulatory limits and requirements. No decision has been made as to the amount or timing of such dividends, if any. HOW WILL THE COMMON SHARES BE TRADED? - ------------------------------------- The Holding Company's stock is expected to trade on The Nasdaq National Market under the symbol "XXXX." However, no assurance can be given that an active and liquid market will develop. ARE OFFICERS AND DIRECTORS OF COHOES SAVINGS PLANNING TO PURCHASE SHARES? - ------------------------------------------------------------------------- Yes! The officers and directors of Cohoes Savings plan to purchase, in the aggregate, $3,100,000 worth of shares or approximately 3.8% of the common shares offered at the maximum of the offering range. MUST I PAY A COMMISSION? - ------------------------ No. You will not be charged a commission or fee on the purchase of common shares in the Conversion. SHOULD I VOTE TO APPROVE THE PLAN OF CONVERSION? - ------------------------------------------------ Yes. Your "YES" vote is very important! PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS! WHY DID I GET SEVERAL PROXY CARDS? - ---------------------------------- If you have more than one account, you could receive more than one proxy card, depending on the ownership structure of your accounts. HOW MANY VOTES DO I HAVE? - ------------------------- Your proxy card(s) show(s) the number of votes you have. Every depositor is entitled to cast one vote for each $100, and a proportionate fractional vote for an amount of less than $100, on deposit as of the voting record date, up to 1,000 votes. MAY I VOTE IN PERSON AT THE SPECIAL MEETING? - -------------------------------------------- Yes, but we would still like you to sign and mail your proxy today. If you decide to revoke your proxy you may do so at any time before such proxy is exercised by executing and delivering a later dated proxy or by giving written notice of revocation or in person at the special meeting. Attendance at the special meeting will not, of itself, revoke a proxy. For Additional Information You May Call Our Stock Sales Center Monday through Friday 9:00 a.m. to 5:00 p.m. STOCK SALES CENTER (518) 235-4000 Cohoes Bancorp, Inc. 244 N. Mohawk Street Cohoes, New York 12047 - -------------------------------------------------------------------------------- QUESTIONS AND ANSWERS - -------------------------------------------------------------------------------- Cohoes Bancorp, Inc. [LOGO] THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. PROXY GRAM We recently forwarded to you a proxy statement and related materials regarding a proposal to convert Cohoes Savings Bank from a state-chartered mutual savings bank to a state -chartered stock savings bank (the "Conversion"). Your vote on our Plan of Conversion has not yet been received. Failure to vote has the Same Effect as Voting Against the Conversion. Voting for the Conversion does not obligate you to purchase stock or affect the terms of insurance on your accounts. The Board of Directors unanimously recommends that you vote "FOR" the Conversion. Cohoes Savings Bank Cohoes, New York Harry L. Robinson chairman and Chief Executive Officer If you mailed the proxy, please accept our thanks and disregard this request. For further information call (518) 235-4000. EX-99 12 EXHIBIT 99.4 Exhibit 99.4 Stock Order Form Cohoes Bancorp, Inc. Stock Ownership Guide and Stock Order Form Instructions Stock Order Form Instructions - -------------------------------------------------------------------------------- Item 1 and 2 - Fill in the number of shares that you wish to purchase and the total payment due. The amount due is determined by multiplying the number of shares ordered by the subscription price of $10.00 per share. The minimum number of shares that may be subscribed for is 25. Generally, each Eligible Account Holder, Supplemental Eligible Account Holder and Other Member may purchase in the Subscription Offering not more than 25,000 Common Shares. In connection with the exercise of subscription rights arising from a single deposit account in which two or more persons have an interest, however, the aggregate maximum number of Common Shares which the persons having an interest in such account may purchase in the Subscription Offering in relation to such account is 25,000 Common Shares. Except for Cohoes Bancorp, Inc.'s Employee Stock Ownership Plan, which may purchase up to 8% of the total Common Shares sold in the Offering, no person, together with his or her Associates and other persons Acting in Concert with him or her, may purchase more than 1.0% of the Common Shares in the Offering. Cohoes Bancorp, Inc. reserves the right to reject any order received in the Community Offering, if any, in whole or in part. For a more detailed explanation of the stock purchase limitations, please see "The Offerings - Limitations on Common Stock Purchases" in the prospectus which is incorporated herein by reference. Item 3 - Payment for shares may be made by check, bank draft or money order payable to Cohoes Bancorp, Inc. No wire transfers will be accepted. DO NOT MAIL CASH. Your funds will earn interest at Citizens Savings Bank's passbook rate which is currently 3.00%. Item 4 - To pay by withdrawal from a savings account or certificate of deposit at Cohoes Savings Bank, insert the account number(s) and the amount(s) you wish to withdraw from each account. If the signature of more than one person is required to withdraw, each must sign in the signature box on the front of this form. To withdraw from an account with checking privileges, please write a check. No early withdrawal penalty will be charged on funds used to purchase stock. Payments will remain in account(s) until the Offering closes but a hold will be placed on the account(s) for the amount(s) you show. If a partial withdrawal reduces the balance of a certificate account to less than the applicable minimum, the remaining balance will be refunded. Item 5 - Please check this box to indicate whether you are a director, officer or employee of Citizens Financial Services, FSB or a member of such person's immediate household. Item 6 - Please check the appropriate box if you were: a) A depositor with $100.00 or more on deposit at Cohoes Savings Bank as of March 31, 1997. Enter information for all deposit accounts that you had at Cohoes Savings Bank on March 31, 1997. b) A depositor with $100.00 or more on deposit at Cohoes Savings Bank as of September 30, 1998, but are not an Eligible Account Holder. Enter information for all deposit accounts that you had at Cohoes Savings Bank on September 30, 1998. Item 7 - The stock transfer industry has developed a uniform system of shareholder registrations that we will use in the issuance of Cohoes Bancorp, Inc. common shares. Please complete this section as fully and accurately as possible, and be certain to supply your social security or Tax I.D. number(s) and your daytime and evening phone numbers. We will need to call you if we cannot execute your order as given. If you have any questions regarding the registration of your stock, please consult your legal advisor. Subscription rights are not transferable. If you are a qualified member, to protect your priority over other purchasers as described in the Prospectus, you must take ownership in at least one of the account holder's names. Stock Ownership Guide - -------------------------------------------------------------------------------- Individual - The stock is to be registered in an individual's name only. You may not list beneficiaries for this ownership. Joint Tenants - Joint tenants with rights of survivorship identifies two or more owners. When stock is held by joint tenants with rights of survivorship, ownership automatically passes to the surviving joint tenant(s) upon the death of any joint tenant. You may not list beneficiaries for this ownership. Tenants in Common - Tenants in common may also identify two or more owners. When stock is to be held by tenants in common, upon the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common. You may not list beneficiaries for this ownership. Uniform Gift/Uniform Transfer to Minors - For residents of many states stock may by held in the name of a custodian for the benefit of a minor under the Uniform Gift to Minors Act. For residents in other states, including Indiana, stock may be held in a similar type of ownership under the Uniform Transfer to Minors Act of the individual state. SHARES MAY BE PURCHASED IN THE SUBSCRIPTION OFFERING UNDER EITHER ACT ONLY IF THE MINOR HAS SUBSCRIPTION RIGHTS. Only one custodian and one minor may be designated. Instructions: On the first "Name" line, print the first name, middle initial and last name of the custodian, with the abbreviation "CUST" after the name. Print the first name, middle initial and last name of the minor on the second "Name" line. Use the minor's social security number. Corporation/Partnership - Corporations and partnerships may purchase stock. Please provide the corporation/partnership's legal name and Tax I.D. To have subscription rights, the corporation/partnership must have an account in the legal name. Individual Retirement Account - Individual Retirement Account ("IRA") holders may make stock purchases from their deposits through a prearranged "trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA. Cohoes Savings Bank does not offer a self-directed IRA. Please contact the Stock Sales Center if you have any questions about your IRA account. Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates, Guardianships, etc.) are established under a form of trust agreement or pursuant to a court order. Without a legal document establishing a fiduciary relationship, your stock may not be registered in a fiduciary capacity. Instructions: On the first "Name" line, print the first name, middle initial and last name of the fiduciary if the fiduciary is an individual. If the fiduciary is a corporation, list the corporate title on the first "Name" line. Following the name, print the fiduciary title such as trustee, executor, personal representative, etc. On the second "Name" line, print the name of the maker , donor or testator or the name of the beneficiary. Following the name, indicate the type of legal document establishing the fiduciary relationship (agreement, court order, etc.). In the blank after "Under Agreement Dated", fill in the date of the document governing the relationship. The date of the document need not be provided for a trust created by a will. COHOES BANCORP, INC. Conversion Center 244 N. Mohawak Street Cohoes, NY 12047 (518) 235-4000 Stock Order Form - -------------------------------------------------------------------------------- Deadline: The Subscription Offering ends at 12:00 Noon, EST, on December xx, 1998 (the "Deadline"). Your original Stock Order Form and Certification Form, properly executed and with the correct payment, must be received (not postmarked) at the address on the top of this form by the Deadline, or it will be considered void. Faxes or copies of this form will not be accepted. - -------------------------------------------------------------------------------- (1) Number of Shares Price Per Share (2) Total Amount Due [ ] X $10.00 = [$ ] Minimum - 25 Shares Maximum - See Instructions or Prospectus - -------------------------------------------------------------------------------- Method of Payment (3) [ ] Enclosed is a check, bank draft or money order payable to Cohoes Bancorp, Inc. for $____________. (4) [ ] I authorize Cohoes Savings Bank to make withdrawals from my certificate or savings account(s) shown below, and understand that the amounts will not otherwise be available for withdrawal: Account Number(s) Amount(s) ________________________________________|_____________________ ________________________________________|_____________________ ________________________________________|_____________________ ________________________________________|_____________________ Total Withdrawal |_____________________ There is NO penalty for early withdrawal. - -------------------------------------------------------------------------------- (5) Purchase Information (check one) a. [ ] Eligible Account Holder Check here if you were a depositor with $100,000 or more on deposit with Cohoes Savings Bank as of March 31, 1997. Enter information below for all deposit accounts that you had at Cohoes Savings on March 31, 1997. b. [ ] Supplemental Eligible Account Holder - Check here if you were a depositor with $100,000 or more on deposit with Cohoes Savings as of September 30, 1998 but are not an Eligible Account Holder. Enter information below for all deposit accounts that you had at First Federal on September 30, 1998. [ ] [ ] [ ] [ ] - -------------------------------------------------------------------------------- (6) [ ] Check here if you are a director, officer or employee of Cohoes Savings Bank or a member of such person's immediate family (same household). - -------------------------------------------------------------------------------- (7) [ ] NASD Affiliation - see description on reverse side hereof. - -------------------------------------------------------------------------------- o These account numbers correspond to the preprinted registration in the top left hand corner of this form. o These may not be all of your qualifying accounts. o You must list any account numbers from other stock order forms you have received in the mail and any other accounts that you have or have had at Cohoes Savings Bank. Account Title (Names on Accounts) Account Number _____________________________________|___________________________ _____________________________________|___________________________ _____________________________________|___________________________ Please Note: Failure to list all of your accounts may result in the loss of part or all of your subscription rights, (additional space on back of form). - -------------------------------------------------------------------------------- (8) Stock Registration - Please Print Legibly and Fill Out Completely (Note: The Stock Certificate and all correspondence related to this stock order will be mailed to the address provided below)
[ ] Individual [ ] Uniform Transfer to Minors [ ] Partnership [ ] Joint Tenants [ ] Uniform Gift to Minors [ ] Individual Retirement Account [ ] Tenants in Common [ ] Corporation [ ] Fiduciary/Trust (Under Agreement Dated ______________) - ----------------------------------------------------------------------------------------------------------------------------- Name | Social Security or Tax I.D. - -----------------------------------------------------------|----------------------------------------------------------------- Name | Social Security or Tax I.D. - -----------------------------------------------------------|----------------------------------------------------------------- Mailing | Daytime Address | Telephone - ------------------------------------------------------------------------------|---------------------------------------------- Zip | Evening City State Code County | Telephone - ------------------------------------------------------------------------------|----------------------------------------------
Acknowledgment By signing below, I acknowledge receipt of the Prospectus dated November xx, 1998 and understand I may not change or revoke my order once it is received by Cohoes Bancorp, Inc. I also certify that this stock order is for my account and there is no agreement or understanding regarding any further sale or transfer of these shares. Applicable regulations prohibit any persons from transferring, or entering into any agreement directly or indirectly to transfer, the legal or beneficial ownership of subscription rights or the underlying securities to the account of another person Cohoes Bancorp, Inc. will pursue any and all legal and equitable remedies in the event it becomes aware of the transfer of subscription rights and will not honor orders known by it to involve such transfer. Under penalties of perjury, I further certify that: (1) the social security number or taxpayer identification number given above is correct and (2) I am not subject to backup withholding. You must cross out this item (2) above if you have been notified by the Internal Revenue Service that you are subject to backup withholding because of under-reporting interest or dividends on your tax return. By signing below, I also acknowledge that I have not waived any rights under the Securities Act of 1933 and the Securities Exchange Act of 1934. Signature: THIS FORM MUST BE SIGNED AND DATED TWICE: Here and on the Certification Form. This order is not valid if the Stock Order Form and Certification Form are not both signed. Your order will be filled in accordance with the provisions of the prospectus. An additional signature is required only if payment is by withdrawal from an account that requires more than one signature to withdraw funds. Signature Date OFFICE USE Date Rec'd __/___/___ Check #________ ___________________________ Amount $__________ Catgory________ Signature Date Batch # ________ Order #_________ Deposit $______ ___________________________ COHOES BANCORP, INC. - -------------------------------------------------------------------------------- Item (5) continued: Purchaser Information Account Title (Names on Accounts) Account Number ______________________________________|________________________ ______________________________________|________________________ ______________________________________|________________________ ______________________________________|________________________ ______________________________________|________________________ - -------------------------------------------------------------------------------- Item (7) continued - NASD Affiliation (This section only applies to those individuals who meet the delincated criteria). Check box if you are a member of the National Association of Securities Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the immediate family of any such person to whose support such person contributes, directly or indirectly, or the holder of an account in which an NASD member or person associated with an NASD member has a beneficial interest. To comply with conditions under which an exemption from the NASD's Interpretation With Respect to Free-Riding and Wihholding is available, you agree, if you have checked the NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a period of three months following the issuance and (2) to report this subscription in writing to the applicable NASD member within one day of the payment therefor. - -------------------------------------------------------------------------------- CERTIFICATION FORM (This Certification Must Be Signed In Addition to the Stock Order Form) I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF COHOES BANCORP, INC. ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY COHOES SAVINGS BANK OR BY THE FEDERAL GOVERNMENT. If anyone asserts that the shares of Common Stock are federally insured or guaranteed, or are as safe as an insured deposit, I should call the Superintendent of Banks of the State of New York at (xxx) xxx-xxxx. I further certify that, before purchasing the Common Stock of Cohoes Bancorp, Inc., I received a copy of the Prospectus dated November xx, 1998 which discloses the nature of the Common Stock being offered thereby and describes the following risks involved in an investment in the Common Stock under the heading "Risk Factors" beginning on page 12 of the Prospectus: 1. Decreased Return on Average Equity and Increased Expenses Immediately After Conversion 2. Dilutive Effect of Issuance of Additional Shares 3. Interest Rate Exposure 4. Risks Related to Multi-Family and Commercial Real Estate Loans; Geographic Concentration of Loans 5. Competition 6. Defensive Takeover Provisions 7. Post-Conversion Compensation and Other Expense 8. Absence of Active Market for the Common Stock 9. Year 2000 Compliance 10. Risks Associated with the Establishment of the Charitable Foundation _____________________________ ________________________________ Signature Date Signature Date (Note: If shares are to be held jointly, both parties must sign) THE COMMON SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. EX-99 13 EXHIBIT 99.5 Exhibit 99.5 COHOES SAVINGS BANK 75 Remsen Street Cohoes, New York 12047-2892 (518) 233-6500 NOTICE OF SPECIAL MEETING OF DEPOSITORS To Be Held on ______, 1998 NOTICE IS HEREBY GIVEN that a Special Meeting of Depositors ("Special Meeting") of Cohoes Savings Bank (the "Bank") will be held at the _______________, located at _______________, Cohoes, New York at _:___ p.m. Eastern time, on ____________, 1998, to consider and vote upon approval of: The Plan of Conversion ("Plan of Conversion" or "Plan") pursuant to which the Bank will be converted from a New York chartered mutual savings bank to a New York chartered stock savings bank with the concurrent issuance and sale of all of the Bank's outstanding capital stock to Cohoes Bancorp, Inc. (the "Company") and the issuance and sale of the Company's common stock to the public; and other transactions provided for in the Plan, including the adoption of the Restated Organization Certificate and Bylaws of the Bank and the establishment of the Cohoes Savings Foundation. The Board of Trustees has fixed _____ __, 1998 as the voting record date ("Voting Record Date") for the determination of depositors of the Bank entitled to notice of and to vote at the Special Meeting and at any postponement or adjournment thereof. Only those depositors having aggregate deposits with the Bank of $100 or more as of the close of business on the Voting Record Date are Voting Depositors of the Bank. Only Voting Depositors will be entitled to vote at the Special Meeting or any postponement or adjournment thereof. The Plan of Conversion must be approved by the affirmative vote of (i) at least seventy-five percent (75%) in amount of deposit liabilities of Voting Depositors represented in person or by proxy at the Special Meeting and (ii) at least a majority of the amount of votes entitled to be cast at the Special Meeting by Voting Depositors. If there are not sufficient votes for approval of the Plan at the time of the Special Meeting, the Special Meeting may be postponed or adjourned to permit further solicitation of proxies. Whether or not you plan to attend the Special Meeting, you are requested to sign, date and return the enclosed proxy card(s) without delay in the enclosed postage-paid envelope marked "Proxy Return" to ensure that your vote will be counted even if you are unable to attend. By Order of the Board of Trustees --------------------------------- Secretary Cohoes, New York ___________, 1998 COHOES SAVINGS BANK 75 Remsen Street Cohoes, New York 12047-2892 (518) 233-6500 PROXY STATEMENT FOR THE SPECIAL MEETING OF DEPOSITORS OF THE BANK To Be Held On _________, 1998 THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S VOTING DEPOSITORS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE SUPERINTENDENT. Purpose of the Special Meeting This Proxy Statement, together with the Prospectus of Cohoes Bancorp, Inc. (the "Company") attached hereto, constitutes the Proxy Statement for and is being furnished to Voting Depositors of Cohoes Savings Bank (the "Bank") in connection with the solicitation by the Board of Trustees of the Bank of proxies to be voted at the Special Meeting of Depositors of the Bank (the "Special Meeting") to be held on _____ __, 1998 at the ______________________________, located at __ __________, ______, New York, at _:__ _.m., Eastern time, and at any postponement or adjournment thereof. The Special Meeting is being held for the purpose of considering and voting upon approval of the Plan of Conversion (the "Plan" or "Plan of Conversion"), pursuant to which the Bank will be converted from a New York chartered mutual savings bank to a New York chartered stock savings bank (the "Conversion") with the concurrent issuance and sale of all of the Bank's outstanding capital stock to the Company and the issuance and sale of the Company's common stock, par value $0.01 per share to the public; and other transactions contemplated by and provided for in the Plan of Conversion, including the adoption of the Restated Organization Certificate and Bylaws of the Bank and the establishment of the Cohoes Savings Foundation (the "Foundation") which will be funded with an amount of the Company's common stock equal to 3% of the Company's common stock sold in the Conversion. Voting for or against approval of the Plan of Conversion includes a vote for or against the adoption of the Restated Organization Certificate and Bylaws of the Bank and establishment of the Foundation. Voting for approval of the Plan of Conversion will not obligate any person to purchase any of the Company's common stock and will not affect the balance, interest rate or federal deposit insurance of any deposits. P-1 THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE PLAN OF CONVERSION. Voting Rights and Votes Required for Approval The Board of Trustees has fixed ______ __, 1998 as the voting record date ("Voting Record Date") for the determination of depositors entitled to notice of and to vote at the Special Meeting or at any postponement or adjournment thereof. Only those depositors of the Bank having aggregate deposits of $100 or more as of the close of business on the Voting Record Date, are Voting Depositors of the Bank. Only Voting Depositors of the Bank will be entitled to vote at the Special Meeting or at any adjournment thereof. The Plan of Conversion must be approved by the affirmative vote of (i) at least seventy-five percent (75%) in amount of deposit liabilities of Voting Depositors represented in person or by proxy at such Special Meeting and (ii) at least a majority of the amount of votes entitled to be cast at such Special Meeting by Voting Depositors. If there are not sufficient votes for approval of the Plan at the time of the Special Meeting, the Special Meeting may be postponed or adjourned to permit further solicitation of proxies. Each Voting Depositor will be entitled at the Special Meeting to cast one vote for each $100 such Voting Depositor had on deposit with the Bank as of the Voting Record Date; however, no Voting Depositor may cast more than 1,000 votes at the Special Meeting. In general, accounts held in different ownership capacities will be treated as separate accounts for purposes of applying the 1,000 vote limitation. For example, if two persons hold a $100,000 account in their joint names and each of the persons also holds a separate account for $100,000 in their own name, each person would be entitled to 1,000 votes for the separate account and they would together be entitled to cast 1,000 votes on the basis of the joint account. The Bank's records indicate that as of the Voting Record Date, there were approximately ______ Voting Depositors entitled to cast a total of _________ votes at the Special Meeting. Deposits held in trust or other fiduciary capacity may be voted by the trustee or other fiduciary to whom voting rights are delegated under the trust instrument or other governing document or applicable law. In the case of Individual Retirement Account and tax qualified plan accounts, such as Keogh accounts established at the Bank, the beneficiary may direct the trustee's vote on the Plan of Conversion by returning a proxy card to the Bank. If no proxy card is returned, the Bank, as trustee, will vote FOR the adoption of the Plan of Conversion. Proxies The Bank's Voting Depositors may vote at the Special Meeting or at any postponement or adjournment thereof in person or by proxy. Enclosed is a proxy card which may be used by any Voting Depositor to vote on the Plan of Conversion. The enclosed proxy card may not be used for any other meetings of the Bank's depositors. All properly executed proxies received by the Bank will be voted in accordance with the instruction indicated thereon by the Voting Depositor giving such proxies. If no instructions are given, executed proxies will be voted FOR the adoption of the Plan of Conversion. P-2 Revocability of Proxies A proxy may be revoked at any time before it is voted by filing written revocation of the proxy with the Secretary of the Bank, by submitting a duly executed proxy bearing a later date or by attending and voting in person at the Special Meeting or any postponement or adjournment thereof. The presence of a Voting Depositor at the Special Meeting shall not revoke a proxy unless a written revocation is filed with the Secretary prior to the voting of such proxy. The proxies being solicited by the Board of Trustees of the Bank are only for use at the Special Meeting or at any postponement or adjournment thereof and will not be used at any other meeting. Solicitation of Proxies and Tabulation of the Vote To the extent necessary to permit approval of the Plan of Conversion, proxies may be solicited by officers, trustees or employees of the Bank, by telephone or through other forms of communication and, if necessary, the Special Meeting may be postponed or adjourned to a later date. Such persons will be reimbursed by the Bank for their reasonable out-of-pocket expenses incurred in connection with such solicitation. The Company has retained _________________ to provide solicitation of proxies and other services, for a fee of $_______ plus reimbursement of reasonable out-of-pocket expenses. The Bank will bear all costs of this solicitation. The Board of Trustees has appointed ________________________ ("_____") as the independent custodian and tabulator to receive and hold the proxy cards and to count the votes cast for and against both proposals. Proxies delivered to the Bank at its branch offices will be deposited unopened and sealed in containers that are maintained and delivered unopened in a sealed state to _____ as custodian and tabulator. Reasons for the Conversion See "Summary" and "The Conversion -- Purposes of Conversion" and "--Effects of Conversion" in the Prospectus for discussion of the basis upon which the Board of Trustees determined to approve the Plan of Conversion. As more fully discussed in those sections and in other sections of the Prospectus, the Board of Trustees believes that the Plan of Conversion is in the best interests of the Bank, its depositors and the communities it serves. Management of the Company and the Bank For information regarding the management of the Bank and the Company, including compensation-related information, see "Management of the Holding Company" and "Management of the Bank" in the Prospectus. THE ATTACHED PROSPECTUS IS AN INTEGRAL PART OF THIS PROXY STATEMENT AND CONTAINS DETAILED INFORMATION ABOUT THE BANK, THE COMPANY, THE FOUNDATION AND THE CONVERSION, INCLUDING THE RIGHTS OF CERTAIN DEPOSITORS TO SUBSCRIBE FOR SHARES OF THE COMPANY'S COMMON STOCK. VOTING DEPOSITORS ARE URGED TO CONSIDER SUCH INFORMATION CAREFULLY PRIOR TO SUBMITTING THEIR PROXIES. P-3 REVOCABLE PROXY COHOES SAVINGS BANK SPECIAL MEETING OF DEPOSITORS __________, 1998 The undersigned hereby appoints the Board of Trustees of Cohoes Savings Bank. (the "Bank"), and its survivor, with full power of substitution, to act as attorneys and proxies for all votes which the undersigned depositor is entitled to cast at the Special Meeting of Depositors (the "Meeting"), to be held on __________, 1998 at the main office of the Bank located at 75 Remsen Street, Cohoes, New York, at _:__ P.M. New York time, and at any and all adjournments thereof, as follows: FOR AGAINST The approval of the Plan of Conversion (the --- ------- "Plan"), pursuant to which the Bank will convert from a New York chartered mutual [ ] [ ] savings bank to a New York chartered stock savings bank, with the concurrent issuance of all outstanding shares of its capital stock to Cohoes Bancorp, Inc., (the "Company") and the issuance and sale of the Company's common stock to the public; and other transactions provided for in the Plan, including the adoption of the Restated Organization Certificate and Bylaws of the Bank and the establishment of the Cohoes Savings Foundation. In their discretion, the proxies are authorized to vote on any other business that may properly come before the Meeting or any adjournment thereof. The Board of Trustees recommends a vote "FOR" the listed proposals. THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF TRUSTEES KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES The depositor may revoke this proxy by: (i) filing with the Secretary of the Bank at or before the Meeting a written notice of revocation bearing a later date than the proxy; (ii) duly executing a subsequent proxy relating to the same shares and delivering it to the Secretary of the Bank at or before the Meeting; or (iii) attending the Meeting and voting in person (although attendance at the Meeting will not in and of itself constitute revocation of a proxy). The undersigned acknowledges receipt from the Bank, prior to the execution of this Proxy, of Notice of the Meeting and a Proxy Statement dated on or about __________, 1998. Dated: ________________________ _______________________________ PRINT NAME OF DEPOSITOR _______________________________ SIGNATURE OF DEPOSITOR IMPORTANT: Please sign your name exactly as it appears on this proxy. Joint accounts need only one signature. When signing as an attorney, administrator, agent, corporation, officer, executor, trustee or guardian, etc., please add your full title to your signature. NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE. - -------------------------------------------------------------------------------- PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----