Hudson River Bancorp, Inc.

1810–1998

s: 522120 Savings Institutions; 551112 Offices of Other Holding Companies

Hudson River Bancorp, Inc. is the holding company for Hudson River Bank & Trust, formed in 1998 as part of a plan to convert from a mutual savings bank owned by depositors to a stock savings bank owned by shareholders. With its headquarters located in Hudson, New York, Hudson River Bancorp serves a limited area of the upstate region. Since receiving a large amount of money following its public offering of stock, the bank has acquired major stakes in an insurance agency and mortgage company, as well as acquiring two other area banks, one of which precipitated an expensive and drawn-out contest with two other area rivals. As a result of these additions, Hudson River Bancorp now boasts approximately $1.8 billion in assets, making it large enough to compete against major regional financial institutions that in recent years have threatened the existence of small community banks.

Origins in the Mid-1800s

The original entity that led to Hudson River Bancorp was the Hudson City Savings Institution, which grew out of the savings bank movement that began in Europe in the second half of the 18th century. Small savings organizations were formed in Germany and Switzerland to benefit members of the working class, who pooled their small deposits in order to earn a higher return. Because subscribers could only withdraw their money upon reaching a prescribed age, these early mutuals were similar to contemporary retirement plans. British progressives latched onto the idea as a way to eliminate poverty. They thought that by setting up savings and annuity plans, rather than giving alms that they believed would reward idleness, they could instill the virtues of thrift, industry, and sobriety in the poor. In 1810 the first self-sustaining savings bank was founded in Scotland. Very quickly the concept spread throughout the British Isles, so that by 1818 the United Kingdom boasted 465 savings banks.

The mutual savings movement spread to the United States, with the first New York City institution opening in 1819. Again, the emphasis was on promoting thrift among the laboring class, a panacea that was believed to cure any manner of social problems. These early savings banks were generally only opened a few hours a week and often shared offices with commercial banks where the mutuals deposited their money. As the funds in these so-called 'thrifts' increased, however, the ties to charity were gradually loosened. They became full-fledged businesses, housed in their own impressive buildings, run by full-time managers. The Civil War helped to accelerate this transition, and soon there was little to separate savings institutions from other community banks. Thrifts were just as willing to accept deposits from middle-class businessmen as they were from laborers.

Hudson City Savings, one of a number of mutuals formed in New York State before the Civil War, received its charter on April 4, 1850, when Governor Hamilton Fish signed a special act of the New York State Legislature. The bank's first president was Robert A. Barnard, who was very active in the community, serving as postmaster and judge, as well as alderman and state senator. At first the bank operated out of the insurance office of one of its trustees, Josiah W. Fairfield. It was only open on Mondays and Saturdays, from 10 a.m. until 8 p.m. The bank's first deposit, in the amount of $80, was made on October 7, 1850. By the end of that year, Hudson City Savings had 20 accounts, with a total of $2,184 in deposits.

The bank's first deposit, in the amount of $80, was made on October 7, 1850.

1866–1997

By 1866 the bank was prosperous enough to build its own headquarters, a modest three-story attached structure. In 1910 Hudson City Savings constructed a much larger and imposing neo-classical building, the entrance flanked by matching pairs of imposing columns. Over the years, the building would be remodeled and enlarged as the bank grew. By 1875 the bank accumulated more than $1 million in assets. By 1900 that amount increased to $2.65 million. When the new building opened in 1910, assets reached $5.1 million. In 1940 the bank topped $12 million, and by 1950, following a post-war boom, it reached $25.8 million. By 1970 the assets of the Hudson City Savings Institution stood at $80.4 million.

Expanding Beyond the Home Base in 1970

Until this point, Hudson City Savings operated solely out of its Hudson bank building, then in 1970 began to branch out to other locations in Columbia County, starting with an office in Chatham. Two years later the bank opened a branch in Valatie. In 1974 Hudson City Savings added a branch in Copake and extended the back of its main building to add more office space and provide drive-up teller lanes. The bank moved beyond Columbia County in 1975 when it opened a branch office in Nassau, Rensselaer County. In 1989 Hudson City Savings acquired a Dime Savings Bank branch and established a presence in downtown Albany. The bank opened its first supermarket branch in Greenport in 1994.

Hudson City Savings was now headed by Edward A. Brablc, who joined the bank in 1990 as executive vice-president, then became president and chief executive officer a year later. In five years under Brablc, the bank grew from seven branches and $450 million in assets to 11 branches with $600 million in assets. In March 1996 he gained unwanted notoriety for himself and the bank when he became involved in a domestic dispute with his pregnant wife. He was charged by the State Police with third-degree assault after his wife, Susan Brablc, was treated in an area hospital for two broken bones under her left eye. The incident, which took place on March 10, was not made public until March 30, at which time the 43-year old Brablc was placed on indefinite leave by the bank's board. Little more than a week later he resigned. Despite protests from his wife, who did not want her husband prosecuted, Brablc would eventually be sentenced to 30 days in a county jail and fined $1,000.

Brablc was replaced on a interim basis by Carl A. Florio, the chief financial officer who had been with the bank since 1993. He grew up in Columbia County, graduated from the University of Albany, and was a partner of an accounting firm before joining Hudson City Savings. The bank's board formed a search committee in late April to hire a replacement for Brablc, but two months later decided to name Florio as the new president and chief executive officer.

Under Florio the bank created a subsidiary, Hudson River Mortgage Corporation, to provide residential mortgages in the Albany area. It also opened a 12th branch location. The bank was growing, but not at a pace to compete with other financial institutions that had access to capital in the stock market. In general, mutuals had begun to suffer in the 1970s from rising interest rates. Committed to long-term, low-yielding mortgages, many of these thrifts lacked the flexibility to adapt to adverse economic conditions. By the mid-1990s, mutual savings banks were becoming a dying breed. At the end of 1972 there had been 1,817 federally chartered mutual savings banks; by the end of 1996 there were only 653. Hudson City Savings was one of 28 New York State chartered mutuals, but by 1997, when it announced its intention to covert to stock ownership, only a handful of state mutuals remained.

1996–2000

A mutual converts to stock ownership by creating a holding company, then making a subscription offering to allow depositors, employees, officers, and directors to buy shares in the new corporation at a set price. Half the proceeds are used to acquire the bank, while the rest is available for use in expanding the institution. Depositors of the mutual stand to gain because the stock of the new holding company is likely to rise substantially, generally spiking 15 percent to 20 percent on the first day of public trading. Management of the mutual usually receive stock options that are potentially lucrative. Furthermore, executives of public companies are also paid better. Through the holding company the bank can also expand into complementary businesses such as insurance, real estate, and financial planning. On the other hand, instead of being owned by the community through its depositors, converted mutuals now have to answer to shareholders, with the result that a longer-term outlook may give way to a quarterly results-oriented approach and that the interests of depositors and shareholders may conflict.

As part of its conversion Hudson City Savings changed its name to Hudson River Bank & Trust Company. Its holding company, Hudson River Bancorp, planned to raised $150 million by selling 15 million shares of common stock at $10 a share. The demand for the offering, however, was nearly triple that amount, due in large part to syndicates that used depositors to buy shares. Limited to a maximum of 17 million shares, Hudson River allocated no more than 100 shares to each depositor who had been with the bank as of September 30, 1996. The offering raised $170.3 million after expenses, approximately half of which went to the bank for its purchase and would then be available for use in generating new loans or acquiring other institutions. The holding company would also be able to invest its remaining money. Furthermore, as part of the conversion plan, 520,000 shares of stock were contributed to establish the Hudson River Bank & Trust Company Foundation, devoted to supporting charitable causes and community development activities in the upstate New York counties that the bank served.

Conversion and Further Expansion in 1998

Soon after completing its stock offering, Hudson River began to expand its holding. In October 1998 it bought an Albany-based mortgage company, Homestead Funding Corporation, which sold and serviced multifamily residential and construction loans. Homestead was licensed to do business in most of the country and provided Hudson River with offices in Florida and Pennsylvania, as well as several branches in New York State. In May 1999, Hudson River announced it would acquire SFS BAncorp Inc., the holding company for Schenectady Federal Savings Bank. The $32 million transaction expanded Hudson River's reach to the Schenectady market, adding four branches and no overlap with current operations. SFS also added $176 million in assets, making Hudson River a $1 billion bank. Later in 1999, Hudson River also entered the commercial and residential insurance market when it acquired an equity interest in the Bostwick Group. Based in Hudson with offices in five other upstate New York counties, Bostwick generated more than $2.5 million in revenues in 1998, offering commercial and personal property and casualty insurance; life, health, and employee benefits; plus bonding, risk management, and pension services.

To compete against giant regional banks, such as Key Corporation, FleetBoston, and Charter One, which dominated banking in upstate New York, Hudson River needed to grow at a much faster clip. In May 2000 it announced a merger with Cohoes Bancorp Inc., another area converted-mutual holding company, that would greatly enhance it stature. The combined institutions, with 38 branches, would boast assets of $1.8 billion and a market capitalization of $230 million. Not only were there only two overlapping branches, located in downtown Albany, the bank's operations dovetailed nicely. Hudson River had a trust department that Cohoes lacked, and Cohoes brought with it a brokerage subsidiary that Hudson River lacked. Moreover, once the merger was completed, Hudson River would be positioned to acquire smaller banks, possibly expanding into Connecticut and Massachusetts. Under the terms of the deal, Cohoes shareholders would receive 1.185 shares of Hudson River stock, or roughly $11 per share, which amounted to an $87 million deal. For the first three years, Cohoes's CEO, Harry Robinson, would serve as CEO with Florio acting as president. The two executives would then share the CEO position for six months, at which point Florio would take over, and Robinson would become chairman for another three years.

As promising as this friendly merger of two equals appeared on the surface, however, analysts and shareholders of Cohoes questioned whether the price was right. They speculated that a larger bank might offer substantially more money, especially when there were so few community banks available to acquire. Within days there were two other suitors for Cohoes, followed by a shareholder suit that attempted to prevent the merger with Hudson River. The main threat was TrustCo Bank Corporation NY of Schenectady, which proposed buying both institutions. It offered an exchange of TrustCo shares, valued at $16 each for Cohoes shareholders and $14 each for Hudson River shareholders. Ambanc Holding Company, owner of Mohawk Community Bank based in Amsterdam, New York, then offered $15.25 a share in cash for Cohoes. Both Florio and Robinson dismissed the offers, contending that TrustCo was simply looking to scuttle the merger between Cohoes and Hudson River because it feared competition from the proposed combination. Located in an economically distressed area, Ambanc was seen as looking to inflate its value in order to then sell itself at a high premium, thus satisfying disgruntled shareholders and directors. Robinson even claimed that Ambanc, which had been on the market for two years, was actually trying to be purchased by Cohoes.

2000–2001

Florio and Robinson remained committed to the merger, which would be decided by two separate shareholders' meetings in August 2000. TrustCo, meanwhile, took out full-page newspaper ads in local publications criticizing the deal, claiming that insiders like Florio and Robinson stood to make out better than shareholders. TrustCo then took a formal step to prevent the merger by filing SEC documents in order to launch its own tender offers for both Cohoes and Hudson River. To remain in the hunt, Ambanc increased its bid for Cohoes to $16.50 per share. As the voting date neared, TrustCo produced a study that blasted the proposed merger between Cohoes and Hudson River. The two banks answered these assertions with a study of their own that supported the deal. Shareholders of the two banks were then besieged by professional firms hired to convince them which to accept or reject the proxy offers.

A Times Union article encapsulated the effort, quoting one investor who owned stock in both banks as saying, '`There are the phone calls urging me to send in the white (tear up the gold or green if you have any proxy, or to send in the green or gold (and tear up the white) proxy,' she related in an email. One call, even, from a TrustCo vice president. Another, long distance from Illinois. I have never before felt loved by so many people'. ... It runs beyond phone calls. Shareholders, and their mail carriers, may welcome the end of the paper dump that the various companies have unleashed. Altogether, an investor with shares in Cohoes would have received seven proxy statements by now. Investors with shares in both receive more.'

In the end, Hudson River shareholders approved the merger, Cohoes shareholders rejected it. Cohoes then hired a New York City Investment firm to help it consider its options, as the names of other possible suitors also began to surface. TrustCo then sweetened its bid, while Ambanc's offer lapsed. Hudson River's largest shareholder, Florida-based Private Capital Management, with an 8.4 percent stake, urged Hudson River to accept TrustCo's offer. Because PCM could nominate its own slate of board members or simply dump its shares of Hudson River, Florio had little choice but to at least announce that he would consider the offer. Eventually he urged shareholders to reject the deal, even though the bid had been bumped to $17 per share.

In late November 2000, after months inactivity, Hudson River and Cohoes announced a new merger agreement. Hudson River increased its offer to $19.50 in cash for each share of Cohoes stock, for a total of $158 million. A few days later TrustCo decided to withdraw its offers for the two banks. Hudson River's new price was simply too rich for TrustCo. Under the new terms, Florio would continue to serve as president and CEO, and Robinson would retire. In a special meeting held in January 2001, Cohoes shareholders approved the deal, and following federal regulatory approval, the merger became official in April 2001. With assets approaching $2 billion, Hudson River was now in a position to grow into an even larger bank, although some analysts were not yet ready to write off TrustCo, which boasted $2.3 billion in assets. Although losing a major battle, TrustCo might still wish to continue the bank war and pick off Hudson River, now an even more inviting target.