Upstate New York's Trustco Bank Corp NY was rebuffed last week in a takeover bid that would have made it the largest independent player in the Albany area.

Albank Financial Corp. flatly rejected a $40 per share stock-and-cash merger proposal from the $2.2 billion-asset bank, based just 28 miles away in Schenectady. The board vote was unanimous.

"Albank is not for sale - and if it were, it wouldn't be to Trustco," said Herbert G. Chorbajian, chairman and chief executive of $3.4 billion- asset Albank.

Trustco officials said Albank was irresponsible to exclude their bank as a potential acquirer without consulting shareholders, given the significant premium offered by Trustco.

The deal was worth about 1.5 times the thrift's Dec. 31 tangible book value. After Albank's six-for-five stock split, which took effect in trading last Wednesday, the offer was worth $33 per share.

Trustco senior vice president William F. Terry said the bank is reviewing its options, but wouldn't elaborate. He said, however, that several of Albank's institutional shareholders "weren't happy about the outright rejection of an offer with a significant premium. I'm getting about one call an hour about that from institutional investors."

The $460 million offer, received by the larger Albank just days after it announced further expansion in neighboring Vermont, would have created a $5.6 billion-asset company, with operations in New York, Massachusetts, and Vermont.

"These are the two remaining independent banks of size in the capital region," said Kevin Timmons, bank analyst at First Albany Corp.

Currently, Trustco has a 12.5% deposit market share in the capital region, while Albank controls 8.5%. With 21% combined market share, the merged banks would have ranked right behind Cleveland-based KeyCorp, which holds 23.5%, and Fleet Financial Group of Boston, which has 25.5%.

But Mr. Chorbajian said Albank officials were particularly concerned about the impact of the merger, fearing it would reduce competition and lead to layoffs.

Also, he explained in a statement, Trustco would not have been "an appropriate buyer," because it is a smaller bank and because of what he called the limited liquidity of its stock.

Mr. Chorbajian added that this "is not the right time to consider a sale" since Albank only converted to stock in 1992 and sees more room to expand in upstate New York, Massachusetts, and Vermont.

News of the proposal caught most observers flat-footed. In the two days preceding announcements by the two banks, trading in Albank's stock had surged. The stock was up $1.50 on Thursday in heavy trading, closing at $25, but rumors of the deal were noticeably absent.

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