UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-27650
CATSKILL FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 14-1788465
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
341 MAIN STREET, CATSKILL, NY 12414
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(Address of principal executive offices) (Zip Code)
(518)943-3600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Shares, $.01 par value 4,436,115
----------------------------- ---------------
(Title of class) (outstanding at July 31, 1998)
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
June 30, 1998
INDEX
- -----
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
<S> <C> <C>
Item 1. Consolidated Interim Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1998
(Unaudited) and September 30, 1997 ............................................... 1
Consolidated Statements of Income for the three months and nine months ended
June 30, 1998 and 1997 (Unaudited) ............................................... 2
Consolidated Statements of Changes in Shareholders' Equity for the nine months
ended June 30, 1998 and 1997 (Unaudited) ......................................... 3
Consolidated Statements of Cash Flows for the nine months ended June 30, 1998
and 1997 (Unaudited) ............................................................. 4
Notes to Unaudited Consolidated Interim Financial Statements ..................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ....................................................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....................... 20
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings ................................................................ 23
Item 2. Changes in Securities ............................................................ 23
Item 3. Default on Senior Securities ..................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders .............................. 23
Item 5. Other Information ................................................................ 23
Item 6. Exhibits and Reports on Form 8-K ................................................. 23
Signatures ....................................................................... 24
</TABLE>
<PAGE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(In thousands, except share data)
<TABLE>
<CAPTION>
Assets June 30, 1998 September 30, 1997
------ ------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,485 $ 2,274
Securities available for sale, at fair value 164,052 148,114
Investment securities, at amortized cost:
(Estimated fair value of $3,110 at June 30,
1998, and $8,112 at September 30, 1997) 3,065 8,055
Stock in Federal Home Loan Bank of NY, at cost 1,954 1,762
Loans receivable, net 132,358 124,337
Accrued interest receivable 2,716 2,303
Premises and equipment, net 2,550 2,367
Real estate owned, net 125 248
Other assets 261 159
--------- ---------
Total Assets $ 309,566 $ 289,619
========= =========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 8,570 $ 4,370
Interest bearing 200,874 196,542
--------- ---------
Total Deposits 209,444 200,912
Short-term borrowings 15,880 11,385
Long-term borrowings 10,000 --
Advance payments by borrowers for property
taxes and insurance 2,478 533
Accrued interest payable 142 59
Official bank checks 1,806 3,861
Accrued expenses and other liabilities 1,594 1,092
--------- ---------
Total Liabilities $ 241,344 $ 217,842
--------- ---------
Shareholders' Equity
Preferred stock, $.01 par value; authorized
5,000,000 shares -- --
Common stock, $.01 par value; authorized
15,000,000 shares; 5,686,750 shares issued
at June 30, 1998 and September 30, 1997 57 57
Additional paid-in capital 54,900 54,811
Retained earnings, substantially restricted 36,760 34,915
Common stock acquired by ESOP (4,095) (4,209)
Unearned management recognition plan (MRP) (1,515) (1,856)
Treasury stock, at cost (1,200,635 shares at
June 30, 1998, and 848,244 shares at
September 30, 1997) (19,146) (12,862)
Net unrealized gain (loss) on securities
available for sale, net of taxes 1,261 921
--------- ---------
Total Shareholders' Equity 68,222 71,777
--------- ---------
Total Liabilities and Shareholders' Equity $ 309,566 $ 289,619
========= =========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
1
<PAGE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 2,596 $ 2,496 $ 7,681 $ 7,542
Securities available for sale 2,606 2,411 7,754 6,332
Investment securities 48 157 225 555
Federal funds sold and other 1 1 5 539
Stock in Federal Home Loan Bank of NY 36 27 101 64
----------- ----------- ----------- -----------
Total interest and dividend income 5,287 5,092 15,766 15,032
Interest expense:
Deposits 2,213 2,172 6,642 6,408
Short-term borrowings 220 72 548 74
Long-term borrowings 74 -- 132 --
----------- ----------- ----------- -----------
Total interest expense 2,507 2,244 7,322 6,482
----------- ----------- ----------- -----------
Net interest income 2,780 2,848 8,444 8,550
Provision for loan losses 45 75 144 225
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 2,735 2,773 8,300 8,325
----------- ----------- ----------- -----------
Noninterest income:
Recovery of Nationar loss contingency -- -- -- 100
Service fees on deposit accounts 73 62 206 177
Net securities gains 37 10 90 15
Other income 52 36 125 114
----------- ----------- ----------- -----------
Total noninterest income 162 108 421 406
----------- ----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits 900 773 2,578 2,191
Advertising and business promotion 15 55 104 139
Net occupancy on premises 85 84 256 249
Federal deposit insurance premiums 6 7 20 14
Postage and supplies 83 53 229 185
Outside data processing fees 102 89 299 270
Equipment 46 49 129 140
Professional fees 64 81 168 213
Other real estate expenses, net 1 (22) (58) (43)
Other 167 155 486 478
----------- ----------- ----------- -----------
Total noninterest expense 1,469 1,324 4,211 3,836
----------- ----------- ----------- -----------
Income before taxes 1,428 1,557 4,510 4,895
Income tax expense 454 608 1,606 1,937
----------- ----------- ----------- -----------
Net income $ 974 $ 949 $ 2,904 $ 2,958
=========== =========== =========== ===========
Basic earnings per common share $ .24 $ .21 $ .70 $ .62
Diluted earnings per common share $ .24 $ .21 $ .68 $ .62
Weighted Average Common Shares-Basic 4,002,738 4,455,098 4,139,721 4,753,424
Weighted Average Common Shares-Diluted 4,134,109 4,551,073 4,268,945 4,808,055
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
2
<PAGE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In thousands, except share data) (Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Retained Common Unearned Gain (Loss)
Additional Earnings, Stock Management Treasury on Securities
Paid-in Substantially Acquired by Recognition Stock, AFS, net of
Common Capital Restricted ESOP Plan at Cost taxes Stock Total
-------- -------- ---------- -------- ---------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ 57 $54,811 $34,915 $(4,209) $(1,856) $(12,862) $ 921 $ 71,777
Net Income 2,904 2,904
Dividends paid on common stock (1,030) (1,030)
Allocation of ESOP stock
(11,363 shares) 89 114 203
Purchase of common stock
(356,792 shares) (6,351) (6,351)
Exercise of stock options
(4,401 shares issued, net) (29) 67 38
Amortization of unearned
MRP compensation 341 341
Change in net unrealized gain
(loss) on securities AFS,
net of taxes 340 340
----- ------- ------- ------- ------- -------- ------ --------
Balance at June 30, 1998 $ 57 $54,900 $36,760 $(4,095) $(1,515) $(19,146) $1,261 $ 68,222
===== ======= ======= ======= ======= ======== ====== ========
Balance at September 30, 1996 $ 57 $54,864 $31,984 $(4,436) -- -- $ (88) $ 82,381
Net income 2,958 2,958
Dividends paid on common stock (668) (668)
Allocation of ESOP stock
(11,355 shares) 48 114 162
Grant of restricted shares
under MRP (178,732 shares) (167) (2,234) 2,401 --
Purchase of common stock
(966,976 shares) (14,283) (14,283)
Amortization of unearned MRP
compensation 303 303
Change in net unrealized
gain (loss) on securities AFS,
net of taxes 316 316
----- ------- ------- ------- ------- -------- ------ --------
Balance at June 30, 1997 $ 57 $54,745 $34,274 $(4,322) $(1,931) $(11,882) $ 228 $ 71,169
===== ======= ======= ======= ======= ======== ====== ========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
3
<PAGE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net Income $ 2,904 $ 2,958
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 159 134
Net accretion on securities (25) (134)
Provision for loan losses 144 225
MRP compensation expense 341 303
ESOP compensation expense 302 249
Recovery of Nationar loss contingency -- (100)
Gains on sale of other real estate owned (68) (108)
Gains on sales and calls of securities (90) (15)
Increase in other assets (515) (646)
Collection of deposits held at Nationar -- 183
Write-down on other real estate -- 16
Decrease in accrued expense and other liabilities (1,796) (1,206)
--------- ---------
Net cash provided by operating activities 1,356 1,859
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/calls/paydown of investment securities 5,007 9,015
Net increase in loans receivable (8,417) (1,697)
Capital expenditures, net (342) (618)
Purchase of stock in Federal Home Loan Bank (192) (603)
Purchase of AFS securities (63,855) (101,880)
Proceeds from sale of securities available for sale 13,431 3,041
Proceeds from maturity/calls/paydown of AFS securities 35,151 55,726
Proceeds from sale of other real estate owned 443 531
--------- ---------
Net cash used by investing activities (18,774) (36,485)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of stock options 38 --
Net increase in deposits 8,532 2,503
Net increase in advance payments by borrowers for
property taxes and insurance 1,945 681
Increase in short-term borrowings 4,495 9,415
Increase in long-term borrowings 10,000 --
Cash dividends on common stock (1,030) (668)
Purchase of common stock for treasury (6,351) (14,283)
--------- ---------
Net cash provided (used) by financing activities 17,629 (2,352)
--------- ---------
Net increase (decrease) in cash and cash equivalents 211 (36,978)
Cash and cash equivalents at beginning of period 2,274 39,712
--------- ---------
Cash and cash equivalents at end of period $ 2,485 $ 2,734
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,255 $ 6,483
Taxes 1,640 2,049
Transfer of loans to other real estate owned 252 452
Change in net unrealized gain (loss) on AFS securities, net of change in
deferred tax liability (benefit) of $227 and $211 respectively 340 316
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements
4
<PAGE>
CATSKILL FINANCIAL CORPORATION
Notes to Unaudited Consolidated
Interim Financial Statements
NOTE 1. BASIS OF PRESENTATION
The unaudited consolidated interim financial statements include the accounts
of Catskill Financial Corporation ("Company") and its wholly owned
subsidiary, Catskill Savings Bank ("Bank"). All intercompany accounts and
transactions have been eliminated in consolidation. Amounts in prior
periods' unaudited consolidated interim financial statements are
reclassified whenever necessary to conform to the current period's
presentation. In management's opinion, the unaudited consolidated interim
financial statements reflect all adjustments of a normal recurring nature,
and disclosures which are necessary for a fair presentation of the results
for the interim periods presented and should be read in conjunction with the
consolidated financial statements and related notes included in Catskill
Financial's 1997 Annual Report to Stockholders. The results of operations
for the interim periods are not necessarily indicative of the results of
operations to be expected for the full fiscal year ended September 30, 1998.
NOTE 2. EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share. SFAS
No. 128 supercedes Accounting Principles Board Opinion No. 15, "Earnings per
Share" and related interpretations. SFAS No. 128 requires dual presentation
of basic and diluted earnings per share on the face of the income statement
for all entities with a complex capital structure and specifies additional
disclosure requirements. Basic earnings per share 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 is considered outstanding and included in the computation
of basic earnings per share as of the date they are fully vested. Diluted
earnings per share 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, such as the Company's stock
options and unvested restricted stock. SFAS No. 128 requires restatement of
all prior period earnings per share data presented. Unallocated ESOP shares
are not included in the weighted average number of common shares outstanding
for either the basic or diluted earnings per share calculations. The
adoption of SFAS No. 128 did not have a material effect on the Company's
consolidated financial position or results of operations.
5
<PAGE>
NOTE 2. EARNINGS PER SHARE - CONTINUED
The following sets forth certain information regarding the calculation of
basic and diluted earnings per share (EPS) calculations for the periods
indicated:
<TABLE>
<CAPTION>
Nine months ended June 30,
--------------------------
1998 1997
----------------------------------- -------------------------------------
Weighted Per- Weighted Per-
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
--------- --------- ------ --------- --------- ------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 2,904 4,139,721 $ .70 $ 2,958 4,753,424 $ .62
Dilutive effect of potential common
shares related to stock based
compensation plans -- 129,224 -- 54,631
--------- --------- --------- ---------
Diluted EPS $ 2,904 4,268,945 $ .68 $ 2,958 4,808,055 $ .62
========= ========= ========= =========
<CAPTION>
Three months ended June 30,
---------------------------
1998 1997
----------------------------------- -------------------------------------
Weighted Per- Weighted Per-
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
--------- --------- ------ --------- --------- ------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 974 4,002,738 $ .24 $ 949 4,455,098 $ .21
Dilutive effect of potential common
shares related to stock based
compensation plans -- 131,371 -- 95,975
--------- --------- --------- ---------
Diluted EPS $ 974 4,134,109 $ .24 $ 949 4,551,073 $ .21
========= ========= ========= =========
</TABLE>
6
<PAGE>
NOTE 3. LONG-TERM BORROWINGS
On January 8, 1998, the Bank borrowed $5.0 million at a rate of 5.07%
(actual/360 days basis) under the FHLB's convertible advance program. The
borrowing is secured by GNMA mortgage-backed securities with a carrying
value of approximately $5.4 million. The borrowing has a contractual
maturity of ten (10) years, however, it also includes an option on January
8, 2001, and quarterly thereafter, in which the FHLB can call the debt. The
securities used as collateral for this convertible advance are being held in
safekeeping at the FHLB.
In addition, on June 16, 1998, the Bank borrowed $5.0 million at a rate of
4.95% (actual/360 day basis) from First Union Capital Markets under a
callable reverse repurchase agreement. The borrowing is secured by FHLMC and
FNMA mortgage backed securities with a carrying value of $5.6 million. The
borrowing has a contractual maturity of ten (10) years, however, it also
includes an option on June 16, 1999, and monthly thereafter in which First
Union Capital Markets can call the debt. The securities used as collateral
for this repurchase agreement are being held in safekeeping at First Union
Capital Markets.
NOTE 4. IMPACT OF NEW ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement 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
Postretirement Benefits Other Than Pensions." SFAS No. 132 standardizes the
disclosure requirements of SFAS No. 87 and No. 106 to the extent practicable
and recommends a parallel format for presenting information about pensions
and other postretirements 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 SFAS 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 September 30, 1999, consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management is currently evaluating the impact of this
Statement on the Company's consolidated financial statements.
7
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
June 30, 1998
================================================================================
PART I - FINANCIAL INFORMATION (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Catskill Financial Corporation (the "Company" or "Catskill Financial") was
formed in December 1995 to acquire all of the common stock of Catskill Savings
Bank (the "Bank") upon its conversion from a mutual savings bank to a stock
savings bank. On April 18, 1996, the Company completed its initial public stock
offering, issuing 5,686,750 shares of $.01 par value common stock at $10.00 per
share. Net proceeds to the Company were $54.9 million after conversion costs,
and $50.4 million excluding the shares acquired by the Company's Employee Stock
Ownership Plan (the "ESOP"), which were purchased with the proceeds of a loan
from the Company.
The consolidated financial condition and operating results of the Company are
primarily dependent upon its wholly owned subsidiary, the Bank, and all
references to the Company prior to April 18, 1996, except where otherwise
indicated, are to the Bank.
The Bank has been and continues to be a community oriented financial institution
offering a variety of financial services. The Bank attracts deposits from the
general public and uses such deposits, together with other funds, to originate
one to four family residential mortgages, and, to a lesser extent, consumer
(including home equity lines of credit), commercial, and multi-family real
estate and other loans in its primary market area. The Bank's primary market
area is comprised of Greene County and southern Albany County in New York, which
are serviced through four banking offices, the most recent having opened in
December 1996. The Bank's deposit accounts are insured by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"), and, as a
federal savings bank, the Bank is subject to regulation by the Office of Thrift
Supervision ("OTS").
The Bank's profitability, like many financial institutions, is dependent to a
large extent upon its net interest income, which is the difference between the
interest it receives on interest earning assets, such as loans and investments,
and the interest it pays on interest bearing liabilities, principally deposits.
Results of operations are also affected by the Bank's provision for loan losses,
non-interest expenses such as salaries and employee benefits, occupancy and
other operating expenses and to a lesser extent, non-interest income such as
service charges on deposit accounts.
Financial institutions in general, including the Company, are significantly
affected by economic conditions, competition and the monetary and fiscal
policies of the federal government. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, interest rate
conditions and funds availability. Deposit balances and cost of funds are
influenced by prevailing market rates on competing investments, customer
preference and the levels of personal income and savings in the Bank's primary
market area.
8
<PAGE>
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", "believe", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigations Reform Act of 1995. In addition, certain disclosures and information
customarily provided by financial institutions, such as analysis of the adequacy
of the allowance for loan losses or an analysis of the interest rate sensitivity
of the Company's assets and liabilities, are inherently based upon predictions
of future events and circumstances. Furthermore, from time to time, the Company
may publish other forward-looking statements relating to such matters as
anticipated financial performance, business prospects, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
Some of the risks and uncertainties that may affect the operations, performance,
development and results of the Company's business, the interest rate sensitivity
of its assets and liabilities, and the adequacy of its allowance for loan
losses, include but are not limited to the following:
a. Deterioration in local, regional, national or global economic conditions
which could result, among other things, in an increase in loan delinquencies, a
decrease in property values, or a change in the housing turnover rate;
b. changes in market interest rates or changes in the speed at which market
interest rates change;
c. changes in laws and regulations affecting the financial service
industry;
d. changes in competition; and
e. changes in consumer preferences.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
Total assets were $309.6 million at June 30, 1998, an increase of $20.0 million,
or 6.9% from the $289.6 million at September 30, 1997. The increase in assets
was primarily in securities, and to a lesser extent, loans and was funded
principally by increases in long-term and short-term borrowings and deposits.
9
<PAGE>
Cash and cash equivalents were $2.5 million, an increase of $.2 million, or 8.7%
from the $2.3 million at September 30, 1997. The change was principally from an
increase in vault cash due to the opening of a new full service branch.
Total securities, which include securities held to maturity ("HTM") and
securities available for sale ("AFS"), excluding Federal Home Loan Bank stock,
were $167.1 million, an increase of $10.9 million, or 7.0% over the $156.2
million as of September 30, 1997. The increase in securities consisted of a
$15.9 million increase in AFS securities, primarily due to the Company's
purchase of municipal securities which provided the Company higher tax
equivalent yields with longer call protection and one-year treasury indexed
teaser rate adjustable mortgage-backed securities (ARM's). In addition, the
Company experienced a $5.0 million decrease in HTM securities from scheduled
maturities and calls. Consequently, as of June 30, 1998, 98.2% of the Company's
investment portfolio excluding the Federal Home Loan Bank Stock was classified
as AFS, compared to 94.8% as of September 30, 1997.
Loans receivable were $134.3 million as of June 30, 1998, an increase of $8.1
million or 6.4% over the $126.2 million as of September 30, 1997. The following
table shows the loan portfolio composition as of the respective balance sheet
dates:
June 30, September 30,
1998 1997
--------- ---------
(In thousands)
Real Estate Loans
One-to-four family $ 109,414 $ 102,232
Multi-family and commercial 5,562 4,691
Construction 912 1,306
--------- ---------
Total real estate loans 115,888 108,229
Consumer Loans 18,311 18,410
Commercial Loans 407 63
--------- ---------
Gross Loans 134,606 126,702
Less: Net deferred loan fees (326) (476)
--------- ---------
Total loans receivable $ 134,280 $ 126,226
========= =========
One-to-four family loans increased $7.2 million, or 7.0%, as the Company
aggressively promoted a 15 year fixed rate mortgage product with a preferred
rate for borrowers who have their monthly payments automatically deducted from a
checking account with the Bank.
The increase in multi-family and commercial loans was principally represented by
loans to refinance a stripmall and a fitness complex in the Company's primary
market area, while the decrease in construction loans principally resulted from
seasonal differences as existing construction loans were reclassified as
one-to-four family loans once construction was completed and the loans converted
to an amortizing mortgage.
Commercial loans increased as the Company began offering unsecured lines of
credit to its commercial deposit customers.
10
<PAGE>
Non-performing assets at June 30, 1998 were $.7 million, or .22% of total
assets, compared to the $1.2 million or .40% of total assets at September 30,
1997. The table below sets forth the amounts and categories of the Company's
non-performing assets.
June 30, September 30,
1998 1997
------ ------
(In thousands)
Non-performing loans:
One-to-four family $ 501 $ 780
Multi-family and commercial -- --
Consumer 54 137
------ ------
Total non-performing loans 555 917
------ ------
Foreclosed assets, net:
One-to-four family 125 225
Multi-family and commercial -- 23
------ ------
Total foreclosed assets, net 125 248
------ ------
Total non-performing assets $ 680 $1,165
====== ======
Total non-performing loans
as a % of total loans .41% .73%
Total non-performing assets
as a % of total assets .22% .40%
The decrease in non-performing loans at June 30, 1998 as compared to September
30, 1997 was attributable principally to loan payouts and the foreclosure of
three loans which resulted in the Company acquiring title to the mortgaged
property. The net realizable value of the properties, totalling $252,000, was
transferred to other real estate, and $56,000, representing the excess of the
carrying value of the related loan over the net realizable value of the
property, was charged against the allowance for loan losses. In addition, during
the nine months ended June 30, 1998, the Company sold eight parcels of other
real estate which reduced real estate owned by $375,000. The following table
summarizes the activity in other real estate for the periods presented:
Nine Months Ended June 30,
--------------------------
1998 1997
----- -----
(In thousands)
Other real estate beginning of
period $ 248 $ 357
Transfer of loans to other real
estate owned 252 452
Write-downs -- (16)
Sales of other real estate, net (375) (423)
----- -----
Other real estate end of period $ 125 $ 370
===== =====
11
<PAGE>
The allowance for loan losses was $1.9 million, or 1.43% of period end loans at
June 30, 1998, and provided coverage of non-performing loans of 346.3%, compared
to coverage of 206.0% as of September 30, 1997. The following summarizes the
activity in the allowance for loan losses:
Nine Months Ended June 30,
--------------------------
1998 1997
----- -----
(In thousands)
Allowance at beginning of the period $ 1,889 $ 1,833
Charge-offs (121) (230)
Recoveries 10 34
------- -------
Net charge-offs (111) (196)
Provision for loan losses 144 225
------- -------
Allowance at end of the period $ 1,922 $ 1,862
======= =======
Total deposits were $209.4 million at June 30, 1998, an increase of $8.5
million, or 4.2% from the $200.9 million at September 30, 1997. The following
table shows the deposit composition as of the respective balance sheet dates:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
----------------------------- ------------------------------
(In thousands) % of Deposits (In thousands) % of Deposits
<S> <C> <C> <C> <C>
Savings $ 79,946 38.2% $ 79,448 39.6%
Money market 5,684 2.7 7,115 3.5
NOW 11,783 5.6 10,438 5.2
Non-interest demand 8,570 4.1 4,370 2.2
Certificates of deposits 103,461 49.4 99,541 49.5
-------- ----- -------- -----
$209,444 100.0% $200,912 100.0%
======== ===== ======== =====
</TABLE>
The growth in deposits was principally related to the opening of our fourth and
fifth full service branches in December 1996 and April 1998, respectively, as
deposits at other offices decreased $.2 million since September 30, 1997. The
Company experienced growth in checking accounts, and certificates of deposits,
offset somewhat by a reduction in its money market accounts. The increase in
checking accounts resulted principally from offering employees cash incentives
for new accounts as well as promoting certain loan products at a preferred loan
rate if the customer's payment is directly charged to a checking account. The
increase in CD's is principally from the Company's promotion of a 15-month
product at a premium rate, to retain maturing longer-term CD's and to satisfy
demand in the Company's market for higher yields.
The Company increased its borrowings, which are principally with the Federal
Home Loan Bank of New York ("FHLB"), to $25.9 million at June 30, 1998, an
increase of $14.5 million from the $11.4 million at September 30, 1997. The
additional borrowings were used to fund the Company's stock repurchase program
and the growth in earning assets as the Company continues to leverage its
capital. In January 1998, the Company began converting a portion of its
short-term borrowings to long-term borrowings principally through convertible
(callable) advances. The borrowings are secured by mortgage-backed securities,
and have contractual maturities of ten years, however, they include options,
which give the lender the right to call the debt after a specified lock-out
period. The Company has entered into two such borrowings, each in the amount of
$5 million, which have lock-outs of three and one year, respectively. Short-term
borrowings were $15.9 million at June 30, 1998, an increase of $4.5 million, or
39.5%, from the $11.4 million at September 30, 1997. As of June 30,
12
<PAGE>
1998, the Company still has additional available credit of $2.4 million under
its overnight line and $10.3 million under its one month advance program with
the FHLB.
Shareholders' equity at June 30, 1998 was $68.2 million, a decrease of $3.6
million, or 5.0% from the $71.8 million at September 30, 1997. The decrease was
principally caused by the Company's repurchase of 356,792 of its common shares
at a cost of $6.4 million, somewhat offset by the $1.9 million of net income
retained after cash dividends and a $.3 million change in the Company's net
unrealized gain (loss) on securities available for sale, net of taxes. The
Company also recorded a $.6 million increase in shareholders' equity due to the
amortization of restricted stock awards, the exercise of stock options and the
allocation of shares under the Company's ESOP.
Shareholders' equity as a percent of total assets was 22.0% at June 30, 1998
compared to 24.8% at September 30, 1997. Book value per common share was $15.72
excluding unvested shares of the Company's restricted stock plan ("MRP"), and
was $17.35 excluding unallocated ESOP shares and unvested MRP shares.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
1997
GENERAL
For the three months ended June 30, 1998, the Company recorded net income of
$974,000, an increase of $25,000, or 2.6%, compared to the three month period
ended June 30, 1997. Basic and diluted earnings per share were $.24, an increase
of 14.3% compared to basic and diluted earnings per share of $.21 for the three
months ended June 30, 1997. For the three months ended June 30, 1998, weighted
average common shares - basic were 4,002,738, down 452,360, or 10.2%, due to the
Company's share repurchase programs.
Annualized return on average assets for the three months ended June 30, 1998 and
1997, was 1.29% and 1.37%, respectively, and return on average equity was 5.73%
and 5.29%, respectively.
NET INTEREST INCOME
Net interest income on a full tax equivalent basis for the three months ended
June 30, 1998, was $2.9 million, an increase of $95,000, or 3.3%, when compared
to the three months ended June 30, 1997. The increase was principally volume
related as the Company increased its average earning assets $20.1 million, more
than offsetting the loss of net interest income from the Company funding its
stock repurchase program. The Company funded the share repurchases, along with
its growth in earning assets, principally with borrowings and, to a lesser
extent, deposit growth.
Interest income for the three months ended June 30, 1998 was $5.5 million on a
tax equivalent basis, an increase of $358,000, or 7.0%, over the comparable
period last year. The $20.1 million increase in the average volume of earning
assets had a direct positive effect on interest income as the Company sought to
leverage its excess capital, offset somewhat by a two basis point drop in the
yield on average earning assets.
Average earning assets increased in both the securities and loan portfolios,
which on average grew 9.8% and 4.3%, respectively. Loan growth was principally
due to the promotion of a 15 year fixed rate mortgage product, which increased
volume, but adversely impacted the loan portfolio yield since
13
<PAGE>
the loans were written at rates below the average portfolio yield. In addition,
the Company experienced higher loan prepayments, and refinancing of its existing
portfolio, which caused the yield on the loan portfolio to decrease two basis
points to 7.99%. Average mortgage backed securities were $90.9 million for the
three months ended June 30, 1998, an increase of $6.1 million, or 7.2%, from the
comparable period. The average yield on mortgage-backed securities was 6.63%,
down 48 basis points from the comparable period. The average yield declined 48
basis points, as the Company has been purchasing one year Treasury indexed
teaser rate ARM's, consequently 24.5% of the average mortgage-backed securities
portfolio represent teaser rate ARM's. The teaser ARM's were purchased during
the initial teaser rate period, consequently the initial average interest rate
and yield will be less than the fully indexed rate and yield. The Company had no
teaser ARM's in the comparable period. Management expects the average yield of
these ARM's to increase as they adjust to their fully indexed rate; however, the
actual increase will depend upon the level of the one-year constant maturity
treasury index when the rates adjust. Average other securities increased $8.6
million, or 13.3%, as the Company purchased longer call protected bank qualified
municipal securities to increase yields and reduce reinvestment risk if rates
decline. The average yield on the other securities portfolio for the three
months ended June 30, 1998, was 7.31%, an increase of 62 basis points from the
comparable period, as the Company replaced securities called and/or matured with
higher yielding municipals. Municipal securities now represent 32.0% of average
other securities, compared to less than 1% in the comparable period.
Interest expense for the three months ended June 30, 1998, was $2.5 million, an
increase of $263,000, or 11.7%. The change was principally due to an increase in
the average volume of interest bearing liabilities as the Company only
experienced an increase of 1 basis point in its cost of funds. Average interest
bearing liabilities were $223.9 million, an increase of $23.1 million, or 11.5%,
as the Company borrowed in order to fund the Company's stock repurchase program
and earning asset growth. Average long-term borrowings were up $5.8 million, as
the Company began converting a portion of its short-term borrowings to long-term
borrowings, principally through convertible (callable) advances. There were no
long-term borrowings in the comparable period. Average short-term borrowings
were $15.5 million for the three months ended June 30, 1998, while there were
only $5.0 million of short-term borrowings in the comparable three month period.
In addition, the Company's average CD's increased $6.0 million, or 6.2%, as the
Company's customers continue to move toward higher costing CD's and away from
lower costing deposits. The one basis point increase in the cost of funds was
caused by the increase in the level of borrowings and CD's, which represent the
Company's highest cost funding sources. The Company was able to offset most of
the increase in the change in funding composition by reducing its savings and
now deposit rates. The average rate paid on CD's also increased by 4 basis
points due to competitive pressures and a special 15 month CD program which
offered premium rates.
The Company's net yield on average earning assets was 4.01% for the three months
ended June 30, 1998, down 15 basis points compared to 4.16% for the comparable
period of the prior year. The decrease was principally caused by the Company's
stock repurchase program, which reduced the level of no-cost funding sources,
and consequently increased the amount of average earning assets funded by
interest bearing liabilities. For the three months ended June 30, 1998, the
Company had $70.7 million of average earning assets with no funding costs, a
decrease of $3.0 million, or 4.1%, from the $73.7 million for the three months
ended June 30, 1997. The Company also experienced a 3 basis point decline in its
net spread, as its cost of funds increased one basis point while its yield on
earning assets decreased two basis points. The cost of funds increase was
principally caused by the change in funding mix as average borrowings, one of
the Company's highest cost funding sources,
14
<PAGE>
represented 9.5% of interest bearing liabilities for the three months ended June
30, 1998, compared to only 2.5% for the comparable three month period.
For more information on average balances, interest, yield and rate, please refer
to Table #1, included in this report.
PROVISION FOR LOAN LOSSES
The Company establishes an allowance for loan losses based on an analysis of
risk factors in its loan portfolio. This analysis includes concentrations of
credit, past loan loss experience, current economic conditions, amount and
composition of loan portfolio, estimated fair market value of underlying
collateral, delinquencies and other factors. Accordingly, the calculation of the
adequacy of the allowance for loan losses is not based solely on the level of
non-performing loans.
The provision for loan losses was $45,000 for the three months ended June 30,
1998, a decrease of $30,000 from the comparable period of the prior year. The
decrease is principally attributable to a reduction in net charge-offs to
$29,000 for the three months ended June 30, 1998, down $20,000, or 40.8%,
compared to the comparable quarter of the prior year. In addition, the Company
has reduced its non-performing loans $397,000, or 41.7% since June 30, 1997, so
the allowance represents 346.3% of non-performing loans at June 30, 1998, as
compared to 195.7% as of June 30, 1997.
NON-INTEREST INCOME
Non-interest income was $162,000 for the three months ended June 30, 1998, an
increase of $54,000 or 50.0% from the three months ended June 30, 1997. The
increase was principally higher securities gains and service charge income.
Security gains were $37,000, an increase of $27,000, as the Company recorded
gains on securities called at a premium, as well as net gains realized on
securities sold for balance sheet management purposes. Service fee income was up
$11,000, or 17.7%, principally from the Company's strategy of increasing the
number of non-interest bearing deposit accounts.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended June 30, 1998 was $1,469,000, an
increase of $145,000, or 11.0%, over the comparable period last year,
principally from increased personnel and supply costs, somewhat offset by lower
advertising expenses.
Salaries and employee benefits for the quarter ended June 30, 1998 increased
$127,000, or 16.4%, compared to the period ended June 30, 1997, principally from
higher staffing and ESOP compensation costs as well as the implementation of an
executive supplemental retirement plan. Staffing costs increased approximately
$36,000 from hiring additional staff for our new full service supermarket
branch. In addition, the Company increased its sales staff and implemented
product specific sales incentive programs to target sales and reduce the cost of
its overall advertising program. ESOP compensation increased $13,000, or 15.0%,
due to the higher average market price of the Company's stock. In April 1998,
the Company implemented an Executive Supplemental Retirement Plan, which
restores retirement benefits otherwise capped by the Company's qualified pension
plan. The cost of the new defined contribution plan increased costs
approximately $20,000.
15
<PAGE>
Postage and supplies increased $30,000, or 56.6%, as the Company experienced
start-up costs and other promotional costs related to its new supermarket
branch, which opened in April 1998. Advertising costs were down $40,000, as the
Company implemented a new sales incentive program, and substantially reduced its
print media advertising costs.
INCOME TAX EXPENSE
Income tax expense for the three months ended June 30, 1998, was $454,000, a
decrease of $154,000, or 25.3%, from the comparable period last year. The
Company's effective tax rates for the three months ended June 30, 1998 and 1997,
were 31.79% and 39.05%, respectively. The decreases were principally the impact
of the Company's purchase of tax exempt securities, primarily bank qualified
municipal securities.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
GENERAL
For the nine months ended June 30, 1998, the Company recorded net income of
$2,904,000, a decrease of $54,000 or 1.8%, compared to the nine month period
ended June 30, 1997. The decrease was principally caused by certain
non-recurring items which increased net income in the nine months ended June 30,
1997, by approximately $117,000. Basic and diluted earnings per share were $.70
and $.68 respectively for the nine months ended June 30, 1998, compared to basic
and diluted earnings per share of $.62 for the nine months ended June 30, 1997.
Weighted average common shares - basic for the nine months ended June 30, 1998,
were 4,139,721, a decrease of 613,703 or 12.9% from the 4,753,424 for the
comparable period ended June 30, 1997. The decrease was principally attributable
to the share repurchase programs under which the Company, through June 30, 1998,
had purchased 1,386,268 shares or 24.4% of the shares issued in its initial
public offering. The aggregate cost to the Company was $21.7 million, or an
average of $15.62 per common share repurchased.
Annualized return on average assets for the nine months ended June 30, 1998 and
1997, was 1.32% and 1.42%, respectively, and return on average equity was 5.54%
and 5.19%, respectively.
NET INTEREST INCOME
Net interest income on a full tax equivalent basis for the nine months ended
June 30, 1998, was $8.7 million, an increase of $151,000, or 1.8%, when compared
to the nine months ended June 30, 1997. The increase was primarily volume
related as the Company increased its average earning assets $14.3 million, more
than offsetting the loss of net interest income due to the Company's funding of
its stock repurchase program. The Company funded the cost of the share
repurchases, along with its growth in earning assets principally with borrowings
and, to a lesser extent, deposit growth.
Interest income on a tax equivalent basis for the nine months ended June 30,
1998, was $16.0 million, an increase of $991,000, or 6.6%, over the comparable
nine month period. The increase was principally volume related, with average
earning assets up $14.3 million, or 5.2%. In addition, interest income
benefitted from a deliberate shift of asset mix, as the Company reduced its
average
16
<PAGE>
federal funds and other short-term investments and increased its mortgage-backed
securities portfolio. Average mortgage-backed securities represented 30.9% of
average earning assets for the nine months ended June 30, 1998, compared to
26.4% for the comparable period of the prior year, while federal funds sold and
other declined from 5.0% to less than .1% of average earning assets between the
periods. The average yield on mortgage-backed securities during the nine months
ended June 30, 1998, was 6.83%, down 24 basis points from the comparable period,
but still higher than the yield of 5.34% earned on average federal funds sold in
the nine months ended June 30, 1997. Mortgage-backed securities yields declined
24 basis points principally from the Company's purchase of $25.4 million of
Treasury indexed teaser rate ARM's, which yield much less than the fully indexed
rate. The Company's mortgage backed securities portfolio had no teaser ARM's in
the comparable period. Management expects the average yield of these ARM's to
increase as they adjust to their fully indexed rate; however, the actual
increase will depend upon the level of the one year constant maturity treasury
index when the rates adjust and the securities prepayments. Average other
securities increased $8.4 million, or 13.5%. In addition, the yield on other
securities increased 46 basis points to 7.15%, as the Company has been
purchasing longer call protected municipal securities to increase yields and
reduce reinvestment risk if rates decline.
Interest expense for the nine months ended June 30, 1998, was $7.3 million, an
increase of $840,000, or 13.0%. The increase was principally volume related as
the Company increased average interest bearing liabilities $20.8 million, or
10.6%. The increases were to fund the Company's share repurchase program, as
well as to fund earning asset growth.
Average long-term borrowings were up $3.5 million, as the Company converted a
portion of its short-term borrowings to long-term borrowings principally through
convertible (callable) advances, there were no long-term borrowings in the
comparable nine month period. Average short-term borrowings increased $11.0
million, and now represent 5.9% of average interest bearing liabilities. In
addition, the Company's average CD's increased $7.4 million, or 7.8%, as the
Company's customers continue to move toward higher costing CD's and away from
lower costing deposits, such as savings and money market accounts. The Company
also experienced an increase of 9 basis points in its cost of funds, principally
caused by an increase in the level of borrowings and CD's, which represent the
Company's highest cost funding sources.
The Company's net yield on average earning assets was 4.05% for the nine months
ended June 30, 1998, down 14 basis points compared to 4.19% for the comparable
period of the prior year. The decrease was principally caused by the Company's
stock repurchase program, which reduced the level of no-cost funding sources,
and consequently increased the amount of average earning assets funded by
interest bearing liabilities. For the nine months ended June 30, 1998, the
Company had $71.2 million of average earning assets with no funding costs, a
decrease of $6.5 million, or 8.4%, from the $77.7 million for the comparable
nine month period. The Company did, however, increase its net spread 1 basis
points to 2.91%, as the Company's change in asset mix increased yields on
earning assets more than offsetting the increase in the cost of funds caused by
the change in funding mix to more borrowings, its highest cost funding source.
For more information on average balances, interest, yield and rate, please refer
to Table #2 included in this report.
17
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $144,000 for the nine months ended June 30,
1998, a decrease of $81,000 from the comparable nine month period. The decrease
was primarily the result of a $85,000, or 43.4%, reduction in net charge-offs to
$111,000. In addition, the Company has reduced its non-performing loans
$397,000, or 41.7% since June 30, 1997, so that the allowance now represents
346.3% of non-performing loans at June 30, 1998, as compared to 195.7% as of
June 30, 1997.
NON-INTEREST INCOME
Non-interest income was $421,000 for the nine months ended June 30, 1998, an
increase of $15,000, or 3.7%, from the comparable period. The increase was
principally higher securities gains and service charge income, offset somewhat
by the reduction in Nationar recoveries. The increase in securities gains was
principally gains on securities called at a premium along with net gains
realized on securities sold for various balance sheet management purposes.
Service charges increased principally from the Company promoting non-interest
bearing accounts, which has substantially increased the number of accounts. In
the nine months ended June 30, 1997, the Company recovered $100,000 from its
Nationar reserve, there were no such recoveries in the nine months ended June
30, 1998.
NON-INTEREST EXPENSE
Non-interest expense for the nine months ended June 30, 1998, was $4,211,000, an
increase of $375,000, or 9.8%, over the comparable nine month period. Increases
in personnel and supply costs were somewhat offset by reductions in professional
fees.
Salaries and employee benefits for the nine months ended June 30, 1998,
increased $387,000, or 17.7%, principally from staffing new branches and the
increased cost of the Company's stock based compensation plans. Furthermore,
results for the nine months ended June 30, 1997, benefitted from an insurance
refund, which reduced that period's medical insurance costs. During that period,
the Company changed insurance carriers and received a refund of $95,000 due to
favorable claims experience. There were no such refunds in the comparable period
ended June 30, 1998. Stock based compensation costs increased $91,000, or 16.5%.
ESOP compensation increased $53,000, or 21.3%, due to an increase in the average
market price of the Company's common stock. The cost of the MRP plan increased
$38,000, principally because the plan was only outstanding for a portion of the
nine months ended June 30, 1997, as the plan was approved at a special meeting
of shareholders on October 24, 1996 ("special meeting"), and became effective,
immediately thereafter. Postage and supplies increased $44,000, or 23.8%, as the
Company incurred start-up and other promotional costs related to its new
supermarket branch.
Professional fees were $168,000, a decrease of $45,000, or 21.1%, principally
from the costs associated with the special meeting held in the nine months ended
June 30, 1997; there was no such meeting in the nine months ended June 30, 1998.
INCOME TAX EXPENSE
Income tax expense for the nine months ended June 30, 1998, was $1,606,000, a
decrease of $331,000, or 17.1%, from the comparable nine month period. The
Company's effective tax rates for
18
<PAGE>
the nine months ended June 30, 1998 and 1997, were 35.61% and 39.57%,
respectively. The decrease in the effective tax rate and a portion of the income
tax expense is attributable to the Company's purchase of tax exempt securities,
primarily bank qualified municipal securities and preferred stock. In addition,
income tax expense was down due to the $385,000, or 7.8%, reduction in income
before income taxes in the nine month period ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to generate cash flows to meet present and expected
future funding needs. Management monitors the Company's liquidity position on a
daily basis to evaluate its ability to meet expected and unexpected depositor
withdrawals and to make new loans and or investments. The Company is seeking to
reduce its high level of liquidity, but continues to manage its balance sheet so
there has been no need for unanticipated sales of assets.
The primary sources of funds for operations are deposits, borrowings, principal
and interest payments on loans, mortgage backed securities and other securities
available for sale.
Net cash provided by operating activities was $1.4 million for the nine months
ended June 30, 1998, a decrease of $.5 million from the comparable nine month
period last year. The change was principally the reduction in accrued expenses
and other liabilities caused by a decrease in official bank checks outstanding.
Official bank checks decreased principally as a result of the Company's payment
of real estate taxes for mortgage borrowers using escrowed funds at September
30, 1997, and is somewhat offset by an increase in cash flows from financing
activities, as the Company experienced a net increase in advance payments by
borrowers for taxes and insurance of $1.2 million due to a change in school tax
payment dates.
Investing activities used $18.8 million in the nine months ended June 30, 1998,
as the Company continued to leverage its balance sheet by increasing earning
assets, principally $10.2 million in securities, and $8.4 million in loans.
Financing activities provided $17.6 million, as the Company experienced
increases in deposits, long-term borrowings, short-term borrowings and advances
by borrowers for taxes, somewhat offset by the purchase of treasury stock and
payment of cash dividends on its common stock. For more details concerning the
Company's cash flows, see "Consolidated Statements of Cash Flows."
An important source of the Company's funds is the Bank's core deposits.
Management believes that a substantial portion of the Bank's $209.4 million of
deposits are a dependable source of funds due to long-term customer
relationships. The Company does not currently use brokered deposits as a source
of funds, and as of June 30, 1998, deposit accounts having balances in excess of
$100,000 totaled $22.4 million, or less than 10.7%, of total deposits. The Bank
is required to maintain minimum levels of liquid assets as defined by the OTS
regulations. The requirement, which may be varied by the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The OTS required minimum liquidity ratio is currently
4% and for the month of June 1998, the Bank exceeded that, maintaining an
average liquidity ratio of 8.96%.
The Company anticipates that it will have sufficient funds to meet its current
commitments. At June 30, 1998, the Company had commitments to originate loans of
$4.4 million. In addition, the
19
<PAGE>
Company had undrawn commitments of $2.7 million on home equity and other lines
of credit. Certificates of deposits which are scheduled to mature in one year or
less at June 30, 1998, totaled $74.2 million, and management believes that a
significant portion of such deposits will remain with the Company.
Although there are no minimum capital ratio requirements for the Company, the
Bank is required to maintain minimum regulatory capital ratios. The following is
a summary of the Bank's actual capital amounts and ratios at June 30, 1998,
compared to the OTS minimum capital requirements:
Actual Minimum
------ -------
Amount % Amount %
------ --- ------ ---
(Dollars in Thousands)
Tangible Capital $60,098 19.6% $ 4,596 1.5%
Core Capital 60,098 19.6 12,257 4.0
Risk Based Capital 61,379 56.1 8,569 8.0
In April 1998, the Company notified the OTS of its intent to repurchase up to 5%
or 229,281 shares of its common stock outstanding. The Company, as of June 30,
1998, had repurchased 99,500 shares under the current program, which expires
April 18, 1999. The Company itself has adequate resources to repurchase the
remaining 129,781 shares without dividends from the Bank. Furthermore, at June
30, 1998, the Bank could pay $25.5 million of dividends to the Company after
notifying the OTS in writing.
IMPACT OF YEAR 2000
The Company's progress on its Year 2000 issue is continuing. The Company
received additional guidance from its primary service provider, including a
$25,000 cost to be passed along to the Company as a "validation" fee. The
testing program is quite extensive and will involve end-to-end testing, which is
expected to begin in November 1998. In addition, the Company has now determined
that one of its modules will not be supported for Year 2000 compliance and will
require migrating to upgraded versions. Upgraded programs are available, but
management has not negotiated what these costs will be, however, it does not
expect these costs to have a material impact on its consolidated financial
condition or results of operations. The Company expects its mission critical
systems to be compliant by June 1999, and all others by September 1999.
PART I - FINANCIAL INFORMATION (continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there have been no material changes in the Company's
interest rate risk position since September 30, 1997. Other types of market
risk, such as foreign exchange rate risk and commodity price risk, do not arise
in the normal course of the Company's business activities.
20
<PAGE>
TABLE #1 AVERAGE BALANCES, INTEREST, YIELD AND RATE
The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. Tax
equivalent adjustments reflected principally on municipal securities
totalled $163,000 in the three month period ended June 30, 1998; there were
no tax equivalent adjustments in the comparable period. All average balances
are daily average balances. Non-accruing loans have been included in the
table as loans receivable with interest earned recognized on a cash basis
only. Securities include both the securities available for sale portfolio
and the held to maturity portfolio, other than mortgage backed securities
which are shown separately. Mortgage backed securities are primarily
classified as available for sale. Securities available for sale are shown at
amortized cost.
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
-----------------------------------------------------------------------------------
June 30, 1998 June 30, 1997
---------------------------------------- --------------------------------------
Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans receivable, net $129,976 $ 2,596 7.99% $124,578 $2,496 8.01%
Mortgage-backed securities 90,940 1,507 6.63% 84,819 1,507 7.11%
Other securities 73,637 1,346 7.31% 65,004 1,088 6.69%
Federal funds sold and other 50 1 8.11% 112 1 3.62%
-------- -------- -------- -----
Total interest-earning assets 294,603 5,450 7.40% 274,513 5,092 7.42%
-------- -----
Allowance for loan losses (1,912) (1,854)
Other assets, net 9,130 5,832
-------- --------
Total Assets $301,821 $278,491
======== ========
Interest-Bearing Liabilities
Savings deposits $ 79,426 $644 3.25% $ 79,910 $697 3.50%
Money market 5,978 47 3.15% 7,202 57 3.17%
Now deposits 11,951 68 2.28% 9,625 59 2.46%
Certificates of deposit 102,710 1,440 5.62% 96,729 1,346 5.58%
Short-term borrowings 15,479 220 5.70% 5,024 72 5.75%
Long-term borrowings 5,833 74 5.09% --
Escrow and other 2,532 14 2.22% 2,290 13 2.28%
-------- -------- -------- -----
Total interest-bearing liabilities 223,909 2,507 4.49% 200,780 2,244 4.48%
-------- -----
Non-interest bearing 6,623 4,157
Other liabilities 3,074 1,621
Shareholders' equity 68,215 71,933
-------- --------
Total Equity and Liabilities $301,821 $278,491
======== ========
Net interest income $ 2,943 $2,848
======== ======
Net interest rate spread 2.91% 2.94%
==== ====
Net yield on average
interest-earning assets 4.01% 4.16%
==== ====
Average interest earning
assets to average interest
bearing liabilities 131.57% 136.72%
======== ========
Earning Assets/Total Assets 97.61% 98.57%
======== ========
</TABLE>
21
<PAGE>
TABLE #2 AVERAGE BALANCES, INTEREST, YIELD AND RATE
The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. Tax
equivalent adjustments reflected principally on municipal securities
totalled $257,000 in the six month period ended June 30, 1998; there were no
tax equivalent adjustments in the comparable period. All average balances
are daily average balances. Non-accruing loans have been included in the
table as loans receivable with interest earned recognized on a cash basis
only. Securities include both the securities available for sale portfolio
and the held to maturity portfolio, other than mortgage backed securities
which are shown separately. Mortgage backed securities are primarily
classified as available for sale. Securities available for sale are shown at
amortized cost.
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
-----------------------------------------------------------------------------------
June 30, 1998 June 30, 1997
---------------------------------------- --------------------------------------
Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans receivable, net $127,786 $ 7,681 8.01% $125,090 $7,542 8.04%
Mortgage-backed securities 88,795 4,551 6.83% 72,180 3,828 7.07%
Other securities 70,641 3,786 7.15% 62,255 3,123 6.69%
Federal funds sold and other 74 5 9.03% 13,491 539 5.34%
-------- ------- -------- ------
Total interest-earning assets 287,296 16,023 7.44% 273,016 15,032 7.34%
------- ------
Allowance for loan losses (1,896) (1,837)
Other assets, net 9,174 6,435
-------- --------
Total Assets $294,574 $277,614
======== ========
Interest-Bearing Liabilities
Savings deposits $ 78,773 $ 1,970 3.34% $ 80,940 $2,116 3.50%
Money market 6,438 153 3.18% 7,495 184 3.28%
Now deposits 11,327 203 2.40% 9,320 171 2.45%
Certificates of deposit 101,430 4,281 5.64% 94,072 3,909 5.56%
Short-term borrowings 12,749 548 5.75% 1,715 74 5.77%
Long-term borrowings 3,486 133 5.10% --
Escrow and other 1,897 34 2.40% 1,760 28 2.13%
-------- ------- -------- ------
Total interest-bearing liabilities 216,100 7,322 4.53% 195,302 6,482 4.44%
------- ------
Non-interest bearing 5,361 3,794
Other liabilities 2,979 2,272
Shareholders' equity 70,134 76,246
-------- --------
Total Equity and Liabilities $294,574 $277,614
======== ========
Net interest income $ 8,701 $8,550
======= ======
Net interest rate spread 2.91% 2.90%
==== ====
Net yield on average
interest-earning assets 4.05% 4.19%
==== ====
Average interest earning
assets to average interest
bearing liabilities 132.95% 139.79%
======== ========
Earning Assets/Total Assets 97.53% 98.34%
======== ========
</TABLE>
22
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
JUNE 30, 1998
================================================================================
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company and the Bank are subject to
legal actions which involve claims for monetary relief. Management, based on
advice of counsel, does not believe that any currently known legal actions,
individually or in the aggregate will have a material effect on its consolidated
financial condition or results of operation.
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Employment agreement dated April 1, 1998, by and between Catskill
Financial Corporation and Wilbur J. Cross.
(10.2) Employment agreement dated April 1, 1998, by and between Catskill
Savings Bank and Wilbur J. Cross.
(10.3) Catskill Financial Corporation Supplemental Executive Retirement
Plan.
(10.4) Catskill Financial Corporation Supplemental Executive Retirement
Plan Trust.
(11) Computation of Net Income per Common Share
(27) Financial Data Schedule (included only in EDGAR filing)
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CATSKILL FINANCIAL CORPORATION
Date: August 14, 1998 /s/ Wilbur J. Cross
------------------------------------
Wilbur J. Cross
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 /s/ David J. DeLuca
------------------------------------
David J. DeLuca
Chief Financial Officer
(Principal Financial and
Accounting Officer)
24
Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1st day of April, 1998, by and between Catskill Financial Corporation, a
corporation organized and operating under the laws of the State of Delaware and
having an office at 341 Main Street, Catskill, New York 12414 (the "Company"),
and Wilbur J.Cross, residing at 45 Prospect Avenue, Catskill, New York 12414.
WHEREAS, Mr. Cross currently serves the Company as President and Chief
Executive Officer; and
WHEREAS, in order to secure Mr. Cross' continued services, the Board of
Directors of the Company (the "Board") has approved and authorized the execution
of this Agreement; and
WHEREAS, Mr. Cross is willing to continue to make his services
available to the Company on the terms and conditions set forth herein; and
WHEREAS, on or about even date, Mr. Cross and Catskill Savings Bank
(the "Bank") entered into an Employment Agreement (the "Bank Employment
Agreement"); and
WHEREAS, the Company is a savings and loan holding company of which the
Bank is a wholly owned subsidiary.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto hereby agree as follows:
1. EMPLOYMENT. The Company hereby continues the employment of Mr. Cross
as its President and Chief Executive Officer, and Mr. Cross hereby accepts such
continued employment, during the period and upon the terms and conditions set
forth in this Agreement.
<PAGE>
2. EMPLOYMENT PERIOD, TERMS AND CONDITIONS. The employment period,
terms and conditions of this Agreement shall be identical to those in the Bank
Employment Agreement unless explicitly superseded or expanded upon by this
Agreement.
3. COMPENSATION AND BENEFITS. The compensation and benefits payable to
Mr. Cross under this Agreement and under the Bank Employment Agreement shall not
be: (a) duplicative but, rather, the Bank shall be primarily responsible for the
payments called for in the Bank's Employment Agreement and the Company hereby
guarantees performance of such obligations by the Bank; or (b) limited by
paragraph 8 of the Bank Employment Agreement.
4. EXCISE TAX INDEMNIFICATION.
(a) This Section 4 shall apply if Mr. Cross' employment is terminated
in circumstances giving rise to liability for excise taxes under Section 4999 of
the Internal Revenue Code of 1986 (the "Code"). If this Section 4 applies, then,
if for any taxable year, Mr. Cross shall be liable for the payment of an excise
tax under Section 4999 of the Code with respect to any payment in the nature of
compensation made by the Company or the Bank to (or for the benefit of) Mr.
Cross, the Company shall pay to Mr. Cross an amount equal to X determined under
the following formula:
E x P
X = _______________________________
1-[(FI x (1 - SLI) + SLI + EM]
where
E = the rate at which the excise tax is
assessed under Section 4999 of the Code;
P = the amount with respect to which
such excise tax is assessed, determined
without regard to this Section 4;
FI = the highest marginal rate of income
tax applicable to Mr. Cross under the
Code for the taxable year in question;
2
<PAGE>
SLI = the sum of the highest marginal rates
of income tax applicable to Mr. Cross
under all applicable state and local
laws for the taxable year in question;
and
M = the highest marginal rate of Medicare
tax applicable to Mr. Cross under
the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Cross under the terms of this Agreement, or otherwise,
and on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 4(a) shall be made to Mr. Cross on the
earlier of (i) the date the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by Mr. Cross.
(b) Notwithstanding anything in this Section 4 to the contrary, in the
event that Mr. Cross' liability for the excise tax under Section 4999 of the
Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in Section 4(a), Mr. Cross or the Company, as the case may be, shall
pay to the other party at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under Section 4(a), when increased by the amount of the payment made to Mr.
Cross under this Section 4(b) by the Company, or when reduced by the amount of
the payment made to the Company under this Section 4(b) by Mr. Cross, equals the
amount that should have properly been paid to Mr. Cross under Section 4(a). The
interest paid under this Section 4(b) shall be determined at the rate provided
under Section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if
any, was paid to Mr. Cross under this Section 4, Mr. Cross shall furnish to the
Company a copy of each tax return which reflects a liability for an excise tax
payment made by the Company, at least 20 days before the date on which such
return is required to be filed with the Internal Revenue Service.
3
<PAGE>
(c) The provisions of this Section 4 are designed to reflect the
provisions of applicable federal, state and local tax laws in effect on the date
of this Agreement. If, after the date hereof, there shall be any change in any
such laws, this Section 4 shall be modified in such manner as Mr. Cross and the
Company may mutually agree upon if and to the extent necessary to assure that
Mr. Cross is fully indemnified against the economic effects of the tax imposed
under Section 4999 of the Code or any similar federal, state or local tax.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Mr. Cross has hereto set his hand, all as of the day and year first
above written.
/s/ Wilbur J. Cross
-------------------------------------
WILBUR J. CROSS
Chairman/President/CEO
WITNESS:
/s/ David L. Guldenstern
-------------------------------------
DAVID L. GULDENSTERN
VP/Secretary
CATSKILL FINANCIAL CORPORATION
By /s/ Allan Oren
-------------------------------------
Director
ATTEST:
/s/ David L. Guldenstern
- ----------------------------------
VP/Secretary
4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1st day of April, 1998, by and between Catskill Savings Bank, a stock
savings bank organized and operating under the laws of the United States and
having its executive office at 341 Main Street, Catskill, New York 12414
(hereinafter referred to as the "Bank"), and Wilbur J. Cross, residing at 45
Prospect Avenue, Catskill, New York 12414.
WHEREAS, Mr. Cross is currently serving as President and Chief
Executive Officer of the Bank pursuant to an Employment Agreement dated April 1,
1996;
WHEREAS, certain deficiencies have been identified in such 1996
Employment Agreement which the parties agree are inequitable; and
WHEREAS, the Board of Directors of the Bank (the "Board") believes it
is in the best interests of the Bank to enter into this Agreement with Mr. Cross
in order to correct such deficiencies, assure continuity and reinforce and
encourage the continued attention and dedication of Mr. Cross to his assigned
duties without distraction; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement and Mr. Cross is agreeable thereto.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations of the parties hereto hereinafter set forth, it is agreed as
follows:
<PAGE>
1. DEFINITIONS.
(a) The term "Change in Control" means: (1) an event of a nature that
(i) results in a change in control of the Bank or of Catskill Financial
Corporation, the Delaware corporation which owns all of the Bank's stock (the
"Holding Company"), within the meaning of the Home Owners' Loan Act of 1993 and
12 C. F. R. Part 574 as in effect on the date hereof; or (ii) would be required
to be reported in response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly of securities of the Bank or the Holding Company representing 25% or
more of the Bank's or the Holding Company's then outstanding securities; (3)
individuals who are members of the board of directors of the Bank or the Holding
Company on the date hereof (each the "Incumbent Board") cease, for any reason,
to constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Bank or the
Holding Company or a similar transaction in which the Bank or the Holding
Company is not the resulting entity. The term "Change in Control" shall not
include an
2
<PAGE>
acquisition of securities by: (1) the trustee of an employee benefit plan of the
Bank or the Holding Company; (2) a corporation owned, directly or indirectly, by
the stockholders of the Holding Company in substantially the same proportions as
their ownership of stock of the Holding Company; or (3) Mr. Cross, or any group
otherwise constituting a person in which Mr. Cross is a member.
(b) The term "Commencement Date" means April 1, 1998.
(c) The term "Date of Termination" means the date upon which Mr. Cross
ceases to serve as President and Chief Executive Officer of the Bank.
(d) The term "Voluntary Termination" means termination of the
employment by Mr. Cross by resignation upon 90 days written notice but shall not
include resignation following a Change in Control (see subparagraph 1(e) below),
or material breach of this Agreement (see subparagraph 1(e) below) or
disability.
(e) The term "Involuntarily Termination" means termination of the
employment of Mr. Cross by the Bank for any reason other than those reasons
which constitute Termination for Cause (see subparagraph 1(f),(below).
Involuntarily Termination shall also include termination of the employment by
Mr. Cross as a result of his resignation, upon 30 days written notice, following
a Change in Control or material breach of this Agreement such as a material
diminution or interference with his duties, responsibilities and benefits as
President and Chief Executive Officer of the Bank, including (without
limitation) any of the following actions unless consented to in writing by Mr.
Cross: (1) a change in the principal workplace of Mr. Cross to a location (i)
outside of a 30 mile radius from the 341 Main Street, Catskill, New York or (ii)
other
3
<PAGE>
than the Bank's executive office; (2) a material demotion of Mr. Cross; (3) a
material reduction in the number or seniority of other Bank personnel reporting
to Mr. Cross or a material reduction in the number or frequency with which, or
in the nature of the matters with respect to which, such personnel are to report
to Mr. Cross, other than as part of a Bank- or Holding Company-wide reduction in
staff; (4) a material adverse change in Mr. Cross' salary, perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all members of the senior
management of the Bank or the Holding Company; (5) a material permanent increase
in the required hours of work or the workload of Mr. Cross; and (6) a material
reduction in the support services and facilities available to Mr. Cross in
connection with his performance of his duties and responsibilities.
(f) The term "Termination for Cause" means termination of the
employment of Mr. Cross because of his personal dishonesty, incompetence,
willful misconduct, breach of a fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Mr. Cross shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution, duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice to Mr. Cross and an opportunity for him, together with his
counsel, to be heard before the Board), stating that, in the good faith opinion
of the Board, Mr. Cross has
4
<PAGE>
engaged in conduct described in this subparagraph 1(f), and specifying the
particulars thereof in detail.
2. TERM. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (1) the
Bank has not given notice in writing to Mr. Cross at least 90 days prior to such
anniversary that the term of this Agreement shall not be extended further; and
(2) prior to such anniversary, the Board of the Bank explicitly reviews ad
approves the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. EMPLOYMENT.
(a) Mr. Cross is employed as President and Chief Executive Officer the
Bank and, except to the extent allowed under subparagraph 3(b), below, shall
devote his full business time and attention to the business and affairs of the
Bank and the Holding Company and use his best efforts to advance their
interests. He shall render such administrative and management services as are
customarily performed by persons situated in similar executive capacities, and
shall have such other powers and duties, not inconsistent with his title and
office, as the Board may prescribe from time to time. Mr. Cross shall have such
authority as is necessary or appropriate to carry out his assigned duties and
shall report directly to the Board.
5
<PAGE>
(b) Mr. Cross may engage in personal business and investment activities
for his own account and serve as a member of the board of directors of such
business, community and charitable organizations as he may disclose, in advance,
to the Board from time to time so long as such activities and services do not
materially interfere with the performance of his duties under this Agreement or
involve entities which either compete with the Bank or may be reasonably
expected to negatively impact on the Bank's standing and reputation in the
community it serves.
4. COMPENSATION.
(a) SALARY. The Bank agrees to pay Mr. Cross during the term of this
Agreement, not less frequently than monthly, the salary established by the
Board, which shall be at least equal to Mr. Cross' salary in effect as of the
Commencement Date. The amount of Mr. Cross' salary shall be reviewed by the
Board, at least annually beginning not later than the first anniversary of the
Commencement Date. Adjustments in salary or other compensation shall not limit
or reduce any other obligation of the Bank under this Agreement. Mr. Cross'
salary in effect from time to time during the term of this Agreement shall not
thereafter be reduced. At each anniversary of the commencement date following a
Change in Control, Mr. Cross' salary shall be increased at least by multiplying
it by the greater of: (1) the quotient of (i) the U.S. Department of Labor
Consumer Price Index for all Urban Consumers (N.Y.-Northeastern N.J.) for
January of the then current calendar year divided by (ii) the U.S. Department of
Labor Consumer Price Index for all Urban Consumers (N.Y.-Northeastern N.J.) for
January of the immediately preceding calendar year; and (2) the quotient of (i)
the average annual rate of salary, determined as of the first business day of
such calendar year, of the officers of the Bank (other than Mr. Cross) who are
6
<PAGE>
assistant vice president or more senior officers, divided by (ii) the average
annual rate of salary, determined as of the first business day of the
immediately preceding calendar year, of the officers of the Bank (other than Mr.
Cross) who are assistant vice presidents or more senior officers.
(b) Discretionary Bonuses. Mr. Cross shall be entitled to participate
in an equitable manner with all other executive officers of the Bank in such
discretionary bonuses as are authorized and declared by the Board to its
executive employees. No other compensation provided for in this Agreement shall
be deemed to substitute for Mr. Cross' right to participate in such bonuses when
and as declared by the Board.
(c) Expenses. Mr. Cross shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him in performing services
under this Agreement in accordance with the policies and procedures applicable
to executive officers of the Bank, provided that he accounts for such expenses
as required under such policies and procedures.
5. BENEFITS.
(a) PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS. Mr. Cross
shall be entitled to participate in all plans relating to pension, thrift,
profit-sharing, group life and disability insurance, medical and dental
coverage, education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
7
<PAGE>
(b) Fringe Benefits. Mr. Cross shall be eligible to participate in, and
receive benefits under, any fringe benefit plans which are or may become
applicable to the Bank's executive officers.
6. VACATIONS, LEAVE. Mr. Cross shall be entitled to annual paid
vacation in accordance with the policies established by the Board for executive
officers and to voluntary leaves of absence, with or without pay, from time to
time, at such times and upon such conditions as the Board may determine in its
discretion.
7. TERMINATION OF EMPLOYMENT.
(a) INVOLUNTARY TERMINATION. The Board may terminate Mr. Cross'
employment at any time. In the event of Involuntary Termination other than in
connection with a Change in Control, the Bank shall, during remaining term of
this Agreement, (1) pay to Mr. Cross, his salary at the rate in effect
immediately prior to the Date of Termination, payable in such manner and at such
times as such salary would have been payable under Section 4 if Mr. Cross had
continued to be employed by the Bank, (2) provide to Mr. Cross substantially the
same life, health and disability insurance benefits as the Bank maintained for
its executive officers immediately prior to the Date of Termination reduced by
the amount of any such insurance benefits provided to Mr. Cross by a subsequent
employer, and (3) provide to Mr. Cross such other benefits, if any, to which he
and his family and dependents would have been entitled as a former officer or
the family or dependents of a former officer under the employee benefit plans
and programs maintained for the benefit of the Bank's officers in accordance
with the terms of such plans and programs in effect immediately prior to the
Date of Termination.
8
<PAGE>
(b) TERMINATION FOR CAUSE. In the event of Termination for Cause, the
Bank shall (1) pay Mr. Cross his salary and benefits through the Date of
Termination, (2) pay him for unused vacation days, and (3) have no further
obligations to him under this Agreement.
(c) VOLUNTARY TERMINATION. Mr. Cross' employment may be voluntarily
terminated by him at any time by resignation. In the event of such Voluntary
Termination, the Bank shall be obligated to (1) pay to Mr. Cross his salary and
benefits through the Date of Termination, (2) pay him for unused vacation days,
and (3) have no further obligations to him under this Agreement.
(d) CHANGE IN CONTROL. In the event of Involuntary Termination in
connection with or within 12 months after a Change in Control, the Bank shall,
subject to paragraph 8 of this Agreement, (1) pay to Mr. Cross an amount equal
to 299% of his "base amount" as defined in 26 U.S.C. Section 28OG which payment
shall be made in the three equal installments, the first within 10 days after
the Date of Termination, the second on the fifth business day of January of the
next succeeding calendar year and the third on the fifth business day of January
of the second succeeding calendar year, (2) provide to Mr. Cross during the
remaining term of this Agreement substantially the same life, health and
disability insurance benefits as the Bank maintained for its executive officers
immediately prior to the Date of Termination, and (3) provide to Mr. Cross such
other benefits, if any, to which he and his family and dependents would have
been entitled as a former officer or the family or dependents of a former
officer under the employee benefit plans and programs maintained for the benefit
9
<PAGE>
of the Bank's officers in accordance with the terms of such plans and programs
in effect immediately prior to the Date of Termination.
(e) DEATH; DISABILITY. In the event of the death of the Mr. Cross
during the term of this Agreement, within 60 days following such death his
estate, or such person(s) as he may have designated in writing, shall be
entitled to receive from the Bank a death benefit, payable through life
insurance or otherwise, which is equal to two times Mr. Cross' then current
salary. If Mr. Cross becomes disabled as defined in the Bank's then current
disability plan, if any, or if he is otherwise unable to serve as President and
Chief Executive Officer, this Agreement shall continue in full force and effect,
except that the salary paid to Mr. Cross shall be reduced by any disability
insurance payments made to him on policies of insurance maintained by the Bank
at its expense. In addition, in the event of the death or disability of Mr.
Cross during the term of this Agreement, Mr. Cross and his family and dependents
(in the event of disability) and his family and dependents (in the event of
death) shall be provided with such benefits as they would have been entitled as
a former officer or the family or dependents of a former officer under the
employee benefit plans and programs maintained for the benefit of the Bank's
officers in accordance with the terms of such plans and programs in effect
immediately prior to the death or disability.
(f) TEMPORARY SUSPENSION OR PROHIBITION. If Mr. Cross is suspended
and/or temporarily prohibited from participating in the conduct of the Bank's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12
U.S.C. Section 1818(e)(3) and (g)(1), the Bank's obligations under this
Agreement, other than those which have vested,
10
<PAGE>
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (1) pay Mr. Cross all or part of the compensation withheld while its
obligations under this Agreement were suspended and (2) reinstate in whole or in
part any of its obligations which were suspended.
(g) PERMANENT SUSPENSION OR PROHIBITION. If Mr. Cross is removed and/or
permanently prohibited from participating in the conduct of the Bank's affairs
by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C.
Section 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(h) DEFAULT OF THE BANK. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) TERMINATION BY REGULATORS. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Bank by the Director
of the Office of Thrift Supervision (the "Director") or his or her designee, at
the time: (1) the Federal Deposit Insurance Corporation enters into an agreement
to provide assistance to or on behalf of the Bank under the authority contained
in Section 13(c) of the FDIA; or (2) the Director or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank; or (3) the Director or his or her designee determines the Bank to be in an
11
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unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
8. CERTAIN REDUCTION OF PAYMENTS BY THE BANK. Notwithstanding any other
provision of this Agreement, if payments under this Agreement, together with any
other payments received or to be received by Mr. Cross in connection with a
Change in Control would cause any amount to be nondeductible by the Bank for
federal income tax purposes pursuant to 26 U.S.C. Section 28OG, then benefits
under this Agreement shall be reduced (not less than zero) to the extent
necessary so as to maximize payments to Mr. Cross without causing any amount to
become nondeductible by the Bank. Mr. Cross shall determine the allocation of
such reduction among payments to him.
9. NO MITIGATION. Mr. Cross shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
Mr. Cross as the result of employment by another employer unless explicitly
stated herein, by retirement benefits after the Date of Termination or
otherwise.
10. ATTORNEYS FEES. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Paragraph 17 that cause did not exist for such
termination, or if it is determined by a court or arbitrator that the Bank has
failed to meet any of its obligations or abide by any of the terms of this
Agreement, Mr. Cross shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred in challenging such termination or
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enforcing such obligations or terms. Such reimbursement shall be in addition to
all rights to which Mr. Cross is otherwise entitled under this Agreement.
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to Mr. Cross, to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle Mr. Cross to compensation from
the Bank in the same amount and on the same terms as the compensation pursuant
to Paragraph 7(d) hereof. For purposes of implementing the provisions of this
Paragraph 11(a), the date on which any such succession becomes effective shall
be deemed the Date of Termination.
(b) This Agreement and all rights of Mr. Cross hereunder shall inure to
the benefit of and be enforceable by his personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Mr. Cross should die while any amounts would still be payable
to him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
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<PAGE>
his devisee, legatee or other designee or if there is no such designee, to his
estate.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, if to the Bank at its executive
office, to the attention of the Board with a copy to the Secretary of the Bank,
or, if to Mr. Cross, to his home at the address stated above, unless notice of a
change of address has been given pursuant hereto.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. HEADINGS. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. WAIVER. Failure, by either party, to insist on strict compliance
with any of the terms or conditions hereof shall not be deemed a waiver of such
term or condition.
17. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New York.
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18. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Attest: CATSKILL SAVINGS BANK
/s/ David L. Guldenstern By: /s/ Allan Oren
- ------------------------------ ---------------------------
VP/Secretary DIRECTOR
WITNESS:
/s/ David L. Guldenstern /s/ Wilbur J. Cross
- ------------------------------ ---------------------------
VP/Secretary WILBUR J. CROSS
Chairman/President/CEO
15
Exhibit 10.3
THE CATSKILL FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As adopted effective April 1, 1998)
This Plan is adopted by CATSKILL FINANCIAL CORPORATION (the
"Employer").
WITNESSETH:
WHEREAS, the Employer desires to establish an unfunded nonqualified
deferred compensation plan for a select group of its management and/or highly
compensated employees, to be know as the CATSKILL FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Plan");
NOW, THEREFORE, the Plan is hereby adopted, effective as of April 1,
1998, with the following benefits, terms and provisions:
ARTICLE I
PURPOSE
The purpose of this Plan is to provide certain Employees designated by
the Employer as eligible to participate herein with a supplemental deferred
compensation plan which is nonqualified and unfunded.
ARTICLE II
DEFINITIONS
Unless the context clearly otherwise requires, the following terms
shall have the meanings given to them below:
2.1 "Account" means, for each Participant, the bookkeeping account
established hereunder. A Participant's Account shall be comprised of two
sub-accounts, the Participant's Elective Account and the Participant's
Non-Elective Account.
2.2 "Beneficiary" means a person to whom a share of a deceased
Participant's Vested Benefit is payable, pursuant to the provisions of Section
3.4(e). For purposes of this Plan, a Participant's Beneficiary shall be the
Participant's spouse, if surviving, and the Participant's children equally, if
the Participant shall leave no spouse surviving; provided, however, that a
Participant may change his Beneficiary at any time upon notice in writing, in a
form approved by the Committee, and delivered to the Committee.
<PAGE>
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Employer's Compensation Committee or such
other committee designated by the Employer to administer the Plan on behalf of
the Employer.
2.5 "Compensation" means, with respect to any Participant, the total
remuneration received by the Participant from the Employer during the Plan Year
prior to any reductions under this Plan.
2.6 "Disability" means a physical or mental condition of a Participant
resulting from bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment with the Employer.
The Disability of a Participant shall be determined by a licensed physician
chosen by the Committee. The standard of determination shall be applied
uniformly to all Participants.
2.7 "Elective Account" means, for each Participant, the portion of the
Participant's Account attributable to Compensation electively deferred by the
Participant pursuant to Section 3.1 below.
2.8 "Eligible Employee" means an Employee who the Employer designates
is eligible to participate in this Plan. Each Eligible Employee shall be
identified on Schedule A.
2.9 "Employee" means any person who is employed by the Employer.
2.10 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.11 "Employer" means Catskill Financial Corporation, and any affiliate
which shall adopt this Plan and any successor which shall maintain this Plan.
2.12 "Entry Date" means, with respect to any Employee, the date the
Employee begins to participate in the Plan, which date shall be not later than
30 days after the date the Employer first designates the Employee as being an
Eligible Employee.
2.13 "Non-Elective Account" means, for each Participant, the portion of
the Participant's Account attributable to non-elective deferred compensation
provided pursuant to Section 3.2 below.
2.14 "Participant" means an Eligible Employee who has accrued a benefit
hereunder. A person who becomes a Participant shall remain a Participant
hereunder until he (or his Beneficiary) has received his entire Vested Benefit
in accordance with Section 3.4 below.
2
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2.15 "Plan" means this instrument and all amendments thereto, which
shall be known as the Catskill Financial Corporation Supplemental Executive
Retirement Plan.
2.16 "Plan Year" means the 12-month period beginning January 1 and
ending December 31st.
2.17 "Qualified Plan" means the employee stock ownership plan sponsored
by the Employer, as amended from time to time, which the Employer intends to
qualify for favorable tax treatment under Code Section 401(a).
2.18 "Retirement" means the date as of which a Participant retires for
reasons other than death or Disability, whether such retirement occurs on or
after a Participant's normal retirement date (attainment of age 65), or on or
after any early retirement date established by uniform nondiscriminatory rule of
the Committee.
2.19 "Schedule A" means the Schedule A, attached hereto and by this
reference made a part hereof, as amended or supplemented from time to time by
the Employer.
2.20 "Unforeseeable Emergency" means, with respect to any Participant,
an unanticipated emergency that is caused by an event beyond the control of the
Participant (or Participant's Beneficiary, as the case may be) and that would
result in severe financial hardship to the individual if an early distribution
of benefits hereunder were not permitted. It is intended that the definition
provided in the preceding sentence comply with the definition of "unforeseeable
emergency" provided for in Section 3.01 of Rev. Proc. 92-65.
2.21 "Vested" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
2.22 "Vested Benefit" means, with respect to any Participant, the
Vested portion of the Participant's Account.
2.23 "Year of Service" shall have the same meaning under this Plan as
defined in the Qualified Plan. For vesting and all other purposes, Years of
Service under this Plan shall be determined in the same manner as under the
Qualified Plan.
ARTICLE III
DEFERRALS, INVESTMENTS AND DISTRIBUTIONS
3.1 ELECTIVE DEFERRALS BY PARTICIPANTS. The provisions of this Section
3.1 shall apply to a particular Eligible Employee only if specifically
authorized by the Employer.
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(a) An Eligible Employee may elect to defer annually the receipt of an
amount of Compensation otherwise payable to him by the Employer in any calendar
year.
(b) An election to defer Compensation shall be made by a notice in
writing, in a form approved by the Committee, signed by the Eligible Employee,
and delivered to the Committee (1) prior to the January 1 of the calendar year
in which the Compensation to be deferred is otherwise payable to the Participant
or (2) prior to a Participant's Entry Date for the Participant's first year of
participation and covering Compensation payable to the Participant after such
Entry Date. Such election form shall include the elections described in Section
3.3 below (relating to deemed investment elections) and Section 3.4 below
(relating to the time and manner of payment). Such election (and any subsequent
election) will continue until suspended or modified in writing in a form
approved by the Committee and delivered to the Committee, which new election
shall only apply to Compensation otherwise payable to the Participant after the
end of the calendar year in which such election is delivered to the Committee.
Any deferral election made by the Participant shall be irrevocable with respect
to any Compensation covered by such election, including the Compensation payable
in the calendar year in which the election suspending or modifying the prior
election is delivered to the Committee.
(c) The amount of a Participant's Compensation deferred pursuant to
this Section 3.1 above shall be credited to the Participant's Elective Account.
A Participant shall always be fully (100%) Vested in his or her Elective
Account.
3.2 NON-ELECTIVE DEFERRALS BY EMPLOYER.
(a) Subject to the eligibility requirements set forth in Section 3.2(b)
below, there shall be credited to each Participant's Non-Elective Account for a
Plan Year such amount, if any, as shall be determined by the Employer in its
sole and absolute discretion. The Employer may, under this Section 3.2(a),
declare non-elective deferred compensation on an individual Participant basis,
or on behalf of several Participants as a class, for a single Plan Year or as a
recurring benefit for any number of Plan Years, all on such terms as the
Employer shall, in its sole and absolute discretion, determine.
(b) A Participant shall be eligible to receive a credit pursuant to
Section 3.2(a) above only if the Employer, in its sole and absolute discretion,
designates the Participant as being eligible for the credit.
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(c) Unless otherwise specified in Schedule A, the Vested portion of any
Participant's Non-Elective Account shall be a percentage of the total amount
credited to the Participant's Non-Elective Account determined on the basis of
the Participant's number of Years of Service according to the following
schedule:
Vesting Schedule
Years of Service Percentage
Less than 5 0%
5 100%
(d) The Employer may provide benefit restoration benefits and/or any
other benefits to any Participant under this Section 3.2(d) by setting forth in
Schedule A, the terms of such benefits and the identity of the Participants
eligible to receive such benefits. Any benefits provided pursuant to the
preceding sentence shall be credited to the subject Participant's Non-Elective
Account, unless otherwise specified in Schedule A.
3.3. EARNINGS ON ACCOUNTS. A Participant shall be entitled to elect a
return on the value of his Account based on the returns of one or more
investment options then authorized by the Committee for this Plan. Each
Participant shall make an election of return at the time he makes an election to
defer compensation hereunder. Each Participant's Account shall be credited with
gains or losses based on the performance of the investment options elected by
such Participant pursuant to uniform nondiscriminatory rules adopted by the
Committee.
3.4 DISTRIBUTIONS.
(a) At the time a Participant elects to defer such Compensation
pursuant to Section 3.1 above, the Participant shall designate the time and the
manner for the payment of the amounts to be thereby allocated to such
Participant's Elective Account with respect to such deferral of Compensation.
Except as otherwise provided below, payment of the portion of a Participant's
Elective Account attributable to such deferral shall commence upon the fixed
date designated by the Participant, subject to such restrictions and/or
limitations as may be imposed by the Committee.
(b) Subject to any elections a Participant may make pursuant to Section
3.4(c) below, the Vested portion of the Participant's Non-Elective Account shall
be paid to the Participant in quarterly installments over a five year period,
with the first quarterly installment being due within 30 days following the date
the Participant's employment with the Employer terminates. The amount of each
quarterly installment shall be determined by multiplying the Vested portion of
the Participant's Non-Elective Account by a fraction, the numerator of which is
one (1) and the denominator of which is the number of installments remaining to
be paid from the Participant's Non-Elective Account. Notwithstanding the
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<PAGE>
foregoing, the amount of any quarterly installment paid to a Participant
pursuant to this Section 3.4(b) shall in no event be less than $5,000.
(c) A Participant may elect, in such form and manner as may be
prescribed by the Committee, that all or any portion of the Participant's Vested
Benefit be distributed commencing on one or more dates in lieu of the date(s)
initially selected or required hereunder, and/or in one or more forms of payment
in lieu of the form(s) initially selected or required hereunder, provided that
any such election is made at least 24 months prior to the earlier of (1) the
date such payments would otherwise commence (other than on account of an
Unforeseeable Emergency) or (2) the date the Participant's employment with the
Employer terminates.
(d) A Participant may also elect, to the extent permitted by the
Committee, that an amount up to the entire amount of the Participant's Vested
Benefit be distributable in the case of an Unforeseeable Emergency. Any early
distribution approved by the Committee under this Subsection (d) shall be
limited to the amount necessary to meet the Unforeseeable Emergency.
(e) If a Participant should die before his entire Vested Benefit has
been paid in accordance with the provisions of this Plan, the remaining balance
of such Vested Benefit shall be distributable to the Participant's Beneficiary
in a single lump sum payment within 30 days following the date of the
Participant's death, if practicable, but in no event more than 90 days following
the date of death.
(f) Notwithstanding anything herein to the contrary, the Committee, in
its sole discretion, may delay the distribution of any amounts payable to any
Participant or Beneficiary to the extent (but only to the extent) the Committee
determines that payment of such amount would not be deductible by the Employer
for federal income tax purposes solely by reason of the application of Code
Section 162(m) (relating to limitations on deductions with respect to
remuneration in excess of $1,000,000 paid to certain executives); provided that,
to the extent payment of any amount is so delayed, such payment shall be made at
the earliest time the Committee determines that the deduction for federal income
tax purposes of such payment by the Employer would not be limited by reason of
Code Section 162(m). Nothing in this Section shall affect the obligation of the
Employer to make payments of amounts the deductibility of which is not so
limited by Code Section 162(m).
(g) If any amounts deferred pursuant to this Plan are found in a
"determination" (within the meaning of Code Section 1313(a)) to have been
includable in the gross income by a Participant prior to payment of such amounts
from the Participant's Account, such amounts shall be immediately payable to the
Participant or the Participant's Beneficiary, as the case may be,
notwithstanding anything contained herein to the contrary.
6
<PAGE>
3.5 CHANGE OF CONTROL PROVISIONS.
(a) For purposes of this Section 3.5, the phrase "Change of
Control" shall have the same meaning as defined in the Qualified Plan.
(b) Notwithstanding any provision contained herein to the contrary:
(1) a Participant's Account shall be fully (100%) Vested upon a
Change of Control.
(2) the Committee, in its sole and absolute direction, may, but
is not required to, elect that all Vested Benefits be payable at the time of a
Change of Control or at any other time, regardless of whether a Change of
Control occurs, by making an irrevocable election under this Section in writing
and delivering it to the Employer.
ARTICLE IV
PLAN ADMINISTRATION
4.1 COMMITTEE.
(a) The Plan shall be administered by the Committee.
(b) The Committee shall act by a majority of its members at the
time in office and such action may be taken either by a vote at a meeting or in
writing without a meeting. The Committee may authorize in writing any person to
execute any document or documents on its behalf, and any interested person, upon
receipt of notice of such authorization directed to it, may thereafter accept
and rely upon any document executed by such authorized person until the
Committee shall deliver to such interested person a written revocation of such
authorization.
(c) A member of the Committee who is also a Participant shall not
vote or act upon any matter relating specifically to himself.
4.2 POWERS, DUTIES, ETC. OF THE COMMITTEE.
(a) The Committee shall have sole and final authority to construe
the provisions of the Plan and to determine all questions of fact that may arise
under the Plan and any such construction or determination shall be conclusively
binding upon all persons interested in the Plan.
(b) Subject to the terms of the Plan, the Committee may establish
rules and procedures satisfactory to it for the administration of the Plan and
the transaction of its business.
7
<PAGE>
(c) All payments of benefits or expenses of the Plan shall be made
by the Employer at the direction of the Committee.
(d) The Committee may delegate to any individuals or other
committees its responsibilities hereunder.
(e) The Committee, and the members thereof, shall not be liable for
any action taken or omitted or any determination or construction made by it in
good faith relating to the Plan, and the Employer shall indemnify and hold
harmless the Committee, and the members thereof, from and against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any act
or omission in connection with the Plan, unless arising out of any such person's
own fraud or bad faith.
ARTICLE V
AMENDMENT; TERMINATION
5.1 AMENDMENT. The Employer's Board of Directors shall have the right
at any time to amend the Plan in whole or in part, by an instrument in writing
or by a resolution duly adopted by the Board of Directors. However, no amendment
shall reduce any benefit to a Participant that has already accrued.
5.2 TERMINATION. The Employer's Board of Directors reserves the right
to terminate the Plan at any time. Upon termination of this Plan, each
Participant's Account shall become fully Vested, and distribution of the amounts
credited to each such account shall be made immediately following the
termination in single lump sum payments. No additional amounts shall be credited
to the Accounts of Participants, following termination of this Plan other than
interest and other earnings or losses attributable to the month immediately
preceding the month of termination.
ARTICLE VI
MISCELLANEOUS
6.1 FUNDING. The benefit which is provided by the Plan shall be paid by
the Employer to a Participant out of its general assets and no assets of the
Employer shall be designated to fund the benefit provided herein or deemed to be
assets to be used for that purpose, it being understood that the Plan is an
unfunded plan for tax purposes and for Title I of ERISA. The Plan does not
confer on any Participant or Beneficiary a beneficial interest in any asset of
the Employer. The rights of Participants and Beneficiaries under this Plan shall
be limited to those of unsecured general creditors of the Company. This Plan
constitutes a mere promise by the Employer to make benefit payments in the
future. The Employer may, however, establish a trust pursuant to a trust
agreement and make contributions thereto for the purpose of assisting it in
8
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meeting its obligations hereunder. Any such trust agreement shall contain
provisions to the following effect:
(a) In the event of the insolvency of the Employer,
the trust fund will be available to pay the claims of any
creditor of the Employer to whom a distribution may be
made in accordance with state and federal bankruptcy
laws. The Employer shall be deemed to be "insolvent" if
the Employer is subject to a pending proceeding as a
debtor under the Federal Bankruptcy Code (or any
successor statute) or any state bankruptcy code. In the
event the Employer becomes insolvent, the Board of
Directors and Chief Executive Officer of the Employer
shall notify the trustee of the event as soon as
practicable. Upon receipt of such notice, or if the
trustee receives other written allegations of the
Employer's insolvency, the trustee shall cease making
payments of benefits from the trust fund, shall hold the
trust fund for the benefit of the Employer's creditors,
and shall take such steps that are necessary to determine
within 30 days whether the Employer is insolvent. In the
case of the trustee's actual knowledge of or other
determination of the Employer's insolvency, the trustee
will deliver assets of the trust fund to satisfy claims
of the Employer's creditors as directed by a court of
competent jurisdiction.
(b) The trustee shall resume payments of benefits
under the trust agreement only after the trustee has
determined that the Employer is not insolvent (or is no
longer insolvent, if the trustee previously determined
the Employer to be insolvent) or upon receipt of an order
of a court of competent jurisdiction requiring such
payment. If the trustee discontinues payment of benefits
pursuant to subsection (a) above and subsequently resumes
such payment, the first payment on account of a
Participant or Beneficiary following such discontinuance
shall include an aggregate amount equal to (1) the
difference between (A) the payments which would have been
made on account of such Participant or Beneficiary by the
Employer during such period of discontinuance and (B) the
amount of payments which were actually made on account of
such Participant or Beneficiary by the Employer during
such period, plus (2) interest on such difference at a
rate equivalent to the net rate of return earned by the
trust fund during such period.
6.2 BENEFITS NOT ASSIGNABLE. Benefits provided under the Plan may not
be anticipated, assigned (either at law or in equity), alienated or subject to
attachment, garnishment, levy, execution or other legal or equitable process,
and may not otherwise be transferred (except by will or the laws of descent and
distribution). The designation of a Beneficiary or Beneficiaries shall not
constitute a transfer.
6.3 PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan is not a contract of
employment, and the terms of employment of any Employee shall not be affected in
any way by the Plan or related instruments except as specifically provided in
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the Plan or such related instruments. The establishment of the Plan shall not be
construed as conferring any legal rights upon any Employee for a continuation of
employment, nor shall it interfere with the right of the Employer or an
affiliate to discharge any Employee. Each Participant and all persons who may
have or claim any right by reason of their participation in the Plan shall be
bound by the terms of the Plan and all agreements entered into pursuant hereto.
6.4 FACILITY OF BENEFIT PAYMENT. Whenever, in the Committee's opinion,
a person entitled to receive any payment of a benefit hereunder is under a legal
disability or is incapacitated in any way so as to be unable to manage his
financial affairs, the Committee may direct the Employer to make payments to
such person or to his legal representative or to a relative or friend of such
person for his benefit, or to direct the Employer to apply the payment for the
benefit of such person in such manner as the Committee considers advisable. Any
payment of a benefit or installment thereof made in accordance with the
provisions of this Section 6.4 shall be a complete discharge of any liability
for the making of such payment under the Plan.
6.5 CONSTRUCTION.
(a) The Plan is intended to qualify as a plan maintained primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees within the meaning of Section 201(2)
of ERISA. It is also intended to comply with the requirements set forth in
Section 3 of Rev. Proc. 92-65. The Plan shall be liberally construed and
interpreted accordingly. Otherwise, the laws of the State of New York shall
control the interpretation and performance of the terms of the Plan.
(b) If any provision of the Plan, or the application of any such
provision to any person or circumstances, shall be invalid under any Federal,
State or local law, rule or regulation, neither the application of such
provision to persons or circumstances other than those as to which such
provision is invalid nor any other provisions of the Plan shall be affected
thereby.
(c) The headings and subheadings in the Plan have been inserted for
convenience of reference only, and are to be ignored in any construction of the
provisions thereof.
(d) The masculine pronoun wherever used herein shall include the
feminine and the singular number shall include the plural, unless a different
meaning is plainly required by the context.
6.6. WITHHOLDING. All payments made hereunder shall be subject to any
applicable income tax, employment tax or other tax withholding requirements.
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6.7 EFFECTIVE DATE. This Plan shall take effect as of April 1, 1998.
IN WITNESS WHEREOF, this Plan has been executed by a duly authorized
agent of the Employer this 19TH day of MAY, 1998.
EMPLOYER: CATSKILL FINANCIAL CORP.
By: /s/ Allan Oren
------------------------------------
As its: Director
11
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SCHEDULE A
to
THE CATSKILL FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Adopted Effective April 1, 1998)
1. ELIGIBLE EMPLOYEE. Each of the following individuals shall be
an "Eligible Employee" under the Plan:
Wilbur J. Cross, President and CEO
2. NONELECTIVE DEFERRALS. The following non-elective deferred
compensation is provided pursuant to Section 3.2(a) of the Plan:
None at this time.
3. BENEFIT RESTORATION AND/OR OTHER BENEFITS.
(a) The following benefits shall be provided to Wilbur J.
Cross, President and CEO, pursuant to Section 3.2(d) of
the Plan:
(i) During calendar year 1998, the Employer shall
credit to the Participant's Non-Elective Account
the sum of $60,000.
(ii) During calendar year 1999, the Employer shall
credit to the Participant's Non-Elective Account
an additional sum of $80,000.
(iii)During the period beginning January 1, 2000 and
ending March 31, 2000, the Employer shall credit
to the Participant's Non-Elective Account an
additional sum of $20,000.
All benefits accrued under the Plan attributable to the
credits granted to the Participant pursuant to this
Item 3(a) shall be fully (100%) Vested at all times.
12
CATSKILL FINANCIAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TRUST
THIS AGREEMENT (hereinafter referred to as the "Trust Agreement"), made
this 21st day of April , 1998 by and between CATSKILL FINANCIAL CORPORATION, a
corporation organized and existing under the laws of the State of Delaware (the
"Company") and having its principal offices at 341 Main Street, Catskill, New
York 12414, and the trustee identified on the signature page hereof (the
"Trustee"). Any reference herein to the "Bank" shall mean CATSKILL SAVINGS BANK,
a federally chartered stock savings bank.
W I T N E S S E T H:
WHEREAS, the Company has established the Catskill Financial Corporation
Supplemental Executive Retirement Plan (the "Plan") for the exclusive benefit of
certain management employees of the Company and designated affiliates; and
WHEREAS, the Trustee is not a party to the Plan and makes no
representations with respect thereto, and all representations and recitals with
respect to the Plan shall be deemed to be those of the Company; and
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's creditors in the event of the Company's Insolvency, as herein
defined, until paid to Plan participants and their beneficiaries in such manner
and at such times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of any Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), if the Plan were "an employee benefit plan" subject to
ERISA;
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its liabilities under the Plan, provided that the assets of the Trust shall
be subject to the claims of the Company's creditors in the event of the
Company's Insolvency, as herein defined, until paid to Plan participants and
their beneficiaries in the time and manner specified in the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
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SECTION 1
ESTABLISHMENT OF TRUST
(a) (i) The Company hereby deposits with Trustee in
trust $100, which shall become the principal of the Trust to be held,
administered and disposed of by Trustee as provided in this Trust Agreement.
(ii) The Trustee hereby accepts a trust
consisting of the initial deposit referred to in the preceding sentence and such
cash or other property acceptable to the Trustee as shall be paid or delivered
to the Trustee from time to time, together with the earnings, income, additions
and appreciation thereon and thereto (all of which is hereinafter called the
"Fund").
(b) The Trust hereby established shall be irrevocable. The
Company may, but shall not be required to, apply to the Internal Revenue Service
(the "IRS") for a Private Letter Ruling regarding the status of the Trust as a
"grantor trust" under sections 671 through 679 of the Internal Revenue Code of
1986, as amended (the "Code"), in accordance with Section 15 hereof. In the
event the Company makes such a request, it shall furnish to the Trustee a copy
of such Private Letter Ruling promptly upon the Company's receipt thereof.
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Code, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Company and shall be
used exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their beneficiaries shall
have no preferred claim on, nor any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plan and this Trust Agreement shall
be mere unsecured contractual rights of Plan participants and their
beneficiaries against the Company. Any assets held by the Trust will be subject
to the claims of the Company's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3 herein.
(e) The Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash or other property in trust
with Trustee to augment the principal to be held, administered and disposed of
by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan
participant or beneficiary shall have any right to compel such additional
deposits, or any other contribution to the Trust.
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(f) (i) Upon a Change of Control, the Company shall, as
soon as possible, but in no event later than 30 days following the Change of
Control, as defined herein, make an irrevocable contribution to the Trust in an
amount that is sufficient to pay each Plan participant or beneficiary the
benefits to which Plan participants or their beneficiaries would be entitled
pursuant to the terms of the Plan as of the date on which the Change of Control
occurred.
(ii) Within 30 days following the end of the Plan
year(s) ending after the Trust has become irrevocable pursuant to Section 1(b),
the Company shall be required to irrevocably deposit additional cash or other
property to the Trust in an amount sufficient to pay each Plan participant or
beneficiary the benefits payable pursuant to the terms of the Plan as of the
close of such Plan year(s).
(iii) Any contribution required hereunder shall be
deemed sufficient if the aggregate of such contributions and the
other assets of the Fund, determined as of the date of the contributions, is at
least equal to the actuarially determined value of the aggregate benefits
accrued under the Plan, determined as of the same date. Any actuarial
determination required under the preceding sentence shall be made by the
Company, in its sole discretion.
(iv) The Trustee shall have the right and power, but
shall be under no duty, to determine whether the amount of any contribution is
in accordance with any Plan or to collect or enforce payment of any
contribution. The Trustee shall not be responsible for computing or collecting
any contribution or other amounts due under the Plan or the Trust.
SECTION 2
PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
(a) (i) The Company shall deliver to Trustee a schedule
(the "Payment Schedule") that indicates the amounts payable in respect of each
Plan participant (and his or her beneficiaries), that provides a formula or
other instructions acceptable to Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan) and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan participants
and their beneficiaries in accordance with such Payment Schedule.
(ii) The Payment Schedule shall be delivered to the
Trustee following the execution of this Trust Agreement and an updated Payment
Schedule shall be furnished at least annually thereafter. Each such Payment
Schedule shall include, without limitation, (A) the names, addresses, dates of
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birth, social security numbers and the amount and form of accrued benefit of
each Plan participant and beneficiary in the Plan; (B) the amount and form of
projected benefits under the Plan of each participant and beneficiary, assuming
such participant would retire or die as of the last day of such calendar year;
(C) a schedule of the estimated yearly cash payments under the Plan; and (D) any
other information regarding the Plan which the Trustee may reasonably request.
(b) (i) To the extent that amounts are paid under this
Section 2 by the Trustee directly to any Plan participant or beneficiary, such
amounts shall be reduced by the Trustee in an amount equal to the income and
employment tax withholding required by law with respect to such participant or
beneficiary, as determined by the Company and promptly communicated to the
Trustee. The Trustee shall inform each Plan participant and beneficiary to whom
payment is made of the amount withheld from payment and the purpose of
withholding such amount. Such withheld amounts shall be paid by the Trustee to
the Company, which shall remit such withheld amounts to, and shall file the
appropriate withholding reports with, the appropriate governmental agencies. In
making any determination whether the Company has properly determined, reported
and/or withheld the appropriate taxes, the Trustee may rely on a written
certification, under penalties of perjury, signed by the Chief Executive Officer
of the Company or by another officer of the Company authorized by the Chief
Executive Officer to sign such certification in his behalf.
(ii) To the extent that amounts are paid under this
Section 2 by the Trustee directly to any Plan participant or beneficiary and the
Company fails to direct the Trustee with respect to the appropriate amount to be
withheld by the Trustee with respect to the applicable withholding requirements,
the Trustee shall use its best efforts to determine, in its sole discretion, the
appropriate amount of income and employment tax withholding required by law with
respect to the payment to such participant or beneficiary, and shall reduce any
payments by the amount of tax withholding required. The Trustee shall inform the
Company and each Plan participant and beneficiary to whom payment is made of the
amount withheld from payment and the purpose of withholding such amount. The
amount withheld by the Trustee shall be paid by the Trustee to the Company and
the Company shall remit such withheld amounts to, and shall file the appropriate
withholding reports with, the appropriate governmental agencies. Provided that
the Trustee has withheld the amounts directed by the Company or, in the absence
of such direction from the Company, used its best efforts to determine
applicable withholding under this Section, it shall have no liability for
failure to withhold amounts sufficient to meet applicable requirements, and
shall be held harmless by the Company against such liability.
(iii) Unless otherwise agreed to by the Trustee, the
Company shall be responsible for all tax information reporting with respect to
payments made to Plan participants and beneficiaries hereunder.
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(c) (i) The entitlement of a Plan participant or his or
her beneficiaries to benefits under the Plan shall be determined by the Company
or such party as it shall designate under the Plan, and any claim for such
benefits shall be considered and reviewed under the procedures set out in the
Plan.
(ii) The Trustee shall have no authority over and no
responsibility for the disposition of claims for benefits under the Plan and, in
the absence of an order to the contrary of a court of competent jurisdiction,
may rely conclusively on the most recent Payment Schedule furnished to it by the
Company in making or refraining from making payments from the Trust to
individuals who are or purport to be Plan participants or their beneficiaries.
The Trustee shall not make payments hereunder to any person until it receives
instructions from the Company in a form reasonably satisfactory to the Trustee.
(d) (i) The Company may make payment of benefits
directly to Plan participants or their beneficiaries as they become due under
the terms of the Plan. The Company shall notify Trustee of its decision to make
payment of benefits directly prior to the time amounts are payable to
participants or their beneficiaries. In addition, if the principal of the Trust,
and any earnings thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Plan, the Company shall make the balance of
each such payment as it falls due. The Trustee shall notify the Company where
principal and earnings are not sufficient.
(ii) The Trustee shall have no liability or
responsibility for duplicate payments made prior to its receipt from the Company
of notice of the Company's intention to make direct payment.
(e) The Company may direct that payments be made before they
would otherwise be due if, based on a change in the federal tax or revenue laws,
a published ruling or similar announcement issued by the IRS, a regulation
issued by the Secretary of the Treasury, a decision by a court of competent
jurisdiction involving a participant or a beneficiary, or a closing agreement
made under Section 7121 of the Code that is approved by the IRS and involves a
participant or a beneficiary, it determines that a participant or beneficiary
has or will recognize income for federal income tax purposes with respect to
amounts that are or will be payable under the Plan before they are to be paid.
SECTION 3
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY
WHEN THE COMPANY IS INSOLVENT
(a) (i) The Trustee shall cease payment of benefits to
Plan participants and their beneficiaries if the Company is Insolvent. The
Company shall be considered "Insolvent" for purposes of this Trust Agreement if
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(A) the Company is unable to pay its debts as they become due, (B) the Company
is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code or the equivalent thereof or (C) the Company is subject to an
order or regulation issued pursuant to section 18(k) of the Federal Deposit
Insurance Act, as amended, prohibiting payments from the Plan.
(ii) For purposes of this Trust Agreement, a
condition which results in the Company's being Insolvent shall be
referred to as the Company's "Insolvency."
(iii) While the Company is Insolvent, the Trustee
shall make payments from the Trust only to or for the benefit of the
Company's general creditors and only upon the direction of a court of competent
jurisdiction or, in the event that a trustee, receiver, conservator or other
similar official shall be appointed to oversee the Company's affairs during a
period of Insolvency, upon the direction of such trustee, receiver, conservator
or other similar official.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of the Company under federal and state
law as set forth below.
(i) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to Trustee that the Company has become Insolvent, Trustee
shall determine whether the Company is Insolvent and, pending such
determination, Trustee shall discontinue payment of benefits to Plan
participants or their beneficiaries.
(ii) (A) Unless Trustee has actual knowledge of
the Company's Insolvency, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent, Trustee shall
have no duty to inquire whether the Company is Insolvent. Trustee may in all
events rely on such evidence concerning the Company's solvency as may be
furnished to Trustee and that provides Trustee with a reasonable basis for
making a determination concerning the Company's solvency.
(B) The Trustee shall be deemed to have a
reasonable basis for determining that the Company is Insolvent if it has
received (1) a certified copy of a bankruptcy or insolvency petition with
respect to the Company or a general assignment by the Company for the benefit of
its creditors, (2) a Certificate of Commencement of Case (or similar document)
acknowledging either (aa) that a petition for the commencement of a voluntary or
involuntary case pursuant to Titles 7 or 11 of the United States Bankruptcy
Code, as amended, was duly filed by or against the Company with the United
States Bankruptcy Court, or (bb) the taking of possession of the Company of all
or substantially all of its assets by a receiver, custodian, trustee or similar
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official, (3) a certified copy of an order pursuant to section 18(k) of the
Federal Deposit Insurance Act, as amended, prohibiting payments pursuant to the
Plan ("Regulatory Order"), or (4) a written certification, under penalties of
perjury, signed by the Chief Executive Officer of the Company or a majority of
the members of the Board, that the Company is Insolvent.
(iii) If at any time the Trustee has determined that
the Company is Insolvent, Trustee shall discontinue payments to
Plan participants or their beneficiaries and shall hold the assets of the Trust
for the benefit of the Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan participants or their
beneficiaries to pursue their rights as general creditors of the Company with
respect to benefits due under the Plan or otherwise.
(iv) (A) The Trustee shall resume the payment of
benefits to Plan participants or their beneficiaries in accordance with Section
2 hereof only after Trustee has determined that the Company is not Insolvent (or
is no longer Insolvent).
(B) The Trustee shall be deemed to have a
reasonable basis for determining that the Company is no longer Insolvent if it
has received: (1) a judgement, decree or order of a court of competent
jurisdiction dismissing a case filed with respect to the Company under Title 7
or 11 of the United States Bankruptcy Code; or (2) a judgement, decree or order
of a court of competent jurisdiction overturning a Regulatory Order; or (3) if
the Trustee determined the Company to be Insolvent based on a certification of
the Chief Executive Officer or the Board, a subsequent written certification,
under penalties of perjury, signed by the Chief Executive Officer of the Company
or a majority of the members of the Board that the Company is no longer
insolvent.
(v) The Board and Chief Executive Officer of the
Company shall certify to the Trustee, at the Trustee's request, whether the
Company is Insolvent. Any such certification may be requested by the Trustee
from time to time and at any time, and shall be made promptly by the Board or
Chief Executive Officer under the penalties of perjury. Any certification
received by the Trustee under this subparagraph shall also be deemed a
reasonable basis from the Trustee's determination of Insolvency under this
Section 3.
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to this Section 3
and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance. The Trustee
shall have an obligation to offset payments hereunder by direct payments made to
Plan participants and their beneficiaries by the Company during the period of
discontinuance described in the preceding sentence only to the extent the
Company directs the Trustee to make such offset.
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SECTION 4
PAYMENTS TO THE COMPANY
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, the Company shall have no right or power to direct Trustee to
return to the Company or to divert to others any of the Trust assets before all
payments of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plan.
SECTION 5
INVESTMENT AUTHORITY
(a) Subject to subsections (b) and (c) of this Section 5, the
Trustee shall have exclusive authority and discretion to manage and control the
assets of the Fund as specified in this Section 5, and pursuant to such
authority and discretion may exercise from time to time and at any time the
power:
(i) To invest and reinvest the Fund, without
distinction between principal and income, in the group, family or class of
mutual funds or other securities specified in writing by the Company which shall
constitute the exclusive permitted investments of the Fund;
(ii) To exercise, personally or by general or
limited proxy, the right to vote any securities held in the Fund; and to
exercise, personally or by power of attorney, any other right appurtenant to
securities held by the Fund;
(iii) To exercise or sell any conversion or
subscription or other rights appurtenant to any securities held in the Fund;
(iv) To invest and reinvest any property, real or
personal, in the Fund in any other form or type of investment not specifically
mentioned in this subsection (a), so long as such form or type of investment is
a form or type of investment approved by the Chief Financial Officer or Chief
Executive Officer of the Company and a direction is made by the Company to
invest in such property.
(b) (i) The Trustee may invest in securities
(including stock or rights to acquire stock) or obligations issued by the
Company or the Bank. All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Plan participants except that voting,
tender, appraisal, dissenter and other similar rights with respect to Trust
assets shall be exercised by the Company. In the absence of timely directions
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from the Company, the Trustee shall have no duty to exercise such rights, and
shall have no liability for refraining from exercising such rights.
(ii) Any investment by the Trustee in securities
or obligations of the Company or the Bank shall be subject to prior written
approval of the Company.
(iii) The Company shall have the right at anytime,
and from time to time in its sole discretion, to substitute assets of equal fair
market value for any asset held by the Trust. This right is exercisable by the
Company in a nonfiduciary capacity without the approval or consent of any person
in a fiduciary capacity.
(c) The Trustee shall exercise its powers under this Section 5
in a manner consistent with such direction by the Company and shall have no
liability whatsoever for any loss, cost or expense occasioned by any investment
in accordance with this section.
(d) To the extent permitted by law, the Trustee shall not be
liable for any act or omission of the Company hereunder and, except as set forth
hereunder, the Trustee shall not be under any obligations to invest or otherwise
manage the assets of the Plan. Without limiting the generality of the foregoing,
the Trustee shall not be liable by reason of its taking or refraining from
taking any action hereunder at the direction of the Company; the Trustee shall
be under no duty to question or to make inquiries as to any direction or order
or failure to give direction or order by the Company and the Trustee shall be
under no duty to make any review of investments acquired for the Fund at the
direction or order of the Company and shall be under no duty at any time to make
any recommendation with respect to disposing of or continuing to retain any such
investment.
(e) Without limiting the generality of the provisions of
Section 8 hereof, the Company agrees, to the extent permitted by law, to
indemnify the Trustee and hold it harmless from an against any claim or
liability that may be asserted against it, otherwise than on account of the
Trustee's own gross negligence or willful misconduct or violation of any
provision of law, by reason of the Trustee's taking or refraining from taking
any action in accordance with this Section 5.
(f) Subject to the other provisions of this Trust Agreement,
the Trustee shall have the power and authority to be exercised in its sole
discretion at any time and from time to time to issue and place orders for the
purchase or sale of securities directly with qualified brokers or dealers. Such
orders may be placed with such qualified brokers and/or dealers who also provide
investment information or other research or statistical services to the Trustee
in its capacity as a fiduciary or investment manager for other clients.
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SECTION 6
DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7
ACCOUNTS
(a) (i) The Trustee shall keep accurate and detailed
records of all receipts, investments and disbursements under this Agreement.
Such person or persons as the Company shall designate shall be allowed to
inspect the books of account relating to the Fund upon request at any reasonable
time during the business hours of the Trustee
(ii) Within 120 days after the close of each
calendar year, Trustee shall transmit to the Company, and certify the accuracy
of, a written statement of the assets and liabilities of the Fund at the close
of that calendar year, showing the current value of each asset at that date, and
a written account of all the Trustee's transactions relating to the Fund during
the period from the last previous accounting to the close of that calendar year.
(For purposes of this section, the date of the Trustee's resignation or removal
as provided in Section 10 hereof or the date of the termination of the Plan as
provided in Section 11 hereof shall be deemed to be the close of a calendar year
with respect to the Trustee's resignation or the terminated Plan, as the case
may be).
(iii) Unless the Company shall have filed with the
Trustee written exceptions or objections to any such statement or account within
180 days after receipt thereof, the Company shall be deemed to have approved
such statement and account; and in such case, or upon the written approval by
the Company of any such statement and account, the Trustee shall be forever
released and discharged with respect to all matters and things expressly set
forth in such statement and account as though it had been settled by decree of a
court of competent jurisdiction in an action or proceeding to which the Company
and all persons having any beneficial interest in the Fund were parties.
(b) Nothing contained in this Agreement or in the Plan shall
deprive the Trustee of the right to have judicial settlement of its accounts. In
any proceeding for a judicial settlement of the Trustee's accounts, or for
instructions in connection with the Fund, the only other necessary party thereto
in addition to the Trustee shall be the Company. If the Trustee so elects, it
may bring in as a party or parties defendant any other person or persons. No
person interested in the Fund, other than the Company, shall have the right to
compel an accounting, judicial or otherwise, by the Trustee, and each such
person shall be bound by all accountings by the Trustee to the Company, as
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herein provided, as if the account had been settled by decree of a court of
competent jurisdiction in an action or proceeding to which such person was a
party.
SECTION 8
RESPONSIBILITY OF TRUSTEE
(a) The Trustee shall discharge its duties under this
Agreement with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent person acting in like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims; provided, however, that the Trustee shall incur no liability to
any person for any action taken pursuant to a direction, request or approval
given by the Company which is contemplated by, and in conformity with, the terms
of the Plan or this Agreement and is given in writing by the Company. The duties
and obligations of the Trustee shall be limited to those expressly imposed upon
it by this Agreement, notwithstanding any reference herein to the Plan.
(b) The Trustee shall have no duty to commence or defend any
legal action arising in connection with the Trust unless it shall first have
been indemnified, in manner and substance satisfactory to it, against its costs,
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto.
(c) The Trustee may consult with counsel, who may be counsel
for the Company or for the Trustee in its individual capacity, and shall not be
liable for any actions taken or omitted in accordance with the opinion of
counsel. The Company agrees, to the extent permitted by law, to indemnify and
hold the Trustee harmless from and against any liability that it may incur in
connection with the Fund, unless arising from the Trustee's own grossly
negligent or willful breach of the provisions of Section 8(a). The Trustee shall
not be required to give any bond or other security for the faithful performance
of its duties under this Agreement, except as required by law. The Trustee, in
its corporate capacity, shall not be liable for claims of any persons in any
manner regarding the Plan; such claims shall be limited to the Trust Fund.
(d) (i) The Trustee shall have, without exclusion,
all powers conferred on trustees by applicable law, unless expressly provided
otherwise herein; provided, however, that if an insurance policy is held as an
asset of the Trust, Trustee shall have no power to name a beneficiary of the
policy other than the Trust, to assign the policy (as distinct from conversion
of the policy to a different form) other than to a successor Trustee or to loan
to any person the proceeds of any borrowing against such policy.
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(ii) The Trustee shall have, and in its sole and
absolute discretion may exercise from time to time and at any time, the
following administrative powers and authority with respect to the Fund
consistent with the provisions of Section 5:
(A) To continue to hold any property of the
Fund whether or not productive of income; to reserve from investment and keep
unproductive of income, without liability for interest, cash temporarily
awaiting investment and such cash as it deems advisable or as the Company from
time to time may specify in order to meet the administrative expenses of the
Fund or anticipated distributions therefrom;
(B) To hold property of the Fund in its own
name or in the name of a nominee or nominees, without disclosure of the Trust,
or in bearer form so that it will pass by delivery, but no such holding shall
relieve the Trustee of its responsibility for the safe custody of the Fund in
accordance with the provisions of the Agreement; the Trustee's books and records
shall at all times show that such property is part of the Fund; and, subject to
Section 8(c), the Trustee shall be absolutely liable for any loss occasioned by
the acts of its nominee or nominees with respect to the securities registered in
the name of the nominee or nominees;
(C) To employ in the management of the Fund
suitable agents, without liability for any loss occasioned by any such agents
selected by the Trustee with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims.
(D) To do all other acts that the Trustee
may deem necessary or proper to carry out any of the powers set forth in Section
5 hereof or otherwise in the best interests of the Fund.
(e) Notwithstanding any powers granted to the Trustee pursuant
to this Trust Agreement or to applicable law, the Trustee shall not have any
power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Code.
(f) Unless the Trustee participates knowingly in, or knowingly
undertakes to conceal, an act or omission of the Company or any other fiduciary,
knowing such act or omission to be a breach of fiduciary responsibility, the
Trustee shall be under no liability for any loss of any kind which may result by
reason of such act or omission.
(g) If a dispute arises as to the payment of any funds or
delivery of any assets by the Trustee, the Trustee may withhold such payment or
delivery until the dispute is determined by a court of competent jurisdiction or
finally settled in writing by the parties concerned.
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SECTION 9
TAXES, COMPENSATION AND EXPENSES OF TRUSTEE
(a) (i) The Company shall pay any Federal, state,
local or other taxes imposed or levied with respect to the corpus and/or income
of the Fund or any part thereof under existing or future laws
(ii) All taxes that may be levied or assessed
upon, or in respect of, the Fund shall be paid from the Fund. The Trustee shall
notify the Company of any proposed or final assessments of taxes and may assume
that any such taxes are lawfully levied or assessed, unless the Company advises
it in writing to the contrary within 15 days after receiving the above notice
from the Trustee. In such case, the Trustee, if requested by the Company in
writing, shall contest the validity of such taxes in any manner deemed
appropriate by the Company; the Company may itself contest the validity of any
such taxes, in which case the Company shall so notify the Trustee and the
Trustee shall have no responsibility or liability respecting such contest. If
either party to this Agreement contests any such proposed levy or assessments,
the other party shall provide such information and cooperation as the party
conducting the contest shall reasonably request.
(b) The Trustee, without direction from the Company, shall pay
from the Fund from time to time such reasonable compensation for its services as
trustee as shall be agreed upon with the Company, the reasonable and necessary
expenses and compensation of counsel and other agents employed or engaged by the
Trustee pursuant to Section 8(d)(ii)(C) and all other reasonable and necessary
expenses of managing and administering the Fund (which the Trustee, in its
discretion, determines to be necessary or appropriate) that are not paid by the
Company.
SECTION 10
RESIGNATION AND REMOVAL OF TRUSTEE
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective 60 days after receipt of such notice
unless the Company and the Trustee agree otherwise.
(b) The Company, by action of its Board, may remove the
Trustee at any time upon 60 days written notice, or upon shorter notice if
acceptable to the Trustee. In the event it resigns or is removed, the Trustee
shall have a right to have its accounts settled as provided in Section 7 hereof.
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(c) (i) Upon resignation or removal of Trustee and appointment
of a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 60 days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(ii) The Trustee may reserve such sums as the
Trustee shall deem necessary to defray its expenses in settling its accounts, to
pay any of its compensation due and unpaid and to discharge any obligation of
the Fund for which the Trustee may be liable. If the sums so reserved are not
sufficient for these purposes, the Trustee shall be entitled to recover the
amount of any deficiency from either the Company or the successor Trustee, or
both. When the Fund shall have been transferred and delivered to the successor
Trustee and the accounts of the Trustee have been settled as provided in Section
7 hereof, the Trustee shall be released and discharged from all further
accountability or liability for the Fund and shall not be responsible in any way
for the further disposition of the Fund or any part thereof.
(d) (i) If Trustee resigns or is removed, a
successor shall be appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under subsection (b) above. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee incurred in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
(ii) Each successor trustee shall have all the
powers and duties conferred upon the Trustee in this Trust Agreement and
"Trustee", as used in this Agreement, shall be deemed to include any successor
Trustee.
SECTION 11
APPOINTMENT OF SUCCESSOR
In the event of the resignation or removal of the Trustee, a
successor Trustee shall be appointed by the Company. Such appointment shall take
effect upon delivery to the Trustee of an instrument so appointing the successor
and an instrument of acceptance executed by such successor, both of which
instruments shall be duly acknowledged by a notary public. The delivery of such
instruments shall take place within sixty (60) days after notice of resignation
or removal, as applicable, of the Trustee shall have been given.
14
<PAGE>
SECTION 12
AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written
instrument duly executed and acknowledged by the Trustee and the Company.
Notwithstanding the foregoing, no such amendment shall conflict with the terms
of the Plan or shall make the Trust revocable after it has become irrevocable in
accordance with Section 1(b) hereof.
(b) (i) The Trust shall not terminate until the
date on which Plan participants and their beneficiaries are no longer entitled
to benefits pursuant to the terms of the Plan. Upon termination of the Trust,
any assets remaining in the Trust shall be returned to the Company.
(ii) Notwithstanding the foregoing, if not
sooner terminated, the Trust shall terminate automatically on the twenty-first
(21st) anniversary of the death of the last to die of all of the lineal
descendants of Rose Fitzgerald Kennedy, daughter of John Francis Fitzgerald and
Josephine Mary Hannon Fitzgerald, who are living and in being on the effective
date of this Trust Agreement.
(iii) Notwithstanding the foregoing, until the
Trust has become irrevocable as provided in Section 1(b) hereof, the Trust may
be terminated at any time by the Company.
(iv) In case the Plan is terminated, in whole or
in part, the Trustee (subject to the provisions of Sections 10 and 11 hereof and
reserving such sums as the Trustee shall deem necessary in settling its accounts
and to discharge any obligation of the Fund for which the Trustee may be liable)
shall apply and distribute any subfund attributable to such terminating Plan in
accordance with the written directions of the Company. Upon such termination of
the Plan in whole or in part, the Trustee shall have a right to have its
accounts settled as provided in Section 7 hereof. When a subfund shall have been
so applied or distributed and the accounts of the Trustee shall have been so
settled, the Trustee shall be released and discharged from all further
accountability or liability respecting such subfund, and shall not be
responsible in any way for the further disposition of such subfund.
15
<PAGE>
SECTION 13
MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable process.
(c) (i) This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be performed wholly within the State of New York.
(ii) Nothing in this Agreement shall be construed to
subject either the Trust created hereunder or the Plan to ERISA.
(iii) Any reference herein to ERISA or the Code shall
include such law as in effect on the effective date hereof, subsequent amendment
thereto and any succeeding law.
(d) The titles to Sections of this Agreement are placed herein
for convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(e) This Agreement shall bind and inure to the benefit of the
successors and assigns of the Company and the Trustee, respectively.
(f) This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute but one instrument, which may be sufficiently evidenced by any
counterpart executed by all parties hereto.
(g) Any corporation into which the Trustee is merged with or
with which it is consolidated, or any corporation resulting from a merger,
reorganization or consolidation, to which the Trustee is a party, or any
corporation to which all or substantially all the trust business of the Trustee
is transferred shall become the successor trustee under the Agreement without
the execution or filing of any further instrument or the performance of any
further act.
16
<PAGE>
(h) The Company or anyone acting on its behalf may at any time
employ the Trustee in its corporate (and not its fiduciary) capacity as agent to
perform any act, keep any records or accounts, or make any computations required
by the Company. Any such agency relationship shall be established by a separate
agreement between the Company and the Trustee, and the existence of such
agreement and any actions performed by the Trustee under such agreement shall
not affect its responsibilities as Trustee under this Agreement.
SECTION 14
ADMINISTRATION OF THE PLAN; COMMUNICATIONS
(a) The Company shall administer the Plan as provided therein,
and the Trustee shall not be responsible in any respect for administering such
Plan nor shall the Trustee be responsible for the adequacy of the Fund to meet
and discharge all payments and liabilities under such Plan. The Trustee shall be
fully protected in relying upon any written notice, instruction, direction or
other communication signed by an officer of the Company duly authorized to give
communications to the Trustee. The Company from time to time shall furnish the
Trustee with the names and specimen signatures of such duly authorized officers
of the Company and shall promptly notify the Trustee of the termination of
office of any officer of the Company and the appointment of a successor thereto.
Until notified to the contrary, the Trustee shall be fully protected in relying
upon the most recent list of duly authorized officers of the Company furnished
to it by the Company.
(b) Any action required by any provision of this Agreement to
be taken by the Board shall be evidenced by a resolution of the Board, certified
to the Trustee by the Secretary or an Assistant Secretary of the Company under
its corporate seal. The Trustee shall be fully protected in relying upon any
resolution so certified to it. Unless other evidence with respect thereto has
been specifically prescribed in this Agreement, any other action of the Company
under any provision of this Agreement, including any approval of or exceptions
to the Trustee's accounts, shall be evidenced by a certificate signed by an
officer of the Company, duly authorized to give communications to the Trustee,
and the Trustee shall be fully protected in relying upon such certificate. The
Trustee may accept a certificate signed by an officer of the Company duly
authorized to give communications to the Trustee as proof of any fact or matter
that it deems necessary or desirable to have established in the administration
of the Trust (unless other evidence of such fact or matter is expressly
prescribed herein), and the Trustee shall be fully protected in relying upon the
statements in the certificate.
(c) Notwithstanding anything herein contained to the contrary,
the Trustee shall be entitled conclusively to rely upon any written notice,
instruction, direction, certificate or other communication reasonably believed
by it to be genuine and to be signed by the proper person or persons, and the
17
<PAGE>
Trustee shall be under no duty to make investigation or inquiry as to the truth
or accuracy of any statement contained therein.
(d) Until notice be given to the contrary, communications to
the Trustee shall be sent to it at its office at
___________________________________ Attention: ___________________;
communications to the Company shall be sent to it at its office at 341 Main
Street, Catskill, New York 12414 Attention: Wilbur J. Cross, CEO.
SECTION 15
IRS RULING
The Company may apply for a Private Letter Ruling from the IRS with
respect to the federal income tax consequences of the Trust. If the IRS,
following a request by the Company, declines to issue a favorable ruling to the
effect that the Company will be treated for Federal income tax purposes as the
owner of the Fund pursuant to Sections 671 through 679 of the Code, that the
income of the Fund will be treated as income of the Company, and that the
funding of, and realization of income by, the Fund will not result in income to
the participants or beneficiaries prior to the date that such funds are actually
distributed or made available to participants or beneficiaries hereunder, all of
the assets then held in the Fund shall forthwith be returned to the Company in
kind and this Agreement shall be null and void and have no force and effect.
18
<PAGE>
SECTION 16
DEFINITION OF CHANGE OF CONTROL
(a) "Change of Control" shall have the same meaning under this
Trust as defined in the Company's employee stock ownership plan.
(b) The Trustee shall not be responsible for determining
whether a Change of Control occurs. Such determination shall be made solely by
the Company, and the Company shall promptly notify the Trustee in writing in
such an event. The Company shall, under the penalties of perjury, promptly
certify to the Trustee at any time, and from time to time, at the Trustee's
request, whether a Change of Control has been deemed to have occurred. The
Trustee shall be fully protected in relying upon such certification, and the
Company shall indemnify Trustee for any act or omission taken pursuant to such
certification.
SECTION 17
EFFECTIVE DATE
The effective date of this Trust Agreement shall be April 1, 1998.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names by their duly authorized officers under their
corporate seals as of the day and year first above written.
CATSKILL FINANCIAL CORP.
By: /s/ David L. Guldenstern
------------------------------------
As its: VP/Secretary
/s/ Allan D. Oren
------------------------------------
Allan D. Oren, Trustee
/s/ Edward P. Stiefel
------------------------------------
Edward P. Stiefel, Trustee
/s/ Richard A. Marshall
------------------------------------
Richard A. Marshall, Trustee
19
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF GREENE )
On this 21st day of May , 1998, before me personally came David L.
Guldenstern , to me known, who, being by me duly sworn, did depose and say that
he resides at Wildwing Pk. Catskill, NY, that he is the VP/Secretary of the
CATSKILL FINANCIAL CORPORATION, the company described in and which executed the
foregoing instrument; that he knows the seal of said company; that the seal
affixed to said instrument is such company's seal; that it was so affixed by
order of the Board of Directors of said company; and that he signed his name
thereto by like order.
/s/ Gloria Leone
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GREENE )
On this 19th day of May , 1998, before me personally came ALLAN D.
OREN, to me known, who, being by me duly sworn, did depose and say that he
resides at Abeel Dr. Catskill, NY , and that he executed the foregoing
instrument as a Trustee.
/s/ David L. Guldenstern
-----------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ALBANY )
On this 21st day of May , 1998, before me personally came EDWARD P.
STIEFEL, to me known, who, being by me duly sworn, did depose and say that he
resides at Catskill, NY , and that he executed the foregoing instrument as a
Trustee.
/s/ Dale B. Pinckney
-----------------------------------
Notary Public
20
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ALBANY )
On this 21st day of May , 1998, before me personally came RICHARD A.
MARSHALL, to me known, who, being by me duly sworn, did depose and say that he
resides at Delmar, NY , and that he executed the foregoing instrument as a
Trustee.
/s/ Dale B. Pinckney
-----------------------------------
Notary Public
21
Exhibit 11
CATSKILL FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income per common share - basic
- -----------------------------------
Net income applicable to common shares $ 974 $ 949 $ 2,904 $ 2,958
Weighted average common shares outstanding 4,002,738 4,455,098 4,139,721 4,753,424
Net income per common share - basic $ .24 $ .21 $ .70 $ .62
========== ========== ========== ==========
Net income per common share - diluted
- -------------------------------------
Net income applicable to common shares $ 974 $ 949 $ 2,904 $ 2,958
Weighted average common shares outstanding 4,002,738 4,455,098 4,139,721 4,753,424
Dilutive common stock options (1) 131,371 95,975 129,224 54,631
---------- ---------- ---------- ----------
Weighted average common shares
and common share equivalents outstanding 4,134,109 4,551,073 4,268,945 4,808,055
========== ========== ========== ==========
Net income per common share - diluted $ .24 $ .21 $ .68 $ .62
========== ========== ========== ==========
</TABLE>
(1) Dilutive common stock options (includes granted, but unvested, restricted
stock under the Company's MRP plan and options granted, but unexercised, under
its stock option plan) are based on the treasury stock method using average
market price. The treasury stock method recognizes the use of assumed proceeds
upon the exercise of options, and the amount of unearned compensation attributed
to future services under the Company's restricted stock plan, including any tax
benefits, to purchase the Company's common stock at the average market price
during the period.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001005512
<NAME> CATSKILL FINANCIAL CORPORATION
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,485
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,052
<INVESTMENTS-CARRYING> 3,065
<INVESTMENTS-MARKET> 3,110
<LOANS> 134,280
<ALLOWANCE> 1,922
<TOTAL-ASSETS> 309,566
<DEPOSITS> 209,444
<SHORT-TERM> 15,880
<LIABILITIES-OTHER> 6,020
<LONG-TERM> 10,000
0
0
<COMMON> 57
<OTHER-SE> 68,165
<TOTAL-LIABILITIES-AND-EQUITY> 309,566
<INTEREST-LOAN> 7,681
<INTEREST-INVEST> 7,979
<INTEREST-OTHER> 106
<INTEREST-TOTAL> 15,766
<INTEREST-DEPOSIT> 6,642
<INTEREST-EXPENSE> 7,322
<INTEREST-INCOME-NET> 8,444
<LOAN-LOSSES> 144
<SECURITIES-GAINS> 90
<EXPENSE-OTHER> 4,211
<INCOME-PRETAX> 4,510
<INCOME-PRE-EXTRAORDINARY> 4,510
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,904
<EPS-PRIMARY> .70
<EPS-DILUTED> .68
<YIELD-ACTUAL> 4.05
<LOANS-NON> 555
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,963
<ALLOWANCE-OPEN> 1,889
<CHARGE-OFFS> 121
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,922
<ALLOWANCE-DOMESTIC> 1,452
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 470
</TABLE>
