SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
AOF 1934 For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transaction period from ___________________ to
______________________
Commission File Number: 000-24809
FINGER LAKES FINANCIAL CORP.
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(Exact Name of Registrant as Specified in its Charter)
United States 16-1551047
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
470 Exchange Street 14456
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(Address of Principal Executive Offices) (Zip Code)
(315) 789-3838
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(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
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 twelve months (or for such shorter period that
the Registrant was required to file such reports) and (2) has been subject to
such requirements for the past 90 days.
YES X NO
----------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 29, 2000, there were issued and outstanding 3,570,000 shares
of the Registrant's Common Stock. The aggregate value of the voting stock held
by non-affiliates of the Registrant, computed by reference to the average bid
and asked prices of the Common Stock as of February 29, 2000 ($7.06) was
$6,513,973.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Finger Lakes Financial Corp. Finger Lakes Financial is currently the
mid-tier stock hcompany of Savings Bank of the Finger Lakes. Finger Lakes
Financial owns all of the outstanding common stock of Savings Bank of the Finger
Lakes. Finger Lakes Financial Corp., MHC owns 2,389,948 shares of Finger Lakes
Financial's outstanding common stock. The remaining 1,180,052 shares of common
stock are held by the public. At December 31, 1999 Finger Lakes Financial had
consolidated assets totaling $301.2 million, deposits of $208.1 million and
consolidated stockholders' equity of $19.4 million.
Savings Bank of the Finger Lakes. Savings Bank of the Finger Lakes was
formed as the result of the merger in 1984 of Geneva Savings Bank, a New
York-chartered savings bank, and Geneva Federal Sand Loan Association. On
November 10, 1994, Savings Bank of the Finger Lakes completed its reorganization
from a federally chartered, mutual savings bank to a federally chartered mutual
holding company known as FLakes Financial Corporation, MHC. As part of the
reorganization, Savings Bank of the Finger Lakes organized a federally chartered
stock savings bank and transferred substantially all of its assets and
liabilities, including all of its deposit-taking, lending and other banking
functions and its corporate name to the newly created stock savings bank called
Savings Bank of the Finger Lakes in exchange for 2,389,948 shares of common
stock. Concurrent with the reorganization, Savings Bank of the Finger Lakes sold
1,180,052 shares of common stock, in a public offering. The Savings Bank of the
Finger Lakes reorganized into the two-tier mutual holding company structure on
August 17, 1998. The reorganization into the two-tier structure had no impact on
the operations of the Savings Bank of the Finger Lakes.
Savings Bank of the Finger Lakes has traditionally operated as a community
oriented savings institution providing mortgage loans and other traditional
financial services to those in its local community. Savings Bank of the Finger
Lakes is primarily engaged in attracting deposits from the general public
through its oand using those funds to originate loans secured by real estate.
Savings Bank of the Finger Lakes also originates commercial business loans,
consumer loans, mobile home loans and home equity loans and lines of credit.
Savings Bank of the Finger Lakes also has a securities portfolio primarily
consisting of mortgage-backed securities issued by federal agencies, United
States common stocks and corporate and municipal bonds.
Market Area
The Savings Bank of the Finger Lakes currently conducts business through
its main office and branch offices located in the Finger Lakes region of New
York State. Geneva, New York, where Savings Bank of the Finger Lakes is
headquartered, is located in the eastern end of Ontario county and has a
population of approximately 14,000 as of December 1999. We have sought to
increase our presence in the Finger Lakes region by expanding our branch network
and emphasizing a variety of loan and investment products. Our growth has been
targeted to include those areas of the Finger Lakes region that have shown
relative economic strength. Our market area is mainly rural with employment
based primarily in education, service industries, and small manufacturing
concerns, which have experienced little growth in recent years, and agricultural
operations. Approximately 50% of the market area's labor force is employed in
traditional white collar jobs. The two largest employers in Geneva are Hobart
and William Smith Colleges and Geneva General Hospital. The largest employer in
Seneca county is ITT Fluid Technology. The largest employer in Tompkins county
is Cornell University.
Lending Activities
General. Our loan portfolio is predominantly comprised of conventional real
estate mortgages, primarily on residences and one-to four-family dwellings, but
also on commercial real estate. Our primary emphasis in the past has been on the
origination of residential mortgages. In recent years we have sought to increase
our multi-family and commercial real estate lending as well as non-mortgage
lending, in particular home equity loans and commercial business lending. At
December 31, 1999, loans totaled $160.0 million, of which $90.6 million,
o56.60%, were secured by one-to four-family real estate, $28.5 million, or
17.82% were secured by multi-family and commercial real estate,
1
<PAGE>
$2.7 million, or 1.69%, were construction loans, and $38.2 million or 23.89%
were nloans. At December 31, 1999, commercial business loans were $9.5 million,
or 5.96% of total loans, consumer loans were $6.0 million, or 3.73% of total
loans, mobile home loans were $4.5 million, or 2.81% of total loans and home
equity and property improvement loans were $18.2 million, or 11.39% of total
loans.
2
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition
of our loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------- ------------------ ------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
---------- --------- -------- --------- ---------- -------- --------- ---------- -------- ---------
(Dollars In Thousands)
Mortgage Loans:
One-to-four-family
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
real estate.............. $ 90,587 56.60% $ 89,456 61.19% $ 75,679 63.42% $ 57,932 64.60% $ 54,483 62.76%
Multi-family and
commercial real estate... 28,520 17.82 20,534 14.05 19,243 16.13 11,176 12.46 11,843 13.64
Construction............. 2,695 1.69 6,912 4.73 2,103 1.75 1,296 1.44 373 0.43
--------- --------- --------- -------- --------- --------- --------- --------- --------- ----------
Total mortgage loans..... 121,802 76.11 116,902 79.97 97,025 81.30 70,404 78.50 66,699 76.83
--------- --------- --------- -------- --------- --------- --------- --------- --------- ----------
Non-Mortgage Loans:
Commercial business...... 9,536 5.96% 5,413 3.70% 3,392 2.84% 3,290 3.67% 3,074 3.54%
Home equity and
property improvement..... 18,235 11.39 12,874 8.81 9,184 7.70 6,137 6.84 5,779 6.66
Mobile home.............. 4,501 2.81 4,074 2.79 4,916 4.12 5,703 6.36 6,654 7.66
Consumer................. 5,966 3.73 6,920 4.73 4,819 4.04 4,155 4.63 4,613 5.31
--------- --------- --------- -------- --------- --------- --------- --------- --------- ----------
Total non-mortgage
loans................... 38,238 23.89 29,281 20.03 22,311 18.70 19,285 21.50 20,120 23.17
--------- --------- --------- -------- --------- --------- --------- --------- --------- ----------
Total loans.............. 160,040 100.00% 146,183 100.00% 119,336 100.00% 89,689 100.00% 86,819 100.00%
======== ======= ====== ======= =======
Premiums, net of
deferred fees............ 163 129 252 81 40
Allowance for loan
losses.................. (1,349) (1,176) (1,149) (1,088) (809)
--------- --------- --------- --------- ---------
Net loans................ $ 158,854 $ 145,136 $ 118,439 $ 88,682 $ 86,050
========= ========= ========= ========= =========
</TABLE>
3
<PAGE>
Contractual Principal Repayments. The following table sets forth certain
information at December 31, 1999 regarding the dollar amount of loans maturing
in our portfolio, based on the contractual terms to maturity. Demand loans,
loans having no stated schedule of repayments and no stated maturity and
overdrafts are reported as due under one year.
<TABLE>
<CAPTION>
Due Under Due 1-3 Due 3-5 Due 5-10 Due 10-20 Due 20+
1 Year Years Years Years Years Years Total
---------- ---------- ---------- ---------- ---------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
One-to four-family real estate............ $ 3,089 $ 6,908 $ 8,009 $ 25,593 $ 26,659 $ 20,329 $ 90,587
Multi-family and commercial real estate... 2,095 4,765 5,651 13,525 2,484 -- 28,520
Construction.............................. 2,695 -- -- -- -- -- 2,695
Commercial business....................... 2,371 5,453 1,712 -- -- -- 9,536
Home equity and property improvement...... 1,725 3,943 298 -- -- -- 5,966
Mobile home............................... 234 548 674 2,439 606 -- 4,501
Consumer.................................. 604 1,370 1,618 5,449 6,789 2,405 18,235
--------- --------- --------- --------- --------- --------- ---------
Total..................................... $ 12,813 $ 22,987 $ 17,962 $ 47,006 $ 36,538 $ 22,734 $ 160,040
========= ========= ========= ========= ========= ========= =========
</TABLE>
The following table sets forth the dollar amount of all loans due after one
year from December 31, 1999, which have fixed interest rates or which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(Dollars In Thousands)
<S> <C> <C> <C>
One-to four-family real estate............................................. $ 53,496 $ 34,002 $ 87,498
Multi-family and commercial real estate.................................... 5,705 20,720 26,425
Commercial business........................................................ 2,029 5,136 7,165
Home equity and property improvement....................................... 4,241 -- 4,241
Mobile home................................................................ 4,267 -- 4,267
Consumer................................................................... 10,278 7,353 17,631
--------- --------- ---------
Total...................................................................... $ 80,016 $ 67,211 147,227
========= ========= =========
Percent of total........................................................... 54.35% 45.65% 100.00%
========= ========= =========
</TABLE>
Scheduled contractual amortization of loans does not reflect the actual
term of the loan portfolio. The average life of loans is substantially less than
their contractual terms because of prepayments and due- clauses, which give
Savings Bank of the Finger Lakes the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage.
4
<PAGE>
Originations, Purchases and Sales of Loans.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
--------- --------- ---------
(In Thousands)
Loan originations:
<S> <C> <C> <C>
One-to four-family real estate...................................................... $ 21,869 $ 42,138 $ 22,587
Multi-family and commercial real estate............................................. 7,924 4,582 5,469
Construction........................................................................ 5,257 8,844 1,894
Commercial business loans........................................................... 10,936 4,087 916
Home equity and property improvement loans.......................................... 10,234 7,806 4,782
Mobile home loans................................................................... 1,388 132 127
Consumer loans...................................................................... 3,030 6,040 3,659
--------- --------- ---------
Total loans originated.............................................................. 60,638 73,629 39,434
Purchases........................................................................... 51 770 11,026
--------- --------- ---------
Total loans originated and purchased................................................ 60,689 74,399 50,460
--------- --------- ---------
Sales and principal reductions:
Loans sold.......................................................................... 14,000 21,135 4,533
Loan principal payments and other reductions........................................ 32,832 26,417 16,280
--------- --------- ---------
Total sold and principal reductions................................................. 46,832 47,552 20,813
Increase (decrease) due to other items, net......................................... (139) (150) 110
--------- --------- ---------
Net increase in net loan portfolio.................................................. $ 13,718 $ 26,697 $ 29,757
========= ========= =========
</TABLE>
One-to Four-Family Real Estate Loans. Our primary lending activity is the
origination of loans secured by first mortgage liens on single-family
residences. At December 31, 1999, $90.6 million, or 56.6%, of our total loan
portfolio consisted of one-to four-family real estate loans.
We offer both fixed-rate and adjustable-rate one-to four-family real estate
loans with various terms up to 30 years. In recent periods a substantial number
of our originations of fixed-rate loans had terms of 15 years. Currently,
substantially all fixed-rate loans originated by us are sold to Fannie Mae on a
servicing retained basis. As of December 31, 1999, 58.0% of our one-to
four-family real estate loan portfolio had terms of between 16 and 30 years.
We offer adjustable-rate mortgages in order to decrease the vulnerability
of our oto changes in interest rates. At December 31, 1999, 38.0% of the one-to
four-family real estate loans in our loan portfolio consisted of adjustable-rate
loans. Adjustable-rate mortgages are offered with initial rates which are fixed
for one, three and five years and adjust annually thereafter. One year
adjustable rate loans have a 2% cap on the arate adjustment with a 6% rate
adjustment cap over the life of the loan. Three and five year adjustable rate
mortgages have a 3% cap on the annual rate adjustment with a 6% rate adjustment
cap over the life of the loan. Adjustable rate loans are priced in accordance
with the corresponding treasury security. Adjustable-rate mortgage loans
decrease the risks associated with changes in interest rates but involve other
risks, primarily because as interest rates rise, the payment by the borrower
rises to the extent permitted by the terms of the loan, thereby increasing the
potential for default. At the same time, the marketability of the property
securing the loan may be adversely affected by higher interest rates.
Originations of one-to four- family real estate loans in 1999 totaled $21.9
million. The decrease in one-to four- family real estate loan originations from
the $42.1 million originated in 1998 reflects the significant refinancing
activity that occurred in 1998. Generally, one-to four-family mortgage loans are
originated with loan- ratios up to 95% of the appraised value of the property or
the purchase price of the property with private mortgage insurance. Loans have
"due on sale" clauses, which are provisions giving us the right to declare a
loan immediately due and payable in the event the borrower sells or otherwise
disposes of the property serving as collateral for the mortgage. We receive
appraisals on all one-to four-family loans. We also review and verify each loan
applicant's income and credit history.
Multi-Family and Commercial Real Estate Loans. At December 31, 1999, $28.5
million, or 17.82%, of our total loan portfolio consisted of loans secured by
existing multi-family and commercial real e Our multi-family and commercial real
estate loans include loans secured by small office buildings, retail
establishments, light manufacturing and distribution facilities and apartment
buildings.
5
<PAGE>
We originate both fixed- and adjustable-rate multi-family and commercial
real estate loans. We generally offer multi-family and commercial real estate
loans with amortization schedules of up to twenty years with no more than five
years at a fixed rate of interest. Multi-family and commercial real estate loans
are originated with loan-to-value ratios generally up to 80% of the lower of the
purchase price or an independent appraisal. In deciding to originate a multi-
family or commercial real estate loan, we will review the credit worthiness of
the borrower, the expected cash flow from the property securing the loan, the
cash flow from the property to debt service requirements of the borrower, the
value of the property and the quality of the management involved with the
property. Generally, we will obtain the personal guarantee of the principals
when originating multi-family and commercial real estate loans. Multi-family and
commercial real estate lending is generally considered to involve a higher
degree of credit risk than one-to four-family residential lending. Such lending
may involve large loan balances concentrated on a single borrower or group of
related borrowers. In addition, the payment experience on loans secured by
income producing properties is typically dependent on the successful operation
of the related real estate project. Consequently the repayment of the loan may
be subject to adverse conditions in the real estate market or the economy
generally.
Construction Loans. We make construction loans for residential and
commercial purposes. Construction loans are disbursed as construction is
completed. We generally will not make construction loans on a speculative basis.
At December 31, 1999, construction loans totaled $2.7 million, or 1.69%, of the
total loan portfolio. Of this amount, residential construction loans amounted to
$1.1 million or 0.71% of our total loan portfolio. Residential construction
lending is generally limited to our primary lending area. Residential
construction loans are generally to end owners and are structured to be
converted to permanent loans at the end of the construction phase, which
typically is no more than nine months. Residential construction loans have terms
which generally match the non-construc loans then offered by us, except that
during the construction phase the borrower only pays interest on the loan. The
interest rates charged on such loans are generally 0.25% higher than those
charged on other single-family residential loans. Residential construction loans
are underwritten pursuant to the same general guidelines used for originating
permanent loans. In addition, residential construction loans may be sold to
Fannie Mae on a servicing retained basis following its conversion to a permanent
loan following the construction period.
At December 31, 1999, commercial construction loans amounted to $1.6
million or 0.98% of our total loan portfolio. Commercial construction lending is
generally limited to our primary lending areas. These loans are generally
structured to convert to permanent financing at the end of the construction
phase, which typically is no more than twenty- four months, including a "lease
up period" of up to twelve months. Commercial construction loans may also be
structured for permanent financing by other financial institutions upon
completion of the construction period. Commercial construction loans are
underwritten pursuant to established policy guidelines. Construction financing
is generally considered to involve a higher degree of credit risk than long-term
financing on owner-oc real estate because of the uncertainties of construction,
including the possibility of costs exceeding the initial estimates.
Commercial Business Loans. At December 31, 1999, $9.5 million, or 5.96%, of
our total loan portfolio consisted of commercial business loans. Commercial
business loans are generally provided to various types of closely held
businesses located principally in our primary market area. Our commercial
business loans may be structured as short-term self-liquidating lines of credit
and term loans. Commercial business term loans generally have terms of five
years or less (up to seven years if guaranteed by the Small Business
Administration) and interest rates which float in accordance with the prime
rate, although we also originate commercial business loans with fixed rates of
interest. Our commercial lines of credit and commercial term loans generally are
secured by equipment, machinery or other corporate assets including real estate
and receivables. In addition, we generally obtain personal guarantees from the
principals of the borrower with respect to commercial business loans.
6
<PAGE>
We have actively sought to increase our commercial business lending. We
established a commercial lending department in 1996. This department currently
has three dedicated lenders and three back osupport staff. Our originations of
commercial business loans have increased substantially. During 1999, we
originated $10.9 million in commercial business loans compared to $4.1 million
and $916,000 during 1998 and 1997, respectively.
Commercial business loans generally are deemed to entail significantly
greater credit risk than that which is involved with residential real estate
lending. The repayment of commercial business loans typically is dependent on
the successful operations and income of the borrower. Such risks can be
significantly affected by economic conditions. In addition, commercial business
lending generally requires substantially greater oversight efforts compared to
residential real estate lending.
Home Equity and Property Improvement Loans. We offer home equity loans and
lines of credit and property improvement loans, the total of which amounted to
$18.2 million, or 11.39%, of the total loan portfolio as of December 31, 1999.
Home equity loans and lines of credit are generally made only for owner occupied
homes. Home equity loans and lines of credit are secured by second mortgages on
residences with the maximum loan to appraised value ratio permitted by Savings
Bank of the Finger Lakes (after inclusion of any senior liens on the property
thereto) being 100%. We intend to continue emphasizing the origination of home
equity and property improvement loans within our market area.
Mobile Home Loans. We purchase mobile home loans from a third-party loan
originator who specializes in such lending. As of December 31, 1999, we had $4.5
million, or 2.81%, of our total loan psecured by mobile homes owned by
individuals. While we generally lend throughout the states of New York and New
Jersey, the mobile home units are primarily located in what we believe to be
well-managed mobile home parks. Mobile home loans are made at fixed rates for
terms of up to 20 years, although most mobile home loans have terms of 15 years.
Consumer Loans. Subject to the restrictions contained in federal laws and
regulations, walso are authorized to make loans for a wide variety of personal
or consumer purposes. As of December 31, 1999, $6.0 million, or 3.73%, of our
total loan portfolio consisted of consumer loans. We also offer unsecured
personal loans in amounts up to $5,000.
Loan Originations and Underwriting. Our lending activities are subject to
written, non-discriminat underwriting standards and the loan origination
procedures adopted by management and the Board of Directors. Designated loan
officers have the authority to approve residential loans up to $240,000 and
consumer loans up to $100,000. Residential and consumer loans up to $350,000 may
be approved by a senior lending officer. Residential and consumer loans
exceeding these amounts and up to $500,000 may be approved by our President or
senior loan officer. Commercial business loans and commercial real estate loans
may be approved by designated loan officers up to $200,000. Commercial business
loans and commercial real estate loans in excess of $200,000 and up to $500,000
may be approved by a senior loan officer or President and Chief Executive
Officer. All loans in excess of the individual loan limits described above must
be approved by the loan committee which consists of officers of the Savings Bank
of the Finger Lakes. This committee has the authority to approve loans up to
$750,000. If any loan or group of loans to one borrower exceeds $750,000, it
must be approved by the loan committee and subsequently approved by a committee
of the Board of Directors. At December 31, 1999, our lending limit to one
borrower was $2.0 million. On that date, there were no borrowers in excess of
our lending limits.
7
<PAGE>
Asset Quality
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1999, in dollar amount and as a percentage of
our total loan portfolio. The amounts presented represent principal balances of
the related loans, rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
Multi-family Home Equity
One- to and and
Four-family Commercial Commercial Property
Real Estate Real Estate Construction Business Mobile Home Improvement Consumer Total
--------------- -------------- -------------- ----------- ----------- ------------ ----------- -----------
Amount % Amount % Amount % Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
(Dollars in Thousands)
Loans delinquent for:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 - 59 days.......... $ 724 0.45% $ --- --% $ -- --% $ 9 0.01% $ 58 0.04% $ 116 0.07% $ 52 0.03% $ 959 0.60%
60 - 89 days.......... 206 0.13 152 0.09 -- -- -- -- 18 0.01 -- -- 14 0.01 390 0.24
90 days and over 393 0.25 --- --- -- -- 181 0.11 13 0.01 -- -- -- -- 587 0.37
------- ------- ---- ------ ---- --- ---- ----- ---- ----- ---------- --- ----- ------ -----
Total delinquent
loans................. $ 1,323 0.83% $ 152 0.09% $ -- --% $ 190 0.12% $ 89 0.06% $ 116 0.07% $ 66 0.04% $1,936 1.21%
======= ======= ===== ===== ====== ==== ===== ===== ==== ==== ===== ==== ==== ==== ====== ====
</TABLE>
8
<PAGE>
Loan Delinquencies and Collection Procedures. Our collection procedures
provide that if a loan is past due five days after expiration of the applicable
grace period, a telephone call is made to the borrower stressing the need to
make the loan current and obtaining the reasons for delinquency. This process is
implemented ba special asset manager and a collector. If payment is not promptly
received, we will exercise our rights to debit the borrower's deposit account
(if a deposit relationship exists) or otherwise exercise our rights of offset.
If the loan becomes past due 60 days we will send the borrower a demand letter
and a notice of intent to foreclose or repossess the underlying collateral.
Loans that are written off at the conclusion of the process are turned over to a
collection agency for additional recovery efforts.
Non-Performing Loans. All loans are reviewed on a regular basis and are
placed on a non-acc status when, in the opinion of management, there is
reasonable probability of loss of principal or the collection of additional
interest is deemed insufficient to warrant further accrual. Generally, we place
all loans 90 days or more past due on non-accrual status. In addition, we place
any loan on non-accrual if any part of it is classified as doubtful or loss or
if any part has been charged-off. When a loan is placed on non-accruing status,
total interest accrued and unpaid to date is reversed. Application of cash
payments received while a loan is on non-accrual is determined by the chief
financial officer and the senior loan officer. Subsequent payments are either
applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan.
Generally, consumer loans are charged-off before they become 120 days
delinquent.
As of December 31, 1999, our total nonaccrual loans amounted to $587,000,
or 0.37% of total loans, compared to $1,016,000, or 0.69% of total loans, at
December 31, 1998. The largest non-performing loan at December 31, 1999,
consisted of a one-to four-family mortgage on which $224,000 was outstanding.
Troubled Debt Restructurings. A troubled debt restructuring occurs when we,
for economic or legal reasons related to a borrower's financial difficulties,
grant a concession to the borrower, either as a deferment or reduction of
interest or principal, that we would not otherwise consider. As of December 31,
1999, we had $282,000 of troubled debt restructurings, compared to $121,000 as
of December 31, 1998. All troubled debt rwere performing in accordance with
modified or restructured terms at December 31, 1999.
Real Estate Owned. Real estate owned consists of property acquired through
formal foreclosures or by deed in lieu of foreclosure and is recorded at the
lower of recorded investment or fair value. Write from recorded investment to
fair value which are required at the time of foreclosure are charged to the afor
loan losses. After transfer, the property is carried at the lower of recorded
investment or fair value, less estimated selling expenses. Adjustments to the
carrying value of such properties that result from subsequent declines in vare
charged to operations in the period in which the declines occur. As of December
31, 1999, we held three parcels of real estate owned with an aggregate carrying
value of $93,000.
9
<PAGE>
The following table sets forth the amounts and categories of our
non-performing assets and troubled debt restructurings at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ----------- ---------- -----------
(Dollars in Thousands)
Non-accruing loans:
<S> <C> <C> <C> <C> <C>
One-to-four-family real estate......................... $ 393 $ 673 $ 403 $ 194 $ 549
Multi-family and commercial real estate................ -- -- 3 407 73
Construction........................................... -- -- -- -- --
Commercial business.................................... 181 268 6 133 90
Home equity and property improvement................... -- 17 38 83 95
Mobile home............................................ 13 20 58 60 36
Consumer............................................... -- 38 56 41 189
--------- --------- --------- --------- ---------
Total non-performing loans............................ 587 1,016 564 918 1,032
Real estate owned........................................ 93 90 150 275 453
--------- --------- --------- --------- ---------
Total non-performing assets........................... $ 680 $ 1,106 $ 714 $ 1,193 $ 1,485
========= ========= ========= ========= =========
Troubled debt restructurings............................. $ 282 $ 121 $ 520 $ 669 $ 1,506
Total non-performing loans and troubled debt
restructurings as a percentage of total loans.......... 0.54% 0.78% 0.91% 1.77% 2.92%
Total non-performing assets and troubled debt
restructurings as a percentage of total assets......... 0.32% 0.43% 0.50% 0.93% 1.78%
</TABLE>
We had no accruing loans greater than 90 days delinquent at December 31,
1999, 1998 and 1997. The additional interest income that would have been
recorded during the years ended December 31, 1999, December 31, 1998 and
December 31, 1997 if our non-performing loans at the end of such periods had
been current in accordance with their terms during such periods was $65,000,
$78,000, and $59,000, respectively.
Classified Assets. Federal regulations require that each insured savings
association classify its assets on a regular basis. There are three
classifications for problem assets: "substandard," "doubtful" and "loss"
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Another category
designated "special mention" also must be established and maintained for assets
which do not currently expose an insured institution to a sufficient degree of
risk to warrant classification as substandard, doubtful or loss. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is classified
loss, a specific valuation allowance will be established to cover 100% of the
portion of the asset classified loss, or such amount will be charged-off.
General loss allowances related to assets classified substandard or doubtful may
be included in determining an institution's regulatory capital, while specific
valuation allowances do not qualify as regulatory capital. Federal examiners may
disagree with an insured institution's classifications and amounts reserved and
have the authority to require a savings association to classify additional
assets, or to change the classification of existing classified assets, and, if
appropriate, to establish reserves.
At December 31, 1999, we had $885,000 of assets categorized as special
mention, $1.6 million of assets classified as substandard and $152,000 of assets
classified as doubtful or loss. As of December 31, 1999, total classified
assets, including real estate owned and special mention assets, amounted to
0.87% of total assets.
Allowance for Loan Losses. It is management's policy to maintain an
allowance for estimated loan losses based upon (1) in the case of residential
loans, management's review of delinquent loans, loans iforeclosure and market
conditions; (2) in the case of commercial business loans and commercial real
estate loans, identification of a significant decline in value; and (3) in the
case of consumer loans, an assessment of risks inherent in the loan portfolio.
Although management uses available information to make such determinations,
future adjustments to allowances may be necessary
10
<PAGE>
based on economic and market conditions and as a result of future examinations
by regulatory authorities, and net earnings could be significantly affected, if
circumstances differ substantially from the aused in making the initial
determinations.
At December 31, 1999, our allowance for loan losses amounted to $1,349,000
compared to $1,176,000 at December 31, 1998.
The following table sets forth an analysis of our allowance for loan losses
during the periods indicated. See Notes 1 and 3 to the Notes to Consolidated
Financial Statements included herein.
<TABLE>
<CAPTION>
At or for
the Eight Months
At or for Ended
the Year Ended December 31, December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------- ----------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding............................... $ 160,040 $ 146,183 $ 119,336 $ 89,689 $ 86,819
========= ========= ========= ========= =========
Average loans outstanding............................. $ 153,783 $ 132,324 $ 99,939 $ 87,058 $ 85,547
========= ========= ========= ========= =========
Balance at beginning of period........................ $ 1,176 $ 1,149 $ 1,088 $ 809 $ 771
--------- --------- --------- --------- ---------
Charge-offs:
One- to four-family real estate.................... (93) (38) (9) (35) (66)
Multi-family and commercial real estate............ -- -- -- -- --
Construction....................................... -- -- -- -- --
Consumer........................................... (113) (141) (137) (183) (75)
Commercial business................................ (6) (114) (1) (48) (182)
Home equity and property improvement............... -- -- -- -- --
--------- --------- --------- --------- ---------
Total charge-offs:.................................... (212) (293) (147) (266) (323)
Recoveries............................................ 185 80 88 62 71
--------- --------- --------- --------- ---------
Net charge-offs....................................... (27) (213) (59) (204) (252)
Provision for loan losses............................. 200 240 120 483 290
--------- --------- --------- --------- ---------
Balance at end of period.............................. $ 1,349 $ 1,176 $ 1,149 $ 1,088 $ 809
========= ========= ========= ========= =========
Allowance for loan losses as a percentage of
total loans outstanding............................ 0.84% 0.80% 0.96% 1.21% 0.93%
======== ======== ======== ======== ========
Net charge-offs as a percentage of average
loans outstanding.................................. 0.02% 0.16% 0.06% 0.24% 0.29%
======== ======== ======== ======== ========
Allowance for loan losses to non-performing loans 229.81% 115.75% 203.72% 118.52% 78.49%
======== ======== ======== ======== ========
-----------------
</TABLE>
Although we believe that we have established our allowance for loan losses
in accordance with generally accepted accounting principles, there can be no
assurance that regulators, in reviewing our loan portfolio, will not request us
to significantly increase the allowance for loan losses, thereby reducing our
retained earnings and income.
11
<PAGE>
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the allowance for loan losses by loan category at the dates
indicated. The allocation of the allowance by category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------- --------------------- -------------------- ------------------- --------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
--------------------- --------------------- ------------------- ------------------- --------------------
(Dollars In Thousands)
Balance at end of
period applicable to:
One-to-four-family
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
real estate............... $ 314 56.60% $ 315 61.19% $ 320 63.42% $ 257 64.60% $ 275 62.76%
Multi-family and
commercial real estate.... 360 17.82 325 14.05 314 16.13 254 12.46 122 13.64
Construction............... 6 1.69 3 4.73 1 1.75 3 1.44 1 0.43
Commercial business........ 194 5.96 160 3.70 85 2.84 114 3.67 125 3.54
Consumer................... 119 3.73 91 4.73 94 4.04 115 4.63 58 5.31
Mobile home................ 10 2.81 7 2.79 29 4.12 38 6.36 44 7.66
Home equity and property
improvement............. 76 11.39 40 8.81 76 7.70 45 6.84 43 6.66
------- ------- ------ ------ ------
Unallocated................ 270 -- 235 -- 230 -- 262 -- 141 --
-------- ------- ------- ------- ------ ------ ------- ------ --------- ------
Total allowance for
loan losses.............. $ 1,349 100.00% $ 1,176 100.00% $1,149 100.00% 1,088 100.00% $ 809 100.00%
======= ====== ======= ====== ====== ======= ====== ====== ======= ======
</TABLE>
12
<PAGE>
Investment Activities
General. Our investment securities policy is contained within our overall
asset/liability policy. The policy, which is established by senior management
and approved by the Board of Directors, is based upon our asset and liability
management goals and is designed to provide a portfolio of high quality,
diversified investments while seeking to optimize net interest income within
acceptable limits of safety and liquidity. Investment activities consist
primarily of investments in fixed and adjustable rate mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and U.S.
Government and Agency securities.
We have invested in a portfolio of mortgage-backed securities which are
insured or guaranteed by the Freddie Mac, Ginnie Mae, or Fannie Mae, all of
which are agencies of the federal government or government sponsored
corporations. The portfolio also includes collateralized mortgage obligations
("CMOs"), of which $31.8 million or 63.4% are backed by Freddie Mac, Ginnie Mae
and Fannie Mae securities, and $18.3 million or 36.6% are obligations of private
issuers. Mortgage-backed securities, including CMOs backed by U.S. Government
agencies, increase the liquidity and the quality of our assets by virtue of the
guarantees that back either the securities themselves or, in the case of the
CMOs, the underlying securities. In addition, at December 31, 1999, 35.8% of our
mortgage-backed securities portfolio consisted of pools of adjustable-rate
mortgages. Mortgage-backed securities of this tserve to reduce the interest rate
risk associated with changes in interest rates.
Of our total investment in mortgage-backed securities at December 31, 1999,
$50.2 million consisted of CMOs, $4.5 million consisted of Freddie Mac
certificates, $11.8 million consisted of Fannie Mae certificates and $3.8
million consisted of Ginnie Mae certificates.
The following table sets forth the activity in our mortgage-backed
securities portfolio during the periods indicated. Our mortgage-backed
securities are classified as available for sale, and consequently are carried on
our financial statements at fair value.
<TABLE>
<CAPTION>
At or for the Year Ended
December 31,
-----------------------------------------
1999 1998 1997
---------- --------- ----------
(Dollars In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning of period........... $ 86,612 $ 71,824 $ 67,589
Purchases................................................... 14,636 62,821 44,818
Sales....................................................... (5,738) (25,856) (32,009)
Repayments.................................................. (22,396) (21,669) (9,468)
Unrealized gain (loss)...................................... (2,812) (415) 998
Net accretion/amortization.................................. (37) (93) (104)
---------- ---------- ----------
Mortgage-backed securities at end of period................. $ 70,265 $ 86,612 $ 71,824
========= ========= =========
Weighted average yield at end of period..................... 6.57% 6.49% 6.55%
========= ========= =========
</TABLE>
At December 31, 1999, all of the $70.3 million was scheduled to mature
after five years. Due to prepayments of the underlying loans, the actual
maturities of mortgage-backed securities generally are substantially less than
the scheduled maturities.
At December 31, 1999, fixed rate mortgage-backed securities amounted to
$45.1 million and adjustable rate mortgage-backed securities amounted to $25.2
million. All mortgage-backed securities qualify for regulatory liquidity.
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies and of state and municipal governments,
certificates of deposit at federally insured banks and savings and loan
associations, certain bankers' acceptances and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest a portion
of their assets in commercial paper, corporate debt securities and mutual funds,
the assets of which conform to the investments that federally chartered savings
institutions are otherwise authorized to make directly. In addition, we have
certain additional investment authority under OTS regulations as a result of
certain grandfathered powers permitted under the terms of the approval of our
conversion from state to federal charter.
13
<PAGE>
Our investment securities portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors and administered by the
Executive Committee which consists of five Board members, including the chief
executive officer. An investment officer is authorized to purchase and sell
investments up to certain limits set forth in the investment policy. All other
investment transactions must receive prior approval of the Executive Committee.
At the time of purchase of an investment or mortgage-backed security, management
designates the security as either held to maturity or available for sale based
on our investment objectives, operational needs and intent. We maintain no
trading account securities. Investment activities are monitored to ensure that
they are consistent with the investment policy's established guidelines and
objectives.
As of December 31, 1999, our held to maturity investment securities
portfolio had an amortized cost of $1.6 million, consisting of securities issued
by municipal agencies. As of the same date, our securities available for sale
portfolio had a fair value of $118.7 million, of which $42.5 million was
securities issued by the UGovernment and Federal Government agencies, $70.3
million was mortgage-backed securities, $4.6 million was corporate debt
securities and $1.4 million was mutual funds and common stock.
The following table sets forth certain information relating to Savings Bank
of the Finger Lakes' investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------------- ----------------------------- ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(In Thousands)
Securities available for sale:
Debt securities:
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agency bonds.......... $ 45,401 $ 42,546 $ 25,962 $ 26,064 $ 26,344 $ 26,462
Mortgage-backed securities:
Collateralized mortgage obligations..... 51,996 50,142 59,063 59,044 21,580 21,730
Fannie Mae.............................. 12,307 11,818 16,436 16,597 19,750 20,015
Freddie Mac............................. 4,585 4,495 6,115 6,188 15,272 15,484
Ginnie Mae.............................. 3,949 3,810 4,760 4,784 14,567 14,594
---------- ----------- ------------- ----------- ---------- ----------
Total mortgage-backed securities.......... 72,837 70,265 86,374 86,613 71,169 71,823
Corporate and municipal bonds............. 4,729 4,559 -- -- -- --
---------- ----------- ------------- ----------- ---------- ----------
Total debt securities...................... 122,967 117,370 112,336 112,677 97,513 98,285
Equity securities.......................... 1,657 1,380 2,738 2,656 1,645 1,595
---------- ----------- ------------- ----------- ---------- ----------
Total securities available for sale........ $ 124,624 $ 118,750 $ 115,074 $ 115,333 $ 99,158 $ 99,880
========== =========== ============= =========== ========== ==========
Securities held to maturity:
Debt securities:
U.S. Government and agency bonds.......... $ -- $ -- $ 4,000 $ 4,022 $ 14,096 $ 14,136
Corporate and municipal bonds............. 1,593 1,567 640 640 -- --
---------- ----------- ------------- ----------- ---------- ----------
Total debt securities..................... 1,593 1,567 4,640 4,662 14,096 14,136
---------- ----------- ------------- ----------- ---------- ----------
Total securities held to maturity......... $ 1,593 $ 1,567 4,640 4,662 14,096 14,136
---------- ----------- ------------- ----------- ---------- ----------
Total securities.......................... $ 126,217 $ 120,317 $ 119,714 $ 119,995 $ 113,254 $ 114,016
========== =========== ============= =========== ========== ==========
</TABLE>
14
<PAGE>
At December 31, 1999, the contractual maturities of debt securities is as
follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------- ----------------------------
Fair Amortized
Cost Yield Cost Yield
---------- ---------- ------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One year or less....................... $ -- --% $ 30 5.50%
After one year through five years...... 5,063 6.31 142 5.50
After five years through ten years..... 45,550 6.52 929 4.91
After ten years........................ 66,757 6.57 492 4.99
------------- --------- ----------- -------------
Total.................................. $ 117,370 6.54% $ 1,593 5.00%
============ ========= =========== =============
</TABLE>
Sources of Funds
General. Deposits are the primary source of our funds for lending and other
investment purposes. In addition to deposits, we derive funds from loan
principal repayments. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates and money market conditions. Borrowings are used on a short-term
basis to compensate for reductions in the availability of funds from other
sources and are also used on a longer term basis for general business purposes.
Deposits. Our deposits are attracted principally from within our primary
market area tthe offering of a broad selection of deposit instruments, including
NOW accounts, money market accounts, regular savings accounts, and term
certificate accounts. Deposit account terms vary, with the principal differences
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by us on a periodic basis. Determination of rates and terms are
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
We do not advertise for deposits outside our primary market area or utilize
the services of deposit brokers.
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by us at the dates indicated.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
------------------------- -------------------------- --------------------------
Amount Percent Amount Percent Amount Percent
---------- ---------- ----------- ---------- ----------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit................ $ 132,544 63.68% $ 127,852 63.16% $ 112,702 60.42%
----------- --------- ----------- --------- ------------ ----------
Transaction Accounts:
Savings accounts....................... 46,093 22.15 47,259 23.34 48,285 25.88
Money market accounts ................. 5,020 2.41 3,196 1.58 2,198 1.18
Demand deposits and NOW accounts 24,475 11.76 24,127 11.92 23,349 12.52
---------- --------- ----------- --------- ------------ ----------
Total transaction accounts.......... 75,588 36.32 74,582 36.84 73,832 39.58
----------- --------- ----------- --------- ------------ ----------
Total deposits...................... $ 208,132 100.00% $ 202,434 100.00% $ 186,534 100.00%
=========== ========= =========== ========= ============ ==========
</TABLE>
15
<PAGE>
The following table sets forth the deposit activities of Savings Bank of
the Finger Lakes during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ------------- -----------
(In Thousands)
<S> <C> <C> <C>
Deposits................................................ $ 619,483 $ 500,594 $ 360,637
Withdrawals............................................. (622,445) (493,372) (335,673)
----------- ------------ -----------
Net increase (decrease) before interest credited........ (2,962) 7,222 24,964
Interest credited....................................... 8,660 8,678 7,738
----------- ------------ -----------
Net increase in deposits................................ $ 5,698 $ 15,900 $ 32,702
=========== ============ ===========
</TABLE>
The following table sets forth the maturities of our certificates of
deposit having principal amounts of $100,000 or more as of December 31, 1999.
Maturity Period Amount Percent
----------------------- ------------ ----------
(In Thousands)
Three months or less......................... $ 4,335 17.6%
Over three through six months................ 6,408 26.0
Over six through twelve months............... 8,334 33.9
Over twelve months........................... 5,523 22.5
--------- ----
Total certificates of deposit with
balances of $100,000 or more........... $ 24,600 100%
========= ===
The following table shows the interest rate and maturity information for
our certificates of deposit as of December 31, 1999.
<TABLE>
<CAPTION>
Maturity Date
-------------------------------------------------------------------------------------
Interest Rate 1 Year or Less Over 1 to 2 Years Over 2 to 3 Years Over 3 Years Total
--------------- --------------- ----------------- ------------------------------------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.00% - 4.00% $ 1,704 $ -- $ -- $ -- $ 1,704
4.01% - 6.00% 86,817 23,586 1,869 4,522 116,794
6.01% - 8.00% 9,788 1,192 1,873 1,193 14,046
--------- --------- --------- --------- ---------
Total $ 98,309 $ 24,778 $ 3,742 $ 5,715 $ 132,544
========= ========= ========= ========= =========
</TABLE>
Borrowings. We may obtain advances from the FHLB of New York secured by our
investment in FHLB of New York stock, our portfolio of investment securities and
certain of our residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities.
The following table sets forth the maximum month-end balance and average
balance of our FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
For Year Ended December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C>
Maximum balance................................... $ 69,960 $ 54,892 $ 36,721
Average balance................................... 61,923 45,532 24,656
Weighted average interest rate on FHLB advances... 5.43% 5.51% 5.70%
</TABLE>
16
<PAGE>
The following table sets forth certain information as to our FHLB advances
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
FHLB advances....................................... $ 69,960 $ 54,815 $ 36,721
Weighted average interest rate on FHLB advances..... 5.64% 5.51% 5.76%
</TABLE>
Subsidiary. SBFL Agency, Inc. is a wholly owned subsidiary of the Bank.
SBFL Agency, Inc. was established in November 1995 to sell a line of fixed rate
annuity products. At December 31, 1999 SBFL Agency, Inc. offered mutual funds,
financial planning services and insurance annuity products.
Employees. We have 85 full-time employees and 23 part-time employees at
December 31, 1999. None of these employees is represented by a collective
bargaining agreement, and we believe that we enjoy good relations with our
personnel.
Regulation
Savings Bank of the Finger Lakes is examined and supervised extensively by
the Office of TSupervision and the Federal Deposit Insurance Corporation.
Savings Bank of the Finger Lakes is a member of and owns stock in the Federal
Home Loan Bank of New York, which is one of the twelve regional banks in the
Federal Home Loan Bank System. This regulation and supervision establishes a
comprehensive framework of activities in which an ican engage and is intended
primarily for the protection of the insurance fund and depositors. Savings Bank
of the Finger Lakes also is regulated by the Board of Governors of the Federal
Reserve System, governing reserves to be maintained against deposits and other
matters. The Office of Thrift Supervision examines Savings Bank of the Finger
Lakes and prepares reports for the consideration of Savings Bank of the Finger
Lakes' Board of Directors on any deficiencies that they may find in Savings Bank
of the Finger Lakes' operations. Savings Bank of the Finger Lakes' relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws, especially in matters concerning the ownership of
savings accounts and the form and content of Savings Bank of the Finger Lakes'
mortgage documents. Any change in this regulation, whether by the Federal
Deposit Insurance Corporation, Office of Thrift Supervision, or Congress, chave
a material adverse impact on Finger Lakes Financial and Savings Bank of the
Finger Lakes and their operations.
Federal Regulation of Savings Institutions
Business Activities. The activities of federal savings associations are
subject to extensive regulation including restrictions or requirements with
respect to loans to one borrower, the percentage of non-mortgage loans or
investments to total assets, capital distributions, permissible investments and
lending activities, liquidity, transactions with affiliates and community
reinvestment. The description of statutory provisions and regulations applicable
to savings associations set forth herein does not purport to be a complete
description of these statutes and regulations and their eon Savings Bank of the
Finger Lakes.
Loans to One Borrower. Federal savings associations generally may not make
a loan or extend credit to a single or related group of borrowers in excess of
15% of unimpaired capital and surplus on an unsecured basis. An additional
amount may be lent, equal to 10% of unimpaired capital and surplus, if the loan
is secured by rmarketable collateral, which is defined to include certain
securities and bullion, but generally does not include real estate. As of
December 31, 1999, Savings Bank of the Finger Lakes was in compliance with its
loans-to-one-borrower limitations.
Qualified Thrift Lender Test. As a federal savings association, Savings
Bank of the Finger Lakes is required to satisfy a qualified thrift lender test
whereby it must maintain at least 65% of its "portfolio assets" in "qualified
thrift investments" consisting primarily of residential mortgages and related
investments, including mortgage-backed and related securities. "Portfolio
assets" generally means total assets less specified liquid assets up to 20% of
total assets, goodwill and other intangible assets, and the value of property
used to conduct business. A savings association that fails the qualified thrift
lender test must either convert to a bank charter or operate under specified
restrictions. As of December 31, 1999, Savings Bank of the Finger Lakes
maintained 87.72% of its portfolio assets in qualified thrift investments
atherefore, met the qualified thrift lender test.
17
<PAGE>
Capital Distributions. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock repurchases and other
transactions charged to the capital account of a savings institution to make
capital distributions. Under new regulations effective April 1, 1999, a savings
institution must file an application for OTS approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the institution would not be at least adequately capitalized following the
distribution, (3) the distribution would violate any applicable statute,
regulation, agreement or OTS-imposed condition, or (4) the institution is not
eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions which are a subsidiary of a holding
company, as well as certain other institutions, must still file a notice with
the OTS at least 30 days before the board of directors declares a dividend or
approves a capital distribution.
Any additional capital distributions would require prior regulatory
approval. In the event Savings Bank of the Finger Lakes' capital fell below its
fully-phased in requirement or the Office of Thrift Supervision notified it that
it was in need of more than normal supervision, Savings Bank of the Finger
Lakes' ability to make capital distributions could be restricted. In addition,
the Office of Thrift Supervision could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
Office of Thrift Supervision determines that the distribution would constitute
an unsafe or unsound practice.
Liquidity. Savings Bank of the Finger Lakes is required to maintain an
average daily balance of specified liquid assets equal to a quarterly average of
not less than a specified percentage of its net withdrawable deposit accounts
plus borrowings payable in one year or less. The current requirement is 4%.
Savings Bank of the Finger Lakes' average liquidity ratio for the quarter ended
December 31, 1999 was 41.98%, which exceeded the applicable requirements.
Community Reinvestment Act and Fair Lending Laws. Savings associations have
a responsibility under the Community Reinvestment Act and related regulations of
the Office of Thrift Supervision to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of the Community Reinvestment Act could, at a minimum, result in
regulatory restrictions on its activities, and failure to comply with the Equal
COpportunity Act and the Fair Housing Act could result in enforcement actions by
the Office of Thrift Supervision, as well as other federal regulatory agencies
and the Department of Justice. Savings Bank of the Finger Lakes received a
satisfactory Community Reinvestment Act rating under the current Community
Reinvestment Act regulations in its most recent federal examination by the
Office of Thrift Supervision.
Transactions with Related Parties. Savings Bank of the Finger Lakes'
authority to engage in transactions with related parties or "affiliates" or to
make loans to specified insiders, is limited by Sections 23A and 2of the Federal
Reserve Act. The term "affiliates" for these purposes generally means any
company that controls or is under common control with an institution. Section
23A limits the aggregate amount of certain "covered" transactions with any
individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of covered transactions with
all affiliates to 20% of the savings institution's capital and surplus. Covered
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
covered transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
18
<PAGE>
Savings Bank of the Finger Lakes' authority to extend credit to executive
officers, directors and 10% stockholders, as well as entities controlled by
these persons, is currently governed by Sections 22(g) and 22(h) of the Federal
Reserve Act, and also by Regulation O. Among other things, these regulations
generally require these loans to be made on terms substantially the same as
those offered to unaffiliated individuals and do not involve more than the
normal risk of repayment. However, recent regulations now permit executive
officers and directors to receive the same terms through benefit or compensation
plans, that are widely available to other employees, as long as the director or
eofficer is not given preferential treatment compared to other participating
employees. Regulation O also places iand aggregate limits on the amount of loans
Savings Bank of the Finger Lakes may make to these persons based, in part, on
Savings Bank of the Finger Lakes' capital position, and requires approval
procedures to be followed. At December 31, 1999, Savings Bank of the Finger
Lakes was in compliance with these regulations.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action lto have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under specified circumstances.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, asuch other operational and managerial
standards as the agency deems appropriate. The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness to
implement the safety and soundness standards required under the Federal law. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The guidelines address internal controls and
information systems; internal audit systems; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; and compensation, fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If an institution fails to meet these
standards, the appropriate federal banking agency may require the institution to
submit a compliance plan.
Capital Requirements. Office of Thrift Supervision capital regulations
require savings institutions to meet three capital standards: a 1.5% tangible
capital standard, a 4.0% leverage or core capital ratio and an 8.0% risk-based
capital standard. Core capital is defined as common stockholders' equity,
including retained earnings, certain non-cumulative perpetual preferred stock
and related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain qualifying supervisory goodwill
and certain mortgage servicing rights. Tangible capital is defined as core
capital less all intangible assets, including supervisory goodwill, plus a
specified amount of mortgage servicing rights. Office of Thrift Supervision
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must deduct investments in and loans to
subsidiaries engaged in activities not permissible for a national bank, and
unrealized gains or losses on certain available for sale securities.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 2 core and total capital, which is defined as core capital
and supplementary capital, to risk weighted assets of 4.0% and 8respectively. In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk- weight of 0% to 100%, as
assigned by the Office of Thrift Supervision capital regulation based on the
risks the Office of Thrift Supervision believes are inherent in the type of
asset. The components of Tier 1 core capital are equivalent to those discussed
earlier under the 4.0% leverage ratio standard. The components of supplementary
capital currently include cumulative preferred stock, long-term perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock and allowance for loan and lease losses. Allowance
for loan and lease losses includable in
19
<PAGE>
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall, the aof supplementary capital included as part of total capital cannot
exceed 100% of core capital.
Office of Thrift Supervision regulatory capital rules also incorporate an
interest rate risk component. Savings associations with "above normal" interest
rate risk exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings association's
interest rate risk is measured by the decline in the net portfolio value of its
assets, i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts, that would result from
a hypothetical 200-basis point increase or decrease in market interest rates,
divided by the estimated economic value of the association's assets. In
calculating its total capital under the risk-based rule, a savings association
with a measured interest rate risk exposure exceeding 2%, mdeduct an interest
rate component equal to one-half of the excess change. The Office of Thrift
Supervision has deferred, for the present time, the date on which the interest
rate component is to be deducted from total capital. The rule also provides that
the Director of the Office of Thrift Supervision may waive or defer an
institution's interest rate risk component on a ca-case basis. At December 31,
1999, Savings Bank of the Finger Lakes exceeded each of the three Office of
Thrift Supervision capital requirements.
Prompt Corrective Regulatory Action
Under the Office of Thrift Supervision Prompt Corrective Action
regulations, the Office of TSupervision is required to take supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's level of capital. Generally, a savings institution that has total
risk-based capital of less than 8.0% or aleverage ratio or a Tier 1 core capital
ratio that is less than 4.0% is considered to be undercapitalized. A savings
institution that has the total risk-based capital less than 6.0%, a Tier 1 core
risk-based capital ratio of less than 3.0% or a leverage ratio that is less than
3.0% is considered to be "significantly undercapitalized" and a savings
institution that has a tangible capital to assets ratio equal to or less than
2.0% is deemed to be "critically undercapitalized." Generally, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the Office of Thrift Supervision
within 45 days of the date an institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The Office of Thrift Supervision could also take any one
of a number of discretionary supervisory actions against undercapitalized
institutions, including the issuance of a capital directive and the replacement
of senior executive officers and directors.
Insurance of Deposit Accounts
The Federal Deposit Insurance Corporation has adopted a risk-based deposit
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period, and one of three supervisory subcategories within each
capital group. The three capital categories are well cadequately capitalized and
undercapitalized. The supervisory subgroup to which an institution is assigned
is based on a supervisory evaluation provided to the Federal Deposit Insurance
Corporation by the institution's primary federal regulator and information which
the Federal Deposit Insurance Corporation determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. The Federal Deposit Insurance
Corporation is authorized to raise the assessment rates. The Federal Deposit
Insurance Corporation has exercised this authority several times in the past and
may raise insurance premiums in the future. If this type of action is taken by
the Federal Deposit Insurance Corporation, it could have an adverse effect on
the earnings of Savings Bank of the Finger Lakes.
Federal Home Loan Bank System
Savings Bank of the Finger Lakes, as a federal association, is required to
be a member of the Federal Home Loan Bank System, which consists of 12 regional
Federal Home Loan Banks. The Federal Home Loan Bank System provides a central
credit facility primarily for member institutions. Savings Bank of the Finger
Lakes, as a member of the Federal
20
<PAGE>
Home Loan Bank of New York, is required to acquire and hold shares of capital
stock in that Federal Home Loan Bank in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 5% of its borrowings from the
Federal Home Loan Bank, whichever is greater. As of December 31, 1999, Savings
Bank of the Finger Lakes was in compliance with this requirement. The Federal
Home Loan Banks are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal Home Loan
Banks pay to their members and could also result in the Federal Home Loan Banks
imposing a higher rate of interest on advances to their members.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain noninte reserves against their transaction accounts, such as negotiable
order of withdrawal and regular checking accounts. At December 31, 1999, Savings
Bank of the Finger Lakes was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision.
Thrift Charter
Congress has been considering legislation in various forms that would
require federal thrifts, such as Savings Bank of the Finger Lakes, to convert
their charters to national or state bank charters. Savings Bank of the Finger
Lakes cannot determine whether, or in what form, legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect Finger Lakes Financial and Savings Bank of the Finger
Lakes.
TAXATION
Federal Taxation
For federal income tax purposes, Finger Lakes Financial and its subsidiary
file a consolidated federal income tax return on a calendar year basis using the
accrual method of accounting.
As a result of the enactment of the Small Business Job Protection Act of
1996, all savings banks and savings associations may convert to a commercial
bank charter, diversify their lending, or be merged into a commercial bank
without having to recapture any of their pre-1988 tax bad debt reserve
accumulations. Any post-1987 reserves must be recaptured, regardless of whether
or not a particular thrift intends to convert its charter, be acquired, or
diversify its activities. The recapture tax on post-1987 reserves is assessed in
equal installments over the six taxable years beginning in 1996. However, if a
thrift met the residential loan requirement included in the federal legislation,
then the thrift could suspend its tax bad debt recapture for the 1996 and 1997
tax years. At December 31, 1999, Finger Lakes Financial had a balance of
approximately $3.0 million of bad debt reserves that would be recaptured under
this legislation.
Deferred income taxes arise from the recognition of items of income and
expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Finger Lakes Financial
accounts for deferred income taxes by the asset and liability method, applying
the enacted statutory rates in effect at the balance sheet date to differences
between the book basis and the tax basis of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect changes in
the tax laws.
Finger Lakes Financial is subject to the corporate alternative minimum tax
to the extent it exceeds Finger Lakes Financial's regular income tax for the
year. The alternative minimum tax will be imposed at the rate o20% of a
specially computed tax base. Included in this base are a number of preference
items, including interest on certain tax-exempt bonds issued after August 7,
1986, and an "adjusted current earnings" computation which is similar to a tax
earnings and profits computation. In addition, for purposes of the alternative
minimum tax, the amount of alternative minimum taxable income that may be offset
by net operating losses is limited to 90% of alternative minimum taxable income.
21
<PAGE>
In 1998, Finger Lakes Financial Corp., MHC and its subsidiaries were
audited by the Internal Revenue Service for tax years 1992 and 1995. Amended
returns were filed, and approximately $22,000 in additional taxes were assessed
and paid. For additional information regarding taxation, see Note 7 of Notes to
Consolidated Financial Statements.
State Taxation
New York State Taxation. Finger Lakes Financial and Savings Bank of the
Finger Lakes report income on a combined calendar year basis to New York state.
New York State Franchise Tax on corporations is imposed in an amount equal to
the greater of (a) 9% of "entire net income" allocable to New York State (b) 3%
of "alternativ entire net income" allocable to New York State (c) 0.01% of the
average value of assets allocable to New York State or (d) nominal minimum tax.
Entire net income is based on federal taxable income, subject to certain
modifications. Alternative entire net income is equal to entire net income
without certain modifications.
Executive Officers of the Company
Listed below is information, as of December 31, 1999, concerning Finger
Lakes Financial's executive officers. There are no arrangements or
understandings between Finger Lakes Financial and any of persons named below
with respect to which he or she was or is to be selected as an officer.
Name Age Position and Term
---- --- -----------------------------------------------------
G. Thomas Bowers 56 Chairman of the Board, President and Chief Executive
Officer.
Terry L. Hammond 50 Executive Vice President and Chief Financial Officer.
Thomas A. Mayfield 53 Senior Vice President and Senior Loan Officer.
Leslie J. Zornow 35 Senior Vice President, retail banking.
22
<PAGE>
ITEM 2. PROPERTIES
Properties
At December 31, 1999, we conducted our business from our main office at 470
Exchange Street, Geneva, New York.
The following table sets forth certain information with respect to the
office and other properties of the Savings Bank of the Finger Lakes at December
31, 1999.
Net Book
Value/Lease
Description/Address Leased/Owned Expiration Date
------------------- ------------ ---------------
(Dollars in Thousands)
Main Office Owned $ 631
470 Exchange Street
Geneva, New York
Branch Offices
Pyramid Mall Leased May 2014
Routes 5 and 20
Geneva, New York
Seaway Plaza Leased March 2011
Routes 5 and 20
Waterloo, New York
Commons Leased March 2001
301 E. State Street
Ithaca, New York
South Meadow Owned on Leased $ 776
702 South Meadow Street Land May 2017
Ithaca, New York
Canandaigua Owned on Leased $ 747
659 South Main Street Land September 2018
Canandaigua, New York
ITEM 3. LEGAL PROCEEDINGS
Although Finger Lakes Financial is involved, from time to time, in various
legal proceedings in the normal course of business, there are no material legal
proceedings to which Finger Lakes Financial presently is a party or to which any
of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
23
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the high and low bid quotes for Finger Lakes
Financial common stock and the adjusted cash dividends per share declared for
the periods indicated. These quotations represent prices between dealers and do
not include retail markups, markdowns, or commissions and do not reflect actual
transactions. This information has been obtained from monthly statistical
summaries provided by the Nasdaq Stock Market. As of December 31, 1999 there
were 1,180,052 publicly-held shares of Finger Lakes Financial common stock
outstanding.
<TABLE>
<CAPTION>
Cash Dividend
High Bid(1) Low Bid(1) Declared
--------------- --------------- ------------------
Fiscal 1999
<S> <C> <C> <C>
Quarter Ended December 31, 1999..................... $ 9.750 $ 7.000 $ 0.06
Quarter Ended September 30, 1999.................... $ 11.000 $ 8.125 $ 0.06
Quarter Ended June 30, 1999......................... $ 11.750 $ 10.500 $ 0.06
Quarter Ended March 31, 1999........................ $ 15.750 $ 11.375 $ 0.06
Fiscal 1998
Quarter Ended December 31, 1998..................... $ 13.250 $ 9.00 $ 0.06
Quarter Ended September 30, 1998.................... $ 19.375 $ 11.000 $ 0.06
Quarter Ended June 30, 1998......................... $ 21.500 $ 18.625 $ 0.06
Quarter Ended March 31, 1998........................ $ 24.750 $ 14.750 $ 0.05
--------------------
</TABLE>
(1)Common stock prices and dividends have been adjusted to reflect two for one
stock split effective March 2, 1998.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF FINGER LAKES FINANCIAL AND SUBSIDIARY
The following tables set forth selected consolidated historical financial
and other data of Finger Lakes Financial and the Savings Bank of the Finger
Lakes for the periods and at the dates indicated. The information is derived in
part from, and should be read together with, the Consolidated Financial
Statements and Notes thereto of Finger Lakes Financial contained elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(In Thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets............................ $ 301,241 $ 282,376 $ 247,708 $ 200,429 $ 167,773
Cash and cash equivalents............... 6,095 4,375 4,394 6,366 6,823
Securities available for sale........... 118,750 115,333 99,880 83,830 61,719
Securities held to maturity............. 1,593 4,640 14,096 13,347 4,705
Loans, net.............................. 158,854 145,136 118,439 88,682 86,050
Deposits................................ 208,132 202,434 186,534 153,832 144,846
Advances from Federal Home Loan Bank 69,960 54,815 36,721 23,800 --
Stockholders' equity.................... 19,379 21,964 21,679 20,350 20,734
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 (1)
------------- ------------- ------------- ------------- -------------
(In Thousands, except per share amounts)
Selected Operating Data:
<S> <C> <C> <C> <C> <C>
Total interest income................... $ 20,317 $ 18,645 $ 15,840 $ 13,560 $ 8,187
Total interest expense.................. 12,021 11,201 9,197 7,370 4,426
--------- --------- --------- --------- ---------
Net interest income.................... 8,296 7,444 6,643 6,190 3,761
Provision for loan losses............... 200 240 120 483 290
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses............................ 8,096 7,204 6,523 5,707 3,471
Noninterest income...................... 1,328 1,202 721 1,093 123
Noninterest expense..................... 7,259 7,213 5,835 6,741 5,068
--------- --------- --------- --------- ---------
Income (loss) before income tax
expense (benefit)...................... 2,165 1,193 1,409 59 (1,474)
Income tax expense (benefit)............ 860 469 562 23 (571)
--------- --------- --------- --------- ---------
Net income (loss)....................... $ 1,305 $ 724 $ 847 $ 36 $ (903)
========= ========= ========= ========= =========
Net income (loss) per share- basic...... $ .37 $ .21 $ .24 $ .01 $ (.25)
========= ========= ========= ========= =========
Net income (loss) per share - diluted $ .37 $ .20 $ .24 $ .01 $ (.25)
========= ========= ========= ========= ==========
(
Dividends per share..................... $ .24 $ .23 $ .20 $ .20 $ .15
========= ========= ========= ========= =========
---------------------------
<FN>
(1) Reflects eight months of operations insofar as the Savings Bank of Finger Lakes converted its fiscal year end from April
3to December 31 in 1995.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects Finger Lakes Financial's consolidated
financial statements and other relevant statistical data and is intended to
enhance your understanding of our financial condition and results of operations.
You should read the information in this section in conjunction with Finger Lakes
Financial's consolidated financial statements and their notes, and the other
statistical data provided in this prospectus. This report contains certain
"forwar-looking statements" which may be identified by the use of such words as
"believe," "expect," "anticipate," "should," "planned" "estimated" and
"potential." Examples of forward-looking statements include, but are not limited
to, estimates with respect to our financial condition, results of operations and
business that are subject to various factors which could cause actual results to
differ materially from these estimates and most other statements that are not
historical in nature. These factors include, but are not limited to, general and
local economic conditions, changes in interest rates, deposit flows, demand for
mortgage and other loans, real estate values, and competition; changes in
accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services.
General
Our results of operations depend primarily upon the results of operations
of our wholly-owned subsidiary, Savings Bank of the Finger Lakes, which depend
primarily on net interest income. Net interest income is the difference between
the interest income we earn on our interest-earning assets, consisting primarily
of loans and investment and mortgage-backed securities, and the interest we pay
on our interest-bearing liabilities, primarily savings accounts, time deposits
and other borrowings. Our results of operations are also affected by our
provision for loan losses, other income and other expense. Other expense
consists of non-interest expenses, including salaries and employee benefits,
occupancy, data processing fees, deposit insurance premiums, advertising and
other expenses. Other income consists of non-interest income, including service
charges and fees, gain (loss) on sale of loans and securities and other income.
Our results of operations may also be affected significantly by general and
local economic and competitive conditions, particularly those with rto changes
in market interest rates, government policies and actions of regulatory
authorities.
25
<PAGE>
Financial Condition
Our total assets as of December 31, 1999 were $301.2 million, a net
increase of $18.8 million, or 6.7% from December 31, 1998. The increase was due
primarily to a $13.8 million or 9.5% increase in our loan portfolio. Our loan
growth is a result of competitive expansion into other markets within the Finger
Lakes region in New York attracting new commercial and personal lending
customers. With management's continued emphasis on lending activities, loans
increased by $4.9 million, home equity loans increased by $5.3 million, and
commercial business loans increased by $4.1 million. Securities classified as
available for sale at December 31, 1999 were $118.8 million, an increase of $3.5
million from December 31, 1998, while securities classified as held to maturity
at December 31, 1999 were $1.6 million, a decrease of $3.0 million from December
31, 1998. Other assets totaled $6.1 million at December 31, 1999, an increase of
$2.6 million from 1998. This increase is primarily the result of deferred tax
assets attributed to the unrealized losses on securities available for sale.
The growth in assets during 1999 was funded by a combination of a $5.7
million increase in total deposits and a $15.1 million increase in borrowed
funds. Certificates of deposit increased by $4.7 million and all other deposits
increased by $1.0 million in 1999. Total deposit growth of $5.7 million is
reflective of our expansion into the Ithaca and Canandaigua markets and
aggressively pricing deposits, particularly certificates of deposit. The
increase in borrowed funds reflects a continuation of our strategy of using
funding sources other than retail deposits to support asset growth.
Stockholders' equity totaled $19.4 million as of December 31, 1999, a
decrease of $2.6 million from December 31, 1998. Although net income of $1.3
million in 1999 represents an 80.2% increase over 1998, the decrease in
stockholders' equity results primarily from recognition of a $3.7 million
unrealized loss in the fair value of savailable for sale, net of related
deferred income taxes.
26
<PAGE>
Average Balances, Net Interest Income and Yields Earned and Rates Paid
The following table presents for the periods indicated the total dollar
amount of interest from average interes assets and the resultant yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in dollar and rates, and the net interest m No tax-equivalent adjustments have
been made and all average balances are daily average balances. Non-accruing
loans have been included in the yield calculations in this table and dividends
received are included as interest income.
<TABLE>
<CAPTION>
At December 31, Year Ended Year Ended Year Ended
1999 December 31, 1999 December 31, 1998 December 31, 1997
----------------- ------------------------ ----------------------- -----------------------
Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- ------ -------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1)............................... $ 160,204 8.00% $ 153,783 $12,137 7.89% $132,324 $ 10,821 .18% $ 99,939 $ 8,588 8.59%
Securities (2)......................... 129,741 6.42 128,761 8,173 6.35 119,256 7,810 6.55 110,762 7,204 6.50
Money market investments............... 200 4.75 114 6 5.26 293 14 4.78 788 47 5.96
--------- -------- --------- ------- ----- -------- -------- ----- ------- ------- ----
Total interest-earning assets.......... 290,145 7.31 282,658 20,316 7.19 251,873 18,645 7.40 211,489 15,839 7.49
-------- ------- ----- -------- ----- ------- ----
Non-interest-earning assets............ 11,906 11,101 11,519 7,820
--------- --------- -------- -------
Total assets........................... $ 301,241 $ 293,759 $263,392
--------- ========= ========
$219,309
Interest-bearing liabilities:
Deposits(3)............................ $ 208,132 4.15 208,166 $ 8,660 4.16 $193,227 $ 8,678 4.49 $ 171,993 $ 7,738 4.50
Borrowed funds......................... 69,960 5.64 61,923 3,360 5.43 45,771 2,523 5.51 25,127 1,458 5.80
--------- -------- --------- ------- ----- -------- -------- ----- ---------------- -----
Total interest-bearing liabilities..... 278,092 4.53 270,089 12,020 4.45 238,998 11,201 4.69 197,120 9,196 4.67
-------- ------- ----- -------- ----- -------- -----
Non-interest-bearing liabilities....... 3,770 2,601 2,369 1,260
--------- --------- --------- --------
Total liabilities...................... 281,862 272,690 241,367 198,380
Stockholders' equity................... 19,379 21,069 22,025 20,929
--------- --------- --------- --------
Total liabilities and
stockholders' equity................. $ 301,241 $ 293,759 $263,392 $219,309
======= ========= ======== ========
Net interest income.................... $ 8,296 $ 7,444 $ 6,643
======= =======
Interest rate spread(4)................ 2.78% 2.74% 2.71% 2.82%
======= ====== ====== ======
Net interest margin(5)................. 2.93% 2.96% 3.14%
====== ====== ======
Average interest-earning assets to
average interest-bearing liabilities 104.65% 105.39% 107.29%
====== ====== =======
</TABLE>
--------------------
(1)Includes premiums, net of deferred fees.
(2)Includes securities available for sale and held to maturity at amortized cost
and Federal Home Loan Bank stock.
(3)Includes noninterest-bearing deposits.
(4)Represents the difference between the weighted average yield on
interest-earning assets and the weighted average costs of average
interest-bearing liabilities. (5)Net interest income divided by interest-earning
assets.
27
<PAGE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
interest income and expense during the periods indicated. For each category of
interest- earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (change in volume
multiplied by prior year rate), (ii) changes in rate (change in rate multiplied
by prior year volume), and (iii) total change in rate and volume. The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 vs. 1998 1998 vs. 1997
----------------------------------------- ---------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Total Increase/ Due to Total Increase/
------------------------ -------------------------
Rate Volume (Decrease) Rate Volume (Decrease)
----------- ---------- ---------- ---------- ---------- -----------
(In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans.......................................... $ (439) $ 1,755 $ 1,316 $ (550) $ 2,783 $ 2,233
Securities..................................... (259) 622 363 54 552 606
Money market investments....................... 1 (9) (8) (3) (30) (33)
-------- ------- -------- ------- -------- --------
Total interest-earning assets............... (697) 2,368 1,671 (499) 3,305 2,806
-------- ------- -------- ------- -------- --------
Interest-bearing liabilities:
Deposits....................................... (689) 671 (18) (15) 955 940
Borrowed funds................................. (53) 890 837 (133) 1,198 1,065
-------- ------- -------- ------- -------- --------
Total interest-bearing liabilities......... (742) 1,561 819 (148) 2,153 2,005
-------- ------- -------- ------- -------- --------
Increase (decrease) in net interest income..... $ 45 $ 807 $ 852 $ (351) $ 1,152 $ 801
======== ======== ======== ======= ========= ========
</TABLE>
Results of Operations
Comparison of the years ended December 31, 1999 and 1998
Net Interest Income. Our net interest income is determined by its interest
rate spread (i.e., the difference between yields earned on interest-earning
assets and rates paid on interest-bearing liabilities) and the relative amounts
of interest- earning assets and interest-bearing liabilities. Net interest
income amounted to $8.3 million in 1999, an increase of $852,000 from 1998. The
increase resulted from a $30.8 million increase in the total average
interest-earning assets, primarily from loan growth, offset by a $31.1 million
increase in average interest-bearing liabilities, the net of which contributed
to a $807,000 increase in net interest income. The average interest rate spread
in 1999 was 2.74% versus 2.71% in 1998. The average yield on interest-earning
assets decreased 21 basis points, while the average cost of funds decreased 24
basis points from 1998 to 1999, the benefits of which contributed to a $45,000
increase in net interest income in 1999. The decline in the average yield on
interest earning assets was attributable to a declining rate environment through
the second quarter of 1999 and increased competitive pressures. The cost of
funds, correspondingly, declined as a result of the rate environment, as well as
deposit pricing strategies designed to lower the overall cost of deposits.
Interest Income. Total interest income in 1999 amounted to $20.3 million,
an increase of $1.7 million from 1998. Although the average yield on earning
assets declined to 7.19% in 1999 compared to 7.40% in 1998, interest income on
loans increased to $12.1 million in 1999, an increase of $1.3 million from 1998.
This improvement was attributable to loan growth as the average total
outstanding loan balance increased by $21.5 million to $153.8 million for 1999.
Interest income on securities amounted to $8.2 million, an increase of $363,000
from the prior year. This increase was attributed to growth in the portfolio as
the average outstanding securities balance increased by $9.5 million to $128.8
million for 1999.
Interest Expense. Total interest expense in 1999 was $12.0 million, an
increase of $819,000 from 1998. In 1999, interest expense on deposits amounted
to $8.7 million while interest expense on borrowed funds amounted to $3.4
million.
28
<PAGE>
Interest expense on deposits remained essentially flat year over year, as
an increase of $671,000 attributed to the growth in the average outstanding
deposit base was offset by a decrease of $689,000 attributed to the decline of
0.33% in the average cost of deposits to 4.16%. However, interest expense on
borrowings increased $837,000, from $2.5 million in 1998, due to a $16.1 million
increase in average outstanding borrowings. The average cost of borrowed funds
decreased 0.08% to 5.43% for the year ended December 31, 1999.
Provision for Loan Losses. Our provision for loan losses amounted to
$200,000 in 1999, a decrease of $40,000 from the prior year. Our allowance for
loan losses amounted to $1.3 million as of December 31, 1999, or 0.84% of total
loans outstanding, as compared to $1.2 million or 0.80% at December 31, 1998.
The reduction in the provision reflects an improvement in the credit quality of
the portfolio in 1999 as non-performing loans decreased $429,000 to $587,000 at
December 31, 1999 from $1.0 million at December 31, 1998. Net charge-offs in
1999 were $27,000 versus $213,000 in 1998, representing 0.02% and 0.16%,
respectively, of total average loans outstanding. The decrease in ncharge-offs
was primarily a result of a significant 1999 recovery for $90,000 of a
previously charged-off commercial business loan bringing total recoveries to
$185,000 in 1999 as compared to $80,000 in 1998. Also, gross loan charge offs
declined by $81,000 to $212,000 in 1999 from $293,000 in 1998 as we devoted
greater resources to monitoring of problem loans and collection efforts. The
slight 4 basis point increase in the allowance for loan losses as a percentage
of total loans outstanding is a result of qualitative factors including, but not
limited to, the substantial growth in multi-family and commercial business loans
and entry into new markets. Management reviews the adequacy of the allowance for
loan losses quarterly through an asset classification and review process and an
analysis of the level of loan delinquencies and general mand economic
conditions.
Noninterest Income. Noninterest income, consisting primarily of service
charges on deposit accounts, loan servicing fees, income from the sale of
annuities and mutual funds, and gains and losses on loans asecurities sold, was
$1.3 million in 1999, an increase of $126,000 or 10.5% compared to 1998. Service
charges were $1.0 million in 1999, an increase of $224,000 over 1998. Net gains
on sales of securities in 1999 were $77,000, as compared to $106,000 in 1998.
Net gains on sales of loans were $224,000 in 1999, as compared to $277,000 in
1998.
Noninterest Expense. Noninterest expense amounted to $7.3 million in 1999,
comparable to 1998. However, excluding provisions for environmental remediation,
expenses increased $576,000 or 8.7%. This increase reflects our investment in
the future with increased staff, branch expansion, and upgrading technological
capabilities for data processing. Increases of $269,000 in salaries and employee
benefits expense and $177,000 in office occupancy and equipment expense were
primarily the result of a full year of expenses including depreciation expense
relating to a new branch office in Canandaigua, New York. Data processing
expense amounted to $159,000, an increase of $40,000 or 33.6%. This increase is
primarily the result of additional processing costs associated with the new
branch office, and data communications upgraded at two branches in Ithaca, New
York. We recorded provisions for environmental remediation of real estate owned
of $90,000 during 1999, as compared to $620,000 in 1998. This decrease is
primarily the result of management's determination of the provision required
each year to ensure that the accrual established for environmental remediation
as of December 31 is appropriate. See note 13 of the "Consolidated Financial
Statements." Professional fees of $347,000 in 1999, which includes legal,
consulting and accounting services, remained consistent in 1999 as compared to
1998 as did deposit insurance premiums, which totaled $120,000 for 1999.
Marketing and advertising expense decreased $16,000 to $248,000 in 1999,
reflecting larger media expenditures in 1998 relating to the new branch office
in Canandaigua. Real estate owned expenses increased $63,000 to $72,000 in 1999
as compared to $9,000 in 1998, reflecting higher levels of foreclosure in 1999,
as well as fewer gains on sale of real estate owned. Other noninterest expense
of $1.2 million in 1is comprised of expenses such as postage, office supplies,
telephone charges, loan servicing expenses, directors fees, and third party
check processing charges and remains consistent with the prior year.
Income Taxes. Our recorded income tax expense was $860,000 for the year
ended D31, 1999 on income before taxes for the year of $2.2 million, reflecting
an effective tax rate of 39.7%. In 1998, the effective rate was 39.3%.
29
<PAGE>
Comparison of the years ended December 31, 1998 and 1997
Net Interest Income. Net interest income amounted to $7.4 million in 1998,
an increase of $801,000 from the prior year. The average interest rate spread in
1998 was 2.71%, versus 2.82% in 1997. The average yield on interest-earning
assets decreased 9 basis points, while the average cost of funds increased 2
basis points from 1997 to 1998.
Interest Income. Total interest income in 1998 amounted to $18.6 million,
an increase of $2.8 million from 1997. Although the average yield on earning
assets declined to 7.40% in 1998 compared to 7.49% in 1997, interest income on
loans increased to $10.8 million in 1998, an increase of $2.2 million from $8.6
million in 1997. This improvement was attributable to loan growth as average
total outstanding loans increased by $32.4 million to $132.3 million for 1998.
Interest income on securities amounted to $7.8 million, an increase of $606,000
from $7.2 million in 1997. This increase was attributed to growth in the
portfolio as the average outstanding securities balance increased by $8.5
million to $119.3 million for 1998.
Interest Expense. Total interest expense for 1998 increased $2.0 million to
$11.2 million from $9.2 million in 1997. Interest expense on deposits increased
to $8.7 million in 1998 from $7.7 million in 1997 winterest expense on borrowed
funds increased $1.0 million to $2.5 million in 1998. The increase in interest
expense on deposits was attributed to the growth in the average outstanding
deposit base of $21.2 million to $193.2 million. The acost of deposits remained
essentially flat at 4.49%, as compared to 4.50% in 1997. The increase in
interest expense on borrowed funds is attributable to an increase in the average
outstanding borrowings of $20.7 million partially offset by the average cost of
borrowings decreasing in 1998 to 5.51%, from 5.80% in 1997. The overall average
cost of funds for the year ended December 31, 1998 was 4.69%, increasing
slightly from 4.67% in 1997.
Provision for Loan Losses. Our provision for loan losses increased to
$240,000 in 1998 from $120,000 in 1997. Our allowance for loan losses amounted
to $1.2 million as of December 31, 1998 or 0.80% of total loans outstanding, as
compared to $1.1 million as of December 31, 1997 or 0.96% of total loans
outstanding. Net char in 1998 were $213,000 versus $59,000 in 1997, representing
0.16% and 0.06%, respectively, of total average loans outstanding. Non-
performing loans increased from $564,000 as of December 31, 1997 to $1,016,000
as of December 31, 1998.
Noninterest Income. Noninterest income was $1.2 million in 1998, an
increase of $480,000 or 66.7% from 1997. Service charge income for 1998 was
$803,000, as compared to $508,000 for 1997, an increase of $295,000 or 58.1%.
This increase reflects increased service charges on deposit accounts of
$128,000. Also, income from the sale of annuities and mutual funds from our
investment subsidiary increased from $62,500 in 1997 to $146,000 in 1998. Net
gains on sales of securities in 1998 were $106,000 as compared to $142,000 in
1997. Net gains on sales of loans were $276,000 in 1998 as compared to $27,000
in 1997.
Noninterest Expense. Noninterest expenses amounted to $7.2 million in 1998,
an increase o$1.3 million from $5.8 million in 1997. However, excluding
provisions for environmental remediation, expenses increased $908,000 or 16.7%.
Salaries and employee benefits increased $454,000 to $3.3 million in 1998 from
$2.9 million in 1997, and office occupancy and equipment expenses increased
$350,000 to $1.2 million in 1998 from $860,000 in 1997. These increases were
primarily the result of two new branch offices opened during 1997 and 1998.
Professional fees, which pinclude legal and audit fees, increased $27,000 to
$342,000 in 1998 from $315,000 in 1997. Data processing expenses decreased by
$57,000 to $119,000 in 1998 as a result of a system conversion in October 1997
from a service bureau to an in-ho system, thereby reducing third party support
fees. We also reduced real estate owned expense by $47,000, primarily from the
disposal or sale of various properties in 1997 and fewer properties held in 1998
as compared to 1997. Noninterest expense for 1998 also includes a loss provision
of $620,000 established for environmental remediation costs associated with a
former laundry site acquired through foreclosure in 1989, as compared to a loss
provision of $150,000 in 1997. See note 13 of the "Consolidated Financial
Statements."
Income Taxes. We recorded income tax expense of $469,000 for 1998 on income
before taxes of $1,193,000, reflecting an effective tax rate of 39.3%, which is
consistent with the effective tax rate in 1997 of 39.9%.
30
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
The following table presents the difference between our interest-earning
assets and interes liabilities within specified maturities at December 31, 1999.
This table does not necessarily indicate the impact that general interest rate
movements would have on our net interest income because the repricing of certain
assets and liabilities is subject to competitive pressure and certain
limitations. As a result, certain assets and liabilities indicated as maturing
or otherwise repricing within a stated period may in fact mature or reprice at
different times and at different volumes.
<TABLE>
<CAPTION>
More than 1 More Than 3
Within 3 4 to 12 Year to Years to Over
Months Months 3 Years 5 Years Five Years Total
------------ ------------- ------------- ------------- ------------- -------------
(Dollars In Thousands)
Interest-earning assets:(1)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans(2)...................... $ 5,733 $ 26,463 $ 37,259 $ 32,330 $ 19,625 $ 121,410
Other loans(2)......................... 14,758 3,103 8,213 7,490 4,480 38,044
Securities available for sale(3)....... 18,767 14,353 23,074 13,309 49,247 118,750
Securities held to maturity(3)......... -- 30 67 75 1,421 1,593
Federal Home Loan Bank Stock........... -- -- -- -- 3,523 3,523
--------- --------- --------- --------- --------- ---------
Total interest-earning assets....... 39,258 43,949 68,613 53,204 78,296 283,320
--------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Deposits:(4)
NOW accounts........................ 734 2,203 4,112 1,645 1,096 9,790
Savings accounts.................... 3,457 10,371 19,359 7,744 5,162 46,093
Money market accounts............... 377 1,129 2,109 843 562 5,020
Certificates of deposit............. 26,492 71,816 28,521 5,642 73 132,544
Borrowings.......................... 17,100 27,000 8,860 15,000 2,000 69,960
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 48,160 112,519 62,961 30,874 8,893 263,407
--------- ---------- --------- --------- -------- ----------
Excess (deficiency) of interest- earning
assets over interest-bearing liabilities $ (8,902) $ (68,570) $ 5,652 $ 22,330 $ 69,403 $ 19,913
========= ========= ========= ========= ========== ==========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities........ $ (8,902) $ (77,472) $ (71,820) $ (49,490) $ 19,913
========= ========= ========== ========= =========
Cumulative excess (deficiency)
of interest-earning liabilities as a
percentage of total assets.......... (2.96)% (25.72)% (23.84)% (16.43)% 6.61%
========= ========= ========= ========== ========
</TABLE>
--------------------
(1) Adjustable- and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed-rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments. For
fixed-rate mortgages and mortgage-backed securities, annual prepayment
rates ranging from 5% to 10.5%, based on the type of loan or mortgage
security and the coupon rate, were used.
(2) Balances have been reduced for non-performing loans, which amounted to
$587,000 at December 31, 1999.
(3) Amounts shown are at fair market value.
(4) Our negotiable order of withdrawal ("NOW") accounts, passbook savings
accounts and money market deposit accounts are generally subject to
immediate withdrawal. However, management considers a certain portion of
these accounts to be core deposits having significantly longer effective
maturities based on our retention of such deposits in changing interest
rate environments. NOW accounts, passbook savings accounts and money market
deposit accounts are assumed to be withdrawn at annual rates of 30% of the
declining balance of such accounts during the period shown. Management
believes these rates are indicative of expected withdrawal rates in a
rising interest rate environment. If all of our NOW accounts, passbook
savings account and money market accounts had been assumed to be subject to
repricing within one year, the cumulative one-year deficiency of interes
assets to interest-bearing liabilities would have been $120.1 million or
39.9% of total assets.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
The OTS requires the Savings Bank of the Finger Lakes to measure
interest rate risk by computing estimated changes in the net portfolio value
("NPV") of cash flows from assets, liabilities and off-balance sheet items in
the event of a range of assumed changes in market interest rates. These
computations estimate the effect on NPV of sudden and sustained 1% to 3%
increases and decreases in market interest rates. The Savings Bank of the Finger
Lakes' board of directors has
31
<PAGE>
adopted an interest rate risk policy which establishes maximum decreases in
estimated NPV in the event of 1%, 2% and 3% increases and decreases in market
interest rates, respectively. The following tables set forth those limits and
certain calculations, based on information provided to the Savings Bank of the
Finger Lakes by the OTS, with respect to the sensitivity of NPV to changes in
market interest rates at December 31, 1999.
<TABLE>
<CAPTION>
Basis Point
Change
in Rates Estimated Net Portfolio Value NPV as % of PV of Assets
-------- ------------------------
-------------------------------------------------------------
$ Amount $ Change % Change NPV Ratio BP Change
-------- -------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+300 $ 5,753 $ (16,765) (74)% 2.05% (538) bp
+200 11,628 (10,890) (48) 4.04 (339) bp
+100 17,410 (5,108) (23) 5.89 (155) bp
NC 22,518 7.43
-100 27,732 5,214 23 8.94 150 bp
-200 28,594 6,076 27 9.12 169 bp
-300 28,801 6,283 28 9.11 168 bp
</TABLE>
As shown by the table, increases in interest rates will significantly
decrease our NPV, while decreases in interest rates will result in smaller net
increases in our NPV. The table suggests that in the event of a 200 basis point
change in interest rates we would experience a decrease in NPV as a percentage
of assets to 4.04% from 7in a rising interest rate environment and a increase in
NPV as a percentage of assets to 9.12% from 7.43% in a decreasing interest rate
environment.
In order to offset some of our interest rate risk we are seeking to extend
the maturities of our FHLB advances and other liabilities, while adding shorter
duration assets, including shorter term commercial business loans.
The Board of Directors is responsible for reviewing asset liability
management policies. On at least a quarterly basis, the Board reviews interest
rate risk and trends, as well as liquidity and capital ratios and requirements.
Management is responsible for administering the policies and determinations of
the Board of Directors with rto our asset and liability goals and strategies.
Liquidity and Capital Resources
Our liquidity management objective is to ensure the availability of
sufficient cash flows to mall financial commitments and to capitalize on
opportunities for expansion. Liquidity management addresses the ability to meet
deposit withdrawals on demand or at contractual maturity, to repay borrowings as
they mature, and to fund new loans and investments as opportunities arise. Our
primary sources of internally generated funds are principal and interest
payments on loans receivable, cash flows generated from operations, and cash
flows generated by investments. External sources of funds include increases in
deposits and advances from the FHLB.
Savings Bank of the Finger Lakes is required under applicable federal
regulations to maintain specified levels of "liquid" investments in qualifying
types of United States Government, federal agency and other investments having
maturities of five years of less. Current OTS regulations require that a savings
association maintain liquid aof not less than 4% of its average daily balance of
net withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet applicable liquidity
requirements. At December 31, 1999, Savings Bank of the Finger Lakes' liquidity,
as measured for regulatory purposes, was in excess of the minimum OTS
requirement.
32
<PAGE>
At December 31, 1999, we had loan commitments of $3.1 million and unused
lines of credit of $14.7 million extended to borrowers. We believe that we have
adequate resources to fund loan commitments as they arise. If we require funds
beyond our internal funding capabilities, additional advances from the FHLB are
available including a line of credit agreement with a maximum available limit of
$29.2 million . At December 31, 1999, approximately $98.3 million of time
deposits were scheduled to mature within a year, and we expect that a portion of
these time deposits will not be renewed upon maturity.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement, as amended by
SFAS No. 137, establishes comprehensive accounting and reporting requirements
for derivative instruments and hedging activities. The statement requires
companies to recognize all derivatives as either assets or lwith the instruments
measured at fair value. The accounting for gains and losses resulting from
changes in fair value of the derivative instrument depends on the intended use
of the derivative and the type of risk being hedged. This statement is effective
for all quarters of fiscal years beginning after June 15, 2000, although earlier
adoption is permitted. We do not currently invest in derivative instruments,
therefore the provisions of SFAS No. 133 are not expected to have a significant
effect on our consolidated financial statements. SFAS No. 133 also permits
certain reclassifications of securities from the he-maturity to the
available-for-sale classification. We have no current intention to reclassify
any securities pursuant to SFAS No. 133.
Year 2000
We developed and implemented a plan to resolve issues associated with
computer systems and related embedded technology with respect to the rollover of
the two digit year value to 00 ("Year 2000"). The issue was whether computer
systems would properly recognize the date sensitive information when the year
changed to 2000.
We have not experienced any significant issues associated with the Year
2000 problem as a result of the date change to January 1, 2000 or any date
subsequent thereto. The incremental costs related to the Year 2000 compliance
were approximately $137,800 in 1999 and $51,500 in 1998, respectively. Any
additional incremental costs associated with Year 2000 issues are not expected
to be material. Management will continue to monitor operations through the year
2000 and although no assurances can be given, it is not expected that any future
adverse developments will arise with respect to Year 2000.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Finger Lakes
Financial have been prepared in accordance with generally accepted accounting
principles ("GAAP"). GAAP generally requires the measurement ofinancial position
and operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, our assets and liabilities are primarily monetary
in nature. As a result, changes in market interest rates have a greater impact
on performance than the effects of inflation.
33
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section includes the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements identified in Item 14(a)(1) hereof are
incorporated by reference hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT OF FINGER LAKES FINANCIAL
Directors
The Board of Directors of Finger Lakes Financial is composed of nine
members. Directors of Finger Lakes Financial are generally elected to serve for
a three year term or until their respective successors shall have been elected
and shall qualify. The following table sets forth certain information regarding
the composition of the Board of Directors as of December 31, 1999 including
their terms of office.
<TABLE>
<CAPTION>
Position Held at Current Term
Name Age Finger Lakes Financial Director Since (1) to Expire
--------------------- ---------- ------------------------- --------------------- ---------------------
<S> <C> <C> <C>
G. Thomas Bowers 56 Chairman of the Board, President 1995 2001
and Chief Executive Officer
Michael J. Hanna 54 Director 1994 2000
Chris M. Hansen 64 Director 1983 2002
Richard J. Harrison 54 Director 1997 2001
James E. Hunter 64 Director 1990 2000
Ronald C. Long 63 Director 1994 2000
Bernard G. Lynch 69 Director 1962 2001
Arthur W. Pearce 57 Director 1998 2001
Joan C. Rogers 66 Director 1993 2002
</TABLE>
----------
(1) Reflects initial appointment to Finger Lakes Financial's predecessors.
The principal occupations of each director and executive officer of Finger
Lakes Financial during at least the past five years is set forth below.
G. Thomas Bowers has served as the Company's President and Chief Executive
Officer since July 1995. In 1998 Mr. Bowers was elected Chairman of the Board of
Directors. He was President and Chief Executive Officer of Citizens Savings
Bank, FSB, Ithaca, New York, from July 1992 until December 1994. Mr. Bowers was
employed by Columbia Banking Federal Savings and Loan Association, Rochester,
New York, from 1987 until June 1992, serving as President and Chief Executive
Officer from April 1991 until June 1992.
Michael J. Hanna has served as Director of Athletics at Hobart and William
Smith Colleges, Geneva, New York, since 1981.
Chris M. Hansen is retired from the position as President of C.M. Hansen
Farms, Inc., located in Hall, New York.
34
<PAGE>
Richard J. Harrison served as Executive Vice President and Director of
Dominion Capital Corporation, Fairport, New York, since 1994. Mr. Harrison is
President of Newwwdeal.com, an internet service company founded in 1999, as well
as principal in Atlantic Associates, a consulting organization. He was also
President of United Auto Finance, Inc., Fairport, New York, from 1994 to
December 1998. Prior to 1994, Mr. Harrison was employed by Rochester Community
Savings Bank, Rochester, New York, serving as President of its subsidiary,
American Credit Services, Inc.
James E. Hunter is a professor at Cornell University and the Director of
the New York State Agricultural Experiment Station, Geneva, New York.
Ronald C. Long is President of Long Milk Haulers, Inc., Penn Yan, New York,
which owns and operates a milk hauling and trucking operation.
Bernard G. Lynch is retired from his position as President of the Lynch
Furniture Co., Inc., a retail furniture outlet with stores in Geneva and Auburn,
New York, where he served full-time in the position until 1992.
Arthur W. Pearce retired in July 1997 after over 20 years in mortgage
banking. From December 1994 until July 1997 he was Senior Vice President,
Community Banking, of M&T Bank, Ithaca, New York, and from December 1992 until
December 1994 he was Executive President of Citizens Savings Bank, FSB, Ithaca,
New York.
Joan C. Rogers is retired from her position as Vice President of BJR
Broadcasting, Seneca Falls, New York.
Terry L. Hammond has served as the Company's Executive Vice President,
Chief Financial Officer and Secretary since January 1, 1999. Prior to that, he
served as Senior Vice President, Chief Financial Officer and Secretary since
joining the Company in 1990. Prior to that, Mr. Hammond was employed by Monroe
Savings Bank, Rochester, New York, in the same capacity.
Thomas A. Mayfield serves as the Company's Senior Vice President and Senior
Loan Officer. He joined the Company in that capacity in April 1996. For two
years prior to that, Mr. Mayfield served in a similar capacity at Savannah Bank,
N.A., Savannah, New York.
Leslie J. Zornow has served as the Company's Senior Vice President, Retail
Banking, since January 1, 1999. Prior to that, she served as Vice President,
Branch Administration and Marketing from 1996 to 1998 and as Vice President,
Human Resources and Marketing since joining the Company in 1995. Prior to that,
Ms. Zornow was employed by Monroe County, New York, Department of Communications
as Deputy Director.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to Finger Lakes Financial in all capacities,
for the years ended December 31, 1999, 1998 and 1997, paid by Finger Lakes
Financial to its Chief Executive Officer and Executive Vice President. No other
executive officer of the Company received salary and bonus in excess of $100,000
in 1999.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------ -----------------------------------------------
Other
Annual Restricted All Other
Name and Compensation Stock Option Compensation
Principal Position Year Salary($)(1) Bonus($) ($)(2) Awards ($)(3) Grants(#)(4) (5)
-------------------------------- -------- --------------- ----------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers, President 1999 $ 182,606 $ 20,947 $ 0 $ 0 0 $ 7,606
and Chief Executive Officer 1998 174,585 20,227 0 54,250 0 10,610
1997 168,562 0 0 128,469 0 24,160
-------------------------------- -------- --------------- ----------- ------------- --------------- -------------- ---------------
Terry L. Hammond, Executive Vice 1999 $ 96,100 $ 8,610 $ 0 $ 0 0 $ 3,512
President and Chief Financial 1998 86,100 8,320 0 0 0 6,693
Officer 1997 83,203 0 0 35,750 8,600 7,776
</TABLE>
(1) The amounts shown include cash compensation earned and paid during the year
indicated as well as cash compensation deferred at the executives' election
into the 401(k) Plan. The Company makes no contributions to the 401(k)
Plan.
(2) Does not reflect the value of perquisites and other personal benefits
because the aggregate amount of such compensation for any year did not
exceed 10% of the executives' annual salary and bonus for that year.
(3) The amounts shown reflect restricted awards of common stock under the
Company's 1996 Management Recognition Plan. See "Executive
Compensation--1996 Management Recognition Plan" below. The amounts shown
represent the aggregate market value of the shares awarded on the dates of
the awards (for Mr. Bowers 2,800 shares awarded in 1998; 9,500 shares
awarded in 1997 and for Mr. Hammond 3,000 shares awarded in 1997). The
awards vest and the shares are paid out over periods ranging from three to
five years, each commencing oyear from the respective award date. The total
number and dollar value of shares credited to Mr. Bowers' award account at
1999 year-end, based on the market value of the common stock on December
31, 1999 ($8.00 per share) was 13,946 shares ($111,568). Mr. Hammond's
total number of shares and dollar value at 1999 year end was 5,720 shares
and $45,760. Dividends are payable on such shares at the same rate as
dividends are paid on other shares of common stock.
(4) See "Executive Compensation--1996 Stock Option Plan" below.
(5) The amounts shown reflect: (i) the aggregate market value, on the date of
allocation, of shares of common stock allocated during the referenced year
to Mr. Bowers' account under the ESOP ($4,376 at December 31, 1999; $7,481
at December 31, 1998; $23,066 at December 31, 1997 (see "Executive
Compensation--Employee Stock Ownership Plan" below); and (ii) the
compensatory value ($3,230 in 1999; $3,129 in 1998; $1,094 in 1997) of life
insurance premiums paid by Finger Lakes Financial on Mr. Bowers' behalf.
The amounts shown for Mr. Hammond reflect the aggregate market value, on
the date of allocation of shares of common stock allocated during the
referenced year to Mr. Hammond's aunder the ESOP.
1996 Management Recognition Plan
The objective of the Company's 1996 Management Recognition Plan (the
"Recognition P is to enable the Company to provide certain of its officers and
other employees with a proprietary interest in the Company, through restricted
stock awards which vest at subsequent dates, as compensation for their
contributions to the Company as well as an incentive to make such contributions
in the future by continuing their employment with the Company. The Recognition
Plan has been funded with 47,200 shares of common stock (purchased on the open
market in 1996 with funds provided by the Company), which are held by a
third-party trustee until they are awarded, and thereafter vested and
distributed, to recipient employees in accordance with the terms of the
Recognition Plan.
The Recognition Plan is administered by the Salary and Personnel
Committee of the Board of Directors (the "Committee"), which consists solely of
disinterested directors. The Committee determines, among other things, the
employees who are to receive restricted stock awards under the Recognition Plan,
the number of shares covered by each award, and the vesting schedule by which
awarded shares vest and are paid out by the trustee to each recipient. Under the
terms of the Recognition Plan, the trustee is authorized to vote, in its
discretion, all Recognition Plan shares which have not yet vested. Dividends are
payable on awarded shares, for the benefit of the respective recipients, at the
same rate as dividends are paid on other shares of common stock. The Recognition
Plan also contains customary anti-dilution provisions. The Board of Directors of
Finger Lakes Financial can terminate the Recognition Plan at any time.
36
<PAGE>
If an award recipient's employment with Finger Lakes Financial is
terminated by reason of his or her death, disability or retirement, or in the
event of a change in control of Finger Lakes Financial, all shares subject to
the award become immediately vested and payable to the recipient. However, upon
any other termination of an award recipient's employment, all rights to shares
not yet vested are forfeited.
At December 31, 1999, an aggregate of 47,200 shares of common stock has
been awarded under the Recognition Plan to an aggregate of ten employees,
including the Chief Executive Officer and Finger Lakes Financial's three other
current executive officers. Shares awarded under the Recognition Plan vest over
periods ranging from three to five years, each commencing one year from the
respective award date.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "Option Plan") is designated to
improve the growth and profitability of the Company by providing its employees
with a proprietary interest in the Company as an incentive to contribute to the
success of the Company and to reward employees for outstanding performance. The
Option Plan is intended to be qualified under Section 422 of the Internal
Revenue Code of 1986, as amended, and provides for the grant of incentive stock
options, non-statutory stock options and stock appreciation rights. An aggregate
of 118,000 shares of common stock are available for option grants under the
Option Plan. The Option Plan terminates in 2006.
The Option Plan is administered by the Salary and Personnel Committee,
which determines, among other things, the employees who are to receive options
under the Option Plan, the types of options to be granted and the number of
shares covered by each option. The exercise price of each option must be at
least equal to the market value of the common stock on the option grant date (or
110% of such market value in the case of an incentive stock option granted to a
holder of 10% or more of the outstanding common stock).
Options vest and become exercisable at the rate of 20% per year, commencing
one year from the option grant date. Options are only exercisable upon vesting
and until the earlier of ten years after the option grant date (or five years
after the option grant date in the case of an incentive stock option granted to
a holder of 10% or more of the outstanding common stock) or three months after
termination of the optionee's employment with the Company. However, if an
optionee's employment is terminated due to death, disability or retirement, or
in the event of a change in control of Finger Lakes Financial, the optionee or
his or her estate has one year following termination in which to exercise an
otherwise exercisable option. Options are non-transferable except by will or the
laws of descent and distribution. The Option Plan also contains customary
anti-dilution provision.
Under the Option Plan, the Committee is also authorized to grant stock
appreciation rights, under which an optionee may surrender an exercisable option
in return for payment by Finger Lakes Financial of cash or common stock in an
amount equal to the excess of the then-current market value of the common stock
over the exercise price of the surrendered option.
At December 31, 1999, options to purchase an aggregate of 109,000 shares of
common stock, at prices ranging from $6.75 to $14.50 per share, were outstanding
and held by an aggregate of 10 employees, including the Chief Executive Officer
and the three other current executive officers.
37
<PAGE>
Shown below is information with respect to the total unexercised options to
purchase common stock held by the executives at December 31, 1999. No options
were granted to or exercised by the executives during 1999.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1999 and Year-End Option Values
Value of All Unexercised
Unexercised Option Held In-the-Money Options at
at Year End(#) Year End($)(1)
Shares Acquired Value ------------------------------ ---------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
------------------------- ---------------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers 0 0 17,700 11,800 None None
Terry L. Hammond 0 0 12,320 9,880 2,700 1,800
----------
</TABLE>
(1) Expressed as the excess of the per share market value of the common stock at
December 31, 1999 ($8.00) over the per share exercise price of the options.
Employee Stock Ownership Plan ("ESOP")
The purpose of the ESOP is to recognize and reward the contributions made
to Finger Lakes Financial by its employees. Employees who have at least one year
of credited service with Finger Lakes Financial (including Finger Lakes
Financial and Savings Bank of the Finger Lakes in its forms prior to the
Reorganization) and who have attained age 21 are eligible to participate in the
ESOP.
The ESOP borrowed funds in 1994 from a third-party lender in order to fund
the purchase o94,396 shares of common stock. Subsequent to the 1998
Reorganization, the third-party loan was repaid with the proceeds of a loan from
Finger Lakes Financial. The loan to the ESOP, which bears interest at a fixed
rate of 7.75% per annum, will be repaid principally from Finger Lakes
Financial's contributions to the ESOP over ten years. Finger Lakes Financial
may, in any years, make additional discretionary contributions for the benefit
of plan participants in either cash or shares of common stock (which may be
newly issued or acquired by the purchase of outstanding shares). Such purchases,
if made, may be funded through additional borrowing by the ESOP or additional
contributions from Finger Lakes Financial. The timing, amount and manner of
future contributions to the ESOP will be affected by various factors, including
prevailing regulatory policies, the requirements of applicable laws and
regulations and market conditions.
The shares purchased by the ESOP with the proceeds of the loan are held in
a suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP, and the release of shares from
the suspense account, are allocated among participants on the basis of
compensation. Forfeitures are reallocated among remaining participants and may
reduce any amount Finger Lakes Financial might otherwise have contributed to the
ESOP. Allocations may be paid out to a participant, either in shares of common
stock or in cash, upon retirement, early retirement or separation from service.
Finger Lake Financial's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated. Recipients of shares paid out under
the ESOP must give Finger Lakes Financial a right of first refusal when selling
the shares so acquired.
The trustees under the ESOP must vote all allocated shares held in the ESOP
in accordance with the instructions of the participating employees, and
unallocated shares, as well as allocated shares for which employees do not give
instructions, must be voted in the same ratio as the shares for which
instructions are given. The ESOP is subject to the Employee Retirement Income
Security Act of 1974, as amended, as well as the regulations of the Internal
Revenue Service and the Department of Labor.
Employment Agreements
During 1999, Mr. Bowers was compensated for his services as President,
Chief Executive Officer and a director of Finger Lakes Financial pursuant to an
employment agreement with Finger Lakes Financial dated January 26, 1995 (the
"Employment Agreement"). The Employment Agreement provides for an annual base
salary, subject to increases in the sole discretion of Finger Lakes Financial,
and customary fringe benefits. As an annual incentive, tEmployment agreements
also provides for the payment, in the sole discretion of the Board of Directors,
of an annual bonus. In 1999, Mr. Bowers received a bonus of $20,947.
38
<PAGE>
The Employment Agreement may be terminated by either Mr. Bowers or Finger
Lakes Financial at any time upon ten days' notice. However, if Finger Lakes
Financial terminated the Employment Agreement wcause or fails to comply with any
material provision thereof, or if Mr. Bowers terminates the Employment Afor good
reason, Mr. Bowers will be entitled to severance pay amounting to 2.99 times the
average annual cpaid him during the last five years of his employment by Finger
Lakes Financial. In addition, Mr. Bowers may continue to participate in employee
benefit plans of Finger Lakes Financial (other than retirement and stock
compensation plans) for three years following his termination.
Pursuant to the Employment Agreement, Mr. Bowers is also the beneficiary of
a non-qualif unfunded Supplemental Retirement Agreement with Finger Lakes
Financial dated February 28, 1995 and amended June 22, 1998 (the "Retirement
Agreement"), which provides that, upon his reaching age 62, Finger Lakes
Financial will pay Mr. Bowers or his surviving spouse $30,000 per year for 20
years (or, upon their earlier deaths, a lump sum payment to their estates),
subject to a downward adjustment equal to 6% of the total cash value in all
policies subject to any split dollar agreement in effect as of Mr. Bower's 62nd
birthday. Such payments will be provided in part by premiums paid under an
insurance policy on Mr. Bower's life maintained for Finger Lakes Financial's
benefit. The Retirement Agreement vests at the rate of 20% per year on June 30
of each year. The Retirement Agreements is currently 80% vested, and would pay
Mr. Bowers, were his employment to terminate currently, $24,000 per year upon
his reaching age 62.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Persons and groups who beneficially own in excess of five percent of Finger
Lakes Financial Common Stock are required to file certain reports with the
Securities and Exchange Commission ("SEC") regarding sownership pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"). The following table sets
forth, as of tRecord Date, the shares of common stock beneficially owned by
named executive officers individually, by executive officers and directors as a
group and by each person who was the beneficial owner of more than five percent
of Finger Lakes Financial Corp.'s outstanding shares of common stock on the
Record Date.
<TABLE>
<CAPTION>
Amount of Shares Percent of Shares
Name and Address of Owned and Nature of Common Stock
Beneficial Owner of Beneficial Ownership(1) Outstanding (1) (2)
---------------------------------------------- ------------------------------ -------------------------
<S> <C> <C>
Finger Lakes Financial Corporation, M.H.C. 2,389,948 66.9%
470 Exchange Street
Geneva, New York 14456
G. Thomas Bowers(3) 85,865 2.4%
Michael J. Hanna(4) 200 0.0%
Chris M. Hansen(5) 9,083 0.3%
Richard J. Harrison 7,158 0.2%
James E. Hunter 3,008 0.1%
Ronald C. Long(6) 8,640 0.2%
Bernard G. Lynch 7,250 0.2%
Arthur W. Pearce 5,000 0.1%
Joan C. Rogers 5,100 0.1%
Terry L. Hammond(7) 27,145 0.8%
Thomas A. Mayfield(8) 21,702 0.6%
Leslie J. Zornow(9) 9,067 0.3%
All directors and executive officers
as a group (12 persons) 189,218 16.0%
------------------------------
</TABLE>
(1) Based on 3,570,000 shares outstanding.
(2) Based on 1,180,052 shares held by persons other than Finger Lakes Financial
Corp., MHC.
(3) Includes (i) 4,000 shares owned by Mr. Bowers' wife; (ii) 3,790 shares held
in the 401(k) plan for Mr. Bowers' account; (iii) presently exercisable
options to purchase 17,700 shares; and (iv) 4,094 shares held in the ESOP
for Mr. Bowers' account, as to which shares he only indirect voting power
only. See "Executive Compensation" below.
39
<PAGE>
(4) Shares held jointly by Mr. Hanna and his daughter.
(5) Includes 3,980 shares held in a benefit plan of C.M. Hansen Farms, Inc., of
which Mr. Hansen is a trustee and beneficiary.
(6) Included 1,289 shares owned by Mr. Long's wife.
(7) Includes (i) 8,421 shares held in the 401(k) Plan for Mr. Hammond's
account, as to which shares he has investment power only; (ii) 333 shares
which will vest within 60 days under the 1996 Management Recognition Plan;
(iii) presently exercisable options to purchase 12,320 shares; and (iv)
4,650 shares held in the ESOP for Mr. Hammond's account, as to which shares
he had indirect voting power only. See "Executive Cbelow.
(8) Includes (i) 2,085 shares held in the 401(k) Plan for Mr. Mayfield's
account, as to which shares he has investment power only; (ii) 333 shares
which will vest within 60 days under the 1996 Management Recognition Plan;
(iii) presently exercisable options to purchase 11,160 shares; and (iv)
1,389 shares held in the ESOP for Mr. Mayfield's account, as to which
shares he has indirect voting power only. See "Executive Cbelow.
(9) Includes (i) 185 shares held in the 401(k) Plan for Ms. Zornow's account,
as to which shares she has investment power only; (ii) 200 shares which
will vest within 60 days under the 1996 Management Recognition Plan; (iii)
presently exercisable options to purchase 5,340 shares; and (iv) 1,442
shares held in the ESOP for Ms. Zornow's account, as to which shares she
has indirect voting power only. See "Executive C below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the sterms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of Savings Bank of
the Finger Lakes' capital and surplus (up to a maximum of $500,000) must be
approved in advance by a majority of the disinterested members of the Board of
Directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The exhibits and financial statement schedules filed as a part of this
Form 10-K aas follows:
(1) Financial Statements
The Consolidated Financial Statements and Supplemental Data of
Finger Lakes Financial Corp. and Independent Auditors' Report on
such financial statements are filed under Part II, Item 8.
Independent Auditors' Report
Consolidated Statements of Financial Condition as of December 31,
1999 and December 31, 1998.
Consolidated Statements of Financial Operations for the Years
Ended December 31, 1999, December 31, 1998 and December 31, 1997.
40
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income for the Years Ended December 31, 1999,
December 31, 1998 and December 31, 1997.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, December 31, 1998 and December 31, 1997. Notes
to Consolidated Financial Statements.
(2) Financial Statement Schedules
(3) Exhibits
Number Description
------ ---------------------------------------------------------------------
3.1 Federal Stock Charter of Finger Lakes Financial Corp. (1)
3.2 Bylaws of Finger Lakes Financial Corp. (a)
4 Stock Certificate of the Savings Bank of the Finger Lakes, FSB (2)
10.1 Employee Stock Ownership Plan and Trust of the Company (2)*
10.2 Employment Agreement between the Company and G. Thomas Bowers (2)*
10.3 1996 Stock Option Plan of the Company and Amendment No. 1 Thereto*
(3)
10.4 1996 Management Recognition Plan* (3)
10.5 Modified Supplemental Pension Agreement, as amended, between the
Company and Ralph E. Springstead* (3)
10.6 Modified Supplemental Pension Agreement between the Company and G.
Thomas Bowers* (3)
10.7 Agreement between the Company and Terry L. Hammond* (3)
10.8 Agreement between the Company and Thomas A. Mayfield* (3)
10.9 Restated Deferred Compensation Plan for Directors*
10.10 Amendment dated June 22, 1998 to Supplemental Retirement Agreement
between the Company and G. Thomas Bowers*
10.11 Split Dollar Agreement between the Company and G. Thomas Bowers*
10.12 Amendment dated June 22, 1998 to Supplemental Retirement Agreement
between the Company and Ralph E. Springstead*
10.13 Split Dollar Agreement between the Company and Ralph E. Springstead*
10.14 Agreement between the Company and Leslie Zornow
21 Subsidiaries of the Registrant - Reference is made to Item 1.
"Business" for the required information
41
<PAGE>
AGREEMENT BETWEEN
FINGER LAKES FINANCIAL CORP.
AND LESLIE J. ZORNOW
AGREEMENT, dated this 1st day of July 1999, between Finger Lakes Financial
Corp. (the "Employer"), a federally chartered stock holding company and Leslie
J. Zornow (the "Executive").
WITNESSETH:
WHEREAS, the Executive presently serves as senior vice president of the
Employer and in such capacity is responsible for administrating the branch
network, marketing program and human resources function;
WHEREAS, the Employer desires to be ensured of the Executive's continued
active participation in the business of the Employer; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Employer and in consideration of the Executive's agreeing to remain in the
employ of the Employer, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employer is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings set
forth below for the purposes of this Agreement:
(a) Annual Compensation. The Executive's "Annual Compensation" for purposes
of this Agreement shall be deemed to mean the annual rate of base salary paid to
the Executive by the Employer immediately preceding the Date of Termination.
(b) Cause. Termination by the Employer of the Executive's employment for
"Cause" shall mean termination because of personal dishonesty, incompetence,
willful misconduct, breach of 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.
(c) Change in Control of the Employer. Change in Control of the Employer
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of
<PAGE>
1934, as amended ("Exchange Act"), or any successor thereto, whether or not any
security of the Employer is registered under Exchange Act; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Employer
representing 25% or more of the combined voting power of the Employer's then
outstanding securities; or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Employer cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by stockholders, of
each new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
(d) Code. Code shall mean the Internal Revenue Code of 1986, as amended.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(f) Disability. Termination by the Employer of the Executive's employment
based on "Disability" shall mean termination because of any physical or mental
impairment which qualifies the Executive for disability benefits under the
applicable long-term disability plan maintained by the Employer or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(g) Good Reason. Termination by the Executive of the Executive's employment
for "Good Reason" shall mean termination by the Executive based on:
( i ) Without the Executive's express written consent, the
assignment by the Employer to the Executive of any duties which are
materially inconsistent with the Executive's positions, duties,
responsibilities and status with the Employer immediately prior to a
Change in Control of the Employer, or a material change in the
Executive's reporting responsibilities, titles or offices as an
employee and as in effect immediately prior to such a Change in
Control, or any removal of the Executive from or any failure to
re-elect the Executive to any of such responsibilities, titles or
offices, except in connection with the termination of the Executive's
employment for Cause, Disability or Retirement or as a result of the
Executive's death or by the Executive other than for Good Reason;
(ii) Without the Executive's express written consent, a reduction
by the Employer in the Executive's base salary as in effect on the
date of the Change in Control of the Employer or as the same may be
increased from time to time thereafter or a reduction in the package
of fringe benefits provided to the Executive;
<PAGE>
(iii) Any purported termination of the Executive's employment for
Cause, Disability or Retirement which is not effected pursuant to a
Notice of Termination satisfying the requirements of paragraph (i)
below; or
(iv) The failure by the Employer to obtain the assumption of and
agreement to perform this Agreement by any successor as contemplated
in Section 6 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination by the Employer for
any reason, including for Cause, Disability or Retirement or by the Executive
for Good Reason shall be communicated by written "Notice of Termination" to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated, (iii) specifies a Date of
Termination, which shall be not less than thirty (30) nor more than ninety (90)
days after such a Notice of Termination is given, except in the case of the
Employer's termination of Executive's employment for Cause, and (iv) is given in
the manner specified in Section 7 hereof.
(j) Retirement. Termination by the Employer of the Executive's employment
based on "Retirement" shall mean voluntary termination by the Executive in
accordance with the Employers' retirement policies, including early retirement,
generally applicable to their salaried employees.
2. Benefits Upon Termination. Subject to provisions of Section 3 hereof, the
Executive shall receive the benefits described in paragraphs (a) and (b) of this
section 2 in the event of a Change in Control of the Employer if within two
years following such Change in Control (i) the Employer terminates the
employment of the Executive for any reason other than for Cause or Retirement,
as a result of Disability or the Executive's death or (ii) the Executive
terminates his employment with the Employer for Good Reason. In such event,
Employer or its successor as contemplated in Section 6 hereof shall:
(a) pay to the Executive, in the discretion of the Executive, either in a
single payment on the first business day of the month following the Date of
Termination or in equal monthly installments for a two-year period beginning
with the first business day of the month following the Date of Termination, a
cash amount equal to 2.0 times the Executive's Annual Compensation; and
(b) maintain and provide for a period ending at the earlier of (i) two (2)
years after the Date of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive is
entitled under the terms of such employment to benefits substantially similar to
those described in this subparagraph (b)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive
<PAGE>
was entitled to participate immediately prior to the Date of Termination (other
than retirement plans or stock compensation plans of the Employer), provided
that in the event that the Executive's participation in any plan, program or
arrangement as provided in this subparagraph (b) is barred, or during such
period any such plan, program or arrangement is discontinued or the benefits
thereunder are materially reduced, the Employer shall arrange to provide the
Executive with benefits substantially similar to those which the Executive was
entitled to receive under such plans, programs and arrangements immediately
prior to the Date of Termination.
3. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 2 hereof, either alone or together with other
payments and benefits which Executive has the right to receive from the Employer
would constitute a "parachute payment" under Section 280G of the Code, the
payments and benefits pursuant to Section 2 hereof shall be reduced, in the
manner determined by the Executive, by the amount, if any, which is the minimum
necessary to result in no portion of the payments and benefits under Section 2
being non-deductible to the Employer pursuant to Section 280G of the Code and
subject to the excise tax imposed under Section 4999 of the Code.
Notwithstanding the foregoing, if the total amount of payments and benefits
pursuant to Section 2 hereof exceeds the equivalent of twice the Executive's
"annual compensation" during the year immediately preceding the termination of
his service, the payments and benefits pursuant to Section 2 hereof shall be
reduced, in the manner determined by the Executive, by the amount, if any, which
is the minimum necessary to ensure that the total amount of payments and
benefits under Section 2 hereof does not exceed twice the Executive's "annual
compensation;" notwithstanding the provisions of Section 1(a) hereof, for
purposes of this sentence only, "annual compensation" shall have the meaning set
forth in Section 2510.3-2(b)(2) of the Pension and Welfare Benefits
Administration Regulations. The determination of any reduction in the payments
and benefits to be made pursuant to Section 2 shall be based upon the opinion of
independent tax counsel selected by the Employer's independent public
accountants and paid for by the Employer. Such counsel shall be reasonably
acceptable to the Employer and the Executive; shall promptly prepare the
foregoing opinion, but in no event later than thirty (30) days from the Date of
Termination; and may use such actuaries as such counsel deems necessary or
advisable for the purpose. In the event that the Employer and/or the Executive
do not agree with the opinion of such counsel, (i) the Employer shall pay to the
Executive the maximum amount of payments and benefits pursuant to Section 2, as
selected by the Executive, which such opinion indicates that there is a high
probability do not result in any of such payments and benefits being
non-deductible to the Employer and subject to the imposition of the excise tax
imposed under Section 4999 of the Code and (ii) the Employer may request, and
Executive shall have the right to demand that the Employer request, a ruling
from the IRS as to whether the disputed payments and benefits pursuant to
Section 2 hereof have such consequences. Any such request for a ruling from the
IRS shall be promptly prepared and filed by the Employer, but in no event later
than thirty (30) days from the date of the opinion of counsel referred to above,
and shall be subject to Executive's approval prior to filing, which shall not be
unreasonably withheld. The Employer and Executive agree to be bound by any
ruling received from the IRS and to make appropriate payments to each other to
reflect any such rulings, together with interest at the applicable federal
short-term rate provided for in Section 1274(d) of the Code. Nothing contained
herein shall result in a reduction of any payments or benefits to which the
Executive may be entitled upon termination of employment other than
<PAGE>
pursuant to Section 2 hereof, or a reduction in the payments and benefits
specified in Section 2 below zero.
4. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employer pursuant to employee benefit plans
of the Employer or otherwise.
5. Withholding. All payments required to be made by the Employer hereunder
to the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Employer may reasonably
determine should be withheld pursuant to any applicable law or regulation.
6. Assignability. The Employer may assign this Agreement and its rights
hereunder in whole, but not in part, to any corporation, bank or other entity
with or into which either of the Employer may hereafter merge or consolidate or
to which either of the Employer may transfer all or substantially all of its
assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employer
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights hereunder. The Executive may not
assign or transfer this Agreement or any rights or obligations hereunder.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employer: G. Thomas Bowers
Chairman, President and Chief Executive Officer
Finger Lakes Financial Corp.
470 Exchange Street
Geneva, New York 14456
To the Executive: Leslie J. Zornow
3416 Middle Cheshire Road
Canandaigua, New York 14424
<PAGE>
8. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employer to sign on its
behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise the substantive laws of the State of New York
(without regard to its principles of conflict of laws)..
10. Nature of Employment and Obligations.
(a) Nothing contained herein shall be deemed to create other than a
terminable at will employment relationship between the Employer and the
Executive, and the Employer may terminate the Executive's employment at any time
and for any reason: provided that a termination occurring following a Change in
Control shall be subject to the provision of any payments specified herein in
accordance with the terms hereof.
(b) Nothing contained herein shall create or require the Employer to create
a trust of any kind to fund any benefits which may be payable hereunder, and to
the extent that the Executive acquires a right to receive benefits from the
Employer hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Employer.
11. Term of Agreement. This Agreement shall have a rolling three-year term,
commencing on the date first above written and shall be deemed automatically,
without further action, to extend each day for an additional day such that the
remaining term of this Agreement shall continue to be three years. However,
within 30 days prior to the first anniversary of the date first above written
and within 30 days prior to each anniversary thereafter, the Board of Directors
of the Employer shall consider (with appropriate corporate documentation
thereof, and after taking into account all relevant factors, including
Executive's performance as an employee) extension of the term of this Agreement,
and the term of this Agreement shall continue to extend unless the Board of
Directors of the Employer do not approve such renewal and provide written notice
to the Executive of such event, with such written notice to be given not less
than thirty (30) days following the date of any such anniversary, and provided
further that, notwithstanding the foregoing to the contrary, this Agreement
shall automatically terminate on the second anniversary of a Change in Control
of the Employer.
12. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforeceability of any other
provisions of this Agreement, which shall remain in full force and effect.
<PAGE>
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C.ss.1828(k) and any regulations promulgated thereunder.
16. Regulatory Actions. The following provisions shall be applicable to the
parties to the extent that they are required to be included in agreements
between a savings association and its employees pursuant to Section 563.39(b) of
the Regulations Applicable to All Savings Associations, 12 C.F.R. ss.563.39(b),
or any successor thereto, and shall be controlling in the event of a conflict
with any other provision of this Agreement.
(a) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Employer's affairs pursuant to notice
served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIA")(12 U.S.C. ss.ss.1818(e)(3) and 1818(g)(1)), the Employer'
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Employer may, in its discretion: (i) pay Executive all or part of
the compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.
(b) If Executive is removed from office and/or permanently prohibited from
participating in the conduct of the Employer's affairs by an order issued under
Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. ss.ss.1818(e)(4) and
1818(g)(1)), all obligations of the Employer under this Agreement shall
terminate as of the effective date of the order, but vested rights of the
Executive and the Employer as of the date of termination shall not be affected.
(c) If the Employer is in default, as defined in Section 3(x)(1) of the
FDIA (12 U.S.C. ss.1813(x)(1)), all obligations under this Agreement shall
terminate as of the date of default, but vested rights of the Executive and the
Employer as of the date of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant to 12
C.F.R. ss.563.39(b)(5) (except to the extent that it is determined that
continuation of the Agreement for the continued operation of the Employer is
necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or
his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC")
or Resolution Trust Corporation enters into an agreement to provide assistance
to or on behalf of the Employer under the authority contained in Section 13(c)
of the FDIA (12 U.S.C. ss.1823(c)); or (ii) by the Director of the OTS, or
his/her designee, at the time the Director or his/her designee approves a
supervisory merger to resolve problems related to operation of the Employer or
when the Employer is determined by the Director of the OTS to be in an unsafe or
<PAGE>
unsound condition, but vested rights of the Executive and Employer as of the
date of termination shall not be affected.
17. Entire Agreement. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, of the parties
with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
FINGER LAKES FINANCIAL CORP.
By: /s/ G. Thomas Bowers
--------------------------
G. Thomas Bowers
Chairman, President & CEO
/s/ Leslie J. Zornow
---------------------------
Leslie J. Zornow
<PAGE>
(1) Incorporated by reference to Exhibits B and C of the Company's
previously filed proxy statement relating to its Annual Meeting of
Shareholders' held on April 23, 1998
(2) Incorporated by reference to the application for Approval of a
Minority Stock Issuance by aSavings Association Subsidiary of a
Mutual Holding Company on Form MIIC-2 filed by the Bank with the
Office of Thrift Supervision on December 17, 1993, as amended.
(3) Incorporated by reference to the Bank's Annual Report on Form 10-K
for the year ended December 31, 1996.
* Management contract or compensatory plan or arrangement.
(b) Reports filed on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FINGER LAKES FINANCIAL CORP.
Date: June 5, 2000 By: /s/ G. Thomas Bowers
--------------------------------------
G. Thomas Bowers
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By:/s/ G. Thomas Bowers By:/s/ Michael J. Hanna
---------------------------------------- -------------------------------
G. Thomas Bowers, President, Chief Michael J. Hanna, Director
Executive Officer and Director
(Principal Executive Officer)
Date: June 5, 2000 Date: June 5, 2000
By:/s/ Chris M. Hansen By:/s/ Richard J. Harrison
---------------------------------------- -------------------------------
Chris M. Hansen, Director Richard J. Harrison, Director
Date: June 5, 2000 Date: June 5, 2000
By:/s/ Bernard G. Lynch By:/s/ James E. Hunter
---------------------------------------- -------------------------------
Bernard G. Lynch, Director James E. Hunter, Director
Date: June 5, 2000 Date: June 5, 2000
By:/s/ Arthur W. Pearce By:/s/ Ronald C. Long
---------------------------------------- -------------------------------
Arthur W. Pearce, Director Ronald C. Long, Director
Date: June 5, 2000 Date: June 5, 2000
By:/s/ Terry L. Hammond By:/s/ Joan C. Rogers
---------------------------------------- -------------------------------
Terry L. Hammond, Chief Financial Joan C. Rogers, Director
Officer
Date: June 5, 2000 Date: June 5, 2000
By:/s/ Ralph Springstead
----------------------------------------
Ralph Springstead, Director
Date: June 5, 2000
