<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
REGISTRATION NO. 333-63603
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ONEIDA FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6712 (TO BE APPLIED FOR)
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Code Number) Identification Number)
</TABLE>
182 MAIN STREET
ONEIDA, NEW YORK 13421-1676
(315) 363-2000
(Address, including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)
MICHAEL R. KALLET
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONEIDA FINANCIAL CORP.
182 MAIN STREET
ONEIDA, NEW YORK 13421-1676
(315) 363-2000
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Copies to:
ERIC LUSE, ESQ.
ALAN SCHICK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK
5335 WISCONSIN AVENUE, N.W.
SUITE 400
WASHINGTON, D.C. 20015
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE AGGREGATE OFFERING REGISTRATION
PER UNIT PRICE (1) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$.10 par Value 2,307,117 shares $10.00 $23,071,170 (2)
- ------------------------------------------------------------------------------------------------------
Participation
Interests (3) ______ _______ (4)
======================================================================================================
</TABLE>
___________________________
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A Registration fee of $6,806 was previously paid with the Form S-1 on
September 17, 1998.
(3) Includes an indeterminate number of interests to purchase the Common Stock
pursuant to the Oneida Savings Bank 401(K) Savings Plan in RSI Retirement
Trust.
(4) The securities of Oneida Financial Corp. to be purchased by the Oneida
Savings Bank 401(k) Savings Plan in RSI Retirement Trust as adopted by The
Oneida Savings Bank are included in the amount shown for Common Stock.
However, pursuant to Rule 457(h) of the Securities Act of 1933, as amended,
no separate fee is required for the participation interests. Pursuant to
such rule, the amount being registered has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
PROSPECTUS
UP TO 1,970,663 SHARES OF COMMON STOCK
ONEIDA FINANCIAL CORP.
182 MAIN STREET
ONEIDA, NEW YORK 13421-1676
(315) 363-2000
- --------------------------------------------------------------------------------
The Oneida Savings Bank, a New York-chartered savings bank (the "Bank"), is
reorganizing from the mutual form of organization into a two-tier mutual holding
company structure (the "Reorganization"). As part of the Reorganization, the
Bank will convert to stock form and will become a wholly-owned subsidiary of
Oneida Financial Corp., a Delaware corporation (the "Company"). The Company will
become the majority owned subsidiary of Oneida Financial, MHC, a New York-
chartered mutual holding company (the "Mutual Holding Company"). Concurrent with
the Reorganization, the Company is offering for sale shares of its common stock,
par value $.10 per share (the "Common Stock"), to depositors (pursuant to
subscription rights), the Bank's tax-qualified employee benefit plans including
its employee stock ownership plan, and to employees, officers and trustees of
the Bank. Any unsubscribed shares of Common Stock may be offered for sale to the
public in a community offering or syndicated community offering (the
subscription and community offerings are referred to collectively as the
"Offering"). The Reorganization and Offering are being made pursuant to the
terms of a plan of reorganization which must be approved by the depositors of
the Bank and by federal and state banking regulators. The Reorganization will
not go forward if the Bank does not receive these approvals, or if the Company
does not sell at least a minimum number of the shares of Common Stock offered.
- --------------------------------------------------------------------------------
TERMS OF OFFERING
An independent appraiser has estimated that the pro forma market value of
the Company is between $28.4 million and $38.5 million. Based on this estimate,
the Company will issue between 2,843,760 and 3,847,440 shares of Common Stock.
The Company is selling between 1,266,588 and 1,713,620 shares to depositors and
the public, and is issuing between 1,521,442 and 2,058,421 shares to the Mutual
Holding Company. The Company may increase the shares it issues in the
Reorganization to up to 4,424,556 shares and increase the shares sold in the
Offering to up to 1,970,663 shares, subject to receipt of regulatory approvals.
As part of the Reorganization, 2.0% of the shares issued in the Reorganization,
or 65,565 shares at the midpoint of the estimated valuation range, are being
issued to The Oneida Savings Bank Charitable Foundation (the "Charitable
Foundation"). Consequently, following completion of the Reorganization and
Offering, the Mutual Holding Company will own 53.5% of the outstanding Common
Stock, stockholders who purchase Common Stock in the Offering will own 44.5% of
the outstanding Common Stock, and the Charitable Foundation will own 2.0% of the
outstanding Common Stock. Based on these estimates, the Company is making the
following offering of shares of Common Stock.
<TABLE>
<CAPTION>
Adjusted
Minimum Midpoint Maximum Maximum
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
. Price per share.............. $ 10.00 $ 10.00 $ 10.00 $ 10.00
. Number of shares offered..... 1,266,588 1,490,104 1,713,620 1,970,663
----------- ----------- ----------- -----------
. Reorganization expenses...... $ 695,000 $ 695,000 $ 695,000 $ 695,000
. Net Proceeds................. $11,970,880 $14,206,040 $16,441,200 $19,011,630
=========== =========== =========== ===========
. Net Proceeds per share sold.. $ 9.45 $ 9.53 $ 9.59 $ 9.64
=========== =========== =========== ===========
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE __ OF THIS PROSPECTUS.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY
OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE NEW YORK
STATE BANKING DEPARTMENT (THE "DEPARTMENT"), THE FDIC, NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Trident Securities, Inc. will use its best efforts to assist the Company in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. All funds received from subscribers will be held in an
interest-bearing savings account at The Oneida Savings Bank until the completion
or termination of the Reorganization. The Company has received conditional
approval to list the Common Stock on the Small Cap Market of the Nasdaq Stock
Market under the symbol "ONFC." Prior to the Offering, a public market for the
Common Stock did not exist. There can be no assurance that an active and liquid
trading market for the Common Stock will develop or be maintained, or that
resales of the Common Stock will be made at or above the purchase price
following completion of the Reorganization and Offering.
For information on how to subscribe, call the Stock Information Center at
(315) 363-5088.
TRIDENT SECURITIES, INC.
PROSPECTUS DATED ___________, 1998
<PAGE>
MAP
OF NEW YORK STATE
HIGHLIGHTING MADISON AND
ONEIDA COUNTIES.
<PAGE>
TABLE OF CONTENTS
PAGE
----
(( Table of Contents will generate here ))
This document contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" beginning on page __ of this Prospectus.
Please see the Glossary beginning on page G-l for the definitions of capitalized
terms that are used in this Prospectus.
(i)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: WHAT IS THE MUTUAL HOLDING COMPANY?
A: Oneida Financial, MHC (the "Mutual Holding Company") is a New York-
chartered mutual corporation that is being established in connection with
the mutual holding company reorganization (the "Reorganization") of The
Oneida Savings Bank (the "Bank"). The Mutual Holding Company will be
chartered under the laws of the State of New York and will be regulated by
the New York Banking Department (the "Department") and the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). The
Mutual Holding Company will own 53.5% of the outstanding Common Stock of
Oneida Financial Corp. (the "Company"), or 1,789,931 shares at the midpoint
of the valuation range established by the independent appraisal. The
remaining 46.5% of the Common Stock of the Company will be owned by persons
who purchase Common Stock in the Offering and The Oneida Savings Bank
Charitable Foundation (the "Charitable Foundation").
Q: WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?
A: All persons who purchase Common Stock in the Offering, including the
employee stock ownership plan ("ESOP") of the Bank as well as the
Charitable Foundation will be the minority stockholders (the "Minority
Stockholders") of the Bank, and will own 46.5% of its Common Stock upon
completion of the Offering. The Mutual Holding Company will own 53.5% of
the Common Stock of the Company, and will remain its majority stockholder
as long as the Mutual Holding Company remains in existence.
Q: WHAT IS THE PURPOSE OF THE REORGANIZATION AND OFFERING?
A: The primary purpose of the Reorganization and Offering is to raise
additional equity capital to support the growth and expansion of the Bank.
The increased capital also will be used to expand the Bank's lending and
investment activities. The Reorganization will create a holding company
and a stock savings bank, which is the corporate form used by all
commercial banks and an increasing number of savings institutions. The
holding company structure will expand the investment and operating
authority currently available to the Bank. The Offering also will provide
depositors with the opportunity to become stockholders of the Company. The
Bank will also establish the Charitable Foundation that will be dedicated
exclusively to supporting charitable causes and community development
activities in the Bank's market area.
Q: WHY IS THE BANK FORMING A TWO-TIER MUTUAL HOLDING COMPANY AND CONDUCTING A
MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A FULL CONVERSION TO STOCK
FORM?
A: At the present time, the Bank does not need all of the capital that would
be raised in a full stock conversion. A savings institution that converts
to stock form using the mutual holding company structure sells only a
minority of its shares to the public. By doing so, the converting
institution raises less than half the capital that would be raised in a
full conversion. However, with the mutual holding company structure the
Bank will have the flexibility to raise additional capital in the future.
Moreover, the Bank's Board of Trustees intends to maintain the independence
and community control of the Bank. Because the Mutual Holding Company will
control a majority of the Company's Common Stock, the Reorganization will
permit the Bank to achieve the benefits of being a stock company without
the loss of control by the Bank's Board of Directors. The mid-tier mutual
holding company structure will permit the Bank to achieve the benefits of
being a stock company, such as additional flexibility to diversify its
business activities through existing or newly-formed subsidiaries, or
through acquisitions of, or mergers with, other financial institutions and
financial services related to companies. The Bank may acquire or merge with
other financial institutions directly and diversify without utilizing its
bank holding company parent. The Bank currently has no specific plans,
arrangements or understandings regarding any such expansions or
acquisitions, nor has management established criteria to identify potential
candidates for acquisition.
<PAGE>
Q: HOW DO I ORDER THE COMMON STOCK?
A: You must complete and return the Stock Order Form to the Bank, together
with your payment, on or before December _____, 1998. Please review the
Stock Order Form carefully before sending us any payment.
Q: HOW MUCH STOCK MAY I ORDER?
A: The minimum order is 25 shares (or $250). The maximum order for any
individual person or persons ordering through a single account is 15,000
shares (or $150,000). In certain instances, your order may be grouped
together with orders by other persons who are associated with you (such as
your spouse, child or relatives living in your home or corporations,
partnership and trusts of which you are an officer, director or trustee),
or with whom you are acting in concert, and, in that event, the aggregate
order may not exceed 25,000 shares (or $250,000). The maximum purchase
limitation may be decreased or increased without notifying you. However, if
the maximum purchase limitation is increased, and you previously subscribed
for the maximum number of shares, you will be notified of the increase and
given the opportunity to subscribe for additional shares.
Q: WHO HAS SUBSCRIPTION RIGHTS AND WHAT ARE THE SUBSCRIPTION PRIORITIES?
A: Subscription rights to purchase Common Stock will be offered on a priority
basis to the following classes of persons:
. First, to persons who had one or more deposit accounts with the Bank
totaling at least $100 on December 31, 1996 ("Eligible Account
Holders").
. Second, up to 10% of the shares sold in the Offering, may be purchased
by the Bank's tax-qualified employee benefit plans, including the
Bank's ESOP, which intends to purchase shares equal to 8% of the
Minority Ownership Interest. In addition, participants in the Bank's
401(k) Plan will be given the opportunity to subscribe for shares of
Common Stock through their 401(k) Plan.
. Third, to persons who had one or more deposit accounts with the Bank
totaling at least $100 on September 30, 1998 ("Supplemental Eligible
Account Holders").
. Fourth, to employees, officers and trustees of the Bank, who do not
qualify in any of the above categories.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: If the Offering is oversubscribed, shares will be allocated based upon a
deposit formula set forth in the Plan of Reorganization and described in
"The Reorganization and Offering - Purchase Priorities and Method of
Offering Shares." In recent periods a number of stock offerings by
financial institutions have been oversubscribed. There can be no assurance
that a subscriber in the Offering will have his or her subscription filled.
If insufficient shares of Common Stock are available in the first category,
the Bank will allocate shares in such a manner that will allow Eligible
Account Holders to purchase at least 100 shares. Likewise, if insufficient
shares of Common Stock are available in the third category, the Company
will allocate shares in such a manner that will allow Supplemental Eligible
Account Holders to purchase at least 100 shares.
Q: WILL SHARES BE OFFERED TO ANYONE OTHER THAN PERSONS WITH SUBSCRIPTION
RIGHTS?
2
<PAGE>
A: If persons with subscription rights do not subscribe for all of the shares
offered, any remaining shares will be offered to certain members of the
general public in a community offering, with a preference for natural
persons residing in the Bank's community consisting of Madison county, New
York, the cities and towns of Annsville, Camden, Florence, Sherrill,
Vernon, Verona and Vienna in Oneida county, New York and the towns of
Fabius, Manlius and Pompey in Onondaga county, New York.
Q: WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT TO
BUY COMMON STOCK?
A: Before you decide to purchase Common Stock, you should read the entire
Prospectus, including the "Risk Factors" section beginning on page _____ of
the Prospectus.
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE OFFERING?
A: In order to make an informed investment decision, you should read this
entire Prospectus. This question and answer section highlights selected
information and may not contain all of the information that is important to
you. If you have any additional questions about the Offering, you may
contact:
STOCK INFORMATION CENTER
THE ONEIDA SAVINGS BANK
126 LENOX AVENUE
ONEIDA, NEW YORK 13421-1676
(315) 363 - 5088
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE BANK
INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT IT
BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS. ORDERS KNOWN TO INVOLVE
THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED. IN ADDITION, PERSONS
WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND PENALTIES
IMPOSED BY THE DEPARTMENT AND/OR FDIC.
3
<PAGE>
SUMMARY AND OVERVIEW
This summary highlights selected information in this Prospectus and does
not contain all the information that you need to know before making an informed
investment decision. To understand the Offering fully, you should read the
entire Prospectus carefully, including the financial statements and the notes to
the financial statements of The Oneida Savings Bank. Certain financial
information contained in the Prospectus has been derived from the audited
financial statements of The Oneida Savings Bank.
You should note as you read this Prospectus that at times capitalized terms
are used. These capitalized terms are generally defined in the glossary that
is at the end of this Prospectus. Defined terms are used to help you
differentiate between the various components of the transaction, to simplify the
discussion and to avoid unnecessary repetition by not having to define or
describe a term each time it is used. For example, to avoid confusion, all of
the steps that are part of the transactions described in this Prospectus are
referred to as the "Reorganization," and the offer and sale of 44.5% of the
Company's Common Stock is referred to as the "Offering". References to the
"Bank" refer to The Oneida Savings Bank. References to "Company" refer to
Oneida Financial Corp., and references to the "Mutual Holding Company" refer to
Oneida Financial, MHC. To further assist you in reading this Prospectus, in
addition to including a glossary at the end of this Prospectus, each term is
also defined the first time that it is used.
THE REORGANIZATION
The Reorganization involves a number of steps, including the following:
. The Bank will establish the Company and the Mutual Holding Company,
neither of which will have any assets prior to the completion of the
Reorganization.
. The Bank will convert from the mutual form of organization to the
capital stock form of organization and issue 100% of its capital stock
to the Company.
. The Company will issue between 2,843,760 shares and 3,847,440 shares
of Common Stock in the Reorganization: 53.5% of these shares (or
between 1,521,442 shares and 2,058,421 shares) will be issued to the
Mutual Holding Company, 44.5% of these shares (or between 1,266,588
shares and 1,713,620 shares) will be sold to depositors and the
public, and 2.0% of these shares (or between 55,730 shares and 75,399
shares) will be issued to the Charitable Foundation.
. Interests that depositors had in the Bank will become interests in
the Mutual Holding Company, which will own 53.5% of the shares of
Common Stock of the Company and indirectly of the Bank.
THE MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure differs in significant respects from
the bank holding company structure that is used in a standard mutual to stock
conversion. A savings bank that converts to the stock form using the mutual
holding company structure sells only a minority of its shares and raises less
proceeds than would be raised in a standard mutual to stock conversion in which
100% of the shares are sold to depositors and the public. If additional capital
is needed in the future, the shares that are issued to the Mutual Holding
Company may be subsequently sold to depositors. See "Regulation--Holding Company
Regulation--Mutual Holding Company Regulation." In addition, because the Mutual
Holding Company controls a majority of the Company's Common Stock, the structure
will permit the Bank to achieve the benefits of a stock company without a loss
of control that often follows a complete conversion from mutual to stock form.
In making business decisions, the Mutual Holding Company's Board of
Trustees will consider a variety of constituencies, including the depositors and
employees of the Bank, and the communities in which the Bank operates.
4
<PAGE>
As the majority stockholder of the Company, the Mutual Holding Company is also
interested in the continued success and profitability of the Bank and the
Company. Consequently, the Mutual Holding Company will act in a manner which
furthers the general interest of all of its constituencies, including, but not
limited to, the interest of the stockholders of the Company. The Mutual Holding
Company believes that the interests of the stockholders of the Company, and
those of the Mutual Holding Company's other constituencies, are in many
circumstances the same, such as the increased profitability of the Company and
the Bank and continued service to the communities in which the Bank operates.
THE COMPANY
The Company is a Delaware corporation that was formed recently to become
the holding company of the Bank. Accordingly, the Company has no results of
operations. After the Reorganization, the Company will own all of the Bank's
common stock. Purchasers in the Offering will own 44.5% of the Company's issued
and outstanding Common Stock, the Charitable Foundation will own 2.0% of the
shares of the issued and outstanding Common Stock, and the Mutual Holding
Company will own 53.5% of the shares of the issued and outstanding Common Stock.
Although these percentages may change in the future, the Mutual Holding Company
must always own a majority of the Company's Common Stock.
Oneida Financial Corp.
182 Main Street
Oneida, New York 13421-1676
(315) 363-2000
THE BANK
The Bank was organized in 1866 as a New York-chartered mutual savings bank.
At June 30, 1998, the Bank had total assets of $217.6 million, total deposits of
$189.2 million, and retained earnings of $28.0 million. The Bank is a
community-oriented savings bank that operates from its main office and four
branch locations in Camden, Cazenovia, Hamilton and Oneida, New York.
Historically, the Bank has emphasized the origination of loans secured by
residential real estate. In recent years, the Bank also has increased its
consumer, commercial real estate and commercial business lending. At June 30,
1998, $88.0 million, or 62.0%, of the Bank's loan portfolio consisted of loans
secured by one-to-four family real estate, $16.8 million, or 11.9%, consisted of
consumer loans, $14.5 million, or 10.2%, consisted of loans secured by
commercial real estate, and $11.6 million, or 8.1%, consisted of commercial
business loans. The Bank also invests in investment securities and mortgage-
backed securities. At June 30, 1998, investment securities totaled $39.6
million and mortgage-backed securities totaled $16.6 million. In 1984, the Bank
began offering trust and estate administration services, as well as custody and
investment management services. At June 30, 1998, the Bank's trust department
had $5.5 million of assets under management.
The Oneida Savings Bank
182 Main Street
Oneida, New York 13421-1676
(315) 363-2000
THE STOCK OFFERING
The Company is offering for sale between 1,266,588 shares and 1,713,620
shares of its Common Stock, for a price of $10.00 per share. The Offering may be
increased to up to 1,970,663 shares without further notice to subscribers, if
the FDIC does not object.
5
<PAGE>
STOCK PURCHASE PRIORITIES
The Common Stock is being offered for sale in the following order of
priority in a Subscription Offering:
(i) the Bank's Eligible Account Holders (holders of deposit accounts
totaling at least $100 as of December 31, 1996);
(ii) up to 10% of the shares sold in the Offering, may be purchased by the
Bank's tax-qualified employee benefit plans, including the Bank's
ESOP, which intends to purchase shares equal to 8% of the Minority
Ownership Interest. In addition, participants in the Bank's 401(k)
Plan will be given the opportunity to subscribe for shares of Common
Stock through their 401(k) Plan.
(iii) the Bank's Supplemental Eligible Account Holders (holders of deposit
accounts totaling at least $100 as of September 30, 1998); and
(iv) employees, officers and trustees of the Bank, who do not qualify in
any of the above categories.
Any shares not subscribed for will be offered to certain members of the
general public in a community offering, with preference given first to natural
persons residing in Madison county, New York, the cities and towns of Annsville,
Camden, Florence, Sherrill, Vernon, Verona and Vienna in Oneida county, New York
and the towns of Fabius, Manlius and Pompey in Onondaga county, New York. The
Company has engaged Trident Securities, Inc. to assist it on a best efforts
basis in selling the Common Stock in the Offering. See pages __ to __.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Company's Board of Directors has set the purchase price of Common Stock
at $10.00 per share, the price most commonly used in stock offerings involving
mutual to stock conversions of mutual savings institutions. The number of shares
of Common Stock issued in the Offering is based on the independent valuation
prepared by FinPro, Inc. ("FinPro"), an appraisal firm experienced in appraisals
of savings institutions. FinPro will receive a fee of $25,000 for its services.
Recent market volatility, as well as a weakening in the market for financial
institution securities generally, resulted in FinPro updating its original
appraisal, dated September 9, 1998, to decrease the pro forma market value of
the Company by 15%. Consequently, the number of shares of Common Stock being
offered to the public has been decreased by 15%. The independent valuation
states that as of October 7, 1998 the estimated pro forma market value of the
Company ranged from a minimum of $28,437,600 to a maximum of $38,474,400, with a
midpoint of $33,456,000. Based on this valuation and the $10.00 per share price,
the number of shares of Common Stock that the Company will issue will range from
between 2,843,760 shares to 3,847,440 shares. The Company and the Bank have
decided to offer between 1,266,588 shares and 1,713,620 shares of Common Stock
to depositors and the public. In addition, the Company will issue between 55,730
shares and 75,399 shares to the Charitable Foundation. The shares of the Common
Stock that are not sold in the Offering or issued to the Charitable Foundation
will be issued to the Mutual Holding Company. The establishment of the
Charitable Foundation had the effect of reducing the valuation of the Company.
See "Comparison of Valuation and Pro Forma Information With and Without the
Foundation."
FinPro will update its appraisal of the pro forma market value of the
Company at the completion of the Offering. Based upon this update which will
consider changes in market and financial conditions and demand for the Common
Stock, the estimated valuation range may increase by up to 15%, or $44,245,560.
If this occurs, the maximum number of shares that can be sold to depositors and
the public can increase to up to 1,970,663 shares, and the number of shares to
be issued to the Charitable Foundation can increase to 86,709 shares. The
Company will not notify subscribers if the maximum number of shares to be sold
increases by 15% or less. The Company will, however, notify subscribers if the
estimated valuation range and the maximum number of shares to be sold is
increased by more than 15% or if the minimum of the estimated valuation range is
decreased. THE INDEPENDENT VALUATION IS NOT A
6
<PAGE>
RECOMMENDATION AS TO THE ADVISABILITY OF PURCHASING SHARES, AND YOU SHOULD NOT
BUY COMMON STOCK BASED ON THE INDEPENDENT VALUATION.
TERMINATION OF THE OFFERING
The Offering to depositors will terminate at __:___ New York time, on
__________, 1998. The Community Offering may terminate on or after __________,
1998, but in any event, no later than __________, 1998, without regulatory
approvals. If the Reorganization and Offering are not completed by __________,
1998, all subscribers will be notified and will be given the opportunity to
cancel or modify their order.
BENEFITS TO MANAGEMENT FROM THE OFFERING
The Company intends to implement for the benefit of the employees,
directors and officers of the Company and the Bank, the ESOP, a stock option
plan ("Stock Option Plan") and a stock award plan ("Stock Award Plan"). These
benefit plans would result in employees, officers and directors being eligible
to receive in the aggregate 326,709 shares of Common Stock (at the midpoint of
the Offering Range). Assuming that the Stock Option Plan and Stock Award Plan
were funded from shares purchased in the open market, employees,
directors/trustees and officers would own (at the midpoint) 38.13% of the
outstanding shares of Common Stock owned by persons other than the Mutual
Holding Company (the "Minority Ownership Interest").
ESOP. Full-time employees of the Bank will participate in an ESOP, which
is a form of retirement plan, that will purchase up to 8% of the Common Stock
owned by persons other than the Mutual Holding Company (the "Minority Ownership
Interest"). The estimated cost to fund the ESOP is $1.1 million at the
minimum of the Offering Range and $1.4 million at the maximum of the Offering
Range assuming a price of $10.00 per share. A portion of the net proceeds of
the Offering will be used to fund the purchase of shares for the ESOP. For
further information, see "Management of the Bank--Benefit Plans--Employee Stock
Ownership Plan and Trust."
STOCK OPTION PLAN. The Stock Option Plan will provide for the grant of
options to purchase Common Stock equal to 3% of the Minority Ownership Interest.
The exercise price of each option will be equal to the closing price of the
Common Stock on the date the option is granted. No options will be granted until
after stockholders approve the Stock Option Plan. For further information, see
"Management of the Bank--Benefit Plans--Stock Option Plan." The Board of
Directors has not yet determined how many options each individual officer,
director or employee will receive.
STOCK AWARD PLAN. The Stock Award Plan will provide for the award of shares
of Common Stock equal to 3% of the Minority Ownership Interest to officers,
employees and directors of the Bank, if the Stock Award Plan is implemented
within one year after the completion of the Offering. If the Stock Award Plan is
implemented later than one year after the completion of the Offering, up to 5%
of the Minority Ownership Interest may be granted, subject to stockholder
approval. Shares of Common Stock awarded under the Stock Award Plan will be at
no cost to the recipient, and in the aggregate will have a value of $396,695 at
the minimum of the Offering and $536,706 at the maximum of the Offering,
assuming a value of $10.00 per share. For further information, see "Management
of the Bank--Benefit Plans--Stock Award Plan." The Board of Directors has not
yet determined how many shares of Common Stock will be awarded to officers,
directors or employees of the Bank.
The Stock Award Plan and Stock Option Plan will not be adopted until at
least six months after the completion of the Reorganization, and are subject to
stockholder approval. See pages ___ to ___.
The following table presents the dollar value of the shares to be granted
pursuant to the proposed stock benefit plans and the percentage of the Company's
outstanding Common Stock which will be represented by these shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
VALUE OF OUTSTANDING
SHARES GRANTED/(1)/ COMMON STOCK
------------------- -------------
<S> <C> <C>
BENEFIT PLAN:
ESOP.......................... 1,244,608 3.69%
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Stock Award Plan.............. 466,728 1.40
Stock Option Plan............. -- /(2)/ 4.61
---------- ----
1,711,336 9.70%
</TABLE>
_____________________
/(1)/ Assumes shares are granted at $10.00 per share and that shares are sold in
the Offering at the midpoint of the Offering Range.
/(2)/ Recipients of stock options realize value only in the event of an increase
in the price of the Common Stock of the Company following the date of
grant of the stock options. Options to purchase 155,557 shares (at the
midpoint of the Offering) may be granted if the Stock Option Plan is
approved by stockholders.
THE CHARITABLE FOUNDATION
To further our commitment to our local community, the Bank intends to
establish the Charitable Foundation as part of the Reorganization. The Company
will contribute to the Charitable Foundation 2.0% of the shares of Common Stock
issued in the Reorganization and will receive $100,000 in cash. The Charitable
Foundation is being funded with shares of Common Stock because of management's
belief that over time the value of the shares of Common Stock will provide a
greater endowment to the local community than would a cash contribution. Funding
the Charitable Foundation with Common Stock also may be a means of enabling the
communities served by the Bank to share in the growth and success of the
Company. The Charitable Foundation will benefit the Company and the Bank by
allowing them to develop a unified charitable donation strategy and by
centralizing the responsibility for administration and allocation of corporate
charitable funds. The Charitable Foundation will be dedicated exclusively to
supporting charitable causes and community development activities in the Bank's
market area. Due to the issuance of additional shares of Common Stock to the
Charitable Foundation, the ownership and voting interests of all stockholders of
the Company will be diluted by approximately 2.0%. Shares of Common Stock held
by the Charitable Foundation will be voted in the same ratio as shares voted by
public stockholders. The Company will incur an expense equal to the full amount
of the contribution to the Charitable Foundation, offset in part by a
corresponding tax benefit, during the quarter in which the contribution is made.
Such expense will reduce the Company's earnings. See "Risk Factors--The Expense
and Dilutive Effect of the Contribution of Shares and Cash to the Charitable
Foundation," "Pro Forma Data," and "The Reorganization and Offering--
Establishment of the Charitable Foundation."
USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK
The Company estimates that the net proceeds from the Offering will be used
as follows:
. 50% will be used to buy all the capital stock of the Bank.
. 8% will be loaned to the ESOP to fund its purchase of Common Stock
(assuming a purchase price of $10.00 per share).
. 42% will be retained as a possible source of funds for the payment of
dividends to stockholders, the repurchase of Common Stock, and for
other general corporate purposes.
The proceeds to be received by the Bank will be available for general
corporate purposes, the opening of new branch offices, renovation of existing
offices, branch or whole bank acquisitions, new loan originations and the
purchase of investment and mortgage-backed securities. See pages ___ to
___.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure proper identification of stock purchase priorities, Eligible
Account Holders and Supplemental Eligible Account Holders must list all deposit
accounts on their stock order forms, giving all names on each deposit account
and the account numbers at the applicable date. THE FAILURE TO PROVIDE ACCURATE
AND COMPLETE ACCOUNT INFORMATION ON THE STOCK ORDER FORM MAY RESULT IN A
REDUCTION OR ELIMINATION OF YOUR ORDER.
Full payment by check, cash (except by mail), money order, bank draft or
withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original stock order form. THE COMPANY IS NOT OBLIGATED TO ACCEPT
AN ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED STOCK ORDER FORMS. THE COMPANY
WILL NOT ACCEPT STOCK ORDER FORMS IF THE CERTIFICATION APPEARING ON THE REVERSE
SIDE OF THE STOCK ORDER FORM IS NOT EXECUTED. THE
8
<PAGE>
COMPANY IS NOT REQUIRED TO DELIVER A PROSPECTUS AND A STOCK ORDER FORM BY ANY
MEANS OTHER THAN THE UNITED STATES POSTAL SERVICE.
DIVIDENDS
The Company intends to pay an annual cash dividend of $.30 per share,
payable semi-annually. The payment of dividends is expected to begin following
the second full quarter after completion of the Reorganization and Offering. See
pages ____ and ______.
MARKET FOR THE COMMON STOCK
The Company has never issued stock, and consequently, there is no existing
market for the Common Stock. The Company has received conditional approval to
have the Common Stock quoted on the Nasdaq Small Cap Market under the symbol
"ONFC." Trident Securities, Inc. intends to make a market in the Common Stock.
Based upon Trident's prior experience in identifying additional market makers,
the Company expects that additional market makers will be identified. There can
be no assurance that an active or liquid trading market will develop, or that if
a market develops, it will continue. A public market having the desirable
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of both willing buyers and sellers of the Common Stock at any
given time, which is not within the control of the Company or any market maker.
Accordingly, there can be no assurance that purchasers will be able to sell
their shares of Common Stock at or above the price they pay for such shares.
See "Risk Factors - Recent Market Volatility," "--Absence of Market for Common
Stock" and "Market For Common Stock."
IMPORTANT RISKS IN PURCHASING AND OWNING THE COMPANY'S COMMON STOCK
Before deciding to purchase Common Stock in the Offering, carefully read
the "Risk Factors" section on pages __ to __ of this Prospectus, in addition to
the other sections of this Prospectus.
The shares of Common Stock offered hereby:
. Are not deposit accounts;
. Are not insured or guaranteed by the FDIC, or any other government
agency; and
. Are not guaranteed by the Company, the Mutual Holding Company or the
Bank.
The Common Stock is subject to investment risk, including the possible loss
of principal invested.
9
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data presented below under the captions "Selected Financial
Condition Data" and "Selected Operations Data" for, and as of the end of, each
of the years in the five-year period ended December 31, 1997, are derived from
the audited financial statements of the Bank. The financial statements as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997 are included elsewhere in this Prospectus. The selected
data presented below as of and for the six-month periods ended June 30, 1998 and
1997 are derived from the unaudited financial statements of the Bank included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
- ----------------------------------
Total assets...................................... $ 217,642 $ 210,637 $ 211,095 $ 205,531 $ 201,120 $ 206,685
Loans receivable, net............................. 140,043 142,368 135,872 140,677 141,290 139,431
Mortgage-backed securities available for sale..... 16,615 11,780 4,725 280 410 550
Investment securities available for sale.......... 39,570 43,525 52,926 47,758 47,381 50,759
Deposits.......................................... 189,218 183,138 185,508 181,385 179,725 185,643
Retained earnings................................. 28,031 27,120 25,538 23,951 21,249 20,761
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
- ------------------------
Interest income................................. $ 8,011 $ 7,861 $ 15,863 $ 15,154 $ 14,584 $ 13,844 $ 14,855
Interest expense................................ 3,922 3,926 7,897 7,895 7,628 6,777 7,287
-------- -------- -------- -------- -------- -------- --------
Net interest income............................. 4,089 3,935 7,966 7,259 6,956 7,067 7,568
Provision for loan losses....................... -- (23) 477 (103) 80 412 672
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses.................... 4,089 3,958 7,489 7,362 6,876 6,655 6,896
-------- -------- -------- -------- -------- -------- --------
Total operating and other income................ 388 368 822 801 910 727 1,097
-------- -------- -------- -------- -------- -------- --------
Total operating and other expense............... 3,123 2,571 6,145 5,390 5,270 5,479 5,689
-------- -------- -------- -------- -------- -------- --------
Income tax provision............................ 552 659 881 1,025 898 667 734
Cumulative effect of change in
accounting principle.......................... -- -- -- -- -- -- 435
-------- -------- -------- -------- -------- -------- --------
Net income...................................... $ 802 $ 1,096 $ 1,285 $ 1,748 $ 1,618 $ 1,236 $ 2,005
======== ======== ======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS
ENDED JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------
1998/(1)/ 1997/(1)/ 1997 1996 1995 1994 1993
----------- ----------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:/(2)/
- ----------------------------------------------
PERFORMANCE RATIOS:
Return on assets (ratio of net income to
average total assets)....................... 0.76% 1.05% 0.61% 0.84% 0.80% 0.60% 0.97%
Return on equity (ratio of net income to
average equity)............................. 5.80% 8.44% 4.83% 7.10% 7.13% 5.85% 10.15%
Interest rate spread information:
Average during period....................... 3.39% 3.23% 3.27% 3.01% 3.03% 3.16% 3.48%
Net interest margin /(3)/..................... 4.08% 3.91% 3.97% 3.66% 3.62% 3.57% 3.83%
Ratio of operating expense to average
total assets................................ 2.94% 2.46% 2.93% 2.60% 2.61% 2.66% 2.75%
Efficiency ratio/(4)/......................... 69.75% 59.76% 69.93% 66.87% 67.00% 70.29% 62.52%
Ratio of average interest earning assets
to average interest-bearing liabilities..... 117.58% 117.68% 117.89% 116.27% 114.83% 113.26% 110.95%
ASSET QUALITY RATIOS:
Nonperforming loans to total assets........... 0.32% 0.47% 0.42% 0.52% 0.67% 1.09% 1.14%
Nonperforming assets to total assets.......... 0.46% 0.81% 0.57% 0.92% 1.14% 1.40% 1.62%
Allowance for loan losses to
nonperforming loans......................... 243.42% 148.37% 200.75% 141.80% 130.02% 96.23% 86.82%
Allowance for loan losses to
loans receivable, net....................... 1.23% 1.05% 1.26% 1.14% 1.27% 1.50% 1.47%
CAPITAL RATIOS:
Retained earnings to total assets............. 12.88% 12.67% 12.88% 12.10% 11.65% 10.57% 10.04%
Average equity to average assets.............. 13.03% 12.41% 12.69% 11.88% 11.21% 10.26% 9.54%
OTHER DATA:
Number of full-service offices................ 5 4 5 4 4 4 4
</TABLE>
- ---------------------------
/(1)/ Ratios for the six month periods have been annualized.
/(2)/ Averages presented are monthly averages.
/(3)/ Net interest income divided by average interest-earning assets.
/(4)/ Noninterest expense to net interest and dividend income and noninterest
income excluding gains on real estate operations.
11
<PAGE>
RECENT FINANCIAL DATA
Set forth below are selected financial and other data of the Bank at and for
the periods ended September 30, 1998 and 1997, June 30, 1998 and December 31,
1997. Information at September 30, 1998 and June 30, 1998 and for the three and
nine months ended September 30, 1998 and 1997 is unaudited. In the opinion of
management of the Bank, all adjustments, consisting only of normal recurring
adjustments necessary for a fair statement of results for and as of the periods
indicated, have been included. The results of operations and other data for the
three and nine months ended September 30, 1998 are not necessarily indicative of
the results of operations to be expected for the entire year or any other
period. The selected financial and other data does not purport to be complete
and is qualified in its entirety by reference to the detailed information and
financial statements and notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, JUNE 30, DECEMBER 31,
1998 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
- ----------------------------------
Total assets.............................................. $ 219,469 $ 217,642 $ 210,637
Loans receivable, net..................................... 137,495 140,043 142,368
Mortgage-backed securities available for sale............. 18.736 16.615 11.780
Investments securities available for sale................. 44.636 39.750 43.525
Deposits.................................................. 190.854 189,218 183,138
Retained earnings......................................... 28,677 28,031 27,120
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
- ------------------------
Interest income............................... $ 4,096 $ 4,018 $ 12,107 $ 11,879
Interest expense.............................. 2,005 1,992 5,927 5,917
Net interest income........................... 2,091 2,026 6,180 5,962
-------- -------- -------- --------
Provision for loan losses..................... -- 25 -- 2
Net interest income after
provision for loan losses.................. 2,091 2,001 6,180 5,960
-------- -------- -------- --------
Total operating and other income.............. 149 170 537 538
Total operating and other expense............. 1,524 1,262 4,647 3,834
Income tax provision.......................... 217 344 769 1,003
Net income.................................... $ 499 $ 565 $ 1,301 $ 1,661
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
1998/(1)/ 1997/(1)/ 1998/(1)/ 1997/(1)/
<S> ----------- ----------- ----------- -----------
SELECTED FINANCIAL RATIOS: (IN THOUSANDS)
- -------------------------- <C> <C> <C> <C>
PERFORMANCE RATIOS/(2)/:
- ------------------------
Return on assets (ratio of net income to average total assets).. 0.91% 1.07% 0.92% 1.19%
Return on equity (ratio of net income to average equity)........ 7.13% 8.37% 7.05% 9.59%
Interest rate spread information:
- ---------------------------------
Average during period........................................... 3.44% 3.34% 3.41% 3.29%
Net interest margin............................................. 4.07% 4.04% 4.06% 3.98%
Ratio of operating expense to average total assets.............. 2.79% 2.40% 3.43% 2.87%
Efficiency ratio................................................ 68.04% 58.13% 70.12% 60.06%
Ratio of average interest earning assets
to average interest-bearing liabilities......................... 117.04% 118.87% 116.54% 117.10%
ASSET QUALITY RATIOS:
- ---------------------
Nonperforming loans to total assets............................. 0.34% 0.39% 0.34% 0.39%
Nonperforming assets to total assets............................ 0.52% 0.68% 0.52% 0.68%
Allowance for loan losses to nonperforming loans................ 198.93% 183.68% 198.93% 183.68%
Allowance for loan losses to loans receivable, net.............. 1.23% 1.05% 1.23% 1.05%
CAPITAL RATIOS:
- ---------------
Retained earnings to total assets............................... 13.07% 13.15% 13.07% 13.15%
Average equity to average assets................................ 12.82% 12.83% 13.03% 12.64%
</TABLE>
_____________________________
/(1)/ Annualized where appropriate.
/(2)/ Averages presented are monthly averages.
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, 1998
---------------------------------------
AMOUNT PERCENT OF ASSETS
-------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REGULATORY AND RISK-BASED CAPITAL:
- ----------------------------------
LEVERAGE CAPITAL:...................
- -----------------
Capital level...................... $ 27,979 12.73%
Requirement........................ 6,584 3.00%
-------- ------
Excess............................ $ 21,365 9.73%
RISK-BASED CAPITAL:
- -------------------
Tier 1capital level................ $ 27,949 22.71%
Requirement........................ 4,924 4.00%
-------- ------
Excess............................ $ 23,025 18.71%
TOTAL CAPITAL:
- --------------
Total capital level................ $ 28,677 23.30%
Requirement........................ 9,847 8.00%
-------- ------
Excess............................ $ 18,830 15.30%
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND JUNE 30, 1998
Total assets increased by $1.9 million, or 0.9%, to $219.5 million at
September 30, 1998 from $217.6 million at June 30, 1998. The increase in total
assets was primarily attributable to increases in investment securities and
mortgage-backed securities, partially offset by decreases in deposits at other
financial institutions, federal funds and loans receivable, net. Investment
securities and mortgage-backed securities increased $5.1 million, or 12.8%, to
$44.6 million at September 30 1998, from $39.5 million at June 30, 1998. The
increases in investment securities and mortgage-backed securities were primarily
due to the redeployment of deposits held at other financial institutions, the
proceeds from loan sales during the period and the reduction of federal fund
balances in order to obtain the better rates of return offered by investment
securities and mortgage-backed securities. The level of loans receivable, net
decreased $2.5 million, or 1.8%, to $137.5 million at September 30, 1998 from
$140.0 million at June 30, 1998. The decrease in loans receivable, net was due
to the sale of $1.7 million in student loans and $2.4 million of fixed-rated
residential real estate loans during the period. Federal funds decreased by
$1.8 million, or 20.7%, to $6.9 million at September 30, 1998 from $8.7 million
at June 30, 1998.
Deposits increased by $1.7 million, or 0.9%, from $189.2 million to $190.9
million.
Net worth increased 2.5% to $28.7 million at September 30, 1998 from $28.0
million at June 30, 1998. The increase in net worth was attributable to net
income of $499,000 and $147,000 in net unrealized gain on the Bank's investment
and mortgage-backed securities portfolios.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
GENERAL. Net income decreased 11.7% to $499,000 for the three months ended
September 30, 1998 from $565,000 for the three months ended September 30, 1997
primarily as a result of an increase in operating and other expenses and a
decrease in operating income. These were partially offset by a $65,000 increase
in net interest income, a $127,000 decrease in income tax provisions and a
$25,000 decrease in the provision for loan losses.
NET INTEREST INCOME. Net interest income increased to $2.1 million for the
three months ended September 30, 1998, compared to $2.0 million for the
comparable 1997 quarter.
Interest income increased $78,000, or 1.9%, to $4.1 million for the three
months ended September 30, 1998 from $4.0 million for the three months ended
September 30, 1997. The increase in interest income was primarily a result of an
increase in the average yield earned on interest-earning assets of 4 basis
points. The average yield earned on loans increased to 8.77% for the three
months ended September 30, 1998 from 8.64% for the three months ended September
30, 1997, reflecting management's strategy of emphasizing the origination and
retention of consumer and business loans while continuing to originate fixed-
rate one-to-four family real estate loans for sale in the secondary market. The
average yield on investment securities and mortgage-backed securities decreased
to 6.30% for the three months ended September 30, 1998 from 6.51% for the three
months ended September 30, 1997 primarily due to a decrease in market interest
rates during the 1998 period.
Total interest expense increased $13,000 or 0.7%, to $2.0 million for the
three months ended September 30, 1998 primarily as a result of an increase in
the average balance of interest-bearing liabilities to $173.5 million at
September 30, 1998 from $170.0 million at September 30, 1997. This increase was
partially offset by a decrease in the average cost of interest-bearing
liabilities to 4.58% from 4.64%.
The Bank's interest rate spread for the three month period ended September
30, 1998 increased 10 basis points to 3.44% compared with 3.34% for the three
months ended September 30, 1997.
PROVISION FOR LOAN LOSSES. The Bank did not make a provision for loan
losses during the three months ended September 30, 1998. For the three months
ended September 30, 1997, the provision for loan losses was $25,000. The
14
<PAGE>
Bank instituted a more conservative method to analyze the adequacy of the
allowance for loan losses at year-end 1997. Notwithstanding the new methodology,
the quarterly assessment of allowance adequacy did not result in the need for
additional provisions to the allowance for loan losses during the three months
ended September 30, 1998 due to a decrease in loans receivable of $2.8 million
to $139.2 million at September 30, 1998 from $142.0 million at June 30, 1998,
and the continued relative low levels of classified loans and loan
delinquencies. The balance of the allowance for loan losses increased to $1.7
million at September 30, 1998 from $1.5 million at September 30, 1997 as a
result of the method change.
OPERATING INCOME. Total operating income decreased $21,000, or 12.4%, to
$149,000 for the three months ended September 30, 1998 from $170,000 for the
three months ended September 30, 1997. The decrease in operating income resulted
primarily from a temporary reduction in checking account fee income for the
third quarter of 1998.
OPERATING AND OTHER EXPENSES. Total operating and other expenses
increased $262,000 to $1.5 million for the three months ended September 30,
1998 from $1.3 million for the three months ended September 30, 1997. Salaries
and benefits increased $109,000 and occupancy expenses increased $108,000, both
as a result of the opening of a new branch and the renovations to the main
office and operations center. Operating and other expenses can be expected to
increase in subsequent periods following the consummation of the reorganization
as a result of increased costs associated with operating as a public company and
increased compensation expense as a result of the adoption of the ESOP and, if
approved by the stockholders, the Stock Award Plan. See "Risk Factors - Reduced
Return on Average Equity After the Reorganization" and "Expenses Associated with
the ESOP and Stock Award Plans."
INCOME TAXES. The provision for income taxes decreased $127,000 to
$217,000 for the three months ended September 30, 1998 from $344,000 for the
three months ended September 30, 1997. This decrease was the result of lower
net income before taxes during the three months ended September 30, 1998 as
compared with the same period during 1997.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
GENERAL. Net income decreased $360,000, or 21.7%, to $1.3 million for the
nine months ended September 30, 1998 from $1.7 million for the nine months ended
September 30, 1997, primarily as a result of a $813,000 increase in operating
and other expenses, partially offset by a $218,000 increase in net interest
income and a $234,000 decrease in the provision for income taxes.
NET INTEREST INCOME. Net interest income increased to $6.2 million for the
nine months ended September 30, 1998 from $6.0 million for the nine months ended
September 30, 1997.
Interest income increased $228,000, or 1.9%, to $12.1 million for the nine
months ended September 30, 1998 from $11.9 million for the nine months ended
September 30, 1997 as a result of an increase in the average balance of loans
and an increase in the average yield earned on loans receivable. The average
balance of loans increased to $141.5 million from $139.6 million due to
increased emphasis on consumer and business lending and the opening of a new
branch office in December 1997. The average yield earned on loans receivable
increased by 11 basis points to 8.65% for the nine months ending September 30,
1998 from 8.54% for the nine months period ending September 30, 1997 primarily
due to an increase in higher yielding consumer loans.
Total interest expense increased $10,000, or 0.2%, to $5.9 million for the
nine months ended September 30, 1998 primarily as a result of an increase in the
average balance of interest-bearing liabilities to $171.4 million for the nine
month period ended September 30, 1998 from $170.6 million for the nine month
period ended September 30, 1997. This increase was partially offset by a
decrease of 2 basis points in the average cost of interest-bearing liabilities
to 4.62% from 4.64%.
The Bank's net interest spread increased to 3.41% for the nine month
period ended September 30, 1998 from 3.29% for the nine month period ended
September 30, 1997. The increase in net interest spread was attributable to
increased average rates on interest-earning assets, such as loans receivable and
federal funds, and lower average costs
15
<PAGE>
for interest-bearing liabilities. This improvement was partially offset by
slightly lower returns on investment securities and mortgage-backed securities
as market interest rates declined during the 1998 period.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased to no
provisions made during the nine months ended September 30, 1998 from a net
provision of $2,000 for the nine month period ended September 30, 1997.
Following the adoption of a new method of determining the adequacy of the
allowance for loan losses, a large provision was made in December 1997.
Consequently, no additional provisions to the allowance for loan losses was
deemed necessary by management during 1998 due to a reduction of classified
loans and a reduction in total loans at September 30, 1998 and as compared to
December 31, 1997. At September 30, 1998 the allowance for loan losses was $1.7
million, or 1.23% of loans receivable, net as compared with $1.5 million, or
1.05 %, of loans receivable, net at September 30, 1997.
OPERATING INCOME. Operating income decreased slightly by $1,000, or 0.2%,
to $537,000 for the nine months ended September 30, 1998 from $538,000 for the
nine months ended September 30, 1997. The decrease resulted primarily from the
recent reduction of checking account and ATM fee revenue, which decreased
$25,000 during the nine months ended September 30, 1998 as compared with the
same period in 1997. This was partially offset by an increase in the revenue
derived from the Bank's secondary market loan sales, which recorded additional
revenue of $24,000 during the 1998 period as compared with the nine months ended
September 30, 1997.
OPERATING AND OTHER EXPENSES. Operating and other expenses increased
$813,000, or 21.2%, to $4.6 million for the nine months ended September 30,
1998 from $3.8 million for the nine months ended September 30, 1997. Salaries
and benefits increased $314,000 and occupancy expenses increased $305,000, both
as a result of the opening of a new branch office and the renovation of the
Bank's main office and operations center. In addition, other expenses such as
professional fees and expenses related to the installation, training and
conversion of the Bank's new in-house data processing system have contributed to
the increased level of operating and other expenses for the nine month period
ended September 30, 1998 as compared with the same period in 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
$769,000 for the nine months ended September 30, 1998 from $1.0 million for the
nine months ended September 30, 1997. The effective tax rate was 37.1% during
1998 and 37.6% during the 1997 period.
RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.
RECENT MARKET VOLATILITY--IMPACT ON COMMON STOCK PRICE
In recent months, stock markets in the United States and worldwide have
been extremely volatile. The securities of individual companies have, in many
instances, experienced significant fluctuations in price for reasons unrelated
to the specific company's financial condition, results of operations or business
prospects. In particular, the value of all financial institution securities has
been adversely affected by weakening economies worldwide, even though local
community-based financial institutions may not have any credit exposure outside
the United States. Recent market volatility, as well as a weakening in the
market for financial institution securities generally, resulted in FinPro
updating its appraisal to decrease the pro forma market value of the Company by
15%. During the period commencing June 30, 1998, and ending September 30, 1998,
the Dow Jones Industrial Average decreased by 12.4% and the S&P 500 Index
decreased by 10.3%, while the index of all publicly traded savings institutions
decreased by 21.9%. Consequently, an investor should understand that, in the
short-term, the value of an investment in the Common Stock is subject to
fluctuation, including loss, due to volatility in stock markets generally.
REDUCED RETURN ON AVERAGE EQUITY AFTER THE REORGANIZATION - IMPACT ON COMMON
STOCK PRICE
Return on average equity (net income for a given period divided by average
equity during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The Bank's
equity
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as a percentage of assets will significantly increase as a result of the net
proceeds received in the Offering. The Bank anticipates that it will take time
to prudently reinvest the capital raised in the Offering. The Company and the
Bank do not have any immediate, specific plans for the investment of net
proceeds received in the Offering, although ultimately, such proceeds are
expected to be invested in loans and investment securities and may also be
utilized to help the Bank take advantage of expansion opportunities that may
arise. The Company and the Bank will have, subject to applicable regulations,
total discretion over the investment of the net proceeds of the Offering.
Consequently, the Company's post-Reorganization return on equity is expected to
be less than the average return on equity for publicly traded savings
institutions and their holding companies. A return on average equity which is
below that of other financial institutions may adversely affect the Company's
Common Stock price. For the six months ended June 30, 1998 and the year ended
December 31, 1997, the Bank's return on average equity was 5.80% and 4.83%,
respectively. If the Reorganization and Offering had been completed as of June
30, 1998 and December 31, 1997, the Company's return on average equity would
have been 4.58% and 3.89%, respectively. Based on information provided by FinPro
for both June 30, 1998 and December 31, 1997, the return on average equity for
all publicly traded savings banks as of October 23, 1998 was 8.23%. See
"Selected Financial Information" for numerical information regarding the Bank's
historical return on equity and "Capitalization" for a discussion of the
Company's estimated pro forma consolidated capitalization as a result of the
Reorganization and Offering. In addition, the expenses associated with the ESOP
and the Stock Award Plan (see "Pro Forma Data"), along with other ongoing post-
Reorganization expenses, are expected to contribute initially to reduced
earnings. In the short term, the Bank will have difficulty in improving its
interest rate spread and thus the return on equity to stockholders.
Consequently, management of the Bank is unable to predict when the Company's
return on equity will normalize and for the foreseeable future, investors should
not expect a return on equity that will meet or exceed the return on equity for
publicly-traded thrift institutions, and no assurances can be given that this
goal can be attained.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT ON EARNINGS
The Bank's financial condition and results of operations are significantly
affected by changes in interest rates. The Bank's results of operations depend
substantially on its net interest income, which is the difference between the
interest income earned on interest-earning assets and the interest expense paid
on interest-bearing liabilities. Since the Bank's interest-bearing liabilities
generally reprice or mature more quickly than its interest-earning assets, an
increase in interest rates would result in a decrease in the Bank's average
interest rate spread and net interest income. Historically, the Bank has sought
to make its interest-earning assets more interest rate sensitive by emphasizing
the origination of adjustable rate mortgage ("ARM") loans and adjustable rate
commercial business loans. At June 30, 1998, $108.7 million, or 76.5% of the
Bank's loan portfolio consisted of loans with adjustable interest rates. In a
period of rising interest rates, the risk that borrowers may default on
adjustable rate loans increases. The Bank has also sought to reduce the
exposure of its net interest income to increases in market interest rates by
investing in readily marketable, liquid U.S. government and agency securities
with terms of five to seven years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Market Risk--Management of
Interest Rate Risk."
Changes in interest rates also affect the value of the Bank's interest-
earning assets, in particular, the Bank's investment securities portfolio.
Generally, the value of investment and mortgage-backed securities portfolios
fluctuates inversely with changes in interest rates. At June 30, 1998, the
Bank's investment and mortgage-backed securities portfolios totaled $39.6
million and $16.6 million, respectively, all of which were classified as
available for sale. Unrealized gains and losses on securities available for sale
are reported as a separate component of equity. Decreases in the fair value of
securities available for sale, therefore, could have an adverse affect on
stockholders' equity. See "Business of the Bank--Securities Investment
Activities."
The Bank is also subject to reinvestment risk relating to changes in
interest rates which can affect the average life of loans and mortgage-backed
securities. Decreases in interest rates can result in increased prepayments of
loans and mortgage-backed securities, as borrowers refinance to reduce borrowing
costs. Under these circumstances, the Bank is subject to reinvestment risk to
the extent that it is not able to reinvest such prepayments at rates that are
comparable to the rates on the maturing loans or securities.
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LENDING RISKS ASSOCIATED WITH CONSUMER, COMMERCIAL BUSINESS AND COMMERCIAL REAL
ESTATE LENDING
At June 30, 1998, the Bank's consumer loans totaled $16.8 million, or 11.9%
of total loans, commercial real estate loans totaled $14.5 million, or 10.2% of
total loans, and commercial business loans totaled $11.6 million, or 8.1% of
total loans. Since 1996, the Bank has actively sought to increase the level of
its consumer, commercial business and commercial business lending. The Bank
intends to continue the origination of consumer, commercial real estate and
commercial business loans. Consumer, commercial real estate and commercial
business loans generally expose a lender to greater credit risk than loans
secured by one-to-four family real estate. This is so because in the case of:
(i) consumer loans, such loans are collateralized with assets that may not
provide an adequate source of payment of the loan due to depreciation, damage or
loss; (ii) commercial real estate loans, repayment of the loan is dependent on
income being generated in amounts sufficient to cover operating expenses and
debt service; and (iii) commercial business loans, repayment is generally
dependent on the successful operation of the borrower's business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Operating Strategy--Complementing the Bank's Traditional Lending by
Growing its Portfolio of Higher Yielding Consumer, Commercial Business Loans and
Commercial Real Estate Loans."
MINORITY PUBLIC OWNERSHIP AND CERTAIN ANTI-TAKEOVER PROVISIONS--CONTROL BY THE
MUTUAL HOLDING COMPANY
VOTING CONTROL OF THE MUTUAL HOLDING COMPANY. Under New York law, the
Bank's Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan (the "Plan of Reorganization"), and the
Company's governing corporate instruments, at least 51% of the Company's voting
shares must be owned by the Mutual Holding Company. The Mutual Holding Company
will be controlled by its board of trustees, who will consist of persons who are
members of the board of directors of the Company and the Bank. The Mutual
Holding Company will elect all members of the board of directors of the Company
and, as a general matter, will control the outcome of all matters presented to
the stockholders of the Company for resolution by vote, except for matters that
require a vote greater than a majority. The Mutual Holding Company, acting
through its board of trustees, will be able to control the business and
operations of the Company and the Bank and will be able to prevent any challenge
to the ownership or control of the Company by stockholders other than the Mutual
Holding Company ("Minority Stockholders"). Accordingly, a change in control of
the Company and the Bank cannot occur unless the Mutual Holding Company first
converts to the stock form of organization. Although New York law, applicable
regulations and the Plan of Reorganization permit the Mutual Holding Company to
convert from the mutual to the capital stock form of organization, it is not
anticipated that a conversion of the Mutual Holding Company will occur in the
foreseeable future, and there can be no assurance when, if ever, such a
conversion would occur.
PROVISIONS IN THE COMPANY'S AND THE BANK'S GOVERNING INSTRUMENTS. In
addition, certain provisions of the Company's Certificate of Incorporation and
Bylaws, particularly a provision limiting voting rights, as well as certain
federal and state regulations, assist the Company in maintaining its status as
an independent publicly owned corporation. These provisions provide for, among
other things, supermajority voting, staggered boards of directors, noncumulative
voting for directors, limits on the calling of special meetings of stockholders,
and limits on the ability of Minority Stockholders to vote Common Stock in
excess of 5% of the issued and outstanding shares (inclusive of shares issued to
the Mutual Holding Company). The regulations of the Department prohibit, except
with the prior approval of the Superintendent of Banks of the State of New York
(the "Superintendent"), for a period of one year following the date of the
Reorganization, offers to acquire or the acquisition of beneficial ownership of
more than 5% of the equity securities of the Bank or the Company. The Bank's
Restated Organization Certificate also prohibits, for three years, the
acquisition, directly or indirectly, of the beneficial ownership of more than
10% of the Bank's or Company's equity securities.
DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY--IMPACT ON MINORITY STOCKHOLDERS
IN THE EVENT OF A MUTUAL HOLDING COMPANY CONVERSION
It has been the policy of many mutual holding companies to waive the
receipt of dividends declared by their subsidiaries. In connection with its
approval of the Reorganization, however, the Federal Reserve Board is expected
to impose certain conditions on the waiver by the Mutual Holding Company of
dividends paid on the Common Stock. In particular, it is expected that the
Mutual Holding Company will be required to obtain prior Federal Reserve Board
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approval before it may waive any dividends. As of the date hereof, management
does not believe that the Federal Reserve Board has given its approval to any
waiver of dividends by any mutual holding company that has requested its
approval. The cumulative amount of waived dividends, if any, must be maintained
in a restricted capital account which would be added to any liquidation account
of the Bank, and would not be available for distribution to Minority
Stockholders. The Plan of Reorganization also provides that if the Mutual
Holding Company converts to stock form in the future, any waived dividends would
reduce the percentage of the converted company's shares of Common Stock issued
to Minority Stockholders in connection with any such transaction. See
"Regulation--Holding Company Regulation--Mutual Holding Company Regulation." It
is not currently intended that the Mutual Holding Company will waive dividends
declared by the Company.
THE EXPENSE AND DILUTIVE EFFECT OF THE CONTRIBUTION OF SHARES AND CASH TO THE
CHARITABLE FOUNDATION--DILUTION TO PUBLIC STOCKHOLDERS
The Bank intends to establish the Charitable Foundation in connection with
the Reorganization. The Company will make a contribution to the Charitable
Foundation in the form of shares of Common Stock equal to 2.0% of the shares
outstanding after the completion of the Offering, or 65,565 shares at the
midpoint of the Offering, and a $100,000 cash contribution. Due to the issuance
of additional shares of Common Stock to the Charitable Foundation, persons
purchasing shares in the Offering will have their ownership and voting interests
in the Company diluted by 2.0%. The contribution of Common Stock to the
Charitable Foundation will be dilutive to the interests of stockholders and the
aggregate contribution will have an adverse impact on the reported earnings of
the Company in the fiscal year in which the Charitable Foundation is established
and the contribution is made. If the Charitable Foundation had been established
and the contribution made at June 30, 1998, and assuming the sale of the Common
Stock at the midpoint of the estimated valuation range, the Bank would have
reported net income of $333,000 rather than reporting net income of $802,000 for
the six months ended June 30, 1998. See "The Reorganization and Offering--
Establishment of the Charitable Foundation."
STRONG COMPETITION WITHIN THE BANK'S MARKET AREA
Competition in the banking and financial services industry is intense. The
Bank competes with commercial banks, savings institutions, mortgage banking
firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of
these competitors have substantially greater resources and lending limits than
the Bank and may offer certain services that the Bank does not or cannot
provide. Moreover, credit unions, which offer substantially the same services
as the Bank, are not subject to federal or state income taxation. Trends toward
the consolidation of the financial services industry, and the removal of
restrictions on interstate branching and banking powers may make it more
difficult for smaller institutions such as the Bank to compete effectively with
large national and regional banking institutions. The Bank's profitability
depends upon its continued ability to successfully compete in its market area.
INTENT TO REMAIN INDEPENDENT--INABILITY TO OBTAIN A TAKEOVER PREMIUM FOR COMMON
STOCK
The Bank operates as an independent community bank, and intends to continue
to do so following the Reorganization. The Bank and the Company will be
controlled by the Mutual Holding Company, and control of the Mutual Holding
Company may not be sold to a third party. Accordingly, persons should not
subscribe for shares of Common Stock with an expectation that a sale of control
of the Bank or the Company is imminent. See "Business of the Bank."
REGULATORY OVERSIGHT AND LEGISLATION
The Bank is subject to extensive regulation, supervision and examination by
the Department and by the FDIC. The Bank is also a member of the Federal Home
Loan Bank System and is subject to certain limited regulations promulgated by
the Federal Home Loan Bank. As bank holding companies, the Company and the
Mutual Holding Company also will be subject to regulation and oversight by the
Federal Reserve Board. Such regulation and supervision govern the activities in
which an institution and its holding company may engage and are intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have extensive discretion in connection
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with their supervisory and enforcement activities, which are intended to
strengthen the financial condition of the banking industry, including the
imposition of restrictions on the operation of an institution, the
classification of assets, and the adequacy of an institution's allowance for
loan losses. Any change in such regulation and oversight whether in the form of
regulatory policy, regulations, or legislation, could have a material impact on
the Bank, the Company and the Mutual Holding Company. See "Regulation."
UNCERTAINTY AS TO FUTURE GROWTH OPPORTUNITIES
In an effort to fully deploy the capital raised in the Offering and to
increase loan and deposit growth, the Bank may seek to further expand its
banking franchise by acquiring other financial institutions, or additional
branches in central New York. The Bank's ability to grow through selective
acquisitions of other financial institutions or branches of financial
institutions will depend on successfully identifying, acquiring and integrating
such institutions or branches. The Company and the Bank cannot assure
prospective purchasers of Common Stock that they will be able to generate
internal growth or identify attractive acquisition candidates, make acquisitions
on favorable terms or successfully integrate any acquired institutions or
branches into the Bank. The Bank currently has no specific plans, arrangements
or understandings regarding any such expansions or acquisitions, nor has
management established criteria to identify potential candidates for
acquisition.
GEOGRAPHIC CONCENTRATION OF LOANS - LACK OF GEOGRAPHIC DIVERSIFICATION
The Bank's lending activities are primarily conducted in Madison County,
New York and the surrounding counties. If the local economy, national economy
or real estate market weakens, the financial condition and results of operations
of the Bank could be adversely affected. A weakening in the local real estate
market or a decline in the local economy could increase the number of delinquent
or nonperforming loans and reduce the value of the collateral securing such
loans, which would reduce the Bank's net income.
ABSENCE OF MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock
and, consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval to have its Common Stock
quoted on the Nasdaq Small Cap Market under the symbol "ONFC." Trident
Securities, Inc. intends to make a market in the Common Stock . Based upon
Trident Securities, Inc.'s prior experience in identifying additional market
makers, the Company expects that additional market makers will be identified.
There can be no assurance that market makers will be obtained, that an active
and liquid market for the Common Stock will develop or be maintained, or that
resales of the Common Stock can be made at or above the price that is paid for
such shares.
IRREVOCABILITY OF ORDERS; POTENTIAL DELAY IN COMPLETION OF OFFERINGS
Orders submitted in the Offering are irrevocable. Funds submitted in
connection with any purchase of Common Stock in the Offering will be held by the
Company until the completion or termination of the Reorganization, including any
extension of the expiration date. Because completion of the Reorganization will
be subject to an update of the independent appraisal prepared by FinPro, among
other factors, there may be one or more delays in the completion of the
Reorganization. Subscribers will have no access to subscription funds and/or
shares of Common Stock until the Reorganization is completed or terminated.
EXPENSES ASSOCIATED WITH THE ESOP AND STOCK AWARD PLAN
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The Bank will recognize material employee compensation and benefit expenses
assuming the ESOP and the Stock Award Plan are implemented. The actual
aggregate amount of these new expenses cannot be predicted at the present time
because applicable accounting practices require that such expenses be measured
based on the fair market value of the shares of Common Stock. In the case of the
ESOP, fair market value would be measured when shares are committed to be
released for allocation to the ESOP participants; in the case of the Stock Award
Plan, fair market value would be measured at the grant date and amortized over
the award's vesting period. These expenses have been reflected in the pro forma
financial information under "Pro Forma Data" assuming the Purchase Price of
$10.00 per share represents the fair market value for accounting purposes.
Actual expenses, however, will be based on the fair market value of the Common
Stock at future dates, which may be higher or lower than the Purchase Price. See
"Management of The Bank--Benefits--Employee Stock Ownership Plan and Trust" and
"-- Stock Award Plan."
DILUTIVE EFFECT OF STOCK AWARD PLAN, STOCK OPTION PLAN AND ESOP
If the Reorganization and Offering are completed and stockholders approve
the Stock Award Plan and Stock Option Plan, the Company intends to issue shares
of Common Stock to officers and directors of the Bank through these plans. If
the shares for these plans are issued from the Company's authorized but unissued
Common Stock, the book value and earnings per share of Minority Stockholders
would be diluted, and the trading price of the Company's Common Stock may be
reduced. It is expected that earnings per share would be reduced by
approximately $.02 and stockholders' equity per share would be reduced by
approximately $.19 as a result of the implementation of the Stock Award Plan. In
addition, it is expected that earnings per share would be reduced by
approximately $.02 and stockholders' equity per share would be reduced by
approximately $.37 as a result of establishing the ESOP and funding it with
shares equal to 8% of the Minority Ownership Interest. See "Pro Forma Data" and
"Executive Compensation."
CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing. There is concern that on
January 1, 2000 computers will be unable to "read" the new year and as a
consequence, there may be widespread computer malfunctions. Since the Bank's
business relies on the ability of computers to track and credit deposits and
loan repayments, the failure of the Bank's computer systems would materially and
adversely affect the Bank's ability to conduct its business. The Bank's loan
portfolio primarily consists of loans secured by residential real estate.
Consequently, the Bank does not believe that its residential real estate lending
operations are dependent on borrowers' compliance with the year 2000 issue. With
respect to outstanding loans made to commercial borrowers, the Bank's loan
officers have asked their commercial borrowers to advise the Bank of the
exposure of the borrower's business to the year 2000 issue and how the borrower
is addressing the year 2000 issue. With respect to new commercial loans, all
borrowers must describe how dependent their business is on computer technology,
the actions taken by the borrower to ensure that their business or property will
not be adversely affected by the year 2000 issue and to describe the contingency
planning the borrower is undertaking to make sure their business is year 2000
compliant. As part of the loan underwriting process, commercial borrowers must
indicate in writing, to the Bank, that they are aware of the year 2000 issue and
are either year 2000 compliant, or are taking steps to become year 2000
compliant. The Bank does not rely on independent third parties to provide data
processing services associated with its deposit and loan activities. In 1998,
the Bank completed installation of its internal deposit and loan data processing
system. Management believes, based upon the advanced technology of the computer
hardware installed in 1998, as well as the documented testing of the software
used by the Bank performed by the seller of the software, and the FDIC's recent
examination of the software for compatibility of the software, that the internal
deposit and loan data processing system is year 2000 compliant. The Bank is in
the process of updating the software for its check processing and check clearing
systems, and expects this to be completed by December 1998. Upon completion of
this upgrade, the Bank's check processing and check clearing systems will be
year 2000 compliant. The Bank is in the process of testing its other computer
applications and hardware to ensure that they will be able to read the year
2000, and intends to complete testing by December 1998. Through June 30, 1998,
the costs incurred to address the year 2000 issue and otherwise upgrade the
Bank's computer capabilities have been approximately $200,000. Management does
not expect that the
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additional costs to be incurred in connection with the year 2000 issue will have
a material impact on the Bank's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capability of the Bank's Data Processing to Accommodate the Year
2000."
ROLE OF THE FINANCIAL ADVISOR/BEST EFFORTS OFFERING
The Bank and the Company have engaged Trident Securities, Inc. as their
financial and marketing advisor, and Trident has agreed to use its best efforts
to solicit subscriptions and purchase orders for Common Stock in the Offering.
Trident Securities, Inc. has not prepared any report or opinion constituting a
recommendation or advice to the Bank or the Company, nor has it prepared an
opinion as to the fairness of the purchase price or the terms of the Offering.
Trident Securities, Inc. has not verified the accuracy or completeness of the
information contained in this Prospectus. See "The Reorganization and Offering--
Plan of Distribution and Selling Commissions."
ONEIDA FINANCIAL CORP.
The Company was organized for the purpose of acquiring all of the capital
stock of the Bank upon completion of the Reorganization and the Offering. The
Company has applied to the Federal Reserve Board to become a bank holding
company and, upon completion of the Reorganization, will be subject to
regulation by the Federal Reserve Board. See "The Reorganization and Offering--
Description of and Reasons for the Reorganization" and "Regulation--Holding
Company Regulation." Final approval from the Federal Reserve Board has not been
received as of the date of this Prospectus. Upon completion of the
Reorganization, the Company will have no significant assets other than the
shares of the Bank's common stock and an amount equal to 50% of the net proceeds
of the Offering, and will have no significant liabilities. The Company intends
to use a portion of the net proceeds that it retains to loan to the ESOP funds
to enable the ESOP to purchase up to 8% of the Minority Ownership Interest. See
"Use of Proceeds." The management of the Company is set forth under "Management
of the Company." Initially, the Company will neither own nor lease any property,
but will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
certain officers of the Bank and will utilize the support staff of the Bank from
time to time. Additional employees will be hired as appropriate to the extent
the Company expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, other financial institutions and financial services related companies.
There are no current arrangements, understandings or agreements regarding any
such opportunities. However, subsequent to the Reorganization, the Company will
be in a position, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion opportunities
that may arise. The initial activities of the Company are anticipated to be
funded by the proceeds to be retained by the Company, income thereon and through
dividends from the Bank.
The Company's executive office is located at the main office of the Bank,
at 182 Main Street, Oneida, New York 13421-1676. The Company's telephone number
is (315) 363-2000.
THE ONEIDA SAVINGS BANK
The Bank was organized in 1866 as a New York-chartered mutual savings bank.
The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the FDIC, up to the maximum amount permitted by law. The Bank is
a community bank engaged primarily in the business of accepting deposits from
customers through its main office and four full service branch offices and using
those deposits, together with funds generated from operations, to make one-to-
four family residential and commercial real estate loans, commercial business
loans, consumer loans and to invest in mortgage-backed and other
securities.
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At June 30, 1998, the Bank had total assets of $217.6 million, total
deposits of $189.2 million and retained earnings of $28.0 million. At June 30,
1998, $113.6 million, or 80.0%, of the Bank's loans were secured by real estate,
$88.0 million, or 62.0%, of the Bank's loans were secured by one-to-four family
residential real estate, $14.5 million, or 10.2%, of the Bank's loans were
secured by commercial real estate, and $9.2 million, or 6.5%, of the Bank's
loans were home equity loans. Consumer loans totaled $16.8 million, or 11.9% of
the Bank's total loans, at June 30, 1998. The Bank also originates commercial
business loans which totaled $11.6 million, or 8.1%, of total loans at June 30,
1998. The Bank's investment securities and mortgage-backed securities
portfolios totaled $39.6 million and $16.6 million, respectively, at June 30,
1998.
The Bank's main office is located at 182 Main Street, Oneida, New York
13421-1676. The Bank's telephone number is (315) 363-2000.
MARKET AREA
The Bank is a community-based savings institution that offers a variety of
financial products and services. The Bank's primary lending area is Madison
county, New York and surrounding counties, and most of the Bank's deposit
customers reside in Madison county and surrounding counties. The City of Oneida
is located approximately 30 miles from Syracuse and 20 miles from Utica. The
Bank's market area is characterized as rural, although the local economy is also
affected by economic conditions in Syracuse and Utica, New York. As of 1997, the
average household income of persons residing in Oneida and Madison counties was
below that of New York State and the United States. During the period 1980-1990
the population of Oneida county decreased by 1.04% while the population of
Madison county grew by 6.09%.
The Bank competes with commercial banks, savings banks and credit unions
for deposits and loans. At June 30, 1998, there was a total of 96 commercial
bank, savings bank and credit union branches operating in Madison and Oneida
counties. In addition to the financial institutions operating in Madison and
Oneida counties, the Bank competes with a number of mortgage brokers for the
origination of loans. The largest employers in the Bank's market area are Oneida
Limited and The Oneida Indian Nation of New York.
REGULATORY CAPITAL COMPLIANCE
At June 30, 1998, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with FDIC
capital standards as of June 30, 1998, on a historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and the
Bank received 50% of the net proceeds. For purposes of the table below, the
amount expected to be borrowed by the ESOP and the cost of the shares expected
to be acquired by the Stock Award Plan are deducted from pro forma regulatory
capital. The Federal Reserve Board has adopted capital adequacy guidelines for
bank holding companies (on a consolidated basis) substantially similar to the
FDIC capital requirements for the Bank. On a pro forma consolidated basis after
the Reorganization and Offering, the Company's pro forma stockholders' equity
will exceed these requirements. See "Regulation--Holding Company Regulation."
23
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA AT JUNE 30, 1998, BASED UPON THE SALE AT $10.00 PER SHARE OF
---------------------------------------------------------------------------------
HISTORICAL AT 1,266,588 1,490,104
JUNE 30, 1998 SHARES SHARES
------------------------ ------------- ----------- ----------- -----------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT ASSETS/(2)/ AMOUNT ASSETS/(2)/ AMOUNT ASSETS/(2)/
----------- ----------- ------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
GAAP capital.............. $ 28,031 12.88% $ 32,379 14.59% $33,216 14.91%
Leverage capital:
Capital level/(3)/...... $ 27,451 12.61% $ 31,799 14.32% $32,637 14.65%
Requirement/(4)/....... 6,529 3.00 6,660 3.00 6,685 3.00
-------- ---------- ---------- ------- ------- --------
Excess............... $ 20,922 9.61% $ 25,139 11.32% $25,952 11.65%
======== ========== ========== ======= ======= ========
Risk-based capital:
Tier 1 capital
level/(3)(5)/........... $ 27,451 21.90% $ 31,799 24.94% $32,637 25.51%
Requirement.............. 5,014 4.00 5,101 4.00 3,838 3.00
-------- ---------- ---------- ------- ------- --------
Excess............... $ 22,437 17.90% $ 26,698 20.94% $28,798 22.51%
======== ========== ========== ======= ======= ========
Total capital
level/(3)(5)/............ 28,031 22.36% 32,379 25.39% 33,217 25.96%
Requirement............... 10,028 8.00 10,202 8.00 10,235 8.00
--------- ---------- --------- ------- ------- --------
Excess................ $ 18,003 14.36% $ 22,177 17.39% $22,982 17.96%
========= ========== ========== ======= ======= ========
- ---------------------------
<CAPTION>
------------------------------------------------------
1,713,620 1,970,663
SHARES SHARES/(1)/
------------------------- --------------------------
PERCENT PERCENT
OF OF
AMOUNT ASSETS/(2)/ AMOUNT ASSETS/(2)/
----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GAAP capital............... $34,054 15.23% $35,017 15.59%
Leverage capital:
Capital level/(3)/...... $33,474 14.97% $34,438 15.33%
Requirement/(4)/........ 6,710 3.00 6,739 3.00
------- ------- ------- -------
Excess............... $26,764 11.97% $27,699 12.33%
======= ======= ======= =======
Risk-based capital:
Tier 1 capital
level/(3)(5)/........... $33,474 26.08% $34,438 26.73%
Requirement.............. 3,851 3.00 3,865 3.00
------- ------- ------- -------
Excess............... $29,623 23.08% $30,573 23.73%
======= ======= ======= =======
Total capital
level/(3)(5)/............ 34,054 26.53% 35,018 27.18%
Requirement............... 10,269 8.00 10,307 8.00
------- ------- ------- -------
Excess................ $23,875 18.53% $24,711 19.18%
=====================================================
- ---------------------------
</TABLE>
footnotes on the following page
/(1)/ As adjusted to give effect to an increase in the number of shares that
could occur due to an increase in the Estimated Valuation Range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market conditions or general financial and economic
conditions following the commencement of the Offering.
/(2)/ Leverage capital levels are shown as a percentage of tangible assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
/(3)/ Pro forma capital levels assume: funding by the Bank of the
Stock Award Plan to enable the plan to acquire in the open
market a number of shares equal to 4% of the Minority
Ownership Interest; the purchase by the ESOP of 8% of the
Minority Ownership Interest; and the capitalization of the
Mutual Holding Company by the Bank with $1,000. See
"Management of the Bank- Benefit Plans" for a discussion of
the Stock Award Plan and ESOP .
/(4)/ The current leverage capital requirement is 3% of total
adjusted assets for banks that receive the highest supervisory
rating for safety and soundness and that are not experiencing
or anticipating significant growth. The current leverage
capital ratio applicable to all other banks is 4% to 5%. See
"Regulation--Regulatory Capital Requirements.
/(5)/ Assumes net proceeds are invested in assets that carry a risk-
weighting equal to the average risk weighting of the Bank's
risk-weighted assets as of June 30, 1998.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the
Common Stock cannot be determined until the Offering is
completed, it is presently anticipated that the net proceeds
from the sale of the Common Stock will be between $12.0
million and $16.4 million (or $19.0 million if the Estimated
Valuation Range is increased by 15%). See "Pro Forma Data" and
"The Reorganization and Offering--Stock Pricing and Number of
Shares to Be Issued" as to the assumptions used to arrive at
such amounts. The Company will be unable to utilize any of the
net proceeds of the Offering until the consummation of the
Reorganization.
The Company will contribute approximately 50% of the net
proceeds of the Offering to the Bank, or approximately $6.0
million to $8.2 million at the minimum and adjusted maximum
of the Offering, respectively. Such portion of net proceeds
received by the Bank from the Company will be used by the
Bank for general corporate purposes, including investments in
short- and medium-term, investment grade debt securities,
mortgage-backed securities and marketable equity securities
and to increase the origination of mortgage, consumer and
commercial business loans. The Bank may also use such funds
for the continued expansion of its retail banking franchise
and to expand operations through acquisitions of other
financial institutions, branch offices or other financial
services companies. To the extent that the stock-based
benefit programs that the Company intends to adopt subsequent
to the Offering are not funded with authorized but unissued
shares of Common Stock, the Company or Bank may use net
proceeds from the Offering to fund the purchase of stock to
be awarded under such stock benefit programs. See "Risk
Factors--Possible Dilutive Effect of Stock Award Plan, Stock
Option Plan and ESOP" and "Management of the Bank--Benefit
Plans--Stock Option Plan" and "--Stock Award Plan."
24
<PAGE>
The Company intends to use a portion of the net proceeds it retains to make
a loan directly to the ESOP to enable the ESOP to purchase Common Stock equal to
8% of the Minority Ownership Interest. Based upon the sale of 1,266,588 shares
or 1,713,620 shares at the minimum and maximum of the Offering and the
contribution of between 55,730 shares and 75,399 shares to the Charitable
Foundation, the amount of the loan to the ESOP would be $1.1 million or $1.4
million, respectively. See "Management of the Bank-- Report of Independent
Compensation Consultant--Employee Stock Ownership Plan and Trust." The remaining
net proceeds retained by the Company, or $5.0 million to $8.0 million at the
minimum and adjusted maximum of the Offering, will be invested initially in U.S.
government and agency securities, short- and medium-term debt obligations,
mortgage-backed securities and other marketable equity securities.
The net proceeds retained by the Company may also be used to support the
future expansion of operations through the acquisition of financial institutions
or their assets, including those located within the Bank's market area, or
diversification into other banking related businesses. However, the Company and
the Bank have no current arrangements, understandings or agreements regarding
any such transactions. Upon completion of the Reorganization, the Company will
be a bank holding company, and will be permitted to engage only in those
activities that are permissible for bank holding companies under the Bank
Holding Company Act, as administered by the Federal Reserve Board. See
"Regulation--Holding Company Regulation" for a description of certain
regulations applicable to the Company. Because the Company and the Bank do not
have any immediate, specific plans for the use of the net proceeds, the
Company's return on equity will initially be below that of other publicly traded
financial institutions. See "Risk Factors - Reduced Return on Average Equity
After the Reorganization".
Upon completion of the Reorganization, the board of directors of the
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements. Pursuant to New York regulations, and
without the prior approval of the Department, the Company may not repurchase any
Common Stock in the first year after the Reorganization, and during each of the
next two following years, may not repurchase more than 5% of its shares
outstanding. Based upon facts and circumstances following completion of the
Reorganization and subject to applicable regulatory requirements, the board of
directors may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to: (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares and the
opportunity to improve the Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Company and its stockholders. In the event the Company determines to repurchase
stock, such repurchases may be made at market prices which may be in excess of
the $10.00 per share purchase price in the Offering. Any stock repurchases will
be subject to the determination of the Company's Board of Directors that both
the Company and the Bank will be capitalized in excess of all applicable
regulatory requirements after any repurchases and that such capital will be
adequate, taking into account, among other things, the level of non-performing
and other risk assets, the Company's and the Bank's current and projected
results of operations and asset/liability structure, the economic environment,
tax and other considerations.
DIVIDEND POLICY
Upon completion of the Offering, the Board of Directors of the Company
will have the authority to declare dividends on the Common Stock, subject to
statutory and requlatory requirements. The Company intends to pay an annual
cash dividend of $.30 per share payable semi-annually. The payment of dividends
is expected to begin following the second full quarter after completion of the
Reorganization and Offering.
Under Delaware law, the Company is permitted to pay cash dividends,
provided that the amount of cash dividends paid may not exceed that amount by
which the net assets of the Company (the amount by which total assets exceed
total liabilities) exceeds its statutory capital, or if there is no such excess,
the net profits for the current and/or
25
<PAGE>
immediately preceding fiscal year. The Company's source of funds for the payment
of cash dividends may in the future depend on the receipt of cash dividends from
the Bank. The Bank will not be permitted to pay dividends on its Common Stock or
repurchase shares of its Common Stock if its stockholders' equity would be
reduced below the amount required for the liquidation account. See "The
Reorganization and Offering--Liquidation Rights." Under New York Banking Law,
dividends may be declared and paid only out of the net profits of the Bank. The
approval of the Superintendent is required if the total of all dividends
declared in any calendar year will exceed net profits for that year plus the
retained net profits of the preceding two years, less any required transfer to
surplus or a fund for the retirement of any preferred stock. In addition, no
dividends may be declared, credited or paid if the effect thereof would cause
the Bank's capital to be reduced below the amount required by the Superintendent
or the FDIC. The liquidation account is expected to initially total $28.0
million. Management does not intend to pay a distribution that might be deemed a
return of capital or liquidation dividend. See "Regulation." Subsequent to the
Offering, the availability of the Bank's funds for the payment of dividends may
be limited by the liquidation account. See "The Reorganization and Offering--
Liquidation Rights." Dividends in excess of the Bank's current and accumulated
earnings could result in the realization by the Bank of taxable income. See
"Federal and State Taxation--Federal Taxation."
MARKET FOR COMMON STOCK
The Company was recently formed and has never issued capital stock.
Consequently, there is no existing market for the Common Stock and no assurance
can be given that an established and liquid trading market for the Common Stock
will develop. The Bank, as a mutual institution, has never issued capital stock.
The Company has received conditional approval to have its Common Stock quoted on
the Nasdaq Small Cap Market under the symbol "ONFC" subject to the completion of
the Offering and compliance with certain conditions including the presence of at
least three registered and active market makers. Trident Securities, Inc.
intends to make a market in the Common Stock. Based upon Trident Securities
Inc.'s prior experience in identifying additional market makers, the Company
expects that additional market makers will be identified.
The development of a public market that has depth, liquidity and
orderliness depends upon the presence in the marketplace of a sufficient number
of willing buyers and sellers at any given time, over which neither Company nor
any market maker has any control. Accordingly, there can be no assurance that an
active or liquid trading market for the Common Stock will develop, or that if a
market develops, it will continue. Furthermore, there can be no assurance that
purchasers will be able to sell their shares at or above the price at which the
Common Stock was purchased.
26
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
June 30, 1998, and the pro forma consolidated capitalization of the Company
after giving effect to the Offering and the Reorganization, including the
issuance of shares to the Charitable Foundation, based upon the sale of the
number of shares indicated in the table and the other assumptions set forth
under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON THE SALE AT $10.00 PER SHARE
---------------------------------------------------------
1,970,663
1,266,588 1,490,104 1,713,620 SHARES
BANK SHARES SHARES SHARES (ADJUSTED
HISTORICAL (MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)/(1)/
-------------- ------------ ------------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits/(2)/........................................ $ 188,035 188,035 188,035 188,035 188,035
Other borrowings..................................... -- -- -- -- --
---------- ---------- -------- -------- --------
Total deposits and other borrowed funds.............. $ 188,035 $ 188,035 $188,035 $188,035 $188,035
========== ========== ======== ======== ========
Stockholders' equity:
Common Stock, $.10 par value, 8,000,000 shares
authorized; shares to be issued as reflected/(3)/.. $-- $ 289 $ 340 $ 391 $ 450
========== ======== ========
Additional paid-in capital/(4)/..................... -- 11,582 13,766 15,950 18,462
========== ======== ======== ========
Retained earnings/(5)/.............................. 28,031 28,030 28,030 28,030 28,030
========== ======== ======== ========
Plus:
Expenses of contribution to Charitable Foundation.. -- 657 756 854 967
========== ======== ======== ========
Less:
After tax cost of the Charitable Foundation/(6)/.... -- 407 469 529 600
========== ======== ======== ========
Net unrealized gain on securities available
for sale, net of taxes............................. -- -- -- -- --
Less:
Common Stock acquired by the ESOP/(7)/.............. -- 1,058 1,245 1,431 1,646
========== ======== ======== ========
Common Stock acquired by the Stock Award Plan/(8)/.. -- 529 622 716 823
========== ========== ======== ======== ========
Total stockholders' equity........................... $ 28,031 $ 38,564 $ 40,556 $ 42,549 $ 44,840
========== ========== ======== ======== ========
</TABLE>
- ---------------------
/(1)/ As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market or general financial and economic conditions following
the commencement of the Offering.
/(2)/ Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock, which would reduce pro forma deposits by the amount of such
withdrawals.
/(3)/ Includes shares to be issued to depositors and the public in the Offering,
as indicated herein, and shares to be issued to the Mutual Holding Company
and the Charitable Foundation.
/(4)/ Reflects the sale of shares in the Offering. No effect has been given to
the issuance of additional shares of Common Stock pursuant to the Stock
Option Plan to be adopted by the Company and presented for approval of
stockholders following the Offering. The Stock Option Plan would provide
for the grant of stock options to purchase a number of shares of Common
Stock equal to 10% of the shares of Common Stock sold in the Offering. See
"Management of the Bank--Benefit Plans."
/(5)/ The retained earnings of the Bank will be substantially restricted after
the Offering. See "The Reorganization and Offering--Liquidation Rights."
Assumes that the Mutual Holding Company will be capitalized by the Bank
with $1,000.
/(6)/ Represents the tax effect of the contribution to the Charitable Foundation
based on a 38% tax rate. The realization of the deferred tax benefit is
limited annually to 10% of the Company's annual taxable income, subject to
the ability of the Company to carry forward any unused portion of the
deduction for five years following the year in which the contribution is
made.
/(7)/ Assumes that 8% of the shares sold in the Offering will be purchased by
the ESOP and that the funds used to acquire the ESOP shares will be
borrowed from the Company. The Common Stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management of the
Bank-- Report of Independent Compensation Consultant--Employee Stock
Ownership Plan and Trust."
/(8)/ Assumes that, subsequent to the Offering, an amount equal to 4% of the
Minority Ownership Interest is purchased by the Stock Award Plan through
open market purchases. In the event the Stock Award Plan is implemented
more than one year after the Reorganization an amount equal to 5% of the
Minority Ownership Interest may be implemented. The actual purchase price
per share may be more or less than $10.00. The Common Stock to be
purchased by the Stock Award Plan is reflected as a reduction to
stockholders' equity. See "Risk Factors- Dilutive Effect of Stock Award
Plan, Stock Option Plan and ESOP," footnote 3 to the tables under "Pro
Forma Data," and "Management of the Bank-- Report of Independent
Compensation Consultant--Stock Award Plan."
27
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are currently
estimated to be between $12.0 million and $16.4 million (or up to $19.0 million)
based upon the following assumptions: (i) $1.0 million will be sold to executive
officers and trustees of the Bank and the Company, the ESOP will purchase shares
of Common Stock equal to 8% of the Minority Ownership Interest, and the
remaining shares will be sold in the Subscription and Community Offerings; (ii)
Trident Securities, Inc. will receive a fixed fee equal to $200,000 for its
services in the Offering; (iii) the Charitable Foundation will be funded with a
total contribution equal to 2.0% of the shares of Common Stock issued in the
Reorganization and a $100,000 cash contribution; (iv) Reorganization expenses,
excluding the fees payable to Trident Securities, Inc., will be approximately
$695,000; and (v) the Mutual Holding Company will be capitalized by the Bank
with $1,000. Actual expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the six months ended
June 30, 1998 and for the year ended December 31, 1997 have been calculated as
if the Common Stock had been sold at the beginning of the respective periods and
the net proceeds had been invested at 5.41% (the one year U.S. Treasury bill
rate as of June 30, 1998). The tables do not reflect the effect of withdrawals
from deposit accounts for the purchase of Common Stock. The pro forma after-tax
yield for the Company and the Bank is assumed to be 3.35% for the six months
ended June 30, 1998 (based on an assumed tax rate of 38%). Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of Common Stock, as adjusted to
give effect to the purchase of shares by the ESOP. No effect has been given in
the pro forma stockholders' equity calculations for the assumed earnings on the
net proceeds. As discussed under "Use of Proceeds," the Company will retain 50%
of the net proceeds from the Offering.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
28
<PAGE>
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the six months ended June 30, 1998, and at or for
the year ended December 31, 1997, based on the assumptions set forth above and
in the tables, and should not be used as a basis for projections of market value
of the Common Stock following the Offering. The tables below give effect to the
Stock Award Plan, which is expected to be adopted by the Company following the
Offering and presented to stockholders for approval. See footnotes 2, 3 and 4 to
the Pro Forma Table and "Management of the Bank-- Stock Award Plan." No effect
has been given in the tables to the possible issuance of additional shares
reserved for future issuance pursuant to the Stock Option Plan to be adopted by
the board of directors of the Company and presented to stockholders for
approval, nor does book value as presented give any effect to the liquidation
account to be established for the benefit of Eligible Account Holders or
Supplemental Eligible Account Holders or, in the event of liquidation of the
Bank, to the tax effect of the bad debt reserve and other factors. See footnote
4 to the tables below, "The Reorganization and Offering--Liquidation Rights" and
"Management of the Bank-- Stock Option Plan."
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------
1,970,663
1,266,588 1,490,104 1,713,620 SHARES SOLD AT
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT $10 PER SHARE
$10 PER SHARE $10 PER SHARE $10 PER SHARE (ADJUSTED
(MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)/(8)/
-------------- -------------- -------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds.............................................. $ 12,666 $ 14,901 $ 17,136 $ 19,707
Plus: Shares acquired by Charitable Foundation............. 557 656 754 867
Pro forma market capitalization............................. $ 13,223 $ 15,557 $ 17,890 $ 20,574
Gross proceeds.............................................. 12,666 14,901 17,136 19,707
Less: Cash contribution to Charitable Foundation.......... 100 100 100 100
Capital to MHC............................................ 1 1 1 1
Expenses.................................................. 695 695 695 695
---------- ---------- ------- ----------
Estimated net proceeds...................................... 11,870 14,105 16,340 18,911
Less: Common Stock purchased by ESOP....................... 1,058 1,245 1,431 1,646
Common Stock purchased by Stock Award Plan.......... 529 622 716 823
---------- ---------- ------- ----------
Estimated net proceeds, as adjusted......................... $ 10,283 $ 12,238 $ 14,193 $ 16,442
========== ========== ========== ==========
Consolidated net income/(1):/
Historical................................................. 802 802 802 802
Pro forma income on net proceeds, as adjusted.............. 172 205 238 276
Pro forma ESOP adjustment/(2)/............................. (33) (39) (44) (51)
Pro forma Stock Award Plan adjustment /(3)/................ (33) (39) (44) (51)
---------- ---------- ------- ----------
Pro forma net income /(1)/.................................. $ 908 $ 929 $ 952 $ 976
========== ========== ========== ==========
Per share net income /(1):/
Historical................................................. 0.29 0.25 0.22 0.19
Pro forma income on net proceeds, as adjusted.............. 0.06 0.06 0.06 0.07
Pro forma ESOP adjustment /(2)/............................ (0.01) (0.01) (0.01) (0.01)
Pro forma Stock Award Plan adjustment /(3)/................ (0.01) (0.01) (0.01) (0.01)
---------- ---------- ---------- ----------
Pro forma net income per share /(1)/........................ $ 0.33 $ 0.29 0.26 $ 0.23
========== ========== ========== ==========
Stockholders' equity:
Historical................................................. 28,031 28,031 28,031 28,031
Estimated net proceeds..................................... 11,870 14,105 16,340 18,911
Plus: value issued to Charitable Foundation................ 657 756 854 967
Less: after tax cost of Charitable Foundation.............. (407) (469) (529) (600)
Common Stock acquired by ESOP/(2)/..................... (1,058) (1,245) (1,431) (1,646)
Common Stock acquired by Stock Award Plan/(3)/......... (529) (622) (716) (823)
---------- ---------- ------- ----------
Pro forma stockholders' equity /(3)(4)(5)/.................. $ 38,564 $ 40,556 $ 42,549 $ 44,840
========== ========== ========== ==========
Stockholders' equity per share /(6)/:
Historical................................................. 9.86 8.38 7.29 6.33
Estimated net proceeds..................................... 4.17 4.22 4.25 4.27
Plus: Value issued to Charitable Foundation............... 0.23 0.23 0.22 0.22
Less: Contribution to Charitable Foundation............... (0.14) (0.14) (0.14) (0.14)
Less: Common Stock acquired by ESOP /(2)/.................. (0.37) (0.37) (0.37) (0.37)
Common Stock acquired by Stock Award Plan /(3)/........ (0.19) (0.19) (0.19) (0.19)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share /(3)(4)(5)/........ $ 13.56 12.13 $ 11.06 10.12
========== ========== ========== ==========
Offering price to pro forma net income per share/(7)/....... 15.15x 17.24x 19.23x 21.74x
Offering price as a percentage of pro forma
stockholders' equity per share /(6)/....................... 73.75% 82.44% 90.42% 98.81%
========== ========== ========== ==========
</TABLE>
29
<PAGE>
(footnotes on following page)
________________________
/(1)/ Does not give effect to the non-recurring expense that will be recognized
in 1998 as a result of the establishment of the Charitable Foundation. The
Company will recognize an after-tax expense for the amount of the
contribution to the Charitable Foundation which is expected to be
$407,000, $469,000, $529,000 and $600,000 at the minimum, midpoint,
maximum and adjusted maximum of the Estimated Valuation Range,
respectively. Assuming the contribution to the Charitable Foundation was
incurred during the six months ended June 30, 1998, pro forma net income
per share would be $0.18, $0.14, $0.11 and $0.09 at the minimum, midpoint,
maximum and adjusted maximum, respectively. Per share net income data is
based on 2,743,264, 3,227,369, 3,711,475 and 4,268,196 shares outstanding,
which represents shares issued in the Reorganization, shares contributed
to the Charitable Foundation and shares to be allocated or distributed
under the ESOP and Stock Award Plan for the period presented.
/(2)/ It is assumed that 8% of the Minority Ownership Interest will be purchased
by the ESOP. The funds used to acquire such shares are assumed to have
been borrowed by the ESOP from the Company. The amount to be borrowed is
reflected as a reduction to stockholders' equity. The Bank intends to make
annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. The Bank's total annual
payment of the ESOP debt is based upon 10 equal annual installments of
principal, with an assumed interest rate at 8.50%. The pro forma net
income assumes: (i) that the Bank's contribution to the ESOP is equivalent
to the debt service requirement for the six months ended June 30, 1998,
and was made at the end of the period; (ii) that 5,066, 5,960, 6,854 and
7,883 shares at the minimum, midpoint, maximum and adjusted maximum of the
Estimated Valuation Range, respectively, were committed to be released
during the six months ended June 30, 1998, at an average fair value of
$10.00 per share in accordance with Statement of Position ("SOP") 93-6;
and (iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net income per share calculations. See
"Management of the Bank--Benefit Plans--Employee Stock Ownership Plan and
Trust."
/(3)/ Gives effect to the Stock Award Plan expected to be adopted by the Company
following the Offering. This plan intends to acquire a number of shares of
Common Stock equal to 4% of the Minority Ownership Interest or 50,664,
59,604, 68,545, and 78,827 shares of Common Stock at the minimum,
midpoint, maximum and adjusted maximum of the Estimated Valuation Range,
respectively, either through open market purchases or from authorized but
unissued shares of Common Stock or treasury stock of the Company, if any.
Funds used by the Stock Award Plan to purchase the shares will be
contributed to the plan by the Bank. In calculating the pro forma effect
of the Stock Award Plan, it is assumed that the shares were acquired by
the Stock Award Plan at the beginning of the period presented in open
market purchases at the Subscription Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Award Plan instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 1.86% and pro forma
net income per share would be $0.33, $0.29, $0.26 and $0.23 at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively, and pro forma stockholders' equity per share would be
$13.31, $11.90, $10.86, and $9.95 at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively. There can
be no assurance that the actual purchase price of the shares granted under
the Stock Award Plan will be equal to the Subscription Price. See
"Management of the Bank--Benefit Plans--Stock Award Plan."
/(4)/ No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Offering. Under the Stock Option Plan, an amount
equal to 10% of the Minority Ownership Interest, or 126,658, 149,010,
171,362 and 197,066 shares at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, respectively, will be reserved
for future issuance upon the exercise of options to be granted under the
Stock Option Plan. The issuance of Common Stock pursuant to the exercise
of options under the Stock Option Plan will result in the dilution of
existing stockholders' interests. Assuming all options were exercised at
the end of the period at an exercise price of $10.00 per share, the pro
forma net income per share would be $0.32, $0.27, $0.24 and $0.22,
respectively, and the pro forma stockholders' equity per share would be
$13.40, $12.03, $11.01, and $10.13, respectively. See "Management of the
Bank--Benefit Plans--Stock Option Plan."
/(5)/ The retained earnings of the Bank will continue to be substantially
restricted after the Offering. See "Dividend Policy," "The Reorganization
and Offering--Liquidation Rights," and "Regulation - New York Banking
Regulation."
/(6)/ Stockholders' equity per share data is based upon 2,843,760; 3,345,600;
3,847,440 and 4,424,556 shares outstanding representing shares issued in
the Reorganization, shares purchased by the ESOP and the Stock Award Plan,
and shares contributed to the Charitable Foundation.
/(7)/ Based on pro forma net income for the six months ended June 30, 1998 that
have been annualized.
/(8)/ As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market or general financial and economic conditions following
the commencement of the Offering.
30
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
1,970,663
1,266,588 1,490,104 1,713,620 SHARES SOLD
AT
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT $10 PER SHARE
$10 PER SHARE $10 PER SHARE $10 PER SHARE (ADJUSTED
(MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)/(7)/
--------------- -------------- --------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds.......................................... $ 12,666 $ 14,901 $ 17,136 $ 19,707
Plus: Shares acquired by Charitable Foundation.......... 557 656 754 867
-------- -------- -------- --------
Pro forma market capitalization......................... $ 13,223 $ 15,557 $ 17,890 $ 20,574
======== ======== ======== ========
Gross proceeds.......................................... 12,666 14,901 17,136 19,707
Less: Cash contribution to Charitable Foundation........ 100 100 100 100
Capital to MHC.................................... 1 1 1 1
Expenses.......................................... 695 695 695 695
-------- -------- -------- --------
Estimated net proceeds.................................. 11,870 14,105 16,340 18,911
Less: Common Stock purchased by ESOP.................... 1,058 1,245 1,431 1,646
Common Stock purchased by Stock Award Plan.............. 529 622 716 823
-------- -------- -------- --------
Estimated net proceeds, as adjusted..................... $ 10,283 $ 12,238 $ 14,193 $ 16,442
======== ======== ======== ========
Consolidated net income/(1)/:
Historical............................................. 1,285 1,285 1,285 1,285
Pro forma income on net proceeds, as adjusted.......... 345 410 476 551
Pro forma ESOP adjustment/(2)/......................... (66) (77) (89) (102)
Pro forma Stock Award Plan adjustment/(3)/............. (66) (77) (89) (102)
-------- -------- -------- --------
Pro forma net income/(1)/.............................. $ 1,498 $ 1,541 1,583 1,632
======== ======== ======== ========
Per share net income/(1):/
Historical............................................. 0.47 0.40 0.35 0.30
Pro forma income on net proceeds, as adjusted........... 0.13 0.13 0.13 0.13
Pro forma ESOP adjustment/(2)/.......................... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Award Plan adjustment/(3)/.............. (0.02) (0.02) (0.02) (0.02)
-------- -------- -------- --------
Pro forma net income per share/(1)/..................... $ 0.56 $ 0.49 $ 0.44 $ 0.39
======== ======== ======== ========
Stockholders' equity:
Historical............................................. 27,120 27,120 27,120 27,120
Estimated net proceeds................................. 11,870 14,105 16,340 18,911
Plus: Value issued to Charitable Foundation............. 657 756 854 967
After tax cost of Charitable Foundation................. (407) (469) (529) (600)
Less: Common Stock acquired by ESOP/(2)/.............. (1,058) (1,245) (1,431) (1,646)
Less: Common Stock acquired by Stock Award Plan/(3)/.. (529) (622) (716) (823)
-------- -------- -------- --------
Pro forma stockholders' equity/(3)(4)(5)/............... $ 37,653 $ 39,645 $ 41,638 $ 43,929
======== ======== ======== ========
Stockholders' equity per share/(6)/:
Historical............................................. 9.54 8.11 7.05 6.13
Estimated net proceeds.................................. 4.17 4.22 4.25 4.27
Plus: Value issued to Charitable Foundation............ 0.23 0.23 0.22 0.22
After tax cost of Charitable Foundation................ (0.14) (0.14) (0.14) (0.14)
Less: Common Stock acquired by ESOP/(2)/............... (0.37) (0.37) (0.37) (0.37)
Common Stock acquired by Stock Award Plan/(3)/... (0.19) (0.19) (0.19) (0.19)
-------- -------- -------- --------
Pro forma stockholders' equity per share/(3)(4)(5)/..... $ 13.24 $ 11.86 $ 10.82 $ 9.92
======== ======== ======== ========
Offering price to pro forma net income per share........ 17.86x 20.41x 22.73x 25.64x
======== ======== ======== ========
Offering price as a percentage of pro forma
stockholders' equity per share/(6)/.................... 75.53% 84.32% 92.42% 100.81%
======== ======== ======== ========
</TABLE>
- -------------------------
(footnotes on following page)
31
<PAGE>
/(1)/ Does not give effect to the non-recurring expense that will be recognized
in 1998 as a result of the establishment of the Charitable Foundation. The
Company will recognize an after-tax expense for the amount of the contribution
to the Charitable Foundation which is expected to be $407,000, $469,000,
$529,000 and $600,000 at the minimum, midpoint, maximum and adjusted maximum of
the Estimated Valuation Range, respectively. Assuming the contribution to the
Charitable Foundation was incurred during the six months ended June 30, 1998,
pro forma net income per share would be $0.40, $0.33, $0.28 and $0.24 at the
Range, respectively. Per share net income data is based on 2,748,553,
3,233,592, 3,718,631 and 4,276,425 shares outstanding, which represents shares
issued in the Reorganization, shares contributed to the Charitable Foundation
and shares to be allocated or distributed under the ESOP and Stock Award Plan
for the period presented.
/(2)/ It is assumed that 8% of the Minority Ownership Interest will be purchased
by the ESOP. The funds used to acquire such shares are assumed to have been
borrowed by the ESOP from the Company. The amount to be borrowed is reflected
as a reduction of stockholders' equity. The Bank intends to make annual
contributions to the ESOP in an amount at least equal to the principal and
interest requirement of the debt. The Bank's total annual payment of the ESOP
debt is based upon 10 equal annual installments of principal, with an assumed
interest rate at 8.5%. The pro forma net income assumes: (i) that the Bank's
contribution to the ESOP is equivalent to the debt service requirement for the
year ended December 31, 1997, and was made at the end of the period; (ii) that
10,132, 11,920, 13,708 and 15,765 shares at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively, were committed
to be released during the year ended December 31, 1997, at an average fair
value of $10.00 per share in accordance with Statement of Position ("SOP") 93-
6; and (iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net income per share calculations. See
"Management of the Bank--Benefit Plans--Employee Stock Ownership Plan and
Trust."
/(3)/ Gives effect to the Stock Award Plan expected to be adopted by the Company
following the Offering. This plan intends to acquire a number of shares of
Common Stock equal to 4% of the Minority Ownership Interest, or 50,663, 59,604,
68,544 and 78,826 shares of Common Stock at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively, either through
open market purchases, or from authorized but unissued shares of Common Stock
or treasury stock of the Company, if any. Funds used by the restricted stock
plan to purchase the shares will be contributed to the plan by the Bank. In
calculating the pro forma effect of the Stock Award Plan, it is assumed that
the shares were acquired by the Stock Award Plan at the beginning of the period
presented in open market purchases at the Subscription Price and that 20% of
the amount contributed was an amortized expense during such period. The
issuance of authorized but unissued shares of Common Stock to the Stock Award
Plan instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 1.86% and pro forma net income per share
would be $0.54, $0.47, $0.42 and $0.38 at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively, and pro forma
stockholders' equity per share would be $13.00, $11.63, $ 10.62 and $9.75 at
the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively. There can be no assurance that the actual purchase price
of the shares granted under the restricted stock plan will be equal to the
Subscription Price. See "Management of the Bank--Benefit Plans--Stock Award
Plan."
/(4)/ No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the Company
following the Offering. Under the Stock Option Plan, an amount equal to 10% of
the Minority Ownership Interest, or 126,659, 149,010 171,362 and 197,066 shares
at the minimum, midpoint, maximum and adjusted maximum of the Estimated
Valuation Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plan. The issuance of
Common Stock pursuant to the exercise of options under the Stock Option Plan
will result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price of $10.00
per share, the pro forma net income per share would be $0.52, $0.45, $0.41 and
$0.36, respectively, and the pro forma stockholders' equity per share would be
$13.10, $11.77, $10.79 and $9.93, respectively. See "Management of the Bank--
Benefit Plans--Stock Option Plan."
/(5)/ The retained earnings of the Bank will continue to be substantially
restricted after the Offering. See "Dividend Policy," "The Reorganization and
Offering--Liquidation Rights" and "Regulation--New York Bank Regulation."
/(6)/ Stockholders' equity per share data is based upon 2,843,760; 3,345,600;
3,847,440; and 4,424,556 shares outstanding representing shares issued in the
Reorganization, shares purchased by the ESOP and Stock Award Plan, and shares
contributed to the Charitable Foundation.
/(7)/ As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to 15% as
a result of regulatory considerations, demand for the shares, or changes in
market or general financial and economic conditions following the commencement
of the Offering.
32
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT FOUNDATION
In the event that the Charitable Foundation were not established as part of
the Reorganization, FinPro has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $15.4 million at the
midpoint of the Estimated Valuation Report, which is approximately $111,000 less
than the pro forma aggregate market capitalization of the Company if the
Charitable Foundation is included, and would result in an approximately $545,000
increase in the amount of Common Stock offered for sale in the Reorganization.
The pro forma price to book ratio and pro forma price to earnings ratio would be
approximately the same under both the current appraisal and the estimate of the
value of the Company without the Charitable Foundation. Further, assuming the
midpoint of the Estimated Valuation Range, pro forma stockholders' equity per
share and pro forma net income per share would be substantially the same at
$0.29 and $12.13, respectively, and $0.29 and $12.04, respectively, with or
without the Charitable Foundation. The pro forma price to book ratio and the pro
forma price to earnings ratio are substantially the same with and without the
Charitable Foundation at the midpoint of the Estimated Valuation Range at 82.44%
and 83.06%, respectively, and 17.24x and 17.24x, respectively. There is no
assurance that in the event the Charitable Foundation were not formed that the
appraisal prepared at the time would have concluded that the pro forma market
value of the Company would be the same as the above estimate. Any appraisals
prepared at that time would be based on the facts and circumstances existing at
that time, including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, assuming the Reorganization were
completed at June 30, 1998. The valuation amounts referred to in the table below
relate to the value of the shares sold to the depositors and the public,
excluding shares issued to the Mutual Holding Company.
<TABLE>
<CAPTION>
MINIMUM MIDPOINT MAXIMUM ADJUSTED MAXIMUM
----------- ----------- ----------- ------------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated Offering amount.. $ 12,666 $ 13,219 $ 14,901 $ 15,446 $ 17,136 $ 17,763 $ 19,707 $ 20,428
Pro forma market
capitalization............ 13,223 13,219 15,557 15,446 17,890 17,763 20,574 20,428
Total assets............. 228,175 228,500 230,167 230,538 232,160 232,577 234,451 234,923
Total liabilities.......... 189,611 189,611 189,611 189,611 189,611 189,611 189,611 189,611
Pro forma stockholders'
equity.................... 38,564 38,889 40,556 40,927 42,549 42,966 44,840 45,312
Pro forma net income....... 908 918 929 942 952 964 976 990
Pro forma stockholders'
equity per share.......... 13.56 13.46 12.13 12.04 11.06 10.99 10.12 10.08
Pro forma net income per
share..................... 0.33 0.34 0.29 0.29 0.26 0.26 0.23 0.23
PRO FORMA PRICING RATIOS:
- ---------------------------
Offering price as a percentage
of pro forma stockholders'
equity per share............. 73.75% 74.29% 82.44% 83.06% 90.42% 90.99% 98.81% 99.21%
Offering price to pro forma net
income per share/(1)/........ 15.15x 14.71x 17.24x 17.24x 19.23x 19.23x 21.74x 21.74x
Pro forma market
capitalization to assets.. 12.46% 12.65% 14.54% 14.75% 16.57% 16.81% 18.87% 19.14%
PRO FORMA FINANCIAL RATIOS:
- ---------------------------
Return on assets/(2)/..... 0.80% 0.80% 0.81% 0.82% 0.82% 0.83% 0.83% 0.84%
Return on equity/(3)/..... 4.71% 4.72% 4.58% 4.60% 4.47% 4.49% 4.35% 4.37%
Equity to assets........... 16.90% 17.02% 17.62% 17.75% 18.33% 18.47% 19.13% 19.29%
Total shares............... 2,843,760 2,890,000 3,345,600 3,400,000 3,847,440 3,910,000 4,424,556 4,496,500
Minority shares............ 1,266,588 1,312,927 1,490,104 1,544,620 1,713,620 1,776,313 1,970,663 2,042,760
Share dilution............ 3.53% 46,339 3.53% 54,516 3.53% 62,693 3.53% 72,097
Voting share.............. 44.54% 45.43% 44.54% 45.43% 44.54% 45.43% 44.54% 45.43%
Dilution.................. 0.89% 0.89% 0.89% 0.89%
Foundation shares.......... 55,730 -- 65,565 -- 75,399 -- 86,709 --
Share dilution............ N/A N/A N/A N/A
Voting share.............. 1.96% -- 1.96% -- 1.96% -- 1.96% --
Dilution.................. N/A N/A N/A N/A
Mutual Holding Company
Shares.................... 1,521,442 1,577,073 1,789,931 1,855,380 2,058,421 2,133,687 2,367,184 2,453,740
Share dilution.......... 3.53% 3.53% 3.53% 3.53%
Voting share.............. 53.50% 54.57% 53.50% 54.57% 53.50% 54.57% 53.50% 54.57%
Dilution.................. 1.07% 1.07% 1.07% 1.07%
</TABLE>
(footnotes on following page)
/(1)/ If the contribution to the Charitable Foundation had been incurred during
the six months ended June 30, 1998, pro forma net income per share would have
been $0.18, $0.14, $0.11 and $0.09 and the offering price to pro forma net
income per share would have been 19.47x, 23.23x, 27.00x and 31.56x, at the
minimum, midpoint, maximum and adjusted maximum, respectively.
33
<PAGE>
/(2)/ If the contribution to the Charitable Foundation had been incurred during
the six months ended June 30, 1998, return on assets would have been
0.62%,0.60%, 0.59%, and 0.58% at the minimum, midpoint, maximum and adjusted
maximum, respectively.
/(3)/ If the contribution to the Charitable Foundation had been incurred during
the six months ended June 30, 1998, return on equity would have been 3.65%,
3.43%, 3.23% and 3.02%, respectively.
34
<PAGE>
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended Common Stock
purchases by each of the trustees and executive officers of the Bank and their
associates, and by all trustees and executive officers as a group. In the event
the individual maximum purchase limitation is increased, persons subscribing for
the maximum amount may increase their purchase order. This table excludes shares
to be purchased by the ESOP, as well as any Stock Award Plan awards or Stock
Option Plan grants that may be made no earlier than six months after the
completion of the Reorganization. See "Management of the Bank--Benefit Plans--
Stock Award Plan" and "--Stock Option Plan." The trustees and officers of the
Bank have indicated their intention to purchase in the Offering an aggregate of
$2,035,000 of Common Stock, equal to 16.0%, 13.7%, 11.9%, and 10.3% of the
number of shares to be issued in the Offering, at the minimum, midpoint, maximum
and adjusted maximum of the Estimated Valuation Range, respectively.
<TABLE>
<CAPTION>
AGGREGATE NUMBER PERCENT OF
PURCHASE OF SHARES SOLD AT
NAME POSITION PRICE/(1)/ SHARES/(1)/ MIDPOINT
- ----- ------------------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
Nicholas J. Christakos Chairman of the Board $ 250,000 25,000/(2)/ 1.7%
Michael R. Kallet President, Chief Executive
Officer and Trustee 250,000 25,000/(2)/ 1.7
Patricia D. Caprio Trustee 100,000 10,000 0.7
Edward J. Clarke Trustee 5,000 500 *
James J. Devine Trustee 100,000 10,000 0.7
John E. Haskell Trustee 250,000 25,000/(2)/ 1.7
Rodney D. Kent Trustee 250,000 25,000/(2)/ 1.7
William D. Matthews Trustee 150,000 15,000 1.0
Michael W. Milmoe Trustee 30,000 3,000 0.2
Richard B. Myers Trustee 150,000 15,000 1.0
Frank O. White, Jr. Trustee 100,000 10,000 0.7
Thomas H. Dixon Senior Vice President/
Credit Administration 200,000 20,000 1.3
Eric E. Stickels Senior Vice President and
Chief Financial Officer 200,000 20,000 1.3
--------- ------- ----
All trustees and executive officers
as a group (13 persons) $2,035,000 203,500 13.7%
--------- ------- ----
- ---------------------
</TABLE>
*less than .1%
/(1)/ Includes purchases by associates.
/(2)/ Represents the maximum amount that may be purchased by the trustees and
executive officers of the Bank together with their associates.
35
<PAGE>
THE REORGANIZATION AND OFFERING
THE SUPERINTENDENT HAS APPROVED THE PLAN OF REORGANIZATION AND THE OFFERING
OF THE COMMON STOCK SUBJECT TO THE APPROVAL OF THE BANK'S DEPOSITORS AND THE
SATISFACTION OF CERTAIN CONDITIONS IMPOSED BY THE SUPERINTENDENT. HOWEVER, SUCH
APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE OFFERING OR
THE PLAN OF REORGANIZATION BY THE SUPERINTENDENT.
DESCRIPTION OF AND REASONS FOR THE REORGANIZATION
The Board of Trustees unanimously adopted the Plan of Reorganization and
the Superintendent has approved the Plan of Reorganization. Pursuant to the
Plan of Reorganization, the Bank will reorganize into a "two-tier" mutual
holding company structure. The two-tier structure has two levels of holding
companies--a "mid-tier" stock holding company and a "top-tier" mutual holding
company. Under the terms of the Plan of Reorganization (i) the Bank will form
the Company as a Delaware corporation; (ii) the Bank will form the Mutual
Holding Company as a New York mutual holding company; (iii) the Bank will
reorganize into a capital stock form of organization and will contribute such
common stock to the Mutual Holding Company; (iv) the Mutual Holding Company will
contribute the Common Stock of the Bank to the Company; and (v) the Company will
issue shares of Common Stock to the public and the Mutual Holding Company. The
number of shares of Common Stock sold to depositors and the public pursuant to
this Prospectus will be equal to 44.5% of the shares issued in the
Reorganization, and the number of shares issued to the Mutual Holding Company
will be equal to 53.5% of the shares issued in the Reorganization. In addition,
the Company will issue 2.0% of the shares to be outstanding to a newly
established Charitable Foundation. The Charitable Foundation will also receive
$100,000 in cash. The two-tier mutual holding company structure is most easily
understood by considering the following schematic:
The Mutual Holding Public
Company Stockholders
(a New York mutual holding (including the
company) Charitable
Foundation)
53.5% of the 46.5% of the
Common Common Stock
Stock
The Company (a Delaware corporation)
100% of the Bank's
common stock
The Bank
(a New York stock savings bank)
In adopting the Plan of Reorganization, the Board of Trustees determined
that the Reorganization is in the best interest of the Bank. The primary
purpose of the Reorganization is to establish a structure that will enable the
Bank to compete and expand more effectively in the financial services
marketplace, and that will enable the Bank's depositors, employees, management
and trustees to obtain an equity ownership interest in the Bank. The new
structure will permit the Company to issue capital stock, which is a source of
capital not available to a mutual savings bank. Since the Company is not
offering all of its Common Stock for sale to depositors and the public in the
Offering (but is issuing a majority of its stock to the Mutual Holding Company),
the Reorganization will result in less capital raised in comparison to a
standard mutual-to-stock conversion. The Reorganization, however, will also
offer the Bank the opportunity to raise additional capital since the stock held
by the Mutual Holding Company will be available for sale in the future in
the
36
<PAGE>
event of the Company undertakes an incremental stock offering or the Mutual
Holding Company decides to convert to the capital stock form of organization.
See "Regulation-Holding Company Regulation-Mutual Holding Company Regulation."
The Reorganization will also give the Company greater flexibility to structure
and finance the expansion of its operations, including the potential acquisition
of other financial institutions and to diversify into other financial services.
The holding company form of organization is expected to provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries or through acquisitions of or mergers with other
financial institutions, as well as other companies. Although management has no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. Lastly, the Reorganization
will enable the Bank to better manage its capital by offering broader investment
opportunities through the holding company structure and by enabling the Company
to distribute capital to stockholders in the form of dividends. Because only a
minority of the Common Stock will be offered for sale in the Offering, the
Bank's current mutual form of ownership and its ability to remain an independent
savings bank and to provide community-oriented financial services will be
preserved through the mutual holding company structure.
The Board of Trustees believes that these advantages outweigh the potential
disadvantages of the mutual holding company structure, which may include: (i)
the inability of stockholders other than the Mutual Holding Company to obtain
majority ownership of the Company and the Bank, which may result in the
perpetuation of the management and board of directors of the Bank and the
Company; and (ii) that the mutual holding company structure is a relatively new
form of corporate ownership and new regulatory policies relating to the mutual
interest in the Mutual Holding Company that may be adopted from time-to-time may
have an adverse impact on Minority Stockholders. A majority of the voting stock
of the Company will be owned by the Mutual Holding Company, which is a mutual
institution that will be controlled by the existing Board of Trustees of the
Bank. While this structure will permit management to focus better on the
Company's and the Bank's long-term business strategy for growth and capital
redeployment without short-term pressure from stockholders, it will also serve
to perpetuate the existing management and trustees of the Bank. The Mutual
Holding Company will be able to elect all members of the board of directors of
the Company and will be able to control the outcome of all matters presented to
the stockholders of the Company for resolution by vote, except for certain
matters that must be approved by more than a majority of stockholders of the
Company. No assurance can be given that the Company will not take action adverse
to the interests of the Minority Stockholders. For example, the Company could
revise the dividend policy or defeat a candidate for the board of directors of
the Bank or other proposals put forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual Holding
Company from the mutual-to-stock form of organization which would be effected
through a merger of the Mutual Holding Company into the Company or the Bank and
the concurrent sale of the shares held by the Mutual Holding Company in a
subscription offering. A conversion of the Mutual Holding Company from the
mutual-to-stock form of organization is not anticipated for the foreseeable
future.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Bank as of the effective date of the
Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts with
the Bank. In addition, all persons who become depositors of the Bank subsequent
to the Reorganization will have such liquidation rights with respect to the
Mutual Holding Company. Borrowers currently do not have ownership or voting
rights in the Bank and will not receive ownership or voting rights with respect
to the Mutual Holding Company.
All insured deposit accounts of the Bank will continue to be federally
insured by the FDIC and the BIF up to the legal maximum limit in the same manner
as deposit accounts existing in the Bank immediately prior to the
Reorganization. Upon completion of the Reorganization, the Bank may exercise
any and all powers, rights and privileges of, and shall be subject to all
limitations applicable to, capital stock savings banks under New York law. As
long as the Mutual Holding Company is in existence, the Mutual Holding Company
will be required to own at least 51%
37
<PAGE>
of the voting stock of the Company, and the Company will own 100% of the voting
stock of the Bank. The Bank and the Company may issue any amount of non-voting
stock or debt to persons other than the Mutual Holding Company.
THE OFFERING
The Company is offering shares of Common Stock to persons other than the
Mutual Holding Company. An Offering of between 1,266,588 and 1,713,620 shares of
the Common Stock (subject to adjustment to up to 1,970,663) is being made
pursuant to this Prospectus concurrently with the Reorganization. The shares of
Common Stock that will be sold in the Offering will constitute no more than
44.5% of the shares that will be outstanding after the Offering. Following the
Reorganization and the Offering, the Company also will be authorized to issue
additional Common Stock to persons other than the Mutual Holding Company,
without prior approval of the holders of the Common Stock.
The shares of Common Stock are being offered for sale at a fixed
Subscription Price of $10.00 per share in the Subscription Offering pursuant to
subscription rights in the following order of priority to: (i) holders of
deposit accounts with a balance of at least $100 or more on December 31, 1996
("Eligible Account Holders"); (ii) the Bank's tax-qualified employee plans,
including the ESOP; (iii) depositors whose accounts in the Bank totaled at least
$100 or more on September 30, 1998 ("Supplemental Eligible Account Holders");
and (iv) employees, officers and trustees of the Bank who do not qualify in any
of the above listed categories. Concurrently, and subject to the prior rights
of holders of subscription rights, any shares of Common Stock not subscribed for
in the Subscription Offering are being offered in the Community Offering at
$10.00 per share to certain members of the general public, with a preference
first given to natural persons residing in Madison county, New York, the cities
and towns of Annsville, Camden, Florence, Sherrill, Vernon, Verona and Vienna in
Oneida county, New York and the towns of Fabius, Manlius and Pompey in Onondaga
county, New York (the "Community Offering"). Subscription rights will expire if
not exercised by __:___, New York time, on _________ , 1998 unless extended by
the Bank and the Company.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Reorganization and federal and state regulations require that
the aggregate purchase price of the Common Stock sold in the Offering must be
based on the appraised pro forma market value of the Common Stock, as determined
by an independent valuation (the "Independent Valuation"). The Bank has
retained FinPro to make such valuation, and FinPro will receive a fee of $25,000
for its services. The Bank and the Company have agreed to indemnify FinPro and
its employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where FinPro's liability results from its
negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the
information contained in the Prospectus, including the financial statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of the Bank and the economic
and demographic conditions in the Bank's existing market area; certain
historical, financial and other information relating to the Bank; a comparative
evaluation of the operating and financial statistics of the Bank with those of
other publicly traded subsidiaries of mutual holding companies; the aggregate
size of the Offering; the impact of the Reorganization on the Bank's
stockholders' equity and earnings potential; the proposed dividend policy of the
Company; and the trading market for securities of comparable institutions and
general conditions in the market for such securities. As a result of recent
market volatility as well as a weakening in the market for financial institution
securities generally, on October 7, 1998 FinPro updated its original appraisal,
dated September 9, 1998, to decrease the pro forma market value of the Company
public as been decreased by 15%.
The Independent Valuation states that as of October 7, 1998, the estimated
pro forma market value of the Common Stock ranged from a minimum of $28.4
million to a maximum of $38.5 million, with a midpoint of $33.5 million (the
"Estimated Valuation Range"). The board determined to offer the shares in the
Offering at the Subscription Price of $10.00 per share, the price most commonly
used in stock offerings involving mutual-to-stock conversions.
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Based on the Estimated Valuation Range and the Subscription Price of $10.00 per
share, the number of shares of Common Stock that the Company will issue will
range from between 2,843,760 shares to 3,847,440 shares, with a midpoint of
3,345,600 shares. The board determined to offer 44.5% of such shares, or between
1,266,588 shares and 1,713,620 shares with a midpoint of 1,490,104 shares (the
"Offering Range"), to depositors and the public pursuant to this Prospectus. In
addition, up to 75,399 shares are being issued to the Charitable Foundation as
part of the Reorganization, which will result in Minority Stockholders owning
46.5% of the shares of the Common Stock outstanding at the conclusion of the
Reorganization. The 53.5% of the shares of the Company's Common Stock that are
not sold in the Offering or contributed to the Charitable Foundation will be
issued to the Mutual Holding Company.
The board reviewed the Independent Valuation and, in particular, considered
(i) the Bank's financial condition and results of operations for the six months
ended June 30, 1998, and the year ended December 31, 1997, (ii) financial
comparisons of the Bank in relation to other financial institutions primarily
including other publicly traded subsidiaries of mutual holding companies, and
(iii) stock market conditions generally and in particular for financial
institutions, all of which are set forth in the Independent Valuation. The
board also reviewed the methodology and the assumptions used by FinPro in
preparing the Independent Valuation. The Estimated Valuation Range may be
amended with the approval of the Superintendent and the FDIC (if required), if
necessitated by subsequent developments in the financial condition of the Bank
or market conditions generally.
Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15%, to up to 4,424,556
shares, which will result in a corresponding increase in the maximum of the
Offering Range to up to 1,970,663 shares to reflect changes in market and
financial conditions, without the resolicitation of subscribers (in which event
up to 86,709 shares may be issued to the Charitable Foundation). The minimum of
the Estimated Valuation Range and the minimum of the Offering Range may not be
decreased without a resolicitation of subscribers. The Subscription Price of
$10.00 per share will remain fixed. See "--Limitations Upon Purchases of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings.
THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SHARES. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE BANK, NOR DID FINPRO VALUE INDEPENDENTLY THE ASSETS
OR LIABILITIES OF THE BANK. THE INDEPENDENT VALUATION CONSIDERS THE BANK AS A
GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION
VALUE OF THE BANK. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING
SHARES IN THE OFFERING WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT
OR ABOVE THE SUBSCRIPTION PRICE.
The Independent Valuation will be updated at the time of the completion of
the Offering. If the update to the Independent Valuation at the conclusion of
the Offering results in an increase in the maximum of the Estimated Valuation
Range to more than 4,424,556 shares and a corresponding increase in the Offering
Range to more than 1,970,663 shares, or a decrease in the minimum of the
Estimated Valuation Range to less than 2,843,760 shares and a corresponding
decrease in the Offering Range to fewer than 1,266,588 shares, then the Company,
after consulting with the Superintendent and the FDIC, may terminate the Plan of
Reorganization and return all funds promptly, with interest on payments made by
check, certified or teller's check, bank draft or money order, extend or hold a
new Subscription Offering, Community Offering, or both, establish a new Offering
Range, commence a resolicitation of subscribers or take such other actions as
permitted by the Superintendent and the FDIC in order to complete the
Reorganization and the Offering. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless further extended by the
Superintendent and the FDIC for periods of up to 90 days not to extend beyond 24
months following approval of the Plan by the Superintendent, or __________,
______.
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An increase in the Independent Valuation and the number of shares to be
issued in the Offering would decrease both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while increasing pro forma earnings and stockholders' equity on an aggregate
basis. A decrease in the Independent Valuation and the number of shares to be
issued in the Offering would increase both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while decreasing pro forma net income and stockholder's equity on an aggregate
basis. For a presentation of the effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro and the detailed memorandum of the
appraiser setting forth the method and assumptions for such appraisal are
available for inspection at each office of the Bank and the other locations
specified under "Additional Information."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank and the Superintendent that, to the
best of its knowledge, nothing of a material nature has occurred that, taking
into account all relevant factors, would cause FinPro to conclude that the
Independent Valuation is incompatible with its estimate of the pro forma market
value of the Common Stock of the Company at the conclusion of the Offering. Any
change that would result in an aggregate purchase price that is below the
minimum or above the adjusted maximum of the Estimated Valuation Range would be
subject to Superintendent's approval and the non-objection of the FDIC. If such
confirmation is not received, the Bank may extend the Offering, reopen or
commence a new offering, establish a new Estimated Valuation Range and commence
a resolicitation of all purchasers with the approval of the Superintendent or
take such other actions as permitted by the Superintendent in order to complete
the Offering.
PURCHASE PRIORITIES AND METHOD OF OFFERING SHARES
The Bank shall have the right, in its sole discretion, to determine whether
prospective purchasers are "residents," "associates," or "acting in concert" as
defined by the Plan of Reorganization and in interpreting any and all other
provisions of the Plan of Reorganization. All such determinations are in the
sole discretion of the Bank, and may be based on whatever evidence the Bank
chooses to use in making any such determination.
Subject to the preceding paragraph and the limitations set forth in the "--
Limitations Upon Purchases of Common Stock" section, the priorities for the
purchase of shares are as follows:
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
be given the opportunity to purchase up to 15,000 shares, or $150,000, of
Common Stock; provided that the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5.0% of the
maximum number of shares issued in the Offering, subject to the overall purchase
limitation set forth in the section herein titled "Limitations Upon Purchases of
Common Stock." If there are insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will be allocated to Eligible
Account Holders so as to permit each subscribing Eligible Account Holder to
purchase a number of shares sufficient to make the total allocation equal to the
lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the same proportion that
each subscriber's aggregate deposit account balances as of the Eligibility
Record Date ("Qualifying Deposits") bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled. Subscription rights to purchase Common Stock received by executive
officers and trustees of the Bank, including associates of executive officers
and trustees, based on their increased deposits in the Bank in the one year
preceding the Eligibility Record Date, shall be subordinated to the subscription
rights of other Eligible Account Holders. To ensure proper allocation of stock,
each Eligible Account Holder must list on their subscription order form all
deposit accounts in which they had an ownership interest as of the Eligibility
Record Date.
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PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Offering. In the event of an oversubscription in
the Offering, subscriptions for shares by the tax-qualified employee plans may
be satisfied, in whole or in part, through open market purchases by the tax-
qualified employee plans subsequent to the closing of the Offering. The ESOP
intends to purchase shares of Common Stock equal to 8% of the Minority Ownership
Interest in the Offering.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall have the opportunity to purchase up to 15,000 shares, or
$150,000, of Common Stock; provided that the Company may, in its sole discretion
and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to up to 5.0%
of the maximum number of shares issued in the Offering, subject to the overall
purchase limitations set forth in the section herein titled "Limitations Upon
Purchases of Common Stock." In the event Supplemental Eligible Account Holders
subscribe for a number of shares which, when added to the shares subscribed for
by Eligible Account Holders and the Tax-Qualified Employee Plans, exceed
available shares, the shares of Common Stock will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of shares sufficient
to make the total allocation equal to the lesser of 100 shares or the number of
shares subscribed for. Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the same proportion that such subscriber's aggregate deposit account
balances as of the Supplemental Eligibility Record Date ("Supplemental
Qualifying Deposits") bear to the total amount of Supplemental Qualifying
Deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled.
PRIORITY 4: EMPLOYEES, OFFICERS AND TRUSTEES. Employees, officers and
trustees of the Bank who do not qualify in any of the above listed categories
will receive, without cost to them, nontransferable subscription rights to
subscribe for up to 15,000 shares or $150,000 of the Common Stock. If
sufficient shares are not available in this priority, shares will be allocated
among trustees, officers and employees on a pro rata basis based on the size of
each person's order.
COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public. The Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by the Company and the Bank, and will commence concurrently with, during or
promptly after the Subscription Offering. The Community Offering would be
extended in the event that orders for the minimum number of shares have not been
received or if required to do so by regulatory authorities. The Common Stock
will be offered and sold in the Community Offering, in accordance with FDIC and
Department regulations, so as to achieve the widest distribution of the Common
Stock. No person, by himself or herself, or with an associate or group of
persons acting in concert, may subscribe for or purchase more than 10,000 shares
of Common Stock offered in the Community Offering. Further, the Company may
limit total subscriptions so as to assure that the number of shares available
for the public offering may be up to a specified percentage of the number of
shares of Common Stock. Finally, the Company may reserve shares offered in the
Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering,
shares will be allocated (to the extent shares remain available) first to
natural persons residing in Madison county, New York, the cities and towns of
Annsville, Camden, Florence, Sherrill, Vernon, Verona and Vienna in Oneida
county, New York and the towns of Fabius, Manlius and Pompey in Onondaga county,
New York.
The terms "residence," "reside," "resided" or "residing" with respect to
any person shall mean any person who occupied a dwelling within the Bank's
Community, has an intent to remain within the Community for a period of time,
and manifests the genuineness of that intent by establishing an ongoing physical
presence within the Community
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together with an indication that such presence within the Community is something
other than merely transitory in nature. The Bank may use deposit or loan records
or such other evidence provided to it to make a determination as to whether a
person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.
SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers in a Syndicated Community Offering ("Selected
Dealers"), subject to terms, conditions and procedures as may be determined by
the Bank and the Company in a manner that is intended to achieve the widest
distribution of the Common Stock, subject to the rights of the Company to accept
or reject in whole or in part any order in the Syndicated Community Offering.
It is expected that the Syndicated Community Offering, if any, will begin as
soon as practicable after termination of the Subscription Offering and the
Community Offering, if any. The Syndicated Community Offering shall be
completed within 45 days after the termination of the Subscription Offering,
unless such period is extended as provided herein. The Syndicated Community
Offering would be extended in the event that orders for the minimum number of
shares offered were not received or if required to do so by regulatory
authorities. The Company and the Bank have the right to reject orders, in whole
or in part, in their sole discretion in the Syndicated Community Offering.
Neither Trident Securities Inc. nor any registered broker-dealer shall have any
obligation to take or purchase any shares of the Common Stock in the Syndicated
Community Offering; however, Trident Securities, Inc. has agreed to use its best
efforts in the sale of shares in the Syndicated Community Offering. Common Stock
sold in the Syndicated Community Offering will be sold at the purchase price of
$10.00 per share, which is the same price as all other shares being offered in
the Offering.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Company. During the Syndicated Community Offering, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Company as of a certain date (the "Order Date") for the purchase
of shares of Common Stock. When and if Trident Securities, Inc. and the Company
believe that enough indications and orders have been received in the Offering to
consummate the Reorganization, Trident Securities, Inc. will request, as of the
Order Date, Selected Dealers to submit orders to purchase shares for which they
have received indications of interest from their customers. Selected Dealers
will send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on a date which will be three business days from the Order Date
("Debit Date"). Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the Debit Date. One the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Company
established for each Selected Dealer. After payment has been received by the
Company from Selected Dealers, funds will earn interest at the Bank's passbook
savings rate until the consummation of the Reorganization. In the event the
Offering is not consummated as described above, funds will be returned promptly
with interest to the Selected Dealers, who, in turn, will promptly credit their
customers' brokerage accounts.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Company and the
Bank will seek to make other arrangements for the sale of the remaining shares.
Such other arrangements will be subject to the approval of the Department and
the FDIC and to compliance with applicable state and federal securities laws.
RESTRICTIONS ON SALE OF STOCK BY TRUSTEES AND OFFICERS
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All shares of the Common Stock purchased by trustees and officers of the
Bank in the Offering will be subject to the restriction that such shares may not
be sold or otherwise disposed of for value for a period of one year following
the date of purchase, except for any disposition of such shares (i) following
the death of the original purchaser or (ii) by reason of an exchange of
securities in connection with a merger or acquisition approved by the applicable
regulatory authorities. Sales of shares of the Common Stock by the Company's
directors and officers will also be subject to certain insider trading and other
transfer restrictions under the federal securities laws. See "Regulation--
Federal Securities Laws."
Each certificate for restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Company's transfer agent to the effect that
any transfer within such time period of any certificate or record ownership of
such shares other than as provided above is a violation of the restriction. Any
shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.
RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK
TO BE PURCHASED IN THE OFFERING
Prior to the completion of the Offering, no depositor may transfer or enter
into an agreement or understanding to transfer the legal or beneficial ownership
of the shares of Common Stock to be purchased by such person in the Offering.
Each depositor who submits an order form will be required to certify that the
purchase of Common Stock by such person is solely for the purchaser's own
account and there is no agreement or understanding regarding the sale or
transfer of such shares. The Bank intends to pursue any and all legal and
equitable remedies in the event it becomes aware of any such agreement or
understanding and will not honor orders reasonably believed by the Bank to
involve such an agreement or understanding.
PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses may not be mailed any later than five
days prior to such date or be hand delivered any later than two days prior to
such date. Stock order forms may only be distributed with a Prospectus.
EXPIRATION DATE. The Offering will terminate at ___:____, New York time on
__________, 1998, unless extended by the Bank for up to an additional 45 days
or, if approved by the Superintendent, for an additional period after such 45-
day extension (as so extended, the "Expiration Date"). The Bank is not required
to give purchasers notice of any extension unless the Expiration Date is later
than __________, 1998, in which event purchasers will be given the right to
increase, decrease, confirm, or rescind their orders. If the minimum number of
shares sold in the Offering (__________ shares) is not sold by the Expiration
Date, the Bank may terminate the Offering and promptly refund all orders for
Common Stock. A reduction in the number of shares below the minimum of the
Estimated Valuation Range will not require the approval of depositors or an
amendment to the Independent Valuation. If the number of shares is reduced
below the minimum of the Estimated Valuation Range, purchasers will be given an
opportunity to increase, decrease, or rescind their orders.
USE OF STOCK ORDER FORMS. In order to purchase the Common Stock, each
purchaser must complete a stock order form except for certain persons purchasing
in the Syndicated Community Offering as more fully described below. Any person
receiving a stock order form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
stock order form, together with full payment for the shares purchased. The stock
order form must be received prior to __:___, New York time on __________, 1998.
ONCE TENDERED, A STOCK ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE
CONSENT OF THE BANK. Each person ordering shares is required to represent that
they are purchasing such shares for their own account. The interpretation by the
Bank of the terms and conditions of the Plan and of the acceptability of the
order forms will be final. The Bank is not required to accept copies of stock
order forms.
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PAYMENT FOR SHARES. Payment for all shares will be required to accompany
all completed order forms for the purchase to be valid. Payment for shares may
be made by (i) check or money order, or (ii) authorization of withdrawal from a
deposit account maintained with the Bank. Third party checks will not be
accepted as payment for a subscriber's order. Appropriate means by which such
withdrawals may be authorized are provided in the stock order forms. Once such
a withdrawal amount has been authorized, a hold will be placed on such funds,
making them unavailable to the depositor until the Offering has been completed
or terminated. In the case of payments authorized to be made through withdrawal
from deposit accounts, all funds authorized for withdrawal will continue to earn
interest at the contract rate until the Offering is completed or terminated.
Interest penalties for early withdrawal applicable to certificate of deposit
accounts with the Bank will not apply to withdrawals authorized for the purchase
of shares; however, if a withdrawal results in a certificate of deposit account
with a balance less than the applicable minimum balance requirement, the
certificate of deposit shall be canceled at the time of withdrawal without
penalty and the remaining balance will earn interest at the Bank's passbook rate
subsequent to the withdrawal. Payments made by check or money order will be
placed in a segregated savings account and will be paid interest at the Bank's
passbook rate of 3.0%, from the date payment is received until the Offering is
completed or terminated. Such interest will be paid by check, on all funds held,
including funds accepted as payment for shares of Common Stock, promptly
following completion or termination of the Offering. An executed stock order
form, once received by the Bank, may not be modified, amended or rescinded
without the consent of the Bank, unless the Offering is not completed by
__________, 1998, in which event purchasers may be given the opportunity to
increase, decrease, confirm or rescind their orders for a specified period of
time.
Depending on market conditions, the Common Stock may be offered for sale to
the general public on a best efforts basis in a Syndicated Community Offering by
a selling group of broker-dealers to be managed by Trident Securities, Inc. In
its discretion, Trident Securities, Inc. will instruct selected broker-dealers
as to the number of shares to be allocated to each selected broker-dealer. Only
upon allocation of shares to selected broker-dealers may they take orders from
their customers. Investors who desire to purchase shares in the Community
Offering directly through a selected broker-dealer, which may include Trident
Securities, Inc., will be advised that the members of the selling group are
required either (a) upon receipt of an executed stock order form or direction to
execute a stock order form on behalf of an investor, to forward the appropriate
purchase price to the Bank for deposit in a segregated account on or before
__________, prevailing time, of the business day next following such receipt or
execution; or (b) upon receipt of confirmation by such member of the selling
group of an investor's interest in purchasing shares and following a mailing of
an acknowledgment by such member to such investor on the business day next
following receipt of confirmation, to debit the account of such investor on the
fifth business day next following receipt of confirmation and to forward the
appropriate purchase price to the Bank for deposit in the segregated account on
or before 12:00 noon, prevailing time, of the business day next following such
debiting. Payment for any shares purchased pursuant to alternative (a) above
must be made by check in full payment of the purchase price. Payment for shares
purchased pursuant to alternative (b) above may be made by wire transfer to the
Bank.
Owners of self-directed Individual Retirement Accounts ("IRA") may use the
assets of such IRAs to purchase shares of Common Stock in the Offering.
Individuals who are participants in self-directed tax qualified plans maintained
by self-employed individuals may use the assets in their self-directed Keogh
Plan accounts to purchase shares of Common Stock in the Offering. In addition,
the provisions of Employee Retirement Income Securities Act of 1974, as amended
("ERISA") and Internal Revenue Service ("IRS") regulations require that
executive officers, trustees and 10% stockholders who use self-directed IRA
funds and/or Keogh Plan accounts to purchase shares of Common Stock in the
Offering, make such purchase for the exclusive benefit of the IRA and/or Keogh
Plan participant. Moreover, for IRAs where the Bank is the trustee or custodian
to the IRA, the IRA must be transferred to a new trustee or custodian in order
to use such funds for the purchase of Common Stock in the Offering.
If the ESOP subscribes for shares of the Common Stock, such plan will not
be required to pay for such shares until consummation of the Offering.
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DELIVERY OF STOCK CERTIFICATES. Certificates representing Common Stock
issued in the Offering will be mailed by the Bank to the persons entitled
thereto at the registered address noted on the order form, as soon as
practicable following consummation of the Offering. Any certificates returned
as undeliverable will be held by the Bank until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for the Common Stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of stock which they
ordered.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Trident Securities, Inc. All prospective purchasers are to send
payment directly to the Bank, where such funds will be held in a segregated
savings account and not released until the Offering is completed or terminated.
To assist in the marketing of the Common Stock, the Bank has retained
Trident Securities, Inc., which is a broker-dealer registered with the National
Association of Securities Dealers, Inc. ("NASD"). Trident Securities, Inc. will
assist the Bank in the Offering as follows: (i) in training and educating the
Bank's employees regarding the mechanics and regulatory requirements of the
Offering; (ii) in conducting informational meetings for employees, customers and
the general public; (iii) in coordinating the selling efforts in the Bank's
local communities; and (iv) in soliciting orders for Common Stock. For these
services, Trident Securities, Inc. will receive a fixed fee of $200,000. If
there is a Syndicated Community Offering, the fixed fee shall not exceed a fee
to be agreed upon jointly by the Bank and Trident Securities, Inc.
The Bank also will reimburse Trident Securities, Inc. for its reasonable
out-of-pocket expenses associated with its marketing effort, up to a maximum of
$55,000 (including legal fees and expenses ). The Bank has made an advance
payment of $10,000 to Trident Securities, Inc. If the Plan of Reorganization is
terminated by the Bank, if the Offering is not completed by ________, 1999, or
if Trident Securities, Inc. terminates its agreement with the Bank in accordance
with the provisions of the agreement, Trident Securities, Inc. will only receive
reimbursement of its reasonable out-of-pocket expenses (including legal fees and
expenses). The Bank will indemnify Trident Securities, Inc. against liabilities
and expenses (including legal fees and expenses) incurred in connection with
certain claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering material for the Common Stock, including
liabilities under the Securities Act of 1933, as amended.
Trustees and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or registered representatives. The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
so as to permit officers, trustees and employees to participate in the sale of
the Common Stock. No officer, trustee or employee of the Bank will be
compensated for his participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
A Stock Information Center will be established at the Bank's main office,
in an area separated from the Bank's banking operations. Employees will inform
prospective purchasers to direct their questions to the Stock Information Center
and will provide such persons with the telephone number of the Stock Information
Center.
LIMITATIONS UPON PURCHASES OF COMMON STOCK
The following additional limitations have been imposed upon purchases of
shares of Common Stock. Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan.
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A. The aggregate amount of outstanding Common Stock of the Company owned
or controlled by persons other than Mutual Holding Company at the
close of the Offering shall not exceed 49% of the Company's total
outstanding Common Stock.
B. No person or group of persons acting in concert, together with their
associates, may purchase more than 25,000 shares, or $250,000, of
Common Stock in the Offering, except that: (i) the Company may, in its
sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase such maximum
purchase limitation to up to 5% of the number of shares sold in the
Offering; (ii) tax-qualified employee plans may purchase up to 10% of
the shares sold in the Offering; and (iii) for purposes of this
paragraph shares to be held by any tax-qualified employee plan and
attributable to a person shall not be aggregated with other shares
purchased directly by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Offering by all
management persons and their associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 25%
of the outstanding shares of Common Stock of the Company sold in the
Offering. In calculating the number of shares held by management
persons and their associates shares held by any tax-qualified employee
benefit plan or any non-tax-qualified employee benefit plan of the
Bank that are attributable to such persons shall not be counted.
D. Notwithstanding any other provision of the Plan of Reorganization, no
person shall be entitled to purchase any Common Stock to the extent
such purchase would be illegal under any federal law or state law or
regulation or would violate regulations or policies of the NASD,
particularly those regarding free riding and withholding. The Company
and/or its agents may ask for an acceptable legal opinion from any
purchaser as to the legality of such purchase and may refuse to honor
any purchase order if such opinion is not timely furnished.
E. The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who it
otherwise believes, either alone or acting in concert with others, is
violating, circumventing, or intends to violate, evade or circumvent
the terms and conditions of this Plan.
F. The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to
subscribe for Common Stock pursuant to the Plan reside. However, the
Company and the Bank are not required to offer Common Stock to any
person who resides in a foreign country.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of the Bank's commitment to the communities that
it serves, the Bank intends to establish a Charitable Foundation in connection
with the Reorganization. The Plan of Reorganization provides that the Bank and
the Company may establish the Charitable Foundation, which will be incorporated
under Delaware law as a non-stock corporation and will be funded with cash and
shares of Common Stock contributed by the Company. The Company will contribute
to the Charitable Foundation 2.0% of the shares of Common Stock to be issued in
the Reorganization or 55,730, 65,565, 75,399 and 86,709 shares at the minimum,
midpoint, maximum and adjusted maximum of the Offering and a $100,000 cash
contribution. The contribution of Common Stock to the Charitable Foundation
will be dilutive to the interests of stockholders and will have an adverse
impact on the reported earnings of the Company in 1998, the year in which the
Charitable Foundation is established.
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PURPOSE OF THE CHARITABLE FOUNDATION. The purpose of the Charitable
Foundation is to provide funding to support charitable causes and community
development activities. Historically, the Bank has emphasized community lending
and development activities within the communities that it services. The
Charitable Foundation is being formed as a complement to the Bank's existing
community activities. Management believes the establishment of a Charitable
Foundation is consistent with the Bank's commitment to community service.
Funding of the Charitable Foundation with Common Stock of the Company also may
be a means of enabling the communities served by the Bank to share in the growth
and success of the Company. The Charitable Foundation will also enable the
Company and the Bank to develop a unified charitable donation strategy and will
centralize the responsibility for administration and allocation of corporate
charitable funds. Charitable foundations have been formed by other financial
institutions for this purpose, among others. The contribution to the Charitable
Foundation will not take the place of the Bank's traditional community lending
activities.
STRUCTURE OF THE CHARITABLE FOUNDATION. The Charitable Foundation will be
incorporated under Delaware law as a non-stock corporation. Pursuant to the
Charitable Foundation's Bylaws, the Charitable Foundation's initial board of
directors are expected to consist of persons who are existing directors and
officers of the Company and persons unaffiliated with the Company or the Bank
who have a business or other relationship within the Bank's community.
Subsequent to the Reorganization, other individuals may be appointed to the
board of directors of the Charitable Foundation. The members of the Charitable
Foundation, who are comprised of its board members, will elect the directors at
the annual meeting of the Charitable Foundation from those nominated by the
nominating committee. Only persons serving as directors of the Charitable
Foundation qualify as members of the Charitable Foundation, with voting
authority. Directors will be divided into three classes with each class
appointed for three-year terms. The certificate of incorporation of the
Charitable Foundation provides that the corporation is organized exclusively for
charitable purposes, including community development, as set forth in Section
501(c)(3) of the Internal Revenue Code of 1986 (the "Code"). The Charitable
Foundation's certificate of incorporation further provides that no part of the
net earnings of the Charitable Foundation will inure to the benefit of, or be
distributable to, its directors, officers or members.
The authority for the affairs of the Charitable Foundation will be vested
in its board of directors which will be responsible for establishing the
policies of the Charitable Foundation with respect to grants or donations
consistent with the purpose for which the Charitable Foundation was established.
Although no formal policy governing Charitable Foundation grants exists at this
time, the Charitable Foundation's board of directors will adopt such a policy
upon establishment of the Charitable Foundation. As directors of a nonprofit
corporation, directors of the Charitable Foundation will at all times be bound
by their fiduciary duty to advance the Charitable Foundation's charitable goals,
to protect the assets of the Charitable Foundation and to act in a manner
consistent with the charitable purpose for which the Charitable Foundation is
established. The directors of the Charitable Foundation also will be responsible
for directing the activities and managing the assets of the Charitable
Foundation. However, as a condition to receiving the non-objection of the
Reorganization, the Charitable Foundation has been required to commit to the
FDIC and the Department that all shares of Common Stock held by the Charitable
Foundation will be voted in the same ratio as all other shares of the Company's
Common Stock (other than shares held by the Mutual Holding Company) on all
proposals considered by stockholders of the Company; provided, however, that,
consistent with such condition, the FDIC and the Department may waive this
voting restriction under certain circumstances (and subject to certain
additional conditions) if compliance with the voting restriction would: (i)
cause a violation of the law of the State of Delaware; (ii) cause the Charitable
Foundation to lose its tax-exempt status, or cause the Internal Revenue Service
(the "IRS") to deny the Charitable Foundation's request for a determination that
it is an exempt organization or otherwise have a material and adverse tax
consequence on the Charitable Foundation; or (iii) cause the Charitable
Foundation to be subject to an excise tax under Section 4941 of the Code. In
order for the FDIC and the Department to waive such voting restriction, the
Company's or the Charitable Foundation's legal counsel would be required to
render an opinion satisfactory to the FDIC and the Department that compliance
with the voting requirement would have the effect described in clauses (i), (ii)
or (iii) above. Under those circumstances, the FDIC and the Department may
grant waivers of the voting restriction upon submission of such legal opinion(s)
by the Company or the Charitable Foundation that are satisfactory to the FDIC
and the Department. In the event that the FDIC and the Department were to waive
the voting requirement, the directors would direct the voting of the Common
Stock held by the Charitable Foundation.
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However, if the noting requirement is waived, the Superintendent may impose
other conditions with regard to the composition of the Board of Directors of the
Charitable Foundation.
The Charitable Foundation's place of business will be located at the Bank's
administrative offices and initially the Charitable Foundation is expected to
have no employees but will utilize the members of the staff of the Company or
the Bank. The board of directors of the Charitable Foundation will appoint such
officers as may be necessary to manage the operation of the Charitable
Foundation. In this regard, it is expected that the Bank will be required to
provide the FDIC with a commitment that, to the extent applicable, the Bank will
comply with the affiliate restrictions set forth in Sections 23A and 23B of the
Federal Reserve Act with respect to any transactions between the Bank and the
Charitable Foundation.
Under Section 501(c)(3) of the Code, the Charitable Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Charitable Foundation in any one year shall not
exceed 5% of the average market value of the assets held by the Charitable
Foundation, except where the board of directors of the Charitable Foundation
determines that the failure to sell an amount of Common Stock greater than such
amount would result in a longer-term reduction of the value of the Charitable
Foundation's assets and as such would jeopardize the Charitable Foundation's
capacity to carry out its charitable purposes. Upon completion of the
Reorganization and the contribution of shares to the Charitable Foundation, the
Company would have 2,843,760, 3,345,600 and 3,847,440 shares issued and
outstanding at the minimum, midpoint and maximum of the Estimated Valuation
Range. Because the Company will have an increased number of shares outstanding,
the voting and ownership interests of stockholders in the Company's Common Stock
would be diluted by 2.0%, as compared to their interests in the Company if the
Charitable Foundation was not established. For additional discussion of the
dilutive effect, see "Pro Forma Data."
IMPACT ON EARNINGS. The contribution of cash and Common Stock to the
Charitable Foundation will have an adverse impact on the Company's and the
Bank's earnings in the year in which the contribution is made. The Company will
recognize the full expense in the amount of the contribution of cash and Common
Stock to the Charitable Foundation in the quarter in which it occurs, which is
expected to be the quarter ending December 31, 1998. The aggregate amount of the
contribution will range from $657,000 to $854,000, based on the minimum and
maximum of the Estimated Valuation Range, respectively (or up to $967,000 at the
adjusted maximum of the Estimated Valuation Range). The number of shares to be
contributed to the Charitable Foundation will range from 55,730 to 75,399, and
the amount of cash to be contributed will be fixed at $100,000. The contribution
expense will be partially offset by the tax benefit related to the expense. The
Company and the Bank have been advised by their independent tax advisors that
the contribution to the Charitable Foundation will be tax deductible, subject to
an annual limitation based on 10% of the Company's annual taxable income.
Assuming an aggregate contribution of $854,000 (based on the maximum of the
Estimated Valuation Range), the Company estimates a net tax effected expense
of$529,000 (based upon a 38% tax rate). Management cannot predict earnings for
1998, but expects that the establishment and funding of the Charitable
Foundation will have an adverse impact on the Company's earnings for the year.
In addition to the contribution to the Charitable Foundation, the Bank or the
Mutual Holding Company may continue making grants and contributions to the
community that would not be permitted for the Charitable Foundation.
TAX CONSIDERATIONS. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private Charitable Foundation. The Charitable
Foundation will submit a request to the IRS to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent tax advisors that the Charitable Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such opinion
does not consider the impact of the condition to be agreed to by the Charitable
Foundation that Common Stock issued to the Charitable Foundation be voted in the
same ratio as all other shares of the Company's Common Stock (other than shares
held by the Mutual Holding Company) on all proposals considered by stockholders
of the Company. Consistent with this condition, in the event that the Company
or the Charitable Foundation receives an opinion of their legal counsel that
compliance with the voting restriction would have the effect of causing the
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Charitable Foundation to lose its tax-exempt status, or otherwise have a
material and adverse tax consequence on the Charitable Foundation or subject the
Charitable Foundation to an excise tax under Section 4941 of the Code, the FDIC
and the Superintendent shall waive such voting restriction upon submission of a
legal opinion by the Company or the Charitable Foundation that is satisfactory
to them. The independent tax advisors' opinion further provides that there is
substantial authority for the position that the Company's contribution of its
own stock to the Charitable Foundation would not constitute an act of self-
dealing, and that the Company would be entitled to a deduction in the amount of
the fair market value of the stock at the time of the contribution less the
nominal par value that the Charitable Foundation is required to pay to the
Company for such stock, subject to an annual limitation based on 10% of the
Company's annual taxable income. The Company, however, would be able to carry
forward any unused portion of the deduction for five years following the
contribution. Assuming the sale of Common Stock at the adjusted maximum of the
Estimated Valuation Range, the Company estimates that all of the deduction
should be deductible over the six-year period. Although the Company and the Bank
have received an opinion of their independent tax advisors that the Company will
be entitled to the deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Charitable Foundation as a Section
501(c)(3) exempt organization or that the deduction will be permitted. In such
event, the Company's tax benefit related to the Charitable Foundation would have
to be fully expensed, resulting in a further reduction in earnings in the year
in which the IRS makes such a determination.
As a private charitable foundation, earnings and gains, if any, from the
sale of Common Stock or other assets are generally exempt from federal and state
corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private charitable foundation will generally
be subject to a federal excise tax of 2.0%. The Charitable Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Charitable Foundation's fiscal year to maintain its tax-
exempt status. The Charitable Foundation will be required to publish a notice
that the annual information return will be available for public inspection for a
period of 180 days after the date of such public notice. The information return
for a private charitable foundation must include, among other things, an
itemized list of all grants made or approved, showing the amount of each grant,
the recipient, any relationship between a grant recipient and the Charitable
Foundation's managers and a concise statement of the purpose of each grant. The
Charitable Foundation will also be required to file an annual report with the
Charities Bureau of the Office of the Attorney General of the State of New York.
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE CHARITABLE
FOUNDATION IS NOT ESTABLISHED AS PART OF THE REORGANIZATION. The establishment
of the Charitable Foundation was taken into account by FinPro in determining the
estimated pro forma market value of the Common Stock of the Company. The
aggregate price of the shares of Common Stock being offered in the Offering is
based upon the independent appraisal conducted by FinPro of the estimated pro
forma market value of the Common Stock of the Company. The pro forma aggregate
price of the Common Stock being offered for sale in the Reorganization is
currently estimated to be between $12.7 million and $17.1 million, with a
midpoint of $14.9 million of the Offering. The pro forma price to book ratio
and the pro forma price to earnings ratio, at and for the six months ended June
30, 1998, are 82.44% and 17.24x, respectively, at the midpoint of the Estimated
Valuation Range. In the event that the Reorganization did not include the
Charitable Foundation, FinPro has estimated that the estimated pro forma market
value of the Common Stock being offered for sale in the Offering would be $15.4
million at the midpoint based on a pro forma price to book ratio and the pro
forma price to earnings ratio that of 83.06% and 17.24x, respectively. The
amount of Common Stock being offered for sale in the Offering at the midpoint of
the Estimated Valuation Range is approximately $545,000 less than the estimated
amount of Common Stock that would be sold in the Offering without the Charitable
Foundation based on the estimate provided by FinPro. Accordingly, certain
account holders of the Bank who subscribe to purchase Common Stock in the
Subscription Offering would receive fewer shares depending on the size of a
depositor's stock order and the amount of his or her qualifying deposits in the
Bank and the overall level of subscriptions. See "Comparison of Valuation and
Pro Forma Information With and Without Foundation." This estimate by FinPro was
prepared solely for purposes of providing subscribers with information with
which to make an informed decision on the Reorganization.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the Charitable Foundation will not have a
significant effect on the Company or the Bank's capital position. The
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Bank's regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the
Reorganization. The Bank's leverage and risk-based capital ratios at June 30,
1998 were 12.6% and 21.9%, respectively. Assuming the sale of shares at the
midpoint of the Estimated Valuation Range, the Bank's pro forma leverage and
risk-based capital ratios at June 30, 1998 would be 14.65% and 25.51%,
respectively. On a consolidated basis, the Company's pro forma stockholders'
equity would be $40.6 million, or approximately 17.62% of pro forma consolidated
assets, assuming the sale of shares at the midpoint of the Estimated Valuation
Range. Pro forma stockholders' equity per share and pro forma net income per
share would be $12.13 and $0.29, respectively. If the Charitable Foundation was
not being established in the Reorganization, based on the FinPro estimate, the
Company's pro forma stockholders' equity would be approximately $40.9 million,
or approximately 17.75% of pro forma consolidated assets at the midpoint of the
Estimated Valuation Range, and pro forma stockholder's equity per share and pro
forma net income per share would be substantially similar with or without the
Foundation. See "Comparison of Valuation and Pro Forma Information With and
Without Foundation."
REGULATORY CONDITIONS IMPOSED ON THE CHARITABLE FOUNDATION. Establishment
of the Charitable Foundation is subject to certain conditions agreed to by the
Charitable Foundation in writing as a condition to receiving the FDIC's non-
objection to and Superintendent's approval of the Reorganization, including the
following: (i) the Charitable Foundation will be subject to examination by the
FDIC and the Department; (ii) the Charitable Foundation must comply with
supervisory directives imposed by the FDIC and the Department; (iii) the
Charitable Foundation will operate in accordance with written policies adopted
by its board of directors, including a conflict of interest policy; and (iv) any
shares of Common Stock held by the Charitable Foundation must be voted in the
same ratio as all other outstanding shares of Common Stock (other than shares
held by the Mutual Holding Company) on all proposals considered by stockholders
of the Company; provided, however, that, consistent with the condition, the FDIC
and the Department may waive this voting restriction under certain circumstances
(and subject to additional conditions) if compliance with the voting restriction
would: (a) cause a violation of the law of the State of Delaware; (b) would
cause the Charitable Foundation to lose its tax-exempt status or otherwise have
a material and adverse tax consequence on the Charitable Foundation; or (c)
would cause the Charitable Foundation to be subject to an excise tax under
Section 4941 of the Code. In order to obtain a waiver, the Charitable
Foundation's legal counsel would be required to render an opinion satisfactory
to the FDIC and the Department. There can be no assurances that a legal opinion
addressing these issues could be rendered, or if rendered, that the FDIC and the
Department would grant unconditional waivers of the voting restriction. In no
event would the voting restriction survive the sale of shares of the Common
Stock held by the Charitable Foundation.
POTENTIAL CHALLENGES. The establishment and funding of a Charitable
Foundation as part of a conversion of a mutual savings institution to stock form
has only recently occurred. As such, the Charitable Foundation, and the
Superintendent's approval of the Reorganization and the FDIC's nonobjection to
the Reorganization, may be subject to potential challenges notwithstanding that
the board of directors of the Company and the board of trustees of the Bank have
considered the various factors involved in the establishment of the Charitable
Foundation in reaching their determination to establish the Charitable
Foundation as part of the Reorganization. If challenges were to be instituted
seeking to prevent the Bank from establishing the Charitable Foundation in
connection with the Reorganization, no assurances could be made that the
resolution of such challenges would not result in a delay in the consummation of
the Reorganization or that any objecting persons would not be ultimately
successful in obtaining such removal or other relief against the Company or the
Bank. Additionally, if the Company and the Bank are forced to eliminate the
Charitable Foundation, the Company may be required to resolicit subscribers in
the Offerings.
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its present
mutual form, each depositor would have a claim to receive his or her pro rata
share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor may have
a claim to receive a pro rata share of the remaining assets in the same
proportion as the value of such depositor's deposit accounts to the total value
of all deposit accounts in the Bank at the time of liquidation, subject to the
right of the State of New York to garnish such assets. After the Reorganization,
each
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depositor, in the event of a complete liquidation, would have a claim as a
creditor of the Bank. However, except as described below, this claim would be
solely in the amount of the balance in the deposit account plus accrued
interest. A depositor would not have an interest in the value or assets of the
Bank above that amount.
The Plan of Reorganization provides for the establishment, upon the
completion of the Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the surplus and reserves of the Bank as of the date of its
latest balance sheet contained in the final Prospectus used in connection with
the Reorganization. Each Eligible Account Holder and Supplemental Eligible
Account Holder, who continues to maintain deposit account at the Bank, would, on
a complete liquidation of the Bank, have a claim to an interest in the
liquidation account after payment of all creditors but prior to any payment to
the stockholders of the Bank. Each Eligible Account Holder and Supplemental
Eligible Account Holder would have an initial interest in such liquidation
account for each deposit account, with a balance of $100 or more held in the
Bank on December 31, 1996 and September 30, 1998, respectively ("Deposit
Account"). Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a claim to a pro rata interest in the total liquidation account
for each of his or her Deposit Accounts based on the proportion that the balance
of each such Deposit Account on December 31, 1996 and September 30, 1998,
respectively, bore to the balance of all Deposit Accounts in the Bank on such
date. The liquidation account is expected to initially total $28.0 million.
If, however, on any December 31 annual closing date of the Bank, commencing
after December 31, 1998, the amount in any Deposit Account is less than the
amount in such Deposit Account on December 31, 1998 or any other annual closing
date, then such person's interest in the liquidation account relating to such
Deposit Account would be reduced from time to time by the proportion of any such
reduction, and such interest will cease to exist if such Deposit Account is
withdrawn or closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Deposit
Account.
Neither the Bank nor the Company shall be required to set aside funds for
the purpose of establishing the liquidation account, and the creation and
maintenance of the account will not operate to restrict the use or application
of any of the net worth accounts of the Bank, except that neither the Bank nor
the Company shall declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect would cause its net worth to be reduced below the
amount required for the liquidation account.
FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION
The Bank intends to proceed with the Reorganization on the basis of an
opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the
Reorganization. The opinion is based, among other things, on certain factual
representations made by the Bank, including the representation that the exercise
price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Bank has received an opinion of FinPro which, based on certain assumptions,
concludes that the subscription rights to be received by Eligible Account
Holders, Supplemental Eligible Account Holders and employees, directors and
trustees do not have any economic value at the time of distribution or the time
the subscription rights are exercised, whether or not a Community Offering takes
place, and Luse Lehman Gorman Pomerenk & Schick, P.C.'s opinion is given in
reliance thereon. The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.,
provides substantially as follows:
1. The change in form from a mutual savings bank ("Mutual Bank") to a
stock savings bank (the "Stock Bank") will qualify as a reorganization
under Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized by the Bank in either its mutual form or stock form by reason of
the Reorganization.
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2. No gain or loss will be recognized by the Mutual Bank upon the transfer
of the Mutual Bank's assets to the Stock Bank solely in exchange for shares
of Stock Bank stock and the assumption by the Stock Bank of the liabilities
of the Mutual Bank.
3. No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of the Mutual Bank in exchange for shares of Stock Bank common
stock.
4. Stock Bank's holding period in the assets received from the Mutual Bank
will include the period during which such assets were held by the Mutual
Bank.
5. Stock Bank's basis in the assets of the Mutual Bank will be the same as
the basis of such assets in the hands of the Mutual Bank immediately prior
to the Reorganization.
6. The Stock Bank will succeed to and take into account the Mutual Bank
earnings and profits or deficit in earnings and profits, as of the date of
the Reorganization.
7. The Stock Bank depositors will recognize no gain or loss solely by
reason of the Reorganization.
8. The Mutual Company and Minority Stockholders will recognize no gain or
loss upon the transfer of Stock Bank stock and cash, respectively, to the
Company in exchange for Common Stock.
9. The Company will recognize no gain or loss upon its receipt of Stock
Bank stock and cash from the Mutual Company and Minority Stockholders,
respectively, in exchange for Common Stock.
10. The basis of the Common Stock to Minority Stockholders will be the
Subscription Price and a stockholder's holding period for Common Stock
acquired through the exercise of subscription rights will begin on the date
the rights are exercised.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a letter
ruling issued by the IRS, is not binding on the IRS and the conclusions
expressed therein may be challenged at a future date. The IRS has issued
favorable rulings for transactions substantially similar to the proposed
Reorganization, but any such ruling may not be cited as precedent by any
taxpayer other than the taxpayer to whom the ruling is addressed. The Bank does
not plan to apply for a letter ruling concerning the Reorganization.
The Bank has also received an opinion from Pricewaterhouse Coopers, LLP,
that the New York State Franchise Tax on banking corporations and New York State
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences.
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THE ONEIDA SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of the Bank for each of the years in the
three year period ended December 31, 1997 have been audited by
PricewaterhouseCoopers, LLP, independent certified public accountants, whose
report thereon appears elsewhere in this Prospectus. With respect to
information for the six months ended June 30, 1998 and 1997, which is unaudited,
in the opinion of management, all adjustments necessary for a fair presentation
of such periods have been included and are of a normal recurring nature.
Results for the six months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. These
statements should be read in conjunction with the Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold................................................. $ 148 $ 132 $ 241 $ 357 $ 228
Securities available for sale...................................... 1,770 1,885 3,649 3,290 2,608
Real estate loans.................................................. 4,513 4,742 9,484 9,513 9,667
Other loans........................................................ 1,580 1,102 2,489 1,994 2,081
------ ------ ------- ------- -------
Total interest income............................................ 8,011 7,861 15,863 15,154 14,584
Interest expense:
Deposits (note 5).................................................. 3,922 3,926 7,897 7,895 7,628
Total interest expense........................................... 3,922 3,926 7,897 7,895 7,628
------ ------ ------- ------- -------
Net interest income.............................................. 4,089 3,935 7,966 7,259 6,956
Provision for losses (note 3)........................................ -- (23) 477 (103) 80
------ ------ ------- ------- -------
Net interest income after provision for losses................... 4,089 3,958 7,489 7,362 6,876
------ ------ ------- ------- -------
Operating income:
Banking and other service charges and fees......................... 264 265 495 516 530
Loan fees.......................................................... 67 63 129 165 110
Net gain (loss) on sale of securities available for sale (note 2).. 9 -- 82 100 100
Other.............................................................. 48 40 116 20 170
------ ------ ------- ------- -------
Total operating income........................................... 388 368 822 801 910
------ ------ ------- ------- -------
Operating and other expenses:
Salaries and employee benefits (note 7)............................ 1,610 1,405 3,094 2,884 2,747
Occupancy and equipment (note 4)................................... 725 528 1,171 1,014 1,001
Deposit insurance.................................................. 11 11 23 2 211
Marketing and advertising.......................................... 80 90 154 175 183
Other (note 8)..................................................... 697 537 1,703 1,315 1,128
------ ------ ------- ------- -------
Total operating and other expenses............................... 3,123 2,571 6,145 5,390 5,270
------ ------ ------- ------- -------
Income before income taxes....................................... 1,354 1,755 2,166 2,773 2,516
Income taxes (note 6)................................................ 552 659 881 1,025 898
------ ------ ------- ------- -------
Net income....................................................... $ 802 $1,096 $ 1,285 $ 1,748 $ 1,618
====== ====== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has been formed for the purpose of issuing the Common Stock and
owning all of the capital stock of the Bank issued in the Reorganization.
Consequently, the Company has no operating history. All information in this
section should be read in conjunction with the financial statements and notes
thereto included in this Prospectus.
The Bank's principal business has historically consisted of offering
savings and other deposits to the general public and using the funds from such
deposits to make loans secured by residential and commercial real estate, as
well as consumer and commercial business loans. The Bank also invests a
significant portion of its assets in investment securities and mortgage-backed
securities, both of which are classified as available for sale. The Bank's
results of operations depend primarily upon its net interest income, which is
the difference between income earned on interest-earning assets, such as loans
and investments, and the interest paid on deposits. The Bank's operations are
affected to a lesser degree by operating income, such as banking service charges
and fees. The Bank's net income is also affected by, among other things,
provisions for losses and operating and other expenses. The Bank's principal
operating expenses, aside from interest expense, consist of salaries and
employee benefits, occupancy and equipment, marketing and advertising, deposit
insurance costs and other expenses such as ATM expenses, professional fees and
insurance premiums. The Bank's results of operations also are affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government legislation and policies affecting
fiscal affairs, housing and financial institutions, monetary policies of the
Federal Reserve System, and the actions of bank regulatory authorities.
Management intends to initially invest the net proceeds from the Offering in
interest-earning assets and believes that the Company and the Bank will derive
additional interest income from such sources.
CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing generally. There is
concern that on January 1, 2000 computers will be unable to "read" the new year
and as a consequence, there may be widespread computer malfunctions. The Bank
does not use an outside data processing servicer to process loan or deposit
information. In 1998, the Bank completed installation of an internal deposit
and loan data processing system. Management believes that the internal deposit
and loan data processing system is year 2000 compliant. The Bank is in the
process of updating the software for its check processing and check clearing
systems, and expects this process to be completed by December 1998. Upon
completion of this upgrade, the Bank's check processing and check clearing
systems will be year 2000 compliant. Management has developed a formal written
plan to resolve the year 2000 issue. The Bank is in the process of testing its
computer applications and hardware to ensure that they will be able to read the
year 2000. Based on the current timetable, testing is expected to be completed
by December 1998. The Bank is in the process of developing a contingency plan
for the year 2000 issue, and intends to have a contingency plan established by
year end. The Bank has contacted each of its vendors to ensure that they will
be able to provide service in light of the year 2000 issue. Most vendors have
represented to management that they are addressing the year 2000 issue and they
expect to be able to provide the services for which the Bank has contracted.
Management will continue to monitor this issue and report to the Board of
Directors on a quarterly basis until full compliance is obtained from all
vendors. Costs related to the year 2000 issue will be expensed as they are
incurred, except for the costs, if any, for new hardware and software that is
purchased, which will be capitalized. At June 30, 1998, the costs incurred to
address the year 2000 issue have been approximately $200,000. Management does
not expect that the additional costs to be incurred in connection with the year
2000 issue will have a material impact on the Bank's financial condition or
results of operations.
The costs of the project are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ
54
<PAGE>
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties. In addition, there can be no guarantee
that the systems of other companies on which the Bank's systems rely, such as
third party vendors who provide assistance with respect to the wire transfer of
funds and the direct deposit of funds, will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible with
the Bank's systems, would not have a material adverse effect on the Bank. Third
party vendors who provide approximately 90% of the outside services to the Bank
have represented that they are year 2000 compliant. As part of the Bank's
contingency planning, alternative suppliers of services are being identified in
the event the representations of current vendors prove to be incorrect.
OPERATING STRATEGY
In guiding the Bank's operations, management has implemented various
strategies designed to continue the institution's profitability consistent with
safety and soundness considerations. These strategies include: (i) operating a
community-bank that provides quality service by monitoring the needs of its
customers and offering customers personalized service; (ii) originating fixed-
rate one-to-four family residential real estate loans for resale in the
secondary market while retaining adjustable rate mortgage ("ARM") loans; (iii)
increasing the level of higher yielding consumer, commercial real estate and
commercial business loans; (iv) maintaining asset quality; and (v) increasing
fee income. It is anticipated that the strategies presently in place will be
continued following completion of the Reorganization, subject to market
conditions.
COMMUNITY BANKING. The Bank was established in Oneida, New York in 1866
and has been operating continuously since that time. Throughout its history,
the Bank has been committed to meeting the financial needs of the communities in
which it operates and providing quality service to its customers. Management
believes that the Bank can be more effective than many of its competitors in
serving its customers because of its ability to promptly and effectively provide
senior management responses to customer needs and inquiries. The Bank's ability
to provide these services is enhanced by the stability of senior management
which has an average tenure with the Bank of over ten years and experience in
the banking industry of approximately 20 years. In addition, the Bank intends
to use the mutual holding company structure to maintain the Bank as an
independent community bank and to establish the Charitable Foundation as a means
of furthering the Bank's commitment to the communities in which it conducts
business. Management intends to increase the services and products provided by
the Bank to the communities it serves by marketing its Trust Department and
offering new loan and investment products.
ORIGINATING FIXED-RATE ONE-TO-FOUR FAMILY LOANS FOR RESALE IN THE SECONDARY
MARKET AND RETAINING ARM LOANS. Historically, the Bank has emphasized the
origination of adjustable rate one-to-four family residential loans within
Madison county and surrounding counties. During the six months ended June 30,
1998 and the fiscal year ended December 31, 1997, the Bank originated $12.7
million and $15.9 million, respectively, of one-to-four family mortgage loans.
As of June 30, 1998, approximately $88.0 million or 62.0% of the loan portfolio
consisted of one-to-four family residential mortgage loans, of which $77.5
million were ARM loans and $10.5 million had fixed-rates of interest. During
the past six months, and as a result of the current low interest rate
environment, most of the Bank's one-to-four family loan originations have been
fixed-rate loans. Fixed-rate one-to-four family loans are originated for
resale in the secondary market without recourse and on a servicing retained
basis. ARM loans are retained in the Bank's portfolio. Of the $12.7 million of
one-to-four family loans originated during the six months ended June 30, 1998,
$8.9 million had fixed-rates of interest. The Bank has recently hired a
mortgage banker with significant experience marketing loans in the secondary
market. The Bank is currently developing new single-family residential loan
products, and has qualified as a FHA lender.
COMPLEMENTING THE BANK'S TRADITIONAL MORTGAGE LENDING BY INCREASING
CONSUMER, COMMERCIAL BUSINESS AND COMMERCIAL REAL ESTATE LENDING. To complement
the Bank's traditional emphasis on one-to-four family residential real estate
lending, management has sought to increase the Bank's consumer, commercial
business and commercial real estate lending in a controlled, safe and sound
manner. At June 30, 1998, the Bank's portfolio of
55
<PAGE>
consumer, commercial real estate and commercial business loans totaled $16.8
million, $14.5 million and $11.6 million, respectively. In the aggregate, these
loans totaled $42.9 million, or 30.2%, of the Bank's total loan portfolio.
Because the yields on these types of loans are generally higher than the yields
on one-to-four family residential real estate loans, the Bank's goal over the
next several years is to increase the origination of these loans consistent with
safety and soundness considerations. Although consumer, commercial real estate
and commercial business loans offer higher yields than single-family mortgage
loans, they also involve greater credit risk.
MAINTAINING ASSET QUALITY. The Bank's high asset quality is a result of
its conservative underwriting standards, the diligence of its loan collection
personnel and the stability of the local economy. In addition, the Bank also
invests in mortgage-backed securities issued by Freddie Mac, Fannie Mae and GNMA
and other investment securities, primarily U.S. Government securities and
federal agency obligations. The Bank will only purchase investment securities
which are rated A or higher by Moodys Investment Rating Service. At June 30,
1998, the Bank's ratio of nonperforming loans to total assets was 0.32% compared
to 0.42% and 0.52% at December 31, 1997 and 1996, respectively. At June 30,
1998, the Bank's ratio of allowance for loan losses to total loans was 1.23%
compared to 1.26% and 1.14%.
INCREASING FEE INCOME. The Bank has sought to increase its income by
increasing its sources of fee income. In this regard, the Bank has hired an
experienced trust officer and the Bank intends to promote the Trust Department.
Consequently, the Bank expects that fees generated by the Trust Department will
increase as the assets under management grows. At June 30, 1998, the Trust
Department had $5.5 million in assets under management. In addition, the Bank
receives fee income from the servicing of loans sold in the secondary market.
At June 30, 1998, loans serviced by the Bank for others totaled $32.7 million.
Finally, beginning in 1999, the Bank intends to offer investment products and
brokerage services to its customers, which will be an additional source of fee
income.
MANAGEMENT OF MARKET RISK --INTEREST RATE RISK
The Bank's most significant form of market risk is interest rate risk, as
the majority of the Bank's assets and liabilities are sensitive to changes in
interest rates. The Bank's mortgage loan portfolio, consisting primarily of
loans on residential real property located in its market area, is subject to
risks associated with the local economy. The Bank does not own any trading
assets. The Bank does not engage in any hedging transactions, such as interest
rate swaps and caps. The Bank's interest rate risk management program focuses
primarily on evaluating and managing the composition of the Bank's assets and
liabilities in the context of various interest rate scenarios. Factors beyond
management's control, such as market interest rates and competition, also have
an impact on interest income and interest expense. The Bank's assets consist
primarily of mortgage loans that have longer maturities than the Bank's
liabilities which consist primarily of deposits. However, management believes
that the origination of adjustable rate loans has the effect of reducing the
Bank's exposure to sudden changes in interest rates.
In recent years, the Bank has used the following strategies to manage
interest rate risk: (i) emphasizing the origination and retention of residential
monthly and bi-weekly adjustable-rate mortgage loans, commercial adjustable-rate
mortgage loans, other business purpose loans and consumer loans consisting
primarily of auto loans; (ii) selling substantially all newly originated fixed-
rate one-to-four family residential mortgage loans into the secondary market
without recourse and on a servicing retained basis; and (iii) investing in
shorter term securities which generally bear lower yields as compared to longer
term investments, but which better position the Bank for increases in market
interest rates. Shortening the maturities of the Bank's interest-earning assets
by increasing shorter-term investments better matches the maturities of the
Bank's certificate of deposit accounts. Certificates of deposit that mature in
one year or less, at June 30, 1998 totaled $67.9 million, or 39.1% of total
interest-bearing liabilities. The strategy of investing in short-term
securities may adversely impact net interest income due to lower initial yields
on these investments in comparison to longer term, fixed-rate loans and
investments. However, management believes that reducing the exposure to
interest rate fluctuations will enhance long-term profitability.
56
<PAGE>
GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within the same
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. At June 30,
1998, the Bank's one-year gap position, the difference between the amount of
interest-earning assets maturing or repricing within one year and interest-
bearing liabilities maturing or repricing within one year, was a negative 5.79%.
During a period of rising interest rates, an institution with a negative gap
position is likely to experience a decline in net interest income as the cost of
its interest-bearing liabilities increase at a rate faster than its yield on
interest-earning assets In comparison, an institution with a positive gap is
likely to realize a decline in its net interest income in a falling interest
rate environment. Given the Bank's existing liquidity position and its ability
to sell securities from its available for sale portfolio, the Bank's negative
gap position will not have a material adverse effect on its operating results or
liquidity position.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1998, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time periods shown (the "GAP Table"). Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of the repricing date of
the contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at June 30,
1998, on the basis of contractual maturities, scheduled loan amortizations, and
scheduled rate adjustments within the selected time intervals. While the Bank
believes that data to be reasonable, there can be no assurance that the
contractual maturity and repricing periods will approximate actual future loan
prepayment and deposit withdrawal activity. See "Business of the Bank--Lending
Activities," "--Securities Investment Activities" and "--Sources of Funds."
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------------------------------------------------------------
WITHIN 1-3 3-5 5-10 10-20 OVER
ONE YEAR YEARS YEARS YEARS YEARS 20 YEARS TOTAL
-------- ------- ------- ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable........................ $100,604 $25,265 $ 7,428 $ 4,965 $ 2,346 $ 1,358 $141,966
Mortgage-backed securities.............. 1,867 5,623 2,974 2,812 3,065 193 16,534
Investment securities................... 7,012 7,755 6,405 14,500 292 1,493 37,457
FHLB stock.............................. -- -- -- -- -- 1,228 1,228
Federal funds........................... 8,700 -- -- -- -- -- 8,700
-------- ------- ------- ------- ------- ------- --------
Total interest-earning assets............ $118,183 $38,643 $16,807 $22,277 $ 5,703 $ 4,272 $205,885
======== ======= ======= ======= ======= ======= ========
Interest-bearing liabilities:
Savings deposits........................ 44,008 -- -- -- -- -- 44,008
Money Market and NOW deposits........... 18,929 -- -- -- -- -- 18,929
Certificate accounts.................... 67,854 27,734 9,916 4,939 37 -- 110,480
Borrowings.............................. -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- --------
Total interest-bearing liabilities...... $130,791 $27,734 $ 9,916 $ 4,939 $ 37 $ -- $173,417
======== ======= ======= ======= ======= ======= ========
Interest sensitivity gap................. $(12,607) $10,909 $ 6,891 $17,338 $ $ 5,666 4,272 $ 32,468
Cumulative interest sensitivity gap...... (12,607) (1,669) 5,192 22,530 28,196 32,468 32,468
Ratio of interest-earning assets to
interest-bearing liabilities............ 90.36% 139.33% 169.49% 451.04% 15,413.51% 100% 118.72%
Ratio of cumulative gap to total assets.. (5.79%) (0.77%) 2.39% 10.35% 12.95% 14.92% 14.92%
</TABLE>
57
<PAGE>
The amount of assets and liabilities shown that reprice or mature during a
particular period were determined in accordance with the earlier of term of
repricing or the contractual terms of the asset or liability. Savings deposits,
money market and NOW deposits are assumed to reprice within one year. The GAP
Table does not take into account prepayment of loans, mortgage-backed securities
or investments, nor does the table assume any decay rates for deposits.
Certain shortcomings are inherent in the methodologies used in the above
interest rate risk measurements, and the use of interest rate risk measurements
to generally measure market risks. Although certain assets and liabilities may
have similar maturities or terms to repricing, they react in different degrees
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in interest rates,
while interest rates on other assets and liabilities may lag behind changes in
market rates. Certain assets, such as ARM loans have features that restrict
changes in interest rates from year to year and over the life of the loan.
Moreover, changes in interest rates, prepayments and early withdrawals of
certificates of deposits would affect the results set forth in the GAP Table.
Finally, the ability of some borrowers to service their adjustable rate loans
may decrease in the event of interest rate increases. There are no other
interest-earning assets or liabilities that have been omitted from the
table.
The following table presents the Bank's net portfolio value ("NPV") based
upon calculations prepared by FinPro. These calculations were based upon
assumptions FinPro believes to be fundamentally sound, although they may vary
from assumptions utilized by other data providers. These assumptions relate to
interest rates, loan prepayment rates, core deposit duration, and the market
values of certain assets under the various interest rate scenarios. During the
preparation of the calculations, FinPro relied on and assumed the accuracy and
completeness of the data provided by the Bank and other sources which FinPro
deemed reliable. FinPro did not independently verify the data provided to it by
the Bank.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE IN NET PORTFOLIO VALUE
----------------------------------------------------------
CHANGES
IN MARKET CHANGE IN NPV
INTEREST RATES NPV RATIO /(1)/ RATIO /(2)/
------------------ ------------------- ---------------
(BASIS POINTS)
<S> <C> <C>
+300 bp 14.74% (0.27) bps.
+200 bp 14.84% (0.17) bps.
+100 bp 14.93% (0.08) bps.
PAR 15.01% 0.00 bps.
-100 bp 15.08% 0.07 bps.
-200 bp 15.14% 0.13 bps.
-300 bp 15.19% 0.18 bps.
</TABLE>
__________________
/(1)/ Calculated as the estimated NPV divided by present value of total assets.
/(2)/ Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming
no change in interest rates.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends on the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them, respectively.
58
<PAGE>
AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank at June 30, 1998, for the six months ended June 30, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995. For the
periods indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, is expressed both in dollars
and rates. No tax equivalent adjustments were made. The average balance is an
average daily balance. Non-accruing loans have been excluded from the yield
calculations in this table.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------
AT JUNE 30, 1998 1998 1997
------------------- ----------------------------- -----------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE RATE BALANCE PAID RATE BALANCE PAID RATE
----------- ------ ----------- -------- ------ ----------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable................................ $141,966 8.58% $140,340 $6,093 8.68% $136,677 $5,844 8.55%
Investment and mortgage-backed securities/(1)/.. 52,496 6.59 52,025 1,730 6.65 58,435 1,879 6.43
Federal funds sold.............................. 8,700 6.25 5,548 148 5.34 4,860 132 5.43
Equity securities............................... 2,723 2.94 2,336 40 3.42 1,196 6 1.00
-------- -------- ------ -------- ------
Total interest-earning assets.................. 205,885 8.15 200,249 8,011 8.00 201,168 7,861 7.82
-------- -------- ------ -------- ------
Interest-bearing liabilities:
Money market deposits........................... $ 12,621 3.03 $ 11,705 $ 186 3.18 $ 11,247 $ 183 3.25
Savings accounts................................ 44,008 2.84 44,278 652 2.95 44,623 652 2.92
Interest-bearing checking....................... 6,308 1.89 5,673 55 1.94 5,727 56 1.96
Time deposits................................... 110,480 5.49 108,656 3,029 5.58 109,351 3,035 5.55
-------- -------- ------ -------- ------
Total interest-bearing liabilities............. 173,417 4.64 170,312 3,922 4.61 170,948 3,926 4.59
-------- -------- ------ -------- ------
Net interest income.............................. $4,089 $3,935
====== ======
Net interest spread.............................. 3.51% 3.39% 3.23%
===== ===== =====
Net earning assets............................... $ 32,468 $ 29,937 $ 30,220
======== ======== ========
Net interest income as a percentage of
average interest-earning assets................. 4.08% 3.91%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities............ 117.58% 117.68%
====== ======
</TABLE>
_____________________________________
/(1)/ Amount shown amortized cost.
59
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.................. $138,549 $11,973 8.64% $137,030 $11,507 8.40% $142,749 $11,748 8.23%
Investment and mortgage-
backed securities/(1)/.......... 56,153 3,638 6.48 53,578 3,281 6.12 44,856 2,589 5.77
Federal funds sold................ 4,526 241 5.32 6,697 357 5.33 3,997 228 5.70
Equity securities................. 1,205 11 0.83 900 9 1.00 777 19 2.45
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-earning assets..... 200,433 15,863 7.91 198,205 15,154 7.65 192,379 14,584 7.58
-------- ------- ----- -------- ------- ----- -------- ------- -----
Interest-bearing liabilities:
Money market deposits............. $ 10,905 $ 349 3.20% $ 12,001 $ 404 3.37% $ 10,473 $ 360 3.44%
Savings accounts.................. 44,148 1,302 2.95 45,422 1,342 2.95 48,055 1,418 2.95
Interest-bearing checking......... 5,632 111 1.97 5,399 108 2.00 5,446 120 2.20
Time deposits..................... 109,326 6,135 5.61 107,654 6,041 5.61 103,553 5,730 5.53
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities..................... 170,011 7,897 4.64 170,476 7,895 4.63 167,527 7,628 4.55
-------- ------- -------- ------- -------- -------
Net interest income............... $ 7,966 $ 7,259 $ 6,956
======= ======= =======
Net interest spread............... 3.27% 3.01% 3.03%
===== ===== =====
Net earning assets................ $ 30,422 $ 27,729 $ 24,852
======== ======== ========
Net interest income as a
percentage ofaverage
interest-earning assets......... 3.97% 3.66% 3.62%
======= ======= =======
Ratio of average interest-
earning assets to average
interest-bearing liabilities.... 117.89% 116.27% 114.83%
======= ======= =======
</TABLE>
_______________________
/(1)/ Amounts shown are amortized cost.
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- ----------------------------------------------------------------
1998 VS. 1997 1997 VS. 1996 1996 VS. 1995
------------------------------- ------------------------------- ------------------------------
INCREASE (DECREASE) TOTAL INCREASE (DECREASE) TOTAL INCREASE (DECREASE) TOTAL
DUE TO INCREASE DUE TO INCREASE DUE TO INCREASE
------------------- ------------------- -------------------
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- -------- ---------- -------- -------- ---------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............. $ 318 $ 180 $ 498 $ 131 $ 335 $ 466 (480) $ 240 (240)
Investment and
mortgage-backed
securities.................. (426) 128 (298) 167 189 356 534 158 692
Federal funds sold........... 37 (5) 32 (116) (1) (116) 144 (15) 129
Equity securities............ 39 29 68 3 -- 3 1 (12) (11)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest-earning
assets........................ $ (32) $ 332 $ 300 185 $ 523 $ 709 $ 199 $ 371 570
------ ------ ------ ------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
Money market deposits........ $ 15 $ (9) $ 6 $ (35) $ (20) $ (55) 51 $ (7) 44
Savings accounts............. (10) 10 -- (38) (2) (40) (78) 2 (76)
Interest-bearing checking.... (1) (1) (2) 5 (2) 3 (1) (11) (12)
Time deposits................ (39) 27 (12) 94 -- 94 230 81 311
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities................ $ (35) $ 27 $ (8) $ 26 $ (24) $ 2 $ 202 $ 65 $ 267
====== ====== ====== ====== ====== ====== ====== ====== ======
Net interest income........... $ 308 $ 707 $ 303
====== ====== ======
</TABLE>
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COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS. Total assets increased by $7.0 million, or 3.3%, to $217.6 million
at June 30, 1998 from $210.6 million at December 31, 1997. The growth in assets
was primarily attributable to a $7.9 million increase in investment securities,
interest-bearing deposits and federal funds sold, a $4.1 million increase in
consumer loans, and a $2.0 million increase in commercial business loans. The
asset growth was partially offset by a decrease in one-to-four family
residential mortgage loans of $8.8 million. The decrease in one-to-four family
loans was due to management's decision to sell substantially all newly
originated fixed-rate residential mortgage loans into the secondary market
without recourse and on a servicing retained basis. During the period of January
1, 1998 through June 30, 1998 a total of $8.4 million in fixed-rate residential
mortgage loans were sold. Management has sought to increase the Bank's consumer,
commercial real estate and commercial business loan portfolios while decreasing
the Bank's reliance on residential real estate loans. The increase in consumer,
commercial real estate and commercial business lending is expected to increase
the average yield on the Bank's interest earning assets. Premises and equipment
increased by $1.1 million, or 28.9%, primarily due to the renovation of the
main office and operations center which was completed in April 1998. Asset
growth was entirely funded by deposit inflows.
At June 30, 1998, the Bank's allowance for possible loan losses as a
percentage of total nonperforming loans was 243.4% compared to 200.8% at
December 31, 1997. The increase in the allowance as a percentage of
nonperforming loans was due to a decrease in nonperforming loans to $707,000 at
June 30, 1998 from $893,000 at December 31, 1997. The decrease in nonperforming
loans was attributable to repayments and management's aggressive collection
procedure to bring past due and nonperforming loans current and performing in
accordance with their terms. At June 30, 1998, the Bank's allowance for possible
loan losses as a percentage of loans receivable, net was 1.23%. While management
uses available information in order to determine when it is appropriate to
recognize losses on loans, future loan loss provisions may be necessary based on
changes in economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses and may require the Bank to recognize additional provisions.
See "Risk Factors - Lending Risks Associated With Consumer, Commercial Real
Estate and Commercial Business Loans" and "Business of the Bank - Delinquencies
and Classified Assets" and "Allowance for Possible Loan Losses."
LIABILITIES. Total deposits at June 30, 1998 were $189.2 million, an
increase of $6.1 million, or 3.3%, compared to $183.1 million at December 31,
1997. The increase occurred in savings, money market, and both interest-bearing
and noninterest-bearing checking accounts. All of the Bank's branches
experienced deposit growth. The Bank's newest branch, which opened in December
1997 contributed $1.9 million of the deposit volume increase. The Bank
emphasized attracting low cost of funds deposit accounts during the six months
ended June 30, 1998. While certificates of deposit accounts decreased by
$334,000 during the six months ended June 30, 1998, all other deposit accounts
increased by $6.4 million, to $78.7 million at June 30, 1998 from $72.3 million
at December 31, 1997, an increase of 8.9%.
NET WORTH. Net worth increased to $28.0 million at June 30, 1998 from
$27.1 million at December 31, 1997. The increase in net worth was the result of
after-tax net income of $802,000 and an increase of $109,000 in the net
unrealized gain on available for sale securities due to lower market interest
rates during the six months ended June 30, 1998 which positively affected the
market value of the Bank's investment and mortgage-backed securities portfolios.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
ASSETS. Total assets at December 31, 1997 were $210.6 million as compared
to total assets of $211.1 million at December 31, 1996, a decrease of $500,000.
Although total assets decreased at year-end 1997, total loans increased by $6.5
million or 4.9%. The increase in total loans was funded by $7.5 million received
from the sale or maturation of debt securities and federal funds sold which
decreased to $57.0 million at December 31, 1997 from $64.5 million at December
31, 1996. The loan growth was concentrated in automobile loans, commercial real
estate loans and commercial business loans. One-to-four family real estate loans
decreased by $3.8 million due to a decrease in adjustable
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<PAGE>
rate real estate loans of $5.7 million, partially offset by an increase in
fixed-rate real estate loans of $1.9 million after accounting for the sale of
$4.0 million in fixed-rate one-to-four family real estate loans in the secondary
market. Commercial real estate loans increased by $1.2 million to $13.9 million
at December 31, 1997 from $12.7 million at December 31, 1996. Commercial
business loans at December 31, 1997 totaled $9.6 million compared with $5.2
million at December 31, 1996, an increase of $4.4 million. Consumer loans
increased by $4.5 million, to $12.7 million at December 31, 1997; $4.0 million
of the increase in consumer loans resulted from the origination of automobile
loans as the Bank emphasized both direct and indirect dealer financing programs.
While consumer, commercial real estate and commercial business loans generally
entail greater credit risk than one-to-four family real estate loans, they are
also shorter-term, higher yielding assets that are consistent with the
asset/liability objectives of the Bank.
Premises and equipment increased to $3.8 million at December 31, 1997 from
$2.1 million at December 31, 1996, an increase of $1.7 million. This increase
was attributable to the construction and opening of an additional branch banking
office in Camden, New York, and the purchase of a property directly adjacent to
an existing branch facility.
The investment securities portfolio decreased by $9.4 million, to $43.5
million at December 31, 1997, from $52.9 million at December 31, 1996. The
decrease was primarily the result of maturing corporate debt securities. The
Bank reinvested the proceeds from the debt securities into loans and mortgage-
backed securities. Mortgage-backed securities increased $7.1 million, to $11.8
million from $4.7 million. The Bank joined the FHLB during 1997. At December
31, 1997, the Bank held $306,000 of FHLB stock.
LIABILITIES. Total deposits decreased to $183.1 million at December 31,
1997 from $185.5 million at December 31, 1996, a decrease of $2.4 million, or
1.3%. This reduction was a result of a temporary decrease in money market
deposits. Noninterest-bearing checking deposits increased by $1.8 million, to
$13.9 million at December 31, 1997 from $12.1 million at December 31, 1996, an
increase of 15.14%. The increase was attributable to the commencement of a
program to attract checking accounts by introducing free checking during 1997.
The program was directed at existing customers of the Bank to strengthen the
overall account relationship and increase the Bank's portfolio of a low cost
funding source. Certificates of deposit remained stable at December 31, 1997 and
December 31, 1996 at $110.8 million.
NET WORTH. Net worth increased to $27.1 million at December 31, 1997 from
$25.5 million at December 31, 1996. The increase in net worth resulted from
after-tax net income of $1.3 million and an increase of $297,000 in the net
unrealized gain on available for sale securities.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE
30, 1997
NET INCOME. Net income for the six months ended June 30, 1998 decreased by
$294,000 to $802,000 for the six months ended June 30, 1998 from $1.1 million
for the six months ended June 30, 1997. The decrease was due primarily to an
increase in operating and other expenses resulting from the expansion of the
Bank's branch network, additional occupancy and equipment costs associated with
renovations to the main office and operations center, expenses pertaining to the
Bank's conversion of its computer systems and increases in salaries and employee
benefits relating to the expansion of trust services and mortgage services. The
increase in operating and other expenses was partially offset by increased
interest income accomplished through portfolio yield improvement in the loans
and investments of the Bank due to portfolio diversification and a reduction in
the income tax provisions made through June 30, 1998 as compared with the same
period in 1997.
INTEREST INCOME. Interest income increased by $150,000, or 1.9%, to $8.0
million for the six months ended June 30, 1998 from $7.9 million for the six
months ended June 30, 1997. The increase was primarily due to a $249,000
increase in income on loans, and a $34,000 increase in income on equity
investments. The increases were partially offset by a decrease in income of
$149,000 from investment securities. The increase in income from loans was
attributable to a $3.6 million increase in the average balance of loans to
$140.3 million from $136.7 million, and a 13 basis point increase in the average
yield on loans to 8.68% from 8.55%. Management's strategy is to emphasize the
origination
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<PAGE>
of consumer, commercial real estate and commercial business loans for retention
in the Bank's portfolio while originating for sale in the secondary market
substantially all fixed-rate one-to-four family real estate loans. As of June
30, 1998 one-to-four family real estate loans totaled $88.0 million, a decrease
of $12.2 million from June 30, 1997. The decrease in one-to-four family loans
was offset by an increase of $10.7 million in consumer, commercial real estate
and commercial business loans. The increase in income from equity securities was
attributable to a $1.1 million increase in the average balance of equity
investments and an increase in the average yield on equity investments of 242
basis points. The increase in the average yield on equity investments was due to
the purchase of FHLB stock as a condition of FHLB membership, which returned a
dividend rate of 7.45% during the six months ended June 30, 1998. FHLB stock
totaled $1.2 million as of June 30, 1998. The Bank did not hold any FHLB stock
during the six months ended June 30, 1997. The decrease in income on investment
and mortgage-backed securities was attributable to a decrease of $6.4 million in
the average balance of investments and mortgage-backed securities. This decrease
was partially offset by an increase in the average yield on investments and
mortgage-backed securities of 22 basis points. The yield improvement was the
result of an increase in mortgage-backed securities, particularly Freddie Mac
and Fannie Mae seven year balloon investments and GNMA mortgage pooled
investments, and the maintenance of investments in federal agency callable
securities which provide improved returns in the short term.
INTEREST EXPENSE. Interest expense decreased by $4,000 during the six
months ended June 30, 1998 as compared to the six months ended June 30, 1997.
The decrease in interest expense was primarily due to a decrease in the average
balance of interest-bearing liabilities in the 1998 period of $636,000 as
compared with the same period in 1997. The decrease was partially offset by an
increase of two basis points in the average rate paid on interest-bearing
liabilities to 4.61% at June 30, 1998 from 4.59% at June 30, 1997. The increase
in the average rate paid on interest-bearing liabilities was due primarily to an
increase of three basis points in the average rate paid on time deposits to
5.58% from 5.55%. The increase in average rate paid was partially offset by a
decrease in the average balance of time deposits which as of June 30, 1998 were
$108.7 million as compared to $109.4 million as of June 30, 1997, a decrease of
$695,000. Management's emphasis on lower cost of funds sources has resulted in
increases in money market deposits and noninterest-bearing checking deposits.
The average balance of money market deposits increased by $458,000 to $11.7
million as of June 30, 1998. In addition, the average rate paid on money market
deposits decreased by 7 basis points to 3.18% at June 30, l998 as compared with
3.25% at June 30, 1997. This average rate decrease was due to the implementation
of a tiered-rate structure employed on money market accounts which increases
with higher individual account balance levels. Savings account average
balances decreased slightly to $44.3 million during the 1998 six month period as
compared to $44.6 million during the 1997 period. The average balance of NOW
accounts remained stable at $5.7 million and represent the lowest cost source of
funds for the Bank, with an average rate paid of 1.94% for the six months ended
June 30, 1998 and an average rate paid of 1.96% during the 1997 period. The
average rate paid on NOW accounts during the six months ended June 30, 1998 was
more than a full percentage point less than the average rate paid on savings
accounts during the same period.
PROVISION FOR LOAN LOSSES. The Bank establishes provisions for loan losses,
which are charged to operations, in order to maintain the allowance for loan
losses at a level deemed appropriate to absorb future charge-offs and loans
deemed uncollectible. In determining the appropriate level of the allowance for
loan losses, management considers past and anticipated loss experience,
evaluations of collateral, current and anticipated economic conditions, volume
and type of lending activities and the levels of non-performing and other
classified loans. The allowance is based on estimates and the ultimate losses
may vary from such estimates. Management of the Bank assesses the allowance for
loan losses on a quarterly basis and makes provisions for loan losses in order
to maintain the adequacy of the allowance.
The Bank assessed the methods used to determine loan loss allowance
adequacy and implemented a new method at year-end 1997. The new method takes a
more conservative approach and is more aggressive in determining adequate
allowance levels than the earlier formula utilized by the Bank. The new method
considers volume changes in the loan portfolio mix in response to the
redirection of loan asset origination and retention toward consumer, commercial
real estate and commercial business loan assets, and provides within the
allowance adequacy formula for the higher relative degree of credit risk
associated with this activity as compared with traditional one-to-four family
real estate lending. Due to this new method employed by the Bank, a large
provision to the allowance for loan losses was charged
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<PAGE>
at year-end 1997. The quarterly assessment of allowance adequacy has not
resulted in the need for additional provisions to the allowance for loan losses
during 1998 due to a reduction of classified loans and a reduction in total
loans at June 30, 1998 from December 31, 1997. The balance of the allowance for
loan losses increased $255,000, to $1.7 million at June 30, 1998 from $1.5
million at June 30, 1997 as a result of the method change.
OPERATING INCOME. Operating income is composed of fee income for bank
services and profits from the sale of loans and securities. Total operating
income for the six months ended June 30, 1998 increased $20,000, or 5.4% to
$388,000 from $368,000 for the six months ended June 30, 1997. The increase was
primarily the result of increasing revenue on secondary market loan sales and
servicing activities which increased to $61,000 through June 30, 1998 from
$53,000 in income through June 30, 1997. Profit on the sale of investment
securities resulted in income of $9,000 through June 30, 1998 with no income
recognized during the same period of 1997. Checking account and ATM fee revenue
continued to increase during 1998 due to the Bank's marketing emphasis on
consumer and business checking products. Total income from checking accounts and
ATM fees increased to $219,000 for the six months ended June 30, 1998 from
$214,000 for the same period of 1997.
OPERATING AND OTHER EXPENSES. Operating and other expenses increased by
$552,000, or 21.4%, to $3.1 million for the six months ended June 30, 1998 from
$2.6 million for the six months ended June 30, 1997. The increase was due to a
$205,000 increase in salaries and benefits, an increase of $197,000 in occupancy
and equipment expense, a $90,000 increase in professional fees, and an increase
of $60,000 in other expenses.
Salaries and employee benefits increased to $1.6 million for the six months
ended June 30, 1998 from $1.4 million for the same period in 1997. The increase
was primarily the result of an additional 10 full-time equivalent employees
hired by the Bank, six of whom were hired to operate a new branch opened in
December 1997. The new branch also contributed to the increase in occupancy and
equipment expense to $725,000 for the six months ended June 30, 1998 from
$528,000 for the same period in 1997. For the six months ended June 30, 1998
occupancy and equipment expense included $72,000 of depreciation of building,
furniture and equipment. The new branch and renovations to the main office and
operations center resulted in $67,000 in building-related operating expenses for
the six months ended June 30, 1998. Occupancy and equipment also reflects
approximately $55,000 of expenses related to the Bank's continued upgrading of
its technology, communications and information systems, primarily the conversion
to a client server based core bank processing system. Legal fees increased to
$112,000 for 1998 as compared to $22,000 for the same period in 1997. The
increase represents legal costs incurred relating to the Bank's corporate and
strategic planning. Other operating expenses increased to $788,000 for the six
months ended June 30, 1998 as compared to $639,000 for the same period ended
June 30, 1997. The increase was primarily the result of training and
installation expenses relating to the conversion and upgrading of the Bank's
computer systems, and promotional costs and supplies relating to the opening of
the new branch office. Partially offsetting these increases was a reduction of
$50,000 in expenses on real estate owned ("REO") properties and a $31,000
decrease in contribution expense for the period.
INCOME TAXES. Income tax expense was $552,000 for the six months ended June
30, 1998 compared to $659,000 for the same period in 1997. The effective tax
rate increased to 40.8% for 1998 from 37.5% for 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
GENERAL. Net income for the year ended December 31, 1997 decreased by
$463,000, or 26.5%, to $1.3 million for the fiscal year 1997 from $1.7 million
for the year ended December 31, 1996. The decrease was due primarily to an
increase in operating and other expense as a result of expense recognition of
various contribution pledges, construction expenses and a significant provision
for the allowance for loan losses. The decrease was partially offset by an
increase in interest income which primarily resulted from an increase in the
average balance of interest earning assets and a decrease in the average balance
of interest-bearing liabilities.
INTEREST INCOME. Interest income increased by $709,000, or 4.7%, to $15.9
million for the year ended December 31, 1997 from $15.2 million for the year
ended December 31, 1996. The increase was due primarily to a
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<PAGE>
$466,000 increase in income from loans and a $359,000 increase in income from
investment and equity securities. These increases were partially offset by a
$116,000 decrease in income from federal funds sold. The increase in income from
loans was attributable to a $1.5 million increase in the average balance of
loans to $138.5 million from $137.0 million, and an increase of 24 basis points
in the average yield on loans from 8.40% to 8.64%. The origination and portfolio
growth of the Bank's commercial real estate, consumer and commercial loans was
responsible for the loan portfolio growth. During 1997, a total of $30.2 million
of commercial real estate, consumer and commercial business loans were
originated as compared with $17.7 million during 1996. The Bank continued to
originate and retain adjustable rate one-to-four family real estate loans and
originate for sale in the secondary market substantially all fixed-rate one-to-
four family real estate loans. Due to loan sales and repayments the portfolio of
one-to-four family real estate loans decreased by $3.8 million, although
originations of one-to-four family loans remained stable. The decrease in one-
to-four family loans was more than offset by an increase in all other loan
categories exclusive of one-to-four family residential loans of $10.3 million
during 1997. The increase in income from investment and mortgage-backed
securities was attributable to a $2.6 million increase in the average balance of
investment and mortgage-backed securities to $56.2 million from $53.6 million,
and an increase of 36 basis points in the average yield on investment securities
to 6.48% from 6.12%. The volume increase was the result of improved cash
management decreasing the level of short-term federal funds sold to longer term,
higher yielding investment securities. The reduction in federal funds sold was
attributable to 85% of the volume increase of investment securities. The yield
improvement in the investment portfolio resulted from the investment in slightly
longer term investments, primarily callable federal agency securities and short-
term and medium-term mortgage-backed securities. Given the interest rate
environment these securities provided a higher return over the short-term with
likelihood that the call provisions or expected prepayments would shorten the
average life of the security.
INTEREST EXPENSE. Interest expense remained the same at $7.9 million for
the year ended December 31, 1997 and 1996. The average rate paid on interest-
bearing liabilities increased by 1 basis point to 4.64% from 4.63%. This
increase was offset by a decrease in the average balance of interest-bearing
liabilities of $465,000, to $170.0 million in 1997 from $170.5 million in 1996.
The increase in average rate paid on interest-bearing liabilities was due to a
shift in the portfolio mix from lower yielding savings accounts and money market
deposits to certificates of deposit. The average balance of Certificate of
Deposit increased $1.7 million to $109.3 million during 1997 from $107.7 million
during 1996. Money market deposits decreased in average balance by $1.1 million
to $10.9 million for the year ended December 31, 1997. A decrease in the
interest rates paid on money market deposits resulted in some accounts
transferring into higher yielding time deposits. Savings accounts also decreased
on average by $1.3 million during 1997. This continued a trend of customers
moving from traditional core deposits to higher yielding options including time
deposits and non-bank financial products. Interest-bearing checking account
average balances increased by $233,000 during 1997 as a result of the Bank's
emphasis on all checking products.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses increased
by $580,000, from a net recapture in the allowance for loan losses during 1996
of $103,000, to total provisions during 1997 of $477,000. The Bank instituted a
new method for evaluating the Bank's allowance for loan losses at year end 1997.
The previous method allowed for the recapture of allowance upon the specific
charge-off and disposal of collateral of a reserved loan. This prior method
resulted in the negative provision recorded for the year ended 1996. The
increase in provision expensed during 1997 is reflective of management's
objective to increase the allowance for loan losses in response to portfolio
volume increases and changes in the loan portfolio composition as the Bank
redirects loan origination and retention toward commercial real estate, consumer
and commercial business loans. Additionally, the level of provision made in
1997 reflects and increase in loan charge-offs of $123,000, to a total of
$299,000 for the year-ended December 31, 1997, from $176,000 for the year-ended
December 31, 1996. The increase in charge-offs, changes in the composition of
the loan portfolio, and an increase of $6.9 million in total loans resulted in
management's decision to increase the provision for loan losses.
OPERATING INCOME. Operating income was $822,000 for the year ended December
31, 1997, a $21,000, or 2.6% increase from $801,000 for the year ended December
31, 1996. This increase was primarily the result of improving revenue on
secondary market loan sales and servicing activities, which increased from
$71,000 in income through
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<PAGE>
December 31, 1996 to $117,000 through December 31, 1997. Profit on the sale of
securities decreased by $18,000 during 1997 to $82,000 for the year ended
December 31, 1997 from $100,000 for 1996. Income from the Bank's checking
accounts and ATM program decreased by $14,000, or 3.2%, to $429,000 from
$443,000 as a result of the Bank's re-introduction of a free checking account
into the product line. Other operating income increased in 1997 to $194,000 from
$187,000 in 1996.
OPERATING AND OTHER EXPENSES. Operating and other expenses increased by
$755,000, or 14%, to $6.1 million for the year ended December 31, 1997 from $5.4
million for the year ended December 31, 1996. The increase was due to the
recognition of additional contribution expense of $338,000, an increase of
$210,000 in salaries and employee benefits, an increase of $157,000 in occupancy
and equipment, an increase of $45,000 in legal fees and an increase in FDIC
assessments of $21,000. These increases were partially offset by a decrease of
$16,000 in other operating expenses.
Contribution expense increased to $440,000 for 1997 from $102,000 for 1996.
The additional contribution expense in 1997 was due to the recognition of
expense, on an accrual basis, of all multiple year contribution pledges
outstanding in anticipation of the formation of a charitable community
foundation concurrent with the formation of the mutual holding company and stock
issuance. Salaries and employee benefits increased to $3.1 million for 1997 from
$2.9 million for 1996. Occupancy and equipment expenses increased to $1.2
million in 1997 from $1.0 million in 1996. Both expense categories were impacted
by the opening of a new branch during 1997. The branch was our Bank's first
expansion into a new market area in over 20 years and represents a unique
opportunity in a community previously served by only large commercial banks.
Salaries and employee benefits were also impacted during 1997 by the realization
of the Bank's business banking services department. This new business unit was
developed to support all account relationships of the business customer, from
lending, to corporate cash services, to the personal banking needs of the
business owner. This additional service and the staffing to support the service,
has been well received by the business community and resulted in asset growth
along those product lines. Legal fees increased to $93,000 in 1997 from $48,000
during 1996. The increase represents legal costs incurred during 1997 related to
the Bank's corporate and strategic planning. Deposit insurance increased to
$23,000 for the year of 1997 as compared with $2,000 for the year ended December
31, 1996, resulting from the FDIC's decision to raise the assessment for deposit
insurance in 1997 to $0.013 per one hundred dollars of deposits from the minimal
assessment charged in 1996.
INCOME TAX. Income tax expense was $881,000 for the year ended December
31, 1997, a reduction of $144,000 from the 1996 income tax expense of $1.0
million. The effective tax rate increased to 40.7% for 1997 from 37.0% for 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
GENERAL. Net income for the year ended December 31, 1996 was $1.7 million,
compared to $1.6 million for the year ended December 31, 1995. The increase was
primarily due to an increase in interest income which primarily resulted from an
increase in the average balance of interest earning assets, an increase in the
average yield of interest earning assets and a decrease in the provision for
loan losses. The increases were partially offset by increased interest expense
which resulted primarily from an increase in average balance of interest-bearing
liabilities and an increase in the average rate paid on interest-bearing
liabilities and further offset by a decrease in operating income and an increase
in operating and other expenses and income taxes.
INTEREST INCOME. Interest income increased by $570,000, or 3.9%, to $15.2
million for the year ended December 31, 1996 from $14.6 million for the year
ended December 31, 1995. The increase was due primarily to an increase of
$682,000 in income from investment and equity securities and a $129,000 increase
in income from federal funds sold. These increases were partially offset by a
$241,000 decrease in income from loans. The increase in income from investment
securities was attributable to an $8.9 million increase in the average balance
of investment and equity securities to $54.5 million from $45.6 million, and a
35 basis point increase in the average yield on investments to 6.12% from 5.77%.
During 1996, the Bank began an investment strategy of investing in callable
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federal agency debt securities and purchasing mortgage-backed securities. These
portfolios increased by $18.5 million and $4.5 million, respectively, from 1995
to 1996. The growth in these investment categories was through the reinvestment
of maturities in the corporate bond portfolio and the investment of cash
resulting from deposit growth. The agency and mortgage-backed securities were
selected to enhance short-term returns while maintaining liquidity and
marketability. The increase in income from federal funds sold was attributable
to a $2.7 million increase in the average balance of federal funds sold to $6.7
million from $4.0 million, partially offset by a 37 basis point decrease in the
average yield on federal funds sold to 5.33% from 5.70%. The increased volume of
federal funds sold was a result of deposit balance increases during the year
temporarily placed in this short-term investment vehicle pending deployment in
investment securities. The decrease in income on loans was attributable to a
decrease of $5.7 million in the average balance of loans to $137.0 million from
$142.7 million partially offset by a 17 basis point increase in the average
yield on loans to 8.40% from 8.23%. The decrease in volume was due to relatively
light loan demand with one-to-four family real estate loan originations, net of
loans sales, reduced by $3.5 million during 1996 as compared with 1995. In
addition, repayments of one-to-four family real estate loans increased by $3.3
million during 1996 as many new residential mortgage companies entered the
market soliciting fixed-rate mortgage refinancing packages.
INTEREST EXPENSE. Interest expense increased by $267,000, or 3.5%, to $7.9
million for the year ended December 31, 1996 from $7.6 million for the year
ended December 31, 1995. The increase in interest expense was due primarily to
an increase in interest-bearing liabilities of $3.0 million, to $170.5 million
in 1996 from $167.5 million during 1995, additionally the average rate paid on
interest-bearing liabilities increased by 8 basis points to 4.63% from 4.55%.
In particular, the increase in interest expense was attributable to an increase
of $311,000 in interest expense on time deposits and a $44,000 increase in
interest expense on money market deposits. These were partially offset by
decreases of $76,000 and $12,000 in interest expense on savings accounts and
interest-bearing checking accounts, respectively. The increase in interest
expense on time deposits was the result of an increase of $4.1 million in the
average balance of $107.7 million in 1996 from $103.6 million in 1995. In
addition, the average rate paid on time deposits increased 8 basis points to
5.61% in 1996 from 5.53% in 1995. The Bank's customers continued to move
deposits from core savings to time deposits as a result of higher rates being
paid on time deposits. Money market average balances increased by $1.5 million
in 1996, this increase was partially offset by a decrease in the average rate
paid on money market deposits of 7 basis points to 3.37% from 3.44%. The shift
in savings account balances resulted in a decrease in the average balance of
$2.6 million in deposits during 1996 to $45.4 million from $48.1 million in
1995. A reduction in the rate paid during 1996 on interest-bearing checking
accounts resulted in a decrease in the average rate of 20 basis points to
2.00% for 1996 from 2.20%, without a corresponding reduction in average
balances maintained for the product.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses decreased
by $183,000 due to a net recapture in the allowance for loan losses during 1996
of $103,000 as compared with total provisions for 1995 of $80,000. As
previously indicated, the method employed during 1996 and prior periods to
determine the adequacy of the allowance for loan losses allowed for the
recapture of allowance upon the specific charge-off and disposal of collateral
of a reserved loan. This method resulted in the negative net provision recorded
in 1996 and the resulting expense reduction for the year.
OPERATING INCOME. Total operating income was $801,000 for the year ended
December 31, 1996, a decrease of $109,000, or 11.98%, from $910,000 for the year
ended December 31, 1995. During 1995, the Bank received a recovery of $56,000
from a participation mortgage charged-off in a prior period and recorded as
income when received during 1995. There was no similar operating income source
in 1996 recorded. Revenue from the Bank's secondary market loan sales and
servicing activities decreased by $39,000 to $71,000 through December 31, 1996.
This was primarily the result of loan sales made during rising interest rate
periods in 1996 and resulting in a loss at time of sale. Checking and ATM fees
decreased $27,000 to $443,000 in 1996 from $470,000 in 1995 as the Bank
encouraged direct deposit relationships as a method to avoid monthly maintenance
fees with local employer groups. All other operating income sources increased
by $13,000 during 1996, partially offsetting these decreases.
67
<PAGE>
OPERATING AND OTHER EXPENSES. Operating and other expense increased by
$120,000, or 2.3%, to $5.4 million for the year ended December 31, 1996 from
$5.3 million for the year ended December 31, 1995. The increase was due to an
increase of $198,000 in expenses on REO properties and other charge-offs, an
increase of $137,000 in salaries and employee benefits and a $47,000 increase in
contributions. These increases were partially offset by a reduction of $209,000
in deposit insurance, a $27,000 decrease in board member fees, and a $26,000
decrease in all other operating expenses.
Beginning in 1996 the Bank took a more proactive position in the management
and resolution of loan delinquencies and real estate foreclosures. This
resulted in additional expense related to loan workout arrangements, property
foreclosures and related REO expenses. This activity in 1996 resulted in
$478,000 of additional operating expenses compared with $280,000 during 1995.
Salaries and employee benefits increased to $2.9 million for 1996 from $2.7
million for 1995, an increase of $137,000. Contribution expenses for 1996 was
$102,000 as compared with $55,000 for 1995. The Bank elected to provide support
for the expansion of the local YMCA which serves the entire market area as well
as continuing to support charitable activities in the area.
Deposit insurance expense decreased to $2,000 in 1996 from $211,000,
reflecting a decreased in insurance premiums. The Bank's "well capitalized"
risk classification allowed the Bank to pay the minimum annual assessment during
1996.
INCOME TAXES. Income tax expense was $1.0 million for the year ended
December 31, 1996 compared to $898,000 for the year ended December 31, 1995.
The effective tax rate increased to 37.0% for 1996 from 35.7% for 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage related and debt and equity
securities, and to a lesser extent, proceeds from the sale of fixed-rate
mortgage loans to the secondary market with borrowing ability available as
needed. While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit outflows, mortgage prepayments, mortgage
loan sales, borrowings are greatly influenced by general interest rates,
economic conditions and competition.
The Bank's primary investing activities are the origination of residential
one-to-four family and commercial real estate loans, other consumer and
commercial business loans, and the purchase of mortgage-backed and debt and
equity securities. During the six months ended June 30, 1998 and the years
ended December 31, 1997, 1996 and 1995, the Bank's loan originations totaled
$32.1 million, $46.2 million, $34.0 million and $28.0 million, respectively.
Purchases of mortgage-backed securities and debt and equity securities totaled
$21.5 million, $19.3 million, $29.9 million and $14.0 million for the six months
ended June 30, 1998 and the years ended December 31, 1997, 1996 and 1995,
respectively. These activities were funded primarily by deposit growth,
principal payments on loans, mortgage related securities and debt and equity
securities. Loan sales provided an additional source of liquidity, totaling
$8.4 million, $4.0 million, $5.5 million and $3.1 million for the six months
ended June 30, 1998 and the years ended December 31, 1997, 1996 and 1995,
respectively.
The Bank experienced a net increase in total deposits of $6.1 million, $4.1
million and $1.7 million for the six months ended June 30, 1998 and the years
ended December 31, 1996 and 1995, respectively, and a net deposit decrease of
$2.4 million for the year ended December 31, 1997. Deposit flows are affected
by the level of interest rates, the interest rates and products offered by local
competitors, and other factors.
The Bank monitors its liquidity position on a daily basis. Excess short-
term liquidity is usually invested in overnight federal funds sold. In the
event we require funds beyond our ability to generate them internally,
additional sources of funds are available through the use of reverse repurchase
agreements and short-term FHLB advances. There have been no borrowings
outstanding during any of the periods presented.
68
<PAGE>
Loan commitments totaled $2.0 million at June 30, 1998 and were comprised
of $528,000 in commitments to originate adjustable rate loans and $1.5 million
in commitments to originate fixed rates loans. The Bank anticipates that it
will have sufficient funds available to meet current loan commitments.
Certificates of deposit which are scheduled to mature in one year or less from
June 30, 1998 totaled $67.9 million. Based upon the Bank's experience and its
current pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.
In 1999, management plans to continue renovating and expanding the Bank's
retail banking franchise. The renovating and equipping of these offices is
expected to cost approximately $2.0 million. Management anticipates it will
have sufficient funds available to meet its planned capital expenditures
throughout 1999. As a result of the Offering, the Company and the Bank will
have additional capital resources of between $12.0 million and $16.4 million.
Initially, such funds will be invested in liquid and short-term and medium-term
investments. See "Use of Proceeds."
At June 30, 1998, the Bank exceeded all of its regulatory capital
requirements. See "Regulatory Capital Compliance" and "Regulation--Regulatory
Capital Requirements."
The Bank's most liquid assets are cash and interest-bearing demand
accounts. The levels of these assets are dependent on the Bank's operating,
financing, lending and investing activities during any given period. At June
30, 1998, cash and interest-bearing demand account totaled $13.6 million, or
6.2% of total assets.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share". SFAS No. 128 supersedes APB Opinion No. 15
"Earnings Per Share" and specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
stock or potential Common Stock. Essentially, this standard replaces the
primary EPS and fully diluted EPS presentations under APB Opinion No. 15 with a
basic EPS and diluted EPS presentation. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997;
earlier application is not permitted. The Company does not expect that the
adoption of SFAS No. 128 will have a material impact.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". SFAS No. 129 summarizes previously issued disclosure
guidance contained within APB Opinions Nos. 10 and 15 as well as SFAS No. 47.
There will be no changes to the Bank's disclosures pursuant to the adoption of
SFAS No. 129. This statement is effective for financial statements for periods
ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The comprehensive income and related cumulative equity impact of comprehensive
income items will be required to be disclosed prominently as part of the notes
to the financial statements. Only the impact of unrealized gains or losses on
securities available for sale is expected to be disclosed as an additional
component of the Bank's income under the requirements of SFAS No. 130. This
statement is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which changes the way public companies
report information about segments of their business on their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to stockholders. It also requires entity wide
disclosures about the products and services an entity provides, the foreign
countries in which it holds assets and reports revenues, and its major
customers. This statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect that implementation of SFAS No.
131 will have a material impact on the Company's financial reporting.
69
<PAGE>
In February 1998, the FASB issued SFAS No. 132 which standardizes the
disclosure requirements for pensions and other postretirement benefits; requires
additional information on changes in the benefit obligations and fair values of
plan assets; and eliminates certain present disclosure requirements. The
Statement does not change the measurement or recognition requirements for
postretirement benefits. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and, accordingly, will be adopted by the Bank in the
year ending December 31, 1998. Management does not expect that this standard
will significantly affect the Bank's financial reporting.
In June 1998, the FASB issued SFAS No. 133 which establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet at fair value. If certain conditions are met,
a derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge. A specific accounting treatment applies to
each type of hedge. Entities may reclassify securities from the held-to-
maturity category to the available-for-sale category at the time of adopting
SFAS No. 133. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999 and, accordingly, would apply to the Bank
beginning on January 1, 2000. The Bank plans to adopt the standard at that time
and does not presently intend to reclassify securities between categories. The
Bank has not engaged in derivatives and hedging activities covered by the new
standard, and does not expect to do so in the foreseeable future. Accordingly,
SFAS No. 133 is not expected to have a material impact on the Bank's financial
statements. Early adoption is permitted, but not required.
BUSINESS OF ONEIDA FINANCIAL CORP.
GENERAL
In June 1998, the Board of Trustees of the Bank adopted the Plan of
Reorganization. Under the Plan of Reorganization, the Bank organized the
Company. The Bank will be a wholly-owned subsidiary of the Company, the
majority of whose shares will be held by the Mutual Holding Company. See "Oneida
Financial Corp." and "Regulation--Holding Company Regulation."
The Company is currently not an operating company. Following the
Reorganization, in addition to directing, planning and coordinating the business
activities of the Bank, the Company will initially invest net proceeds it
retains primarily in short and medium-term debt securities and marketable equity
securities. The Company also intends to fund the loan to the ESOP to enable the
ESOP to purchase 8% of the Common Stock Minority Ownership Interest assuming a
purchase price of $10.00 per share. In the future, the Company may acquire or
organize other operating subsidiaries, including other financial institutions
and financial services companies. See "Use of Proceeds." Presently, there are no
agreements or understandings for an expansion of the Company's operations.
Initially, the Company will neither own nor lease any property from any third
party, but will instead use the premises, equipment and furniture of the Bank.
At the present time, the Company does not intend to employ any persons other
than certain officers of the Bank, who will not be separately provided cash
compensation by the Company. The Company may utilize support staff of the Bank
from time to time, if needed. Additional employees will be hired as appropriate
to the extent the Company expands its business in the future.
70
<PAGE>
BUSINESS OF THE BANK
GENERAL
The Bank's principal business consists of attracting retail deposits from
the general public in the areas surrounding its branches and investing those
deposits, together with funds generated from operations and borrowings,
primarily in one-to-four family residential mortgage loans, commercial real
estate loans, home equity loans, consumer loans and commercial business loans.
In addition, the Bank invests a significant portion of its assets in investment
securities and mortgage-backed securities. The Bank's revenues are derived
principally from the interest on its mortgage, consumer and commercial loans,
securities, loan origination and servicing fees, service charges and fees
collected on its deposit accounts. The Bank's primary sources of funds are
deposits, principal and interest payments on loans, investment securities and
mortgage-backed securities. In recent years the Bank has not had any
borrowings.
LENDING ACTIVITIES
GENERAL. The principal lending activity of the Bank has been the
origination, for retention in its portfolio, of adjustable-rate mortgage loans
collateralized by one-to-four family residential real estate located within its
primary market area. In the current low interest rate environment, borrowers
have shown a preference for fixed-rate loans. Consequently, in recent periods
the Bank has originated fixed-rate one-to-four family loans for resale in the
secondary market without recourse and on a servicing retained basis. In order
to complement the Bank's traditional emphasis of one-to-four family residential
real estate lending, management has sought to increase the amount of higher
yielding commercial real estate loans, consumer loans and commercial business
loans. To a limited extent, the Bank will originate loans secured by multi-
family properties. The Bank does not view multi-family lending as a significant
aspect of its business.
71
<PAGE>
LOAN PORTFOLIO COMPOSITION. Set forth below is selected information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process and allowances for losses)
as of the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------------ ------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family......... $ 87,968 62.0% $ 96,792 67.0% $100,557 73.1% $108,397 76.0% $109,441 76.0%
Multi-family............... 1,905 1.3 2,714 1.9 2,972 2.2 3,240 2.3 3,735 2.5
Home equity................ 9,192 6.5 8,829 6.1 7,983 5.8 7,207 5.1 6,851 4.8
Commercial real estate..... 14,493 10.2 13,868 9.6 12,686 9.1 11,603 8.0 11,033 7.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans... 113,558 80.0 122,203 84.6 124,198 90.2 130,447 91.4 131,060 91.0
-------- ----- ----- ----- ----- -----
Consumer loans:............
Automobile loans........... 9,373 6.6 6,683 4.6 2,701 2.0 2,108 1.5 1,799 1.2
Mobile home................ 746 0.5 784 0.5 914 0.7 1,162 0.8 1,384 1.0
Personal loans............. 3,670 2.6 2,580 1.8 1,719 1.3 1,831 1.3 1,689 1.2
Guaranteed student loans... 1,699 1.2 1,659 1.2 1,981 1.4 2,943 2.1 3,443 2.4
Other consumer loans....... 1,350 1.0 1,017 0.7 879 0.6 766 0.5 894 0.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total consumer loans...... 16,838 11.9 12,723 8.8 8,194 6.0 8,810 6.2 9,209 6.4
----- ----- ----- ----- -----
Commercial business loans.. 11,600 8.1 9,587 6.6 5,241 3.8 3,424 2.4 3,764 2.6
Total consumer and
commercial business
loans................... 28,438 20.0 22,310 15.4 13,435 9.8 12,234 8.6 12,973 9.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans............... $141,996 100.0% $144,513 100.0% $137,633 100.0% $142,681 100.0% $144,033 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Less:
Loans in process......... 232 352 215 223 626
Allowance for losses..... 1,721 1,793 1,546 1,781 2,117
-------- -------- -------- -------- --------
Total loans receivable,
net................... $140,043 $142,368 $135,872 $140,677 $141,290
======== ======== ======== ======== =========
<CAPTION>
-------------------
1993
-------------------
AMOUNT PERCENT
-------- ---------
<S> <C> <C>
Real estate loans:
One-to-four family......... $110,114 77.3%
Multi-family............... 2,540 1.8
Home equity................ 7,742 5.4
Commercial real estate..... 6,535 4.6
-------- --------
Total real estate loans... 126,931 89.1
--------
Consumer loans:............
Automobile loans........... 2,563 1.8
Mobile home................ 1,739 1.2
Personal loans............. 2,211 1.6
Guaranteed student loans... 3,192 2.2
Other consumer loans....... 1,411 1.0
-------- --------
Total consumer loans...... 11,116 7.8
--------
Commercial business loans.. 4,412 3.1
Total consumer and
commercial business
loans................... 15,528 10.9
-------- --------
Total loans............... $142,459 100.0
======== ========
Less:
Loans in process......... 983
Allowance for losses..... 2,045
--------
Total loans receivable,
net................... $139,431
========
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------------ ------------------------------------------------------------
1998 1997 1996 1995
-------- --------- -------- --------- -------- --------- -------- --------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- --------- -------- --------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED-RATE LOANS:
REAL ESTATE LOANS:
- ---------------------------
One-to-four family......... $ 10,522 7.4% $ 11,563 8.0% $ 9,678 7.0% $ 8,652 6.1%
Multi-family............... -- -- -- -- -- -- -- --
Home equity................ 3,262 2.3 2,804 1.9 1,679 1.2 871 0.5
Commercial real estate..... 1,159 0.8 1,213 0.8 1,350 1.0 1,380 1.0
-------- -------- -------- -------- -------- -------- -------- -----
Total real estate loans... 14,943 10.5 15,580 10.7 12,707 9.2 10,903 7.6
-------- -------- -------- -------- -------- -------- -------- -----
CONSUMER LOANS:
- ---------------------------
Total consumer loans....... 16,838 11.9 12,723 8.8 8,194 6.0 8,810 6.2
COMMERCIAL BUSINESS LOANS:
- ---------------------------
Total commercial loans..... 1,544 1.1 1,628 1.1 748 0.5 484 0.3
-------- -------- -------- -------- -------- -------- -------- -----
Total fixed-rate loans..... $ 33,325 23.5 $ 29,931 20.6 $ 21,649 15.7 $ 20,197 14.1
-------- -------- -------- -------- -------- -------- -------- -----
ADJUSTABLE RATE LOANS:
REAL ESTATE LOANS:
- ---------------------------
One-to-four family......... $ 77,446 54.5% $ 85,229 59.0% $ 90,879 66.0% $ 99,745 69.9%
Multi-family............... 1,905 1.3 2,714 1.9 2,972 2.2 3,240 2.3
Home equity................ 5,930 4.2 6,025 4.2 6,304 4.6 6,336 4.4
Commercial real estate..... 13,334 9.4 12,655 8.8 11,336 8.2 10,223 7.2
-------- -------- -------- -------- -------- -------- -------- -----
Total real estate loans... 98,615 69.4 106,623 73.9 111,491 81.0 119,544 83.8
-------- -------- -------- -------- -------- -------- -------- -----
COMMERCIAL BUSINESS LOANS:
- ---------------------------
Total commercial
business loans........... 10,056 7.1 7,959 5.5 4,493 3.3 2,940 2.1
-------- -------- -------- -------- -------- -------- -------- -----
Total adjustable-rate loans $108,671 76.5 $114,582 79.4 $ 15,984 84.3 $122,484 85.9
-------- -------- -------- -------- -------- -------- -------- -----
Total loans................ $141,996 100.0% $144,513 100.0% $137,633 100.0% $142,681 100.0%
======== ======== ======== ======== ======== ======== ======== =====
LESS:
- ---------------------------
Loans in process......... 232 352 215 223
Allowance for losses..... 1,721 1,793 1,546 1,781
-------- -------- -------- --------
Total loans receivable, net $140,043 $142,368 $135,872 $140,677
======== ======== ======== ========
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1994 1993
-------- -------- -------- --------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FIXED-RATE LOANS:
REAL ESTATE LOANS:
- ---------------------------
One-to-four family......... $ 10,909 7.6% $ 16,663 11.8%
Multi-family............... -- -- -- --
Home equity................ 686 0.5 426 0.3
Commercial real estate..... 1,627 1.1 1,100 0.8
-------- ----- -------- -----
Total real estate loans... 13,222 9.2 18,310 12.9
-------- ----- -------- -----
CONSUMER LOANS:
- ---------------------------
Total consumer loans....... 9,209 6.4 11,116 7.8
COMMERCIAL BUSINESS LOANS:
- ---------------------------
Total commercial loans..... 882 0.6 1,160 0.8
-------- ----- -------- -----
Total fixed-rate loans..... $ 23,313 16.2 $ 30,586 21.5
-------- ----- -------- -----
ADJUSTABLE RATE LOANS:
REAL ESTATE LOANS:
- ---------------------------
One-to-four family......... $ 98,532 68.4% $ 93,481 65.5%
Multi-family............... 3,735 2.6 2,540 1.8
Home equity................ 6,165 4.3 7,316 5.1
Commercial real estate..... 9,406 6.5 5,435 3.8
-------- ----- -------- -----
Total real estate loans... 117,838 81.8 108,621 76.2
-------- ----- -------- -----
COMMERCIAL BUSINESS LOANS:
- ---------------------------
Total commercial
business loans........... 2,882 2.0 3,252 2.3
-------- ----- -------- -----
Total adjustable-rate loans $120,720 83.8 $111,873 78.5
-------- ----- -------- -----
Total loans................ $144,033 100.0% $142,459 100.0%
======== ===== ======== =====
LESS:
- ---------------------------
Loans in process......... 626 983
Allowance for losses..... 2,117 2,045
-------- --------
Total loans receivable, net $141,677 $139,431
======== ========
</TABLE>
73
<PAGE>
ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. The Bank's primary lending activity
is the origination of one-to-four family residential mortgage loans secured by
property located in the Bank's primary lending area. Generally, one-to-four
family residential mortgage loans are made in amounts up to 80% of the lesser of
the appraised value or purchase price of the property however the Bank will
originate one-to-four family loans with loan-to-value ratios of up to 97%, with
private mortgage insurance required. Generally, fixed-rate loans are originated
for terms of up to 30 years. One-to-four family fixed-rate loans are offered
with a monthly payment feature.
The Bank originates both adjustable rate and fixed-rate one-to-four family
loans. Historically, the Bank's emphasis has been on the origination of ARM
loans. The interest rate on ARM loans is indexed to the one year Treasury Bill
rate. The Bank's ARM loans currently provide for maximum rate adjustments of
200 basis points per year and 600 basis points over the term of the loan. The
Bank offers ARM loans with initial interest rates that are below market,
referred to as "teaser rates." Residential ARM loans amortize over a maximum
term of up to 30 years. ARM loans are offered with both monthly and bi-weekly
payment features. ARM loans are originated for retention in the Bank's
portfolio. In the current low interest rate environment, borrowers have shown a
preference for fixed-rate loans. Consequently, in recent periods the Bank has
increased its origination of fixed-rate one-to-four family mortgage loans. The
Bank generally sells its fixed-rate one-to-four family loans on a servicing
retained basis. Such loans are sold without recourse to the Bank. The Bank
recently introduced two one-to-four family residential loan products providing
for fixed-rates of interest for an initial period of either three or five years,
and which adjust annually thereafter. At June 30, 1998, loans serviced by the
Bank for others totaled $32.7 million. During the six months ended June 30,
1998 and the year ended December 31, 1997, the Bank sold $8.4 million and $4.0
million, respectively in fixed-rate one-to-four family loans.
ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment permitted
by the terms of the ARM loans, and therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At June 30, 1998,
54.5% of the Bank's loan portfolio consisted of one-to-four family residential
loans with adjustable interest rates.
All one-to-four family residential mortgage loans originated by the Bank
include "due-on-sale" clauses, which give the Bank the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
At June 30, 1998, approximately $88.0 million, or 62.0% of the Bank's loan
portfolio, consisted of one-to-four family residential loans. Approximately
$707,000 of such loans (representing 14 loans) were included in nonperforming
loans as of that date. See "--Nonperforming and Problem Assets."
HOME EQUITY LOANS. The Bank offers home equity loans that are secured by
the borrower's primary residence. The Bank offers a home equity line of credit
under which the borrower is permitted to draw on the home equity line of credit
during the first ten years after it is originated and repay the outstanding
balance over a term not to exceed 25 years from the date the line of credit is
originated. The interest rates on home equity lines of credit are fixed for the
first year and adjust monthly thereafter at a margin over the prime interest
rate. The Bank also offers a home equity product providing for a fixed-rate of
interest. Both adjustable rate and fixed-rate home equity loans are
underwritten under the same criteria that the Bank uses to underwrite one-to-
four family fixed-rate loans. Fixed-rate home equity loans are originated with
terms not to exceed ten years. Home equity loans may be underwritten with a
loan to value ratio of 85% when combined with the principal balance of the
existing mortgage loan. The maximum amount of a home equity loan may not exceed
$250,000 unless approved by the Board of Trustees. The Bank appraises the
property securing the loan at the time of the loan application (but not
thereafter) in order to determine the value of the property securing the home
equity loans. At June 30, 1998, the outstanding balances of home equity loans
totaled $9.2 million, or 6.5% of the Bank's loan portfolio.
74
<PAGE>
COMMERCIAL REAL ESTATE LOANS. At June 30, 1998, $14.5 million, or 10.2% of
the total loan portfolio consisted of commercial real estate loans. Commercial
real estate loans are secured by office buildings, mixed-use properties,
religious facilities and other commercial properties. The Bank originates
adjustable rate commercial mortgage loans with maximum terms of up to 20 years.
The maximum loan-to-value ratio of commercial real estate loans is 80%. At June
30, 1998, the largest commercial real estate loan had a principal balance of
$1.3 million and was secured by a medical building. As of June 30, 1998,
nonperforming loans did not include any commercial real estate loans.
In underwriting commercial real estate loans, the Bank reviews the expected
net operating income generated by the real estate to ensure that it is at least
110% of the amount of the monthly debt service; the age and condition of the
collateral; the financial resources and income level of the borrower; and the
borrower's business experience. Personal guarantees have always been obtained
from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than one-to-
four family residential loans and involve a greater degree of risk. Commercial
mortgage loans often involve large loan balances to single borrowers or groups
of related borrowers. Payments on these loans depend to a large degree on the
results of operations and management of the properties or underlying businesses,
and may be affected to a greater extent by adverse conditions in the real estate
market or the economy in general. Accordingly, the nature of commercial real
estate loans makes them more difficult for Bank management to monitor and
evaluate.
CONSUMER LENDING. The Bank's consumer loans consist of automobile loans,
mobile home loans, secured personal loans (secured by bonds, equity securities
or other readily marketable collateral), guaranteed student loans and other
consumer loans (consisting of passbook loans, unsecured home improvement loans
and recreational vehicle loans). At June 30, 1998, consumer loans totaled $16.8
million, or 11.9% of the total loan portfolio. Consumer loans are originated
with terms to maturity of three to seven years. The Bank has sought to increase
its level of consumer loans primarily through increased automobile lending. The
Bank participates in a number of indirect automobile lending programs with local
automobile dealerships. All indirect automobile loans must satisfy the Bank's
underwritten criteria for automobile loans originated directly by the Bank to
the borrower and must be approved by one of the Bank's lending officers. At
June 30, 1998, loans secured by automobiles totaled $9.4 million, of which $5.3
million were originated through the Bank's indirect automobile lending program.
The Bank has also sought to increase its level of automobile loans directly to
borrowers by increasing its marketing efforts with existing customers.
Automobile loans generally do not have terms exceeding five years. The Bank
does not provide financing for leased automobiles.
Consumer loans generally have shorter terms and higher interest rates than
one-to-four family mortgage loans. In addition, consumer loans expand the
products and services offered by the Bank to better meet the financial services
needs of its customers. Consumer loans generally involve greater credit risk
than residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance because
of the greater likelihood of damage to loss of or depreciation in the underlying
collateral. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a deficiency judgment.
In addition, consumer loan collections depend on the borrower's personal
financial stability. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.
The Bank's underwriting procedures for consumer loans include an assessment
of the applicant's credit history and the ability to meet existing and proposed
debt obligations. Although the applicant's creditworthiness is the primary
consideration, the underwriting process also includes a comparison of the value
of the security to the proposed loan amount. The Bank underwrites its consumer
loans internally, which the Bank believes limits its exposure to credit risks
associated with loans underwritten or purchased from brokers and other external
sources.
COMMERCIAL BUSINESS LOANS. The Bank also originates commercial business
loans. Commercial
75
<PAGE>
business loans are originated to persons with a prior relationship with the Bank
or referrals from persons with a prior relationship with the Bank. The decision
to grant a commercial business loan depends primarily on the creditworthiness
and cash flow of the borrower (and any guarantors) and secondarily on the value
of and ability to liquidate the collateral which generally consists of
receivables, inventory and equipment. The Bank generally requires annual
financial statements and tax returns from its commercial business borrowers and
personal guarantees from the commercial business borrowers. The Bank also
generally requires an appraisal of any real estate that secures the commercial
business loan. At June 30, 1998, the Bank had $11.6 million of commercial
business loans which represented 8.1% of the total loan portfolio. On such date,
the average balance of the Bank's commercial business loans was $33,800, and the
largest commercial business lending relationship totaled $1.5 million, which
consisted of 29 loans secured by equipment and assignment of leases. As of June
30, 1998, unsecured commercial business loans totaled $996,000.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Real estate
lending is generally considered to be collateral based, with loan amounts based
on predetermined loan to collateral values and liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business assets, the liquidation of collateral in the event
of a borrower default is often an insufficient source of repayment because
equipment and other business assets may be obsolete or of limited use, among
other things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors), while
liquidation of collateral is a secondary and often insufficient source of
repayment.
LOAN MATURITY SCHEDULE. The following table sets forth certain information
as of December 31, 1997, regarding the amount of loans maturing in the Bank's
portfolio. Demand loans having no stated schedule of repayment and no stated
maturity and overdrafts are reported as due in one year or less. All loans are
included in the period in which the final contractual repayment is due.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
WITHIN THROUGH THROUGH THROUGH THROUGH BEYOND
ONE THREE FIVE TEN TWENTY-FIVE TWENTY-FIVE
YEAR YEARS YEARS YEARS YEARS YEARS TOTAL
------ ------- ------- ------- ----------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to-four family....... $ 144 $ 607 $ 2,549 $14,655 $60,762 $18,075 $ 96,792
Home equity............... 260 458 658 5,620 1,833 -- 8,829
Commercial real estate.... 1 114 362 3,055 9,786 3,264 16,582
------ ------ ------- ------- ------- ------- --------
Total real estate loans.. 405 1,179 3,569 23,330 72,381 21,339 122,203
------ ------ ------- ------- ------- ------- --------
Consumer and other loans... 770 3,051 5,542 1,353 2,007 -- 12,723
Commercial business loans.. 2,600 1,972 3,535 1,247 233 -- 9,587
------ ------ ------- ------- ------- ------- --------
Total loans.............. $3,775 $6,202 $12,646 $25,930 $74,621 $21,339 $144,513
====== ====== ======= ======= ======= ======= ========
</TABLE>
76
<PAGE>
FIXED- AND ADJUSTABLE-RATE LOAN SCHEDULE. The following table sets forth
at December 31, 1997, the dollar amount of all fixed-rate and adjustable-rate
loans due after December 31, 1998. Adjustable- and floating-rate loans are
included based on contractual maturities.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1998
-------------------------------------------------
FIXED ADJUSTABLE TOTAL
-------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One-to-four family.......... 11,437 $ 85,211 $ 96,648
Home equity................. 2,792 5,777 8,569
Commercial real estate...... 1,015 15,566 16,581
------- -------- --------
Total real estate loans.. 15,244 106,554 121,798
------- -------- --------
Consumer and other loans...... 11,953 -- 11,953
Commercial business loans..... 1,118 5,869 6,987
------- -------- --------
Total loans.............. $28,315 $112,723 $140,738
======= ======== ========
</TABLE>
The following table sets forth the loan origination, sales and repayment
activities of the Bank for the periods indicated. The Bank did not purchase any
loans during the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------
1998 1997 1997 1996 1995
-------- ------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ORIGINATIONS BY TYPE:
- ---------------------
Adjustable Rate:
Real estate:
One-to-four family............. $ 3,725 $ 5,543 $11,812 $10,806 $14,261
Home equity.................... 2,074 1,045 1,825 2,281 2,800
Commercial real estate......... 1,210 585 2,363 2,641 1,691
------- ------- ------- ------- -------
Total real estate loans....... 7,009 7,173 16,000 15,728 18,752
Consumer loans.................. 498 -- -- -- --
Commercial business loans....... 2,861 3,169 6,395 5,274 930
------- ------- ------- ------- -------
Total adjustable rate loans.. 10,368 10,342 22,395 21,002 19,682
------- ------- ------- ------- -------
Fixed Rate:
Real estate:
One-to-four family............. 8,950 1,310 4,113 5,492 3,128
Home equity.................... 844 901 1,744 1,141 388
Commercial real estate......... 165 -- 67 -- 60
------- ------- ------- ------- -------
Total real estate loans....... 9,959 2,211 5,924 6,633 3,576
Consumer loans.................. 7,530 4,845 11,051 4,334 3,737
Commercial business loans....... 4,242 4,262 6,800 2,000 1,021
------- ------- ------- ------- -------
Total fixed-rate loans....... 21,731 11,318 23,775 12,967 8,334
------- ------- ------- ------- -------
Total loans originated........... 32,099 21,660 46,170 33,969 28,016
------- ------- ------- ------- -------
SALES:
- ------
Real estate:
One-to-four family............. 8,405 1,298 3,988 5,504 3,069
------- ------- ------- ------- -------
Total loans sold.............. 8,405 1,298 3,988 5,504 3,069
------- ------- ------- ------- -------
REPAYMENTS:
- -----------
Real estate:
One-to-four family............. 13,094 8,056 15,702 18,633 15,365
Home equity.................... 2,554 1,330 2,723 2,647 2,832
Commercial real estate......... 1,559 510 1,506 1,826 1,676
------- ------- ------- ------- -------
Total real estate loans....... 17,207 9,896 19,931 23,106 19,873
Consumer loans.................. 3,913 2,836 6,522 4,951 4,136
Commercial business loans....... 5,091 3,915 8,849 5,456 2,290
------- ------- ------- ------- -------
Total repayments............. 26,211 16,647 35,302 33,513 26,299
------- ------- ------- ------- -------
Total reductions............. 34,616 17,945 39,290 39,017 29,368
------- ------- ------- ------- -------
Net increases/(decreases)..... $(2,517) $ 3,715 $ 6,880 $(5,048) $(1,352)
======= ======= ======= ======= =======
</TABLE>
_______________________
* Includes charge offs, discounts and premiums
77
<PAGE>
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Trustees establishes
the lending policies and loan approval limits of the Bank. Loan officers
generally have the authority to originate mortgage loans, consumer loans and
commercial business loans up to amounts established for each lending officer.
All residential loans over $250,000 must be approved by the Bank Loan Committee
(consisting of three persons; the President and/or Senior Vice President in
charge of credit administration and either one or two of the four trustees
appointed to this committee). All loan relationships in excess of $250,000 and
up to $500,000 (exclusive of residential mortgages and home equity loans secured
by a lien on the borrower's primary residence) must be approved by the Bank Loan
Committee. All lending relationships in excess of $500,000 up to $1.0 million
(exclusive of residential mortgages and home equity loans secured by a lien on
the borrower's primary residence) must be approved by the Executive Committee of
the Board of Trustees. All lending relationships in excess of $1.0 million must
be approved by the Board of Trustees.
The Board annually approves independent appraisers used by the Bank. The
Bank requires an environmental site assessment to be performed by an independent
professional for all non-residential mortgage loans. It is the Bank policy to
require hazard insurance on all mortgage loans and title insurance on fixed-rate
one-to-four family loans.
LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned on
loans, the Bank receives loan origination fees. Such fees and costs vary with
the volume and type of loans and commitments made and purchased, principal
repayments and competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other fees,
service charges and other income that consist primarily of deposit transaction
account service charges and late charges.
LOANS-TO-ONE BORROWER. Savings banks are subject to the same loans-to-one
borrower limits as those applicable to national banks, which under current
regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis. An additional amount equal to 10% of
unimpaired net worth if the loan is secured by readily marketable collateral
(generally, financial instruments and bullion, but not real estate). The Bank's
policy provides that loans to one borrower (or related borrowers) should not
exceed 15% of the Bank's capital.
At June 30, 1998, the largest aggregate amount loaned by the Bank to one
borrower consisted of $2.1 million. The loans comprising this lending
relationship were performing in accordance with their terms.
DELINQUENCIES AND CLASSIFIED ASSETS
COLLECTION PROCEDURES. A computer generated late notice is sent when the
loan's grace period ends. After the late notice has been mailed, accounts are
assigned to collectors for follow-up to determine reasons for delinquency and
explore payment options. Generally, loans that are 30 days delinquent will
receive a default notice from the Bank. With respect to consumer loans, the
Bank will commence efforts to repossess the collateral after the loan becomes 45
days delinquent. Loans secured by real estate that are delinquent over 60 days
are turned over to the Collection Department Manager. Generally, after 90 days
the Bank will commence legal action.
LOANS PAST DUE AND NONPERFORMING ASSETS. Loans are reviewed on a regular
basis and are placed on nonaccrual status when, in the opinion of management,
the collection of additional interest is doubtful. Loans are placed on
nonaccrual status when either principal or interest is 90 days or more past due.
Interest accrued and unpaid at the time a loan is placed on a nonaccrual status
is reversed from interest income. At June 30, 1998, the Bank had non-performing
loans of $707,000 and a ratio of nonperforming loans to total assets of 0.32%.
At June 30, 1998, the Bank's ratio of nonperforming assets to total assets was
0.46%.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as REO until such time as it is sold. When real
estate is acquired through foreclosure or by deed in lieu of foreclosure, it is
recorded at its fair value, less estimated costs of disposal. If the value of
the property is less than the loan, less any related specific loan
78
<PAGE>
loss provisions, the difference is charged against the allowance for loan
losses. Any subsequent write-down of REO is charged against earnings.
The following table sets forth delinquencies in the Bank's loan portfolio
as of June 30, 1998. When a loan is delinquent 90 days or more, the Bank fully
reverses all accrued interest thereon and ceases to accrue interest thereafter.
For all the dates indicated, the Bank did not have any material restructured
loans within the meaning of SFAS 114.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR:
---------------------------------------------------------------------------------
60-89 DAYS 90 DAYS OR MORE TOTAL DELINQUENT LOANS
--------------------- ----------------------- -------------------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One-to-four family........ 3 $ 90 8 $452 11 $542
Commercial real estate.... -- -- -- -- -- --
Consumer.................. 3 55 -- -- 3 55
Commercial business....... -- -- -- -- -- --
- ---- ------ ------ -- ----
Total.................... 6 $145 8 $452 14 $597
= ==== ====== ====== == ====
</TABLE>
NONACCRUAL LOANS AND NONPERFORMING ASSETS. The following table sets forth
information regarding nonaccrual loans and other nonperforming assets.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------------------------------------
1998 1997 1996 1995 1994 1993
------- ------- ------- -------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One-to-four family......................................... $ 667 $ 588 $ 735 $ 820 $ 902 $ --
Multi-family............................................... -- -- -- -- -- --
Commercial real estate..................................... -- 242 274 346 634 1,277
Construction and land loans................................ -- -- -- -- -- --
Consumer................................................... -- 2 18 49 36 106
Commercial business........................................ -- -- -- 7 551 573
------ ------ ------ ------ ------ ------
Total..................................................... 667 832 1,027 1,222 2,123 1,956
------ ------ ------ ------ ------ ------
Accruing loans delinquent more than 90 days:
One-to-four family......................................... 40 60 63 148 -- 365
Multi-family............................................... -- -- -- -- -- --
Commercial real estate..................................... -- -- -- -- -- --
Construction and land loans................................ -- -- -- -- -- --
Consumer................................................... -- -- -- -- -- 35
Commercial business........................................ -- 1 3 1 -- --
------ ------ ------ ------ ------ ------
Total..................................................... 40 61 66 149 -- 400
------ ------ ------ ------ ------ ------
Total nonperforming loans................................... $ 707 $ 893 $1,093 $1,371 $2,123 $2,365
====== ====== ====== ====== ====== ======
Foreclosed assets:
One-to-four family......................................... $ 249 $ 263 $ 712 $ 613 $ 597 $ 785
Multi-family............................................... -- -- -- -- 56 --
Commercial real estate..................................... 45 45 147 367 31 177
Construction and land loans................................ -- -- -- 10 10 27
Consumer................................................... -- -- -- -- -- --
Commercial business........................................ -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total..................................................... $ 294 $ 308 $ 859 $ 990 $ 694 $ 989
====== ====== ====== ====== ====== ======
Total nonperforming loans as a percentage of total assets... 0.32% 0.42% 0.52% 0.67% 1.09% 1.14%
====== ====== ====== ====== ====== ======
Total nonperforming assets.................................. $1,001 $1,201 $1,952 $2,361 $2,817 $3,354
====== ====== ====== ====== ====== ======
Total nonperforming assets as a percentage of total assets.. 0.46% 0.57% 0.92% 1.14% 1.40% 1.62%
====== ====== ====== ====== ====== ======
</TABLE>
79
<PAGE>
During the six months ended June 30, 1998, and year ended December 31,
1997, respectively, gross interest income of $39,000 and $41,000 would have been
recorded on nonaccruing loans under their original terms, if the loans had been
current throughout the period. No interest income was recorded on nonaccruing
loans during the six months ended June 30, 1998 and year ended December 31,
1997.
CLASSIFICATION OF ASSETS. On the basis of management's review of its
assets, at June 30, 1998, the Bank had classified a total of $2.3 million of
loans as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Special Mention.......... $ 720
Substandard.............. 1,600
Doubtful assets.......... --
Loss assets.............. --
------
Total.................. $2,320
======
General loss allowance... $1,441
------
Specific loss allowance.. 280
------
Charge-offs --
======
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio and current economic conditions. The allowance is
established based upon management's evaluation of the risks inherent in the loan
portfolio, the composition of the loan portfolio, the general economy and the
general trend the savings industry to increase allowances for losses as a
percentage of total loans. Such evaluation also includes a review of all loans
on which full collectibility may not be reasonably assured, considers among
other matters, the estimated net realizable value or the fair value of the
underlying collateral, economic conditions, historical loan loss experience,
geographic concentrations and other factors that warrant recognition in
providing for an adequate loan loss allowance. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses and valuation of REO. Such agencies may
require us to recognize additions to the allowance based on their judgment about
information available to them at the time of their examination. The Bank's
provisions for loan losses are described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations." At June 30, 1998,
the total allowance was $1.7 million, which amounted to 1.23% of total loans and
243.42% of nonperforming loans. Management considers whether the allowance
should be adjusted to protect against risks in the loan portfolio. Management
applies fixed percentages for each category of performing loans not designated
as problem loans to determine an additional component of the allowance to
protect against unascertainable risks inherent in any portfolio of performing
loans. Finally, management includes an unallocated component in its allowance to
address general factors and general uncertainties such as changes in economic
conditions and the inherent inaccuracy of any attempt to predict future default
rates and property values based upon past experience. Management will continue
to monitor and modify the level of the allowance for loan losses in order to
maintain it at a level which management considers adequate to provide for
potential loan losses. For the six months ended June 30, 1998 and the years
ended December 31, 1997 and 1996, the Bank had charge-offs of $117,000, $299,000
and 176,000, respectively, against this allowance.
The Bank employed a new method in 1998 for evaluating the adequacy of the
allowance for loan losses and determining the appropriate level of provisions
for loan losses. The new method applies fixed percentages to each category of
performing loans and classified loans. The allowance adjustment is based upon
the net change in each portfolio category since the prior quarter to reflect the
ongoing shifts in the portfolio toward higher risk loan categories, such as
consumer loans, commercial business loans and commercial real estate loans. The
former method utilized by the Bank followed the FDIC format which considered
historic losses, peer allowance levels and current portfolio mix. Management
believes the new method of determining the adequacy of the allowance is more
prudent in light of the
80
<PAGE>
Bank's intention to diversify its lending operations through the increased
origination of consumer loans, commercial business loans and commercial real
estate loans.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
---------------- ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- --------- ------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at the beginning of period........... $1,793 $1,546 $1,546 $1,781 $2,117 $2,045 $1,686
Charge-offs:
One-to-four family.......................... 59 41 72 112 360 58 76
Commercial real estate...................... -- -- 118 -- 150 166 --
Construction and land loans................. -- -- -- -- -- -- --
Consumer.................................... 58 41 82 64 38 119 283
Commercial business......................... -- -- 27 -- 11 51 32
------ ------ ------ ------ ------ ------ ------
Total...................................... 117 82 299 176 559 394 391
------ ------ ------ ------ ------ ------ ------
Recoveries:
One-to-four family.......................... 3 3 14 7 99 -- 1
Commercial real estate...................... 13 -- 2 -- -- -- 2
Construction and land loans................. -- -- -- -- -- -- --
Consumer.................................... 29 22 53 28 38 50 60
Commercial business......................... -- -- -- 9 6 3 15
------ ------ ------ ------ ------ ------ ------
Total...................................... 45 25 69 44 143 53 78
------ ------ ------ ------ ------ ------ ------
Net charge-offs.............................. (72) (57) (230) (132) (416) (341) (313)
Additions charged to operations.............. -- (23) 477 (103) 80 413 672
------ ------ ------ ------ ------ ------ ------
Balance at end of period..................... $1,721 $1,466 $1,793 $1,546 $1,781 $2,117 $2,045
====== ====== ====== ====== ====== ====== ======
Allowance for loan losses as a percentage
of total loans, receivable, net............. 1.23% 1.05% 1.26% 1.14% 1.27% 1.50% 1.47%
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans....................................... 0.05% 0.04% 0.16% 0.10% 0.29% 0.24% 0.22%
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
nonperforming loans......................... 9.00% 5.49% 23.16% 10.73% 23.81% 15.20% 12.49%
====== ====== ====== ====== ====== ====== ======
</TABLE>
81
<PAGE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth the
allocation of the allowance for loan losses by loan category for the periods
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------
AT JUNE 30, 1998 1997
------------------------------------ -------------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
AMOUNT OF LOAN IN EACH AMOUNT OF LOAN IN EACH
LOAN LOSS AMOUNTS CATEGORY TO LOAN LOSS AMOUNTS CATEGORY
ALLOWANCE BY CATEGORY TOTAL LOANS ALLOWANCES BY CATEGORY TOTAL LOANS
---------- ----------- ------------ ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgages.................... $ 360 $ 97,160 68.42% $ 455 $105,621 73.09%
Commercial real estate................... 226 16,398 11.55 260 16,582 11.47
======
Consumer................................. 325 16,838 11.86 138 12,723 8.80
Commercial business...................... 230 11,600 8.17 171 9,587 6.64
Unallocated.............................. 580 -- -- 769 -- --
====== -------- ------ ------ -------- ------
Total................................... $1,721 $141,996 100.00% $1,793 $144,513 100.00%
====== ======== ====== ====== ======== ======
<CAPTION>
At December 31,
-------------------------------------
1996
-------------------------------------
PERCENT
OF LOANS
AMOUNT OF LOAN IN EACH
LOAN LOSS AMOUNTS CATEGORY
ALLOWANCES BY CATEGORY TOTAL LOANS
---------- ----------- -----------
<S> <C> <C> <C>
Residential mortgages.................... $ 467 $108,540 78.86%
Commercial real estate................... 343 15,658 11.38
Consumer................................. 82 8,194 5.95
Commercial business...................... 137 5,241 3.81
Unallocated.............................. 517 -- --
------ -------- ------
Total................................... $1,546 $137,633 100.00%
====== ======== ======
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
AMOUNT OF LOAN IN EACH AMOUNT OF LOAN IN EACH
LOAN LOSS AMOUNTS CATEGORY TO LOAN LOSS AMOUNTS CATEGORY
ALLOWANCE BY CATEGORY TOTAL LOANS ALLOWANCES BY CATEGORY TOTAL LOANS
--------- ----------- ------------ ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgages.................... $ 426 $115,604 81.02% $ 375 $116,292 80.74%
Commercial real estate................... 410 14,843 10.40 725 14,768 10.25
Consumer................................. 73 8,810 6.17 74 9,209 6.39
Commercial business...................... 140 3,424 2.41 223 3,764 2.62
Unallocated.............................. 732 -- --% 720 -- --%
------ -------- ------ ------ -------- ------
Total................................... $1,781 $142,681 100.00% $2,117 $144,033 100.00%
====== ======== ====== ====== ======== ======
<CAPTION>
At December 31,
-------------------------------------
1993
-------------------------------------
PERCENT
OF LOANS
AMOUNT OF LOAN IN EACH
LOAN LOSS AMOUNTS CATEGORY
ALLOWANCES BY CATEGORY TOTAL LOANS
---------- ----------- -----------
<S> <C> <C> <C>
Residential mortgages.................... $ 399 $117,856 82.73%
Commercial real estate................... 564 9,075 6.37
Consumer................................. 121 11,116 7.80
Commercial business...................... 283 4,412 3.10
Unallocated.............................. 678 -- --%
------ -------- ------
Total................................... $2,045 $142,459 100.00%
====== ======== ======
</TABLE>
82
<PAGE>
SECURITIES INVESTMENT ACTIVITIES
The securities investment policy is established by the Board of Trustees.
This policy dictates that investment decisions will be made based on the safety
of the investment, liquidity requirements, potential returns, cash flow targets
and desired risk parameters. In pursuing these objectives, management considers
the ability of an investment to provide earnings consistent with factors of
quality, maturity, marketability and risk diversification.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, tax-exempt bonds, public utilities debt
obligations, corporate debt obligations and corporate equity securities. In
addition, the Bank's policy permits investments in mortgage related securities,
including securities issued and guaranteed by Fannie Mae, Freddie Mac, GNMA. In
the past, the Bank invested in collateralized mortgage obligations ("CMOs"), but
it has not invested in CMOs in recent years. The Bank's current securities
investment strategy utilizes a risk management approach of diversified investing
between three categories: short-, intermediate- and long-term. The emphasis of
this approach is to increase overall investment securities yields while managing
interest rate risk. The Bank will only invest in securities rated as investment
grade by a nationally recognized investment rating agency. The Bank does not
engage in any hedging transactions, such as interest rate swaps or caps.
INVESTMENT SECURITIES. At June 30, 1998, the Bank had $39.6 million, or
18.2% of total assets, invested in investment securities, which consisted
primarily of U.S. Government obligations, tax-exempt securities, public utility
and corporate obligations, a mutual fund and equity investments in FHLB stock.
SFAS No. 115 requires the Bank to designate its securities as held to maturity,
available for sale or trading, depending on the Bank's ability and intent
regarding its investments. The Bank does not have a trading portfolio.
Investment securities are classified as available for sale. At June 30, 1998,
the Bank's investment securities portfolio had a weighted average life of 2.28
years.
83
<PAGE>
BOOK VALUE OF INVESTMENT SECURITIES. The following table sets forth
certain information regarding the investment securities and other interest
earning assets as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996
------------------- ------------------------------------------
BOOK PERCENT OF BOOK PERCENT OF BOOK PERCENT OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held for investment:
U.S. government and agency securities....... $ -- --% $ -- --% $ -- --%
State and municipals........................ -- -- -- -- -- --
Other....................................... -- -- -- -- -- --
------- ---------- ------- ---------- ------- ----------
Subtotal................................... -- -- -- -- -- --
Investment securities available for sale:
U.S. government securities.................. 1,000 2.39 2,002 4.67 5,013 9.52
Federal agency securities................... 25,295 65.39 24,504 57.19 21,503 40.84
Corporate debt securities................... 7,647 19.77 11,833 27.62 21,882 41.56
Tax exempt bonds............................ 1,620 4.89 2,162 5.05 2,207 4.19
Public utilities............................ 400 1.04 750 1.75 848 1.61
Equity securities........................... 1,493 3.85 1,288 3.02 1,194 2.28
------- ---------- ------- ---------- ------- ----------
Subtotal................................... 37,455 96.83 42,539 99.30 52,647 100.00
FHLB stock.................................. 1,228 3.17 306 0.70 -- --
------- ---------- ------- ---------- ------- ----------
Total..................................... $38,683 100.00% $42,845 100.00% $52,647 100.00%
======= ========== ======= ========== ======= ==========
Average remaining life of investment
securities.................................. 2.28 Years 1.89 Years 1.51 Years
Other interest earning assets:
Interest-bearing deposits with banks........ 1,373 13.63 115 6.34 1,778 20.73
Federal funds sold.......................... 8,700 86.37 1,700 93.66 6,800 79.27
------- ---------- ------- ---------- ------- ----------
Total..................................... $10,073 100.00% $ 1,815 100.00% $ 8,578 100.00%
======= ========== ======= ========== ======= ==========
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------------
BOOK PERCENT OF BOOK PERCENT OF BOOK PERCENT OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held for investment:
U.S. government and agency securities....... $ -- --% $ -- --% $ -- --%
State and municipals........................ -- -- 2,997 6.14 -- --
Other....................................... -- -- 1,466 3.01 -- --
------- ---------- ------- --------- ------- ---------
Subtotal................................... -- -- 4,463 9.15 -- --
Investment securities available for sale:
U.S. government securities.................. 5,584 11.82 5,706 11.70 5,270 10.37
Federal agency securities................... 3,000 6.35 491 1.01 515 1.01
Corporate debt securities................... 34,350 72.74 36,408 74.67 37,414 73.60
Tax exempt bonds............................ 2,258 4.78 -- -- 3,597 7.07
Public utilities............................ 1,246 2.64 -- -- 2.744 5.40
Equity securities........................... 788 1.67 1,690 3.47 1,297 2.55
------- ---------- ------- --------- ------- ---------
Subtotal................................... 47,226 100.00 44,295 90.85 50,837 100.00
FHLB stock.................................. -- -- -- -- -- --
------- ---------- ------- --------- ------- ---------
Total..................................... 47,226 100.00% $48,758 100.00% $50,837 100.00%
======= ========== ======= ========= ======= =========
Average remaining life of investment
securities.................................. 1.80 Years 2.00 Years 2.51 Years
Other interest earning assets:
Interest-bearing deposits with banks........ 1,972 28.28 -- -- -- --
Federal funds sold.......................... 5,000 71.72 1,800 100.00 4,800 100.00
------- ---------- ------- --------- ------- ---------
Total..................................... $ 6,972 $ 100.00% $ 1,800 100.00% $ 4,800 100.00%
======= ========== ======= ========= ======= =========
</TABLE>
84
<PAGE>
INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, book value, market value and weighted average yields for
the Bank's investment portfolio at June 30, 1998.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------------------------------------------
LESS THAN 1 TO 5 5 TO 10 OVER
1 YEAR YEARS YEARS 10 YEARS TOTAL SECURITIES
----------- ----------- ---------- ----------- ------------------------------
BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE MARKET VALUE
----------- ----------- ----------- ----------- ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities... $ -- $ 1,000 $ -- $ -- $ 1,000 $ 1,008
Federal agency obligations... 1,328 9,536 11,171 3,260 25,295 25,307
Corporate bonds.............. 5,000 2,647 -- -- 7,647 7,688
Public utilities............. -- -- 400 -- 400 404
Tax exempt bonds............. 42 488 800 290 1,620 1,762
Other........................ -- -- -- 2,721 2,721 3,401
------ ------- ------- ------ ------- -------
Total securities............ $6,370 $13,671 $12,371 $6,271 $38,683 $39,570
====== ======= ======= ====== ======= =======
Weighted average yield/(1)/.. 7.73% 6.21% 6.57% 6.63% 6.60% 6.45%
</TABLE>
- ----------------
/(1)/ Weighted average yield has not been adjusted to reflect tax equivalent
adjustments.
MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower the Bank's credit risk as a result of the
guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and (iii) increase
liquidity. The Bank has not invested in CMOs in recent years. At June 30,
1998, mortgage-backed securities totaled $16.6 million or 7.6% of total assets,
all of which were classified as available for sale. At June 30, 1998, all of the
mortgage-backed securities were fixed-rate. The mortgage-backed securities
portfolio had coupon rates ranging from 6.00% to 9.50%, a weighted average yield
of 6.70% and a weighted average life (including payment assumption) of 6.8 years
at June 30, 1998. The estimated fair value of the Bank's mortgage-backed
securities at June 30, 1998 was $16.6 million which was $80,000 greater than the
amortized cost of $16.5 million.
Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying mortgages. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage related securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including Fannie Mae,
Freddie Mac and GNMA) pool and resell the participation interests in the form of
securities to investors, such as the Bank, and guarantee the payment of
principal and interest to these investors. Mortgage-backed securities generally
yield less than the loans that underlie such securities because of the cost of
payment guarantees and credit enhancements. In addition, mortgage related
securities are usually more liquid than individual mortgage loans and may be
used to collateralize certain liabilities and obligations of the Bank.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. Management reviews prepayment estimates periodically
to ensure that prepayment assumptions are reasonable considering the underlying
collateral for the securities at issue and current interest rates and to
determine the yield and estimated maturity of the Bank's mortgage-backed
securities portfolio. Of the Bank's $16.6 million mortgage-backed securities
portfolio at June 30, 1998, $5.5 million with a weighted average yield of 6.7 %
had contractual maturities within five years, $3.9 million with a weighted
average yield of 6.8% had contractual maturities of five to ten years and $7.2
million with a weighted average yield of 6.7% had contractual maturities of over
ten years. However, the actual maturity of a mortgage-backed security may be
less than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the prevailing
85
<PAGE>
mortgage interest rates generally is the most significant determinant of the
rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Bank may be
subject to reinvestment risk because, to the extent that the Bank's mortgage
related securities prepay faster than anticipated, the Bank may not be able to
reinvest the proceeds of such repayments and prepayments at a comparable rate of
return. Conversely, in a rising interest rate environment prepayments may
decline, thereby extending the estimated life of the security and depriving the
Bank of the ability to reinvest cash flows at the increased rates of interest.
86
<PAGE>
MORTGAGE-BACKED SECURITIES. Set forth below is information relating to the
Bank's mortgage-backed securities for the periods indicated.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
------------------- -------------------- --------------------
BOOK PERCENT OF BOOK PERCENT OF BOOK PERCENT OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
available for sale:
GNMA...................... $ 15 0.09% $ 16 0.14% $ 19 0.40%
Fannie Mae................ 10,486 63.41 7,752 66.40 3,540 75.11
Freddie Mac............... 5,948 35.97 3,808 32.61 1,035 21.97
CMOs...................... 87 0.53 99 0.85 119 2.52
------- ---------- ------- ---------- ------- ----------
Subtotal................. 16,536 100.00 11,675 100.00 4,713 100.00
Unamortized
premium/discount.......... -- -- -- -- -- --
------- ---------- ------- ---------- ------- ----------
Total.................... $16,536 100.00% $11,675 100.00% $ 4,713 100.00%
======= ========== ======= ========== ======= ==========
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
------------------- -------------------- --------------------
BOOK PERCENT OF BOOK PERCENT OF BOOK PERCENT OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
available for sale:
GNMA...................... $ 25 9.80% $ 29 10.21% $ 35 7.42%
Fannie Mae................ -- -- -- -- -- --
Freddie Mac............... 75 30.20 88 30.99 140 29.66
CMOs...................... 153 60.00 167 58.80 297 62.92
------- ---------- ------- ---------- ------- ----------
Subtotal................. 253 100.00 284 100.00 472 100.00
Unamortized
premium/discount.......... -- -- -- -- -- --
------- ---------- ------- ---------- ------- ----------
Total.................... $ 253 100.00% $284 100.00% $472 100.00%
======= ========== ======= ========== ======= ==========
</TABLE>
87
<PAGE>
SOURCES OF FUNDS
GENERAL. The primary sources of the Bank's funds for use in lending,
investing and for other general purposes are deposits, repayments and
prepayments of loans and securities, proceeds from sales of loans and
securities, and proceeds from maturing securities and cash flows from
operations.
DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, noninterest-bearing checking accounts and money market accounts and
certificates of deposit. The Bank also offers IRAs and other qualified plan
accounts.
At June 30, 1998, deposits totaled $189.2 million. At June 30, 1998, the
Bank had a total of $110.5 million in certificates of deposit, of which $67.9
million had maturities of one year or less. Although the Bank has a significant
portion of its deposits in shorter term certificates of deposit, management
monitors activity on these accounts . Based on historical experience and the
Bank's current pricing strategy, management believes it will retain a large
portion of such accounts upon maturity. At June 30, 1998 certificates of
deposit with balances of $100,000 or more totaled $21.1 million.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. Deposits are obtained predominantly from the areas in which the
Bank's branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. In
addition, the Bank has periodically paid a special interest payment on all
deposit accounts, ranging from 10 to 25 basis points. The Bank uses
traditional means of advertising its deposit products, including radio and print
media and it generally does not solicit deposits from outside its market area.
While certificates of deposit in excess of $100,000 are accepted by the Bank,
and may be subject to preferential rates, the Bank does not actively solicit
such deposits as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.
The following table sets forth the deposit activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Opening balance.......... $ 183,138 $ 185,508 $ 185,508 $ 181,385 $ 179,725
Deposits................. 363,850 334,797 678,376 606,912 548,136
Withdrawals.............. (361,763) (340,309) (688,643) (610,684) (554,104)
Interest credited........ 3,992 3,926 7,897 7,895 7,628
--------- --------- --------- --------- ---------
Ending balance........... $ 189,217 $ 183,922 $ 183,138 $ 185,508 $ 181,385
--------- --------- --------- --------- ---------
Net increase............. $ 6,079 $ (1,586) $ (2,370) $ 4,123 $ 1,660
========= ========= ========= ========= =========
Percent increase......... 3.32% (0.86%) (1.28%) 2.27% 0.92%
========= ========= ========= ========= =========
</TABLE>
88
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1998.
<TABLE>
<CAPTION>
MATURITY
------------------------------------------------------
3 MONTHS OVER 3 TO 6 OVER 6 TO 12 OVER 12
OR LESS MONTHS MONTHS MONTHS TOTAL
-------- ----------- ------------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000... $22,361 $13,666 $19,932 $33,375 $ 89,334
Certificates of deposit of $100,000 or more.. 2,945 2,744 6,206 9,251 21,146
------- ------- ------- ------- --------
Total of certificates of deposit............. $25,306 $16,410 $26,138 $42,626 $110,480
======= ======= ======= ======= ========
</TABLE>
The following tables set forth information, by various rate categories,
regarding the average balance of deposits by types of deposit for the periods
indicated.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------ ---------------------------------------------------------------
1998 1997 1996 1995
------------------ ------------------- ---------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNTS PERCENT AMOUNT PERCENT
-------- -------- -------- --------- ------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transactions and savings
deposits:
Noninterest-bearing:........... $ 15,800 8.35% $ 13,947 7.62% $ 12,113 6.53% $ 12,206 6.73%
Savings accounts............... 44,008 23.26 42,101 22.99 42,454 22.88 43,388 23.91
NOW accounts................... 6,309 3.33 5,677 3.10 5,984 3.22 5,497 3.03
Money market accounts.......... 12,621 6.67 10,600 5.79 14,096 7.59 10,549 5.83
-------- ----- -------- ----- -------- ----- -------- -----
Total......................... 78,738 41.61 72,325 39.49 74,647 40.24 71,640 39.50
-------- ----- -------- ----- -------- ----- -------- -----
Certificates of deposit:
0.00-3.99%..................... 3,408 1.80 2,464 1.35 2,985 1.62 3,445 1.89
4.00-5.99%..................... 85,943 45.42 85,121 46.48 79,892 43.06 67,156 37.02
6.00-7.99%..................... 21,129 11.17 23,228 12.68 27,984 15.08 39,125 21.57
8.00-9.99%..................... -- -- -- -- -- -- 19 0.02
10.00% and over................ -- -- -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- -----
Total certificates of deposit.. 110,480 58.39 110,813 60.51 110,861 59.76 109,745 60.50
-------- ----- -------- ----- -------- ------ -------- ------
Total deposits $189,218 100.00% $183,138 100.00% $185,508 100.00% $181,385 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The following table sets forth the amount and remaining maturities of the
Bank's certificates of deposit accounts at June 30, 1998.
<TABLE>
<CAPTION>
PERCENT
2.00-3.99% 4.00-5.99% 6.00-7.99% TOTAL OF TOTAL
--------- ---------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificate accounts maturing in quarter ending:
June 30, 1998..................................... $ 2,257 $ 103 $ -- $ 2,360 2.14%
September 30, 1998................................ 778 21,626 542 22,946 20.77
December 31, 1998................................. 73 15,286 1,051 16,410 14.85
March 31, 1999.................................... 250 13,215 1,161 14,626 13.24
June 30, 1999..................................... 1 9,538 1,972 11,511 10.42
September 30, 1999................................ -- 5,541 473 6,014 5.44
December 31, 1999................................. 42 2,608 2,517 5,167 4.68
March 31, 2000.................................... -- 2,463 4,457 6,920 6.26
June 30, 2000..................................... -- 2,885 3,495 6,380 5.77
September 30, 2000................................ 7 3,471 1,288 4,766 4.31
December 31, 2000................................. -- 1,791 15 1,806 1.63
March 31, 2001.................................... -- 2,563 824 3,387 3.07
June 30, 2001..................................... -- 2,270 100 2,370 2.15
Thereafter........................................ -- 2,583 3,234 5,817 5.27
---------- ---------- ------- -------- ------
Total............................................. 3,408 85,943 21,129 110,480 100.00%
========== ========== ======= ======== ======
</TABLE>
89
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Percent of total.................................. 3.08% 77.79% 19.13% 100.00%
========== ========== ======= ========
</TABLE>
BORROWED FUNDS. At June 30, 1998, the Bank had no borrowed funds.
TRUST ACTIVITIES. The Bank provides trust and investment services, acts as
executor or administrator of estates and as trustee for various types of trusts.
Trust services are offered through the Bank's Trust Department. Services
include fiduciary services for trusts and estates, money management and
custodial services. At June 30, 1998, the Bank maintained 92 trust/fiduciary
accounts, with total assets of $5.5 million under management. The Bank recently
hired an experienced trust officer. Management anticipates that in the future
the Trust Department will become a more significant component of the Bank's
business.
BROKERAGE SERVICES. The Bank recently entered into an agreement with a
third party provider whereby the Bank will be able to offer investment and
brokerage services to its customers. It is expected that the Bank will begin
offering such services during the first quarter of 1999.
PROPERTIES
The Bank currently conducts its business through five full-service banking
offices, all of which are owned. The following table sets forth the Bank's
offices as of June 30, 1998.
<TABLE>
<CAPTION>
LOCATION ORIGINAL DATE OF NET BOOK VALUE
YEAR LEASE OF PROPERTY
ACQUIRED EXPIRATION AT JUNE 30, 1998
- ---------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
MAIN OFFICE:
182 Main Street 1889 N/A $2,880
Oneida, New York 13421
BRANCH OFFICES:
Camden Branch 1997 N/A 1,028
41 Harden Boulevard
Camden, New York 13316
Cazenovia Branch 1971 N/A 243
42 Albany Street
Cazenovia, New York 13035
Hamilton Branch 1976 N/A 86
35 Broad Street
Hamilton, New York 13346
Convenience Center 1988 N/A 288
585 Main Street
Oneida, New York 13421
OPERATIONS CENTER
126 Lenox Avenue 1989 N/A 358
Oneida, New York 13421
</TABLE>
LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involve amounts which are believed by management to be immaterial
to the financial condition or operations of the Bank.
PERSONNEL
90
<PAGE>
As of June 30, 1998, the Bank had 80 full-time employees and 19 part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank considers its relationship with its employees to be good. See
"Management of the Bank--Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Mutual Holding Company, the Company and the Bank will be
subject to federal income taxation in the same general manner as other
corporations, with some exceptions discussed below. The following discussion of
federal taxation is intended only to summarize certain pertinent federal income
tax matters and is not a comprehensive description of the tax rules applicable
to the Bank.
METHOD OF ACCOUNTING. For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its consolidated federal income tax
returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995.
BAD DEBT RESERVES. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return. In addition, the federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The Bank did
not have any such reserves subject to recapture.
MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax
may be used as credits against regular tax liabilities in future years. The Bank
has not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 5, 1997. At June 30, 1998, the Bank had no
net operating loss carryforwards for federal income tax purposes.
CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. Following completion of the Reorganization and
Offering, it is expected that the Mutual Holding Company will own less than 80%
of the outstanding Common Stock of the Company. As such, the Mutual Holding
Company will not be permitted to file a consolidated federal income tax return
with the Company and the Bank. The corporate dividends-received deduction is 80%
in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated return, and corporations which own less
than 20% of the stock of a corporation distributing a dividend may deduct only
70% of dividends received or accrued on their behalf.
STATE TAXATION
91
<PAGE>
NEW YORK STATE TAXATION. The Company and the Bank will 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 "alternative entire net
income" allocable to New York State (c) 0.01% of the average value of assets
allocable to New York State or (d) nominal minimum tax. Entire net income is
based on federal taxable income, subject to certain modifications. Alternative
entire net income is equal to entire net income without certain modifications.
DELAWARE STATE TAXATION. As a Delaware holding company not earning income
in Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
The IRS and New York State Department of Taxation have recently completed
their audit of the Bank's 1993, 1994 and 1995 federal and state income tax
returns.
REGULATION
GENERAL
The Bank is a New York-chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC through the BIF. The
Bank is subject to extensive regulation by the Department, as its chartering
agency, and by the FDIC, as its deposit insurer. The Bank is required to file
reports with, and is periodically examined by, the FDIC and the Superintendent
concerning its activities and financial condition and must obtain regulatory
approvals prior to entering into certain transactions, including, but not
limited to, mergers with or acquisitions of other banking institutions. The Bank
is a member of the FHLB of New York and is subject to certain regulations by the
Federal Home Loan Bank System. Both the Company and the Mutual Holding Company,
as bank holding companies, will be subject to regulation by the Federal Reserve
Board and will be required to file reports with the Federal Reserve Board. Any
change in such regulations, whether by the Department, the FDIC, or the Federal
Reserve Board could have a material adverse impact on the Bank, the Company, or
the Mutual Holding Company.
Regulatory requirements applicable to the Bank, the Company and the Mutual
Holding Company are referred to below or elsewhere herein.
NEW YORK BANK REGULATION
The exercise by an FDIC-insured savings bank of the lending and investment
powers under the New York State Banking Law is limited by FDIC regulations and
other federal law and regulations. In particular, the applicable provisions of
New York State Banking Law and regulations governing the investment authority
and activities of an FDIC insured state-chartered savings bank have been
substantially limited by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto.
The Bank derives its lending, investment and other authority primarily from
the applicable provisions of New York State Banking Law and the regulations of
the Department, as limited by FDIC regulations. Under these laws and
regulations, savings banks, including the Bank, may invest in real estate
mortgages, consumer and commercial loans, certain types of debt securities,
including certain corporate debt securities and obligations of federal, state
and local governments and agencies, certain types of corporate equity securities
and certain other assets. Under the statutory authority for investing in equity
securities, a savings bank may invest up to 7.5% of its assets in corporate
stock, with an overall limit of 5% of its assets invested in Common Stock.
Investment in the stock of a single corporation is limited to the lesser of 2%
of the outstanding stock of such corporation or 1% of the savings bank's assets,
except as set forth below. Such equity securities must meet certain earnings
ratios and other tests of financial performance. A savings bank's lending powers
are not subject to percentage of assets limitations, although there are limits
applicable to single borrowers. A savings bank may also, pursuant to the
"leeway" power, make investments not otherwise permitted under
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the New York State Banking Law. This power permits investments in otherwise
impermissible investments of up to 1% of assets in any single investment,
subject to certain restrictions and to an aggregate limit for all such
investments of up to 5% of assets. Additionally, in lieu of investing in such
securities in accordance with and reliance upon the specific investment
authority set forth in the New York State Banking Law, savings banks are
authorized to elect to invest under a "prudent person" standard in a wider range
of investment securities as compared to the types of investments permissible
under such specific investment authority. However, in the event a savings bank
elects to utilize the "prudent person" standard, it will be unable to avail
itself of the other provisions of the New York State Banking Law and regulations
which set forth specific investment authority. The Bank has not elected to
conduct its investment activities under the "prudent person" standard. A savings
bank may also exercise trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment authority. A savings bank may use
this power to invest in corporations that engage in various activities
authorized for savings banks, plus any additional activities which may be
authorized by the Banking Board. Investment by a savings bank in the stock,
capital notes and debentures of its service corporations is limited to 3% of the
bank's assets, and such investments, together with the bank's loans to its
service corporations, may not exceed 10% of the savings bank's assets.
Furthermore, New York banking regulations impose requirements on loans which a
bank may make to its executive officers and directors and to certain
corporations or partnerships in which such persons have equity interests. These
requirements include, but are not limited to, requirements that (i) certain
loans must be approved in advance by a majority of the entire board of trustees
and the interested party must abstain from participating directly or indirectly
in the voting on such loan, (ii) the loan must be on terms that are not more
favorable than those offered to unaffiliated third parties, and (iii) the loan
must not involve more than a normal risk of repayment or present other
unfavorable features.
Under the New York State Banking Law, the Superintendent may issue an order
to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Superintendent to
discontinue such practices, such director, trustee or officer may be removed
from office after notice and an opportunity to be heard. The Bank does not know
of any past or current practice, condition or violation that might lead to any
proceeding by the Superintendent or the Department against the Bank or any of
its trustees or officers.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
The Bank is a member of the BIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the Superintendent an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged or is
engaging in unsafe or unsound practices or is in an unsafe or unsound
condition.
Pursuant to the FDICIA, the FDIC established a system for setting deposit
insurance premiums based upon the risks a particular bank or savings association
posed to its deposit insurance funds. Under the risk-based deposit insurance
assessment system, the FDIC assigns an institution to one or three capital
categories based on the institution's financial information, as of the reporting
period ending six months before the assessment period, consisting of: (i) well
capitalized; (ii) adequately capitalized; or (iii) undercapitalized and one of
three supervisory subcategories within each capital group. With respect to the
capital ratios, institutions are classified as well capitalized or adequately
capitalized using ratios that are substantially similar to the prompt corrective
action capital ratios discussed above. Any institution
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that does not meet these two definitions is deemed to be undercapitalized for
this purpose. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation provided to the FDIC by the institution's
primary federal regulator and information that the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds (which may include, if applicable, information provided
by the institution's state supervisor). An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. Under
the final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessments rates for deposit
insurance currently range from 0 basis points to 27 basis points. The capital
and supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed. The Bank's rate of deposit insurance
assessments will depend upon the category and subcategory to which the Bank is
assigned by the FDIC. Any increase in insurance assessments could have an
adverse effect on the earnings of the Bank.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), the
assessment base for the payments on the bonds ("FICO bonds") issued in the late
1980s by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF-insured institutions, such as the Bank.
Until December 31, 1999, or such earlier date on which the last savings
association ceases to exist, the rate of assessment for BIF-assessable deposits
shall be one-fifth of the rate imposed on SAIF-assessable deposits. The annual
rate of assessments for the payments on the FICO bonds for the semi-annual
period beginning on July 1, 1998 was 0.0122% for BIF-assessable deposits and
0.0610% for SAIF-assessable deposits.
REGULATORY CAPITAL REQUIREMENTS
The FDIC has adopted risk-based capital guidelines to which the Bank is
subject. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations. The Bank is required to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted assets. The ratio of
such regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's "risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain non-
cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of at least 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC and the other federal banking regulators have proposed amendments to their
minimum capital regulations to provide that the minimum leverage capital ratio
for a depository institution that has been assigned the highest composite rating
of 1 under the Uniform Financial Institutions Rating System will be 3% and that
the minimum leverage capital ratio for any other depository institution will be
4% unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution. The FDIC may,
however, set higher leverage and risk-based capital requirements on individual
institutions when particular circumstances warrant. Savings banks experiencing
or anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
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STANDARDS FOR SAFETY AND SOUNDNESS
The federal banking agencies have adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
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 standards set forth
in the Guidelines address internal controls and information systems; internal
audit system; credit underwriting; loan documentation; interest rate risk
exposure; asset growth; and compensation, fees and benefits. The agencies also
adopted additions to the Guidelines which require institutions to examine asset
quality and earnings standards. 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, as required by federal
law. The final regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
The FDIC has the authority to use its enforcement powers to prohibit a
savings bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice. Federal law also prohibits the
payment of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. New York law also
restricts the Bank from declaring a dividend which would reduce its capital
below (i) the amount required to be maintained by state law and regulation, or
(ii) the amount of the Bank's liquidation account established in connection with
the Reorganization. The liquidation account is expected to initially total $28.0
million.
PROMPT CORRECTIVE ACTION
The federal banking agencies have promulgated regulations to implement the
system of prompt corrective action required by federal law. Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of
6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to any written capital order or directive; (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized"; (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Federal law
and regulations also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well
capitalized" savings institution.
ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS ACTING AS
PRINCIPAL
Federal law generally limits the activities and equity investments of FDIC-
insured, state-chartered banks to those that are permissible for national banks,
notwithstanding state laws. Under regulations dealing with equity
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investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things, (i) acquiring or retaining a majority interest in a
subsidiary, the activities of which are limited to those permissible for a
subsidiary of a national bank; (ii) investing as a limited partner in a
partnership the sole purpose of which is the direct or indirect investment in
the acquisition, rehabilitation, or new construction of a qualified housing
project, provided that such limited partnership investments may not exceed 2% of
the bank's total assets; (iii) acquiring up to 10% of the voting stock of a
company that solely provides or reinsures directors', trustees', and officers'
liability insurance coverage or bankers' blanket bond group insurance coverage
for insured depository institutions; and (iv) acquiring or retaining the voting
shares of a depository institution if certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the foregoing
limitation. For example, certain state-chartered banks, such as the Bank, may
continue to invest in common or preferred stock listed on a National Securities
Exchange or the National Market System of Nasdaq, and in the shares of an
investment company registered under the Investment Company Act of 1940, as
amended. As of June 30, 1998, the Bank had $1.5 million of securities pursuant
to this exception. As a savings bank, the Bank may also continue to sell savings
bank life insurance.
TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary of the savings bank. In a holding company context, at a minimum, the
parent holding company of a savings bank and any companies which are controlled
by such parent holding company are affiliates of the savings bank. Generally,
Section 23A limits the extent to which the savings bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to
10% of such savings bank's capital stock and surplus and contains an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus. The term "covered transaction" includes the
making of loans or other extensions of credit to an affiliate; the purchase of
assets from an affiliate, the purchase of, or an investment in, the securities
of an affiliate; the acceptance of securities of an affiliate as collateral for
a loan or extension of credit to any person; or issuance of a guarantee,
acceptance, or letter of credit on behalf of an affiliate. Section 23A also
establishes specific collateral requirements for loans or extensions of credit
to, or guarantees, acceptances on letters of credit issued on behalf of an
affiliate. Section 23B requires that covered transactions and a broad list of
other specified transactions be on terms substantially the same, or no less
favorable, to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
HOLDING COMPANY REGULATION
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FEDERAL BANK HOLDING COMPANY REGULATION. Upon consummation of the
Reorganization, the Company, as the sole stockholder of the Bank, and the Mutual
Holding Company, as indirect controlling stockholder of the Bank, will become
bank holding companies. Bank holding companies are subject to comprehensive
regulation and regular examinations by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the
Federal Reserve Board. The Federal Reserve Board also has extensive enforcement
authority over bank holding companies, including, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders and to require that a holding company divest subsidiaries (including its
bank subsidiaries). In general, enforcement actions may be initiated for
violations of law and regulations and unsafe or unsound practices.
After consummation of the Reorganization and Offering, the Company will be
subject to capital adequacy guidelines for bank holding companies (on a
consolidated basis) which are substantially similar to those of the FDIC for the
Bank. On a pro forma consolidated basis after the Reorganization and Offering,
the Company's pro forma stockholders' equity will exceed these requirements.
Under Federal Reserve Board policy, a bank holding company must serve as a
source of strength for its subsidiary bank. Under this policy the Federal
Reserve Board may require and has required in the past, a holding company to
contribute additional capital to an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain Federal Reserve Board
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
Board includes, among other things, operating a savings association, mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers.
INTERSTATE BANKING AND BRANCHING. Federal law allows the Federal Reserve
Board to approve an application of an adequately capitalized and adequately
managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of the bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Federal Reserve Board is prohibited from approving an application if
the applicant (and its depository institution affiliates) controls or would
control more than 10% of the insured deposits in the United States or 30% or
more of the deposits in the target bank's home state or in any state in which
the target bank maintains a branch. Individual states continue to have authority
to limit the percentage of total insured deposits in the state which may be held
or controlled by a bank or bank holding company to the extent such limitation
does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit referred
to above.
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Additionally, beginning on June 1, 1997, the federal banking agencies were
authorized to approve interstate merger transactions without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the banks "opted out" by adopting a law which applies equally to all out-
of-state banks and expressly prohibits merger transactions involving out-of-
state banks. Interstate acquisitions of branches are permitted only if the law
of the state in which the branch is located permits such acquisitions. In
response to Riegle-Neal, the State of New York enacted laws allowing interstate
mergers and branching on a reciprocal basis.
Federal law authorizes the FDIC to approve interstate branching de novo by
national and state banks, respectively, only in states which specifically allow
for such branching. The appropriate federal banking agencies are required to
prescribe regulations which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
The FDIC and Federal Reserve Board have adopted such regulations. These
regulations include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve. Should the FDIC determination that a
bank interstate branch is not reasonably helping to meet the credit needs of the
communities serviced by an interstate branch, the FDIC is authorized to close
the interstate branch or not permit the bank to open a new branch in the state
in which the bank previously opened an interstate branch.
DIVIDENDS. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve Board's view that a bank holding company should pay cash dividends only
to the extent that the holding company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the holding company's capital needs, asset quality and
overall financial condition. The Federal Reserve Board also indicated that it
would be inappropriate for a company experiencing serious financial problems to
borrow funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the Federal Reserve Board, the Federal Reserve Board may
prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the Federal Reserve Board prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve Board may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve Board
order or any condition imposed by, or written agreement with, the Federal
Reserve Board. This notification requirement does not apply to any company that
meets the well-capitalized standard for commercial banks, has a safety and
soundness examination rating of at least a "2" and is not subject to any
unresolved supervisory issues.
NEW YORK STATE BANK HOLDING COMPANY REGULATION. In addition to the federal
bank holding company regulations, a bank holding company organized or doing
business in New York State also may be subject to regulation under the New York
State Banking Law. The term "bank holding company," for the purposes of the New
York State Banking Law, is defined generally to include any person, company or
trust that directly or indirectly either controls the election of a majority of
the directors or owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the Company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions. In general, a bank holding company
controlling, directly or indirectly, only one banking institution will not be
deemed to be a bank holding company for the purposes of the New York State
Banking Law. Under New York State Banking Law, the prior approval of the Banking
Board is required before: (1) any action is taken that causes any company to
become a bank holding company; (2) any action is taken that causes any banking
institution to become or be merged or consolidated with a subsidiary of a bank
holding company; (3) any bank holding company acquires direct or indirect
ownership or control of more than 5% of the voting stock of a banking
institution; (4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (5) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Additionally, certain restrictions apply to New York State
bank holding companies
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regarding the acquisition of banking institutions which have been chartered five
years or less and are located in smaller communities. Officers, directors and
employees of New York State bank holding companies are subject to limitations
regarding their affiliation with securities underwriting or brokerage firms and
other bank holding companies and limitations regarding loans obtained from its
subsidiaries. Although the Company will not be a bank holding company for
purposes of New York State law upon the Effective Date of the Reorganization,
any future acquisition of ownership, control, the power to vote 10% or more of
the voting stock of another bank or bank holding company would cause it to
become such.
MUTUAL HOLDING COMPANY REGULATION. Under New York law, the Mutual Holding
Company may exercise all powers and privileges of a New York chartered mutual
savings bank, except for the power of accepting deposits. The exercise of such
powers and privileges is subject to the limitations of the BHCA.
DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY. It has been the policy of
many mutual holding companies to waive the receipt of dividends declared by any
savings institution subsidiary. In connection with its approval of the
Reorganization, however, it is expected that the Federal Reserve Board will
impose certain conditions on the waiver by the Mutual Holding Company of
dividends paid on the Common Stock. In particular, the Mutual Holding Company is
expected to be required to obtain prior Federal Reserve Board approval before it
may waive any dividends. As of the date hereof, management does not believe that
the Federal Reserve Board has given its approval to any waiver of dividends by
any mutual holding company that has requested its approval.
The terms of the Federal Reserve Board approval of the Reorganization are
also expected to require that the amount of any waived dividends will not be
available for payment to Minority Stockholders and be excluded from capital for
purposes of calculating dividends payable to Minority Stockholders. Moreover,
the cumulative amount of waived dividends must be maintained in a restricted
capital account which would be added to any liquidation account of the Bank, and
would not be available for distribution to Minority Stockholders. The restricted
capital account and liquidation account amounts would not be reflected in the
Bank's financial statements or the notes thereto, but would be considered as a
notational or memorandum account of the Bank, and would be maintained in
accordance with the rules, regulations and policy of the Office of Thrift
Supervision except that such rules would be administered by the Federal Reserve
Board, and any other rules and regulations adopted by the Federal Reserve Board.
The Plan of Reorganization also provides that if the Mutual Holding Company
converts to stock form in the future, any waived dividends would reduce the
percentage of the converted company's shares of Common Stock issued to Minority
Stockholders in connection with any such transaction. See "Conversion of the
Mutual Holding Company to Stock Form."
Management does not believe that the Mutual Holding Company will initially
waive dividends declared by the Company. If the Mutual Holding Company decides
that it is in its best interest to waive a particular dividend to be paid by the
Company and the Federal Reserve Board approves such waiver, then the Company
would pay such dividend only to Minority Stockholders. The amount of the
dividend waived by the Mutual Holding Company would be treated in the manner
described above. The Mutual Holding Company's decision as to whether or not to
waive a particular dividend, if such waiver is approved by the Federal Reserve
Board, will depend on a number of factors, including the Mutual Holding
Company's capital needs, the investment alternatives available to the Mutual
Holding Company as compared to those available to the Company and regulatory
approvals. There can be no assurance (i) that after the Reorganization the
Mutual Holding Company will waive dividends paid by the Company, (ii) that the
Federal Reserve Board will approve any dividend waivers by the Mutual Holding
Company or (iii) of the terms that may be imposed by the Federal Reserve Board
on any dividend waiver.
CONVERSION OF THE MUTUAL HOLDING COMPANY TO STOCK FORM. Under New York
law, regulations of the Banking Board and the Plan of Reorganization permit the
Mutual Holding Company to convert from the mutual to the capital stock form of
organization (a "Conversion Transaction"). There can be no assurance when, if
ever, a Conversion Transaction will occur, and the board of trustees has no
current intention or plan to undertake a Conversion Transaction. In a Conversion
Transaction, the Mutual Holding Company would merge with and into the Bank or
the Company, with
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the Bank or the Company as the resulting entity. Certain depositors of the Bank
would receive the right to subscribe for additional shares of the resulting
entity. In a Conversion Transaction, each share of Common Stock outstanding
immediately prior to the completion of the Conversion Transaction held by
persons other than the Mutual Holding Company would be automatically converted
into and become the right to receive a number of shares of Common Stock of the
resulting entity determined pursuant to an exchange ratio that ensures that
after the Conversion Transaction. Subject to the Dividend Waiver Adjustment
described below and any adjustment to reflect the receipt of cash in lieu of
fractional shares, the percentage of the to-be outstanding shares of the
resulting entity issued to Minority Stockholders in exchange for their Common
Stock would be equal to the percentage of the outstanding shares of Common Stock
held by Minority Stockholders immediately prior to the Conversion Transaction.
The total number of shares held by Minority Stockholders after the Conversion
Transaction would also be affected by any purchases by such persons in the
offering that would be conducted as part of the Conversion Transaction.
The Dividend Waiver Adjustment would adjust the percentage of the to-be
outstanding shares of the resulting entity issued in exchange for minority
shares to reflect (i) the aggregate amount of dividends waived by the Mutual
Holding Company and (ii) assets other than Common Stock held by the Mutual
Holding Company. Pursuant to the Dividend Waiver Adjustment, the percentage of
the to-be outstanding shares of the resulting entity issued to Minority
Stockholders in exchange for their minority shares (the "Adjusted Minority
Ownership Percentage") is equal to the percentage of the outstanding shares of
Common Stock held by Minority Stockholders multiplied by the Dividend Waiver
Fraction. The Dividend Waiver Fraction is equal to the product of (a) a
fraction, of which the numerator is equal to the Company's stockholders' equity
at the time of the Conversion Transaction less the aggregate amount of dividends
waived by the Mutual Holding Company and the denominator is equal to the
Company's stockholders' equity at the time of the Conversion Transaction, and
(b) a fraction, of which the numerator is equal to the appraised pro forma
market value of the resulting entity minus the value of the Mutual Holding
Company's assets other than Common Stock and the denominator is equal to the pro
forma market value of the resulting entity.
FEDERAL SECURITIES LAW
The Common Stock of the Company to be issued in the Offering will be
registered with the SEC under the Exchange Act, prior to completion of the
Offering and Reorganization. The Company will be subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
SEC under the Exchange Act.
The Company Common Stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 30,
1998, the Bank was in compliance with these reserve requirements.
COMMUNITY REINVESTMENT ACT
FEDERAL REGULATION. Under the Community Reinvestment Act, as amended (the
"CRA"), as implemented by FDIC regulations, a savings bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into
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account in its evaluation of certain applications by such institution. The CRA
requires the FDIC to provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating was "outstanding."
NEW YORK STATE REGULATION. The Bank is also subject to provisions of the
New York State Banking Law which impose continuing and affirmative obligations
upon banking institutions organized in New York State to serve the credit needs
of its local community ("NYCRA") which are substantially similar to those
imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA
report and copies of all federal CRA reports with the Department. The NYCRA
requires the Department to make a biennial written assessment of a bank's
compliance with the NYCRA, utilizing a four-tiered rating system and make such
assessment available to the public. The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's application to engage
in certain transactions, including mergers, asset purchases and the
establishment of branch offices or automated teller machines, and provides that
such assessment may serve as a basis for the denial of any such
application.
The Bank's NYCRA rating as of its latest examination was "satisfactory."
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB of New York, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York. As of June 30, 1998, the Bank had $1.2 million of FHLB stock.
The dividend yield from FHLB stock was 7.45% at June 30, 1998. No assurance can
be given that such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
MANAGEMENT OF ONEIDA FINANCIAL CORP.
DIRECTORS OF THE COMPANY
The Board of Directors of the Company consists of eleven members, each of
whom is currently serving as a trustee of the Bank. Directors of the Company
will serve three-year staggered terms so that approximately one-third of the
directors will be elected at each annual meeting of stockholders. The class of
directors whose term of office expires in 1999 consists of Directors Clarke,
Kent, Myers and Milmoe. The class of directors whose term expires in 2000
consists of Directors Christakos, Caprio and White. The class of directors whose
term of office expires in 2001 consists of Directors Kallet, Devine, Matthews
and Haskell. The biographical information regarding these individuals is set
forth under "Management of the Bank-Biographical Information."
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EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names. The biographical information
for each executive officer is set forth under "Management of the Bank--
Biographical Information."
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ------------------- ---- -------------------------------------------------
<S> <C> <C>
Michael R. Kallet 47 President and Chief Executive Officer
Eric E. Stickels 36 Senior Vice President and Chief Financial Officer
Thomas H. Dixon 44 Senior Vice President\ Credit Administration
</TABLE>
- ---------------------------
*As of June 30, 1998
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected or until death, resignation,
retirement or removal by the board.
Since the formation of the Company, none of the executive officers has
received remuneration from the Company. It is not anticipated that the
executive officers of the Company will initially receive any remuneration in
their capacity as an executive officer. For information concerning compensation
of executive officers of the Bank, see "Management of the Bank."
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Certificate of Incorporation of the Company provides that a director or
officer of the Company shall be indemnified by the Company to the fullest extent
authorized by the Delaware General Corporation Law ("DGCL") against all
expenses, liability and loss reasonably incurred or suffered by such person in
connection with his or her activities as a director or officer or as a director
or officer of another company, if the director or officer held such position at
the request of the Company. Delaware law requires that such director, officer,
employee or agent, in order to be indemnified, must have acted in good faith and
in a manner reasonably believed to be not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, either had
reasonable cause to believe such conduct was lawful or did not have reasonable
cause to believe his or her conduct was unlawful.
In addition, the Certificate of Incorporation and Delaware law also provide
that the Company may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Company has the power to indemnify such
person against such expense, liability or loss under the DGCL. The Company
intends to obtain such insurance.
The Certificate of Incorporation also provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (which relates to unlawful dividends or stock purchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
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MANAGEMENT OF THE BANK
DIRECTORS OF THE BANK
Upon completion of the Reorganization, the initial directors of the Bank
will consist of those persons who currently serve on the Board of Trustees of
the Bank. The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year. Directors of the Bank will be elected by the Company as sole
stockholder of the Bank. The proposed directors of the Bank are as follows:
<TABLE>
<CAPTION>
DIRECTOR AGE * OCCUPATION DIRECTOR SINCE TERM EXPIRES
- --------------------------- ----- ----------------------- -------------- ------------
<S> <C> <C> <C> <C>
Nicholas J. Christakos 67 Investor and Consultant 1974 2000
Michael R. Kallet 47 President and Chief
Executive Officer 1997 2001
The Oneida Savings Bank
Patricia D. Caprio 49 Director of Development Programs, 1985 2000
Colgate University
Edward J. Clarke 59 President, Kennedy & Clarke, Inc. 1987 1999
James J. Devine, Jr. 64 Attorney, Kiley Law Firm.P.C. 1987 2001
John E. Haskell 56 President, Bailey & Haskell
Associates, Inc. 1992 2001
Rodney D. Kent 51 President, Chief Executive Officer 1990 1999
and Chairman, Omega Wire, Inc.
William D. Matthews 63 Chairman and Chief Executive Officer, 1996 2001
Oneida Ltd. and a director of Conmed
Corporation
Michael W. Milmoe 66 President, Canastota 1976 1999
Publishing Co., Inc.
Richard B. Myers 62 Orthodontist, Orthodontic Associates
of CNY 1981 1999
Frank O. White, Jr. 43 Assistant Director of Athletics, Colgate
University 1994 2000
</TABLE>
- --------------
*As of June 30, 1998
EXECUTIVE OFFICERS OF THE BANK
The following table sets forth certain information (as of June 30, 1998)
regarding the executive officers of the Bank, all of whom currently serve in
their indicated position as executive officers of the Bank.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- -------------------------------------------------
<S> <C> <C>
Michael R. Kallet 47 President and Chief Executive Officer
Eric E. Stickels 36 Senior Vice President and Chief Financial Officer
Thomas H. Dixon 44 Senior Vice President\Credit Administration
</TABLE>
The executive officers of the Bank will be elected annually and will hold
office until the next annual meeting of the board of directors of the Bank held
immediately after the annual meeting of stockholders of the Bank, and until
their successors are elected and qualified, or until death, resignation,
retirement or removal by the board of directors.
BIOGRAPHICAL INFORMATION
The following biographical information is provided for the trustees and
executive officers of the Bank. Professional background and employment history
are provided for at least the past five years.
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TRUSTEES/DIRECTORS
NICHOLAS J. CHRISTAKOS is the Chairman of the Board. Mr. Christakos is a
retired businessman.
MICHAEL R. KALLET is President and Chief Executive Officer of the Bank.
Mr. Kallet has been President and Chief Executive Officer since March 1990.
PATRICIA D. CAPRIO is the Director of Development Programs at Colgate
University.
EDWARD J. CLARKE is the President of Kennedy & Clarke, Inc., a property and
casualty insurance agency located in Cazenovia, New York.
JAMES J. DEVINE, JR. is the President of the Kiley Law Firm, P.C. located
in Oneida, New York.
JOHN E. HASKELL is the President of Bailey & Haskell Associates, Inc., an
insurance agency located in Oneida, New York.
RODNEY D. KENT is the President of Omega Wire, Inc., a copperwire
manufacturer located in Camden, New York.
WILLIAM D. MATTHEWS is the Chairman and Chief Executive Officer of Oneida,
Ltd. located in Oneida, New York. Mr. Matthews is also a director of Conmed
Corporation located in Utica, New York.
MICHAEL W. MILMOE is retired. Prior to his retirement, Mr. Milmoe was the
President of Canastota Publishing Co., Inc., located in Canastota, New York.
RICHARD B. MYERS is the President of Orthodontic Associates of C.N.Y., P.C.
a clinical orthodontics practice located in Oneida, New York.
FRANK O. WHITE, JR. is the Assistant Director of Athletics at Colgate
University. Until January 1998, Mr. White was the President and Chief Executive
Officer of Mid-State Raceway, Inc. located in Vernon, New York.
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT DIRECTORS
ERIC E. STICKELS has been Senior Vice President and Chief Financial Officer
of the Bank since May 1998. Prior to that time, Mr. Stickels held a variety of
positions at the Bank most recently as Senior Vice President-Operations and Vice
President-Chief Operations Officer. Mr. Stickels has been associated with the
Bank since 1982.
THOMAS H. DIXON has been Senior Vice President/Credit Administration since
1996. Prior to that time, Mr. Dixon was affiliated with Oneida Valley National
Bank in various capacities since 1981.
MEETINGS AND COMMITTEES OF THE BANK'S BOARD
The Board of Trustees of the Bank meets monthly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law. During the year ended December 31, 1997, the board held 15 meetings. No
trustee attended fewer than 75% in the aggregate of the total number of meetings
of the board or board committees on which such trustee served during 1997. The
Board of Trustees of the Bank has the following standing committees: loan
committee, audit committee, investment committee and executive committee.
Following the Reorganization, the Board of Directors will meet on a monthly
basis.
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BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY AFTER REORGANIZATION
Following the Reorganization, the board of directors of the Company is
expected to meet quarterly, or more often as may be necessary. The board of
directors initially is expected to have a standing executive committee and an
audit committee. The board of directors may, by resolution, designate one or
more additional committees.
The executive committee initially will consist of the following six
directors of the Company: Messrs. Myers, Christakos, Kent, Clarke, Haskell and
Milmoe. The executive committee is expected to meet as necessary when the board
is not in session to exercise general control and supervision in all matters
pertaining to the interests of the Company, subject at all times to the
direction of the board of directors. The executive committee may also serve as
the nominating committee for the purpose of identifying, evaluating and
recommending potential candidates for election to the board.
The audit committee initially will consist of the following directors of
the Company: Messrs. Kent, Christakos, Myers, White and Milmoe. The audit
committee is expected to meet at least quarterly to examine and approve the
audit report prepared by the independent auditors of the Bank, to review and
recommend the independent auditors to be engaged by the Company, to review the
internal audit function and internal accounting controls of the Company, and to
review and approve audit policies.
COMPENSATION OF DIRECTORS
Directors of the Bank receive an annual retainer of $6,000 and a fee of
$300 for each Board meeting attended. Directors receive $200 for each committee
meeting attended. Members of the Executive Committee receive $250 for each
meeting of the Executive Committee attended. The Chairman of the Board receives
an additional $200 for every Board meeting attended and each committee chair
receives an additional $100 for every committee meeting attended.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the year
ended December 31, 1997, certain information as to the total remuneration paid
by the Bank to the Chief Executive Officer of the Bank, who was the only
executive officer which received annual compensation in excess of $100,000 for
the year ended December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION/(1)/ LONG-TERM COMPENSATION
------------------------ -------------------------
AWARDS PAYOUTS
------------ -----------
OTHER
ANNUAL RESTRICTED OPTIONS/ ALL OTHER
COMPENSATION STOCK SARS LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS /(2)/ AWARDS/(3)/ /(#)(4)/ PAYOUTS /(5)/
- --------------------------- ---------- ----------- ----------- ------------ ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael R. Kallet 1997 $159,000 $30,000 -- -- -- -- $10,118
President and Chief Executive
Officer
</TABLE>
/(1)/ In accordance with the rules on executive officer and director
compensation disclosure adopted by the SEC, Summary Compensation
information is excluded for the fiscal years ended December 31, 1996 and
1995, as the Bank was not a public company during such periods.
/(2)/ The Bank also provides certain members of senior management, including Mr.
Kallet, with the use of an automobile, club membership dues, and certain
other personal benefits which have not been included in the table. The
aggregate amount of such other benefits did not exceed the lesser of
$50,000 or 10% of Mr. Kallet's cash compensation for the year.
/(3)/ Does not include awards pursuant to the Stock Award Plan, as such awards
were not earned, vested or granted in 1997. For a discussion of the terms
of the Stock Award Plan which are intended to be adopted by the Company,
see "--Benefit Plans-- Stock Award Plan."
/(4)/ No stock options or SARs were earned or granted in 1997. For a discussion
of the Stock Option Plan which is intended to be adopted by the Company,
see "--Benefit Plans--Stock Option Plan."
/(5)/ Consists of the Bank's contribution to the Bank's 401(k) Plan and health,
dental and group term life insurance premiums paid by the Bank on behalf
of Mr. Kallet.
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<PAGE>
REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to regulations of the Department applicable to the Reorganization,
the Bank must obtain the opinion of an independent compensation consultant as to
whether or not the total compensation for the executive officers and
trustees/directors of the Bank, viewed as a whole and on an individual basis, is
reasonable and proper in comparison to the compensation provided to executive
officers and directors of similar publicly-traded financial institutions. The
Bank has obtained an opinion from William M. Mercer, Incorporated, which
indicates that, based upon published professional survey data of similarly
situated publicly-traded financial institutions operating in the relevant
markets as of October 1998 with respect to the total cash compensation (base
salary and annual incentive) for executive officers and total compensation for
trustees of the Bank, such compensation, viewed as a whole and on an individual
basis, is reasonable and proper in comparison to the compensation provided to
similarly situated publicly-traded financial institutions, and that, with
respect to the amount of shares of Common Stock expected to be reserved under
the ESOP, Stock Award Plan and Stock Option Plan as a whole, such amounts
reserved for granting are reasonable in comparison to similar publicly-traded
financial institutions.
INCENTIVE COMPENSATION PLAN. The Incentive Compensation Plan (the
"Incentive Plan") was established in 1993 as a non-qualified plan. Under the
Incentive Plan, annual performance awards for the Bank's financial performance
relative to the return on average assets as reported by the FDIC, adjusted for
any one-time income or expense recognition, are made to eligible non-trustee
officers and employees designated as participants by the Human Resource and
Development Committee.
Participants are classified into four categories: Class I (CEO and EVP),
Class II (Senior Management Group), Class III (All Other Officers) and Class IV
(Supervisors and all other employees). Awards are allocated to eligible
participants within each class in accordance with the participant's base
compensation (as reported to the Internal Revenue Service on Form W-2) as a
ratio of the base compensation of the entire class. The maximum award payable
to each participant in Class I is 25%, Class II and Class III is 40% and Class
IV is 35% and the maximum total award payable to all participants is 10% of the
Bank's income. The following limitations on awards also apply: If the return on
average assets for an award year is (i) less than .75%, no award will be made to
any Class I, Class II or Class III participant, (ii) less than .75% but at least
.60%, Class IV participants will receive awards equivalent to 5% of base
compensation and (iii) less than .60%, no award shall be made to any
participant. No award shall be made to any participant if (i) average total
assets do not exceed $200 million for the award year, (ii) the most recent
Regulatory Examination Report does not reflect a Uniform Composite Rating of 1
or 2, or (iii) the allowance for possible loan losses at the end of the award
year is less than the greater of 1% of outstanding loans or the regulatory
guideline amount.
BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN. The Bank maintains the Retirement Plan of
The Oneida Savings Bank in RSI Retirement Trust ("Retirement Plan") which is a
qualified, tax-exempt defined benefit plan. Employees age 21 or older who have
worked at the Bank for a period of one year and have been credited with 1,000 or
more hours of service with the Bank during the year are eligible to participate
in the Retirement Plan, provided, however, that leased employees, employees paid
on an hourly rate or contract basis and employees regularly employed outside the
Bank's offices in connection with the operation and maintenance of buildings or
other properties acquired through foreclosure or deed are not eligible to
participate. The Bank contributes each year, if necessary, an amount to the
Retirement Plan to satisfy the actuarially determined minimum funding
requirements in accordance with the ERISA. At September 30, 1997, the total
market value of the assets in the Retirement Plan trust fund was approximately
$3.9 million.
In the event of retirement on or after the normal retirement date (i.e.,
the first day of the calendar month coincident with or next following the later
of age 65 or the 5th anniversary of participation in the Retirement Plan or, for
a participant prior to October 1, 1988, age 65) the plan is designed to provide
a single life annuity. For a married participant, the normal form of benefit is
an actuarially reduced joint and survivor annuity where, upon the participant's
death, the participant's spouse is entitled to receive a benefit equal to 50% of
that paid during the participant's lifetime. Alternatively, a participant may
elect (with proper spousal consent, if necessary) from various other options,
including
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<PAGE>
a joint and 100% survivor annuity, period certain and life option, rollover or
direct transfer to an individual retirement account. The normal retirement
benefit provided is an amount equal to 2% of a participant's average annual
earnings, multiplied times the years of a participant's credited service, not to
exceed 70% of a participant's average annual earnings during the consecutive 36
month period yielding the highest average in the participant's final 10 years of
employment. Retirement benefits are also payable upon retirement due to early
and late retirement or death. A reduced benefit is payable upon early retirement
after completion of five years of service, at age 60 or once the sum of the
participant's age and years of vested service equals 75. In the event of a
participant's pre-retirement death on or after attainment of age 60 or after the
sum of the participant's age and service (including service with certain other
employers participating in the RSI Retirement Trust) equals or exceeds 75, a
participant's beneficiary will be entitled to a special pre-retirement survivor
benefit. The special pre-retirement survivor benefit will be equal to that which
would have been available to the beneficiary if the participant had retired and
elected a 100% joint and survivor benefit. In the event of the death of a
participant prior to satisfaction of the conditions for a special pre-retirement
survivors benefit, but after having met the requirements for a vested retirement
benefit, the vested retirement benefit will be equal to that which would have
been available to the beneficiary if the participant had retired and elected a
50% joint and survivor benefit. Upon termination of employment other than as
specified above, a participant who has five years of vested service is eligible
to receive his or her accrued benefit commencing, generally, on his normal
retirement date, or, if elected, on or after his early retirement date. In
certain cases, a participant who had three years of service on or before
November 1, 1993, but not more than four years of service, will be entitled to
up to 40% of his vested accrued benefit at his normal or early retirement
date.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1998, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.
<TABLE>
<CAPTION>
AVERAGE ANNUAL YEARS OF SERVICE AND BENEFIT PAYABLE AT RETIREMENT
--------------------------------------------------
EARNINGS 15 20 25 30 35
- -------------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
$ 50,000 15,000 20,000 25,000 30,000 35,000
$ 75,000 22,500 30,000 37,500 45,000 52,500
$100,000 30,000 40,000 50,000 60,000 70,000
$125,000 37,500 50,000 62,500 75,000 87,500
$160,000 and above 48,000 64,000 80,000 96,000 112,000
</TABLE>
The maximum annual compensation which may be taken into account under the
Code for calculating contributions under qualified defined benefit plans such as
the Retirement Plan is currently $160,000. As of December 31, 1997, Mr. Kallet
had 14.9 years of credited service (i.e., benefit service) under the Retirement
Plan.
401(K) PLAN. The Bank maintains the Oneida Savings Bank 401(k) Savings
Plan in RSI Retirement Trust (the "401(k) Plan") which is a qualified, tax-
exempt profit sharing plan with a salary deferral feature under Section 401(k)
of the Code. Employees who have completed one year of employment are eligible to
participate, provided, however, that leased employees, employees paid on a daily
fee or retainer basis and employees covered by a collective bargaining
agreement (unless the agreement provides for plan participation) are not
eligible to participate. Eligible employees are entitled to enter the 401(k)
Plan on the first day of any payroll period following the completion of the
eligibility requirements.
Under the 401(k) Plan, participants are permitted to make salary reduction
contributions (in whole percentages) equal to the lesser of (i) from 1% to 10%
of compensation or (ii) $10,000 (as indexed annually). For these purposes,
"compensation" includes wages, salary, fees and other amounts received for
personal services prior to reduction for the participant contribution to the
401(k) Plan, commissions, overtime, bonuses, wage continuation payments due to
illness or disability of a short-term nature, amounts paid or reimbursed for
moving expenses, and the value of any nonqualified stock option granted to the
extent includable in gross income for the year granted. Compensation does not
include contributions made by the Bank to any other pension, deferred
compensation, welfare or other employee benefit plan, amounts realized from the
exercise of a nonqualified stock option or the sale of a qualified stock option,
and other amounts which received special tax benefits. Compensation does not
include compensation in excess of the Code
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<PAGE>
Section 401(a)(17) limits (i.e., $160,000 in 1998). The Bank will match 100% of
the first 3% of salary that a participant contributes to the 401(k) Plan. All
salary reduction contributions and rollover contributions and earnings thereon
are fully and immediately vested. Matching contributions and earnings thereon
vest at 20% per year, until a participant is 100% vested after five years of
service. A participant may withdraw salary reduction contributions, rollover
contributions and vested matching contributions in the event the participant
suffers a financial hardship. A participant may make a withdrawal from his
salary reduction contributions, rollover contributions and vested matching
contribution for any reason after age 59 1/2. A participant may request a loan
from his or her accounts in an amount up to the lesser of (i) 50% of the net
value of the Basic Contribution Account, vested Matching Contribution Account,
Voluntary Contribution Account and Rollover Contribution Account, or (ii)
$50,000 reduced by the highest outstanding loan balance during the preceding
twelve months. The minimum loan permitted is $1,000.
The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options. In connection with the Offering,
the 401(k) Plan intends to offer participants the opportunity to invest in an
"Employer Stock Fund" which intends to purchase Common Stock in the Offering.
Each participant who directs the trustee to invest all or part of his or her
account in the Employer Stock Fund will have assets in his or her account
applied to the purchase of shares of Common Stock. Participants will be
entitled to direct the trustee as to how to vote his or her allocable shares of
Common Stock.
Plan benefits will be paid to each participant in the form of a single cash
payment at normal retirement age unless earlier or later payment is selected. A
participant may, however, elect payment in installments, direct transfer to
another qualified plan or rollover to an Individual Retirement Account. If a
participant dies prior to receipt of the entire value of his or her 401(k) Plan
accounts, payment will generally be made to the beneficiary in a single cash
payment as soon as possible following the participant's death. Payment will be
deferred if the participant had previously elected a later payment date. If the
beneficiary is not the participant's spouse, payment will be made within one
year of the date of death. If the spouse is the designated beneficiary, payment
will be made no later than the date the participant would have attained age 70
1/2. If the participant was receiving installment payments and dies before
receiving all installments, the designated beneficiary will continue to receive
the installments in the same manner as the participant. Normal retirement age
under the 401(k) Plan is 65 with five years of service. Early retirement age
is age 60 with five years of service.
At December 31, 1997, the total market value of the assets in the 401(k)
Plan was approximately $2 million. The Bank's matching contributions to the
401(k) Plan for the Plan year ended December 31, 1997 totaled approximately
$56,000.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Bank intends to implement an
Employee Stock Ownership Plan (the "ESOP") in connection with the
Reorganization. Employees with at least one year of employment with the Bank
and who have attained age 21 are eligible to participate. As part of the
Reorganization, the ESOP intends to borrow funds from the Company and use those
funds to purchase a number of shares equal to up to 8.0% of the Minority
Ownership Interest. Collateral for the loan will be the Common Stock purchased
by the ESOP. The loan will be repaid principally from the Bank's discretionary
contributions to the ESOP over a period of up to 10 years. It is anticipated
that the interest rate for the loan will be equal to the prime rate published in
The Wall Street Journal at the time of the Offering. Shares purchased by the
ESOP will be held in a suspense account for allocation among participants as the
loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation. For
this purpose, compensation is defined as wages reported on federal income tax
Form W-2 and also includes amounts contributed under a salary reduction
agreement pursuant to Section 401(k) or Section 125 of the Code, but not in
excess of the Code Section 401(a)(17) limit. Participants in the ESOP will
receive credit for all years of service prior to the effective date of the ESOP
for vesting purposes. A participant will vest in 100% of his or her account
balance after five years of vesting service or upon normal or early retirement
(as defined in the ESOP),
108
<PAGE>
disability, death or following a change in control. A participant who terminates
employment for reasons other than death, retirement, disability or following a
change in control, prior to five years of credited service will forfeit the
nonvested portion of his benefits under the ESOP. Benefits will be payable in
the form of Common Stock and cash upon death, retirement, disability or
separation from service. Alternatively, a participant may request that the
benefits be paid entirely in the form of Common Stock or entirely in cash. The
Bank's contributions to the ESOP are discretionary, subject to the loan terms
and tax law limits, and therefore, benefits payable under the ESOP cannot be
estimated. In November 1993, the American Institute of Certified Public
Accountants (the "AICPA") issued Statement of Position ("SOP") 93-6, which
requires the Bank to record compensation expense in an amount equal to the fair
market value of the shares committed to be released from the suspense account
each year.
In connection with the establishment of the ESOP, the Bank will establish a
committee of non-employee directors to administer the ESOP. The Bank will
either appoint its non-employee directors or an independent financial
institution to serve as trustee of the ESOP. The ESOP committee may instruct the
trustee regarding investment of funds contributed to the ESOP. The ESOP trustee,
subject to its fiduciary duty, must vote all allocated shares held in the ESOP
in accordance with the instructions of participating employees. Under the ESOP,
nondirected shares and shares held in the suspense account, will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock so long as such vote is in
accordance with the provisions of ERISA.
STOCK OPTION PLAN. At a meeting of the Company's stockholders to be held
no earlier than six months after the completion of the Reorganization, the board
of directors intends to submit for stockholder approval a Stock Option Plan for
directors and officers of the Bank and of the Company. If approved by the
stockholders, Common Stock in an aggregate amount equal to 10% of the Minority
Ownership Interest would be reserved for issuance by the Company upon the
exercise of the stock options granted under the Stock Option Plan. If the plan
is approved within one year of the completion of the Reorganization, no options
would be granted under the Stock Option Plan until the date on which stockholder
approval is received.
The exercise price of the options granted under the Stock Option Plan will
be equal to the fair market value of the shares on the date of grant of the
stock options. If the Stock Option Plan is adopted within one year following the
Offering, options will become exercisable at a rate of 20% at the end of each
twelve (12) months of service with the Bank after the date of grant, subject to
early vesting in the event of death or disability. Options granted under the
Stock Option Plan would be adjusted for capital changes such as stock splits and
stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon
termination of employment due to death or disability, and if the Stock Option
Plan is adopted more than 12 months after the Offering, awards would be 100%
vested upon normal retirement or a change in control of the Bank or the Company.
Under FDIC and Department rules, if the Stock Option Plan is adopted within the
first 12 months after completion of the Offering, no individual officer can
receive more than 25% of the awards under the plan, no outside director can
receive more than 5% of the awards under the plan, and all outside directors as
a group can receive no more than 30% of the awards under the plan in the
aggregate. No determination has been made as to the specific terms of the plan
or as to awards thereunder.
The Stock Option Plan would be administered by a committee of non-employee
members of the Company's board of directors. Options granted under the Stock
Option Plan to employees could be "incentive" stock options designed to result
in beneficial tax treatment to the employee but no tax deduction to the Company.
Non-qualified stock options could also be granted under the Stock Option Plan,
and will be granted to the non-employee directors who receive grants of stock
options. In the event an option recipient terminated his employment or service
as an employee or director, the options would terminate during certain specified
periods. The Stock Option Plan will terminate ten years following its adoption,
unless earlier terminated by the Company.
STOCK AWARD PLAN. At a meeting of the Company's stockholders to be held no
earlier than six months after the completion of the Reorganization, the board of
directors also intends to submit the Stock Award Plan for stockholder approval.
The Stock Award Plan will provide the Bank's directors and officers an ownership
interest in the Company in a manner designed to encourage them to continue
their service with the Bank. The Bank will contribute funds to the
109
<PAGE>
restricted stock plan from time to time to enable it to acquire an aggregate
amount of Common Stock equal to up to 3% of the shares of the Minority Ownership
Interest in a larger percentage of the Common Stock issued in the Offering if
the restricted stock plan is adopted more than a year after completion of the
Offering. In the event that additional authorized but unissued shares would be
acquired by the Stock Award Plan after the Offering, the interests of existing
stockholders would be diluted. The executive officers and directors will be
awarded Common Stock under the Stock Award Plan without having to pay cash for
the shares.
Awards under the Stock Award Plan would be nontransferable and
nonassignable and during the lifetime of the recipient could only be earned by
the director or officer. If the Stock Award Plan is adopted within one year
following completion of the Offering, the shares which are subject to an award
would vest and be earned by the recipient at a rate of 20% of the shares awarded
at the end of each full twelve (12) months of service with the Bank after the
date of grant of the award. Awards would be adjusted for capital changes such as
stock dividends and stock splits. Notwithstanding the foregoing, awards would be
100% vested upon termination of employment or service due to death or
disability, and if the Stock Award Plan is adopted more than 12 months after
completion of the Reorganization, awards would be 100% vested upon normal
retirement or a change in control of the Bank or the Company. If employment or
service were to terminate for other reasons, the award recipient would forfeit
any nonvested award. If employment or service is terminated for cause (as would
be defined in the Stock Award Plan), shares not already delivered under the
Stock Award Plan would be forfeited. Under FDIC and Department rules, if the
Stock Award Plan is adopted within the first 12 months after completion of the
Reorganization and Offering, shares of Common Stock granted under the restricted
stock plan may not exceed 3% of the Minority Ownership Interest. No individual
officer can receive more than 25% of the awards under the plan, no outside
director can receive more than 5% of the awards under the plan, and all outside
directors as a group can receive no more than 30% of the awards under the plan
in the aggregate. No determination has been made as to the specific terms of the
plan or as to awards thereunder. The Stock Award Plan would be administered by a
committee of non-employee members of the Company's board of directors. The Stock
Award Plan will terminate ten years following its adoption, unless earlier
terminated by the Company.
When shares become vested under the Stock Award Plan, the participant will
recognize income equal to the fair market value of the Common Stock earned,
determined as of the date of vesting, unless the recipient makes an election
under (S) 83(b) of the Code to be taxed earlier. The amount of income recognized
by the participant would be a deductible expense for tax purposes for the
Company. If the Stock Award Plan is adopted within one year following completion
of the Reorganization and Offering, dividends and other earnings will accrue and
be payable to the award recipient when the shares vest. If the Stock Award Plan
is adopted within one year following completion of the Reorganization and
Offering, shares not yet vested under the Stock Award Plan will be voted by the
trustee of the Stock Award Plan, taking into account the best interests of the
recipients of the Stock Award Plan grants. If the Stock Award Plan is adopted
more than one year following completion of the Reorganization and Offering,
dividends declared on unvested shares will be distributed to the participant
when paid and the participant will be entitled to vote the unvested shares.
INDEBTEDNESS OF MANAGEMENT
Under New York Banking law, the Bank, as a mutual institution, cannot make
a loan to a trustee or a person who is an "executive officer" for regulatory
purposes, except for loans made to executive officers that are secured by a
first mortgage on a primary residence or by a deposit account at the Bank. Any
such loans that are outstanding have been made in the ordinary course of
business on the same terms and conditions as the Bank would make to any other
customer and do not involve more than a normal risk of collectibility or present
other unfavorable features. Following the Reorganization, the Bank will not be
subject to this restriction in connection with loans to directors and executive
officers. Following the Reorganization, the Board of Directors of the Bank will
reconsider its policy of only making loans to executive officers that are
secured by a first mortgage on the executive's primary residence or by a deposit
account at the Bank; however, any loans to executive officers would be made on
the same terms and conditions as the Bank would make to any other unaffiliated
customer, and will be subject to any Federal and State regulations governing
transactions between executive officers, directors and the financial institution
with which they serve.
110
<PAGE>
RESTRICTIONS ON ACQUISITION OF THE COMPANY
THE MUTUAL HOLDING COMPANY STRUCTURE. Under New York law, the Plan of
Reorganization and the Company's governing corporate instruments, at least 51%
of the Company's voting shares must be owned by the Mutual Holding Company.The
Mutual Holding Company will be controlled by its board of trustees, who will
consist of persons who also are members of the board of directors of the Company
and the Bank. The Mutual Holding Company will be able to elect all members of
the board of directors of the Company, and as a general matter, will be able to
control the outcome of all matters presented to the stockholders of the Company
for resolution by vote, except for matters that require a vote greater than a
majority. The Mutual Holding Company, acting through its board of trustees, will
be able to control the business and operations of the Company and the Bank and
will be able to prevent any challenge to the ownership or control of the Company
by Minority Stockholders. Accordingly, a change in control of the Company and
the Bank cannot occur unless the Mutual Holding Company first converts to the
stock form of organization. Although New York law, applicable regulations and
the Plan of Reorganization permit the Mutual Holding Company to convert from the
mutual to the capital stock form of organization, it is not anticipated that a
conversion of the Mutual Holding Company will occur in the foreseeable
future.
In addition to the anti-takeover aspects of the Mutual Holding Company
structure, the following provisions of the Company's Certificate of
Incorporation and bylaws and certain other regulatory provisions will restrict
the ability of stockholders to influence management policies, and which may be
deemed to have an "anti-takeover" effect. The following description of certain
of these provisions is necessarily general and, with respect to provisions
contained in the Company's Certificate of Incorporation and bylaws and the
Bank's proposed restated organizational certificate and bylaws, reference
should be made in each case to the document in question, each of which is part
of the Bank's application to the Superintendent and the Company's Registration
Statement filed with the SEC. See "Additional Information." The following
discussion does not reflect the powers and provisions of the Bank's
charter.
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of Incorporation
provides that a special meeting of stockholders may be called by the Chairman of
the Board of the Company or pursuant to a resolution adopted by a majority of
the board of directors. Stockholders are not authorized to call a special
meeting of stockholders.
ABSENCE OF CUMULATIVE VOTING. The Certificate of Incorporation provides
that there shall be no cumulative voting rights in the election of directors.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation provides
that (i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 5% of any class of equity security of the
Company, inclusive of shares of such class held by the Mutual Holding Company
(provided that such limitation shall not apply to the Mutual Holding Company or
any tax-qualified employee stock benefit plans maintained by the Company); and
that (ii) shares beneficially owned in violation of the stock ownership
restriction described above shall not be entitled to vote and shall not be voted
by any person or counted as voting stock in connection with any matter submitted
to a vote of stockholders. For these purposes, a person (including management)
who has obtained the right to vote shares of the Common Stock pursuant to
revocable proxies shall not be deemed to be the "beneficial owner" of those
shares if that person is not otherwise deemed to be a beneficial owner of those
shares.
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Certificate of Incorporation must be approved by the Company's board of
directors and also by a majority of the outstanding shares of the Company's
voting stock; provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to the call of special stockholder meetings, cumulative
voting, limitation on voting rights and director liability).
111
<PAGE>
The bylaws may be amended by the affirmative vote of the total number of
directors of the Company or the affirmative vote of at least 80% of the total
votes eligible to be voted at a duly constituted meeting of stockholders.
FEDERAL RESERVE BOARD REGULATIONS
The Change in Bank Control Act and the BHCA, together with the Federal
Reserve Board regulations under those acts, require that the consent of the
Federal Reserve Board be obtained prior to any person or company acquiring
"control" of a bank holding company. Control is conclusively presumed to exist
if an individual or company acquires more than 25% of any class of voting stock
of the bank holding company. Control is rebuttably presumed to exist if the
person acquires more than 10% of any class of voting stock of a bank holding
company if either (i) the holding company has registered securities under
Section 12 of the Exchange Act or (ii) no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure to rebut the rebuttable control presumption.
Since the Company's Common Stock will be registered under Section 12 of the
Exchange Act, any acquisition of 10% or more of the Company's Common Stock will
give rise to a rebuttable presumption that the acquiror of such stock controls
the Company, requiring the acquiror, prior to acquiring such stock, to rebut the
presumption of control to the satisfaction of the Federal Reserve Board or
obtain Federal Reserve Board approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Company. See "Regulation."
NEW YORK BANKING LAW
In addition to federal law, the New York State Banking Law generally
requires prior approval of the New York State Banking Board before any action is
taken that causes any entity or person to acquire direct or indirect control of
a banking institution which is organized in New York State. Control is presumed
to exist if any company or person directly or indirectly owns, controls or holds
with power to vote 10% or more of the voting stock of a banking institution or
of any company or person that owns, controls or holds with power to vote 10% or
more of the voting stock of a banking institution.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 8 million shares of Common Stock having
a par value of $.10 per share. The Company currently expects to issue between
2,843,760 and 3,847,440 shares, with an adjusted maximum of 4,424,556 shares, of
Common Stock. Each share of the Common Stock will have the same relative rights
as, and will be identical in all respects with, each other share of the Common
Stock. Upon payment of the purchase price for the Common Stock, in accordance
with the Plan of Reorganization, all such stock will be duly authorized, fully
paid, validly issued, and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
VOTING RIGHTS. Under Delaware law, the holders of the Common Stock will
possess exclusive voting power in the Company. Each stockholder will be
entitled to one vote for each share held on all matters voted upon by
stockholders, except as discussed in "Restrictions on Acquisition of the
Company--Provisions of the Company's Certificate of Incorporation and Bylaws--
Limitation on Voting Rights." There will be no right to cumulate votes in the
election of directors.
DIVIDENDS. Upon consummation of the Reorganization, the Company's only
asset will be investments made with the net proceeds of the Offering, the ESOP
loan and the Bank's common stock. The payment of dividends by the
112
<PAGE>
Company is subject to limitations which are imposed by law and applicable
regulation. The Company's source for the payment of cash dividends may in the
future depend on the receipt of dividends from the Bank. See "Dividend Policy."
The holders of Common Stock will be entitled to receive and share equally in
such dividends as may be declared by the board of directors of the Company out
of funds legally available therefore.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive after payment or provision for payment of all debts and liabilities
of the Company (including all deposits in the Bank and accrued interest thereon)
and after distribution of the liquidation account established upon completion of
the Offering for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who continue their deposit accounts at the Bank all
assets of the Company available for distribution, in cash or in kind. See "The
Reorganization and Offering--Liquidation Rights."
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued.
TRANSFER AGENT AND REGISTRAR
_________________________________________ will act as the transfer agent
and registrar for the Common Stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of
the Reorganization will be passed upon for the Bank and the Company by the firm
of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel
to the Company and the Bank. The New York income tax consequences of the
Reorganization will be passed upon for the Company and the Bank by
PricewaterhouseCoopers, LLP. The federal income tax consequences of certain
matters relating to the establishment of the Charitable Foundation will be
passed upon for the Company and the Bank by PricewaterhouseCoopers, LLP.
Certain legal matters will be passed upon for Trident Securities, Inc. by
Thacher Proffitt and Wood.
EXPERTS
The financial statements of The Oneida Savings Bank and subsidiaries as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997 have been included herein and in the registration
statement in reliance upon the report of PricewaterhouseCoopers, LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as "Experts" in accounting and auditing.
FinPro has consented to the publication herein of the summary of its report
to the Bank and the Company setting forth its belief as to the estimated pro
forma market value of the Common Stock upon Reorganization and its valuation
with respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549 and copies of such material
can be obtained from the SEC at prescribed rates. The SEC maintains a web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not
necessarily
113
<PAGE>
complete but do contain all material information regarding such documents; each
such statement is qualified by reference to such contract or document.
The Bank has filed an Application with the Department with respect to the
Reorganization. Pursuant to the rules and regulations of the Department, this
Prospectus omits certain information contained in that Application. The
Application may be examined at the office of the Department, 2 Rector Street,
New York, New York 10006, and at the Bank's main office at 182 Main Street,
Oneida, New York, 13421-1676.
In connection with the Offering, the Company will, prior to completion of
the Offering and Reorganization, register the Common Stock with the SEC under
Section 12(g) of the Exchange Act; and, upon such registration, the Company and
the holders of its Common Stock will become subject to the proxy solicitation
rules, reporting requirements and restrictions on stock purchases and sales by
directors, officers and greater than 10% stockholders, the annual and periodic
reporting and certain other requirements of the Exchange Act. Under the Plan of
Reorganization, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the
Reorganization.
A copy of the Certificate of Incorporation and bylaws of the Company, as
well as the Plan of Reorganization, are available without charge from the Bank
by contacting the Corporate Secretary, 182 Main Street, Oneida, New York, 13421-
1676 (315) 363-2000. Copies of the Independent Valuation are available for
inspection at each of the Bank's offices.
114
<PAGE>
THE ONEIDA SAVINGS BANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants................................... F-1
Financial Statements
Statements of Condition,
June 30, 1998 (Unaudited)
and December 31, 1997 and 1998................................... F-2
Statements of Income,
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995................. 52
Statements of Comprehensive Income,
Six Months Ended June 30, 1998 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995................. F-3
Statements of Changes in Net Worth,
Six Months Ended June 30, 1998 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995................. F-4
Statements of Cash Flows,
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995................. F-5 - F-6
Notes to Financial Statements,
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995................. F-7 - F-22
</TABLE>
<PAGE>
PRICEWATERHOUSECOOPERS LOGO
- -------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
ONE LINCOLN CENTER
SYRACUSE NY 13202-9972
TELEPHONE (315) 474 8541
FACSIMILE (315) 473 1385
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
The Oneida Savings Bank
In our opinion, the accompanying statements of condition and the related
statements of income, changes in net worth and of cash flows present fairly,
in all material respects, the financial position of The Oneida Savings Bank at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Bank's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Syracuse, New York
January 16, 1998, except for
Note 12 as to which the date
is September 15, 1998
F-1
<PAGE>
THE ONEIDA SAVINGS BANK
STATEMENTS OF CONDITION
June 30, 1998 and December 31, 1997 and 1996
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $4,848,364 $4,364,055 $5,000,687
Federal funds sold 8,700,000 1,700,000 6,800,000
------------ ------------ ------------
Total cash and cash equivalents 13,548,364 6,064,055 11,800,687
Investment securities 39,570,776 43,525,625 52,925,465
Mortgage-backed securities 16,614,646 11,779,690 4,725,056
Loans receivable 141,764,762 144,160,570 137,417,559
Allowance for credit losses 1,721,417 1,792,715 1,545,649
------------ ------------ ------------
140,043,345 142,367,855 135,871,910
Premises and equipment 4,883,018 3,811,533 2,127,298
Accrued interest receivable 1,585,013 1,567,629 1,654,269
Refundable income taxes 173,646 144,946 74,439
Other real estate 292,027 308,000 858,689
Other assets 931,206 1,067,713 1,056,873
------------ ------------ ------------
TOTAL ASSETS $217,642,041 $210,637,046 $211,094,695
============ ============ ============
LIABILITIES AND NET WORTH
Due to depositors $188,035,479 $182,044,928 $184,422,995
Mortgagors' escrow funds 1,181,625 1,092,584 1,084,853
Other liabilities 394,132 379,547 48,569
------------ ------------ ------------
Total liabilities 189,611,236 183,517,059 185,556,417
------------ ------------ ------------
Net worth:
Surplus 6,524,500 6,524,500 6,524,500
Undivided profits 20,926,215 20,124,012 18,839,380
Accumulated other comprehensive income 580,090 471,475 174,398
------------ ------------ ------------
Total net worth 28,030,805 27,119,987 25,538,278
------------ ------------ ------------
TOTAL LIABILITIES AND NET WORTH $217,642,041 $210,637,046 $211,094,695
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
THE ONEIDA SAVINGS BANK
STATEMENTS OF COMPREHENSIVE INCOME
Six Months Ended June 30, 1998 and 1997
and Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------- ----------------------------------
1998 1997 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income $ 802,203 $ 1,095,690 $1,284,632 $1,747,780 $1,618,637
----------- ------------- ---------- ---------- ----------
Other comprehensive income, net of tax
Unrealized gains on securities:
Unrealized holding gains arising during period 173,096 120,645 531,867 (142,363) 1,740,784
Less Reclassification adjustment for
gains included in net income (8,528) 0 (81,750) (100,419) (99,702)
----------- ------------- ---------- ---------- ----------
164,568 129,645 450,117 (242,782) 1,641,082
Net income tax (benefit) effect (55,953) (41,019) (153,040) 82,546 (557,968)
----------- ------------- ---------- ---------- ----------
Other comprehensive income, net of tax 108,615 79,626 297,077 (160,236) 1,083,114
----------- ------------- ---------- ---------- ----------
COMPREHENSIVE INCOME $ 910,818 $ 1,175,316 $1,581,709 $1,587,544 $2,701,751
=========== ============= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
THE ONEIDA SAVINGS BANK
STATEMENTS OF CHANGES IN NET WORTH
Six Months Ended June 30, 1998 (Unaudited) and
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
SURPLUS UNDIVIDED COMPREHENSIVE
FUND PROFITS INCOME TOTAL
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $6,524,500 $15,472,963 $(748,480) $21,248,983
Net income 1,618,637 1,618,637
Other comprehensive income,
net of tax:
Unrealized gains on
securities net of
reclassification
adjustment 1,083,114 1,083,114
---------- ----------- --------- -----------
Balance at December 31, 1995 6,524,500 17,091,600 334,634 23,950,734
Net income 1,747,780 1,747,780
Other comprehensive income,
net of tax:
Unrealized gains on
securities net of
reclassification
adjustment (160,236) (160,236)
---------- ----------- --------- -----------
Balance at December 31, 1996 6,524,500 18,839,380 174,398 25,538,278
Net income 1,284,632 1,284,632
Other comprehensive income,
net of tax:
Unrealized gains on
securities net of
reclassification
adjustment 297,077 297,077
---------- ----------- --------- -----------
Balance at December 31, 1997 6,524,500 20,124,012 471,475 27,119,987
Net income 802,203 802,203
Other comprehensive income,
net of tax:
Unrealized gains on
securities net of
reclassification
adjustment 108,615 108,615
---------- ----------- --------- -----------
Balance at June 30, 1998 $6,524,500 $20,926,215 $ 580,090 $26,030,805
========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
THE ONEIDA SAVINGS BANK
STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
and Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
(UNAUDITED)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 802,203 $ 1,095,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 235,976 155,891
Provision for credit and other real estate
losses (23,114)
Provision for deferred income taxes 100,117 (39,649)
Gain on sale of securities, net (8,528)
Amortization of premiums and discounts on
securities, net 44,054 90,878
Loss on sale of other real estate owned 23,170 35,949
Loss (gain) on sale of loans 77,135 (9,924)
Income taxes refundable (28,700) 182,999
Accrued interest receivable (17,384) 50,201
Other assets (36,020) 448,297
Other liabilities 14,585 (38,297)
Origination of loans held for sale (8,438,769) (1,127,812)
Proceeds from sale of loans 8,404,850 1,308,124
------------ -------------
Net cash provided by operating activities 1,172,690 2,128,033
------------ -------------
Cash flow from investing activities:
Purchase of investment securities (14,414,958) (6,000,000)
Principal collected on and proceeds of
maturities or sales from investment 18,551,180 8,507,008
Principal collected and proceeds from
maturities of investment securities designated
as held to maturity
Purchase of mortgage-backed securities (7,076,318) (4,990,798)
Principal collected from mortgage-backed
securities 2,205,488 335,243
Net (increase) decrease in loans 1,984,725 (4,941,246)
Purchase of bank premises and equipment (1,307,461) (529,940)
Proceeds from sale of other real estate 289,371 3389,860
------------ -------------
Net cash provided by (used in) investing
activities 232,027 (7,280,873)
------------ -------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
savings, money market, Super NOW and
mortgagor's escrow accounts 6,411,935 (2,575,558)
Net (decrease) increase in time deposits (332,343) 990,010
------------ -------------
Net cash provided by (used in) financing
activities 6,079,592 (1,585,548)
------------ -------------
Reclassification of National balances to cash
and due from banks and other assets
Increase (decrease) in cash and cash
equivalents 7,484,309 (6,737,388)
Cash and cash equivalents at beginning of period 6,064,055 11,800,687
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,548,364 $ 5,063,299
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and obligations $ 3,856,291 $ 3,909,801
Income taxes 580,700 518,025
Non-cash investing activities:
Unrealized gain (loss) on investment and
mortgages-backed securities designated as
available for sale, net of tax $ 108,615 $ 132,710
Transfer of loans to other real estate 296,568 237,218
</TABLE>
Continued
F-5
<PAGE>
THE ONEIDA SAVINGS BANK
STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
and Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $ 1,284,632 $ 1,747,780 $ 1,618,837
Adjustments to reconcile net income
to
net cash provided by operating
activities:
Depreciation 416,649 321,060 366,608
Provision for credit and other real
estate losses 704,144 175,727 79,800
Provision for deferred income taxes (204,493) 185,846 173,726
Gain on sale of securities, net (81,750) (100,419) (99,702)
Amortization of premiums and
discounts on securities, net 150,991 426,881 685,736
Loss on sale of other real estate
owned 47,513 4,300 31,410
Loss (gain) on sale of loans (32,522) 10,910 29,585
Income taxes refundable (70,507) (161,492) 44,774
Accrued interest receivable 86,640 45,898 75,864
Other assets (4,399) 17,086 (949,794)
Other liabilities 330,978 (22,012) 9,908
Origination of loans held for sale (3,976,263) (5,573,334) (5,325,073)
Proceeds from sale of loans 3,987,657 5,504,087 5,183,437
----------- ----------- -----------
Net cash provided by operating
activities 2,639,270 2,582,318 1,934,916
----------- ----------- -----------
Cash flow from investing activities:
Purchase of investment securities (11,315,373) (29,921,615) (13,908,440)
Principal collected on and proceeds
of maturities or sales from
investment 21,048,740 19,671,647 13,943,167
Principal collected and proceeds form
maturities
of investment securities designated
as held to maturity 899,782
Purchase of mortgage-backed
securities (7,980,459)
Principal collected from mortgage-
backed securities 998,195 44,339 41,788
Net (increase) decrease in loans (7,265,279) 4,304,486 (71,392)
Purchase of bank premises and
equipment (2,100,884) (259,626) (115,413)
Proceeds from sale of other real
estate 589,494 510,370 389,359
----------- ----------- -----------
Net cash provided by (used in)
investing activities (6,005,566) (5,650,399) 1,178,861
----------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in demand
deposits, savings, money market,
Super NOW and mortgagor's escrow
accounts (2,320,962) 3,007,720 (6,462,671)
Net (decrease) increase in time
deposits (49,374) 1,114,917 8,122,781
----------- ----------- -----------
Net cash provided by (used in)
financing activities (2,370,336) 4,122,637 1,660,110
----------- ----------- -----------
Reclassification of National balances
to cash
and due from banks from other assets 687,338
-----------
Increase (decrease) in cash and
cash equivalents (5,736,632) 1,741,894 4,773,887
Cash and cash equivalents at beginning
of period 11,800,687 10,058,793 5,284,906
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 6,064,055 $11,800,687 $10,058,793
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest on deposits and obligations $ 7,900,471 $ 7,899,555
Income taxes 1,198,025 1,015,744
Non-cash investing activities:
Unrealized gain (loss) on investment
and mortgage-backed
securities designated as available
for sale, net of tax $ 297,077 $ (160,236)
Transfer of loans to other real
estate 313,576 662,593
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Oneida Savings Bank (the Bank) is a mutual savings bank chartered by
the State of New York and member of the Federal Deposit Insurance
Corporation (FDIC). The Bank is located in Central Upstate New York with
offices in the City of Oneida and the Villages of Cazenovia, Hamilton, and
Camden.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates are made in the
determination of the allowance for credit losses.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks,
interest-bearing deposits (with original maturity of three months or less)
and federal funds sold. Generally, federal funds are purchased and sold for
one-day periods.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES)
Available-for-sale securities consist of securities reported at fair value,
with net unrealized gains and losses reflected as a separate component of
net worth, net of the applicable income tax effect until realized. None of
the Bank's securities have been classified as trading or held-to-maturity
securities.
On December 31, 1995, the Bank transferred all state and municipal, public
utility and Canadian issue debt securities classified as held-to-maturity
to available-for-sale. The amortized cost of the debt securities
transferred was $3,586,483 with related unrealized gains of $256,360. These
transfers were made pursuant to the Financial Accounting Standard Board's
"Guide to Implementation of Statement 115" which provided a one-time
opportunity to reassess the appropriateness of the Bank's classifications
of all securities held at that time.
Purchases and sales of securities are recorded as of the settlement date.
Premiums and discounts are amortized and accreted, respectively, on a
systematic basis over the period of maturity, or earliest call date of the
related securities. Gains or losses on securities sold are computed based
on identified cost.
F-7
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORIGINATION FEES
Origination fees on mortgages are recognized as income in the period the
loan is closed. Direct origination costs are expensed when incurred. The
difference between origination fees and the related direct costs are not
material.
LOANS
Loans are reported at their outstanding principal balance net of charge-
offs and the allowance for credit losses. Interest income is generally
recognized when income is earned using the interest method.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. Interest income is subsequently recognized only to the extent
cash payments are received or when the loan is no longer impaired.
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a
Loan." Under this standard, a loan is considered impaired, based upon
current information and events, if it is probable that the Bank will not be
able to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement
of impaired loans is generally based on the present value of expected
future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. Adoption of this pronouncement
had no effect on the Bank's reserve for possible loan losses, determined as
of January 1, 1995.
The value of servicing assets for loans sold with servicing rights retained
is not significant and has not been recorded.
ALLOWANCE FOR CREDIT LOSSES
The adequacy of the allowance for credit losses is periodically evaluated
by the Bank in order to maintain the allowance at a level that is
sufficient to absorb probable credit losses. The allowance is increased by
provisions charged to expense and decreased by charge-offs (net of
recoveries). Management's evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent risks in
the portfolio, adverse circumstances that may affect the borrower's ability
to repay, the estimated value of any underlying collateral, and an analysis
of the levels and trends of delinquencies, charge offs, and the risk
ratings of the various loan categories. Loans are charged against the
allowance for credit losses when management believes that the
collectibility of principal is unlikely.
F-8
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful life of each type of asset. Maintenance and repairs are
charged to operating expense as incurred.
OTHER REAL ESTATE
Other real estate is comprised of real estate acquired through foreclosure
or acceptance of a deed in lieu of foreclosure, and is carried at the lower
of the recorded investment in the loan or fair value less estimated
disposal costs.
INCOME TAXES
Deferred income taxes are provided for revenue and expense items that are
reported in different periods for financial reporting purposes than for tax
purposes, principally depreciation allowance for credit losses, pension
benefits, and unrealized gains and losses on available-for-sale
investments. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
SURPLUS FUND AND UNDIVIDED PROFITS
The surplus fund of the Bank primarily represents accumulated mandatory
transfers from undivided profits required by New York State banking
regulations. Such mandatory transfer are computed at 10% of "net earnings",
as defined, and are required in each year so long as the net worth of the
Bank is less than 10% of the amount due depositors. The surplus fund is
subject to certain restrictions under New York State banking regulations.
Undivided profits represent accumulated undistributed net earnings of the
Bank which has not been allocated to the surplus fund and is not restricted
as to use under New York State banking regulations.
F-9
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Investment securities and mortgage-backed securities consist of the
following:
<TABLE>
<CAPTION>
JUNE 30, 1998
AMORTIZED GROSS UNREALIZED
COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
Investment Securities
Available for sale
portfolio:
Debt securities:
U.S. Agencies $ 25,295,984 $ 42,139 $ (30,244) $ 25,307,879
U.S. Government 1,000,924 7,506 0 1,008,430
Corporate 7,646,723 41,303 0 7,688,026
State and municipals 1,619,871 141,639 0 1,761,510
Public utilities 400,000 3,808 0 403,808
------------ -------- --------- ------------
35,963,502 236,395 (30,244) 36,169,653
Stock investments:
Mutual funds and stocks 2,721,495 678,628 0 3,401,123
------------ -------- --------- ------------
$ 38,684,997 $916,023 $ (30,244) $ 39,570,776
============ ======== ========= ============
Mortgage-Backed Securities
Available for sale
portfolio:
Federal National
Mortgage Association $ 10,483,558 $ 56,951 $ (17,177) $ 10,523,332
Federal Home Loan
Mortgage Corp. 5,947,847 36,122 (3,527) 5,980,442
Government National
Mortgage Assoc. 14,895 278 0 15,173
Collateral Mortgage
Obligations 87,308 8,391 0 95,699
------------ -------- --------- ------------
$ 16,533,608 $101,742 $ (20,704) $ 16,614,646
============ ======== ========= ============
<CAPTION>
DECEMBER 31, 1997
AMORTIZED GROSS UNREALIZED
COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
Investment Securities
Available for sale
portfolio:
Debt securities:
U.S. Agencies $ 24,504,368 $ 52,548 $ (43,387) $ 24,513,329
U.S. Government 2,002,001 12,499 2,014,500
Corporate 11,833,769 44,226 11,877,995
State and municipals 2,162,051 162,287 2,324,338
Public utilities 749,731 4,824 754,555
------------ -------- --------- ------------
41,251,920 276,384 (43,587) 41,484,717
Stock investments:
Mutual funds and stocks 1,593,670 447,238 2,040,908
------------ -------- --------- ------------
$ 42,845,590 $723,622 $ (43,587) $ 43,525,625
============ ======== ========= ============
Mortgage-Backed Securities
Available for sale
portfolio:
Federal National
Mortgage Association $ 7,752,088 $ 64,030 $ 0 $ 7,816,118
Federal Home Loan
Mortgage Corp. 3,806,988 31,162 0 3,838,150
Government National
Mortgage Assoc. 16,342 320 0 16,662
Collateral Mortgage
Obligations 98,513 10,247 0 108,760
------------ -------- --------- ------------
$ 11,673,931 $105,759 $ 0 $ 11,779,690
============ ======== ========= ============
</TABLE>
F-10
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
AMORTIZED GROSS UNREALIZED
COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
Available for sale
portfolio:
Debt securities:
U.S. Agencies $21,502,945 $ 30,390 $ (136,041) $21,397,294
U.S. Government 5,013,005 11,570 (2,689) 5,021,886
Corporate 21,886,471 63,382 (14,083) 21,931,770
State and municipals 2,206,902 173,052 2,379,954
Public utilities 848,116 5,176 (7,274) 846,018
----------- ----------- ----------- -----------
51,453,439 283,570 (160,087) 51,576,922
Stock investments:
Mutual funds and other
stocks 1,193,665 154,878 1,348,543
----------- ----------- ----------- -----------
$52,647,104 $ 438,448 $ (160,087) $52,925,465
=========== =========== =========== ===========
MORTGAGE-BACKED SECURITIES
Available for sale
portfolio:
Federal National Mortgage
Association $ 3,593,885 $ 7,914 $ (14,458) $ 3,533,341
Federal Home Loan Mortgage
Corp. 1,034,691 5,775 (479) 1,039,987
Government National
Mortgage Assoc. 18,720 158 0 18,878
Collateral Mortgage
Obligations 119,464 13,395 0 132,859
----------- ----------- ----------- -----------
$ 4,712,760 $ 27,242 $ (14,937) $ 4,725,065
=========== =========== =========== ===========
The amortized cost and fair value of available-for-sale securities (other
than equity securities) at June 30, 1998 and December 31, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ 7,031,381 $ 7,022,830 $ 9,719,108 $ 9,736,798
Due after one year through
five years 14,084,806 14,167,338 27,714,532 24,811,148
Due after five years
through ten years 14,575,686 14,679,874 6,030,012 6,125,765
Due after ten years 290,629 299,611 788,268 809,006
=========== =========== =========== ===========
$35,963,502 $36,169,653 $41,251,920 $41,484,717
=========== =========== =========== ===========
</TABLE>
Proceeds from sale and maturity of available-for-sale securities for the
six months ended June 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995 were $18,522,722, $8,490,000, $21,013,593, $19,581,306
and $13,899,861, respectively. Gross gains of $8,528, $-0-, $83,156,
$100,419 and $103,087 and gross losses of $-0-, $-0-, $1,406, $-0- and
$21,705 were realized on these sales for the six months ended June 30, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995,
respectively.
F-11
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
3. LOANS RECEIVABLE
The components of loans receivable in the statements of condition are as
follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Residential $ 96,927,859 $105,269,408 $108,324,643
Consumer loans 16,837,781 12,722,039 8,193,509
Commercial real estate 16,397,900 16,581,665 15,658,410
Commercial loans 11,601,222 9,587,458 5,240,997
------------ ------------ ------------
141,764,762 144,160,570 137,417,559
Allowance for credit losses (1,721,417) (1,792,715) (1,545,649)
------------ ------------ ------------
Net loans $140,043,345 $142,367,855 $135,871,910
============ ============ ============
</TABLE>
The Bank grants commercial, consumer and residential loans primarily
throughout Madison County. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the employment and economic conditions within
the County. At June 30, 1998, December 31, 1997 and 1996 loans to officers
and trustees were not significant.
An analysis of the change in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning
of period $1,792,715 $1,545,649 $1,545,649 $1,781,292 $2,117,012
Loans charged off (117,063) (82,185) (299,356) (176,487) (558,376)
Recoveries
credited 45,765 25,497 69,536 44,059 142,856
Provision for
credit losses (23,114) 476,886 (103,215) 79,800
---------- ---------- ---------- ---------- ----------
Balance, end of
period $1,721,417 $1,465,847 $1,792,715 $1,545,649 $1,781,292
========== ========== ========== ========== ==========
</TABLE>
As of June 30, 1998, December 31, 1997 and 1996, the Bank had no impaired
loans for which specific valuation allowances were recorded.
Loans having carrying values of $296,568, $313,576 and $662,593 were
transferred to other real estate as of June 30, 1998 and December 31, 1997
and 1996, respectively.
F-12
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following at June 30, 1998,
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Land and buildings $5,998,722 $5,282,831 $3,464,008
Equipment and fixtures 2,751,397 2,364,479 2,082,418
Construction in progress 205,204
---------- ---------- ----------
8,955,323 7,647,310 5,546,426
Accumulated depreciation (4,072,305) (3,836,777) (3,419,128)
---------- ---------- ----------
Net book value $4,883,018 $3,811,533 $2,127,298
========== ========== ==========
</TABLE>
5. DUE TO DEPOSITORS
Amounts due to depositors are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Demand $ 15,799,979 $ 13,947,070 $ 12,112,519
Savings 42,826,680 41,008,299 41,368,747
Money market and Super NOW 18,928,914 16,277,310 20,080,106
Time deposit 110,479,906 110,812,249 110,861,623
------------ ------------ ------------
Total due to depositors $188,035,479 $182,044,928 $184,422,995
============ ============ ============
</TABLE>
At June 30, 1998 and December 31, 1997 and 1996, time deposits with
balances in excess of $100,000 totalled $21,145,647, $21,012,173 and
$18,393,966, respectively.
The contractual maturity of time deposits are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
MATURITY AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
One year or less $ 67,853,000 61.4 $ 68,959,000 62.2 $ 64,160,000 57.9
Over one year to three
years 37,650,000 34.1 36,817,000 33.2 35,320,000 31.9
Over three years 4,977,000 4.5 5,036,000 4.6 11,382,000 10.2
------------ ----- ------------ ----- ------------ -----
$110,480,000 100.0 $110,812,000 100.0 $110,862,000 100.0
============ ===== ============ ===== ============ =====
</TABLE>
F-13
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31,1997, 1996 and 1995
6. INCOME TAXES
The components of deferred income taxes included in other assets in the
statements of condition are approximately as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1997 1995
ASSET (LIABILITY) ASSET (LIABILITY)
<S> <C> <C> <C> <C>
Allowance for loan losses $ 667,000 $ 461,000 $ 547,000 $ 495,000
Depreciation 256,000 272,00 226,000 188,000
Investment securities (387,000) (169,000) (314,000) (116,000)
Pension benefits (202,000) 209,000) (205,000) (220,000)
Other (133,000) (102,000) (7,000) (80,000)
--------- --------- --------- ---------
Total deferred income tax
asset, net $ 101,000 $ 253,000 $ 274,000 $ 267,000
========= ========= ========= =========
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 351,202 $ 543,462 $ 869,413 $ 668,237 $ 599,555
State 90,681 155,007 216,080 171,217 124,219
Deferred:
Federal 88,298 (15,462) (158,413) 145,763 129,545
State 11,819 (24,007) (46,080) 40,083 44,181
--------- --------- --------- ----------- ---------
$ 552,000 $ 659,000 $ 881,000 $ 1,025,300 $ 897,500
========= ========= ========= =========== =========
</TABLE>
A reconciliation of the federal statutory rate to the effective income tax
rate is as follows;
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Federal statutory income tax rate 34% 34% 34% 34% 34%
State tax, net of federal benefit 5 5 6 5 4
Tax exempt investment income 2 (1) (3) (2) (3)
Other 3 3
--- --- --- --- ---
Effective tax rate 44% 38% 40% 37% 35%
=== === === === ===
</TABLE>
7. RETIREMENT PLAN
The Bank provides a noncontributory defined benefit plan covering
substantially all employees. Under the plan, retirement benefits are
primarily a function of the employee's years of service and level of
compensation. The Bank's policy is to fund the plan in amounts sufficient
to pay liabilities.
F-14
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
7. RETIREMENT PLAN (CONTINUED)
Plan assets consist primarily of temporary cash investments, and listed
stocks and bonds. The following table represents a reconciliation of the
funded status of the plan at October 1, 1997 (date of the most recent
actuarial study) and October 1, 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $2,406,000 $2,024,500
Non-vested 16,200 142,500
---------- ----------
Accumulated benefit obligation $2,422,200 $2,167,000
========== ==========
Projected benefit obligation for service
rendered to date $2,986,100 $2,758,400
Plan assets at fair value 3,943,500 3,336,400
---------- ----------
Plan assets in excess of projected benefit
obligation 957,400 578,000
Unrecognized net (gain) loss (384,500) 21,600
Amounts contributed subsequent to October 1 39,900
Unrecognized prior service cost liability (11,800) (13,100)
Unrecognized net asset at date of adoption
being
amortized over 15 years (48,400) (76,600)
---------- ----------
Prepaid pension cost at December 31 $ 512,700 $ 549,800
========== ==========
</TABLE>
The net pension costs for the years ended December 31 includes the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost benefits earned during the
period $127,200 $138,470 $110,228
Interest cost on projected benefit
obligation 200,900 193,466 177,142
Actual return on plan assets (719,000) (403,078) (493,976)
Net amortization and deferral 428,000 139,904 274,635
-------- -------- --------
Net periodic pension cost $ 37,100 $ 68,762 $ 68,029
======== ======== ========
</TABLE>
The assumptions used in determining the actuarial present value of the
projected benefit obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Weighted average assumed discount rate 7.25% 7.75%
Weighted average expected long-term rate of return on assets 8.00% 8.00%
Rate of increase in future compensation 5.00% 5.50%
</TABLE>
F-15
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
7. RETIREMENT PLAN (CONTINUED)
In addition to the retirement plan, the Bank sponsors a 401(k) savings plan
which enables employees who meet the plan's eligibility requirements to
defer income on a before tax basis. Under the plan, employees may elect to
contribute a portion of their compensation, with the Bank matching the
contribution up to 3% of compensation. Contributions associated with the
plan amounted to $31,422, $26,518, $56,167, $58,311 and $53,283 for the six
months ended June 30, 1998 and 1997 and the years ended December 31, 1997,
1996 and 1995, respectively.
8. OTHER OPERATING EXPENSES
Other expenses includes:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
FDIC and N.Y.S.
assessment $ 13,673 $ 13,950 $ 28,010 $ 6,171 $ 215,855
Advertising 80,221 89,617 153,792 174,926 183,162
Postage and telephone 83,431 62,347 123,132 120,334 113,996
Printing and supplies 44,657 33,208 71,676 69,612 71,731
Trustees compensation 62,700 39,600 80,700 88,350 115,000
Professional fees 135,886 46,403 140,438 110,159 114,665
Travel and meetings 104,415 51,020 119,219 85,395 76,113
Insurance 36,967 35,789 63,661 70,201 72,383
Dues and
subscriptions 30,226 28,110 57,495 47,742 45,526
Service fees 41,170 32,000 76,480 82,286 83,307
ORE expenses 18,847 95,805 374,426 385,058 183,437
Contributions 33,504 64,453 439,629 101,429
Sales tax 23,736 14,857 33,320 30,762 28,093
Other 78,705 31,353 107,833 119,187 237,897
-------- -------- ---------- ---------- ----------
$788,138 $638,522 $1,879,811 $1,491,612 $1,521,165
======== ======== ========== ========== ==========
</TABLE>
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it
is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and in many cases,
could not be realized in immediate settlement of the instrument. Statement
No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Bank.
F-16
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the statements of condition for cash and
cash equivalents are a reasonable estimate of fair value.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES)
For investment securities, fair value equals noted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOAN RECEIVABLES
For certain homogeneous categories of loans, such as some residential
mortgages and other consumer loans, fair value is estimated using the
quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. The carrying amount of
accrued interest approximates its fair value.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date
(i.e., their carrying amounts). The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
OFF-BALANCE SHEET INSTRUMENTS
Off-balance sheet financial instruments consist of letters of credit and
commitments to extend credit. The fair value of these financial instruments
is not significant.
F-17
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash
equivalents $ 13,548 $ 13,548 $ 6,064 $ 6,064 $ 11,801 $ 11,801
Investment
securities 39,571 39,571 55,197 55,197 57,518 57,518
Mortgage-backed
securities 16,615 16,615 109 109 133 133
Loans receivable 141,764 140,672 144,161 144,005 137,418 134,068
Allowance for credit
losses (1,721) (1,793) (1,546)
-------- -------- -------- -------- -------- --------
Net loans 140,043 140,672 142,368 144,005 135,872 134,068
Accrued interest
receivable 1,585 1,585 1,568 1,568 1,654 1,654
-------- -------- -------- -------- -------- --------
Total financial
assets $211,362 $210,406 $205,306 $206,943 $206,978 $205,174
======== ======== ======== ======== ======== ========
FINANCIAL
LIABILITIES:
Due to depositors $188,035 $189,965 $182,045 $184,149 $184,423 $188,460
-------- -------- -------- -------- -------- --------
Total financial
liabilities $188,035 $189,965 $182,045 $184,149 $184,423 $188,460
======== ======== ======== ======== ======== ========
</TABLE>
10. COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist primarily of commitments to extend
credit and letters of credit, which involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the statement of
condition. The contract amount of those commitments and letters of credit
reflects the extent of involvement the Bank has in those particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
counter party to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of the
instruments. The Bank uses the same credit policies in making commitments
and letters of credit as it does for on-balance-sheet instruments. The
contract amount of these financial instruments approximates their market
value.
<TABLE>
<CAPTION>
CONTRACT
AMOUNT
<S> <C>
Financial instruments whose contract amounts represent
credit risk:
At June 30, 1998 $8,951,870
At December 31, 1997 $8,946,362
</TABLE>
F-18
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
10. COMMITMENTS (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Since the
letters of credit are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. For both commitments to extend credit and letters of credit, the
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies, but includes residential and
commercial real estate.
The Bank has available a $6,122,000 line of credit with the Federal Home
Loan Bank of which $0 is outstanding at June 30, 1998 and December 31,
1997.
At December 31, 1995, the Bank had available an unused line of credit of
$3,000,000 with Key Bank of New York which is subject to renewal annually.
11. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory frameworks for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of June 30, 1998,
December 31, 1997 and 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
F-19
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
11. REGULATORY MATTERS (CONTINUED)
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total Capital
(to Risk Weighted
Assets) $29,019,180 23.1% $10,025,942 8% $12,532,427 10%
Tier I Capital
(to Risk Weighted
Assets) $27,450,715 21.0% $ 5,012,871 4% $ 7,519,456 7.6%
Tier I Capital
(to Average Assets) $27,450,715 12.0% $ 5,012,971 4% $ 6,266,213 7.5%
As of December 31,
1997:
Total Capital
(to Risk Weighted
Assets) $28,189,850 22.9% $ 9,843,159 8% $12,303,949 10%
Tier I Capital
(to Risk Weighted
Assets) $26,648,512 21.7% $ 4,821,580 4% $ 7,382,369 6%
Tier I Capital
(to Average Assets) $26,648,512 12.8% $ 4,921,580 4% $ 6,151,974 5%
As of December 31,
1996:
Total Capital
(to Risk Weighted
Assets) $26,907,072 21.8% $ 9,876,230 8% $12,315,287 10%
Tier I Capital
(to Risk Weighted
Assets) $25,363,880 20.5% $ 4,938,115 4% $ 7,407,172 6%
Tier I Capital
(to Average Assets) $25,363,880 12.1% $ 4,938,115 4% $ 6,172,643 5%
</TABLE>
12. CONTINGENCY
As of December 31, 1994, the Bank was a stockholder and customer of
Nationar, a trust company jointly owned by 67 savings banks throughout New
York State. Nationar performed the Bank's investment securities custody
functions. On February 6, 1995 the New York State Banking Department
assumed the operations of Nationar due to financial instability. All of the
Banks investment securities held in custody by Nationar on February 6 were
transferred to the Federal Home Loan Bank of New York for safekeeping.
F-20
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
12. CONTINGENCY (CONTINUED)
As of February 6, the Bank had due from bank balances at Nationar with an
aggregate carrying value of $687,338. In connection with Nationar's
liquidation, management had filed claims with the State Banking Department
to recover its funds. During 1996, the Bank received in full the $687,338
due from the bank balances outstanding at Nationar.
13. RECENT DEVELOPMENTS
On June 4, 1998, the Board of Trustees of The Oneida Savings Bank adopted a
Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank
proposes to reorganize from a state-chartered mutual savings bank into the
mutual holding company structure (the "Reorganization") under the laws of
the State of New York and the regulations of the Banking Board and the
FDIC, and other applicable Federal laws and regulations. As part of the
Reorganization and the Plan, the Bank will convert to a New York-chartered
stock savings bank (the "Stock Bank"), and will establish Oneida Financial,
MHC (the "MHC") as a New York corporation and Oneida Financial Corp. (the
"Holding Company") as a Delaware corporation. The Holding Company will be a
majority-owned subsidiary of the MHC at all times so long as the MHC
remains in existence, and the Stock Bank will become a wholly-owned
subsidiary of the Holding Company. Concurrently with the Reorganization,
the Holding Company intends to offer for sale up to 49.0% of its Common
Stock in the Stock Offering on a priority basis to qualifying depositors
and Tax-Qualified Employee Plans of the Bank, with any remaining shares
offered to the public in a Community Offering.
The primary purpose of the Reorganization is to establish a holding company
and stock savings bank charter which will enable the Bank to compete and
expand more effectively in the financial services marketplace. The
Reorganization will permit the Holding Company to issue Capital Stock,
which is a source of capital not available to mutual savings banks. Since
the Holding Company will not be offering all of its common stock for sale
to depositors and the public in the Stock Offering, the Reorganization will
result in less capital raised in comparison to a standard mutual-to-stock
conversion. The Reorganization also will offer the Bank more capital
raising opportunities to effect future transactions, including the
acquisition of banks and other financial services companies, since a
majority of the Holding Company's common stock will be available for sale
in the future. It will also provide the Bank with greater flexibility to
structure and finance the expansion of its operations, including the
potential acquisition of other financial institutions. Lastly, the
Reorganization will enable the Bank to better manage its capital by
providing broader investment opportunities through the holding company
structure and by enabling the Bank to distribute excess capital to
stockholders of the Holding Company. Although the Reorganization and Stock
Offering will create a stock savings bank and stock
F-21
<PAGE>
THE ONEIDA SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995
13. RECENT DEVELOPMENTS (CONTINUED)
holding company, only a minority of the Common Stock will be offered for
sale in the Stock Offering. As a result, the Bank's mutual form of
ownership and its ability to remain an independent savings bank and to
provide community-oriented financial services will be preserved through the
mutual holding company structure.
As part of the Reorganization, and consistent with the Bank's ongoing
commitment to remain an independent community-oriented savings bank, the
Bank may establish a charitable foundation. The charitable foundation would
be intended to compliment the Bank's existing community reinvestment and
charitable activities in a manner that would allow the local community to
share in the growth and success of the Bank. The Holding Company may donate
to the charitable foundation immediately following the Reorganization cash,
securities or Common Stock in an amount equal to up to 5% of the Common
Stock issued in the Stock Offering.
The Reorganization is subject to the approval of the New York State Banking
Department, the Federal Reserve Board and the FDIC.
F-22
<PAGE>
GLOSSARY
AMT Alternative minimum tax
AMTI Alternative minimum taxable income
ARM Adjustable rate mortgage loan
Associate The term "Associate" of a person is defined to mean
(i) any corporation or organization (other than the
Bank or its subsidiaries or the Company) of which such
person is a director, officer, partner or 10%
shareholder;
(ii) any trust or other estate in which such person has
a substantial beneficial interest or serves as trustee
or in a similar fiduciary capacity; provided, however
that such term shall not include any employee stock
benefit plan of the Company or the Bank in which such a
person has a substantial beneficial interest or as a
trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of such person, or
relative of such spouse, who either has the same home
as such person or who is a director or officer of the
Bank or its subsidiaries or the Company
ATM Automated Teller Machine
Bank The Oneida Savings Bank
BHCA Bank Holding Company Act of 1956, as amended
BIF Bank Insurance Fund administered by the FDIC
Charitable Foundation The Oneida Savings Bank Charitable Foundation to be
established by The Oneida Savings Bank and Oneida
Financial Corp. to which the Bank and the Company
will contribute cash and shares of Common Stock
CMO Collateralized mortgage obligations
Code The Internal Revenue Code of 1986, as amended
Community Offering Offering for sale to members of the general public of
any shares of Common Stock not subscribed for in the
Subscription Offering, with preference given first to
natural persons residing in Madison county, New York in
the cities and towns of Annsville, Camden, Florence,
Sherrill, Vernon, Verona and Vienna in Oneida county
and secondly to natural persons residing in the towns
of Fabius, Manilus, and Pompey in Onondaga county
Common Stock Common Stock, par value of $.10 per share, offered by
the Company in connection with the Reorganization
Company Oneida Financial Corp. the parent holding company for
The Oneida Savings Bank and issuer of the shares of
Common Stock in the Offering
G-1
<PAGE>
Department The New York State Banking Department
DGCL Delaware General Corporation Law
Eligible Account Holders Holders of deposit accounts with The Oneida
Savings Bank with account balances of at least
$100 as of the close of business on December 31,
1996
EPS Earnings per share
ERISA Employee Retirement Income Security Act of 1974,
as amended
ESOP The Employee Stock Ownership Plan and Trust
Estimated Valuation Range Estimated pro forma market value of the Common
Stock ranging from $28,437,600 to $38,474,400.
The Estimated Valuation Range may be increased to
$44,245,560 without a resolicitation of
subscribers
Exchange Act Securities Exchange Act of 1934, as amended
Expiration Date __:__ _______, New York Time, on _______, 1998
FASB Financial Accounting Standards Board
Federal Reserve Board Board of Governors of the Federal Reserve System
FDIC Federal Deposit Insurance Corporation
FDICIA Federal Deposit Insurance Corporation Improvement
Act of 1991, as amended
FHA Federal Housing Administration
FHLB Federal Home Loan Bank
FinPro FinPro, Inc., an independent valuation appraisal
firm
FNMA Federal National Mortgage Association
Funds Act Depositor Insurance Funds Act of 1996
GNMA Government National Mortgage Association
Guidelines Interagency Guidelines Prescribing Standards of
Safety and Soundness
Independent Valuation The appraisal of the pro forma market value of the
Company's Common Stock as determined by FinPro,
Inc. as of September 9, 1998, and updated on
October 7, 1998
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
Minority Stockholders Stockholders of the Company other than the Mutual
Holding Company
G-2
<PAGE>
MMDA Money Market Demand Account
Mutual Holding Company Oneida Financial, MHC, a New York chartered mutual
corporation, which will
NASD National Association of Securities Dealers, Inc.
Nasdaq System National Association of Securities Dealers
Automated Quotation System
NOW account Negotiable Order of Withdrawal Account
NPV Net portfolio value
Offering The offer and sale of Common Stock to depositors
the Prospectus and the public pursuant to
Offering Range The offer and sale by the Company of between
1,266,588 and 1,713,620
Plan of Reorganization The Oneida Savings Bank Plan of Reorganization
from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan
Reorganization The reorganization of the Bank from the mutual to
the stock form of organization, the organization
of the Company, the issuance of all of the Bank's
common stock to the Company, the issuance of a
majority of Company Common Stock to the Mutual
Company, and the offer and sale of the Minority
Shares to depositors and the public pursuant to
the Prospectus
REO Real estate owned
SEC Securities and Exchange Commission
Special Meeting Special Meeting of depositors of the Bank called
for the purpose of approving the Plan of
Reorganization
Stock Order Form Form for ordering stock accompanied by a
certification concerning certain matters
Subscription Offering Offering of non-transferable rights to subscribe
for the common stock, in order of priority, to
eligible account holders, the ESOP, and
supplemental eligible account holders
Subscription Price The $10.00 purchase price per share for the Common
Stock in the Offering
Supplemental Eligible Depositors of the Bank, who are not eligible
Account Holders account holders, with account balances of at least
$100 on September 30, 1998
Superintendent The Superintendent of Banks of the State of New
York
Voting Record Date The close of business on ___________, 1998, the
date for determining depositors entitled to vote
at the Special Meeting
G-3
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
ONEIDA FINANCIAL CORP.
(Proposed Holding Company for
The Oneida Savings Bank)
UP TO 1,970,663 SHARES
Common Stock
($.10 par value per share)
------------
PROSPECTUS
------------
TRIDENT SECURITIES, INC.
__________, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until_________ 1998 or 25 days after the commencement of the Offering, all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Amount
------
* Legal Fees and Expenses............................... $115,000
* Printing, Postage and Mailing......................... 22,000
Financial Printer..................................... 125,000
* Appraisal and Business Plan Fees and Expenses......... 25,000
* Accounting Fees and Expenses.......................... 75,000
** Marketing Fees and Expenses........................... 235,000
* Filing Fees (SEC and New York State
Department of Banking)................................ 23,000
* Miscellaneous Expenses (NASDAQ, other)................ 75,000
--------
** Total................................................. $695,000
========
* Estimated
** The Bank and the Company have retained Trident Securities, Inc. to assist
in the sale of common stock on a best efforts basis in the Subscription and
Community Offerings. For purposes of computing estimated expenses, it has
been assumed that Trident Securities, Inc. will receive fees of
approximately $200,000, exclusive of attorneys' fees and expenses of
$35,000.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Certificate of Incorporation of Oneida Financial Corp.
(the "Corporation") sets forth circumstances under which directors, officers,
employees and agents of the Corporation may be insured or indemnified against
liability which they incur in their capacities as such:
NINTH:
-----
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
NINTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, if required under
the Delaware General Corporation Law, that an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director of Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall
<PAGE>
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article NINTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article NINTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses), it shall be a defense that, and (ii) in any suit by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met any applicable standard
for indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article NINTH or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article NINTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article NINTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
The exhibits and financial statement schedules filed as part of this
registration statement are as follows:
(a) LIST OF EXHIBITS
1.1 Form of Agency Agreement among Oneida Financial Corp., The Oneida Savings
Bank and Trident Securities, Inc.
1.2 Engagement letter between The Oneida Savings Bank and Trident Securities,
Inc.
<PAGE>
2 Plan of Reorganization
3.1 Certificate of Incorporation of Oneida Financial Corp. (Incorporated herein
by reference to Exhibit B of the Plan of Reorganization)
3.2 Bylaws of Oneida Financial Corp. (Incorporated herein by reference to
Exhibit B of the Plan of Reorganization)
4 Form of Stock Certificate of Oneida Financial Corp.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Letter from FinPro, Inc. with respect to Subscription Rights
10.1 Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in opinion
filed as Exhibit 5)
23.2 Consent of PricewaterhouseCoopers, LLP
23.3 Consent of FinPro, Inc.
23.4 Consent of Compensation Expert
24 Power of Attorney (set forth on Signature Page)
27 Financial Data Schedule (In Electronic Filing Only)
99.1 Appraisal Report of FinPro, Inc.(filed under separate cover)
99.2 Marketing Materials
99.3 Stock Order and Acknowledgment Forms
99.4 401(k) Prospectus Supplement
99.5 Opinion of Compensation Expert
_______________________________
* Previously Filed
** Filed pursuant to Rule 202 of Regulation S-T
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
<PAGE>
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oneida, State of New York
on October 30, 1998.
ONEIDA FINANCIAL CORP.
By: /s/ Michael R. Kallet
---------------------
Michael R. Kallet
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Oneida Financial Corp. (the
"Company") hereby severally constitute and appoint Michael R. Kallet as our true
and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Michael R. Kallet may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-1 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Michael R. Kallet shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ------ ----
<S> <C> <C>
/s/ Michael R. Kallet President, Chief Executive October 30, 1998
- --------------------------
Michael R. Kallet Officer and Director (Principal
Executive Officer)
/s/ Eric E. Stickels Senior Vice President and Chief October 30, 1998
- --------------------------
Eric E. Stickels Financial Officer (Principal
Accounting and Financial
Officer)
/s/ Nicholas J. Christakos Chairman of the Board October 30, 1998
- --------------------------
Nicholas J. Christakos
/s/ Patricia D. Caprio Director October 30, 1998
- --------------------------
Patricia D. Caprio
/s/ Edward J. Clarke Director October 30, 1998
- --------------------------
Edward J. Clarke
/s/ James J. Devine Director October 30, 1998
- --------------------------
James J. Devine
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
October 30, 1998
__________________________
/s/ Rodney D. Kent Director October 30, 1998
- --------------------------
Rodney D. Kent
/s/ William D. Matthews Director October 30, 1998
- --------------------------
William D. Matthews
/s/ Michael W. Milmoe Director October 30, 1998
- --------------------------
Michael W. Milmoe
/s/ Richard B. Myers Director October 30, 1998
- --------------------------
Richard B. Myers
/s/ Frank O. White, Jr. Director October 30, 1998
- --------------------------
Frank O. White, Jr.
</TABLE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
REGISTRATION NO. 333-63603
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
EXHIBITS TO THE
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_______________________
ONEIDA FINANCIAL CORP.
<PAGE>
EXHIBIT INDEX
1.1 Form of Agency Agreement among Oneida Financial Corp., The Oneida Savings
Bank and Trident Securities, Inc.
1.2 Engagement letter between The Oneida Savings Bank and Trident Securities,
Inc.*
2 Plan of Reorganization
3.1 Certificate of Incorporation of Oneida Financial Corp. (Incorporated herein
by reference to Exhibit B of the Plan of Reorganization)*
3.2 Bylaws of Oneida Financial Corp. (Incorporated herein by reference to
Exhibit B of the Plan of Reorganization)*
4 Form of Stock Certificate of Oneida Financial Corp.*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of
securities being registered*
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Letter from FinPro, Inc. with respect to Subscription Rights*
10.1 Employee Stock Ownership Plan*
21 Subsidiaries of the Registrant*
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in opinion
filed as Exhibit 5)*
23.2 Consent of PricewaterhouseCoopers, LLP
23.3 Consent of FinPro, Inc.
23.4 Consent of Compensation Expert
24 Power of Attorney (set forth on Signature Page)*
27 Financial Data Schedule (In Electronic Filing Only)*
99.1 Appraisal Report of FinPro, Inc.(filed under separate cover)**
99.2 Marketing Materials*
99.3 Stock Order and Acknowledgment Forms
99.4 401(k) Prospectus Supplement*
99.5 Opinion of Compensation Expert
* Previously Filed.
** Filed pursuant to Rule 202 of Regulation S-T
<PAGE>
EXHIBIT 1.1
<PAGE>
DRAFT
ONEIDA FINANCIAL CORP.
ONEIDA FINANCIAL, MHC
THE ONEIDA SAVINGS BANK
1,482,835 TO 2,307,117 SHARES
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
$10.00 PER SHARE
SALES AGENCY AGREEMENT
----------------------
[_________ ___], 1998
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Ladies and Gentlemen:
Oneida Financial Corp., a Delaware corporation (the "Company"), Oneida
Financial, MHC, a New York-chartered mutual holding company (the "MHC") and The
Oneida Savings Bank, a New York-chartered stock savings bank (the "Bank"), each
hereby confirms, as of [_________ ___], 1998, its agreement with Trident
Securities, Inc. ("Trident"), a broker-dealer registered with the Securities and
Exchange Commission (the "Commission") and a member of the National Association
of Securities Dealers, Inc. ("NASD"), as follows:
1. Introduction. Effective June 4, 1998, the Board of Trustees of the
------------
Bank adopted a reorganization and stock issuance plan (the "Plan") pursuant to
which the Bank is reorganizing from a New York-chartered mutual savings bank to
a New York-chartered stock savings bank with the Company, organized as a direct
subsidiary of the MHC, owning 100% of the capital stock of the Bank (together
with the Offerings, as defined below, the "Reorganization"). In accordance with
the Plan, the Company is offering 44.5% of the shares ("Shares") of its common
stock, par value $0.10 per share (the "Common Stock"), pursuant to
nontransferable subscription rights in a subscription offering (the
"Subscription Offering") to certain depositors of the Bank, the Bank's tax-
qualified employee benefit plans, including the Bank's Employee Stock Ownership
Plan (the "ESOP"), and employees, officers, and trustees of the Bank, who do not
qualify in any of the above categories. Shares for which subscriptions are not
received in the Subscription Offering may be offered to certain members of the
general public in a community offering, with preference given first to natural
persons residing in Madison county, New York, the towns or cities of Annsville,
Camden, Florence,
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 2.
Sherrill, Vernon, Verona and Vienna in Oneida county, New York and the towns of
Fabius, Manlius and Pompey in Onondaga county, New York (the "Community
Offering" together with the Subscription Offering, the Offerings, subject to the
right of the Company and the Bank, in their sole discretion, to reject
subscriptions, in whole or in part, received in the Community Offering. In the
Offerings, the Company is offering between 1,482,835 and 2,006,189 Shares, with
the possibility of offering up to 2,307,117 Shares without a resolicitation of
subscribers. Except for certain benefit plans, no individual person, persons
having a joint account, or persons acting in concert may purchase more than
$200,000 of Shares issued in the Subscription Offering and $100,000 of Shares
issued in the Community Offering.
In connection with the Reorganization pursuant to the terms of the Plan (as
described in the Prospectus, as defined below), following the consummation of
the Reorganization subject to the approval of the depositors of the Bank and
compliance with certain conditions as may be imposed by regulatory authorities,
the Company will contribute to The Oneida Savings Bank Charitable Foundation, a
charitable foundation dedicated to supporting charitable causes and community
development activities in the Bank's market area (the "Foundation"), a number of
shares equal to 2.0% of Shares of the outstanding Common Stock, or between
65,245 and 88,272 Shares (subject to increase in certain circumstances to
101,513 Shares).
The Company and the Bank have been advised by Trident that it will utilize
its best efforts to assist the Company and the Bank with the sale of Shares in
the Offerings and, if deemed necessary, in a syndicated community offering (the
"Syndicated Community Offering") subject to the terms, conditions and procedures
as may be determined by the Company and the Bank. Prior to the execution of
this Agreement, the Company has delivered to Trident (a) the Prospectus, dated
[_________ ___], 1998, and (b) all amendment or supplements thereto, if any, to
be used in the Offerings. The Prospectus contains information with respect to
the Company, the MHC, the Bank and Shares of the Common Stock.
2. Representations and Warranties.
------------------------------
(a) The Company, the MHC and the Bank. The Company, the MHC and the
---------------------------------
Bank, jointly and severally, represent and warrant as of the date of this
Agreement, and the Company, the MHC and the Bank, jointly and severally,
represent and warrant as of the Closing Date (as hereinafter defined), to
Trident that:
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including
exhibits and an amendment or amendments thereto, on Form S-1 (No. 333-
_____), including a Prospectus relating to the Offerings, for the
registration of the Shares under the Securities Act of 1933, as
amended (the "Act"); and such registration statement has become
effective under the Act and no stop order has been issued with respect
thereto and no proceedings therefor have been initiated or, to the
Company's the
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 3.
MHC's or the Bank's knowledge, threatened by the Commission. Except as
the context may otherwise require, such registration statement, as
amended or supplemented, on file with the Commission at the time the
registration statement became effective, including the Prospectus,
financial statements, schedules, exhibits and all other documents
filed as part thereof, as amended and supplemented, is herein called
the "Registration Statement," and the Prospectus, as amended or
supplemented, on file with the Commission at the time the Registration
Statement became effective is herein called the "Prospectus," except
that if the Prospectus filed by the Company with the Commission
pursuant to Rule 424(b) of the general rules and regulations of the
Commission under the Act (together with the enforceable published
policies and actions of the Commission thereunder, the "SEC
Regulations") differs from the form of Prospectus on file at the time
the Registration Statement became effective, the term "Prospectus"
shall refer to the Rule 424(b) Prospectus from and after the time it
is filed with the Commission and shall include any amendments or
supplements thereto from and after their dates of effectiveness or
use, respectively. If any Shares remain unsubscribed following
completion of the Subscription Offering and the Community Offering, if
any, the Company (i) will promptly file with the Commission a post-
effective amendment to such Registration Statement relating to the
results of the Subscription Offering and the Community Offering, if
any, any additional information with respect to the proposed plan of
distribution and any revised pricing information or (ii) if no such
post-effective amendment is required, will file with the Commission a
Prospectus or Prospectus supplement containing information relating to
the results of the Subscription and the Community Offerings and
pricing information pursuant to Rule 424(c) of the SEC Regulations, in
either case in a form reasonably acceptable to the Company and
Trident.
(ii) The Bank has filed an application on Form 86-AC to the
New York State Banking Department ("Banking Department") for approval
of the Reorganization and the minority stock offering (the "Department
Application"), [which has been approved by the Banking Department. No
action by or before the Banking Department revoking such approval is
pending or, to the Bank's knowledge, threatened.]
(iii) The Company and the MHC have filed an application on
Form FRY-3 to register as a bank holding company (the "Holding Company
Application") with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") pursuant to Section 3(a)(1) of
the Bank Holding Company Act of 1956, [which has been approved by the
Federal Reserve Board. No action by or before the Federal Reserve
Board revoking such approval is pending or, to the Company's or the
MHC's knowledge, threatened.]
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 4.
(iv) The Bank has filed a Notice of Intent to Convert to the
Federal Deposit Insurance Corporation ("FDIC") pursuant to 12 C.F.R.
(S) 303.15 of the Bank's intent to reorganize into a two-tier mutual
holding company structure (the "Notice"). The FDIC has issued a
conditional notice of non-objection to the Notice. [No action by or
before the FDIC effecting such non-objection is pending or, to the
Bank's knowledge, threatened.]
(v) At the date of the Prospectus and at all times
subsequent thereto through and including the Closing Date (as
hereinafter defined) (i) the Registration Statement and the Prospectus
(as amended or supplemented, if amended or supplemented) complied with
and will comply with the Act and the SEC Regulations, (ii) the
Prospectus (as amended and supplemented, if amended and supplemented)
complied with and will comply with all applicable provisions of the
Banking Law of the State of New York, as amended ("Banking Law"), and
the rules and regulations of the Banking Department and other
applicable New York law (collectively, the "Department Regulations"),
(iii) the Registration Statement (as amended or supplemented, if
amended or supplemented) did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and (iv) the Prospectus (as amended or supplemented, if
amended or supplemented) did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Representations or warranties in this subsection shall not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company or the Bank relating to
Trident by or on behalf of Trident expressly for use in the
Registration Statement or the Prospectus.
(vi) The Company is duly organized and is in good standing as
a business corporation under the laws of the State of Delaware. The
MHC is duly organized and is in good standing as a mutual holding
company under the laws of the State of New York. The Bank is duly
organized and has a corporate existence as a stock savings bank under
the laws of the State of New York. Each of the Company, the MHC and
the Bank is validly existing under the laws of the jurisdiction of its
organization with full power and authority to own its property and
conduct its business as described in the Registration Statement and
Prospectus. The Bank is a member in good standing of the Federal Home
Loan Bank of New York, and the deposit accounts of the Bank are
insured up to the applicable limits by the Bank Insurance Fund ("BIF")
of the FDIC. Each of the Company, the MHC and the Bank is not required
to be qualified to do business as a foreign corporation in any
jurisdiction where non-qualification would have a material adverse
effect on the condition (financial or otherwise), operations,
business, assets, earnings or properties ("Material Adverse Effect")
of the Company, the MHC and the Bank, taken as a whole. Upon
completion of the
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 5.
transactions contemplated by the Prospectus, (i) all of the authorized
and outstanding capital stock of the Bank will be owned of record and
beneficially by the Company, (ii) all of the authorized and
outstanding stock of the Company will be issued to the MHC, the public
and the Foundation and (iii) the Company will have no direct
subsidiaries other than the Bank.
(vii) The Bank does not own equity securities of, or an
equity interest in, any business enterprise except as described in the
Prospectus; and such equity securities and equity interests are owned
by the Bank in accordance with all applicable law.
(viii) The Bank has good, marketable and insurable title to
all assets material to its business and to those assets described in
the Prospectus as owned by it, free and clear of all material liens,
charges, encumbrances or restrictions, except for liens for taxes not
yet due, except as described in the Prospectus or are not expected to
have a Material Adverse Effect on the Company, the MHC and the Bank
taken as a whole; and all of the leases and subleases material to the
operations or financial condition of each of the Company, the MHC and
the Bank under which each holds real or personal properties, including
those described in the Prospectus, are in full force and effect as
described therein.
(ix) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
and all actions in connection with the contribution of Shares to the
Foundation have been duly and validly authorized by all necessary
actions on the part of each of the Company, the MHC and the Bank, and
this Agreement is a legally valid and binding obligation of each of
the Company, the MHC and the Bank enforceable in accordance with its
terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of bank holding companies the
accounts of whose subsidiaries are insured by the FDIC or by general
equity principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to the
extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or pursuant to Sections 23A or
23B of the Federal Reserve Act, as amended ("Section 23A" or "Section
23B", as applicable).
(x) There is no litigation or governmental proceeding
pending or, to the knowledge of the Company, the MHC or the Bank,
threatened against or involving the Company, the MHC, the Bank or any
of their respective assets, which individually or in the aggregate
would reasonably be expected to have a Material Adverse Effect on the
Company, the MHC and the Bank, taken as a whole.
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 5.
(xi) The Company, the MHC and the Bank have received the
opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. with respect to
federal income tax consequences of the Reorganization, to the effect
that the Reorganization will constitute a tax-free reorganization
under the Internal Revenue Code of 1986 (the "Code"), and an opinion
from PricewaterhouseCoopers, LLP, that the Reorganization will not be
a taxable transaction for the Company, the MHC or the Bank under the
laws of the State of New York, and the facts relied upon in such
opinions are accurate and complete.
(xii) Each of the Company, the MHC and the Bank has all such
corporate power, authority, authorizations, approvals, permits and
orders as may be required to enter into this Agreement and to carry
out the provisions and conditions hereof, to issue and sell Shares in
the Offerings and to issue and contribute Shares to the Foundation,
subject to the limitations set forth herein and subject to the
satisfaction of certain conditions imposed by the Banking Department
and/or the Federal Reserve Board in connection with their approvals of
the Department Application and the Holding Company Application, as the
case may be, and except as may be required under the securities, or
"blue sky," laws of various jurisdictions, and, in the case of the
Company, as of the Closing Date (as hereinafter defined), to issue and
sell Shares to be sold by the Company as provided herein, and, in the
case of the Bank, as of the Closing Date (as hereinafter defined), to
issue and sell the shares of its capital stock to be sold to the
Company as provided in the Plan, subject to the approval of the Bank's
organization certificate by the Superintendent of Banks of the State
of New York (the "Superintendent").
(xiii) To its knowledge, none of the Company, the MHC nor the
Bank is in violation of any rule or regulation of the Banking
Department or the FDIC that could reasonably be expected to result in
any enforcement action against the Company, the MHC, the Bank or their
officers or directors that might have a Material Adverse Effect on the
Company, the MHC and the Bank, taken as a whole.
(xiv) The financial statements and any related notes or
schedules which are included in the Registration Statement and the
Prospectus fairly present the financial condition, income, net worth,
and cash flows of the Bank at the respective dates thereof and for the
respective periods covered thereby and comply as to form with the
applicable accounting requirements of both the SEC Regulations and the
Department Regulations. Such financial statements have been prepared
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (and all
adjustments necessary for a fair presentation of results for such
periods have been made), except as set forth therein, and such
financial statements are consistent with financial statements and
other reports filed by the Bank with supervisory and regulatory
authorities, except as such generally
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 7.
accepted accounting principles may otherwise require. The tables and
other financial, statistical, and pro forma information and related
notes in the Prospectus accurately present the information purported
to be shown thereby at the respective dates thereof and for the
respective periods covered thereby.
(xv) There has been no material change in the financial
condition, results of operations or business, including assets and
properties, of the Company, the MHC and the Bank, taken as a whole,
since the latest date as of which such condition is set forth in the
Prospectus, except as set forth therein; and the capitalization,
assets, properties, and business of each of the Company, the MHC and
the Bank conform to the descriptions thereof contained in the
Prospectus. None of the Company, the MHC nor the Bank has any material
liabilities of any kind, contingent or otherwise, except as
specifically set forth in the Prospectus.
(xvi) There has been no breach, violation or default (or the
occurrence of any event which, with notice or lapse of time or both,
would constitute a default) under, or creation or imposition of any
lien, charge or other encumbrance upon any of the properties or assets
of the Company, the MHC and the Bank pursuant to any of the terms,
provisions or conditions of, any agreement, contract, indenture, bond,
debenture, note, instrument or obligation to which the Company, the
MHC or the Bank is a party or by which any of them or any of their
respective assets or properties may be bound or is subject, or
violation of any governmental license or permit or any enforceable
published law, administrative regulation, or order or court order,
writ, injunction or decree, which breach, violation, default or
encumbrance would have a Material Adverse Effect on the Company, the
MHC and the Bank, taken as a whole; all agreements which are material
to the financial condition, results of operations, or business of the
Company, the MHC and the Bank, taken as a whole, are in full force and
effect, and no party to any such agreement has instituted or, to the
knowledge of the Company, the MHC and the Bank, threatened any action
or proceeding wherein the Company, the MHC or the Bank would be
alleged to be in default thereunder.
(xvii) None of the Company, the MHC nor the Bank is in
violation of its respective articles or certificate of incorporation,
charter, or bylaws. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby do not and
will not conflict with or result in a breach of the respective
articles or certificate of incorporation, charter, or bylaws of the
Company, the MHC or the Bank (in either mutual or stock form), or
constitute a material breach of or default (or an event which, with
notice or lapse of time or both, would constitute a default) under or
require any consent or waiver under, or give rise to any right of
termination, cancellation, or acceleration contained in, or result in
the creation or imposition of any lien, charge or other encumbrance
upon any of the properties or assets of the Company, the MHC or the
Bank pursuant to any of the
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 8.
terms, provisions or conditions of any material agreement, contract,
indenture, bond, debenture, note, instrument or obligation to which
the Company, the MHC or the Bank is a party, or violate any
governmental license or permit or any enforceable published law,
administrative regulation, order or court order, writ, injunction or
decree (subject to the satisfaction of certain conditions imposed by
the Banking Department or the Federal Reserve Board in connection with
their approval of the Department Application or the Holding Company
Application, respectively), which breach, violation, default or
encumbrance would have a Material Adverse Effect on the Company, the
MHC and the Bank, taken as a whole.
(xviii) Subsequent to the respective dates as of which
information is given in the Registration Statement or the Prospectus
and prior to the Closing Date, except as otherwise may be indicated or
contemplated therein, none of the Company, the MHC nor the Bank has
issued any securities which will remain issued at the Closing Date,
has incurred any liability or obligation, direct or contingent, has
borrowed money, except borrowings by the Bank in the ordinary course
of business, or has entered into any other transaction not in the
ordinary course of business and consistent with prior practices, which
is material in light of the business of the Company, the MHC and the
Bank.
(xix) Upon consummation of the Reorganization and the issuance
of Shares to the Foundation, the authorized, issued and outstanding
equity capital stock of the Company shall be within the range as set
forth in the Prospectus under the caption "Capitalization," and no
equity or debt securities of the Company have been or shall be issued
and outstanding prior to the Closing Date; the issuance and the sale
of Shares by the Company and the contribution of Shares to the
Foundation have been duly authorized by all necessary action of the
Company and approved by the Banking Department and received the non-
objection of the FDIC (subject to any conditions imposed by the
Banking Department and the FDIC) and, when issued and delivered in
accordance with the terms of the Plan and paid for, or contributed to
the Foundation, as the case may be, shall be validly issued, fully
paid and nonassessable and shall conform to the description thereof
contained in the Prospectus; the issuance of the Shares is not subject
to preemptive rights, except as set forth in the Prospectus; and good
title to the Shares will be transferred by the Company upon issuance
thereof against payment therefor, free and clear of all claims,
encumbrances, security interests and liens against the Company
whatsoever. The certificates representing the Shares will conform in
all material respects with the requirements of applicable laws and
regulations. The issuance and sale of (a) the capital stock of the
Bank to the Company and (b) the Shares of the Company to the MHC, the
Foundation and the public have been duly authorized by all necessary
action of the MHC, the Bank and the Company and appropriate regulatory
authorities (subject to the satisfaction of any conditions imposed by
the Banking Department or the Federal Reserve Board in
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 9.
connection with their approvals of the Department Application and the
Holding Company Application, respectively), and such capital stock,
when issued in accordance with the terms of the Plan, will be fully
paid, nonassessable and free of preemptive or similar rights and will
conform in all material respects to the description thereof contained
in the Prospectus.
(xx) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution,
delivery and performance of this Agreement or the issuance of the
Shares, except for the declaration of effectiveness of any required
post-effective amendment by the Commission and final approvals of the
Reorganization by the Banking Department and approval of the Company's
Holding Company Application by the Federal Reserve Board, and as may
be required under the securities laws of various jurisdictions.
(xxi) All contracts and other documents required to be filed
as exhibits to the Registration Statement, the Department Application,
the Notice or the Holding Company Application have been filed with the
Commission, the Banking Department, the FDIC or the Federal Reserve
Board, as the case may be.
(xxii) PricewaterhouseCoopers, LLP, which has audited the
financial statements of the Bank at December 31, 1997 and 1996 and for
the years ended December 31, 1997, 1996 and 1995 included in the
Prospectus, are, and were during the period covered in its report in
the Prospectus, independent public accountants within the meaning of
the Code of Professional Ethics of the American Institute of Certified
Public Accountants, the Act and the Securities Regulations.
(xxiii) FinPro, Inc., which has prepared the Reorganization
appraisal, dated September 17, 1998, described in the Prospectus is
independent of the Company and the Bank within the meaning of the
Department Regulations, is believed by the Company and the Bank to be
experienced and expert in rendering corporate appraisals of savings
institutions, and the Company and the Bank have no reason to believe
that FinPro, Inc. has not prepared the pricing information set forth
in the Prospectus in accordance with the requirements of the
Department Regulations.
(xxiv) For the past five (5) years, the Company, the MHC and
the Bank has timely filed all required federal, state and local
franchise tax returns and no deficiency has been asserted with respect
to such returns by any taxing authorities, have paid all taxes that
have become due and, to their knowledge, have made adequate reserves
for similar future tax liabilities, except where any failure to make
such filings, payments, and reserves, or the assertion of such a
deficiency, would not have a Material Adverse Effect on the Company,
the MHC and the Bank, taken as a whole.
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 10.
(xxv) All of the loans represented as assets of the Bank on
the most recent financial statements of the Bank included in the
Prospectus meet or are exempt from all requirements of federal, state
or local law pertaining to lending, including without limitation truth
in lending (including, without limitation, the requirements of
Regulation Z and 12 C.F.R. Part 226), real estate settlement
procedures, consumer credit protection, equal credit opportunity, and
all disclosure laws applicable to such loans, except for violations
which, if asserted, would not have a Material Adverse Effect on the
Company, the MHC and the Bank, taken as a whole.
(xxvi) The records of account holders, depositors, borrowers
and other members of the Bank delivered to Trident by the Bank or its
agent for use during the Reorganization have been prepared or reviewed
by the Bank and, to the knowledge of the Bank, are reliable, accurate,
and complete; and the Bank acknowledges that Trident had no role in
preparing or reviewing such records.
(xxvii) To the knowledge of the Company, the MHC and the Bank,
none of the Company, the MHC, the Bank nor directors, trustees,
officers or employees of the Company, the MHC or the Bank have made
any payment of, or set aside any, funds of the Company, the MHC or the
Bank as a loan to any person other than to the ESOP for the purchase
of the Shares or as otherwise prohibited by law.
(xxviii) To the knowledge of the Company, the MHC and the Bank,
each of the Company, the MHC and the Bank is in compliance in all
material respects with all Environmental Law (as hereinafter defined),
and none of the Company, the MHC nor the Bank has been notified or is
otherwise aware that any of them is potentially liable, or is
considered potentially liable, under any Environmental Law, including
the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S) 9601 et seq. or any similar state or local law.
There are no actions, suits, regulatory investigations or other
proceedings pending or, to the knowledge of the Company, the MHC or
the Bank, threatened against the Company, the MHC or the Bank relating
to Environmental Law matters, nor does the Company, the MHC or the
Bank have any reason to believe any such proceedings may be brought
against any of them. To the knowledge of the Company, the MHC and the
Bank, no disposal, release or discharge of hazardous waste, hazardous
substances, toxic substances, pollutants, irritants or contaminants,
including petroleum and gas products, as any of such terms may be
defined under any Environmental Law, has occurred on, in, at or about
any of the facilities or properties of the Company, the MHC or the
Bank in violation of Environmental Law, or, to the knowledge of the
Company, the MHC and the Bank, has occurred on, in, at or about any of
the facilities or properties pledged to the Bank as collateral for any
loan or extension of credit by the Bank, except such
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 11.
disposal, release or discharge as reasonably could not be deemed to
have a Material Adverse Effect on the Company, the MHC and the Bank,
taken as a whole.
"Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, order, judgment, decree,
injunction or agreement with any agency (i.e., any federal, state or
local agency responsible for regulating or enforcing the matters
identified herein) relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply,
surface soil, subsurface soil, plant and animal life or any other
natural resource), and/or (ii) the usage, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, whether by type or by quantity,
including any material containing any such substance as a component.
(xxix) At the Closing Date, the Company, the MHC and the Bank
will have completed the conditions precedent to, and shall have
conducted the Reorganization in all material respects in accordance
with, the Plan, the Department Regulations and all other applicable
laws, regulations, published decisions and orders, including all
terms, conditions, requirements and provisions precedent to the
Reorganization imposed by the Banking Department and the Federal
Reserve Board.
(xxx) The Foundation has been or will be prior to the Closing
Date duly incorporated and is validly existing as a not-for-profit
corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus. The Foundation will not be
a bank holding company within the meaning of the BHCA and 12 C.F.R.
Part 225 as a result of the issuance of the Foundation Shares to it in
accordance with the terms of the Plan and in the amounts as described
in the Prospectus. All approvals required to establish the Foundation
and to contribute the Foundation Shares thereto have been received
and, except as specifically disclosed in the Prospectus and the Proxy
Statement, there are no agreements or understandings, written or oral,
between the Company or the Bank and the Foundation with respect to the
control, directly or indirectly, over the voting and the acquisition
or disposition of the Foundation Shares to be contributed by the
Company to the Foundation. The Foundation Shares to be issued to the
Foundation in accordance with the Plan and as described in the
Prospectus will have been duly authorized for issuance and, when
issued and contributed by the Company pursuant to the Plan, will be
duly and validly issued, fully paid and nonassessable.
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 12.
(b) Trident. Trident represents and warrants to the Company, the MHC
-------
and the Bank that:
(i) Trident is registered as a broker-dealer with the
Commission and is in good standing with the Commission and the NASD.
(ii) Trident is validly existing as a corporation in good
standing under the laws of the State of North Carolina, with full
corporate power and authority to provide the services to be furnished
to the Company, the MHC and the Bank hereunder.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of Trident,
and this Agreement is a legal, valid, and binding obligation of
Trident, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization, or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of registered broker-dealers accounts of whose may be
protected by the Securities Investor Protection Corporation or by
general equity principles, regardless of whether such enforceability
is considered in a proceeding in equity or at law, and except to the
extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or pursuant to Section 23A).
(iv) Trident and, to Trident's knowledge, its employees, agents
and representatives who shall perform any of the services required
hereunder to be performed by Trident shall be duly authorized and
shall have all licenses, approvals and permits necessary to perform
such services; and Trident is a registered selling agent in the
jurisdictions listed in Exhibit A attached hereto and will remain
registered in such jurisdictions in which the Company is relying on
such registration for the sale of the Shares, until the Reorganization
is consummated or terminated.
(v) The execution and delivery of this Agreement by Trident,
the fulfillment of the terms set forth herein and the consummation of
the transactions contemplated hereby shall not violate or conflict
with the corporate charter or bylaws of Trident or constitute a breach
of, or default (or an event which, with notice or lapse of time, or
both, would constitute a default) under any material agreement,
indenture, or other instrument by which Trident is bound or under any
governmental license or permit or any law, administrative regulation,
authorization, approval or order, court decree or injunction by which
Trident is bound.
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 13.
(vi) Any funds received by Trident to purchase Common Stock will
be handled in accordance with Rule 15c2-4 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(vii) There is not now pending or, to Trident's knowledge,
threatened against Trident any action or proceeding before the
Commission, the NASD, any state securities commission or any state or
federal court concerning Trident's activities as a broker-dealer.
3. Employment of Trident: Sale and Delivery of the Shares. On the
------------------------------------------------------
basis of the representations and warranties herein contained, but subject to the
terms and conditions herein set forth, the Company, the MHC and the Bank hereby
employ Trident as their agent to utilize its best efforts to assist with the
sale of the Shares in the Offerings.
In the event the Company is unable to sell a minimum of 1,482,835 Shares
(or such lesser number as the Banking Department may permit) within the period
herein provided, this Agreement shall terminate, and the Company, the MHC and
the Bank shall refund promptly to any persons who have subscribed for any
Shares, the full amount which it may have received from them, together with
interest as provided in the Plan, and no party to this Agreement shall have any
obligation to the other party hereunder, except as set forth in Sections 6, 8,
and 9 hereof. Appropriate arrangements for placing the funds received from
subscriptions for Shares in interest-bearing accounts with the Bank until all
Shares are sold and paid for were made prior to the commencement of the
Offerings, with provision for prompt refund to the subscribers as set forth
above, or for delivery to the Company if all Shares are sold.
If all conditions precedent to the consummation of the Reorganization are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on or promptly after the
Closing Date. Such release for delivery shall be against payment to the Company
by any means authorized pursuant to the Prospectus, at the office of the Company
at 182 Main Street, Oneida, New York 13421 or at such other place as shall be
agreed upon among the parties hereto. The date upon which Trident is paid the
compensation due hereunder is herein called the "Closing Date."
Trident may assemble and manage a selling group of broker-dealers, which
are members of the NASD, to participate in the solicitation of orders for Common
Stock in the event of the Syndicated Community Offering. In such event, Trident
agrees either (a) upon receipt of an executed order form of a subscriber to
forward the offering price of the Common Stock ordered on or before twelve noon
on the next business day following receipt or execution of an order form by
Trident to the Bank for deposit in a segregated account or (b) to solicit
indications of interest in which event (i) Trident will subsequently contact any
potential subscriber indicating interest to confirm the interest and give
instructions to execute and return an order form or to receive
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 14.
authorization to execute the order form on the subscribers behalf, (ii) Trident
will mail acknowledgments of receipt of orders to each subscriber confirming
interest on the business day following such confirmation, (iii) Trident will
debit accounts of such subscribers on the third business day ("debit date")
following receipt of the confirmation referred to in (i), and (iv) Trident will
forward completed order forms together with such funds to the Bank on or before
twelve noon on the next business day following the debit date for deposit in a
segregated account. Trident acknowledges that if the procedure in clause (b) is
adopted, subscribers' funds are not required to be in their accounts until the
debit date.
In addition to the expenses specified in Section 6 hereof, Trident shall
receive the following compensation for its services hereunder upon completion
and closing of the Reorganization and the Offerings:
(a) A management fee equal to $200,000. For stock sold by other NASD
member firms under selected dealer agreements, the commission payable shall
be as agreed upon jointly by the Bank and Trident to reflect market
requirements at the time of the stock allocation in the Syndicated
Community Offering. All such fees payable to Trident are to be payable in
next day funds to Trident in Raleigh, North Carolina, on the Closing Date.
(b) Trident shall be reimbursed for allowable expenses, incurred by
it whether or not the Offerings are successfully completed; provided,
--------
however, that (i) reimbursable legal fees will not exceed $35,000, (ii)
-------
out-of-pocket expenses will not exceed $20,000 and (iii) neither the
Company, the MHC nor the Bank shall pay or reimburse Trident for any of the
foregoing expenses accrued after Trident shall have notified the Company,
the MHC or the Bank of its election to terminate this Agreement pursuant to
Section 11 hereof or after such time as the Company, the MHC or the Bank
shall have given notice in accordance with Section 12 hereof that Trident
is in breach of this Agreement. Full payment to defray Trident's
reimbursable expenses shall be made in next-day funds on the Closing Date
or, if the Reorganization is not completed and is terminated for any
reason, within ten (10) business days of receipt by the Company, the MHC or
the Bank of a written request from Trident for reimbursement of its
expenses. Trident acknowledges receipt of $10,000 advance payment from the
Bank which shall be credited against the total reimbursement due Trident
hereunder.
(c) Notwithstanding the limitations on reimbursement of Trident for
allocable expenses provided in the immediately preceding paragraph (b), in
the event that a resolicitation or other event causes the Offerings and the
Syndicated Community Offering to be extended beyond their original
expiration dates, Trident shall be reimbursed for its allocable expenses
(including legal expenses) incurred during such extended period, provided
--------
that the allowance for allowable expenses provided for in the immediately
preceding paragraph (b) above have been exhausted.
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 15.
(d) The Company shall pay any stock issue and transfer taxes which
may be payable with respect to the sale of the Shares. The Company, the MHC
and the Bank also shall pay all expenses of the Reorganization including,
but not limited to, their attorneys' fees, the fees of the independent
appraiser, NASD filing fees, other filing and registration fees, attorneys'
fees relating to any required state securities laws research and filings,
telephone charges, air freight, rental equipment, supplies, transfer agent
charges, fees relating to auditing and accounting and costs of printing all
documents necessary in connection with the Reorganization.
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
--------
assisting the Company on a best efforts basis in offering a minimum of 1,482,835
and a maximum of 2,006,189 Shares, with the possibility of offering up to
2,307,117 Shares (except as the Banking Department and the FDIC may permit such
amount to be decreased or increased) in a Subscription Offering and, if
necessary, any Shares that remain unsubscribed at the conclusion of the
Subscription Offering, in a Community Offering and a Syndicated Community
Offering. The Shares are to be offered to the public at the price set forth on
the cover page of the Prospectus.
5. Further Agreements. The Company, the MHC and the Bank, jointly and
------------------
severally, covenant and agree that:
(a) The Company shall deliver to Trident, from time to time, such
number of copies of the Prospectus as Trident reasonably may request. The
Company authorizes Trident to use the Prospectus in any lawful manner in
connection with the offer and sale of the Shares.
(b) The Company shall notify Trident immediately upon discovery, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement becomes effective or any supplement or amendment to
the Prospectus or the Department Application has been filed, (ii) of the
issuance by the Commission, the Banking Department, the FDIC or the Federal
Reserve Board of any stop order relating to the Registration Statement, the
Department Application, the Holding Company Application or the Prospectus,
or of the initiation or the threat of any proceedings for that purpose,
(iii) of the receipt of any notice with respect to the suspension of the
qualification of Shares for offering or sale in any jurisdiction, and (iv)
of the receipt of any comments from the Commission, the Banking Department,
the FDIC or the Federal Reserve Board relating to the Registration
Statement, the Department Application, the Holding Company Application, the
Prospectus or the Notice. If the Commission enters a stop order relating to
the Registration Statement or if the Banking Department, the FDIC or the
Federal Reserve Board cause the transaction to be halted at any time, the
Company, the MHC and the Bank shall make every reasonable effort to obtain
the lifting of such order or the resumption of the transaction at the
earliest possible time.
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 16.
(c) During the time when the Prospectus is required to be delivered
under the Act, the Company, the MHC and the Bank will comply so far as it
is able with all requirements imposed upon it by the Act, as now in effect
and hereafter amended, and by the SEC Regulations, as from time to time in
force, so far as necessary to permit the continuance of offers and sales of
or dealings in the Shares in accordance with the provisions hereof and the
Prospectus. If during the period when the Prospectus is required to be
delivered in connection with the offer and sale of Shares, any event
relating to or affecting the Company, the MHC and the Bank shall occur as a
result of which it is necessary, in the opinion of counsel for Trident, to
amend or supplement the Prospectus in order to make the Prospectus not
false or misleading in light of the circumstances existing at the time it
is delivered to a purchaser of Shares, the Company forthwith shall prepare
and furnish to Trident a reasonable number of copies of an amendment or
amendments or of a supplement or supplements to the Prospectus (in form and
substance satisfactory to counsel for Trident) which shall amend or
supplement the Prospectus so that, as amended or supplemented, the
Prospectus shall not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser of Shares, not misleading. The Company will not
file or use any amendment or supplement to the Registration Statement or
the Prospectus of which Trident has not first been furnished a copy or to
which Trident shall reasonably object after having been furnished such
copy. For the purposes of this subsection, the Company, the MHC and the
Bank shall furnish such information with respect to themselves as Trident
from time to time may reasonably request.
(d) The Company and the Bank have taken or will take all reasonably
necessary action as may be required to qualify or register the Shares for
offer and sale by the Company under the securities or blue sky laws of such
jurisdictions as Trident and either the Company or its counsel may agree
upon; provided, however, that the Company shall not be obligated to qualify
-------- -------
as a foreign corporation to do business under the laws of any such
jurisdiction. In each jurisdiction where such qualification or
registration shall be effected, the Company, unless Trident agrees that
such action is not necessary or advisable in connection with the
distribution of the Shares, shall file and make such statements or reports
as are, or reasonably may be, required by the laws of such jurisdiction.
(e) Appropriate entries will be made in the financial records of the
Bank sufficient to establish a liquidation account for the benefit of
eligible account holders as of December 31, 1996 and supplemental eligible
account holders as of September 30, 1998 in accordance with the appropriate
regulatory requirements.
(f) The Company has filed the Registration Statement for the Common
Stock under Section 12(g) of the Exchange Act, prior to completion of the
stock offering pursuant to the Plan and shall request that such
Registration Statement be effective upon completion of the Reorganization.
The Company shall maintain the effectiveness of such registration
<PAGE>
Trident Securities, Inc. [___________], 1998
Sales Agency Agreement Page 17.
for a minimum period of three years or for such shorter period as may be
required by applicable law.
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than forty-five (45) days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the regulations promulgated
under the Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date
(as defined in Rule 158) of the Registration Statement.
(h) For a period of three (3) years from the date of this Agreement
(unless the Common Stock shall have been deregistered under the Exchange
Act), the Company will furnish to Trident, as soon as publicly available
after the end of each fiscal year, a copy of its annual report to
shareholders for such year; and the Company will furnish to Trident (i) as
soon as publicly available, a copy of each report or definitive Proxy
Statement of the Company filed with the Commission under the Exchange Act
or mailed to shareholders, and (ii) from time to time, such other public
information concerning the Company as Trident may reasonably request.
(i) The Company shall use the net proceeds from the sale of the
Shares consistently with the manner set forth in the Prospectus under the
caption "Use of Proceeds."
(j) The Company shall not deliver the Shares until each and every
condition set forth in Section 7 hereof has been satisfied, unless such
condition is waived in writing by Trident.
(k) The Company and the Bank shall advise Trident, if necessary, as
to the allocation of deposits, in the case of eligible account holders and
supplemental eligible account holders, and, in the event of an
oversubscription, shall provide Trident final instructions as to the
allocation of Shares ("Allocation Instructions") and such information shall
be accurate and reliable. Trident shall be entitled to rely completely and
without independent investigation on such instructions and shall have no
liability in respect of its reliance thereon, including without limitation,
no liability for or related to any denial or grant of a subscription (in
whole or in part) for Shares.
(l) The Company, the MHC and the Bank will take such actions and
furnish such information as is reasonably requested by Trident in order for
Trident to ensure compliance with the NASD's "Interpretation Relating to
Free-Riding and Withholding."
(m) The Company will not sell or issue, contract to sell or issue, or
otherwise dispose of for any period of ninety (90) days after the Closing
Date, without Trident's prior written consent, any share of the Company's
capital stock other than the Common Stock.
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 18.
(n) Upon consummation of the Reorganization, the Company will list
the Common Stock on The Nasdaq Stock Market Inc. ("Nasdaq") under the
symbol "ONFC." The Company will file with Nasdaq all documents and notices
required by Nasdaq.
(o) The Company will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or orders to
purchase Common Stock in the Offerings on an interest-bearing basis at the
rate described in the Plan until the Closing Date and satisfaction of all
conditions precedent to the release of the Company's obligation to refund
payments received from person subscribing for or ordering Common Stock in
the Offerings in accordance with the Plan or until such funds have been
made to the persons entitled thereto in accordance with the Plan.
6. Payment of Expenses. Whether or not the Reorganization is
-------------------
consummated, the Company, the MHC and the Bank agree jointly and severally to
pay or reimburse Trident for (a) all filing fees paid or incurred by Trident in
connection with all filings with the NASD with respect to the Subscription and
Community Offerings and (b) in addition, if the Company is unable to sell a
minimum of 1,482,835 Shares or such lesser amount as the Banking Department may
permit or the Reorganization is otherwise terminated, the Company, the MHC and
the Bank agree jointly and severally to reimburse Trident for allowable expenses
incurred by Trident relating to the Offering of the Shares as provided in
Section 3 hereof; provided, however, that neither the Company, the MHC nor the
-------- -------
Bank shall pay or reimburse Trident for any of the foregoing expenses accrued
after Trident shall have notified the Company, the MHC or the Bank of its
election to terminate this Agreement pursuant to Section 11 hereof or after such
time as the Company, the MHC or the Bank shall have given notice in accordance
with Section 12 hereof that Trident is in breach of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived by
-----------------------------------
Trident, the obligations of Trident as provided herein shall be subject to the
accuracy of the representations and warranties contained in Section 2 hereof as
of the date hereof and as of the Closing Date, to the performance by the
Company, the MHC and the Bank of their obligations hereunder, and to the
following conditions:
(a) At the Closing Date, Trident shall receive the favorable opinion
of Luse Lehman Gorman Pomerenk & Schick, P.C., special counsel for the
Company, the MHC and the Bank, dated the Closing Date, addressed to
Trident, in form and substance satisfactory to counsel for Trident and
substantially as set forth in Exhibit B attached hereto.
In rendering such opinion, such counsel may rely as to matters of fact
on certificates of officers and directors of the Company, the MHC and the
Bank and certificates of public officials delivered pursuant hereto. Such
counsel may assume that any agreement is the valid and binding obligation
of any parties to such agreement other than the Company, the MHC
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 19.
and the Bank. Such opinion may be governed by, and interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section
of Business Law (1991) and, as a consequence, references in such opinions
to such counsel's "knowledge" may be limited to "actual knowledge" as
defined in the Accord (or knowledge based on certificates). Such opinions
may be limited to present statutes, regulations and judicial
interpretations, and to facts as they presently exist; in rendering such
opinion, such counsel need assume no obligation to revise or supplement
them should the present laws be changed by legislative or regulatory
action, judicial decision, or otherwise; and such counsel need express no
view, opinion, or belief with respect to whether any proposed or pending
legislation, if enacted, or any regulations or any policy statements issued
by any regulatory agency, whether or not promulgated pursuant to any such
legislation, would affect the validity of the execution and delivery by the
Company, the MHC and the Bank of this Agreement or the issuance of the
Shares.
(b) At the Closing Date, Trident shall receive the letter of Luse
Lehman Gorman Pomerenk & Schick, dated the Closing Date, addressed to
Trident, in form and substance reasonably satisfactory to counsel for
Trident and substantially as set forth in Exhibit C attached hereto.
(c) Counsel for Trident shall have been furnished such documents as
it reasonably may require for the purpose of enabling it to review or pass
upon the matters required by Trident, and for the purpose of evidencing the
accuracy, completeness or satisfaction of any of the representations,
warranties or conditions herein contained, including but not limited to,
resolutions of the Board of Directors of the Company, the MHC and the Bank
regarding the authorization of this Agreement and the transactions
contemplated hereby.
(d) Prior to and at the Closing Date, in the reasonable opinion of
Trident, (i) there shall have been no material change in the financial
condition, business or results of operations of the Company, the MHC and
the Bank, taken as a whole, since the latest date as of which such
condition is set forth in the Prospectus, except as referred to therein;
(ii) there shall have been no transaction entered into by the Company, the
MHC and the Bank after the latest date as of which the financial condition
of the Company, the MHC or the Bank is set forth in the Prospectus other
than transactions referred to or contemplated therein, transactions in the
ordinary course of business, and transactions which are not material to the
Company, the MHC and the Bank, taken as a whole; (iii) none of the Company,
the MHC nor the Bank shall have received from the Commission, the Banking
Department, the FDIC or the Federal Reserve Board, any direction (oral or
written) to make any change in the method of conducting their respective
businesses which is material to the business of the Company, the MHC and
the Bank, taken as a whole, with which they have not complied; (iv) no
action, suit, or proceeding, at law or in equity or before or by any
federal or state commission, board, or other administrative agency, shall
be pending or threatened against
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 20.
the Company, the MHC or the Bank or affecting any of their respective
assets, wherein an unfavorable decision, ruling, or finding would have a
Material Adverse Effect on the Company, the MHC and the Bank, taken as a
whole; and (v) the Shares shall have been qualified or registered for
offering and sale by the Company under the securities or blue sky laws of
such jurisdictions as Trident and the Company shall have agreed upon.
(e) At the Closing Date, Trident shall receive a certificate of the
principal executive officer and the principal financial officer of each of
the Company, the MHC and the Bank, dated the Closing Date, to the effect
that: (i) they have examined the Prospectus and, at the time the Prospectus
became authorized for use, the Prospectus did not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading with respect to the Company, the MHC
or the Bank; (ii) since the date the Prospectus became authorized for use,
no event has occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth, including
specifically, but without limitation, any material change in the business,
financial condition, or results of operations of the Company, the MHC or
the Bank and, the conditions set forth in clauses (ii) through (iv)
inclusive of subsection (d) of this Section 7 have been satisfied; (iii) to
the knowledge of such officers, no order has been issued by the Commission,
the Banking Department, the FDIC or the Federal Reserve Board, to suspend
the Subscription Offering or the Community Offering or the effectiveness of
the Prospectus, and no action for such purposes has been instituted or
threatened by the Commission, the Banking Department, the FDIC or the
Federal Reserve Board; (iv) to the knowledge of such officers, no person
has sought to obtain review of the final actions of the Banking Department
or the Federal Reserve Board approving the Plan; and (v) all of the
representations and warranties contained in Section 2 of this Agreement are
true and correct, with the same force and effect as though expressly made
on the Closing Date.
(f) At the Closing Date, Trident shall receive, among other
documents, (i) a copy of the letter from the Banking Department authorizing
the use of the Prospectus and related materials; (ii) a copy of the order
of the Commission declaring the Registration Statement effective; (iii) if
available from the Banking Department, copies of documents evidencing the
corporate existence of the Bank and the MHC; (iv) a copy of the letter from
the appropriate state authority evidencing the incorporation (and, if
generally available from such authority, good standing) of the Company; (v)
a copy of the Company's certificate of incorporation certified by the
appropriate state governmental authority; (vi) a copy of the non-objection
letter of the FDIC; and (vii) a copy of the order of the Federal Reserve
Board approving the Holding Company Application.
(g) Concurrently with the execution of this Agreement, Trident shall
receive a letter from PricewaterhouseCoopers, LLP, dated as of the date
hereof and addressed to Trident: (i) such letter confirming that
PricewaterhouseCoopers, LLP is a firm of
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 21.
independent public accountants within the meaning of the Act and the FDIC's
securities disclosure regulations and 12 C.F.R. (S) 335.604(a) and no
information concerning its relationship with or interests in the Bank is
required by the Department Application, and stating in effect that, in
PricewaterhouseCoopers, LLP's opinion, the financial statements of the Bank
as are included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Department
Regulations, the Act, the SEC Regulations and generally accepted accounting
principles; (ii) stating in effect that, on the basis of certain agreed
upon procedures (but not an audit examination in accordance with generally
accepted auditing standards) consisting of a reading of the latest
available unaudited interim financial statements of the Bank, prepared by
the Bank, a reading of the minutes of the Board of Directors and
shareholders of the Bank and consultations with officers of the Bank
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that: (A) such unaudited financial
statements, including "Recent Developments," are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Prospectus; (B) during the period from the date of the latest unaudited
financial statements included in the Prospectus to a specified date not
more than three business days prior to the date hereof, there was any
material increase in borrowings, and any other form of debt other than
deposits of the Bank (increases in borrowings will not be deemed to be
material if such increase in total borrowings does not exceed $1,000,000);
(C) there was any decrease in retained earnings of the Bank at the date of
such letter as compared with amounts shown in the latest unaudited
statement of condition included in the Prospectus, including "Recent
Developments;" or (D) there was any decrease in net income or net interest
income of the Bank for the number of full months commencing immediately
after the period covered by the latest unaudited income statement included
in the Prospectus, including "Recent Developments," and ended on the latest
month end prior to the date of the Prospectus or such letter as compared to
the corresponding period in the preceding year; and (iii) stating that, in
addition to the audit examination referred to in its opinion included in
the Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (g), they have compared with the general accounting
records of the Bank, which are subject to the internal controls of the
Bank, accounting system and other data prepared by the Bank, directly from
such accounting records, to the extent specified in such letter, such
amounts and/or percentages set forth in the Prospectus as Trident may
reasonably request; and they have found such amounts and percentages to be
in agreement therewith (subject to rounding).
(h) At the Closing Date, Trident shall receive a letter in form and
substance satisfactory to counsel for Trident from PricewaterhouseCoopers,
LLP, independent certified public accountants, dated the Closing Date and
addressed to Trident and the Company, confirming the statements made by
them in the letter delivered by them pursuant to the preceding subsection
as of a specified date not more than five (5) days prior to the Closing
Date.
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 22.
All such opinions, certificates, letters, and documents shall be in compliance
with the provisions hereof only if they are satisfactory to Trident and its
counsel in their reasonable opinion. Any certificates signed by an officer or
director of the Company or the Bank prepared for Trident's reliance and
delivered to Trident or to its counsel shall be deemed a representation and
warranty by the Company, the MHC and the Bank to Trident as to the statements
made therein. If any condition to Trident's obligations hereunder to be
fulfilled prior to or at the Closing Date is not so fulfilled, Trident may
terminate this Agreement or, if Trident so elects, may waive any such conditions
which have not been fulfilled, or may extend the time of their fulfillment. If
Trident terminates this Agreement as aforesaid, the Company, the MHC and the
Bank shall reimburse Trident for their expenses as provided in Section 3 hereof.
8. Indemnification.
---------------
(a) The Company, the MHC and the Bank, jointly and severally, agree
to indemnify and hold harmless Trident, its officers, directors, and
employees and each person, if any, who controls Trident within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against any
and all loss, liability, claim, damage, and expense whatsoever and shall
further promptly reimburse such persons for any legal or other expenses
reasonably incurred by each or any of them in investigating, preparing to
defend, or defending against any such action, proceeding or claim (whether
commenced or threatened) arising out of or based upon (A) any
misrepresentation by the Company, the MHC or the Bank in this Agreement or
any breach of warranty by the Company, the MHC or the Bank with respect to
this Agreement or arising out of or based upon any untrue or alleged untrue
statement of a material fact or the omission or alleged omission of a
material fact required to be stated or necessary to make not misleading any
statements contained in (i) the Registration Statement or the Prospectus or
(ii) any application or notification (including the Department Application,
the Holding Company Application, the Notice or other document or
communication (in this Section 8 collectively called the "Applications")
prepared or executed by or on behalf of the Company, the MHC or the Bank or
based upon written information furnished by or on behalf of the Company,
the MHC or the Bank, whether or not filed in any jurisdiction, to effect
the Reorganization or qualify the Shares under the securities laws thereof
or filed with the Commission, the Banking Department, the FDIC or the
Federal Reserve Board, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company, the MHC or the Bank with respect to Trident by or on behalf of
Trident expressly for use in the Prospectus or any amendment or supplement
thereof or in any Application, as the case may be, or (B) the participation
by Trident in the Reorganization. This indemnity shall be in addition to
any liability the Company, the MHC and the Bank may have to Trident
otherwise.
(b) The Company and the Bank shall indemnify and hold Trident
harmless for any liability whatsoever arising out of (i) the Allocation
Instructions or (ii) any records of
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 23.
account holders and depositors of the Bank delivered to Trident by the Bank
or its agents for use during the Reorganization.
(c) Trident agrees to indemnify and hold harmless the Company, the
MHC and the Bank, their officers, directors, and employees and each person,
if any, who controls the Company, the MHC and the Bank within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same
extent as the foregoing indemnity from the Company, the MHC and the Bank to
Trident, but only with respect to (A) statements or omissions, if any, made
in the Prospectus or any amendment or supplement thereof, in any
Application or to a purchaser of the Shares in reliance upon Trident, and
in conformity with, written information furnished to the Company or the
Bank with respect to Trident by or on behalf of Trident expressly for use
in the Prospectus or in any Application (provided that it is agreed and
understood that the only information so furnished is set forth in the
Prospectus under the caption "The Offering and the Reorganization -- Plan
of Distribution and Selling Commissions;" (B) any misrepresentation by
Trident in Section 2(b) of this Agreement; or (C) any liability of the
Company, the MHC or the Bank which is found in a final judgment by a court
of competent jurisdiction (not subject to further appeal) to have
principally and directly resulted from gross negligence or willful
misconduct of Trident. It is expressly agreed, however, that Trident shall
not be liable for any loss, liability, claim, damage, or expense which in
the aggregate exceeds the amount paid (excluding reimbursable expenses) to
Trident under this Agreement.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with the
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than the reasonable cost of investigation except as
otherwise provided herein. In the event the indemnifying party elects to
assume the defense of any such action and retain counsel acceptable to the
indemnified party, the indemnified party may retain additional counsel, but
shall bear the fees and expenses of such counsel unless (i) the
indemnifying party shall have specifically authorized the indemnified party
to retain such counsel or (ii) the parties to such suit include such
indemnifying party and the indemnified party, and such indemnified party
shall have been advised by counsel that one or more
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 24.
material legal defenses may be available to the indemnified party which may
not be available to the indemnifying party, in which case the indemnifying
party shall not be entitled to assume the defense of such suit
notwithstanding the indemnifying party's obligation to bear the fees and
expenses of such counsel. In no event shall the Company, the MHC and the
Bank be liable for the fees and expenses of more than one counsel, separate
from its own counsel, for Trident in connection with any one action or
separate but similar or related actions in the same jurisdiction arising
out of the same allegations or circumstances. An indemnifying party against
whom indemnity may be sought shall not be liable to indemnify an
indemnified party under this Section 8 if any settlement of any such action
is effected without such indemnifying party's consent. Notwithstanding the
provisions of this Section 8, the Bank shall not provide indemnification to
the Company, the MHC or Trident solely to the extent that such
indemnification would cause the Bank to violate Section 23A or Section 23B.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8
above is for any reason held to be unavailable to the Company, the MHC, the
Bank or Trident other than in accordance with its terms, the Company, the MHC or
the Bank and Trident shall contribute to the aggregate losses, liabilities,
claims, damages, and expenses of the nature contemplated by said indemnity
agreement incurred by the Company, the MHC or the Bank and Trident (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the MHC and the Bank, on the one hand, and Trident, on the other hand,
from the offering of Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, the MHC and the Bank, on the one hand,
and Trident, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Company, the MHC and the Bank, on the one hand, and Trident, on
the other hand, shall be deemed to be in the same proportions as the total
proceeds from the Reorganization (before deducting expenses) received by the
Company, the MHC and the Bank bear to the total fees received by Trident under
this Agreement. The relative fault of the Company, the MHC and the Bank, on the
one hand, and Trident, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the MHC or the Bank or by Trident and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission.
The Company, the MHC, the Bank and Trident agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 25.
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceed the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission for which Trident would be provided
indemnification under Section 8 hereof. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
10. Survival of Agreements, Representations, and Indemnities. The
--------------------------------------------------------
respective indemnities of the Company, the MHC and the Bank and of Trident and
the representation and warranties of the Company, the MHC and the Bank and of
Trident set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of Trident or the Company,
the MHC or the Bank or any controlling person or indemnified party referred to
in Section 8 hereof, and shall survive any termination or consummation of this
Agreement and/or the issuance of Shares, and any legal representative of
Trident, the Company, the MHC, the Bank and any such controlling persons shall
be entitled to the benefit of the respective agreements, indemnities, warranties
and representations.
11. Termination. Trident may terminate this Agreement by giving the
-----------
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or occurrence has
materially disrupted the United States securities markets such as to make
it, in Trident's reasonable opinion, impracticable to proceed with the
offering of the Shares; or if trading on the New York Stock Exchange shall
have suspended; or if the United States shall have become involved in a war
or major hostilities; or if a general banking moratorium has been declared
by a state or federal authority which has material effect on the Bank or
the Reorganization; or if a moratorium in foreign exchange trading by major
international associations or persons has been declared; or if there shall
have been a material change in the capitalization, condition or business of
the Company, the MHC or the Bank, or if the Bank shall have sustained a
material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act, whether or
not said loss shall have been insured; or if there shall have been a
material change in the condition or prospects of the Company, the MHC or
the Bank.
(b) If Trident elects to terminate this Agreement as provided in this
Section 11, the Company, the MHC and the Bank shall be notified promptly by
Trident by telephone or telegram and confirmed by letter pursuant to
Section 12 hereof.
<PAGE>
Trident Securities, Inc. [________ _____], 1998
Sales Agency Agreement Page 26.
(c) If this Agreement is terminated for any of the reasons set forth
in subsection (a) above, and to fulfill their obligations, if any, pursuant
to Sections 3(b), 3(c), 3(d), 6, 8(a) and 9 of this Agreement and upon
demand, the Company, the MHC and the Bank shall pay to Trident the full
amount so owing thereunder.
(d) The Bank may terminate the Reorganization in accordance with the
terms of the Plan. Such termination shall be without liability to any
party, except that the Company, the MHC and the Bank shall be required to
fulfill their obligations, to the extent applicable, pursuant to Sections
3(b), 3(c), 3(d), 6, 8(a) and 9 of this Agreement.
12. Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and, if sent to Trident, shall be
mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601
Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. Timothy
E. Lavelle, Managing Director (with a copy to Thacher Proffitt & Wood, Two World
Trade Center, New York, New York 10048, Attention: Douglas J. McClintock, Esq.)
and, if sent to the Company, the MHC or the Bank, shall be mailed, delivered or
telegraphed and confirmed to Oneida Financial Corp., Oneida Financial, MHC or
The Oneida Savings Bank, as the case may be, 182 Main Street, Oneida, New York
13421, Attention: Mr. Michael R. Kallet (with a copy to Luse Lehman Gorman
Pomerenk & Schick, P.C., 5335 Wisconsin Avenue, N.W., Suite 400, Washington,
D.C. 20015, Attention: Alan Schick, Esq.).
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, Trident, the Company, the MHC, the Bank and the
controlling and other persons referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained.
14. Construction. Unless governed by preemptive federal law, this
------------
Agreement shall be governed by and construed in accordance with the substantive
laws of the State of New York.
15. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
[Remainder of page intentionally left blank]
<PAGE>
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
ONEIDA FINANCIAL CORP. THE ONEIDA SAVINGS BANK
By:_____________________________ By:____________________________________
Michael R. Kallet
President and Chief Executive Officer
Executive Officer
Date:___________________________ Date:__________________________________
ONEIDA FINANCIAL, MHC
By:_____________________________
Michael R. Kallet
President and Chief Executive Officer
Date:___________________________
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:_____________________________
Timothy E. Lavelle
Managing Director
Date:___________________________
<PAGE>
EXHIBIT A
Jurisdictions where Trident is a Registered Selling Agent
---------------------------------------------------------
Trident is a registered selling agent in the jurisdictions listed below:
--
Alabama Missouri
Arizona Nebraska
Arkansas Nevada
California New Hampshire
Colorado New Jersey
Connecticut New Mexico
Delaware New York
District of Columbia North Carolina
Florida North Dakota (Trident Securities, Inc. only, no agents)
Georgia Ohio
Idaho Oklahoma
Illinois Oregon
Indiana Pennsylvania
Iowa Rhode Island
Kansas South Carolina
Kentucky Tennessee
Louisiana Texas
Maine Vermont
Maryland Virginia
Massachusetts Washington
Michigan West Virginia
Minnesota Wisconsin
Mississippi Wyoming
Trident is not a registered selling agent in the jurisdictions listed below:
---
Alaska
Hawaii
Montana
South Dakota
Utah
<PAGE>
EXHIBIT B
Opinion of Luse, Lehman, Gorman, Pomerenk & Schick, P.C.
Required under Section 7(a) of the Sales Agency Agreement
---------------------------------------------------------
[Luse, Lehman to insert introduction]
(i) the Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Delaware, the
MHC is duly organized and validly existing as a mutual holding company in
good standing under the laws of the State of New York, and the Bank is
validly existing as a stock savings bank in good standing under the laws of
the State of New York; each with full power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) the Bank is a member of the Federal Home Loan Bank of New
York, and the deposit accounts of the Bank are insured by the Bank
Insurance Fund of the FDIC, up to the maximum amount permitted by law;
(iii) to our knowledge, the activities of the Bank, as such
activities are described in the Prospectus, are permitted under laws of the
State of New York;
(iv) The Plan complies with and the formation of the Company as
the holding company for the Bank has been effected in all material respects
in accordance with all applicable laws, rules, and regulations, and, to our
knowledge, decisions, and orders; all of the terms, conditions,
requirements, and provisions with respect to the Plan and the
Reorganization imposed by the Banking Department and the Federal Reserve
Board, except with respect to the filing or submission of certain required
post-Reorganization reports or other materials by the Company, the MHC or
the Bank, have been complied with by the Company, the MHC and the Bank;
and, to our knowledge, no person has sought to obtain regulatory or
judicial review of the final action of the Banking Department in approving
the Plan;
(v) As of the Closing Date, the Company has authorized Common
Stock as set forth in the Registration Statement and the Prospectus; the
Bank has authorized the capital stock as set forth in the Department
Application and the Prospectus; and the description of the Common Stock
and the capital stock of the Bank provided in the Registration Statement,
the Prospectus, and the Department Application, as applicable, is accurate
in all material respects;
(vi) the issuance and sale of the Shares have been duly and
validly authorized by all necessary corporate action on the part of the
Company and have received all requisite regulatory approvals; the Shares,
upon receipt of payment and issuance in
<PAGE>
accordance with the terms of the Plan and this Agreement, will be validly
issued, fully paid, nonassessable, and, except as disclosed in the
Prospectus, free of preemptive rights, and good title thereto shall be
transferred by the Company to the purchasers free and clear of all claims,
encumbrances, security interests and liens created by the Company;
(vii) the certificates for the Common Stock are in due and
proper form and comply with applicable requirements of New York law and the
rules and regulations of the Banking Department;
(viii) the issuance and sale of the capital stock of the Bank to
the Company have been duly authorized by all necessary corporate action of
the Bank and the Company and have received the approval of the Banking
Department; and such capital stock, upon receipt of payment and issuance in
accordance with the terms of the Plan, will be validly issued, fully paid
and nonassessable and owned of record and, to our knowledge, beneficially
by the Company;
(ix) subject to the satisfaction of the conditions imposed in
the approvals of the Department Application and the Holding Company
Application, no further approval, authorization, consent, or other order of
any government board or body is required in connection with the execution
and delivery of this Agreement, and the consummation of the Reorganization,
except as may be required under the "blue sky" laws of various
jurisdictions;
(x) the execution and delivery of this Agreement and the
consummation of the of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of
each of the Company, the MHC and the Bank; and this Agreement is a legal,
valid, and binding obligation of each of the Company, the MHC and the Bank,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, or other laws affecting creditors' rights generally and as
my be limited by the exercise of judicial discretion in applying principles
of equity and except to the extent that the provisions of Sections 8 and 9
hereof may be unenforceable as against public policy or Section 23A;
(xi) Except as set forth in the Prospectus, there are no
material legal or governmental proceedings pending or, to our knowledge,
threatened (provided that for this purpose we do not regard any litigation
--------
or governmental procedure to be "threatened" unless the potential litigant
or government authority has manifested to the management of the Company or
the Bank, or to us, a present intention to initiate such litigation or
proceeding) against or involving the assets of the Company, the MHC or the
Bank required to be disclosed in the Prospectus, nor are there any statutes
or regulations, and, to our knowledge, any contract or other documents
required to be described or disclosed in the Prospectus that are not so
described or disclosed; and the description in the Prospectus of such
statutes, regulations, contracts, and other documents therein described
<PAGE>
are in all material respects accurate summaries and in all material
respects fairly present the information required to be shown;
(xii) the statements in the Prospectus under the captions
"Regulation," "Dividend Policy," "Restrictions on Acquisition of the Stock
Company and the Bank," and "Description of Capital Stock of the Stock
Company," insofar as they are, or refer to, statements of law or legal
conclusions (excluding financial data included therein, as to which no
opinion is expressed), have been prepared or reviewed by us and are correct
in all material respects; and the statements in the Prospectus under the
caption "Federal and State Taxation," insofar as they are, or refer to,
statements of federal law or legal conclusions based thereon (excluding
financial data included therein, as to which no opinion is expressed), have
been prepared or reviewed by us and are correct in all material respects;
(xiii) the Department Application has been approved by the
Banking Department, and the Prospectus has been authorized for use by the
Banking Department; the Registration Statement and any post-effective
amendment thereto have been declared effective by the Commission; except as
to any necessary qualifications or registration under the securities laws
of the jurisdictions in which the Shares were offered, no further approval
of any governmental authority is required for the issuance and sale of the
Shares (subject to the satisfaction of various conditions subsequent
imposed by the Banking Department in connection with their approval of the
Reorganization); the Banking Department and the Federal Reserve Board have
issued their orders of approval for the Company to acquire the Bank; and,
to our knowledge, no proceedings are pending by or before the Commission or
the Banking Department seeking to revoke or rescind the orders declaring
the Registration Statement effective or authorizing the Prospectus or the
Notice and Information Statement for use or, to our knowledge, are
contemplated or threatened (provided that for this purpose we do not regard
--------
any litigation or governmental procedure to be "threatened" unless the
potential litigant or government authority has manifested to the management
of the Company or the Bank, or to us, a present intention to initiate such
litigation or proceeding);
(xiv) the execution and delivery of this Agreement, the
incurring of the obligations set forth herein, and the consummation of the
of the transactions contemplated hereby shall not conflict with or result
in a breach of the articles of incorporation, charter or bylaws of the
Company, the MHC or the Bank; nor to our knowledge, constitute a material
breach of or default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or give rise to any right of
termination, cancellation, or acceleration contained in, or result in the
creation or imposition of any lien, charge, or other encumbrance upon any
of the properties or assets of the Company, the MHC or the Bank pursuant to
any of the terms, provisions, or conditions of any material agreement,
contract, indenture, bond, debenture, note, instrument, or obligation to
which the Company, the MHC or the Bank is a party or by which it or its
assets or properties may be bound or is subject, or any governmental
<PAGE>
license or permit (subject to the satisfaction of any post-Reorganization
conditions imposed by the Banking Department and/or the Federal Reserve
Board), which in any such event would have a Material Adverse Effect on the
Company, the MHC and the Bank, taken as a whole; nor will any such actions
violate any material law, administrative regulation or order, court order,
writ, injunction, or decree which breach, default, encumbrance, or
violation would have a Material Adverse Effect on the Company, the MHC and
the Bank, taken as a whole;
(xv) to our knowledge, there has been no material breach of the
Company's, the MHC's, or the Bank's articles or certificate of
incorporation, charter, or bylaws or a breach or default (or the occurrence
of any event which, with the lapse of time or action, or both, by a third
party, would result in a breach or default) under any agreement, contract,
indenture, bond, debenture, note, instrument, or obligation to which the
Company, the MHC or the Bank is party or by which any of them or their
respective assets or properties may be bound, or any governmental license
or permit, or a violation of any law, administrative regulation, or order,
court order, writ, injunction, or decree which breach or default would have
a Material Adverse Effect on the Company, the MHC and the Bank, taken as a
whole;
(xvi) the Department Application, the Holding Company
Application, the Registration Statement and the Prospectus (in each case as
amended or supplemented, if so amended or supplemented) comply as to form
in all material respects with the requirements of all applicable laws and
the rules, regulations, and, to our knowledge, all written and published
decisions and orders of the Banking Department, the Federal Reserve Board,
and the Commission, as the case may be (except as to financial statements,
notes to financial statements, financial tables, and other financial and
statistical data, including the appraisal, included therein, as to which no
opinion is expressed); to our knowledge, all documents and exhibits
required to be filed with the Department Application and the Registration
Statement have been so filed and the descriptions in the Department
Application, the Holding Company Application, and the Registration
Statement (in each case, as amended or supplemented, if so amended or
supplemented) of such documents and exhibits is in all material respects
accurate and complete and presents fairly the information required to be
shown; to our actual knowledge, there are no contracts or other documents
of a character required to be described that are not described, and there
are no statutes or regulations applicable to, certificates, permits, or
other authorizations from governmental regulatory officials or bodies
required to be obtained or maintained by, or legal or governmental
proceedings, past, pending, or threatened against the Company, the MHC or
the Bank of a character required to be disclosed in the Department
Application, the Holding Company Application, the Registration Statement or
the Prospectus that have not been so disclosed and properly described
therein; and
<PAGE>
(xvii) to our knowledge, none of the Company, the MHC nor the
Bank is in violation of any directive from the Banking Department, the FDIC
or the Federal Reserve Board to make any change in the method of conducting
their respective businesses.
[Luse, Lehman to insert conclusion]
<PAGE>
EXHIBIT C
Letter of Luse, Lehman, Gorman, Pomerenk & Schick, P.C.
Required under Section 7(b) of the Sales Agency Agreement
---------------------------------------------------------
[Luse, Lehman to insert introduction]
Based on such counsel's participation in conferences with
representatives of the Company, the Bank, its counsel, the independent
appraiser, the independent certified public accountants, Trident and its
counsel, review of documents and understanding of applicable law (including the
requirements of Form SB-2 and the character of the Registration Statement
contemplated thereby) and the experience such counsel has gained in its practice
under the Act, nothing has come to such counsel's attention that would lead it
to believe that the Registration Statement, as amended (except as to information
in respect of Trident contained therein and except as to the financial
statements, notes to financial statements, financial tables and other financial
and statistical data contained therein, as to which such counsel expresses no
opinion), at the time it became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, or that the Prospectus, as amended
(except as to information in respect of Trident contained therein and except as
to financial statements, notes to financial statements, financial tables and
other financial and statistical data contained therein as to which such counsel
expresses no opinion), as of the date of the Prospectus and at the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (in making this statement such
counsel may state that it has not undertaken to verify independently the
information in the Registration Statement or Prospectus and, therefore, does not
assume any responsibility for the accuracy or completeness thereof).
[Luse, Lehman to insert conclusion]
<PAGE>
EXHIBIT 2
<PAGE>
THE ONEIDA SAVINGS BANK
PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS BANK
TO A MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Introduction - Business Purpose....................................... 1
2. Definitions........................................................... 2
3. The Reorganization.................................................... 7
4. Conditions to Implementation of the Reorganization.................... 10
5. Special Meeting and Vote Required to Approve the Plan................. 11
6. Charters and Bylaws................................................... 12
7. Liquidation and Voting Rights......................................... 12
8. Conversion of MHC to a Federal MHC.................................... 12
9. Conversion of MHC to Stock Form....................................... 12
10. Timing of the Reorganization and Sale of Capital Stock................ 13
11. Number of Shares to be Offered........................................ 14
12. Independent Valuation and Purchase Price of Shares.................... 14
13. Method of Offering Shares and Rights to Purchase Stock................ 15
14. Additional Limitations on Purchases of Common Stock................... 17
15. Payment for Stock..................................................... 19
16. Manner of Exercising Subscription Rights Through Order Forms.......... 20
17. Undelivered, Defective or Late Order Form; Insufficient Payment....... 21
18. Completion of the Stock Offering...................................... 21
19. Market for Common Stock............................................... 21
20. Stock Purchases by Management s After the Stock Offering.............. 21
21. Resales of Stock by Management Persons................................ 22
22. Stock Certificates.................................................... 22
23. Restriction on Financing Stock Purchases.............................. 22
24. Stock Benefit Plans................................................... 22
25. Post-Reorganization Filing and Market Making.......................... 23
26. Liquidation Account................................................... 23
27. Employment and Other Severance Agreements............................. 24
28. Payment of Dividends and Repurchase of Stock.......................... 24
29. Establishment of Charitable Foundation................................ 25
30. Interpretation........................................................ 25
31. Reorganization and Stock Offering Expenses............................ 25
32. Amendment or Termination of the Plan.................................. 25
</TABLE>
Exhibits
- --------
Exhibit A Restated Organization Certificate and Bylaws of the Bank
Exhibit B Certificate of Incorporation and Bylaws of the Holding Company
Exhibit C Organization Certificate and Bylaws of the Mutual Holding Company
<PAGE>
1. INTRODUCTION - BUSINESS PURPOSE
The Board of Trustees of The Oneida Savings Bank (the "Bank") has adopted
this Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank proposes
to reorganize from a state-chartered mutual savings bank into the mutual holding
company structure (the "Reorganization") under the laws of the State of New York
and the regulations of the Banking Board and the FDIC, and other applicable
Federal laws and regulations. As part of the Reorganization and the Plan, the
Bank will convert to a New York-chartered stock savings bank (the "Stock Bank"),
and will establish Oneida Financial, MHC (the "MHC") as a New York corporation
and Oneida Financial Corp. (the "Holding Company") as a Delaware corporation.
The Holding Company will be a majority-owned subsidiary of the MHC at all times
so long as the MHC remains in existence, and the Stock Bank will become a
wholly-owned subsidiary of the Holding Company. Concurrently with the
Reorganization, the Holding Company intends to offer for sale up to 49.0% of its
Common Stock in the Stock Offering on a priority basis to qualifying depositors
and Tax-Qualified Employee Plans of the Bank, with any remaining shares offered
to the public in a Community Offering. The Board of Trustees may, in its sole
discretion, elect to form the MHC and Holding Company as federal corporations
chartered and regulated by the Office of Thrift Supervision ("OTS") in which
case all references to holding company applications to, and regulation by, the
FRB or the Department, shall mean the OTS.
The primary purpose of the Reorganization is to establish a holding company
and stock savings bank charter which will enable the Bank to compete and expand
more effectively in the financial services marketplace. The Reorganization will
permit the Holding Company to issue Capital Stock, which is a source of capital
not available to mutual savings banks. Since the Holding Company will not be
offering all of its common stock for sale to depositors and the public in the
Stock Offering, the Reorganization will result in less capital raised in
comparison to a standard mutual-to-stock conversion. The Reorganization also
will offer the Bank more capital raising opportunities to effect future
transactions, including the acquisition of banks and other financial services
companies, since a majority of the Holding Company's common stock will be
available for sale in the future. It will also provide the Bank with greater
flexibility to structure and finance the expansion of its operations, including
the potential acquisition of other financial institutions. Lastly, the
Reorganization will enable the Bank to better manage its capital by providing
broader investment opportunities through the holding company structure and by
enabling the Bank to distribute excess capital to stockholders of the Holding
Company. Although the Reorganization and Stock Offering will create a stock
savings bank and stock holding company, only a minority of the Common Stock will
be offered for sale in the Stock Offering. As a result, the Bank's mutual form
of ownership and its ability to remain an independent savings bank and to
provide community-oriented financial services will be preserved through the
mutual holding company structure.
As part of the Reorganization, and consistent with the Bank's ongoing
commitment to remain an independent community-oriented savings bank, the Bank
may establish a charitable foundation. The charitable foundation would be
intended to compliment the Bank's existing community reinvestment and charitable
activities in a manner that would allow the local community to share in the
growth and success of the Bank. The Holding Company may donate to the
charitable foundation immediately following the Reorganization cash, securities
or Common Stock in an amount equal to up to 5% of the Common Stock issued in the
Stock Offering.
<PAGE>
This Plan has been unanimously approved by the Board of Trustees of the
Bank and must be approved by the affirmative vote of at least (i) a majority of
the eligible votes of Voting Depositors, and (ii) 75% of the aggregate dollar
amount of deposits of the Voting Depositors represented at the Special Meeting
either in person or by valid proxy and entitled to vote thereat. Each Voting
Depositor will be entitled to cast one vote for each $100 or fraction thereof of
deposits in the Bank on the Voting Record Date. No Voting Depositor may cast
more than 1,000 votes at the Special Meeting. By approving the Plan, the Voting
Depositors will also be approving all steps necessary and incidental to the
formation of the Stock Bank, the Holding Company and the MHC, including any
merger necessary to consummate the Reorganization. The Reorganization is
subject to the approval of the Superintendent, the Federal Reserve Board and the
FDIC.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
ACTING IN CONCERT: Means (i) knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; (ii) a combination or pooling of votes or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise; or (iii) a person or company which acts in concert
with another persons or company ("other party") shall also be deemed to be
acting in concert with any person or company who is also acting in concert with
the other party, except that any Tax-Qualified Employee Benefit Plan or Non-
Tax-Qualified Employee Benefit Plan will not be deemed to be acting in concert
with any other Tax-Qualified Employee Benefit Plan or Non-Tax-Qualified
Employee Benefit Plan or with its trustee or a person who serves in a similar
capacity solely for the purpose of determining whether stock held by the trustee
and stock held by the plan will be aggregated. The determination of whether a
group is acting in concert shall be made solely by the Board of Trustees of the
Bank or officers delegated by such Board, and may be based on any evidence upon
which the Board or such delegatee chooses to rely.
ACTUAL SUBSCRIPTION PRICE: The price per share, determined as provided in
this Plan, at which the Common Stock will be sold in the Subscription Offering.
AFFILIATE: Any person that controls, is controlled by, or is under common
control with another person.
ASSOCIATE: The term "Associate," when used to indicate a relationship with
any person, means: (i) any corporation or organization (other than the Bank,
the Holding Company, the MHC or a majority-owned subsidiary of any thereof) of
which such person is a director, officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity; (iii) any relative or spouse of such person or
any relative of such spouse, who has the same home as such person or who is a
director or officer of the Bank, the MHC, the Stock Holding Company or any
subsidiary of the MHC or the Holding Company or any affiliate thereof; and (iv)
any person acting in concert with any of the persons or entities specified in
clauses (i) through (iii) above; provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an associate of any
trustee, director or officer of the MHC, the Holding Company or the Bank, to the
extent provided in Sections 11-13 hereof. When used to refer to a person other
than an
<PAGE>
officer or director of the Bank, the Bank in its sole discretion may determine
the persons that are Associates of other persons.
BANK: The Oneida Savings Bank in its pre-Reorganization form and post-
Reorganization stock form, as indicated by the context.
BANKING BOARD: The Banking Board of the New York State Banking Department.
BANKING LAW: The Banking Law of the State of New York.
BHCA: The Bank Holding Company Act of 1956, as amended.
BIF: The Bank Insurance Fund.
BMA: The Bank Merger Act.
CAPITAL STOCK: Any and all authorized stock of the Bank or the Holding
Company.
CHARITABLE FOUNDATION: The Charitable Foundation established in connection
with the Reorganization pursuant to Section 29 of this Plan.
COMMON STOCK: Common stock issuable by the Holding Company in connection
with the Reorganization, including securities convertible into Common Stock,
pursuant to its certificate of incorporation.
COMMUNITY: (i) Madison County, New York, (ii) the towns or cities of
Annsville, Camden, Florence, Sherrill, Vernon, Verona and Vienna in Oneida
County, and (iii) the towns of Fabius, Manlius and Pompey in Onondaga County.
COMMUNITY OFFERING: The offering to certain members of the general public
of any unsubscribed shares in the Subscription Offering which may be effected
pursuant to this Plan. The Community Offering may include a syndicated
community offering or public offering.
DEPARTMENT: The State of New York Banking Department.
DEPOSIT ACCOUNT(S): All withdrawable deposits of the Bank as defined in
Section 9019 of the Banking Law, including, without limitation, savings, time,
demand, NOW accounts, money market, certificate and passbook accounts maintained
by the Bank.
COMMUNITY OFFERING: The offering to certain members of the general public
of any unsubscribed shares in the Subscription Offering which may be effected
pursuant to this Plan. The Community Offering may include a syndicated
community offering or public offering.
EFFECTIVE DATE: The date upon which all necessary approvals have been
obtained to consummate the Reorganization, and the transfer of assets and
liabilities of the Bank to the Stock Bank is completed.
<PAGE>
ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying Deposit on the
Eligibility Record Date.
ELIGIBILITY RECORD DATE: December 31, 1996, the date for determining who
qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
ESTIMATED VALUATION RANGE: The range of the estimated pro forma market
value of the total number of shares of Common Stock to be issued by the Holding
Company to the MHC and to Minority Stockholders, as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
HOLDING COMPANY: Oneida Financial Corp., the Delaware or federal
corporation which will be majority-owned by the MHC and which will own 100% of
the common stock of the Bank.
HOLDING COMPANY APPLICATION: The holding company application to be
submitted by the MHC and the Holding Company to the FRB to have the MHC and the
Holding Company acquire direct and indirect control of the Bank.
INDEPENDENT APPRAISER: The appraiser retained by the Bank to prepare an
appraisal of the pro forma market value of the Bank and the Holding Company.
INDEPENDENT VALUATION: The estimated pro forma market value of the Holding
Company and the Bank as determined by the Independent Appraiser.
LIQUIDATION ACCOUNT: The liquidation account established pursuant to this
Plan.
MANAGEMENT PERSON: Any Officer or Trustee of the Bank or any Affiliate of
the Bank, and any person acting in concert with any such Officer or Trustee.
MARKETING AGENT: The broker-dealer responsible for organizing and managing
the Stock Offering and sale of the Common Stock.
MARKET MAKER: A dealer (i.e., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide
competitive bid and offer quotations on request, and (ii) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
MHC: Oneida Financial, MHC, the mutual holding company resulting from the
Reorganization.
<PAGE>
MINORITY OWNERSHIP INTEREST: The shares of the Holding Company's Common
Stock owned by persons other than the MHC, expressed as a percentage of the
total shares of Holding Company Common Stock outstanding.
MINORITY STOCKHOLDER: Any owner of the Holding Company's Common Stock,
other than the MHC.
MINORITY STOCK OFFERING: One or more offerings of up to 49% in the
aggregate of the outstanding Common Stock of the Holding Company to persons
other than the MHC.
NON-VOTING STOCK: Any Capital Stock other than Voting Stock.
NOTICE: The Notice of Mutual Holding Company Reorganization to be
submitted by the Bank to the FDIC and the Department to notify the FDIC and the
Department of the Reorganization and the Stock Offering.
OFFERING RANGE: The aggregate purchase price of the Common Stock to be sold
in the Stock Offering based on the Independent Valuation expressed as a range
which may vary within 15% above or 15% below the midpoint of such range, with a
possible adjustment by up to 15% above the maximum of such range. The Offering
Range will be based on the Estimated Valuation Range, but will represent a
Minority Ownership Interest equal to up to 49% of the Common Stock.
OFFICER: An executive officer of the Holding Company or the Bank,
including the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and any other employee participating in major
policy making functions of the institution.
PERSON: An individual, corporation, partnership, association, joint-stock
company, trust (including Individual Retirement Accounts and KEOGH Accounts),
unincorporated organization, government entity or political subdivision thereof
or any other entity.
PLAN: This Plan of Reorganization from a Mutual Savings Bank to a Mutual
Holding Company and Stock Issuance Plan.
QUALIFYING DEPOSIT: The aggregate of one or more Deposit Accounts with an
aggregate balance of $100 or more as of the close of business on the Eligibility
Record Date or as of the close of business on the Supplemental Eligibility
Record Date, as the case may be. Deposit Accounts with aggregate total deposit
balances of less than $100 shall not constitute a Qualifying Deposit.
REGULATIONS: The regulations of the Banking Board regarding mutual holding
companies and conversion to stock form, and the regulations of the FDIC, but
only to the extent the regulations of the FDIC conflict with Parts 86 and 111 of
the General Regulations of the New York Banking Board.
REORGANIZATION: The reorganization of the Bank into the mutual holding
company structure including the organization of the MHC, the Holding Company and
the Stock Bank pursuant to this Plan.
<PAGE>
RESIDENT: The terms "resident" "residence," "reside," or "residing" as
used herein with respect to any person shall mean any person who occupies a
dwelling within the Bank's Community, has an intent to remain with the Community
for a period of time, and manifests the genuineness of that intent by
establishing an ongoing physical presence within the Community together with an
indication that such presence within the Community is something other than
merely transitory in nature. To the extent the person is a corporation or other
business entity, the principal place of business or headquarters shall be in the
Community. To the extent a person is a personal benefit plan, the circumstances
of the beneficiary shall apply with respect to this definition. In the case of
all other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.
SEC: The Securities and Exchange Commission.
SPECIAL MEETING: The Special Meeting of Depositors, and any adjournment
thereof, called for the purpose of considering and voting on the Plan.
STOCK BANK: The New York chartered stock savings bank resulting from the
Reorganization in accordance with the Plan.
STOCK OFFERING: The offering of Common Stock of the Holding Company to the
Charitable Foundation (if adopted) and to persons other than the MHC in the
Subscription Offering and, to the extent shares remain available, in a Community
Offering or Syndicated Community Offering.
SUBSCRIPTION OFFERING: The offering of Common Stock of the Holding Company
to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and trustees, Officers and Employees for subscription and
purchase pursuant to this Plan.
SUBSIDIARY: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
SUPERINTENDENT: The Superintendent of Banks of the State of New York.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder, a Tax-Qualified Employee Plan or an Officer or Trustee of the
Bank.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The supplemental record date for
determining who qualifies as a Supplemental Eligible Account Holder. The
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding the Superintendent's approval of the Reorganization.
SYNDICATED COMMUNITY OFFERING: At the discretion of the Bank and the
Holding Company, the offering of Common Stock following or contemporaneously
with the Community Offering through a syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE PLANS: Any defined benefit plan or defined
contribution plan (including any employee stock ownership plan, stock bonus
plan, profit-sharing plan, or other plan) of the Bank, the
<PAGE>
Holding Company, the MHC or any of their affiliates, which, with its related
trusts, meets the requirements to be qualified under Section 401 of the Internal
Revenue Code. The term Non-Tax-Qualified Employee Plan means any defined benefit
plan or defined contribution plan which is not so qualified.
TRUSTEE: A trustee of the Bank on or before the Effective Date.
VOTING DEPOSITOR: An Eligible Account Holder who continues to have a
Deposit Account as of the Voting Record Date.
VOTING RECORD DATE: The date established by the Bank for determining
eligibility to vote on the Plan at the Special Meeting.
VOTING STOCK:
(1) Voting Stock means common stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder: (i) To vote for or to select directors of the Bank or the Holding
Company; and (ii) To vote on or to direct the conduct of the operations or other
significant policies of the Bank or the Holding Company.
(2) Notwithstanding paragraph (1) above, preferred stock is not "Voting
Stock" if: (i) Voting rights associated with the preferred stock are limited
solely to the type customarily provided by statute with regard to matters that
would significantly and adversely affect the rights or preferences of the
preferred stock, such as the issuance of additional amounts or classes of senior
securities, the modification of the terms of the preferred stock, the
dissolution of the Bank or the Holding Company, or the payment of dividends by
the Bank or the Holding Company when preferred dividends are in arrears; (ii)
The preferred stock represents an essentially passive investment or financing
device and does not otherwise provide the holder with control over the issuer;
and (iii) The preferred stock does not at the time entitle the holder, by
statute, charter, or otherwise, to select or to vote for the selection of
directors of the Bank or the Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting
Stock" shall be deemed to include preferred stock and other securities that,
upon transfer or otherwise, are convertible into Voting Stock or exercisable to
acquire Voting Stock where the holder of the stock, convertible security or
right to acquire Voting Stock has the preponderant economic risk in the
underlying Voting Stock. Securities immediately convertible into Voting Stock
at the option of the holder without payment of additional consideration shall be
deemed to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be deemed to
vest the holder with the preponderant economic risk in the underlying Voting
Stock if the holder has paid less than 50% of the consideration required to
directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
3. THE REORGANIZATION
A. ORGANIZATION OF THE HOLDING COMPANIES AND THE BANK
As part of the Reorganization, the Bank will convert to a New York stock
savings bank and will establish the Holding Company as a Delaware corporation
and the MHC as a New York corporation. The
<PAGE>
Reorganization will be effected as follows, or in any manner approved by the
Superintendent that is consistent with the purposes of this Plan and applicable
laws and regulations. As follows:
(i) the Bank will organize an interim stock savings bank as a wholly-owned
subsidiary ("Interim One"); (ii) Interim One will organize an interim stock
savings bank as a wholly-owned subsidiary ("Interim Two"); (iii) Interim
One will organize the Holding Company as a wholly-owned subsidiary; (iv)
the Bank will exchange its charter for a New York stock savings bank
charter to become the Stock Bank and Interim One will exchange its charter
for a New York mutual holding company charter to become the MHC; (v)
simultaneously with step (iv), Interim Two will merge with and into the
Stock Bank with the Stock Bank as the resulting institution; (vi) all of
the initially issued stock of the Stock Bank will be transferred to the MHC
in exchange for membership interests in the MHC; and (vii) the MHC will
contribute the capital stock of the Bank to the Holding Company, and the
Stock Bank will become a wholly-owned subsidiary of the Holding Company.
Upon completion of the Reorganization and Stock Offering, the MHC, the
Holding Company and the Stock Bank will be structured as follows:
<TABLE>
<CAPTION>
----------------- ------------------
The MHC Public
Stockholders
----------------- ------------------
<S> <C>
At least Up to 49%
51% of the of the
Common Common
Stock Stock
--------------------------------------
The Holding Company
--------------------------------------
100% of the
Common Stock
--------------------------------------
The Stock Bank
--------------------------------------
</TABLE>
Contemporaneously with the Reorganization, the Holding Company will offer
for sale in the Stock Offering shares of Common Stock representing up to 49% of
the pro forma market value of the Holding Company and the Bank. Upon
consummation of the Reorganization, the legal existence of the Bank will not
terminate, but the Stock Bank will be a continuation of the Bank, and all
property of the Bank, including its right, title, and interest in and to all
property of whatsoever kind and nature, will inure to the Stock Bank immediately
by operation of law and without the necessity of any conveyance or transfer and
without any further act or deed. The Stock Bank will have, hold, and enjoy the
same in its right and fully and to the same extent as the same was possessed,
held, and enjoyed by the Bank. The Stock Bank will continue to have, succeed
to, and be responsible for all the rights, liabilities and obligations of the
Bank and will maintain its headquarters and operations at the Bank's present
locations.
<PAGE>
Upon consummation of the Reorganization, substantially all of the assets
and liabilities (including all savings accounts and demand deposit accounts) of
the Bank shall be become the assets and liabilities of the Stock Bank, which
will thereupon become an operating savings bank subsidiary of the Holding
Company and of the MHC. The Holding Company expects to receive or retain (as
the case may be) up to 50% of the net proceeds of the Stock Offering. The Stock
Bank may distribute additional capital to the Holding Company following the
Reorganization, subject to the applicable regulations governing capital
distributions.
B. EFFECT ON DEPOSIT ACCOUNTS AND BORROWINGS
Upon consummation of the Reorganization each deposit account in the Bank on
the Effective Date will become a deposit account in the Stock Bank in the same
amount and upon the same terms and conditions, and will continue to be federally
insured up to the legal maximum by the FDIC in the same manner, as the deposit
account existed in the Bank immediately prior to the Reorganization. Upon
consummation of the Reorganization, all loans and other borrowings from the Bank
shall retain the same status with the Stock Bank after the Reorganization as
they had with the Bank immediately prior to the Reorganization.
C. THE BANK
Upon completion of the Reorganization the Stock Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under New York law.
A copy of the proposed Restated Organization Certificate and Bylaws of the Stock
Bank is attached as Exhibit A and is made a part of this Plan. The
Reorganization will not result in any reduction of the amount of retained
earnings (other than the assets of the Bank retained by or distributed to the
Holding Company or the MHC), undivided profits, and general loss reserves that
the Bank had prior to the Reorganization. Such retained earnings and general
loss reserves will be accounted for by the MHC, the Holding Company and the
Stock Bank on a consolidated basis in accordance with generally accepted
accounting principles.
The initial members of the Board of Directors of the Stock Bank will be the
members of the existing Board of Trustees of the Bank. The Stock Bank will be
wholly-owned by the Holding Company. The Holding Company will be wholly-owned by
its stockholders who will consist of the MHC and the persons who purchase Common
Stock in the Stock Offering and any subsequent Minority Stock Offering. Upon the
Effective Date of the Reorganization, any liquidation rights of depositors under
New York law will be transferred to the MHC and/or the Stock Bank and the
Holding Company, subject to the conditions specified below.
D. THE HOLDING COMPANY
The Holding Company will be a Delaware corporation and will be authorized
to exercise any and all powers, rights and privileges, and will be subject to
all limitations applicable to bank holding companies and savings bank holding
companies under applicable federal and New York laws and regulations. The
initial members of the Board of Directors of the Holding Company will be the
members of the existing Board of Trustees of the Bank. Thereafter, the voting
stockholders of the Holding Company will elect annually approximately one-third
of the Holding Company's directors. A copy of the Certificate of Incorporation
and Bylaws of the Holding Company is attached as Exhibit B and is made part of
this Plan.
<PAGE>
The Holding Company will have the power to issue shares of Capital Stock to
persons other than the MHC. However, so long as the MHC is in existence, the
MHC will be required to own at least 51% of the Voting Stock of the Holding
Company. The Holding Company may issue any amount of Non-Voting Stock to
persons other than the MHC. The Holding Company will be authorized to undertake
one or more Minority Stock Offerings of up to 49% in the aggregate of the total
outstanding Common Stock of the Holding Company, and the Holding Company intends
to offer for sale up to 49% of its Common Stock in the Stock Offering.
E. THE MUTUAL HOLDING COMPANY
As a mutual corporation, the MHC will have no stockholders. The trustees
of the MHC will have exclusive voting authority as to all matters relating to
the MHC other than any conversion of the MHC to stock form. Any liquidation
rights of depositors that existed under New York law prior to the Reorganization
shall continue in the MHC following the Reorganization. The rights and powers
of the MHC will be defined by the MHC's Organization Certificate and Bylaws (a
copy of which is attached as Exhibit C and made a part of this Plan) and by
applicable statutory and regulatory provisions of Federal and New York law. The
MHC will be regulated by the FRB as a bank holding company. In the future, the
MHC may elect to be regulated by the Office of Thrift Supervision as a savings
and loan holding company, in which case it would be subject to the limitations
and restrictions imposed on savings and loan holding companies by Section
10(o)(5) of the Home Owners' Loan Act.
The New York Banking Law requires that the Board of Directors of a
subsidiary savings bank of a mutual holding company include at least one
director who is not an officer, employee or director of the mutual holding
company or an officer or employee of the stock subsidiary bank, who will
represent the interests of minority stockholders of the subsidiary stock bank.
Accordingly, the initial members of the Board of Trustees of the MHC will
consist of all but one member of the existing Board of Trustees of the Bank.
Thereafter, approximately one-third of the trustees of the MHC will be elected
annually by the members of the Board of Trustees of the MHC.
4. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION
Consummation of the Reorganization is conditioned upon the following:
A. Approval of the Plan by a majority of the Board of Trustees of the
Bank.
B. Approval of the Plan by the affirmative vote of at least (i) a majority
of the total eligible votes of the Voting Depositors, and (ii) 75% of
the aggregate dollar amount of deposits of Voting Depositors
represented at the Special Meeting either in person or by valid proxy
and entitled to vote at the Special Meeting.
C. Approval by the Superintendent of the Plan, the Restated Organization
Certificate and Bylaws of the Stock Bank and the MHC, and the Banking
Board's approval of the Organization Certificate of the MHC, and all
other transactions contemplated by the Plan for which approval is
required by the Superintendent and the Banking Board.
<PAGE>
D. Submission of the Notice to the FDIC, and the Bank either (i) receives
a notice of intent not to object from the FDIC, or (ii) 60 days
(subject to extension for an additional 60 days) have passed following
the acceptance of a complete Notice by the FDIC.
E. Approval by the FRB pursuant to the BHCA for the MHC and the Holding
Company to become bank holding companies by owning or acquiring,
directly or indirectly, the majority of the Stock Bank's common stock
to be issued in connection with the Reorganization.
F. Approval by the FDIC pursuant to the BMA of any merger or transfer of
assets and liabilities involving the Bank or an interim savings bank in
connection with the Reorganization.
G. Receipt by the Bank of either a private letter ruling from the Internal
Revenue Service or an opinion of the Bank's counsel as to the federal
income tax consequences of the Reorganization to the MHC, the Holding
Company and the Bank.
H. Receipt by the Bank of either a private letter ruling of the New York
State Department of Taxation and Finance or an opinion of counsel or of
the Bank's independent public accountants as to the New York income tax
consequences of the Reorganization to the MHC, the Holding Company and
the Bank.
5. SPECIAL MEETING AND VOTE REQUIRED TO APPROVE THE PLAN
Subsequent to the approval of the Plan by the Superintendent, the Special
Meeting shall be scheduled in accordance with the Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Bank shall distribute proxy solicitation materials to all
Voting Depositors. The proxy solicitation materials shall include a proxy card
and proxy statement and other documents authorized for use by the regulatory
authorities. A copy of the Plan will be made available to all Voting Depositors
upon request. Pursuant to the Regulations, an affirmative vote of at least (i)
a majority of the total eligible votes of Voting Depositors, and (ii) 75% of the
aggregate dollar amount of deposits of the Voting Depositors represented at the
Special Meeting either in person or by valid proxy and entitled to vote thereat
shall be required for approval of the Plan. The Board of Trustees shall appoint
an independent custodian and tabulator to receive and hold the proxy cards and
to count the votes cast in favor of and in opposition to the Plan. Within five
days after the Special Meeting, the President and Secretary of the Bank will
certify to the Superintendent the result of the vote taken at the Special
Meeting. Each Voting Depositor shall be entitled to cast one vote for each $100
or fraction thereof of deposits in the Bank on the Voting Record Date. No
Voting Depositor may cast more than 1,000 votes at the Special Meeting.
6. CHARTERS AND BYLAWS
Copies of the proposed Restated Organization Certificate and Bylaws of the
Stock Bank, the proposed Certificate of Incorporation and Bylaws of the Holding
Company and the proposed Charter and Bylaws of the MHC are attached hereto as
Exhibits A, B and C, respectively, and are made a part of this Plan. By their
approval of this Plan, the Voting Depositors shall have approved and adopted the
Charter and Bylaws of the Bank, the Holding Company and the MHC.
<PAGE>
The total shares of Common Stock authorized under the Holding Company
Charter will exceed the shares of Common Stock to be issued to the MHC and the
minority stockholders in the Reorganization. In addition, the Certificate of
Incorporation of the Holding Company will include provisions that: (i) eliminate
cumulative voting for the election of directors; (ii) prohibit any person or
group acting in concert (other than the MHC) from voting shares in excess of 10%
of the Common Stock of the Holding Company; and (iii) prohibit persons other
than the Board of Directors of the Stock Bank or committees of the Board of
Directors of the Stock Bank from calling special meetings of the stockholders of
the Stock Bank.
7. LIQUIDATION AND VOTING RIGHTS
Following the Reorganization, each Eligible Account Holder and each
Supplemental Eligible Account Holder will have an interest in the Liquidation
Account established pursuant to this Plan so long as such person remains a
depositor of the Stock Bank after the Reorganization. In addition, following
the Reorganization, all depositors who had liquidation rights with respect to
the Bank as of the date of the Reorganization will continue to have such rights
solely with respect to the MHC for so long as they remain depositors of the
Stock Bank. In addition, all persons who become depositors of the Stock Bank
subsequent to the Reorganization also will have liquidation rights with respect
to the MHC. In each case, no person who ceases to be the holder of a Deposit
Account with the Bank after the Reorganization shall have any liquidation rights
with respect to the MHC.
8. CONVERSION OF MHC TO A FEDERAL MHC
Upon completion of the Reorganization, the MHC will be chartered under New
York law. The MHC, however, may elect to convert its charter to a federal
mutual holding company charter in the future, in which case the MHC would be
regulated by the Office of Thrift Supervision ("OTS") or any successor thereto.
Such a charter conversion would be subject to the approval of the Board of
Trustees of the MHC, the OTS and applicable regulatory authority.
9. CONVERSION OF MHC TO STOCK FORM
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion
Transaction will occur, and the Board of Trustees has no intent or plan to
undertake a Conversion Transaction. If the Conversion Transaction does not
occur, the MHC will always own a majority of the Common Stock of the Holding
Company.
In a Conversion Transaction, the MHC would merge with and into the Stock
Bank or the Holding Company (at the discretion of the MHC), and certain
depositors of the Stock Bank would receive the right to subscribe for a number
of shares of common stock of the Holding Company, as determined by the formula
set forth in the following paragraphs. The additional shares of Common stock of
the Holding Company issued in the Conversion Transaction would be sold at their
aggregate pro forma market value.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any,
will be entitled to maintain the same percentage ownership interest in the
Holding Company after the Conversion Transaction as their percentage ownership
interest in the Holding Company immediately prior to the Conversion Transaction
(i.e., the Minority
<PAGE>
Ownership Interest), subject only to the following adjustments (if required by
federal or state law, regulation, or regulatory policy) to reflect: (i) the
cumulative effect of the aggregate amount of dividends waived by the MHC; and
(ii) the market value of assets of the MHC (other than common stock of the
Holding Company).
The adjustment referred to in clause (i) of the preceding paragraph above
would require that the Minority Ownership Interest (expressed as a percentage)
be adjusted by multiplying the Minority Ownership Interest by the following
fraction:
(Holding Company stockholders' equity immediately preceding the Conversion
--------------------------------------------------------------------------
Transaction) - (aggregate amount of dividends waived by MHC)
------------------------------------------------------------
Holding Company stockholders' equity immediately preceding the Conversion
Transaction
The Minority Ownership Interest (expressed as a percentage) shall also be
adjusted to reflect any assets of the MHC other than the Common Stock of the
Holding Company by multiplying the result obtained in the preceding paragraph by
the following fraction:
(pro forma market value of Holding Company) - (market value of assets of MHC
----------------------------------------------------------------------------
other than Holding Company common stock)
----------------------------------------
pro forma market value of Holding Company
At the sole discretion of the Board of Trustees of the MHC and the Board of
Directors of the Holding Company, a Conversion Transaction may be effected in
any other manner necessary to qualify the Conversion Transaction as a tax-free
reorganization under applicable federal and state tax laws, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Stockholders as set forth in the preceding paragraphs. If a Conversion
Transaction does not occur, the MHC will always own a majority of the Voting
Stock of the Holding Company.
A Conversion Transaction would require the approval of applicable federal
and state bank regulators, and would be presented to a vote of the depositors of
the Stock Bank and the stockholders of the Holding Company as of a voting record
date prior to the completion of the Conversion Transaction. Federal and state
regulatory policy requires that in any Conversion Transaction the depositors of
the MHC will be accorded the same stock purchase priorities as if the MHC were a
mutual savings bank converting to stock form.
10. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan.
Subject to the approval of the FDIC, the FRB and the Superintendent, the Holding
Company intends to commence the Stock Offering concurrently with the proxy
solicitation of Voting Depositors. Subject to regulatory approval, the Holding
Company may close the Stock Offering before the Special Meeting, provided that
the offer and sale of the Common Stock shall be conditioned upon approval of the
Plan by the Voting Depositors at the Special Meeting. The Bank's proxy
solicitation materials may permit certain Voting Depositors to return to the
Bank by a reasonable date certain a postage paid card or other written
communication requesting receipt of the prospectus if the prospectus is not
mailed concurrently with the proxy solicitation materials. The Stock Offering
shall be conducted in compliance with the securities offering regulations of the
FDIC, the SEC and the Banking Board. The Bank will not finance or loan funds to
any person to purchase Common Stock.
11. NUMBER OF SHARES TO BE OFFERED
<PAGE>
A. The total number of shares (or range thereof) of Common Stock to be
issued and offered for sale pursuant to the Plan shall be determined initially
by the Board of Trustees of the Bank and the Board of Directors of the Holding
Company in conjunction with the determination of the Independent Appraiser. The
number of shares to be offered may be adjusted prior to completion of the Stock
Offering. The total number of shares of Common Stock that may be issued to
persons other than the MHC at the close of the Stock Offering must be no greater
than 49.0% of the issued and outstanding shares of Common Stock of the Holding
Company.
B. For a period of 30 days following the completion of the
Reorganization, the Boards of Directors of the Holding Company and the MHC, in
their sole discretion, may determine to issue or allocate shares of Common Stock
("Contingent Shares") (a) to subscribers to fill orders resulting from (i) any
allocation oversights in the event of an oversubscription, (ii) lost or damaged
stock order forms which the Company's Board determines should have been filled
in the Offering, or (iii) orders initially rejected but later found to be
legitimate, or (b) in the event of an issuance described in (a), to the MHC in
order to maintain a Minority Ownership Interest at a percentage desired by the
Boards of Directors of the MHC and the Holding Company. Contingent Shares may
be authorized but unissued shares or shares issued to the MHC in the
Reorganization, and shall include no more than a number of shares equal to 2% of
the shares issued in the Offering. Contingent Shares will not be included in
the total number of shares for purposes of determining any individual or maximum
purchase limitation or the number of shares of stock to be purchased by Tax-
Qualified Employee Plans. In the event of an oversubscription in the Offering,
Contingent Shares will be allocated to a subscriber based upon the allocation
of shares to persons who had the same or similar deposit account balance as that
subscriber.
12. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES
The total number of shares (and a range thereof) (the "Offering Range") of
Common Stock to be issued and offered for sale in the Stock Offering will be
determined jointly by the Board of Trustees of the Bank and the Board of
Directors of the Holding Company immediately prior to the commencement of the
Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the FDIC
and the Superintendent, if necessary. In particular, the total number of shares
may be increased by up to 15% of the number of shares offered in the
Subscription and Community Offerings if the Estimated Valuation Range is
increased subsequent to the commencement of the Subscription and Community
Offerings to reflect changes in market and financial conditions.
All shares sold in the Stock Offering will be sold at a uniform price per
share referred to in this Plan as the Actual Subscription Price. The aggregate
purchase price for all shares of Common Stock will not be inconsistent with the
estimated consolidated pro forma market value of the Holding Company and the
Bank. The estimated consolidated pro forma market value of the Holding Company
and the Bank will be determined for such purpose by the Independent Appraiser.
Prior to the commencement of the Subscription and Community Offerings, an
Estimated Valuation Range will be established, which range will vary within 15%
above to 15% below the midpoint of such range. The shares of Common Stock being
sold in the Stock Offering will represent a minority ownership interest in the
outstanding Common Stock of the Holding Company equal to up to 49% of the
estimated pro forma market value of the Common Stock based upon the Independent
Valuation. The percentage of Common Stock offered for sale in the Stock
Offering and the Offering Range shall be determined by the Board of Directors of
the Holding Company
<PAGE>
and the Board of Trustees of the Bank prior to commencement of the Subscription
and Community Offerings, and will be confirmed upon completion of the Stock
Offering based on the final or updated Independent Valuation submitted by the
Independent Appraiser.
The number of shares of Common Stock to be issued in the Stock Offering and
the purchase price per share may be increased or decreased by the Holding
Company. In the event that the aggregate purchase price of the Common Stock is
below the minimum of the Estimated Valuation Range, or materially above the
maximum of the Estimated Valuation Range, resolicitation of purchasers may be
required, provided that up to a 15% increase above the maximum of the Estimated
Valuation Range will not be deemed material so as to require a resolicitation.
Any such resolicitation shall be effected in such manner and within such time as
the Bank shall establish, with the approval of the FDIC and the Superintendent,
if required. Based upon the Independent Valuation as updated prior to the
commencement of the Subscription and Community Offerings, the Board of Directors
of the Holding Company will fix the Actual Subscription Price. If there is a
Syndicated Community Offering of shares of Common Stock not subscribed for in
the Subscription and Community Offerings, the price per share at which the
Common Stock is sold in such Syndicated Community Offering shall be equal to the
Actual Subscription Price.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Holding Company, the Bank and to the FDIC and the Department that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Common Stock
at the purchase price per share is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company and the
Bank. An increase in the aggregate value of the Common Stock by up to 15% would
not be deemed to be material. If such confirmation is not received, the Holding
Company may cancel the Stock Offering, extend the Stock Offering and establish a
new Actual Subscription Price and/or Estimated Valuation Range, extend, reopen
or hold a new Stock Offering or take such other action as the FDIC and the
Department may permit. The estimated market value of the Holding Company and
the Bank shall be determined for such purpose by an Independent Appraiser on the
basis of such appropriate factors as are not inconsistent with FDIC and
Department regulations. The Common Stock to be issued in the Stock Offering
shall be fully paid and nonassessable.
13. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK
In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; and
(4) employees, officers, and trustees. Any shares of Common Stock that are not
subscribed for in the Subscription Offering may be offered for sale in a
Community Offering and/or Syndicated Community Offering. The minimum purchase
by any person shall be 25 shares. The Bank may use its discretion in
determining whether prospective purchasers are "residents," "associates," or
"acting in concert", and in interpreting any and all other provisions of the
Plan. All such determinations are in the sole discretion of the Bank, and may
be based on whatever evidence the Bank chooses to use in making any such
determination.
In addition to the priorities set forth below, the Board of Directors may
establish other priorities for the purchase of Common Stock, subject to the
approval of the Banking Board and the FDIC, and may
<PAGE>
change the order of priorities set forth below if required by the FDIC or the
Department. The priorities for the purchase of shares in the Stock Offering are
as follows:
A. SUBSCRIPTION OFFERING
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
receive non-transferrable subscription rights to subscribe for shares of Common
Stock offered in the Stock Offering in an amount equal to the greater of
$150,000, or one-tenth of one percent (.10%) of the total shares offered in the
Stock Offering. If there are insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will be allocated to Eligible
Account Holders so as to permit each such subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the same proportion that
each such subscriber's Qualifying Deposit bears to the total amount of
Qualifying Deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled; provided that the Bank may, in its sole
discretion, and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5% of
the maximum number of shares offered in the Stock Offering, subject to the
overall purchase limitations set forth in the Section 14. Subscription rights
to purchase Common Stock received by Officers and trustees of the Bank including
associates of Officers and trustees, based on their increased deposits in the
Bank in the one year preceding the Eligibility Record Date, shall be
subordinated to the subscription rights of other Eligible Account Holders. To
ensure proper allocation of stock, each Eligible Account Holder must list on his
or her subscription order form all Deposit Accounts in which he had an ownership
interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Stock Offering. In the event of an
oversubscription in the Stock Offering, subscriptions for shares by the Tax-
Qualified Employee Plans may be satisfied, in whole or in part, through open
market purchases by the Tax-Qualified Employee Plans subsequent to the closing
of the Stock Offering. If the final valuation exceeds the maximum of the
Offering Range, up to 10% of Common Stock issued in the Stock Offering may be
sold to the Tax Qualified Employee Plans notwithstanding any oversubscription by
Eligible Account Holders, subject to FDIC approval.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall receive non-transferable subscription rights to subscribe
for shares of Common Stock offered in the Stock Offering in an amount equal to
the greater of $150,000, or one-tenth of one percent (.10%) of the total shares
offered in the Stock Offering. In the event Supplemental Eligible Account
Holders subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders and the Tax-Qualified Employee Plans,
exceed available shares, the shares of Common Stock will be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated to each subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that such subscriber's
Qualifying Deposits on the Supplemental Eligibility Record Date bear to the
total amount of Qualifying
<PAGE>
Deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled; provided that the Bank may, in its sole
discretion, and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5% of
the maximum number of shares offered in the Stock Offering, subject to the
overall purchase limitations set forth in Section 14.
PRIORITY 4: EMPLOYEES, OFFICERS AND TRUSTEES. To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible
Account Holders, each employee, officer and trustee of the Bank shall have the
opportunity to purchase up to $150,000 of the Common Stock offered in the Stock
Offering; provided that the Bank may, in its sole discretion, and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to 5% of the maximum
number of shares offered in the Stock Offering, subject to the overall purchase
limitations set forth in Section 14. In the event that trustees, officers and
employees subscribe for a number of shares, which, when added to the shares
subscribed for by Eligible Account Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders is in excess of the total shares offered
in the Stock Offering, the subscriptions of such persons will be allocated among
trustees, officers and employees on a pro rata basis based on the size of each
person's orders.
B. COMMUNITY OFFERING/PUBLIC OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public with a preference
given to those natural persons who are residents of the Community. The
Community Offering, if any, shall be for a period of not more than 45 days
unless extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription Offering. The
Holding Company and the Bank may use an investment banking firm or firms on a
best efforts basis to sell the unsubscribed shares in the Subscription and
Community Offering. The Holding Company and the Bank may pay a commission or
other fee to such investment banking firm or firms as to the shares sold by such
firm or firms in the Subscription and Community Offering and may also reimburse
such firm or firms for expenses incurred in connection with the sale. The
Community Offering may include a Syndicated Community Offering managed by such
investment banking firm or firms. The Common Stock will be offered and sold in
the Community Offering, in accordance with FDIC and Banking Board regulations,
so as to achieve the widest distribution of the Common Stock. No person,
individually, or with an Associate or group of persons acting in concert, may
subscribe for or purchase more than $150,000 of Common Stock offered in the
Community Offering. Further, the Holding Company may limit total subscriptions
under this Section 13(B) so as to assure that the number of shares available for
the public offering may be up to a specified percentage of the number of shares
of Common Stock. Finally, the Holding Company may reserve shares offered in the
Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated (to the extent shares remain available) first to cover
any reservation of shares for a public offering or institutional orders, next to
cover orders of natural persons who are residents of the Community, then to
cover the orders of any other person subscribing for shares in the Community
Offering so that each such person may receive 1,000 shares, and thereafter, on a
pro rata basis to such persons based on the amount of their respective
subscriptions.
<PAGE>
The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person under this Section
13(B).
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, shall then be sold to the underwriters for resale to
the general public in a Syndicated Community Offering. It is expected that the
Syndicated Community Offering will commence as soon as practicable after
termination of the Subscription Offering and the Community Offering, if any.
The Syndicated Community Offering shall be completed within 45 days after the
termination of the Subscription Offering, unless such period is extended as
provided herein. The Syndicated Community Offering price and the underwriting
discount shall be determined by an underwriting agreement between the Holding
Company, the Bank and the underwriters. Such underwriting agreement shall be
filed with the FDIC, the Department and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Board of Directors
of the Holding Company and the Board of Trustees of the Bank will seek to make
other arrangements for the sale of the remaining shares. Such other
arrangements will be subject to the approval of the Superintendent and the FDIC
and to compliance with applicable securities laws.
Depending upon market and financial conditions, the Board of Directors of
the Holding Company and the Board of Trustees of the Bank, with the approval of
the Department and FDIC, may increase or decrease any of the purchase
limitations set forth in this Section 13.
14. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK
Purchases of Common Stock in the Stock Offering will be subject to the
following additional purchase limitations:
A. The aggregate amount of outstanding Common Stock of the Holding
Company owned or controlled by persons other than MHC at the close of
the Stock Offering shall not exceed 49% of the Holding Company's total
outstanding Common Stock.
B. No person, Associate thereof, or group of persons acting in concert,
may purchase more than $250,000 of Common Stock in the Stock Offering,
except that: (i) the Holding Company may, in its sole discretion and
without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation up
to 5% of the number of shares offered in the Stock Offering; (ii) Tax-
Qualified Employee Plans may purchase up to 10% of the shares offered
in the Stock Offering; and (iii) for purposes of this subsection 14(B)
shares to be held by any Tax-Qualified Employee Plan and attributable
to a person shall not be aggregated with other shares purchased
directly by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 25%
of the outstanding shares of Common
<PAGE>
Stock of the Holding Company held by persons other than the MHC at the
close of the Stock Offering. In calculating the number of shares held
by Management Persons and their Associates under this paragraph or
under the provisions of paragraph D of this section, shares held by
any Tax-Qualified Employee Benefit Plans of the Bank that are
attributable to such persons shall not be counted.
D. Notwithstanding any other provision of this Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free riding and
withholding. The Holding Company and/or its agents may ask for an
acceptable legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such opinion is
not timely furnished.
E. The Board of Directors of the Holding Company has the right in its
sole discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who it
otherwise believes, either alone or acting in concert with others, is
violating, circumventing, or intends to violate, evade or circumvent
the terms and conditions of this Plan.
F. The Holding Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for Common Stock pursuant to the Plan reside.
However, the Holding Company and the Bank are not required to offer
Common Stock to any person who resides in a foreign country.
Prior to the consummation of the Stock Offering, no person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any subscription rights or shares of Common Stock,
except pursuant to this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED TO
CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH DETERMINATION SHALL BE
CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE BANK MAY TAKE ANY REMEDIAL
ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE PURCHASE OR REFERRING THE
MATTER TO THE DEPARTMENT FOR ACTION, AS IN ITS SOLE DISCRETION THE BANK MAY DEEM
APPROPRIATE.
15. PAYMENT FOR STOCK
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; provided, that if the Employee Plans subscribe for shares
during the Subscription Offering, such plans will not be required to
<PAGE>
pay for the shares at the time they subscribe but rather may pay for such shares
of Common Stock subscribed for by such plans at the Actual Subscription Price
upon consummation of the Stock Offering, provided that, in the case of the ESOP
there is in force from the time of its subscription until the consummation of
the Stock Offering, a loan commitment to lend to the ESOP, at such time, the
aggregated Actual Subscription Price of the shares for which it subscribed. The
Holding Company or the Bank may make scheduled discretionary contributions to an
Employee Plan provided such contributions from the Bank, if any, do not cause
the Bank to fail to meet its regulatory capital requirement.
Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook, money market or certificate account at the Bank in an
amount equal to the purchase price of such shares. Such authorized withdrawal,
whether from a savings passbook or certificate account, shall be without penalty
as to premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the purchaser's
Deposit Account but may not be used by the purchaser until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
Superintendent) following the Stock Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
purchase price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the Bank at a rate, not less than the Bank's passbook rate,
established by the Bank on payment for Common Stock received by check or money
order. Such interest will be paid from the date payment is received by the Bank
until consummation or termination of the Stock Offering. If for any reason the
Stock Offering is not consummated, all payments made by subscribers in the Stock
Offering will be refunded to them with interest. In case of amounts authorized
for withdrawal from Deposit Accounts, refunds will be made by canceling the
authorization for withdrawal.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Holding Company
and the Bank has been declared effective by the SEC and approved by the
Superintendent, copies of the prospectus and order forms will be distributed to
all Eligible Account Holders and Supplemental Eligible Account Holders at their
last known addresses appearing on the records of the Bank for the purpose of
subscribing for shares of Common Stock in the Subscription Offering and will be
made available for use by those persons entitled to purchase in the Direct
Community Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Community Offerings. Each order form will contain, among other things, the
following:
A. A specified date by which all order forms must be received by the
Bank, which date shall be not less than 20, nor more than 45 days,
following the date on which the order forms are mailed by the Bank,
and which date will constitute the termination of the Subscription
Offering;
<PAGE>
B. The purchase price per share for shares of Common Stock to be sold in
the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Common
Stock that may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the order form is to indicate
thereon the number of shares of Common Stock for which such person
elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the order form has received a
final copy of the prospectus prior to execution of the order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the
effect that all subscription rights are nontransferable, will be void
at the end of the Subscription Offering, and can only be exercised by
delivering to the Bank within the subscription period such properly
completed and executed order form, together with cash (if delivered in
person), check or money order in the full amount of the purchase price
as specified in the order form for the shares of Common Stock for
which the recipient elects to subscribe in the Subscription Offering
(or by authorizing on the order form that the Bank withdraw said
amount from the subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed order form, once received
by the Bank, may not be modified or amended by the subscriber without
the consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event order forms (a) are not delivered and are returned to the Bank
by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed
in effect by the account holder, the subscription rights of the person to whom
such rights have been granted will lapse as though such person failed to return
the order form within the time period specified thereon; provided, that the Bank
may, but will not be required to, waive any immaterial irregularity on any order
form or require the submission of corrected order forms or the remittance of
full payment for subscribed shares by such date as the Bank may specify. The
interpretation by the Bank of terms and conditions of this Plan and of the order
forms will be final, subject to the authority of the Department and the FDIC.
18. COMPLETION OF THE STOCK OFFERING
<PAGE>
The Stock Offering will be terminated if not completed within 90 days from
the date of the commencement of the Offering, unless an extension is approved
by the Superintendent.
19. MARKET FOR COMMON STOCK
If at the close of the Stock Offering the Holding Company has more than 100
shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain a market
for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
20. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE STOCK OFFERING
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase or acquire direct or
indirect beneficial ownership, without the prior written approval of the
Superintendent, and, if applicable, the FDIC, any Common Stock of the Holding
Company, except from a broker-dealer registered with the SEC. The foregoing
shall not apply to purchases of stock made by and held by any Tax-Qualified or
Non-Tax Qualified Employee Plan of the Stock Bank or the Holding Company even if
such stock is attributable to Management Persons or their Associates.
21. RESALES OF STOCK BY MANAGEMENT PERSONS
Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death or judicial declaration of
incompetency of the Management Person or Associate.
22. STOCK CERTIFICATES
Each stock certificate shall bear a legend giving appropriate notice of the
restrictions set forth in Sections 20 and 21 above. Appropriate instructions
shall be issued to the Holding Company's transfer agent with respect to
applicable restrictions on transfers of such stock. Any shares of stock issued
as a stock dividend, stock split or otherwise with respect to such restricted
stock, shall be subject to the same restrictions as apply to the restricted
stock.
23. RESTRICTION ON FINANCING STOCK PURCHASES
The Holding Company will not knowingly offer or sell any of the Common
Stock proposed to be issued to any person whose purchase would be financed by
funds loaned to the person by the Holding Company, the Bank or any of their
Affiliates.
24. STOCK BENEFIT PLANS
The Board of Directors of the Stock Bank and/or the Holding Company intend
to adopt for the benefit of employees, officers and directors of the Stock Bank,
one or more stock benefit plans, including an ESOP, stock award plans and stock
option plans, which will be authorized to purchase Common Stock
<PAGE>
and grant options for Common Stock. However, only the Tax-Qualified Employee
Plans will be permitted to purchase Common Stock in the Stock Offering on a
priority basis as set forth in this Plan. Subject to the approval of the
Superintendent and the FDIC, the Board of Directors of the Bank intends to
establish the ESOP and authorize the ESOP and any other Tax-Qualified Employee
Plans to purchase in the aggregate up to 10% of the Common Stock issued in the
Stock Offering. The Stock Bank or the Holding Company may make scheduled
discretionary contributions to one or more Tax-Qualified Employee Plans to
purchase Common Stock issued in the Stock Offering or to purchase issued and
outstanding shares of Common Stock or authorized but unissued shares of Common
Stock subsequent to the completion of the Stock Offering, provided such
contributions do not cause the Stock Bank to fail to meet any of its regulatory
capital requirements. This Plan shall specifically authorize the grant and
issuance by the Holding Company of (i) awards of Common Stock after the Stock
Offering pursuant to one or more stock recognition and award plans (the
"Recognition Plans") in an amount equal to up to 3% of the number of shares of
Common Stock issued in the Stock Offering (and in an amount equal to up to 5% of
the number of shares of Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock Offering), (ii) options to purchase a number of shares of Common Stock in
an amount equal to up to 10% of the number of shares of Common Stock issued in
the Stock Offering and (iii) Common Stock to one or more Tax Qualified Employee
Plans, including the ESOP, at the closing of the Stock Offering or at any time
thereafter, in an amount equal to up to 10% of the number of shares of Common
Stock issued in the Stock Offering. Shares awarded pursuant to the Recognition
Plans, and shares issued upon exercise of options may be authorized but unissued
shares of the Holding Company's Common Stock, or shares of Common Stock
purchased by the Holding Company or such plans in the open market. Any
Recognition Plan or stock option plan will be subject to stockholder
approval.
25. POST-REORGANIZATION FILING AND MARKET MAKING
It is likely that there will be a limited market for the Common Stock sold
in the Stock Offering, and purchasers must be prepared to hold the Common Stock
for an indefinite period of time. If the Holding Company has more than 35
stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
26. LIQUIDATION ACCOUNT
The Stock Bank or the Holding Company shall establish at the completion of
the Reorganization a Liquidation Account in an amount equal to the Bank's net
worth (determined in accordance with generally accepted accounting principles)
as set forth in the latest statement of financial condition contained in the
proxy statement used in connection with obtaining approval of the
Reorganization. The Liquidation Account will be maintained by the Stock Bank
and/or the Stock Holding Company for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain Deposit
Accounts with the Stock Bank following the Reorganization. Each Eligible
Account Holder and Supplemental Eligible Account Holder shall, with respect to
each Deposit Account, hold a related inchoate interest in a portion of the
Liquidation Account balance, in relation to each Deposit Account balance at the
Eligibility Record Date or Supplemental Eligibility Record Date, as the case may
be, or to such balance as it may be subsequently reduced, as hereinafter
provided. The initial Liquidation Account balance shall not be increased, and
shall be subject to downward adjustment to the extent of any downward
adjustment
<PAGE>
of any subaccount balance of any Eligible Account Holder or Supplemental
Eligible Account Holder in accordance with Section 86.4(g)(5) of the
Regulations.
In the unlikely event of a complete liquidation of the Stock Bank and the
Holding Company (and only in such event), following all liquidation payments to
creditors (including those to depositors to the extent of their Deposit
Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidating distribution from the Liquidation
Account, in the amount of the then-adjusted subaccount balance for his Deposit
Account then held, before any liquidation distribution may be made to any
holders of the Stock Bank's capital stock. No Conversion Transaction and no
merger, consolidation, purchase of bulk assets with assumption of Deposit
Accounts and other liabilities, or similar transactions with an FDIC-insured
institution, in which the Stock Bank or the Holding Company is not the surviving
institution, shall be deemed to be a complete liquidation for this purpose. In
such transactions, the Liquidation Account shall be assumed by the surviving
institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder or Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Stock Bank. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below.
If, at the close of business on the last day of any period for which the
Stock Bank or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the effective date of the Reorganization, the
deposit balance in the Deposit Account of an Eligible Account Holder or
Supplemental Eligible Account Holder is less than the lesser of (i) the balance
in the Deposit Account at the close of business on the last day of any period
for which the Stock Bank or the Holding Company, as the case may be, has
prepared audited financial statements subsequent to the Eligibility Record Date
or Supplemental Eligibility Record Date, or (ii) the amount in such Deposit
Account as of the Eligibility Record Date or Supplemental Eligibility Record
Date, the subaccount balance for such Deposit Account shall be adjusted by
reducing such subaccount balance in an amount proportionate to the reduction in
such deposit balance. In the event of such downward adjustment, the subaccount
balance shall not be subsequently increased, notwithstanding any subsequent
increase in the deposit balance of the related Deposit Account. If any such
Deposit Account is closed, the related subaccount shall be reduced to zero. For
purposes of this Section and Section 86.4(f)(5) of the Regulations, a time
account shall be deemed to be closed upon its maturity date regardless of any
renewal thereof. A distribution of each subaccount balance may be made only in
the event of a complete liquidation of the Stock Bank and the Holding Company
subsequent to the Reorganization and only out of funds available for such
purpose after payment of all creditors.
Neither the Stock Bank nor the Holding Company shall be required to set
aside funds for the purpose of establishing the Liquidation Account, and the
creation and maintenance of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the Stock
Bank or the Stock Holding Company, except that neither the Stock Bank nor the
Holding Company shall declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause its net worth to be reduced
below the amount required for the Liquidation Account.
27. EMPLOYMENT AND OTHER SEVERANCE AGREEMENTS
<PAGE>
Following or contemporaneously with the Reorganization, the Stock Bank
and/or the Holding Company may enter into employment and/or severance
arrangements with one or more executive officers of the Stock Bank and/or the
Holding Company. It is anticipated that any employment contracts entered into
by the Stock Bank and/or the Holding Company will be for terms not exceeding
three years and that such contracts will provide for annual renewals of the term
of the contracts, subject to approval by the Board of Directors. The Stock Bank
and/or the Holding Company also may enter into severance arrangements with one
or more executive officers which provide for the payment of severance
compensation in the event of a change in control of the Stock Bank and/or the
Holding Company. The terms of such employment and severance arrangements have
not been determined as of this time, but will be described in any prospectus
circulated in connection with the Stock Offering and will be subject to and
comply with all regulations of the Banking Board.
28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Holding Company may not declare or pay a cash dividend on, or
repurchase any of, its Common Stock if the effect thereof would cause its
regulatory capital or the regulatory capital of the Bank to be reduced below the
amount required (i) to maintain the Liquidation Account or (ii) under FDIC rules
and regulations. Otherwise, the Holding Company may declare dividends or make
other capital distributions in accordance with applicable laws and regulations.
Subject to any applicable regulatory approvals the MHC may waive its right to
receive dividends declared by the Holding Company.
29. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Reorganization, the Holding Company and the Bank may
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code (the "Charitable
Foundation"), and donate to the Charitable Foundation cash, securities, or
Common Stock in an amount up to 5% of the number of shares of Common Stock sold
in the Stock Offering. The Charitable Foundation would be formed in connection
with the Reorganization in order to complement the Bank's existing community
reinvestment activities and to share with the Bank's local community a part of
the Bank's financial success as a locally headquartered, community-oriented,
financial services institution. The Charitable Foundation would be dedicated to
the promotion of charitable purposes including community development, not-for-
profit community groups and other types of organizations or civic-minded
projects. It is expected that the Charitable Foundation would annually
distribute total grants to assist charitable organizations or to fund projects
within its local community of not less than 5% of the average fair value of
Charitable Foundation assets each year. In order to serve the purposes for
which it was formed and maintain its Section 501(c)(3) qualification, the
Charitable Foundation may sell, on an annual basis, a limited portion of any
securities contributed to it by the Holding Company.
The board of directors of the Charitable Foundation is expected to be
comprised of individuals who are officers or trustees of the Bank, and outside
persons unaffiliated with the Company or Bank who have a business or other
relationship within the Bank's community. The board of directors of the
Charitable Foundation would be responsible for establishing the policies of the
Charitable Foundation with respect to grants or donations, consistent with the
stated purposes of the Charitable Foundation, respectively. The establishment
and funding of the Charitable Foundation as part of the Reorganization is
subject to the approval of the Superintendent and, if applicable, the FDIC. The
decision to proceed with
<PAGE>
the formation of the Charitable Foundation, including the amount of the grant to
the Foundation, shall be at the sole discretion of the Board of Trustees.
30. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Superintendent.
31. REORGANIZATION AND STOCK OFFERING EXPENSES
The Regulations require that the expenses of any Stock Offering must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization and
the Stock Offering will be reasonable.
32. AMENDMENT OR TERMINATION OF THE PLAN
If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Bank's Board of Trustees as a result of
comments from regulatory authorities or otherwise, at any time prior to
submission of the Plan and proxy materials to the Voting Depositors. At any
time AFTER submission of the Plan and proxy materials to the Voting Depositors,
the terms of the Plan that relate to the Reorganization may be amended by a
majority vote of the Board of Trustees only with the concurrence of the
Superintendent, and, if applicable, the FDIC. Terms of the Plan relating to the
Stock Offering including, without limitation, Sections 10 through 30, may be
amended by a majority vote of the Bank's Board of Trustees as a result of
comments from regulatory authorities or otherwise at any time prior to the
approval of the Plan by the Superintendent and at any time thereafter with the
concurrence of the Superintendent. The Plan may be terminated by a majority
vote of the Board of Trustees at any time prior to the earlier of approval of
the Plan by the Superintendent and the date of the Special Meeting, and may be
terminated by a majority vote of the Board of Trustees at any time thereafter
with the concurrence of the Superintendent. In its discretion, the Board of
Trustees may modify or terminate the Plan upon the order of the regulatory
authorities without a resolicitation of proxies or another meeting of the Voting
Depositors; however, any material amendment of the terms of the Plan that relate
to the Reorganization which occur after the Special Meeting shall require a
resolicitation of Voting Depositors.
The Plan shall be terminated if the Reorganization is not completed within
24 months from the date upon which the Superintendent approves the Plan.
Dated: June 4, 1998.
<PAGE>
EXHIBIT 8.1
<PAGE>
(202) 274-2000
October 30, 1998
Board of Trustees
The Oneida Savings Bank
182 Main Street
Oneida, New York 13421-1676
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
---------------------------------------------------
Ladies and Gentlemen:
We have been requested as special counsel to The Oneida Savings Bank to
express our opinion concerning certain Federal income tax matters relating to
the proposed Reorganization (as defined below) of The Oneida Savings Bank, a New
York-chartered mutual savings bank ("Bank") into the mutual holding company
structure. As part of the Reorganization, the Bank will convert to a New York-
chartered stock savings bank (the "Stock Bank"), and Oneida Financial, MHC, a
New York-chartered mutual holding company ("Mutual Holding Company") will be
formed to own a majority of the common stock of Oneida Financial Corp., a
Delaware chartered corporation ("Holding Company"), which will own 100% of the
common stock of the Stock Bank.
In connection therewith, we have examined the Plan of Reorganization From a
Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, which
was adopted by the Board of Trustees of the Bank on June 4, 1998 (the "Plan of
Reorganization"), and certain other documents relating to the Reorganization,
some of which are described or referred to in the Plan of Reorganization and
which we have deemed necessary to examine in order to issue the opinions set
forth below. Unless otherwise defined, all terms used herein have the meanings
given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original documents,
the accuracy of copies and the genuineness of signatures. We have further
assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
Board of Trustees of the Bank at a meeting duly called and held; that the Bank
will comply with the terms and conditions of the Plan of Reorganization, and
that the various representations and warranties which are provided to us are
accurate, complete, true and correct. Accordingly, we express no opinion
concerning the effect, if
<PAGE>
Board of Trustees
The Oneida Savings Bank
182 Main Street
Page 2
any, of variations from the foregoing. We specifically express no opinion
concerning tax matters relating to the Plan of Reorganization under state and
local tax laws and under Federal income tax laws except on the basis of the
documents and assumptions described above.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date
hereof, and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
-------------------
Based on the facts, representations and assumptions set forth herein, we
are of the opinion that:
WITH RESPECT TO THE EXCHANGE OF THE BANK'S CHARTER FOR A STOCK CHARTER
("BANK CONVERSION"):
1. The Bank's exchange of its New York mutual savings bank charter for a
New York stock savings bank charter is a mere change in identity and form and
therefore qualifies as a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code ("Code")
2. No gain or loss will be recognized by Bank upon the transfer of its
assets to Stock Bank solely in exchange for shares of Stock Bank stock and the
assumption by Stock Bank of the liabilities of Bank. (Code Sections 361(a) and
357(a)).
3. No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of Bank in exchange for shares of Stock Bank common stock. (Code
Section 1032(a)).
<PAGE>
Board of Trustees
The Oneida Savings Bank
182 Main Street
Page 3
4. Stock Bank's holding period in the assets received from Bank will
include the period during which such assets were held by the Bank. (Code
Section 1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as the basis
of such assets in the hands of Bank immediately prior to the Bank Conversion.
(Code Section 362(b)).
6. Bank depositors will recognize no gain or loss upon the constructive
receipt of Stock Bank common stock solely in exchange for their ownership
interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively received
by the Bank's depositors (which basis is -0-) will be the same as their basis in
their ownership interests in the Bank surrendered in exchange therefor. (Code
Section 358(a)(1)).
8. The holding period of the Stock Bank common stock constructively
received by the depositors of the Bank will include the period during which the
Bank depositors held their ownership interests, provided that the ownership
interests were held as capital assets on the date of the exchange. (Code
Section 1223(1)).
9. The Stock bank will succeed to and take into account the Bank's
earnings and profits or deficit in earnings and profits, as of the date of the
proposed transaction. (Code Section 381).
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO MUTUAL HOLDING COMPANY
FOR OWNERSHIP INTERESTS (THE "351 TRANSACTION"):
10. The exchange of Stock Bank stock by the Stock Bank depositors in
exchange for ownership interests in the Mutual Holding Company will constitute a
tax-free exchange of property solely for voting "stock" pursuant to Section 351
of the Internal Revenue Code.
11. Stock Bank's depositors will recognize no gain or loss upon the
transfer of the Stock Bank stock they constructively received in the Stock Bank
in exchange for ownership interests in the Mutual Holding Company. (Code
Section 351).
12. Stock Bank depositor's basis in the Mutual Holding Company ownership
interests received in the 351 Transaction (which basis is -0-) will be the same
as the basis of the property transferred in exchange therefor, reduced by the
sum of the liabilities assumed by Mutual Holding Company or to which assets
transferred are taken subject. (Code Section 358(a)(1)).
<PAGE>
Board of Trustees
The Oneida Savings Bank
182 Main Street
Page 4
13. Stock Bank depositor's holding period for the ownership interests in
Mutual Holding Company received in the transaction will include the period
during which the property exchanged was held by Stock Bank depositors, provided
that such property was a capital asset on the date of the exchange. (Code
Section 1223(1)).
14. Mutual Holding Company will recognize no gain or loss upon the receipt
of property from Stock Bank depositors in exchange for ownership interests in
the Mutual Holding Company. (Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from Stock
Bank depositors (which basis is -0-) will be the same as the basis of such
property in the hands of Stock Bank depositors immediately prior to the
transaction. (Code Section 362(a)).
16. Mutual Holding Company's holding period for the property received from
Stock Bank's depositors will include the period during which such property was
held by Stock Bank depositors. (Code Section 1223(2)).
WITH RESPECT TO THE TRANSFERS TO THE HOLDING COMPANY IN EXCHANGE FOR COMMON
STOCK IN THE HOLDING COMPANY: (THE "SECONDARY 351 TRANSACTION"):
17. The Mutual Holding Company and the persons who purchased Common Stock
of the Holding Company in the Subscription and Community Offering ("Minority
Stockholders") will recognize no gain or loss upon the transfer of Stock Bank
stock and cash, respectively, to the Holding Company in exchange for stock in
the Holding Company. Code Sections 351(a) and 357(a).
18. Holding Company will recognize no gain or loss on its receipt of Stock
Bank stock and cash in exchange for Holding Company Stock. (Code Section
1032(a)).
19. The basis of the Holding Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and a shareholder's
holding period for Common Stock acquired through the exercise of subscription
rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
--------------------
On June 4, 1998, the Board of Trustees of the Bank adopted the Plan of
Reorganization. The Bank's Board of Trustees has decided to convert to a mutual
holding company structure pursuant to certain federal and state laws and
regulations. The following steps are proposed:
<PAGE>
Board of Trustees
The Oneida Savings Bank
182 Main Street
Page 5
(i) The Bank will organize an interim New York-chartered stock savings
bank (Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a Delaware mid-tier holding company as
its wholly-owned subsidiary (Holding Company); and
(iii) Interim One will also organize another interim New York-chartered
stock savings bank as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a New York stock savings
bank charter and will become a stock savings bank that will
constructively issue its common stock to depositors of the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a New York mutual holding company charter and thereby
become the Mutual Holding Company;
(vi) Interim Two will merge with and into the Bank with the Bank as the
surviving entity, the former depositors of the Bank who
constructively hold stock in the Bank will exchange their stock in
the Bank for membership interests in the Mutual Holding Company;
(vii) The Mutual Holding Company will contribute the Bank's stock to the
Holding Company, a wholly-owned subsidiary of the Mutual Holding
Company, for additional shares of Holding Company; and
(viii) Contemporaneously, with the contribution set forth in "(vii)" the
Stock Holding Company will offer to sell up to 49.0% of its Common
Stock in the Subscription Offering and, if applicable, the
Community Offering. In addition, the Bank intends to establish a
charitable foundation (the "Charitable Foundation") to which the
Holding Company will contribute shares of Common Stock equal to
approximately 2% of the shares of Common Stock outstanding.
<PAGE>
Board of Trustees
The Oneida Savings Bank
182 Main Street
Page 6
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective
Date"), hold depository rights with respect to the Bank will thereafter have
such rights solely with respect to the Stock Bank. Each deposit account with
the Bank at the time of the exchange will become a deposit account in the Stock
Bank in the same amount and upon the same terms and conditions. Following the
completion of the Reorganization, all depositors who had liquidation rights with
respect to the Bank immediately prior to the Reorganization will continue to
have such rights solely with respect to the Mutual Holding Company so long as
they continue to hold deposit accounts with the Stock Bank. All new depositors
of the Stock Bank after the completion of the Reorganization will have
liquidation rights solely with respect to the Mutual Holding Company so long as
they continue to hold deposit accounts with the Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding Company
prior to the Reorganization shall be converted into and become shares of common
stock of the Stock Bank on the Effective Date. The shares of Stock Bank common
stock constructively received by the Stock Bank stockholders (formerly the
depositors holding liquidation rights of the Bank) will be transferred to the
Mutual Holding Company by such persons in exchange for liquidation rights in the
Mutual Holding Company.
The Holding Company will have the power to issue shares of capital stock
(including common and preferred stock) to persons other than the Mutual Holding
Company. So long as the Mutual Holding Company is in existence, however, it
must own a majority of the voting stock of Holding Company. Holding Company may
issue any amount of non-voting stock to persons other than Mutual Holding
Company. No such non-voting stock will be issued as of the date of the
Reorganization.
* * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
<PAGE>
Board of Trustees
The Oneida Savings Bank
182 Main Street
Page 7
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. In arriving at the opinion
expressed above, we have concluded that the Bank has a valid business purpose
for engaging in the proposed transaction. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance, or
regulation governing or pertaining to environmental matters, hazardous wastes,
toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the Bank's
Form 86-AC Application for Approval of a Mutual Savings Bank Holding Company
Reorganization and Minority Stock Issuance as filed with the New York State
Banking Department and to the Holding Company's Registration Statement on Form
S-1 as filed with the SEC. We also consent to the references to our firm in the
Prospectus contained in the Forms 86-AC and S-1 under the captions "The
Reorganization and Offering - Federal and State Tax Consequences of the
Reorganization" and "Legal and Tax Matters," and to the summarization of our
opinion in such Prospectus.
Very truly yours,
/s/ Luse Lehman Gorman Pomerenk & Schick
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
<PAGE>
EXHIBIT 23.2
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 16, 1998, except for Note 12 as to which the date is
September 15, 1998, on our audits of the financial statements of The Oneida
Savings Bank. We also consent to the reference to our firm under the caption
"EXPERTS".
/s/ PricewaterhouseCoopers LLP
Syracuse, New York
October 30, 1998
<PAGE>
EXHIBIT 23.3
<PAGE>
[LOGO]
[LETTERHEAD OF ONEIDA SAVINGS BANK APPEARS HERE]
Board of Trustees
Oneida Financial Corp.
The Oneida Savings Bank
183 Main Street
Oneida, New York 13421-1676
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc, ("FinPro") in the
Form S-1 Registration Statement, and amendments thereto, of Oneida Financial
Corp. to be filed with the Securities and Exchange Commission, the Form 86-AC
Application for Approval of a Mutual Savings Bank Holding Company Reorganization
and Minority Stock Issuance (the "Application") filed by The Oneida Savings Bank
and any amendments thereto filed with the New York State Banking Department and
the Valuation Appraisal Report ("Report") regarding the valuation of the Bank
provided by FinPro, and our opinion regarding subscription rights filed as
exhibits to the Form S-1. We also consent to the use of our firm's name and the
inclusion of, summary of, and references to our Report and Opinion in the
Prospectus included in the Form S-1 and the Application, and any amendments
thereto.
Very Truly Yours
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
October 30, 1998
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT
THE BOARD OF TRUSTEES
ONEIDA SAVINGS BANK
We hereby consent to the reference to this firm and our opinion in the
Registration Statement on Form S-1 filed by Oneida Financial Corporation,
Oneida, New York (the "Company'), and all amendments thereto; in the Application
for Conversion on Form 86-AC filed by Oneida Savings Bank (the "Bank"), and all
amendments thereto, and in the Notice and Application for the Bank filed with
the Federal Deposit Insurance Corporation and all amendments thereto; and
references to our firm under the heading "Experts," relating to the conversion
of the Bank from the mutual to stock form, the concurrent issuance of the Bank's
outstanding capital stock to the Company and the offering of the Company's
common stock.
Rochester, New York
Dated this 29th day of September 1998
/s/ Warren A. Kerper
___________________________
Warren A. Kerper
Principal
William M. Mercer, Incorporated
<PAGE>
EXHIBIT 99.3
<PAGE>
<TABLE>
<CAPTION>
ONEIDA FINANCIAL CORP.
Stock Order Form
STOCK INFORMATION CENTER EXPIRATION DATE
<S> <C>
Oneida Savings Bank
126 Lenox Avenue for Stock Order Forms:
Oneida, New York 13421-1676 December , 1998
(315) 363-5088 12:00 Noon, New York Time
</TABLE>
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for common stock. Faxes or copies of this form will not be
accepted. Please read the Stock Ownership Guide and Stock Order Form
Instructions as you complete this Form.
<TABLE>
<CAPTION>
(1) NUMBER OF SHARES SUBSCRIPTION PRICE (2) TOTAL PAYMENT DUE OFFICE USE ONLY
X =$10.00 Date Received Batch # Order#
<S> <C> <C> <C> <C> <C>
(3) Employee/Officer/Director Information (6) Purchaser Information
Check here if you are a trustee, officer or B. Eligible Account Holder -- Check here if you were a
employee of Oneida Savings Bank or a depositor of at least $100.00 at Oneida Savings Bank on
member of such person's immediate family. August 31, 1996. Enter information below for all deposit
(4) METHOD OF PAYMENT/CHECK Check Amount accounts that you had at Oneida Savings Bank on December
Enclosed is a check, bank draft or money order 31, 1996.
made payable to Oneida Financial Corp. in the
amount of: B. Supplemental Eligible Account Holder--Check here if
(5) METHOD OF PAYMENT/WITHDRAWAL you were a depositor of at least $100.00 at Oneida Savings
The undersigned authorizes withdrawal from the Bank on September 30, 1998 but are not an Eligible Account
following account(s) at Oneida Savings Bank. Holder. Enter information below for all deposit accounts
There is no penalty for early withdrawal that you had at Oneida Savings Bank on September 30, 1998.
for purposes of this payment Account Title (Names on Accounts) Account Number(s)
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY RESULT
Account Number(s) Withdrawal Amount(s) IN THE LOSS OF PART OR ALL OF YOUR SUBSCRIPTION RIGHTS. IF
ADDITIONAL SPACE IS NEEDED, PLEASE UTILIZE THE BACK OF
Total Withdrawal Amount THIS STOCK ORDER FORM.
(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP
Individual Joint Tenants Tenants in Common Fiduciary (Under Agreement Dated,____199___)
Individual Retirement Corporation or Partnership Uniform Transfer Other
Account (IRA) to Minors Act
(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT CLEARLY) Social Security # or Tax ID
Name(s) continued
Street Address County of Residence
(9) TELEPHONE INFORMATION (Daytime) City State Zip Code
</TABLE>
(10) NASD AFFILIATION
Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD Affiliation box, (I) not to sell, transfer or hypothecate the stock for a
period of 90 days following issuance, and (ii) to report this subscription in
writing to the applicable NASD member within one day of payment therefor.
(11) ASSOCIATE--ACTING IN CONCERT
Check here, and complete the reverse side of this Form, if you or any associate
(as defined on the reverse side of this Form) or persons acting in concert with
you have submitted other orders for shares in the Subscription and/or Community
Offerings.
(12) ACKNOWLEDGMENT
To be effective, this fully completed Stock Order Form must be actually
received by Oneida Savings Bank, no later than 12:00 Noon, New York Time, on
December , 1998, unless extended; otherwise this Stock Order Form and all
subscription rights will be void. Completed Stock Order Forms, together with
the required payment or withdrawal authorization, may be delivered to Oneida
Savings Bank or may be mailed to the Post Office Box indicated on the
enclosed business reply envelope. All rights exercisable hereunder are not
transferable and shares purchased upon exercise of such rights must be
purchased for the account of the person exercising such rights. It is
understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Reorganization from a
Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan
("Plan") of Oneida Savings Bank described in the accompanying Prospectus. If
the Plan is not approved by the depositors of Oneida Savings Bank at a
Special Meeting to be held on December , 1998, or any adjournment thereof,
all orders will be cancelled and funds received as payment, with accrued
interest, will be returned promptly.
The undersigned agrees that after receipt by Oneida Savings Bank, this Stock
Order Form may not be modified, withdrawn or cancelled (unless the offering is
not completed within 45 days after the completion of the Subscription Offering)
without Oneida Savings Bank's consent, and if authorization to withdraw from
deposit accounts at Oneida Savings Bank has been given as payment for shares,
the amount authorized for withdrawal shall not otherwise be available for
withdrawal by the undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID
Number and the other information provided under number 8 of this Stock
Order Form are true, correct and complete, that I am not subject to back-up
withholding, that I am purchasing for my own account and that there is no
agreement or understanding regarding the transfer of my subscription rights
or the sale or transfer of these shares. Applicable Regulations prohibit
any person from transferring or entering into any agreement directly or
indirectly to transfer, the legal or beneficial ownership of subscription
rights, or the underlying securities to the account of another. Oneida
Savings Bank and Oneida Financial Corp. may pursue any and all legal and
equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve such
transfer. I acknowledge that the common stock offered is not a savings or
deposit account and is not insured by the Savings Association Insurance
Fund, the Bank Insurance Fund, the Federal Deposit Insurance Corporation,
or any other government agency, may lose value and is not guaranteed by
Oneida Financial Corp. A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED
TWICE: BELOW AND ON THE FORM OF CERTIFICATION ON THE REVERSE HEREOF.
SIGNATURE DATE SIGNATURE DATE
A SIGNED FORM OF CERTIFICATION MUST ACCOMPANY ALL STOCK ORDER FORMS (SEE
REVERSE SIDE)
<PAGE>
<TABLE>
<CAPTION>
ITEM (6)A, B--(CONTINUED)
Account Title (Names on Accounts) Account Number(s) Account Title (Names on Accounts) Account Number(s)
<S> <C> <C> <C>
</TABLE>
ITEM (11)--(CONTINUED)
List below all other orders submitted by you or your Associates (as defined) or
by persons acting in concert with you.
Name(s) listed on other Number of Shares
Stock Order Forms Ordered
"Associate" is defined as: (i) any corporation or organization (other than
Oneida Savings Bank, Oneida Financial Corp., or a majority-owned subsidiary of
Oneida Savings Bank or Oneida Financial Corp.) of which such person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (ii) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as a trustee or in a similar fiduciary capacity; except for any tax-
qualified employee stock benefit plan or any charitable trust which is exempt
from federal taxation pursuant to Section 501(c)(3) of the Code; and (iii) any
relative or spouse of such person, or any relative of such spouse, who either
has the same home as such person or who is a trustee or officer of Oneida
Savings Bank, Oneida Financial Corp. or any subsidiaries thereof.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ON THE FRONT OF THIS
FORM.
FORM OF CERTIFICATION
I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY ONEIDA SAVINGS BANK (THE "BANK")
OR BY THE FEDERAL GOVERNMENT.
I/We further certify that, before purchasing the common stock, no par value per
share, of Oneida Financial Corp., the proposed holding company for Oneida
Savings Bank, I/we received a Prospectus dated December , 1998 (the
"Prospectus").
The Prospectus that I/we received contains disclosure concerning the nature of
the security being offered and describes the risks involved in the investment,
including but not limited to:
<TABLE>
<CAPTION>
<S> <C>
1. Decreased Return on Average Equity Immediately After Reorganization........................................... (page 17)
2. Potential Effects of Changes in Interest Rates and the Current Interest Rate Environment...................... (page 17)
3. Leading Risks Associated With Commercial Real Estate, Multi-Family and Consumer
Lending...................................................................................................... (page 17)
4. Minority Public Ownership and Certain Anti-Takeover Provisions................................................ (page 17)
5. Dividend Waivers by the Mutual Company........................................................................ (page 18)
6. Possible Dilutive Effect of Issuance of Additional Shares..................................................... (page 18)
7. The Expense and Dilutive Effect on the Contribution of Shares and Cash to the Charitable Foundation........... (page 19)
8. Potential Increased Compensation Expenses after the Reorganization............................................ (page 19)
9. Strong Competition Within the Bank's Market Area.............................................................. (page 19)
10. Regulatory Oversight and Legislation......................................................................... (page 20)
11. Uncertainty as to Future Growth Opportunities................................................................ (page 20)
12. Absence of Market for Common Stock........................................................................... (page 20)
13. Irrevocability of Orders; Potential Delay in Completion of Offerings......................................... (page 20)
14. Capability of the Bank's Data Information Systems to Accommodate the Year 2000............................... (page 20)
15. Role of the Financial Advisor/Best Efforts Offering.......................................................... (page 21)
Signature Date Signature Date
Name (Please Print) Name (Please Print)
</TABLE>
<PAGE>
[DIGITIZED ART NOT FOUND--TRANSFER AGENT UNKNOWN]
ONEIDA FINANCIAL CORP, INC. STOCK OWNERSHIP GUIDE
- --------------------------------------------------------------------------------
INDIVIDUAL
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common.
UNIFORM TRANSFER TO MINORS
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST", while the Uniform Transfer to Minors Act is "Unif Tran Min Act".
Standard U.S. Postal Service state abbreviations should be used to describe the
appropriate state. For example, stock held by John Doe as custodian for Susan
Doe under the New York Uniform Transfer to Minors Act will be abbreviated John
Doe, CUST Susan Doe Unif Tran Min Act, NY (use minor's social security number).
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title (name).
If an individual and a corporation, list the corporation's title before the
individual.
The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
A copy and description of the document governing the fiduciary relationship,
such as living trust agreement or court order. Without documentation
establishing a fiduciary relationship, your stock may not be registered in a
fiduciary capacity.
The date of the document governing the relationship except that the date of a
trust created by a will need not be included in the description.
The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to Oneida Savings Bank
office. In order to purchase stock in the Subscription Offering, your Stock
Order Form, properly completed, and payment in full (or withdrawal
authorization) at the Subscription Price of $10.00 per share must be received by
Oneida Savings Bank no later than 12:00 noon, New York Time, on December , 1998,
unless such date is extended, or your Stock Order Form will become void. Stock
Order Forms shall be deemed received only upon actual receipt at a Oneida
Savings Bank.
If you need further assistance, please call the Stock Information Center at
(315) 363-5088. We will be pleased to help you with the completion of your Stock
Order Form or answer any questions you may have.
<PAGE>
[DIGITIZED ART NOT FOUND--TRANSFER AGENT UNKOWN]
ONEIDA FINANCIAL CORP. ORDER FORM INSTRUCTIONS
- --------------------------------------------------------------------------------
Item Instructions
- -----------------
ITEMS 1, 2 AND 3--
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares purchased
by the Subscription Price of $10.00 per share. The minimum purchase is 25 shares
(or $250). The maximum purchase by (i) any person or entity or (ii) persons or
entities exercising subscription rights through a single account, is shares (or
$ ). In addition, no person or entity, or group of persons acting in concert,
together with any Associate (as defined in the Prospectus), may subscribe for
more than shares (or $ ).
Oneida Financial Corp. and Oneida Savings Bank have the right to reject the
order of any subscriber who (i) submits false or misleading information on a
Stock Order Form or otherwise, (ii) attempts to purchase shares in violation of
the Plan of Reorganization or applicable law or (iii) fails to cooperate with
attempts to verify information with respect to purchase rights.
ITEM 4--
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft or money order made payable to Oneida Financial Corp. Your
funds will earn interest at the Oneida Savings Bank current passbook savings
rate until the Offering is completed or terminated. DO NOT MAIL CASH TO PURCHASE
STOCK! PAYMENT MAY NOT BE MADE BY WIRE TRANSFER. Please check this box if your
method of payment is by cash, check, bank draft or money order.
ITEM 5--
If you pay for your stock by a withdrawal from a Oneida Savings Bank deposit
account, insert the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the
amount of your stock purchase. Your order will be rejected if, on the date your
order is received, the accounts designated by you do not contain sufficient
funds to complete your purchase. There will be no penalty assessed for early
withdrawals from certificate of deposit accounts used for stock purchases. This
form of payment may not be used if your account is an Individual Retirement
Account. If you wish to use your IRA currently at Oneida Savings Bank, you must
call the Stock Information Center prior to December , 1998 and complete all
paperwork required.
ITEM 6--
a. Please check this box if you were a depositor of Oneida Savings Bank on
December 31, 1996 (the Eligibility Record Date). You must list the full title
and account numbers of all accounts you had on this date in order to insure
proper identification of your purchase rights and preferences.
b. Please check this box if you were a depositor of Oneida Savings Bank on
September 30, 1998 (the Supplemental Eligibility Record Date). You must list the
full title and account numbers of all accounts you had on this date in order to
insure proper identification of your purchase rights and preferences.
ITEMS 7, 8 AND 9--
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your common stock. Please
complete items 7, 8 and 9 as fully and accurately as possible, and be certain to
supply your social security number or tax identification number and your daytime
telephone number(s). We will need to call you if we cannot execute your order as
given. If you have any questions or concerns regarding the registration of your
stock, please consult your legal advisor. Stock ownership must be registered in
one of the ways described under "Stock Ownership Guide."
ITEM 10--
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
ITEMS 11 AND 12--
Please sign and date the Stock Order Form where indicated. Review the Stock
Order Form carefully before you sign, including the acknowledgement. Normally,
one signature is required. An additional signature is required only when payment
is to be made by withdrawal from a deposit account that requires multiple
signatures to withdraw funds. If you have any remaining questions, or if you
would like assistance in completing your Stock Order Form, you may call the
Stock Information Center. The Stock Information Center phone number is (315)
363-5088.
ONEIDA SAVINGS BANK
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES
OF
ONEIDA SAVINGS BANK
The undersigned depositor of Oneida Savings Bank (the "Bank") hereby appoints
the Board of Trustees of the Bank as proxy to cast all votes which the
undersigned depositor is entitled to cast at a Special Meeting of Depositors to
be held at , New York, at p.m., New York time, December , 1998 and at any and
all adjournments and postponements thereof, and to act with respect to all votes
that the undersigned would be entitled to cast, if then personally present, in
accordance with the instructions on the reverse side hereof:
To vote FOR or AGAINST the Plan of Reorganization from a Mutual Savings Bank
to a Mutual Holding Company and Stock Issuance Plan (the "Plan of
Reorganization") whereby (i) the Bank will form Oneida Financial Corp. (the
"Company") and Oneida Financial Corp. MHC (the "Mutual Holding Company"), (ii)
the Bank will reorganize into a capital stock savings bank and issue 100% of its
common stock to the Company and (iii) the Company will issue shares of Common
Stock to depositors and the public and a majority of its shares to the Mutual
Holding Company.
This proxy will be voted as directed by the undersigned depositor. UNLESS
CONTRARY DIRECTION IS GIVEN, A SIGNED PROXY WILL BE VOTED FOR ADOPTION OF THE
PLAN OF REORGANIZATION. fs18 In addition, this proxy will be voted at the
discretion of the Board of Trustees upon any other matter as may properly come
before the Special Meeting.
The undersigned depositor may revoke this proxy at any time before it is voted
by delivering to the Secretary of Oneida Savings Bank either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting, filing a written revocation and voting in
person. The undersigned depositor hereby acknowledges receipt of the Notice of
Special Meeting and Proxy Statement and accompanying Prospectus.
IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
Detach Here Detach Here
<PAGE>
Please mark
your votes as
indicated in
this example
ONEIDA SAVINGS BANK
IMPORTANT: Please sign your name exactly as it appears on this proxy. Joint
accounts need only one signature. When signing as an attorney, administrator,
agent, officer, executor, trustee, guardian, etc., please add your full title
to your signature.
FOR AGAINST
1. Approval of the Plan of Reoganization, including the
adoption of the Restated Organization Certificate and
Bylaws of Oneida Savings Bank.
SIGNATURE___________________________________________ DATE: , 1998____________
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL
CARDS IN THE ACCOMPANYING ENVELOPE.
Detach Here Detach Here
<PAGE>
EXHIBIT 99.5
<PAGE>
PURPOSE
- --------------------------------------------------------------------------------
. Oneida Savings Bank (Oneida) has retained the services of William M. Mercer,
Inc. to review the total cash compensation plan (base salary and bonus) for
the executive officers as well as Oneida's Board of Directors' compensation
and provide an "opinion letter" regarding the reasonableness of pay.
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 1 Oneida Savings Bank
<PAGE>
FINDINGS
- --------------------------------------------------------------------------------
EXECUTIVES
. Oneida Savings Bank's asset size is approximately $220 million. We examined
proxy statements of similar sized banks and mutual holding companies in the
Northeast or Mid-Atlantic region. We also gathered data from published survey
sources on financial institutions with a similar asset size.
- Base salary for Oneida Savings Bank's top three executives is
competitive, ranging from 94.3% to 100.2% of the market median.
- Oneida Savings Bank's incentive award opportunity is at market levels,
therefore, total cash compensation is also at market.
. The marketpricing results for the top three executives are summarized on the
following page. Detailed information is included in the Appendix.
. Oneida Savings Bank is planning to reserve 8% of minority shares common stock
for an Employee Stock Ownership Plan (ESOP), 4% for stock grants and 10% for
stock options. This practice is comparable to similar institutions which have
issued stock.
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 2 Oneida Savings Bank
<PAGE>
FINDINGS (CONT'D)
- --------------------------------------------------------------------------------
EXECUTIVE MARKETPRICING
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Oneida Savings Bank Market Results
---------------------------------------------------------------------------------------------------------
Base Salary
--------------------------------------
Current 1997 Annual 1997 Annual 25th Market 75th
Name/Position Base Salary Incentive ($) Incentive (%) Percentile Median Percentile
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Michael R. Kallet
President & CEO $167,000 $30,000 18.0% $130,566 $166,655 $207,123
Eric E. Stickels
Sr. VP and CFO $ 85,000 $11,252 13.2% $ 77,783 $ 90,132 $104,505
Thomas H. Dixon
Sr. VP, Credit Admin $ 85,000 $11,252 13.2% $ 71,449 $ 85,475 $104,787
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Onieda to Market
--------------------------------------
Total Oneida Oneida Total
Average Annual Base/Market Cash/ Market
Name/Position Incentive Cash Median Base Total Cash
========================================================================================================
<S> <C> <C> <C> <C>
Michael R. Kallet
President & CEO 18.1% $188,541 100.2% 104.5%
Eric E. Stickels
Sr. VP and CFO 13.5% $106,427 94.3% 90.4%
Thomas H. Dixon
Sr. VP, Credit Admin 8.9% $105,462 99.4% 91.3%
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 3 Oneida Savings Bank
<PAGE>
FINDINGS (CONT'D)
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS COMPENSATION
. William M. Mercer reviewed Board of Directors' compensation by comparing
published survey information and peer institution information.
. In comparing retainer and meeting fees, Oneida Savings Bank's fees are
within the competitive ranges and appear reasonable.
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 4 Oneida Savings Bank
<PAGE>
FINDINGS (CONT'D)
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS COMPENSATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retainers Meeting Fees
------------------------------- ----------------------------------------
Annual Median
Survey Source Scope Compensation Median Range Median Range
- ----------------- -------------- ------------------ -------------- -------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
The Conference $100 - $499
Board million assets $19,350 $10,000 $1,500 - $25,000 $1,000 $3,000 - $7,000
ECS Under $2 Billion $12,000 $ 6,000 $5,000 - $10,800 $ 500 $ 300 - $ 900
Peer Institutions $ 6,000 $1,800 - $14,000 $ 450 (Board) $ 100 - $1,000
$ 175 (Committee)
- ------------------------------------------------------------------------------------------------------------------------------------
Oneida Savings $6,000 $ 300
(Board)/(1)/
$200 - $250
(Committee)/(2)/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Board Chairman: additional $200 per meeting
(2) Committee Chairman: additional $100 per meeting
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 5 Oneida Savings Bank
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
. Methodology
. Executives: Published Survey and Proxy Statement Summary Findings by
Position
. Executives: Proxy Statement Detailed Comparisons
- --------------------------------------------------------------------------------
. Board of Directors: Peer Institutions Detail
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 6 Oneida Savings Bank
<PAGE>
METHODOLOGY
- --------------------------------------------------------------------------------
. The services of William M. Mercer, Inc. were engaged to gather various
compensation survey and proxy statement information. Survey sources
included:
William M. Mercer, Inc.--Finance, Accounting & Legal
Watson Wyatt--Financial Institutions
SNL--Executive Compensation in Thrift Institutions
BAI--Executive Compensation
Coopers & Lybrand--Compensation in Financial Services
KPMG - Northeast Banking Industry
. The preferred profile is:
Financial institutions industry
Under $500 million in assets
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 7 Oneida Savings Bank
<PAGE>
METHODOLOGY (CONT'D)
- --------------------------------------------------------------------------------
. The specific peer group for Oneida includes:
<TABLE>
<CAPTION>
INSTITUTION LOCATION ASSET SIZE (MIL)
----------- -------- ----------------
<S> <C> <C>
Skaneateles Bancorp, Inc. Skaneateles, NY $ 256
Wayne Savings Bancshares, Inc. MHC Wooster, OH $ 252
Savings Bank of the Finger Lakes MHC Geneva, NY $ 248
Alliance Bancorp of New England Vernon, CT $ 247
Elmira Savings Bank Elmira, NY $ 231
Peoples Home Savings Bank MHC Beaver Falls, PA $ 218
Pathfinder Bancorp, Inc. MHC Oswego, NY $ 197
Peekskill Financial Corp. Peekskill, NY $ 183
SFS Bancorp Inc. Schenectady, NY $ 174
Catskill Financial Corp. Catskill, NY $ 290
Warwick Community Bancorp, Inc. Warwick, NY $ 287
Harbor Federal Bancorp, Inc. Baltimore, MD $ 219
First Carnegie Deposit MHC Carnegie, PA $ 163
</TABLE>
. The median asset size for these peer institutions was $231 million.
NOTES TO THE METHODOLOGY
. Compensation for the top three executives are disclosed in proxy statement
(peer group) data.
________________________________________________________________________________
William M. Mercer, Incorporated 8 Oneida Savings Bank
<PAGE>
. All survey data was updated to October 1, 1998 by a factor of 4.5%. The
source of the update factor is William M. Mercer, Inc.'s 1997 - 1998
Compensation Planning Survey- Executive Compensation.
________________________________________________________________________________
William M. Mercer, Incorporated 9 Oneida Savings Bank
<PAGE>
EXECUTIVES: PUBLISHED SURVEY DETAIL AND PROXY
STATEMENT SUMMARY BY POSITION
________________________________________________________________________________
William M. Mercer, Incorporated 10 Oneida Savings Bank
<PAGE>
ONEIDA SAVINGS BANK Surveys were updated to: 10/01/1998
Executive Marketpricing $000 by a factor of: 4.5%
9/28/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET RATES
-------------------------------
BASE SALARY
-------------------------------
POSITION SCOPE SAMPLE 25TH 50TH 75TH ANNUAL TOTAL ANNUAL
TITLE SURVEY SURVEY MEASURE SIZE %ILE %ILE %ILE INCENTIVE CASH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pres/CEO
BAI
Executive Compensation CEO Mid Atlantic, Assets 12 $119.9 $168.5 $216.0 8.6% $203.0
$250-500M
SNL
Thrift Institutions CEO Mid Atlantic, Assets 24 $188.9
$250-500M
Coopers & Lybrand
Comp in Finanical Services CEO Median Assets $226.3 31 $135.3 $177.0 $214.3 32.8% $193.6
Wyatt
Financial Institutions CEO Assets 117 $122.5 $158.4 $207.5
$ less than 1B
KPMG
Northeast Banking Industry CEO Assets $250-500M 6 $154.6 $188.8 $216.5
Proxy Peers Position #1 Median Assets $231 13 $120.5 $140.6 $181.3 12.8% $168.6
================================================
Average: $130.6 $166.7 $207.1 18.1% $188.5
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
William M. Mercer, Incorperated 11 Oneida Savings Bamk
</TABLE>
<PAGE>
ONEIDA SAVINGS BANK Surveys were updated to: 10/01/1998
Executive Marketpricing $000 by a factor of: 4.5%
9/28/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET RATES
----------------------
BASE SALARY
----------------------
SURVEY SCOPE SAMPLE 25TH 50TH 75TH ANNUAL TOTAL ANNUAL
TITLE SURVEY POSITION MEASURE SIZE %ILE %ILE %ILE INCENTIVE CASH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sr. VP, CFO
BAI
Executive Compensation CFO Mid Atlantic, Assets 8 $77.8 $ 84.2 $104.8 10.1% $ 92.9
$100-250M
SNL
Thrift Institutions CFO Mid Atlantic, Assets 8 $119.8
$250-500M
Coopers & Lybrand
Comp in Finanical Services CFO Median Assets $238.4 14 $71.4 $ 85.9 $101.8 16.2% $ 93.8
Wyatt
Financial Institutions CFO Assets$ 97 $66.4 $ 82.8 $102.2
$ less than 1B
KPMG
Northeast Banking Industry CFO Assets $100-250M 20 $79.8 $ 86.4 $ 94.8
Proxy Peers Position #2 Median Assets: $252 6 $93.5 $111.3 $119.0 14.3% $119.2
=============================================
Average: $77.8 $ 90.1 $104.5 13.5% $106.4
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
William M. Mercer, Incorporated 12 Oneida Savings Bank
</TABLE>
<PAGE>
ONEIDA SAVINGS BANK Surveys were updated to: 10/01/1998
Executive Marketpricing $000 by a factor of: 4.5%
9/28/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET RATES
---------------------
BASE SALARY
---------------------
POSITION SCOPE SAMPLE 25TH 50TH 75TH ANNUAL TOTAL ANNUAL
TITLE SURVEY SURVEY MEASURE SIZE %ILE %ILE %ILE INCENTIVE CASH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sr. VP, Credit Administration
BAI
Executive Compensation Sr Lending Exec Mid Atlantic, Assets 10 $71.3 $86.4 $110.2 8.9% $ 99.4
$100-250M
SNL
Thrift Institutions Sr Lending Exec Mid Atlantic, Assets 1 $111.6
$250-500M
Wyatt
Financial Institutions Chief Loan Officer Assets 71 $69.5 $88.9 $101.6
$ less than 1B
KPMG
Northeast Banking Industry Top Lending Officer Assets $100-250M 17 $73.6 $81.1 $102.6
==========================================
Average: $71.4 $85.5 $104.8 8.9% $105.5
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
William M. Mercer, Incorporated 13 Oneida Savings Bank
</TABLE>
<PAGE>
EXECUTIVES: PROXY STATEMENT
DETAILED COMPARISONS
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 14 Oneida Savings Bank
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATA AS OF
FY-END INSTITUTION NAME LOCATION TSR ASSETS POSITION RANK NAME
(Mil)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 SKANEATELES BANCORP INC Skaneateles, NY 217.98 $ 256 Pres/Chair/CEO 1 John P. Driscoll
3/31/97 WAYNE SAVINGS BANCSHARES INC MHC Wooster, OH 85.87 $ 252 Pres/CEO 1 Charles F. Finn
12/31/97 SAVINGS BANK OF THE FINGER LAKES MHC Geneva, NY 328.20 $ 248 Pres/CEO 1 G. Thomas Bowers
12/31/97 ALLIANCE BANCORP OF NEW ENGLAND Vernon, CT 193.05 $ 247 Pres/CEO 1 Joseph H. Rossi
12/31/97 ELMIRA SAVINGS BANK Elmira, NY 94.26 $ 231 Pres/CEO 1 John C. Brugler
12/31/97 PEOPLES HOME SAVINGS BANK MHC Beaver Falls, PA 34.82 $ 218 Pres/CEO 1 James P. Wetzel, Jr
12/31/97 PATHFINDER BANCORP INC MHC Oswego, NY 245.85 $ 197 Pres/CEO 1 Chris C. Gagas
6/30/97 PEEKSKILL FINANCIAL CORP Peekskill, NY 27.93 $ 183 Chair/CEO 1 Eldorus Maynard
12/31/97 SFS BANCORP INC Schenectady, NY 139.31 $ 174 Pres/Chair/CEO 1 Joseph H. Giaquinto
9/30/97 CATSKILL FINANCIAL CORP Catskill, NY 64.82 $ 290 Pres/Chair/CEO 1 Wilbur J. Cross
12/31/97 WARWICK COMMUNITY BANCORP INC Warwick, NY NA $ 287 Pres/CEO 1 Timothy A. Dempsey
3/31/97 HARBOR FEDERAL BANCORP INC Baltimore, MD 37.17 $ 219 Pres/CEO 1 Robert A. Williams
3/31/97 FIRST CARNEGIE DEPOSIT MHC Carnegie, PA NA $ 163 Pres/CEO 1 Walter G. Kelly
AVERAGE (1) $ 228
MEDIAN (1) $ 231
25TH PERCENTILE (1) $ 190
75TH PERCENTILE (1) $ 254
ONEIDA SAVINGS BANK $ 220 PRESIDENT/CEO 1 MICHAEL R. KALLET
OSB as a % of Average 96.5%
OSB as a % of Median 95.2%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DATA AS OF ANNUAL COMPENSATION
----------------------------------------------
FY-END INSTITUTION NAME SALARY INCENTIVE INCENTIVE TOTAL
DOLLARS PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 SKANEATELES BANCORP INC $143,691 $ 34,588 24.1% $178,279
3/31/97 WAYNE SAVINGS BANCSHARES INC MHC $120,000 $ 18,000 15.0% $138,000
12/31/97 SAVINGS BANK OF THE FINGER LAKES MHC $168,562 $168,562
12/31/97 ALLIANCE BANCORP OF NEW ENGLAND $137,981 $137,981
12/31/97 ELMIRA SAVINGS BANK $119,556 $ 5,000 4.2% $124,556
12/31/97 PEOPLES HOME SAVINGS BANK MHC $140,594 $ 15,000 10.7% $155,594
12/31/97 PATHFINDER BANCORP INC MHC $185,000 $185,000
6/30/97 PEEKSKILL FINANCIAL CORP $121,000 $ 9,308 7.7% $130,308
12/31/97 SFS BANCORP INC $179,664 $ 16,170 9.0% $195,834
9/30/97 CATSKILL FINANCIAL CORP $182,876 $182,876
12/31/97 WARWICK COMMUNITY BANCORP INC $189,750 $189,750
3/31/97 HARBOR FEDERAL BANCORP INC $114,750 $ 38,242 33.3% $152,992
3/31/97 FIRST CARNEGIE DEPOSIT MHC $139,850 $ 30,000 21.5% $169,850
AVERAGE (1) $149,483 $ 20,789 15.7% $162,276
MEDIAN (1) $140,594 $ 17,085 12.8% $168,562
25TH PERCENTILE (1) $120,500 $ 10,731 8.0% $137,991
75TH PERCENTILE (1) $181,270 $ 33,441 23.4% $183,938
ONEIDA SAVINGS BANK $167,000 $ 30,000 18.0% $197,000
OSB as a % of Average 111.7% 144.3% 114.6% 121.4%
OSB as a % of Median 118.8% 175.6% 140.0% 116.9%
</TABLE>
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 15 Oneida Savings Bank
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Data as of
FY-end Institution Name Location TSR Assets Position Rank Name
(Mil)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/97 SKANEATELES BANCORP INC Skaneateles, NY 217.98 $256 ExecVP & Secty 2 J. David Hammond
12/31/97 ALLIANCE BANCORP OF NEW ENGLAND Vernon, CT 193.05 $247 Exec VP/SLO 2 Patrick J. Logiudice
6/30/97 PEEKSKILL FINANCIAL CORP Peekskill, NY 27.93 $183 Pres/COO 2 William J. LaCalamito
9/30/97 CATSKILL FINANCIAL CORP Catskill, NY 64.82 $290 VP/CFO 2 David J. DeLuca
12/31/97 WARWICK COMMUNITY BANCORP INC Warwick, NY NA $287 Exec VP/COO 2 Ronald J. Gentile
3/31/97 HARBOR FEDERAL BANCORP INC Baltimore, MD 37.17 $219 Treasurer/CFO 2 Norbert J. Luken
Average (1) $247
Median (1) $252
25th Percentile (1) $210
75th Percentile (1) $288
Oneida Savings Bank $220 Sr VP/CFO 2 Eric E. Stickels
OSB as a % of Average 89.1%
OSB as a % of Median 87.5%
<CAPTION>
- ---------------------------------------------------------
Annual Compensation
- ---------------------------------------------------------
Salary Incentive Incentive Total
Dollars Percent
- ---------------------------------------------------------
<S> <C> <C> <C>
$ 94,248 $13,436 14.3% $107,684
$105,186 $105,186
$117,500 $ 9,038 7.7% $126,538
$120,327 $120,327
$118,543 $118,543
$ 91,364 $28,506 31.2% $119,870
$107,861 $16,993 17.7% $116,358
$111,343 $13,436 14.3% $119,207
$ 93,527 n/a n/a $107,060
$118,989 n/a n/a $121,880
$ 85,000 $11,252 13.2% $ 96,252
78.8% 66.2% 74.7% 82.7%
76.3% 83.7% 92.9% 80.7%
</TABLE>
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 16 Oneida Savings Bank
<PAGE>
BOARD OF DIRECTORS: PEER INSTITUTIONS DETAIL
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 17 Oneida Savings Bank
<PAGE>
Oneida Savings Bank
Board of Directors Compensation
9/23/98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Board Board
----- -----
Annual Meeting Meeting Committee Committee
------ ------- ------- --------- ---------
Bank Retainer Fee-Low Fee-High Fee-Low Fee-High
- ---- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
SKANEATELES BANCORP INC 400 250 250
WAYNE SAVINGS BANCSHARES INC MHC* 5,856 732 100 285
SAVINGS BANK OF THE FINGER LAKES MHC* 4,000 250 150 150
ALLIANCE BANCORP OF NEW ENGLAND 1,800 250 150 250
ELMIRA SAVINGS BANK 6,000 250 150 150
PEOPLES HOME SAVINGS BANK MHC* 14,400 100 100
PATHFINDER BANCORP INC MHC* 600 400 400
PEEKSKILL FINANCIAL CORP 500 500 650
SFS BANCORP INC 550 425 550
CATSKILL FINANCIAL CORP 1,000 200
WARWICK COMMUNITY BANCORP INC* 400
HARBOR FEDERAL BANCORP INC 9,000
FIRST CARNEGIE DEPOSIT MHC 2,000
MEDIAN 5,856 450 175 250
AVERAGE 6,151 493 243 309
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------
Stock Options Chairman Retainer
- ------------- -----------------
<S> <C>
Warrant plan
Chairman retainer of $12,000
Chairman retainer of $ 3,600
- --------------------------------------------------
</TABLE>
*Subsidiary board data
- --------------------------------------------------------------------------------
William M. Mercer, Incorporated 18 Oneida Savings Bank
