<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
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 2,307,117 shares $10.00 $23,071,170 $6,806
$.10 par Value
- --------------------------------------------------------------------------------------------------------------------------
Participation (2) ------ ------ (3)
Interests
==========================================================================================================================
</TABLE>
______________________________
(1) Estimated solely for the purpose of calculating the registration fee.
(2) 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.
(3) 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 2,307,117 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 $33.3 million and $45.0 million. Based on this estimate,
the Company will issue between 3,329,280 and 4,504,320 shares of Common Stock.
The Company is selling between 1,482,835 and 2,006,189 shares to depositors and
the public, and is issuing between 1,781,200 and 2,409,859 shares to the Mutual
Holding Company. The Company may increase the shares it issues in the
Reorganization to up to 5,179,968 shares and increase the shares sold in the
Offering to up to 2,307,117 shares, subject to regulatory approvals. As part of
the Reorganization, up to 76,769 shares, or 2.0% of the 3,916,800 shares issued
in the Reorganization 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..... 1,482,835 1,744,512 2,006,189 2,307,117
. Reorganization expenses...... $ 695,000 $ 695,000 $ 695,000 $ 695,000
. Net Proceeds................. $14,133,350 $16,750,120 $19,366,890 $22,376,170
. Net Proceeds per share sold.. $ 9.53 $ 9.60 $ 9.65 $ 9.70
</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 National Market System of
the Nasdaq Stock Market under the symbol "ONFC."
For information on how to subscribe, call the Stock Information Center
at (315) 363-____.
TRIDENT SECURITIES, INC.
PROSPECTUS DATED ___________, 1998
<PAGE>
- --------------------------------------------------------------------------------
MAP
- --------------------------------------------------------------------------------
<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 meaning 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 2,095,529 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
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. 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 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 10,000
shares (or $100,000). 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 20,000 shares (or $200,000). 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, to the Bank's tax-qualified employee benefit plans, including
the Bank's ESOP.
. 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 the lesser of 100 shares or the amount
subscribed for. 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
the lesser of 100 shares of the amount of stock subscribed for.
Q: WILL SHARES BE OFFERED TO ANYONE OTHER THAN PERSONS WITH SUBSCRIPTION
RIGHTS?
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.
2
<PAGE>
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 -_____
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 NEW YORK BANKING DEPARTMENT AND/OR FEDERAL DEPOSIT INSURANCE
CORPORATION.
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 3,329,280 shares and 4,504,320 shares
of Common Stock in the Reorganization: 53.5% of these shares (or
between 1,781,200 shares and 2,409,859 shares) will be issued to the
Mutual Holding Company, 44.5% (or between 1,482,835 shares and
2,006,189 shares) will be sold to depositors and the public, and 2.0%
of these shares (or between 65,245 shares and 88,272 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 1,482,835 shares and 2,006,189
shares of its Common Stock, for a price per share of $10.00. The Offering may be
increased to up to 2,307,117 shares without further notice to subscribers, if
the Department approves the increase and 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) The Bank's tax-qualified employee benefit plans, including the
Bank's ESOP;
(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 per share of
Common Stock at $10.00, 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 The independent valuation
states that as of September 9, 1998, the estimated pro forma market value of the
Company ranged from a minimum of $33,292,800 to a maximum of $45,043,200, with a
midpoint of $39,168,000. 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 3,329,280 shares to 4,504,320 shares. The Company and the
Bank have decided to offer between 1,482,835 shares and 2,006,189 shares of
Common Stock to depositors and the public. In addition, the Company will issue
between 65,245 shares and 88,272 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."
Changes in market and financial conditions and demand for the Common Stock
may cause the estimated valuation range to increase by up to 15%, to up to
$51,799,680. If this occurs, the maximum number of shares that can be sold to
depositors and the public can increase to up to 2,307,117 shares, and the number
of shares to be issued to the Charitable Foundation can increase to 101,513
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 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.
6
<PAGE>
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 400,680 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) 31.5% 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 $1.7 million at the minimum
of the Offering Range and $2.1 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 10% 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 4% 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
$619,232 at the minimum and $837,784 at the maximum, assuming a value of $10 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 may 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.
PERCENTAGE OF
VALUE OF OUTSTANDING
SHARES GRANTED/(1)/ COMMON STOCK
------------------- -------------
BENEFIT PLAN:
ESOP............... $1,457,017 3.69%
Stock Award Plan... 728,508 1.84
Stock Option Plan.. -- /(2)/ 4.61
---------- -----
$2,185,525 10.14%
========== =====
______________________
/(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 182,127 shares (at the
midpoint) may be granted if the Stock Option Plan is approved by
stockholders.
7
<PAGE>
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 plus $100,000 in cash. 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%. 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 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 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 order form. THE COMPANY IS NOT OBLIGATED TO ACCEPT AN
ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED ORDER FORMS. THE COMPANY WILL NOT
ACCEPT ORDER FORMS IF THE CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE
ORDER FORM IS NOT EXECUTED. THE COMPANY IS NOT REQUIRED TO DELIVER A PROSPECTUS
AND ORDER FORM BY ANY MEANS OTHER THAN THE U.S. POSTAL SERVICE.
DIVIDENDS
The Company does not initially intend to pay a cash dividend, although it
may consider the payment of cash dividends in the future. Future decisions as
to the declaration of cash dividends by the Company will depend upon a number of
factors including investment opportunities available to the Company or the Bank
and the Company's financial condition and results of operations. See pages ____
and ______.
8
<PAGE>
MARKET FOR THE COMMON STOCK
The Company has received conditional approval to have the Common Stock
quoted on the Nasdaq National Market under the symbol "ONFC." Trident
Securities, Inc. intends to make a market in the Common Stock, and the Company
expects that additional market makers will be identified.
IMPORTANT RISKS IN PURCHASING AND OWNING THE COMPANY'S COMMON STOCK
Before deciding to purchase Common Stock in the Offering, please 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>
JUNE 30, AT DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- --------- -------- -------- --------- --------
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
SELECTED OPERATING DATA:
- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 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
---------- ---------- ------- ------- ------- -------- --------
SELECTED FINANCIAL RATIOS AND OTHER DATA:/(2)/
- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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% 3.26% 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..... 118.72% 118.65% 135.71% 133.29% 131.42% 128.46% 127.17%
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>
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
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. 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
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 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. 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. 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, for the foreseeable future,
investors should not expect a return on equity that will meet or exceed the
average return on equity for publicly-traded thrift institutions, and no
assurances can be given that this goal can be attained.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
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 and, 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
12
<PAGE>
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.
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. 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
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.
13
<PAGE>
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 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 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
The Bank intends to establish the Charitable Foundation in connection with the
Reorganization. The Bank 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 76,769 shares at the midpoint of the
Offering, and $100,000 cash. 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 $264,000
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
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."
14
<PAGE>
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 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
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 National Market under the symbol "ONFC." Trident Securities, Inc.
intends to make a market in the Common Stock, and the Company expects that
additional market makers will be identified.
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.
15
<PAGE>
EXPENSES ASSOCIATED WITH THE ESOP AND STOCK AWARD PLAN
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 "--Benefits--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 and Related Transactions of the Bank."
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's loan
portfolio primarily consists of loans secured by real estate. Consequently, the
Bank does not believe that its lending operations are dependent on borrowers'
compliance with the year 2000 issue. 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 that the internal
deposit and loan data processing system is 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 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 its
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."
16
<PAGE>
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.
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.
17
<PAGE>
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. 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."
<TABLE>
<CAPTION>
Pro Forma at June 30, 1998, Based Upon the Sale at $10.00 per share of
--------------------------------------------------------------------------
Historical at 1,482,835 1,744,512 2,006,189
June 30, 1998 Shares Shares Shares
-------------------- ------------------- --------------------- --------------------
Percent Percent Percent Percent
of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
--------- ---------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital............... $ 28,031 12.89% $ 33,190 14.90% $ 34,169 15.27% $ 35,150 15.64%
======== ===== ======== ===== ======== ===== ========= ======
Leverage capital:
Capital level(3)......... 27,451 12.61 32,610 14.64 33,590 15.01 34,570 15.38
Requirement(4)........... 6,529 3.00 6,684 3.00 6,713 3.00 6,743 3.00
-------- ----- -------- ----- -------- ----- --------- ------
Excess................. $ 20,922 9.61% $ 25,926 11.64% $ 26,876 12.01% $ 27,827 12.38%
======== ===== ======== ===== ======== ===== ========= ======
Risk-based capital:
Tier 1 capital level($)(5). $ 27,451 21.90 32,610 25.49 33,590 26.16 34,570 26.82
Requirement................ 5,014 4.00 5,117 4.00 3,852 3.00 3,867 3.00
-------- ----- -------- ----- -------- ----- --------- ------
Excess............... $ 22,437 17.90% $ 27,493 21.49% $ 29,737 23.16% $ 30,703 23.82%
======== ===== ======== ===== ======== ===== ========= ======
Total capital level(3)(5).. 28,031 22.36 33,190 25.94 34,170 26.61 35,150 27.27
Requirement................ 10,028 8.00 10,234 8.00 10,273 8.00 10,313 8.00
-------- ----- -------- ----- -------- ----- --------- ------
Excess............... $ 18,003 14.36% $ 22,956 17.94% $ 23,896 18.61% $ 24,837 19.27%
======== ===== ======== ===== ======== ===== ========= ======
<CAPTION>
------------------------
2,307,117
Shares(1)
------------------------
Percent
of
Amount Assets(2)
------ ---------
<S>........................ <C> <C>
GAAP capital............... $ 36,278 16.06%
========= =======
Leverage capital:
Capital level(3)......... 35,699 15.80
Requirement(4)........... 6,777 3.00
--------- ------
Excess................. $ 28,922 12.80%
========= ======
Risk-based capital:
Tier 1 capital level($)(5). 35,699 27.57
Requirement................ 3,884 3.00
--------- ------
Excess............... $ 31,814 24.57%
========= ======
Total capital level(3)(5).. 36,279 28.02
Requirement................ 10,358 8.00
--------- ------
Excess............... $ 25,921 20.02%
========= ======
</TABLE>
________________________
(1) As adjusted to give 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.
<PAGE>
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 $14.1 million and $19.4 million (or $22.4 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 $7.0 million to $11.1 million at the
minimum and adjusted maximum of the Estimated Valuation Range, 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 Issuance of Additional Shares" and "Management of the Bank--Benefit
Plans--Stock Option Plan" and "--Stock Award Plan."
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 1,482,835
shares or 2,006,189 shares at the minimum and maximum of the Estimated Valuation
Range and the contribution of between 65,245 shares and 88,272 shares to the
Charitable Foundation, the amount of the loan to the ESOP would be $1.7 million
or $2.1 million, respectively. See "Management of the Bank--Benefit
Plans--Employee Stock Ownership Plan and Trust." The remaining net proceeds
retained by the Company 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.
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. In addition, the FDIC prohibits an insured savings bank which has
converted from the mutual to stock form of ownership from repurchasing its
capital stock within one year following the date of completion of its stock
offering. 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
19
<PAGE>
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
The Company has no present plans to pay cash dividends on the Common
Stock, although it may consider the payment of cash dividends in the future.
Dividends will be subject to determination and declaration by the Company's
Board of Directors in its discretion, after taking into account the Company's
consolidated financial condition, capital levels, general business practices and
other factors.
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 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. 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. 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
National 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 and the Company expects that
additional market makers will be identified.
20
<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 Per Share
------------------------------------------------------
2,307,117
1,482,835 1,744,512 2,006,189 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, $.10 par value, 7,000,000 shares
authorized; shares to be issued as reflected($) -- $ 340 $ 400 $ 460 $ 529
Additional paid-in capital(4)................ -- 13,693 16,250 18,807 21,747
Retained earnings(5)......................... 28,031 28,031 28,031 28,031 28,031
Plus:
Expenses of contribution to Charitable Foundation -- 752 868 983 1,115
Less:
After tax cost of the Charitable Foundation(6) -- (466) (538) (609) (691)
Net unrealized gain on securities available
for sale, net of taxes..................... -- -- -- -- --
Less:
Common Stock acquired by the ESOP(7)......... -- (1,238) (1,457) (1,676) (1,927)
Common Stock acquired by the Stock Award Plan(8) -- (619) (729) (838) (963)
---------- --------- --------- --------- ---------
Total stockholders' equity..................... $ 28,031 $ 40,492 $ 42,824 $ 45,157 $ 47,840
========== ========= ========= ========= =========
</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--Benefit
Plans--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-Possible Dilutive Effect of Issuance of Additional Shares,"
footnote 3 to the tables under "Pro Forma Data," and "Management of the
Bank--Benefit Plans--Stock Award Plan."
21
<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 $14.1 million and $19.4 million (or up to $22.4 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 Offering and Community
Offering; (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 $100,000 in cash; (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.
22
<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--Benefit
Plans--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--Benefit Plans--Stock Option Plan."
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------
2,307,117
1,482,835 1,744,512 2,006,189 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................................................. $ 14,828 $ 17,445 $ 20,062 $ 23,071
Plus: Shares acquired by Charitable Foundation................. 652 768 883 1,015
--------- -------- --------- ---------
Pro forma market capitalization................................ $ 15,480 $ 18,213 $ 20,945 $ 24,086
========= ======== ========= =========
Gross proceeds................................................. 14,828 17,445 20,062 23,071
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......................................... 14,032 16,649 19,266 22,275
Less: Common Stock purchased by ESOP........................... 1,238 1,457 1,676 1,927
Common Stock purchased by Stock Award Plan............... 619 729 838 963
--------- -------- --------- ---------
Estimated net proceeds, as adjusted............................ $ 12,175 $ 14,463 $ 16,752 $ 19,385
========= ======== ========= =========
Consolidated net income (1):
Historical................................................... 802 802 802 802
Pro forma income on net proceeds, as adjusted................ 204 243 281 325
Pro forma ESOP adjustment (2)................................ (38) (45) (52) (60)
Pro forma Stock Award Plan adjustment (3).................... (38) (45) (52) (60)
--------- --------- --------- ---------
Pro forma net income (1)....................................... $ 930 $ 955 $ 979 $ 1,007
========= ======== ========= =========
Per share net income (1):
Historical................................................... 0.25 0.21 0.18 0.16
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)............................. $ 0.29 $ 0.25 0.22 $ 0.21
========== ======== ========= =========
Stockholders' equity:
Historical................................................... 28,031 28,031 28,031 28,031
Estimated net proceeds....................................... 14,032 16,649 19,266 22,275
Plus:value issued to Charitable Foundation................... 752 868 983 1,115
Less:after tax cost of Charitable Foundation................. 466 538 609 691
Common Stock acquired by ESOP (2)....................... (1,238) (1,457) (1,676) (1,927)
Common Stock acquired by Stock Award Plan(3)............ (619) (729) (838) (963)
--------- -------- --------- ---------
Pro forma stockholders' equity (3)(4)(5)....................... $ 40,492 $ 42,824 $ 45,157 $ 47,840
========= ======== ========= =========
Stockholders' equity per share (6):
Historical................................................... 8.42 7.16 6.22 5.41
Estimated net proceeds....................................... 4.22 4.25 4.28 4.30
Plus:Value issued to Charitable Foundation................... 0.23 0.22 0.22 0.22
Less:Contribution to Charitable Foundation.................. (0.14) (0.14) (0.14) (0.13)
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)............. $ 12.17 $ 10.93 $ 10.02 $ 9.24
========= ======== ========= =========
Offering price to pro forma net income per share (7)........... 17.24x 20.00x 22.73x 23.81x
Offering price as a percentage of pro forma
stockholders' equity per share (6)........................... 82.17% 91.49% 99.80% 108.23%
</TABLE>
(footnotes on following page)
23
<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 $466,000,
$538,000, $609,000 and $691,000 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 $0.14,
$0.11, $0.09 and $0.06 at the minimum, midpoint, maximum and adjusted
maximum, respectively. Per share net income data is based on 3,211,626,
3,778,383, 4,345,141 and 4,996,912 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 5,931, 6,978, 8,025 and 9,228
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
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 59,313,
69,780, 80,248, and 92,285 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 $0.29,
$0.25, $0.23 and $0.20 at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, respectively, and pro forma
stockholders' equity per share would be $11.94, $10.73, $9.84 and $9.07 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 148,284, 174,451, 200,619 and
230,712 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 per share, the pro forma net income per share would
be $0.28, $0.24, $0.21 and $0.19, respectively, and the pro forma
stockholders' equity per share would be $12.07, $10.89, $10.02, and $9.27,
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 3,329,280; 3,916,800;
4,504,320 and 5,179,968 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.
24
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1997
--------------------------------------------------------------------
2,307,117
1,482,835 1,744,512 2,006,189 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................................... $ 14,828 $ 17,445 $ 20,062 $ 23,071
Plus: Shares acquired by Charitable Foundation... 652 768 883 1,015
--------- -------- --------- ---------
Pro forma market capitalization.................. $ 15,480 $ 18,213 $ 20,945 $ 24,086
--------- ======== ========= =========
Gross proceeds................................... 14,828 17,445 20,062 23,071
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........................... 14,032 16,649 19,266 22,275
Less: Common Stock purchased by ESOP............. 1,238 1,457 1,676 1,927
Common Stock purchased by Stock Award Plan. 619 729 838 963
--------- -------- --------- ---------
Estimated net proceeds, as adjusted.............. $ 12,175 $ 14,463 $ 16,752 $ 19,385
========= ======== ========= =========
Consolidated net income(1):
Historical.................................... 1,285 1,285 1,285 1,285
Pro forma income on net proceeds, as adjusted. 408 485 562 650
Pro forma ESOP adjustment (2)................. (77) (90) (104) (119)
Pro forma Stock Award Plan adjustment (3)..... (77) (90) (104) (119)
--------- -------- --------- ---------
Pro forma net income (1)......................... $ 1,539 $ 1,590 $ 1,639 $ 1,697
========= ======== ========= =========
Per share net income (1):
Historical.................................... 0.40 0.34 0.30 0.26
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)............... $ 0.49 $ 0.43 $ 0.39 $ 0.35
========= ======== ========= =========
Stockholders' equity:
Historical.................................... 27,120 27,120 27,120 27,120
Estimated net proceeds........................ 14,032 16,649 19,266 22,275
Plus: Value issued to Charitable Foundation...... 752 868 983 1,115
After tax cost of Charitable Foundation.......... (466) (538) (609) (691)
Less:Common Stock acquired by ESOP (2)........ (1,238) (1,457) (1,676) (1,927)
Less:Common Stock acquired by Stock Award Plan(3) (619) (729) (838) (963)
--------- -------- --------- ---------
Pro forma stockholders' equity (3)(4)(5)......... $ 39,581 $ 41,913 $ 44,246 $ 46,929
========= ======== ========= =========
Stockholders' equity per share (6):
Historical.................................... 8.15 6.92 6.02 5.24
Estimated net proceeds........................... 4.21 4.25 4.28 4.30
Plus: value issued to Charitable Foundation... 0.23 0.22 0.22 0.22
After tax cost of Charitable Foundation....... (0.14) (0.14) (0.14) (0.13)
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) $ 11.90 $ 10.69 $ 9.82 $ 9.07
========= ======== ========= =========
Offering price to pro forma net income per share. 20.41x 23.26x 25.64x 28.57x
Offering price as a percentage of pro forma stockholders'
equity per share (6).......................... 84.03% 93.55% 101.83% 110.25%
</TABLE>
- -------------------------
(footnotes on following page)
25
<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
$466,000, $538,000, $609,000 and $691,000 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 $0.33, $0.28, $0.24 and $0.20 at the minimum, midpoint,
maximum and adjusted maximum, respectively. Per share net income data is
based on 3,217,818, 3,785,669, 4,353,519 and 5,006,547 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 11,863, 13,956, 16,050 and 18,457
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
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 59,313,
69,780, 80,248 and 92,285 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 $0.48, $0.42, $0.38 and $0.34 at the minimum, midpoint,
maximum and adjusted maximum of the Estimated Valuation Range,
respectively, and pro forma stockholders' equity per share would be
$11.67, $10.51, $ 9.64 and $8.89 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 148,284, 174,451
200,619 and 230,712 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 per share, the pro forma
net income per share would be $0.46, $0.40, $0.36 and $0.32, respectively,
and the pro forma stockholders' equity per share would be $11.80, $10.67,
$9.83 and $9.10, 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 3,329,280; 3,916,800;
4,504,320; and 5,179,968 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.
26
<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 $18.2 million at the
midpoint, which is approximately $41,000 less than the pro forma aggregate
market capitalization of the Company if the Charitable Foundation is included,
and would result in an approximately $727,000 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 $0.25 and $10.93, respectively, and
$0.26 and $10.84, 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 at 91.49% and 92.25%, respectively, and 20.00x and 19.23x,
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
----------------------- -----------------------
WITH WITHOUT WITH WITHOUT
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Estimated Offering amount............................................. $ 14,828 $ 15,446 $ 17,445 $ 18,172
Pro forma market capitalization....................................... 15,480 15,446 18,213 18,172
Total assets.......................................................... 230,103 230,538 232,435 232,937
Total liabilities..................................................... 189,611 189,611 189,611 189,611
Pro forma stockholders' equity........................................ 40,492 40,927 42,824 43,326
Pro forma net income.................................................. 930 942 955 969
Pro forma stockholders' equity per share.............................. 12.17 12.04 10.93 10.84
Pro forma net income per share........................................ 0.29 0.29 0.25 0.26
Pro forma pricing ratios:
- ------------------------
Offering price as a percentage of pro forma stockholders' equity
per share............................................................. 82.17% 83.06% 91.49% 92.25%
Offering price to pro forma net income per share (1).................. 17.24x 17.24x 20.00x 19.23x
Pro forma market capitalization to assets............................. 14.47% 14.75% 16.85% 17.17%
Pro forma financial ratios:
- --------------------------
Return on assets (2).................................................. 0.81% 0.82% 0.82% 0.83%
Return on equity (3).................................................. 4.59% 4.60% 4.46% 4.47%
Equity to assets...................................................... 17.60% 17.75% 18.42% 18.60%
Total shares.......................................................... 3,329,280 3,400,000 3,916,800 4,000,000
Minority shares....................................................... 1,482,835 1,544,620 1,744,512 1,817,200
Share dilution..................................................... 4.00% 61,785 4.00% 72,688
Voting share....................................................... 44.54% 45.43% 44.54% 45.43%
Dilution........................................................... 0.89% 0.89%
Foundation shares..................................................... 65,245 -- 76,759 --
Share dilution..................................................... N/A N/A
Voting share....................................................... 1.96% -- 1.96% --
Dilution........................................................... N/A N/A
Mutual Holding Company Shares......................................... 1,781,200 1,855,380 2,095,529 2,182,800
Share dilution..................................................... 4.00% 4.00%
Voting share....................................................... 53.50% 54.57% 53.50% 54.57%
Dilution........................................................... 1.07% 1.07%
<CAPTION>
MAXIMUM ADJUSTED MAXIMUM
---------------------- --------------------------
WITH WITHOUT WITH WITHOUT
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>................................................................... <C> <C> <C> <C>
Estimated Offering amount............................................. $ 20,062 $ 20,898 $ 23,071 $ 24,032
Pro forma market capitalization....................................... 20,945 20,898 24,086 24,032
Total assets.......................................................... 234,768 235,336 237,451 238,094
Total liabilities..................................................... 189,611 189,611 189,611 189,611
Pro forma stockholders' equity........................................ 45,157 45,725 47,840 48,483
Pro forma net income.................................................. 979 995 1,007 1,025
Pro forma stockholders' equity per share.............................. 10.02 9.94 9.24 9.17
Pro forma net income per share........................................ 0.22 0.23 0.21 0.21
Pro forma pricing ratios:
- ------------------------
Offering price as a percentage of pro forma stockholders' equity
per share............................................................. 99.80% 100.60% 108.23% 109.05%
Offering price to pro forma net income per share (1).................. 22.73x 21.74x 23.81x 23.81x
Pro forma market capitalization to assets............................. 19.18% 19.55% 21.82% 22.22%
Pro forma financial ratios:
- --------------------------
Return on assets (2).................................................. 0.83% 0.85% 0.85% 0.86%
Return on equity (3).................................................. 4.34% 4.35% 4.21% 4.23%
Equity to assets...................................................... 19.23% 19.43% 20.15% 20.36%
Total shares.......................................................... 4,504,320 4,600,000 5,179,966 5,290,000
Minority shares....................................................... 2,006,189 2,089,780 2,307,117 2,403,247
Share dilution..................................................... 4.00% 83,591 4.00% 96,130
Voting share....................................................... 44.54% 45.43% 44.54% 45.43%
Dilution........................................................... 0.89% 0.89%
Foundation shares..................................................... 88,272 -- 101,513 --
Share dilution..................................................... N/A N/A
Voting share....................................................... 1.96% -- 1.96% --
Dilution........................................................... N/A N/A
Mutual Holding Company Shares......................................... 2,409,859 2,510,220 2,771,338 2,886,753
Share dilution..................................................... 4.00% 4.00%
Voting share....................................................... 53.50% 54.57% 53.50% 54.57%
Dilution........................................................... 1.07% 1.07%
</TABLE>
(footnotes on following page)
27
<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 $0.14, $0.11, $0.09 and $0.06 and the offering price to pro forma
net income per share would have been 23.04x, 27.54x, 32.22x and 37.78x, at
the minimum, midpoint, maximum and adjusted maximum, respectively.
(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
0.20%,0.18%, 0.16%, and0.13% 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 0.61%,
0.59%, 0.57% and 0.56%, respectively.
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 $1,735,000 of Common Stock, equal to 11.7%, 9.9%, 8.6%, and 7.5% 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 $ 200,000 20,000 1.1%
Michael R. Kallet President, Chief Executive
Officer and Trustee 200,000 20,000 1.1
Patricia D. Caprio Trustee 100,000 10,000 0.6
Edward J. Clarke Trustee 5,000 500 *
James J. Devine Trustee 100,000 10,000 0.6
John E. Haskell Trustee 200,000 20,000 1.1
Rodney D. Kent Trustee 200,000 20,000 1.1
William D. Matthews Trustee 100,000 10,000 0.6
Michael W. Milmoe Trustee 30,000 3,000 0.2
Richard B. Myers Trustee 100,000 10,000 0.6
Frank O. White, Jr. Trustee 100,000 10,000 0.6
Thomas H. Dixon Senior Vice President/
Credit Administration 200,000 20,000 1.1
Eric E. Stickels Senior Vice President and
Chief Financial Officer 200,000 20,000 1.1
-------------- ------------- -----------
All trustees and executive officers
as a group (13 persons) $ 1,735,000 173,500 9.9%
============== ============= ===========
</TABLE>
- ---------------------
*less than .1%
/1/ Includes purchases by associates.
28
<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 constructively issue
its common stock to depositors who 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 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 (including the
holding company) Charitable
Foundation)
------------------------- ---------------------
53.5% of 46.5% of
the 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
29
<PAGE>
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 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.
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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% 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 1,482,835 and 2,006,189
shares of the Common Stock (subject to adjustment to up to 2,307,117) 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.
The Independent Valuation states that as of September 8, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$33.3 million to a maximum of $45.0 million, with a midpoint of $39.2
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million (the "Estimated Valuation Range"). The board determined to offer the
shares in the Offering at the Subscription Price of $10 per share, the price
most commonly used in stock offerings involving mutual to stock conversions.
Based on the Estimated Valuation Range and the Subscription Price of $10 per
share, the number of shares of Common Stock that the Company will issue will
range from between 3,329,280 shares to 4,504,320 shares, with a midpoint of
3,916,800 shares. The board determined to offer 44.5% of such shares, or
between 1,482,835 shares and 2,006,189 shares with a midpoint of 1,744,512
shares (the "Offering Range"), to depositors and the public pursuant to this
Prospectus. In addition, up to 88,272 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 5,179,968
shares, which will result in a corresponding increase in the maximum of the
Offering Range to up to 2,307,117 shares to reflect changes in market and
financial conditions, without the resolicitation of subscribers (in which event
up to 101,513 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 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 5,179,968 shares and a corresponding
increase in the Offering Range to more than 2,307,117 shares, or a decrease in
the minimum of the Estimated Valuation Range to less than 3,329,280 shares and a
corresponding decrease in the Offering Range to fewer than 1,482,835 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
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extended by the Superintendent and the FDIC for periods of up to 90 days not to
extend beyond 24 months following the special meeting of depositors, or
__________, ______.
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 maximum of the Estimated Valuation Range would be
subject to Superintendent's approval. 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 10,000 shares, or $100,000, 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.
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 10,000
shares, or $100,000, 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 10,000 shares or $100,0000 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 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 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.
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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, 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.
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
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.
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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. 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 ORDER FORMS. In order to purchase the Common Stock, each
purchaser must complete an order form except for certain persons purchasing in
the Syndicated Community Offering as more fully described below. Any person
receiving an 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
order form, together with full payment for the shares purchased. The order form
must be received prior to __:___, New York time on __________, 1998. ONCE
TENDERED, AN 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 order forms.
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 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 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
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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 order form or direction to execute an 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 twelve 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
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.
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.
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
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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.
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 20,000 shares, or
$200,000, 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 30% 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 National Association of Securities
Dealers, Inc., 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.
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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 65,245, 76,759, 88,272 and 101,513 shares at the minimum,
midpoint, maximum and adjusted maximum of the Offering and $100,000 in cash.
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.
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, and 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 will consist of persons who are existing directors and officers of the
Company. Subsequent to the Reorganization, other individuals may be appointed
to the Board. 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
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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 would 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 would
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.
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 3,329,280, 3,916,800 and 4,504,320 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 $752,000 to $983,000, based on the minimum and
maximum of the Estimated Valuation Range, respectively (or up to $1.1 million at
the adjusted maximum of the Estimated Valuation Range). The number of shares to
be contributed to the Charitable Foundation will range from 65,245 to 88,272,
and the
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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 $983,000 (based on the maximum of the
Estimated Valuation Range), the Company estimates a net tax effected expense of
$609,000 (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
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
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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 $14.8 million and $20.1 million, with a
midpoint of $17.4 million. 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
91.49% and 20.00x, 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 $18.2 million
at the midpoint based on a pro forma price to book ratio and the pro forma price
to earnings ratio that of 92.25% and 19.23x, respectively. The amount of Common
Stock being offered for sale in the Offering at the midpoint of the Estimated
Valuation Range is approximately $727,000 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 Without Charitable 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 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 21.9% 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 15.01% and 26.16%,
respectively. On a consolidated basis, the Company's pro forma stockholders'
equity would be $42.8 million, or approximately 18.42% of pro forma consolidated
assets, assuming the sale of shares at the midpoint of the Estimated Price
Range. Pro forma stockholders' equity per share and pro forma net income per
share would be $10.93 and $0.25, 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 $43.3 million,
or approximately 18.60% 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
Charitable Foundation. See "Comparison of Valuation and Pro Forma Information
With and Without Charitable 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
it's the 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 would 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.
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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 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.
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.
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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 Internal Revenue Code of 1986, as amended
(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.
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
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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.
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 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.
45
<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. 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 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
46
<PAGE>
Bank's systems rely 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.
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, subject to market conditions, that the strategies
presently in place will be continued following completion of the Reorganization.
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 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.
47
<PAGE>
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.
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
48
<PAGE>
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>
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.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Although certain assets and liabilities may
have similar maturities or terms to repricing, they react in different degrees
to changes in market interest 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.
49
<PAGE>
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.
50
<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
---------------------- ---------------------------------- -----------------
AVERAGE INTEREST AVERAGE
OUTSTANDING YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING
BALANCE RATE BALANCE PAID RATE BALANCE
----------- ------ ----------- -------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable................................ $141,966 8.58% $140,340 $ 6,093 8.68% $136,677
Investment and mortgage-backed securities(1).... 52,946 6.59 52,025 1,730 6.65 58,435
Federal funds sold.............................. 8,700 6.25 5,548 148 5.36 4,860
Equity securities............................... 2,723 2.94 2,336 40 3.43 1,196
-------- -------- -------- --------
Total interest-earning assets................. 205,885 8.15 200,249 8,011 8.00 201,168
-------- -------- -------- --------
Interest-bearing liabilities:
Money market deposits........................... $ 12,621 3.03 $ 11,705 $ 186 3.18 $ 11,247
Savings accounts................................ 44,008 2.84 44,278 652 2.97 44,623
Interest-bearing checking....................... 6,308 1.89 5,673 55 1.94 5,727
Time deposits................................... 110,480 5.49 108,656 3,029 5.58 109,351
-------- -------- -------- --------
Total interest-bearing liabilities............ 173,417 4.64 170,312 3,922 4.61 170,948
-------- -------- -------- --------
Net interest income.............................. $ 4,089
========
Net interest spread.............................. 3.51% 3.39%
==== ====
Net earning assets............................... $ 32,468 $ 29,937 $ 30,220
======== ======== ========
Net interest income as a percentage of
average interest-earning assets................. 4.08%
========
Ratio of average interest-earning assets to
average interest-bearing liabilities............ 117.58%
========
<CAPTION>
---------------------
1997
---------------------
INTEREST
EARNED/ YIELD/
PAID RATE
-------- --------
<S> <C> <C>
Interest-earning assets:
Loans receivable................................ $ 5,844 8.55%
Investment and mortgage-backed securities(1).... 1,879 6.43
Federal funds sold.............................. 132 5.43
Equity securities............................... 6 1.00
--------
Total interest-earning assets................. 7,861 7.82
--------
Interest-bearing liabilities:
Money market deposits........................... $ 183 3.25
Savings accounts................................ 652 2.92
Interest-bearing checking....................... 56 1.96
Time deposits................................... 3,035 5.55
--------
Total interest-bearing liabilities............ 3,926 4.59
--------
Net interest income.............................. $ 3,935
========
Net interest spread.............................. 3.23%
====
Net earning assets...............................
Net interest income as a percentage of
average interest-earning assets................. 3.91%
========
Ratio of average interest-earning assets to
average interest-bearing liabilities............ 117.68%
========
</TABLE>
____________________________________
(1) Amount shown amortized cost.
51
<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 $ 11,974 8.64% $137,030 $ 11,507 8.40% $ 142,749 $ 11,747 8.23%
Investment and mortgage-backed
securities(1)................. 56,153 3,638 6.48 53,578 3,282 6.13 44,856 2,589 5.77
Federal funds sold.............. 4,526 241 5.32 6,697 356 5.32 3,997 229 5.73
Equity securities............... 1,205 10 0.91 900 9 0.95 777 19 2.47
-------- -------- -------- -------- --------- --------
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 1.98 5,399 108 2.01 5,446 120 2.21
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 4.65 170,476 7,895 4.63 167,527 7,628 4.55
-------- -------- -------- -------- --------- --------
Net interest income............. $ 7,966 $ 7,259 $ 6,956
======== ======== ========
Net interest spread............. 3.26% 3.01% 3.03%
==== ==== ====
Net earning assets.............. $ 30,422 $ 27,729 $ 24,852
======== ======== =========
Net interest income as a
percentage of average
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
------------------------------- ----------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
------------------- ---------------------
Volume Rate (Decrease) Volume Rate (Decrease)
-------- -------- ----------- --------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable................... $ 318 $ 179 $ 497 $ 131 $ 335 $ 466
Investment and mortgage-backed
securities....................... (426) 128 (298) 167 189 356
Federal funds sold................. 37 (5) 32 (115) (1) (116)
Equity securities.................. 39 30 69 3 -- 3
------ ------ ------ ------ ------ -------
Total interest-earning assets.... $ (32) $ 332 $ 300 $ 186 $ 523 $ 709
------ ------ ----- ------ ------ -------
Interest-bearing liabilities:
Money market deposits.............. $ 15 $ (8) $ 7 $ (35) $ (20) $ (55)
Savings accounts................... (10) 6 (4) (38) (2) (40)
Interest-bearing checking.......... (1) -- (1) 5 (2) 3
Time deposits...................... (39) 30 (9) 94 -- 94
------ ------ ------ ------ ------ -------
Total interest-bearing
liabilities................. $ (35) $ 28 $ (7) $ 26 $ (24) $ 2
====== ====== ====== ====== ====== =======
Net interest income................... $ 307 $ 707
====== =======
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 vs. 1995
-------------------------------------
Increase (Decrease) Total
Due to Increase
---------------------
Volume Rate (Decrease)
--------- ---------- -----------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable......................... (480) $ 240 (240)
Investment and mortgage-backed
securities............................. 534 158 692
Federal funds sold....................... 144 (15) 129
Equity securities........................ 1 (12) (11)
------- -------- --------
Total interest-earning assets.......... $ 199 $ 371 570
------- ------- -------
Interest-bearing liabilities:
Money market deposits.................... 50 $ (7) 43
Savings accounts......................... (76) 2 (74)
Interest-bearing checking................ (1) (11) (12)
Time deposits............................ 230 81 311
------- ------- -------
Total interest-bearing liabilities..... $ 203 $ 65 $ 268
======= ======= =======
Net interest income......................... $ 302
=======
</TABLE>
52
<PAGE>
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 non-interest 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
53
<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. Non-interest 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 of consumer, commercial real estate and commercial business loans
for retention in the Bank's portfolio while
54
<PAGE>
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 243 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 $3,000 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 non-interest-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 at year-end 1997. The
quarterly assessment of allowance adequacy has not resulted in the need for
additional provisions
55
<PAGE>
to the allowance for loan losses during 1998. 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 $467,000
increase in income from loans and a $356,000 increase in income from investment
and mortgage-backed securities. These increases were partially offset by a
$115,000 decrease in income from federal funds sold. The increase
56
<PAGE>
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 35 basis points in the average yield on investment
securities to 6.48% from 6.13%. 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 2 basis points to 4.65% 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.
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 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.
57
<PAGE>
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
$693,000 in income from investment securities and a $127,000 increase in income
from federal funds sold. These increases were partially offset by a $240,000
decrease in income from loans. The increase in income from investment
securities was attributable to an $8.7 million increase in the average balance
of investment securities to $53.6 million from $44.9 million, and a 36 basis
point increase in the average yield on investments to 6.13% from 5.77%. During
1996, the Bank began an investment strategy of investing in callable 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 41 basis point decrease in the
average yield on federal funds sold to 5.32% from
58
<PAGE>
5.73%. 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 $2.9 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 2.01%
for 1996 from 2.21%, 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.
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.
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<PAGE>
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, and 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
$27.7 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.
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.
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<PAGE>
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.
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.
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.
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
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<PAGE>
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 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.
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, and 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 and service charges and
fees collected on its deposit accounts. The Bank's primary sources of funds are
deposits, and principal and interest payments on loans and investment 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
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<PAGE>
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.
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<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
-------------------- ------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- -------- -------- --------
(Dollars in thousands)
<S> <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%
Multi-family.................... 1,905 1.3 2,714 1.9 2,972 2.2 3,240 2.3
Home equity..................... 9,192 6.5 8,829 6.1 7,983 5.8 7,207 5.1
Commercial real estate.......... 14,493 10.2 13,868 9.6 12,686 9.1 11,603 8.0
-------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans....... 113,558 80.0 122,203 84.6 124,198 90.2 130,447 91.4
-------- ------ ------ ------ ------
Consumer loans:
Automobile loans................ 9,373 6.6 6,683 4.6 2,701 2.0 2,108 1.5
Mobile home..................... 746 0.5 784 0.5 914 0.7 1,162 0.8
Personal loans.................. 3,670 2.6 2,580 1.8 1,719 1.3 1,831 1.3
Guaranteed student loans........ 1,699 1.2 1,659 1.2 1,981 1.4 2,943 2.1
Other consumer loans............ 1,350 1.0 1,017 0.7 879 0.6 766 0.5
-------- ------ -------- ------ ------- ------ ------- ------
Total consumer loans.......... 16,838 11.9 12,723 8.8 8,194 6.0 8,810 6.2
------ ------ ------ ------
Commercial business loans......... 11,600 8.1 9,587 6.6 5,241 3.8 3,424 2.4
Total consumer and
commercial business
loans....................... 28,438 20.0 22,310 15.4 13,435 9.8 12,234 8.6
-------- ------ -------- ------ ------- ------ ------- ------
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
-------- -------- -------- --------
(Dollars i n thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One-to-four family ............. $109,441 76.0% $110,114 77.3%
Multi-family.................... 3,735 2.5 2,540 1.8
Home equity..................... 6,851 4.8 7,742 5.4
Commercial real estate.......... 11,033 7.7 6,535 4.6
-------- ------- -------- -------
Total real estate loans....... 131,060 91.0 126,931 89.1
------- -------
Consumer loans:
Automobile loans................ 1,799 1.2 2,563 1.8
Mobile home..................... 1,384 1.0 1,739 1.2
Personal loans.................. 1,689 1.2 2,211 1.6
Guaranteed student loans........ 3,443 2.4 3,192 2.2
Other consumer loans............ 894 0.6 1,411 1.0
-------- ------- -------- -------
Total consumer loans.......... 9,209 6.4 11,116 7.8
------- -------
Commercial business loans......... 3,764 2.6 4,412 3.1
Total consumer and
commercial business
loans....................... 12,973 9.0 15,528 10.9
-------- ------- -------- -------
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... $141,290 $139,431
======== ========
</TABLE>
__________________
64
<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 loan......... 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..... $141,290 $139,431
======== ========
</TABLE>
65
<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.
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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 business loans are originated with terms of up to seven years
and provide for rates that adjust on a monthly basis. Commercial
67
<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 $48,200, 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 or
repricing 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 -- 12,722
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>
68
<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........................ $ 11,467 $ 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
69
<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, and 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
70
<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>
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
71
<PAGE>
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>
<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. Such evaluation,
which 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 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. 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
within the savings industry to increase allowances for losses as a percentage of
total loans. 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.
72
<PAGE>
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>
73
<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.................. 194 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............................. 612 -- -- 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 TO
ALLOWANCE 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%
========= ========= ========
</TABLE>
<TABLE>
<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>
1993
------------------------------------
PERCENT
OF LOANS
AMOUNT OF LOAN IN EACH
LOAN LOSS AMOUNTS CATEGORY TO
ALLOWANCE 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>
74
<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.
75
<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 % of Book % of Book % 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>
June 30, December 31,
------------------------- ------------------------------------------------
1995 1994 1993
------------------------- --------------------- ---------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------------ ---------- ---------- -------- ---------- ---------
<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>
76
<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
77
<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, we may be subject
to reinvestment risk because, to the extent that the Bank's mortgage related
securities prepay faster than anticipated, we 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.
78
<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 1995
-------------------- -------------------- ------------------- -------------------
Book % of Book % of Book % of Book % of
Value Total Value Total Value Total Value Total
--------- --------- --------- --------- --------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities available
for sale:
GNMA........................... $ 15 0.09% $ 16 0.14% $ 19 0.40% $ 25 9.80%
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 75 30.20
CMOs........................... 87 0.53 99 0.85 119 2.52 153 60.00
------- ------ ------- ------ ------ ------- ------- -------
Subtotal................... 16,536 100.00 11,675 100.00 4,713 100.00 253 100.00
Unamortized premium/discount..... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------- ------- -------
Total...................... $ 16,536 100.00% $11,675 100.00% $4,713 100.00% $ 253 100.00%
======== ====== ======= ====== ====== ======= ======= =======
<CAPTION>
December 31,
-----------------------------------------
1994 1993
------------------- -------------------
Book % of Book % of
Value Total Value Total
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities available
for sale:
GNMA........................... $ 29 10.21% $ 35 7.42%
Fannie Mae..................... -- -- -- --
Freddie Mac.................... 88 30.99 140 29.66
CMOs........................... 167 58.80 297 62.92
------- ------- ------- -------
Subtotal................... 284 100.00 472 100.00
Unamortized premium/discount..... -- -- -- --
------- ------- ------- -------
Total...................... $ 284 100.00% $ 472 100.00%
======= ======= ======= =======
</TABLE>
79
<PAGE>
SOURCES OF FUNDS
GENERAL. 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 are the primary sources of the Bank's
funds for use in lending, investing and for other general purposes.
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, non-interest 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 and, based on historical
experience and the Bank's current pricing strategy, 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>
80
<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............................... 7 2,885 3,495 6,380 5.77
September 30, 2000.......................... -- 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%
======= ======= ======= ======= =======
Percent of total............................ 3.08% 77.79% 19.13% 100.00%
======= ======= ======= =======
</TABLE>
81
<PAGE>
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.
82
<PAGE>
PERSONNEL
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.
83
<PAGE>
STATE TAXATION
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.
Certain of the 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
84
<PAGE>
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 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 Department. 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
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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 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
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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.
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.
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
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
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of
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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
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,
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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, or 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.
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
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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 Department 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 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
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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, or 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, and 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. 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 the Bank or the Company as the resulting entity, and 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
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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. 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 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."
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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 Banking Department.
The NYCRA requires the Banking 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."
Name Age* Position
- ------------------ ---- -------------------------------------
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
_________________
*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 Publishing Co., Inc. 1976 1999
Richard B. Myers 62 Orthodontist, Orthodontic Associates of CNY 1981 1999
Frank O. White, Jr. 43 Assistant Director of Athletics, Colgate 1994 2000
University
</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.
NAME AGE POSITION
- ---- --- --------
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
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
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 affiliated with the Bank in various capacities since
1983.
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<PAGE>
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.
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 6
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
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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, as well as to the four
most highly compensated executive officers of the Bank at December 31, 1997
other than the Chief Executive Officer who received total annual compensation in
excess of $100,000 (together, the "Named Executive Officers")
<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--Recognition and Retention 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.
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
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<PAGE>
of _____________ 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, the
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") is 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
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<PAGE>
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 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 5 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>
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<PAGE>
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 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 5 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.
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 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 5 years of service. Early retirement age is age
60 with 5 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
$57,318.
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<PAGE>
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 but not in excess of the Code Section 401(a)(17) limit. Participants in
the ESOP will receive credit for ______ years of service prior to the effective
date of the ESOP. 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), 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. 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%
101
<PAGE>
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 restricted stock
plan from time to time to enable it to acquire an aggregate amount of Common
Stock equal to up to 4% 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 4% 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
102
<PAGE>
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.
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 is a general summary of certain provisions of the
Company's Certificate of Incorporation and bylaws and certain other regulatory
provisions which 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 stock charter 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
103
<PAGE>
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).
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
3,3329,380 and 4,504,320 shares, with an adjusted maximum of 5,179,968 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.
104
<PAGE>
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 the net proceeds, the ESOP loan and the Bank's common stock. The
payment of dividends by the 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
Pricewaterhouse Coopers, 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.
105
<PAGE>
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, NW, 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
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, and at the Bank's main office at 182 Main Street, Oneida,
New York, 13421-1676.
In connection with the Offering, the Company will 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, 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) 636-2000. Copies of the Independent Valuation are available for
inspection at each of the Bank's offices.
106
<PAGE>
THE ONEIDA SAVINGS BANK
REPORT ON AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
<PAGE>
THE ONEIDA SAVINGS BANK
Index to Financial Statements
Page
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........... F-3
Statements of Comprehensive Income,
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995........... F-4
Statements of Changes in Net Worth,
Six Months Ended June 30, 1998 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995........... F-5
Statements of Cash Flows,
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995........... F-6 - F-7
Notes to Financial Statements,
Six Months Ended June 30, 1998 and 1997 (Unaudited)
and Years Ended December 31, 1997, 1996 and 1995........... F-8 - F-22
<PAGE>
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.
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,
ASSETS 1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
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 4,725,065
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 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>
Interest and dividend income:
Interest and fees on loans $ 6,093,071 $ 5,844,330 $ 11,973,686 $ 11,507,029 $ 11,747,190
Interest and dividends on investment securities:
U. S. Government and agency obligations 1,323,311 1,155,638 2,323,169 1,351,938 333,766
Corporate obligations 313,871 609,669 1,087,658 1,684,530 1,942,837
Other 127,383 112,996 224,687 239,384 312,929
Collateralized mortgage obligations 5,821 6,590 13,436 14,670 18,901
Interest on federal funds sold
and interest-bearing deposits 148,114 132,265 240,597 356,664 228,107
------------ ------------ ------------ ------------ ------------
Total interest and dividend income 8,011,571 7,861,488 15,863,215 15,154,215 14,583,730
------------ ------------ ------------ ------------ ------------
Interest expense:
Savings deposits 627,103 625,494 1,240,791 1,273,426 1,330,206
Money market and Super NOW 241,430 238,624 460,486 511,611 480,258
Time deposits 3,053,780 3,061,597 6,196,440 6,110,432 5,817,315
------------ ------------ ------------ ------------ ------------
Total interest expense 3,922,313 3,925,715 7,897,717 7,895,469 7,627,779
------------ ------------ ------------ ------------ ------------
Net interest income 4,089,258 3,935,773 7,965,498 7,258,746 6,955,951
Provision for credit losses -23,114 476,886 -103,215 79,800
------------ ------------ ------------ ------------ ------------
Net interest income after
provision for credit losses 4,089,258 3,958,887 7,488,612 7,361,961 6,876,151
------------ ------------ ------------ ------------ ------------
Other income:
Net security gains 8,528 81,750 100,419 99,702
Other 379,845 367,480 739,780 700,322 810,326
------------ ------------ ------------ ------------ ------------
388,373 367,480 821,530 800,741 910,028
------------ ------------ ------------ ------------ ------------
Other expenses:
Salaries and employee benefits 1,610,096 1,404,818 3,093,679 2,883,788 2,747,404
Building occupancy and equipment purchases 725,194 528,337 1,171,020 1,014,222 1,001,473
Other 788,138 638,522 1,879,811 1,491,612 1,521,165
------------ ------------ ------------ ------------ ------------
3,123,428 2,571,677 6,144,510 5,389,622 5,270,042
------------ ------------ ------------ ------------ ------------
Income before income taxes 1,354,203 1,754,690 2,165,632 2,773,080 2,516,137
Provision for income taxes 552,000 659,000 881,000 1,025,300 897,500
------------ ------------ ------------ ------------ ------------
NET INCOME $ 802,203 $ 1,095,690 $ 1,284,632 $ 1,747,780 $ 1,618,637
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<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) (100,418) (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
=========== ============= ============= ============= ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<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 $ 28,030,805
============ ============= ============ =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5
<PAGE>
The Oneida Savings Bank
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 235,976 155,691
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)
Net cash provided by operating activities ---------- ----------
1,206,608 1,948,721
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
(7,076,318) (4,990,798)
Principal collected from mortgage-backed securities 2,205,488 335,243
Net increase in loans (6,454,043) (6,069,058)
Proceeds from sale of loans 8,404,850 1,308,124
Purchase of bank premises and equipment (1,307,461) (529,940)
Proceeds from sale of other real estate 289,371 338,860
----------- -----------
Net cash provided by (used in) investing activities 198,109 (7,100,561)
----------- -----------
</TABLE>
<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 $ 1,618,637
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 150,991 426,881 695,736
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
Net cash provided by operating activities ---------- ---------- ----------
2,627,876 2,651,565 2,076,552
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 from maturities
of investment securities designated as held to maturity 899,792
Purchase of mortgage-backed securities (7,960,459)
Principal collected from mortgage-backed securities 998,195 44,339 41,788
Net increase in loans (11,241,542) (1,268,848) (5,396,465)
Proceeds from sale of loans 3,987,657 5,504,087 5,183,437
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 (5,994,172) (5,719,646) 1,037,225
----------- ---------- -----------
</TABLE>
The Onedia Savings Bank
Continued
F-10
6
<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, Years Ended December 31,
---------------------------- -------------------------------------
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits, savings,
money market,
Super NOW and mortgagor's escrow accounts $ 6,411,935 $ (2,575,55) $ (2,320,962) $ 3,007,720 $ (6,462,671)
Net (decrease) increase in time deposits (332,343) 990,01 (49,374) 1,114,917 8,122,781
Net cash provided by (used in) financing
------------- ----------- -------------- ------------- -------------
activities 6,079,592 (1,585,54) (2,370,336) 4,122,637 1,660,110
------------- ----------- -------------- ------------- -------------
Reclassification of Nationar balances to cash
and due from banks from other assets 687,338
-------
Increase (decrease) in cash and cash
equivalents 7,484,309 (6,737,38) (5,736,632) 1,741,894 4,773,887
Cash and cash equivalents at beginning of period 6,064,055 11,800,68 11,800,687 10,058,793 5,284,906
------------- ----------- -------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,548,364 $ 5,063,29 $ 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 $ 3,856,291 $ 3,909,80 $ 7,900,471 $ 7,899,555
Income taxes 580,700 518,02 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 $ 108,615 $ 132,71 $ 297,077 $ (160,236 )
Transfer of loans to other real estate 296,568 237,21 313,576 662,593
</TABLE>
The accompanying notes are an integral part of the financial statements.
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
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-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)
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.aa114, "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-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
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 transfers 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-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
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 other stocks 2,721,495 679,628 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 $ (43,587) $ 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 other 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-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
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 21,882,471 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 $ 3,539,885 $ 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
================= ================= ================ ===============
</TABLE>
The amortized cost and fair value of available-for-sale securities (other than
equity securities) at June 30, 1998 and December 31, 1997, 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.
<TABLE>
<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 $ 7,012,381 $ 7,022,830 $ 9,719,108 $ 9,738,798
Due after one year through five years 14,084,806 14,167,338 24,714,532 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-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
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-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
<TABLE>
<CAPTION>
4.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following at June 30, 1998,
December 31, 1997 and 1996:
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 -3,835,777 -3,419,128
------------ ------------ ------------
Net book value $ 4,883,018 $ 3,811,533 $ 2,127,298
============ ============ ============
5.
DUE TO DEPOSITORS
Amounts due to depositors are as follows:
June 30, - - - December 31, - - -
1998 1997 1996
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 December31, 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>
30-Jun-98 31-Dec-97 31-Dec-96
------------------------ ------------------------ -----------------------
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-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
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 1996
Asset (Liability) Asset (Liability)
<S> <C> <C> <C> <C>
Allowance for loan losses $ 567,000 $ 461,000 $ 574,000 $ 495,000
Depreciation 256,000 272,000 226,000 188,000
SFAS No. 115 (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>
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consists of the following:
- - - June 30, - - - - - - December 31, - - - -
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 361,202 $ 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>
<TABLE>
<CAPTION>
A reconciliation of the federal statutory rate to the effective income tax rate is as follows:
- - 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-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)
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>
<TABLE>
<CAPTION>
The net pension cost for the years ended December 31 includes the following
components:
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 obligation are as follows:
<TABLE>
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-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
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.
<TABLE>
<CAPTION>
8
OTHER OPERATING EXPENSES
Other expenses includes:
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 90,700 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 95,805 374,426 385,058 163,437
Contributions 33,504 64,463 439,629 101,429
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-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 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 quoted 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-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
<TABLE>
<CAPTION>
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):
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>
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
1,654
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.
Contract
Amount
Financial instruments whose contract
amounts represent credit risk:
At June 30, 1998 8,951,870
At December 31, 1997 8,946,362
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
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-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
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% $ 5,012,971 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) $28,189,650 22.9% $ 9,843,159 8% $12,303,949 10%
Tier I Capital
(to Risk Weighted Assets) $26,648,512 21.7% $ 4,921,580 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. 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
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
12. RECENT DEVELOPMENTS (Continued)
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 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. and 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 $33,292,800 to $45,043,200. The
Estimated Valuation Range may be increased to
$51,799,680 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
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 own, and which by law must
own, a majority of the shares of Common Stock of
the Company
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
and the public pursuant to the Prospectus
Offering Range The offer and sale by the Company of between
1,482,835 and 2,006,189 shares (subject to
adjustment to 2,307,117 shares) of Common Stock
pursuant to the Prospectus
Order Form Form for ordering stock accompanied by a
certification concerning certain matters
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
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
$100 on September 30, 1998
Superintendent The Superintendent of Banks of the State of New
York
G-3
<PAGE>
Voting Record Date The close of business on ___________, 1998, the
date for determining depositors entitled to vote
at the Special Meeting
G-4
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
ONEIDA FINANCIAL CORP.
(Proposed Holding Company for
The Oneida Savings Bank)
UP TO 2,307,117 SHARES
Common Stock
($.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 ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final
<PAGE>
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.
2 Plan of Reorganization
<PAGE>
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.
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 Order and Acknowledgment Form *
99.4 401(k) Prospectus Supplement
____________________
* To be filed supplementally or by amendment.
** 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
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,
<PAGE>
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 September 16, 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 September 16, 1998
- ----------------------------
Michael R. Kallet Officer and Director (Principal
Executive Officer)
/s/ Eric E. Stickels Senior Vice President and Chief September 16, 1998
- ----------------------------
Eric E. Stickels Financial Officer (Principal
Accounting and Financial Officer)
/s/ Nicholas J. Christakos Chairman of the Board September 16, 1998
- ----------------------------
Nicholas J. Christakos
/s/ Patricia D. Caprio Director September 16, 1998
- ----------------------------
Patricia D. Caprio
/s/ Edward J. Clarke Director September 16, 1998
- ----------------------------
Edward J. Clarke
/s/ James J. Devine Director September 16, 1998
- ----------------------------
James J. Devine
/s/ John E. Haskell Director September 16, 1998
- ----------------------------
John E. Haskell
/s/ Rodney D. Kent Director September 16, 1998
- ----------------------------
Rodney D. Kent
/s/ William D. Matthews Director September 16, 1998
- ----------------------------
William D. Matthews
/s/ Michael W. Milmoe Director September 16, 1998
- ----------------------------
Michael W. Milmoe
/s/ Richard B. Myers Director September 16, 1998
- ----------------------------
Richard B. Myers
/s/ Frank O. White, Jr. Director September 16, 1998
- ----------------------------
Frank O. White, Jr.
</TABLE>
5
<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.
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 Order and Acknowledgment Form*
99.4 401(k) Prospectus Supplement
_____________________
* To be filed supplementally or by amendment.
** Filed pursuant to Rule 202 of Regulation S-T
<PAGE>
EXHIBIT 1.2
[LETTERHEAD APPEARS HERE]
August 28, 1998
Board of Trustees
The Oneida Savings Bank
182 Main Street
Oneida, New York 13421-0240
RE: Mutual Holding Company Marketing Sevices
----------------------------------------
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and The Oneida Saving Bank, Oneida, New York (the
"Bank") concerning Trident's investment banking services in connection with the
reorganization ("Reorganization") of the Bank into the mutual holding company
form of organization ("MHC") and the issuance of shares of the stock savings
bank subsidiary of the MHC or its holding company in a community offering (the
"Offering").
Trident is prepared to assist the Bank in connection with the offering of shares
of common stock of the MHC's stock savings bank subsidiary or its holding
company during the Offering as such term is defined in the Bank's Plan of Mutual
Holding Company Reorganization and Stock Issuance Plan (the "Plan"). It is
expected that Trident will assist the Bank in the Offering as follows: (1) as
financial advisor to Management, (2) targeting sales efforts in the Bank's local
communities, (3) conducting information meetings for prospective investors (as
desired), (4) training and educating the Bank's management and employees
regarding the mechanics and regulatory requirements of the process, (5)
providing support for the administration and processing of orders and
establishing a Stock Information Center on site in Oneida, and (6) listing stock
of the Bank on the NASDAQ System and acting as a market maker for the shares.
The specific terms of the services contemplated hereunder shall be set forth in
a definitive Sales Agency Agreement (the "Agreement") between Trident and the
Bank to be executed on the date the Prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the Offering
will be the price established by the Bank's Board of Trustees, based upon an
independent appraisal as approved by the appropriate regulatory authorities,
provided such price is mutually acceptable to Trident and the Bank.
At the appropriate time, Trident, in conjunction with its counsel will conduct
an examination of the relevant documents and records of the Bank as Trident and
its counsel deem necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services, Trident will receive the following compensation and
reimbursement from the Bank:
<PAGE>
TRIDENT SECURITIES, INC.
Board of Trustees
August 28, 1998
Page 2
1. A Management fee in the amount of $200,000.
2. For stock sold by other NASD member firms under selected
dealer's agreements, the commission shall not exceed a fee
to be agreed upon jointly by Trident and the Bank to reflect
market requirements at the time of the stock allocation in a
Syndicated Community Offering.
3. The foregoing fees and commissions are to be payable to
Trident at closing as defined in the Agreement to be entered
into between the Bank and Trident.
4. Trident shall be reimbursed for out-of-pocket expenses
incurred by them, whether or not the Agreement is
consummated. Trident's out-of-pocket expenses will not
exceed $20,000 and its legal fees will not exceed $35,000.
The Bank will forward to Trident a check in the amount of
$10,000 as an advance payment to defray the expenses of
Trident.
It further is understood that the Bank will pay all other expenses of the
offering including but not limited to its attorney's fees, National Association
of Securities Dealers ("NASD") filing fees, and fees of either Trident's
attorneys or other attorneys relating to any required state securities laws
filings, transfer agent charges, telephone charges, air freight, rental
equipment, supplies, fees relating to auditing and accounting and costs of
printing all documents necessary in connection with the foregoing. These
expenses are to be in addition to those enumerated in Paragraph (4) above.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the reorganization, the
Bank warrants that: (a) the Bank has not privately placed any securities within
the last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or trustees of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any NASD member or any person related to
or associated with any such member; (e) the Bank has not granted Trident a right
of first refusal with respect to the underwriting of any future offering of the
Bank's stock; and, (f) there has been no intermediary between Trident and the
Bank in connection with the public offering of the Bank's shares, and no NASD
member or any person related to or associated with any such member is being
compensated in any manner for providing such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, "Losses"),
to which they may become subject under securities laws or under the common law,
that arise out of or are based upon the reorganization or the engagement
hereunder of Trident. If the foregoing indemnification is unavailable for any
reason, the Bank agrees to contribute to such Losses in proportion that its
financial interest in the reorganization bears to that of the indemnified
parties. If the agreement is entered into with respect the common stock to be
issued in the reorganization, the Agreement will provide for indemnification,
which will be in addition to any rights that Trident or any other indemnified
party may have at common law or otherwise. The
<PAGE>
TRIDENT SECURITIES, INC.
Board of Trustees
August 28, 1998
Page 3
indemnification provision of this paragraph will be superseded by the
indemnification provisions of the Agreement entered into by the Bank and
Trident.
This letter is merely a statement of intent and is not a binding legal
agreement except as to paragraph (4) above with regard to the obligation to
reimburse Trident for allocable expenses to be incurred prior to the
execution of the Agreement and the indemnity described in the preceeding
paragraph. While Trident and the Bank agree in principle to the contents
hereof and propose to proceed promptly, and in good faith, to work out the
arrangements with respect to the proposed offering, any legal obligations
between Trident and the Bank shall be only as set forth in the duly
executed Agreement. Such Agreement shall be in form and content
satisfactory to Trident and among other things, there being in Trident's
opinion no material adverse change in the condition or obligations of the
Bank or no market conditions which might render the sale of the shares by
the Bank hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance
payment of $10,000. This proposal is open for your acceptance for a period
of thirty (30) days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ Timothy E. Lavelle
----------------------
Timothy E. Lavelle
Managing Director
TEL:cs
Agreed and accepted this
3 day of September, 1998
THE ONEIDA SAVINGS BANK
By: /s/ Michael R. Kallet
---------------------
Michael R. Kallet
President and CEO
<PAGE>
ANNEX A
Conversion Center Activities. As further described in the attached engagement
- ----------------------------
letter, Trident will supervise and administer the Conversion Center. Designated
representatives of our firm will train Conversion Center staff to help record
stock orders, answer customer inquires and handle special situations as they
arise. Conversion Center activities include the following:
. Provide experienced on-site registered representatives to manage the
Conversion Center
. Identify and organize space for the on-site Conversion Center, the focal
point of conversion activity
. Administer the Conversion Center
. Prepare procedures for processing proxies, stock orders and cash, and for
handling requests for information
. Provide training and guidance for the telephone team in soliciting proxies
. Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries
. Train and supervise Conversion Center staff assisting with proxy and order
processing
. Prepare daily sales reports for management
. Coordinate functions with the conversion agent, printer, transfer agent,
stock certificate printer and other professionals
. Organize and implement a proxy solicitation campaign
. Design and implement procedures for handling IRA and Keogh orders
. Provide post-offering subscriber assistance
. assist in the allocation of shares in the event of an oversubscription
Securities Marketing Activities
- -------------------------------
. Assign licensed registered representatives from our staff to work at the
Conversion Center to solicit orders on behalf of the Bank from prospective
investors who have been targeted as likely and desirable stockholders
. Assist management in developing a list of potential investors who are
viewed as priority prospects
. Respond to inquiries concerning the conversion and investment opportunity
. Organize, coordinates and participate in community informational meetings.
These meetings generate wide spread publicity for the conversion while
providing local exposures of the Bank and promoting favorable stockholder
relations
. Continually advise management on market conditions and the community's
responsiveness to the offering
. Educate the Bank's trustees, officers and employees about the conversion,
their roles and relevant securities laws
. If appropriate, assemble a selling group of selected local broker-dealers
to assist in selling stock during the offering. In so doing, assist in the
preparation of broker "fact sheets" and arrange "roadshows" (at the Bank's
expense) for the purpose of stimulating local interest in the stock and
informing the brokerage community of the particulars of the offering
<PAGE>
EXHIBIT 2
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
2
<PAGE>
extent provided in Sections 11-13 hereof. When used to refer to a person other
than an 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.
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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.
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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.
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
5
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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 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 Benefit Plan means any defined benefit plan
or defined contribution plan which is not so qualified.
6
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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 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
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<PAGE>
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:
------------- --------------
The MHC Public
Stockholders
------------- --------------
At least Up to
51% of 49% of
the the
Common Common
Stock Stock
-----------------------------------
The Holding Company
-----------------------------------
100% of the
Common Stock
-----------------------------------
The Stock Bank
-----------------------------------
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.
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
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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.
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
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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.
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
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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 Revenue 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.
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
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<PAGE>
(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 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).
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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
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
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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 and the Board of Trustees of the Bank prior to commencement
of the Subscription and Community
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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. Up to a 15% increase in the number of shares to be issued which
is supported by an appropriate change in the estimated pro forma market value of
the Holding Company will not be deemed to be material so as to require a
resolicitation of subscriptions. 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. 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.
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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 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
$100,000, 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, out of authorized but unissued
shares of the Holding Company (subject to FDIC approval) subject to the maximum
purchase limitations applicable to such plans and set forth in Section 13, or
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 $100,000, 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
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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
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 $100,000 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 $100,000 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.
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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.
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 $200,000 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
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(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 30%
of the outstanding shares of Common 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.
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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 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
Commissioner) 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 in cash or by check. 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 Department and the SEC, 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.
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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;
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
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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
The Stock Offering will be terminated if not completed within 90 days from
the date of approval by the Superintendent, 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 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.
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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 and grant
options for Common Stock. However, only the Tax-Qualified Employee Plans will
be permitted to purchase Common Stock in the Stock Offering subject to the
purchase priorities 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 4% 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 shares of Common Stock issuable upon exercise of such
options, 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 to the Tax Qualified
Employee Plans or 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.
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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
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
24
<PAGE>
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
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
25
<PAGE>
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 would be comprised of
individuals who are officers or trustees of the Bank. 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 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.
26
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The Plan shall be terminated if the Reorganization is not completed within
24 months from the date upon which the Voting Depositors of the Bank approve the
Plan, and may not be extended by the Bank or the Superintendent.
Dated: June 4, 1998.
27
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EXHIBIT A-1
RESTATED ORGANIZATION CERTIFICATE
OF
THE ONEIDA SAVINGS BANK
We, Nicholas J. Christakos, being the Chairman of the Board, Michael R.
Kallet, being the President and Chief Executive Officer, and Patricia A. Zupan,
being the Secretary, of The Oneida Savings Bank, do hereby certify as follows:
FIRST, the name of the Corporation is The Oneida Savings Bank.
SECOND, the Corporation was created by an act of the New York legislature
in 1866.
THIRD, the text of the Organization Certificate of The Oneida Savings Bank
is hereby amended and restated in its entirety to read as follows:
SECTION 1. CORPORATE TITLE. The full corporate title of the institution
is The Oneida Savings Bank ("Savings Bank").
SECTION 2. OFFICE. The principal office of the Savings Bank shall be
located in the County of Madison, City of Oneida, State of New York.
SECTION 3. DURATION. The duration of the Savings Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a New York chartered capital stock
savings bank and to exercise all the express, implied, and incidental powers
conferred thereby and by all acts amendatory thereof and supplemental thereto,
subject to the Constitution and laws of New York and the United States as they
are now in effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations, and orders of the New York State
Banking Department ("NYSBD").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Savings Bank has authority to issue is one million
two hundred thousand (1,200,000), of which one million (1,000,000) shall be
common stock, par value $.01 per share, and of which two hundred thousand
(200,000) shall be preferred stock, par value $.01 per share. The shares may be
issued from time to time as authorized by the Board of Directors without further
approval of stockholders except as otherwise provided in this Section 5 or to
the extent that such approval is required by governing law, rule, or regulation.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither promissory
notes or other obligations for future payment, nor future services shall
constitute payment or part payment for the issuance of shares of the Savings
Bank. The consideration for the shares shall be
<PAGE>
cash, tangible or intangible property (to the extent direct investment in such
property would be permitted), labor or services actually performed for the
SAVINGS BANK, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the Board of Directors of the Savings Bank, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the Savings Bank which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the Savings
Bank from the mutual to the stock form of capitalization, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the Savings Bank other than as part of a general public
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, provided
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the Savings Bank with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
Savings Bank if the preferred stock is exchanged for securities of
such other corporation; provided that no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the NYSBD or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving institution in a merger or
consolidation for the Savings Bank, shall not be considered to be
such an adverse change.
2
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A description of the different classes and series (if any) of the Savings
Bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections hereto), the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder. Stockholders shall not be entitled to cumulate their votes for
election of directors.
Whenever there shall have been paid, or declared and set aside
for payment to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of
the Savings Bank, the holders of the common stock (and the holders of
any class or series of stock entitled to participate with the common
stock in the distribution of assets) shall be entitled to receive, in
cash or in kind, the assets of the Savings Bank available for
distribution remaining after: (i) payment or provision for payment of
the Savings Bank's debts and liabilities; (ii) distributions or
provision for distributions in settlement of its liquidation account;
and (iii) distributions or provision for distributions to holders of
any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Savings Bank.
Each share of common stock shall have the same relative rights as and
be identical in all respects with all of the other shares of common
stock.
B. Preferred Stock. The Savings Bank may provide in supplementary
---------------
sections to its Restated Organization Certificate for one or more classes of
preferred stock, which shall be separately identified. The shares of any class
may be divided into and issued in series, with each series separately designated
so as to distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a supplementary section
to the Restated Organization Certificate. All shares of the same class shall be
identical except as to the following relative rights and preferences, as to
which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from
which date(s), the payment
3
<PAGE>
date(s) for dividends, and the participating or other special rights,
if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Savings Bank;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price(s) at which
such shares may be redeemed or purchased through the application of
such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
Savings Bank and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions
of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all of the other shares
of the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary Restated Organization Certificate sections, any authorized class
of preferred stock into series, and, within the limitations set forth in this
section and the remainder of this Restated Organization Certificate, fix and
determine the relative rights and preferences of the shares of any series so
established.
Prior to the issuance of any preferred shares of a series established by a
supplementary Restated Organization Certificate section adopted by the Board of
Directors, the Savings Bank shall file with the Superintendent of Banks of the
State of New York a dated copy of that supplementary
4
<PAGE>
section of this Restated Organization Certificate establishing and designating
the series and fixing and determining the relative rights and preferences
thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Savings Bank shall not be entitled to preemptive rights with respect to any
shares of the Savings Bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
NYSBD's regulations, the Savings Bank shall establish and maintain a liquidation
account for the benefit of its deposit account holders as of December 31, 1996
and September 30, 1998 ("eligible depositors"). In the event of a complete
liquidation of the Savings Bank, it shall comply with such regulations with
respect to the amount and the priorities on liquidation of each of the Savings
Bank's eligible depositor's inchoate interest in the liquidation account, to the
extent it is still in existence; provided that an eligible depositor's inchoate
interest in the liquidation account shall not entitle such eligible depositor to
any voting rights at meetings of the Savings Bank's stockholders.
SECTION 8. PURCHASE LIMITATION APPLICABLE FOR THREE YEARS.
Notwithstanding anything contained in the Savings Bank's Restated Organization
Certificate or Bylaws to the contrary, for a period of three years from the date
of consummation of the mutual holding company reorganization by the Savings
Bank's mutual predecessor, no person (other than the Savings Bank's parent stock
holding company and its mutual holding company) shall directly or indirectly
acquire the beneficial ownership of more than 10% of any class of any equity
security of the Savings Bank.
In the event shares are acquired in violation of this Section 8, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to the stockholders for a vote; provided, however, that a person shall
not be deemed to be the beneficial owner of shares represented by proxies held
by such person unless such shares are otherwise deemed beneficially owned by
such person.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, any unincorporated
organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the
equity securities of the Savings Bank or any other entity.
(ii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iii) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
5
<PAGE>
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
SECTION 9. CALL FOR SPECIAL MEETINGS. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by the
regulations of the NYSBD, may be called at any time by the Chairman of the Board
of Directors or the majority of the Whole Board of Directors (the term "Whole
Board of Directors" shall mean the total number of directors the Savings Bank
would have if there were no vacancies).
SECTION 10. DIRECTORS. The Savings Bank shall be under the direction of
a Board of Directors. The authorized number of directors, as stated in the
Savings Bank's Bylaws, shall not be less than seven (7) nor more than twenty
(20) except when a greater number is approved by the NYSBD or its delegatees.
Each of the following persons shall be a director of the Savings Bank upon
the effectiveness of this Restated Organization Certificate, for the terms
indicated or until his successor is elected and qualified, and they shall
constitute the initial Board of Directors of the Savings Bank:
Class I with terms to expire at the first annual meeting of stockholders:
Class II with terms to expire at the annual meeting of stockholders one
year thereafter:
Class III with terms to expire at the annual meeting of stockholders two
years thereafter:
SECTION 11. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this Restated Organization
Certificate shall be made, unless such is first proposed by a majority of the
Whole Board of Directors of the Savings Bank, then preliminarily approved by the
NYSBD, which preliminary approval may be granted by the NYSBD pursuant to
regulations specifying preapproved organization certificate amendments, and
thereafter approved by the affirmative vote of the holders of at least 80% of
the total votes eligible to be cast at a legal meeting. Any amendment,
addition, alteration, change or repeal so acted upon shall be effective upon
filing with the NYSBD in accordance with the regulatory procedures or on such
other date as the NYSBD may specify in its preliminary approval.
SECTION 12. AMENDMENT OF BYLAWS. No amendment, addition, alteration,
change or repeal of the Bylaws of the Savings Bank shall be made, unless made in
a manner consistent with the Regulations of the NYSBD and approved by a majority
of the Whole Board of Directors or by the
6
<PAGE>
affirmative vote of at least 80% of the votes eligible to be cast by the
stockholders of the Savings Bank at any legal meeting.
SECTION 13. INDEMNIFICATION. (a) Scope of Indemnification. Except to the
extent expressly prohibited by the New York Banking Law, the Savings Bank shall
indemnify each person made, or threatened to be made, a party to any action or
proceeding, whether criminal or civil, by reason of the fact that such person or
such person's testator or intestate is or was a director or officer of the
Savings Bank, or is or was serving, in any capacity, at the request of the
Savings Bank, any other corporation, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorneys' fees
and expenses reasonably incurred in enforcing such person's right to
indemnification, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such person establishes that
such person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that such person personally gained in fact a financial profit or other
advantage to which such person was not legally entitled, and provided that no
such indemnification shall be required with respect to any settlement or other
nonadjudicated disposition of any threatened or pending action or proceeding
unless the Savings Bank has given its prior consent to such settlement or other
disposition.
(b) Reimbursement of Expenses. The Savings Bank shall advance or promptly
reimburse upon request any person entitled to indemnification hereunder for all
reasonable expenses, including attorneys' fees and expenses, reasonably incurred
in defending any action or proceeding in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of such person to repay
such amount if such person is ultimately found not to be entitled to
indemnification or, where indemnification is granted, to the extent the expenses
so advanced or reimbursed exceed the amount to which such person is entitled;
provided, however, that such person shall cooperate in good faith with any
request by the Savings Bank that common counsel be used by the parties to any
action or proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interests between or among
parties.
(c) Additional Rights. Nothing herein shall limit or affect any right of
any director, officer, or other corporate personnel otherwise than hereunder to
indemnification or expenses, including attorneys' fees and expenses, under any
statute, rule, regulation, certificate of incorporation, Bylaws, insurance
policy, contract, or otherwise. Without affecting or limiting the rights of any
director, officer or other corporate personnel pursuant to this Section 13, the
Savings Bank is authorized to enter into agreements with any of its directors,
officers or other corporate personnel extending rights to indemnification and
advancement of expenses to the fullest extent permitted by applicable law
(d) Notice of Amendments or Elimination. Anything in this Restated
Organization Certificate to the contrary notwithstanding, no elimination or
amendment of this Section 13 adversely affecting the right of any person to
indemnification or advancement of expenses hereunder
7
<PAGE>
shall be effective until the 60th day following notice to such person of such
action, and no elimination of or amendment to this Section 13 shall deprive any
such person's rights hereunder arising out of alleged or actual occurrences, act
or failures to act prior to such 60th day. Any amendments or eliminations made
pursuant to this Section 13 are only effective with regard to acts occurring
after such date.
(e) Amendment or Elimination. The Savings Bank shall not, except by
elimination or amendment of this Section 13 in a manner consistent with the
preceding subsection (d), take any corporate action or enter into any agreement
which prohibits or otherwise limits the rights of any person to indemnification
in accordance with the provisions of this Section 13. The indemnification of any
person provided by this Section 13 shall continue after such person has ceased
to be a director or officer of the Savings Bank and shall inure to the benefit
of such person's heirs, executors, administrators and legal representatives.
(f) Severability of Provision. In case any provision in this Section 13
shall be determined at any time to be unenforceable in any respect, the other
provisions of this Section 13 shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest possible
enforcement in the circumstances, it being the intention of the Savings Bank to
afford indemnification and advancement of expenses to its directors or officers,
acting in such capacities or in the other capacities mentioned herein, to the
fullest extent permitted by law.
8
<PAGE>
IN WITNESS WHEREOF, we have made, signed and acknowledged this Certificate
in duplicate, this____day of _____________, 1998.
__________________________________
Nicholas J. Christakos
Chairman of the Board
__________________________________
Michael R. Kallet
President and Chief Executive
Officer
__________________________________
Patricia A. Zupan
Secretary
STATE OF NEW YORK )
) ss:
COUNTY OF MADISON )
On this ___ day of ________, 1998, there personally appeared before me
Nicholas J. Christakos, Michael R. Kallett and Patricia A. Zupan to me known to
be the individuals described in and who executed the foregoing certificate, and
severally acknowledged to me that they executed the same and that the contents
thereof are true.
Notary Public
__________________________________
9
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EXHIBIT A-2
BYLAWS OF
THE ONEIDA SAVINGS BANK
ARTICLE I. PRINCIPAL OFFICE
The principal office of The Oneida Savings Bank ("Savings Bank") is 182
Main Street, Oneida, New York 13421-1676.
ARTICLE II. SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the principal office of the Savings Bank or at
such other place in the State in which the principal place of business of the
Savings Bank is located as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Savings
Bank for the election of Directors and for the transaction of any other business
of the Savings Bank shall be held annually within the first four months of each
calendar year.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the New York Banking Law and
the regulations of the New York State Banking Department ("NYSBD") or other
applicable law, may be called at any time by the Chairman of the Board of
Directors (as set forth in Article V, Section 2, hereinafter referred to as the
"Chairman of the Board") or by a majority of the Whole Board of Directors. The
term "Whole Board of Directors" shall mean the total number of Directors which
the Savings Bank would have if there were no vacancies.
SECTION 4. CONDUCT OF MEETINGS. The Chairman of the Board shall preside
at all meetings and in his or her absence, the President or a person designated
by a majority of the Board shall preside at all meetings. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such regulations of the manner of voting and the
conduct of discussion.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day and
hour of the meeting and in the case of a special meeting, the purpose(s) for
which the meeting is called and the person by or at whose direction the meeting
is being called, shall be delivered not fewer than ten (10) nor more than fifty
(50) days before the date of the meeting, either personally or by mail, by or at
the direction of the Chairman of the Board, the Secretary, or the Board of
Directors calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it appears
on the stock transfer books or records of the Savings Bank as of the record date
for the meeting with postage prepaid. When any shareholders' meeting, either
annual or special, is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original
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meeting. It shall not be necessary to give any notice of the time and place of
any meeting adjourned for less than thirty (30) days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken. Notice of any annual or special meeting of
shareholders may be waived by unanimous consent of all shareholders.
SECTION 6. QUORUM. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than a
quorum. If less than a majority of the outstanding shares is represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The existence
of a quorum at any meeting, or the existence of a duly organized meeting at
which enough shareholders have withdrawn from such meeting to constitute less
than a quorum, however, shall not serve to amend, alter or modify any provisions
in the Savings Bank's Restated Organization Certificate or these Bylaws which
require the vote of more than a majority of the outstanding shares entitled to
vote at a duly organized meeting.
SECTION 7. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Whole Board of Directors. No proxy shall be
valid more than eleven months from the date of its execution except as otherwise
provided herein.
SECTION 8. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by such person,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his
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or her name, if authority to do so is contained in an appropriate order of the
court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
SECTION 10. CUMULATIVE VOTING. Shareholders shall not be entitled to
cumulate their votes for election of Directors.
SECTION 11. WRITTEN CONSENT OF SHAREHOLDERS. Any action required or
permitted to be taken at an annual or special meeting of shareholders, or any
other action which may be taken at a meeting of the shareholders, may be taken
without a meeting if consent in writing, setting forth the action so taken,
shall be given by all of the shareholders entitled to vote with respect to the
subject matter.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The entire management and control of the
affairs of the Savings Bank shall be vested in the Board of Directors. No person
shall be eligible for election as a Director who is seventy (70) years of age or
more.
SECTION 2. NUMBER AND TERM. The number of Directors constituting the
entire Board shall not be less than seven (7) nor more than twenty (20), as
determined from time to time by resolution of the Board. The Board of Directors
shall be divided into three classes as nearly equal in number as is possible.
The members of each class shall be elected for a term of three years and until
their successors are elected and qualified. One class shall be elected by
ballot annually.
SECTION 3. CHAIRMAN OF THE BOARD. At its annual meeting the Board of
Directors shall elect from among its members a Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the Board of Directors
and shall perform all such other duties as the Board of Directors may from time
to time prescribe.
SECTION 4. REGULAR MEETINGS. Regular Board meetings will be held on the
second Tuesday of each month. If any second Tuesday falls on a legal holiday,
that month's meeting will be held on the next business day after the holiday.
The Board may decide to hold any monthly meeting on a day other than the second
Tuesday of the month. The annual Board meeting will be held within the first
four (4) months of each year unless another time is set by the Board.
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SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or one-third of the
members of the Whole Board. The persons authorized to call special meetings of
the Board of Directors may fix the time and place within the Savings Bank's
normal lending territory for holding any special meeting of the Board of
Directors called by such persons.
SECTION 6. PARTICIPATION IN MEETINGS BY DIRECTORS. Members of the Board
of Directors, or any committee thereof, may participate in a meeting of such
Board or a committee by means of conference telephone, or by means of similar
communications equipment whereby all persons participating in the meeting can
speak and hear each other at the same time and such participation shall
constitute presence in person at such meeting.
SECTION 7. NOTICE. Any regular meeting of the Board of Directors may be
held without notice, if the date, hour and place of such meeting have been fixed
by the Board of Directors. Except as provided in the preceding sentence, notice
of each regular or special meeting of the Board of Directors, stating the date,
hour and place thereof, shall be given by the Secretary to each Director (a) not
less than seventy-two (72) hours before the meeting by depositing the notice in
the United States mail, with first-class postage thereon prepaid, directed to
each Director at the address designated by him or her for such purpose (or, if
none is designated, at his or her last known address) or (b) not less than
twenty-four (24) hours before the meeting by (i) delivering the same to each
Director personally, (ii) sending the same by facsimile or other electronic
transmission to the address designated by him or her for such purpose (or, if
none is designated, to his or her last known address) or (iii) delivering the
notice to the address designated by him or her for such purpose (or, if none is
designated, to his or her last known address). Notice of a meeting need not be
given to any Director who submits a signed waiver of notice whether before or
after the meeting or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him or her. The notice of any
regular meeting of the Board of Directors need not specify the purpose or
purposes for which the meeting is called, except as provided in Section 5 of
this Article I and as provided in these Bylaws.
SECTION 8. QUORUM. At least a majority of the Whole Board must be present
in order to conduct a Board meeting. This minimum number constitutes a "quorum"
but less than a quorum shall have the power to adjourn from time to time until
the next regular meeting.
SECTION 9. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by applicable law, the
Restated Organization Certificate or by these Bylaws.
SECTION 10. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the Directors.
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SECTION 11. VACANCIES. Any vacancy occurring on the Board of Directors,
including newly created Directorships resulting from an increase in the number
of Directors, may be filled by the affirmative vote of a majority of the
remaining Directors, although less than a quorum of the Board of Directors, or
by a majority vote of the stockholders. A Director elected to fill a vacancy
shall be elected to serve for the balance of the unexpired term and a Director
elected to fill a vacancy to be filled by reason of an increase in the number of
Directors shall be elected to serve for the balance of the unexpired term of the
class to which such Director is elected.
SECTION 12. COMPENSATION. Directors, as such, may receive compensation
for their services, including a stated retainer. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
the Board of Directors. Members of standing, special or temporary committees,
as such, may receive compensation for their services, including a stated
retainer, as the Board of Directors may determine. By resolution of the Board
of Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
committees.
SECTION 13. PRESUMPTION OF ASSENT. A Director of the Savings Bank who is
present at a meeting of the Board of Directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five (5) days after the date on which a copy of the minutes of the
meeting is received. Such right to dissent shall not apply to a Director who
voted in favor of such action.
SECTION 14. EMERGENCY AUTHORITY. In the event there shall occur an acute
emergency resulting from a hostile attack, as defined in Article 7 of the New
York State Defense Emergency Act, which shall be of such severity as to prevent
the conduct and management of the affairs and business of the Savings Bank by
its Directors and officers as otherwise provided in these Bylaws, any three or
more available members of the then-incumbent Executive Committee shall
constitute an emergency Board of Directors which shall have the power, subject
to limitations prescribed in Article 7 of the New York State Defense Emergency
Act, by a majority of such persons present, to take any and every action which
may be necessary to meet the exigencies of the acute emergency and to enable the
Savings Bank to conduct its business during such period, including the
relocation elsewhere of any office of the Savings Bank which shall be unable to
function because of the acute emergency. If during the period of acute
emergency there shall be no Executive Committee, or a minimum of three members
of the then incumbent Executive Committee shall not be available, then and in
that event such other available Directors as may be needed to obtain the minimum
of three members shall serve on the emergency Board of Directors.
During a period of acute emergency resulting from a hostile attack, the
emergency management of the Savings Bank shall be in accordance with the powers
and limitations contained
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in the existing provisions of Article 7 of the New York State Defense Emergency
Act, and such provisions shall suspend or modify these Bylaws to the extent of
any conflict.
SECTION 15. DIRECTORS EMERITI. The Board may elect annually Emeriti
Members of the Board consisting of former Board Members who have retired after
no longer being eligible for re-election as a Director because of the age limit
set forth in Article III, Section 1 of these Bylaws. No Emeritus Member may be
elected or serve after his/her seventy-fifth (75/th/) birthday. Directors
Emeriti must have previously served as members of the Board of Directors.
Emeriti Members are entitled to receive notice of all Board Meetings. They may
attend Board Meetings but shall not have the right to vote nor shall such
position carry with it any of the responsibilities, powers and privileges of the
regular members of the Board.
SECTION 16. ADVISORY BOARDS. The Board may establish Advisory Boards to
the Board of Directors. Such Advisory Boards will generally be representatives
of a particular geographical area. Membership on such Advisory Boards will be at
the discretion of the Board of Directors and each such Advisory Board Member
will be elected to such a position on an annual basis. Such Advisory Boards may
elect a Chairman with the approval of the Board of Directors. Such Boards will
have the powers and duties as assigned by the Board of Directors.
ARTICLE IV. OFFICERS
SECTION 1. POSITIONS. The officers of the Savings Bank shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. The President shall be the
Chief Executive Officer unless the Board of Directors designates another person
to such position. The offices of the Secretary and Treasurer may be held by the
same person and a Vice President also may be either the Secretary or the
Treasurer. The Board of Directors may designate one or more Vice Presidents as
Executive Vice President or Senior Vice President. The Board of Directors also
may elect or authorize the appointment of such other officers as the business of
the Savings Bank may require. The officers shall have such authority and
perform such duties as the Board of Directors may from time to time authorize or
determine. In the absence of the action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Savings Bank
shall be elected annually at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. If the election is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officers death, resignation, or removal in the manner hereinafter
provided. Election or appointment of an officer, employee, or agent shall not of
itself create contractual rights. The Board of Directors may authorize the
Savings Bank to enter into an employment contract with any officer in accordance
with regulations of the Office; but no such contract shall impair the right
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of the Board of Directors to remove any officer at any time in accordance with
Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Savings Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.
ARTICLE V. COMMITTEES
SECTION 1. MAJORITY VOTE. The Members of the Committees described in this
Article will be nominated by the Chairman of the Board or the President and will
be approved and elected by a majority vote of the Whole Board. Each committee
member shall serve until the next annual Board of Directors meeting or until
his/her successor is elected. Any committee member may be removed at any time
with or without good cause by a vote of a majority of the Whole Board.
SECTION 2. EXECUTIVE COMMITTEE. There will be an Executive Committee
consisting of at least five members of the Board of Directors and the President
of the Bank. At the annual Board meeting the Directors will elect the members
of the Executive Committee and the Chairman of the committee. These elected
members will serve until the next annual Board meeting or until their successors
are elected. Except as otherwise limited by law, the Executive Committee will
have power to decide all bank matters which need to be decided between regular
Board meetings. The Chairman, and in his/her absence, the President, will call
all order to conduct an Executive Committee meeting, at least four members must
be present (called a "Quorum"). Any member of the Executive Committee may
participate in a meeting of that committee by means of a conference telephone or
similar communications equipment which allows all persons participating in the
meeting to hear each other at the same time. A committee member who
participates in a meeting by such means will be regarded as present person at
the meeting. The Executive Committee will keep a record of all business
transacted at its meetings and will report all such business to the Board of
Directors at the first regular meeting following each Executive Committee
meeting. If a vacancy occurs among the Executive Committee members between
annual Board meetings, upon nomination by the Chairman or the President, the
Board will elect a replacement.
SECTION 3. TRUST COMMITTEE. The Board of Directors may establish a Trust
and Asset Management Committee which will consist of at least three members of
the Board of Directors. The committee will have the authority to oversee the
operations of the Savings Bank's Trust and Asset Management Department,
including the investment policies of such department, and to appoint
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subcommittees or other committees consisting of officers of the Savings Bank to
implement the operations of the Trust and Asset Management Department.
SECTION 4. LOAN COMMITTEE. The Board of Directors may establish a Loan
Committee consisting of the President, and two or more other officers. The
committee will have the authority to approve and make real estate mortgage
loans, home modernization loans, home equipment loans, overdraft loans and
checking accounts, and all other loans which the Savings Bank is authorized to
make. The committee will report its actions at the first regular meeting of the
Board after any action is taken.
SECTION 5. INVESTMENT COMMITTEE. The Board of Directors may establish an
Investment Committee consisting of the President, any Executive Vice President
and at least four Board members of the Board of Directors. This committee will
have authority to buy and sell securities for the Bank, and it will report its
actions at the first regular meeting of the Board after any investment action is
taken.
SECTION 6. AUDIT/EXAMINATION COMMITTEE. The Board of Directors will
establish an Audit/Examination Committee consisting of at least four members of
the Board of Directors. This committee will examine the records and affairs of
the Bank at least once in each fiscal year.
SECTION 7. HUMAN RESOURCES AND DEVELOPMENT COMMITTEE. The Board of
Directors may establish a Human Resources and Development Committee which shall
consist of at least three members of the Board of Directors. At the annual
meeting in each year it shall present to the Board its recommendations as to the
salaries of the officers, employees, directors fees and committee fees for the
ensuing year. The committee shall also review personnel and serve as a search
committee for new officers.
SECTION 8. OTHER COMMITTEES. From time to time the Board may establish
other committees as they determine to be necessary or appropriate for the
conduct of the business of the Savings Bank, and may prescribe the duties,
constitution and procedures thereof.
ARTICLE VI. SIGNATURE ON CHECKS,
DRAFTS AND DOCUMENTS
SECTION 1. WITHDRAWALS FROM DEPOSITORS. Savings Bank monies or securities
deposited with any designated depository may be withdrawn only by checks, drafts
or other orders signed by officers or employees of the Savings Bank who are
specifically authorized to do so by the Board.
SECTION 2. MORTGAGES AND REAL ESTATE. The President, and one or more
other officers whom the Board authorizes may execute and deliver, in the regular
course of the Bank's business, all instruments relating to mortgages or real
estate in which the Bank has an interest or relating to other matters as
authorized by the Board.
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ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares
of capital stock of the Savings Bank shall be in such form as shall be
determined by the Board of Directors and approved by the NYSBD. Such
certificates shall be signed by the Chairman of the Board, the President or a
Vice President and by the Secretary or an Assistant Secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar, other than the Savings Bank itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Savings Bank. All
certificates surrendered to the Savings Bank for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and canceled, except that in the case of a
lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Savings Bank as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock
of the Savings Bank shall be made only on its stock transfer books. Authority
for such transfer shall be given only by the holder of record or by his or her
legal representative, who shall furnish proper evidence of such authority, or by
his or her attorney authorized by a duly executed power of attorney and filed
with the Savings Bank. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Savings Bank shall be deemed
by the Savings Bank to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall be as fixed by the Board of
Directors. The Savings Bank shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the Board of Directors. The appointment of such accountants
shall be subject to annual ratification by the shareholders.
ARTICLE IX. DIVIDENDS
Subject to the terms of the Savings Bank's Restated Organization
Certificate, the New York Banking Law, the regulations of the NYSBD and other
applicable law, the Board of Directors may, from time to time, declare, and the
Savings Bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
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The Board of Directors shall provide a Savings Bank seal, which shall
be two concentric circles between which shall be the name of the Savings Bank.
The year of incorporation or an emblem may appear in the center.
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ARTICLE XI. RULES AND REGULATIONS
SECTION 1. BANKING HOURS. The Board or officers authorized by the
Board will determine what days and hours the Bank will be open for business.
SECTION 2. RULES AND REGULATIONS. The Board may make other
appropriate rules and regulations provided they are not contrary to federal or
state law or these Bylaws.
SECTION 3. LOSS OF PASSBOOK. If a bank book is lost or cannot
otherwise be produced by the depositor, the Bank may issue a new bank book.
Before doing so, the Bank may require the depositor to provide evidence of the
loss or reasons for the unavailability and require the depositor to furnish
security or identification to the Bank. The kind of evidence and security may
be determined by an officer or branch manager.
SECTION 4. WITHDRAWALS. Money can be drawn by depositors as a matter
of right only on sixty days' notice to an officer of their intention to withdraw
it. The Bank may, however, allow money to be withdrawn without such notice, and
shall not by doing so be deemed to have waived its rights to such notice and
time of payment in all subsequent cases.
ARTICLE XII - INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
SECTION 1. The Bank will indemnify any present or former Director
(including a former Trustee), officer or employee to the extent permitted or
required by law. The right to be indemnified will extend to the beneficiaries
and legal representatives of each person entitled to be indemnified. The right
to be indemnified shall apply regardless of any other rights to which the
Director (including a former Trustee), officer or employee or his or her
beneficiaries or legal representatives may be entitled. This provision
establishes a contract right which may be enforced by any person covered.
ARTICLE XIII. AMENDMENTS
These Bylaws may be amended in a manner consistent with the New York
Banking Law, the regulations of the NYSBD and other applicable law at any time
by a majority vote of the Whole Board of Directors, or by the affirmative vote
of at least 80% of the votes eligible to be cast by the shareholders of the
Savings Bank at any legal meeting.
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EXHIBIT B-1
CERTIFICATE OF INCORPORATION
OF
ONEIDA FINANCIAL CORP.
ARTICLE 1. CORPORATE TITLE. The name of the Corporation is Oneida
Financial Corp. (hereinafter referred to as the "Corporation").
ARTICLE 2. REGISTERED OFFICE. The address of the registered office of the
Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name of the
registered agent at that address is The Corporation Trust Company.
ARTICLE 3. PURPOSE The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of Delaware.
ARTICLE 4. CAPITAL STOCK.
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eight million (8,000,000)
consisting of eight million (8,000,000) shares of Common Stock, par value one
cent ($.10) per share (the "Common Stock").
B. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 5% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit, except that such restriction and all
restrictions set forth in this subsection "B"shall not apply to Oneida
Financial, MHC (the "Mutual Holding Company"), or any tax qualified employee
stock benefit plan established by the Corporation, which shall be able to vote
in respect to shares held in excess of the Limit. The number of votes which may
be cast by any record owner by virtue of the provisions hereof in respect of
Common Stock beneficially owned by such person owning shares in excess of the
Limit shall be a number equal to the total number of votes which a single record
owner of all Common Stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series which are both beneficially owned by such person and owned of
record by such record owner and the denominator of which is the total number of
shares of Common Stock beneficially owned by such person owning shares in excess
of the Limit.
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2. The following definitions shall apply to this Section B of this
Article 4:
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate of
Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor rule or
statutory provision thereto, pursuant to said Rule 13d-3 as in effect
on the date of filing of this Certificate of Incorporation; provided,
however, that a person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially owns,
directly or indirectly; or
(2) which such person or any of its affiliates has (i) the right to
acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Corporation
to effect any transaction which is described in any one or more
clauses of Section A of Article 8) or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be deemed
to be the beneficial owner of any voting shares solely by reason
of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for
such meeting, with respect to shares of which neither such person
nor any such affiliate is otherwise deemed the beneficial owner);
or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
affiliates acts as a partnership, limited partnership, syndicate
or other group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of this Corporation; and
provided further, however, that (1) no Director or Officer of
this Corporation (or any affiliate of any such Director or
Officer) shall, solely by reason of any or all of such Directors
or Officers acting in their capacities as such, be deemed, for
any purposes hereof, to beneficially own any Common Stock
beneficially owned by another such Director or Officer (or any
affiliate thereof), and (2) neither any employee stock ownership
plan or similar plan of this Corporation or any
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subsidiary of this Corporation, nor any trustee with respect
thereto or any affiliate of such trustee (solely by reason of
such capacity of such trustee), shall be deemed, for any purposes
hereof, to beneficially own any Common Stock held under any such
plan. For purposes of computing the percentage beneficial
ownership of Common Stock of a person the outstanding Common
Stock shall include shares deemed owned by such person, through
application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant
to any agreement, or upon exercise of conversion rights, warrants
or options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall include an individual, firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or
disposing of securities or any other entity.
3. The Board of Directors shall have the power to construe and apply the
provisions of this section and to make all determinations necessary or desirable
to implement such provisions, including but not limited to matters with respect
to (i) the number of shares of Common Stock beneficially owned by any person,
(ii) whether a person is an affiliate of another, (iii) whether a person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership, (iv) the application of any other
definition or operative provision of the section to the given facts, or (v) any
other matter relating to the applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any person
who is reasonably believed to beneficially own Common Stock in excess of the
Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, (ii) any other factual
matter relating to the applicability or effect of this section as may reasonably
be requested of such person.
5. Except as otherwise provided by law or expressly provided in this
section, the presence, in person or by proxy, of the holders of record of shares
of capital stock of the Corporation entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this section) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
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stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock, after giving effect to the provisions of this
section.
6. Any constructions, applications, or determinations made by the Board
of Directors pursuant to this section in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
7. In the event that any provision (or portion thereof) of this section
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
such remaining provision (or portion thereof) of this section remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE 5. MANAGEMENT OF CORPORATION. The following provisions are
inserted for the management of the business and the conduct of the affairs of
the Corporation, and for further definition, limitation and regulation of the
powers of the Corporation and of its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the Directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may be effected by the unanimous consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called only
by the Board of Directors pursuant to a resolution adopted by a majority of the
total number of Directors the Corporation would have if there were no vacancies
on the Board of Directors (the "Whole Board") or as otherwise provided in the
Bylaws.
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ARTICLE 6. DIRECTORS
A. The number of Directors shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. The Directors shall be divided into three classes, with the term
of office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter, and the term of office of the third
class to expire at the annual meeting of stockholders two years thereafter. At
each annual meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election.
B. Newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of Directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Any Director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of Directors (after giving effect to the provisions of Article 4 of
this Certificate of Incorporation ("Article 4")), voting together as a single
class.
ARTICLE 7. BYLAWS. The Board of Directors is expressly empowered to adopt,
amend or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of the Bylaws of the Corporation by the Board of Directors shall require
the approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation; provided,
however, that, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors (after
giving effect to the provisions of Article 4), voting together as a single
class, shall be required to adopt, amend or repeal any provisions of the Bylaws
of the Corporation.
ARTICLE 8. EVALUATION OF OFFERS. The Board of Directors of the
Corporation, when evaluating any offer of another Person (as defined in Article
4 hereof) to (A) make a tender or
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exchange offer for any equity security of the Corporation, (B) merge or
consolidate the Corporation with another corporation or entity or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
subsidiaries; on the communities in which the Corporation and its subsidiaries
operate or are located; on the ability of the Corporation to fulfill its
corporate objectives as a savings bank holding company; and on the ability of
its subsidiary savings bank to fulfill the objectives of a stock savings bank
under applicable statutes and regulations.
ARTICLE 9. INDEMNIFICATION.
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 9
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
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
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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
9 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 9 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 9 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article 9 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.
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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 9 with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ARTICLE 10. LIMITATION OF LIABILITY. A Director of this Corporation shall
not be personally liable to the Corporation 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 Corporation 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 Delaware General Corporation Law, or (iv) for any transaction from which the
Director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of Directors, then the liability of a Director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
ARTICLE 11. MUTUAL HOLDING COMPANY. At all times so long as the Mutual
Holding Company shall be in existence, the Mutual Holding Company shall own at
least a majority of the Voting Stock of the Corporation and the Corporation
shall not be authorized to issue any shares of Voting Stock or take any action
while the Mutual Holding Company is in existence if after such issuance or
action the Mutual Holding Company shall own less than the majority of the
Corporation's Voting Stock. For these purposes, "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 Corporation; and (ii) to vote on or to direct the conduct of the operations
or other significant policies of the Corporation. Notwithstanding anything in
the preceding sentence, 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
Corporation, or the payment of dividends by the Corporation 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 Corporation; 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 Corporation. Notwithstanding anything in
the preceding two sentences, "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
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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.
ARTICLE 12. CONVERSION OF MUTUAL HOLDING COMPANY. The Mutual Holding
Company may elect to convert to stock form (a "Conversion Transaction") in
accordance with The Oneida Savings Bank Plan of Reorganization from a Mutual
Savings Bank to a Mutual Holding Company and Stock Issuance Plan, dated June 4,
1998 (the "Plan"), and applicable law and regulation to the extent such
applicable law and regulation does not diminish the ownership rights of Minority
Stockholders (as hereinafter defined). In a Conversion Transaction, the Mutual
Holding Company will merge with and into The Oneida Savings Bank (the "Bank") or
the Corporation (or an affiliate or successor corporation of either), with the
Bank or the Corporation, respectively, as the resulting entity, and the
depositors of the Bank will receive the right to subscribe for a number of
shares of common stock of the Corporation, as determined by the formula set
forth in the following paragraphs and in the Plan. The additional shares of
Common Stock of the Corporation issued in the Conversion Transaction shall be
sold at their aggregate pro forma market value. In the event that the Mutual
Holding Company merges into the Corporation, a liquidation account may be
established and maintained in the Corporation.
In any Conversion Transaction, stockholders of the Corporation other than
the Mutual Holding Company ("Minority Stockholders"), if any, will be entitled
to maintain the same percentage ownership interest in the Corporation after the
Conversion Transaction as their ownership interest in the Corporation
immediately prior to the Conversion Transaction (i.e., the "Minority Ownership
Interest"), subject only to adjustment as set forth in the Plan (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 Mutual
Holding Company, and (ii) the market value of assets of the Mutual Holding
Company (other than Common Stock of the Corporation).
The adjustment referred to in clause (i) above would require that the
Minority Ownership Interest (expressed as a percentage) be adjusted by
multiplying the Minority Ownership Interest by a fraction, the numerator of
which is equal to the Corporation's stockholders' equity at the time of the
Conversion Transaction less the aggregate dollar amount of dividends waived by
the Mutual Holding Company, and the denominator of which is equal to the
Corporation's stockholders' equity at the time of the Conversion Transaction.
The adjusted Minority Ownership Interest (expressed as a percentage)
resulting from the immediately preceding paragraph would be further adjusted
pursuant to clause (ii) above by multiplying it by a fraction, the numerator of
which is equal to the pro forma market value of the Corporation less the market
value of assets of the Mutual Holding Company other than Corporation Common
Stock, and the denominator of which is equal to the pro forma market value of
the Corporation.
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At the sole discretion of the Board of Directors of the Mutual Holding
Company and the Corporation, 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 of this Section.
If a Conversion Transaction does not occur, the Mutual Holding Company will
always own a majority of the Voting Stock of the Corporation.
ARTICLE 13. AMENDMENTS. The Corporation reserves the right to amend or
repeal any provision contained in this Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all rights conferred
upon stockholders are granted subject to this reservation; provided, however,
that, notwithstanding any other provision of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any vote of the holders of any class or series of the stock
of the Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article 4), voting together as a single class, shall be required
to amend or repeal this Article 13, Section C of Article 4, Sections C or D of
Article 5, Article 6, Article 7, Article 8 or Article 10.
ARTICLE 14. SOLE INCORPORATOR The name and mailing address of the sole
incorporator are as follows:
Name Mailing Address
---- ---------------
Alan Schick 5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 15/th/ day of September,
1998.
/s/ Alan Schick
------------------------------
Alan Schick
Incorporator
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EXHIBIT B-2
BYLAWS
OF
ONEIDA FINANCIAL CORP.
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders, for
the election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
SECTION 2. SPECIAL MEETINGS. Subject to the rights of the holders of any
class or series of preferred stock of the Corporation, special meetings of
stockholders of the Corporation may be called by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date, and time
of all meetings of the stockholders shall be given, not less than ten (10) nor
more than sixty (60) days before the date on which the meeting is to be held, to
each stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy (after giving effect to Article 4 of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
SECTION 5. ORGANIZATION. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board of the
Corporation or, in his or her absence, the Chief Executive Officer or, in his or
her absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS. (a) The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors; or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal office of the Corporation not less than ninety
(90) days prior to the date of the annual meeting; provided, however, that in
the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in
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accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he or she should so determine, he or she shall so declare
to the meeting and any such business so determined to be not properly brought
before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which Directors are to be elected
only: (i) by or at the direction of the Board of Directors or; (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal office of the Corporation not less than
ninety (90) days prior to the date of the meeting; provided, however, that in
the event that less than one hundred (100) days' notice or prior disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for the
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Director if elected); and (ii) as to the stockholder giving
notice of nomination (x) the name and address, as they appear on the
Corporation's books, of such stockholder and (y) the class and number of shares
of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she should so determine, he or she shall declare to the meeting and the
defective nomination shall be disregarded.
SECTION 7. PROXIES AND VOTING. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law filed in accordance
with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
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created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or by his or her proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. The Corporation
shall, in advance of any meeting of stockholders, appoint one or more inspectors
to act at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Certificate of Incorporation or by law, all
other matters shall be determined by a majority of the votes present and cast at
a properly called meeting of stockholders.
SECTION 8. STOCK LIST. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Subject to the
rights of the holders of any class or series of preferred stock of the
Corporation, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of stockholders
of the Corporation and may be effected by the unanimous consent in writing by
such stockholders.
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ARTICLE II - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE. The business and
affairs of the Corporation shall be under the direction of its Board of
Directors. The number of Directors who shall constitute the Whole Board shall
be such number as the Board of Directors shall from time-to-time by resolution
so designate. The Board of Directors shall annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the
first annual meeting, Directors elected to succeed those Directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
Director to hold office until his or her successor shall have been duly elected
and qualified.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall,
subject to the provisions of these Bylaws and to the direction of the Board of
Directors, serve in a general executive capacity and, when present, shall
preside at all meetings of the Board of Directors or the stockholders of the
Corporation. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
SECTION 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any class or series of preferred stock, and unless the
Board of Directors otherwise determines, newly created Directorships resulting
from any increase in the authorized number of Directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the Directors then in office, though less than a quorum, and
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such Director's successor shall have been duly elected
and qualified. No decrease in the number of authorized Directors constituting
the Board shall shorten the term of any incumbent Director.
SECTION 4. REGULAR MEETINGS. Each regular meetings of the Board of
Directors shall be held at such place, on such date, and at such time as shall
have been established by the Board of Directors and publicized among all
Directors. A notice of each regular meeting shall not be required.
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SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President of the Bank. If the
President or Chairman is absent or disabled, any two or more directors may call
a special meeting. Notice of the place, date, and time of each such special
meeting shall be given to each Director by whom it is not waived by mailing
written notice not less than five (5) days before the meeting or by facsimile
transmission of the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
SECTION 6. QUORUM. At any meeting of the Board of Directors, a majority
of the Whole Board shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.
SECTION 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 8. CONDUCT OF BUSINESS. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the Directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
SECTION 9. POWERS. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause, and
from time-to-time to devolve the powers and duties of any Officer upon
any other person;
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(5) To confer upon any Officer of the Corporation the power to appoint,
remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time-to-time such stock, option, stock purchase, bonus
or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time-to-time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time-to-time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
SECTION 10. COMPENSATION OF DIRECTORS. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without limitation,
their services as members of committees of the Board of Directors.
SECTION 11. DIRECTORS' AGE LIMITATION AND DIRECTORS EMERITI. No person
shall be eligible for election as a Director who is seventy (70) years of age or
more.
The Board may elect annually Emeriti Members of the Board consisting of
former Board Members who have retired after being no longer eligible for re-
election as a Director because of the age limit set forth in this section. No
Emeritus Member may be elected or serve after their seventy-fifth (75th)
birthday. Directors Emeriti must have previously served as members of the Board
of Directors. Emeriti Members are entitled to receive notice of all Board
Meetings. They may attend Board Meetings but shall not have the right to vote
nor shall such position carry with it any of the responsibilities, powers and
privileges of the regular members of the Board.
ARTICLE III - COMMITTEES
SECTION 1. COMMITTEE OF THE BOARD OF DIRECTORS. The Board of Directors,
by a vote of a majority of the Whole Board, may from time-to-time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a Director or Directors to
serve as the member or members, designating, if it desires, other Directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power
and authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
the Delaware General Corporation Law if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification
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of any member of any committee and any alternate member in his or her place, the
member or members of the committee present at the meeting and not disqualified
from voting, whether or not he or she or they constitute a quorum, may by
unanimous vote appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member.
SECTION 2. CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third (1/3) of the members shall constitute a quorum unless the committee shall
consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
SECTION 3. EXECUTIVE COMMITTEE. There will be an Executive Committee
consisting of at least five members, all of whom shall be Board Members. At the
annual Board meeting the Directors will elect the members to the Executive
Committee and the Chairman of the Committee. These elected members will serve
until the next annual meeting or until their successors are elected. Except as
otherwise limited by law, the Executive Committee will have power to decide all
Corporation matters which need to be decided between regular Board meetings.
The President or the Chairman of the Board will call Executive Committee
meetings. If the President or the Chairman of the Board is absent or disabled,
any two members of the Executive Committee may do so. In order to conduct an
Executive Committee meeting, at least four members must be present (called a
"Quorum"). The Executive Committee will keep a record of all business
transacted at its meetings and will report all such business to the Board of
Directors at the first regular meeting following each Executive Committee
meeting. If a vacancy occurs among the Executive Committee members between
annual Board meetings, the Board upon nomination by the President, will elect a
replacement.
ARTICLE IV - OFFICERS
SECTION 1. GENERALLY. (a) The Board of Directors as soon as may be
practicable after the annual meeting of stockholders, shall choose a President
and Chief Executive Officer, one or more Vice Presidents, and a Secretary and
from time to time may choose such other Officers as it may deem proper. Any
number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen, but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors (without prejudice to any contract rights that an Officer may have).
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(c) All Officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject to
the specific provisions of this Article IV. Such Officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
SECTION 2. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and
Chief Executive Officer (the "President") shall have general responsibility for
the management and control of the business and affairs of the Corporation and
shall perform all duties and have all powers which are commonly incident to the
offices of President and Chief Executive Officer or which are delegated to him
or her by the Board of Directors. The President, if present, shall preside at
all meetings of the Executive Committee of the Board. Subject to the direction
of the Board of Directors, the President shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision of all of the other Officers,
employees and agents of the Corporation.
SECTION 3. VICE PRESIDENT. The Vice President or Vice Presidents shall
perform the duties of the President in his or her absence or during his
disability to act. In addition, the Vice Presidents shall perform the duties
and exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them by the Board of
Directors, the Chairman of the Board or the President. A Vice President or Vice
Presidents may be designated as Executive Vice President or Senior Vice
President.
SECTION 4. SECRETARY. The Secretary or an Assistant Secretary shall
issue notices of meetings, shall keep their minutes, shall have charge of the
seal and the corporate books, shall perform such other duties and exercise such
other powers as are usually incident to such offices and/or such other duties
and powers as are properly assigned thereto by the Board of Directors, the
Chairman of the Board or the President.
SECTION 5. ASSISTANT SECRETARIES AND OTHER OFFICERS. The Board of
Directors may appoint one or more Assistant Secretaries and such other Officers
who shall have such powers and shall perform such duties as are provided in
these Bylaws or as may be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
SECTION 6. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to, any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which the Corporation may possess by
reason of its ownership of securities in such other corporation.
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ARTICLE V - STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board or the President, and by the Secretary or an Assistant Secretary, or any
Treasurer or Assistant Treasurer, certifying the number of shares owned by him
or her. Any or all of the signatures on the certificate may be by facsimile.
SECTION 2. TRANSFERS OF STOCK Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of Article V
of these Bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
SECTION 3. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
SECTION 5. REGULATIONS. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
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ARTICLE VI - NOTICES
SECTION 1. NOTICES. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, Director,
Officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the U.S. mails, postage prepaid, or by sending such notice by
facsimile transmission or by courier. Any such notice shall be addressed to such
stockholder, Director, Officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by facsimile transmission or other courier, shall be the time of the
giving of the notice.
SECTION 2. WAIVERS. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII - MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any Officer or Officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
SECTION 2. CORPORATE SEAL. The Board of Directors may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Chief
Financial Officer or by an Assistant Secretary or an assistant to the Chief
Financial Officer.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each Director, each
member of any committee designated by the Board of Directors, and each Officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its Officers or employees, or committees
of the Board of Directors so designated, or by any other person as to matters
which such Director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
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SECTION 5. TIME PERIODS. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII - AMENDMENT
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change is given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders, provided
notice of the proposed change was given in the Notice of the Meeting; provided,
however, that, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock Designation or these Bylaws, the affirmative votes of
the holders of at least 80% of the voting power of all the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provisions of these Bylaws.
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EXHIBIT C-1
RESTATED ORGANIZATION CERTIFICATE
OF
ONEIDA FINANCIAL, MHC
(FORMERLY INTERIM ONE SAVINGS BANK)
We, Nicholas J. Christakos, being the Chairman of the Board, Michael R.
Kallet, being the President and Chief Executive Officer, and Patricia A. Zupan,
being the Secretary, of The Oneida Savings Bank, do hereby certify as follows:
The text of the Organization Certificate of Interim One Savings Bank is
hereby amended and restated in its entirety to read as follows:
SECTION 1: CORPORATE TITLE. The name of the mutual holding company hereby
organized is Oneida Financial, MHC (the "Mutual Holding Company"), and its
principal office is located at 182 Main Street, Oneida, New York 13421-1676.
SECTION 2: DURATION. The duration of the Mutual Holding Company is
perpetual.
SECTION 3: PURPOSE AND POWERS. The purpose of the Mutual Holding Company
is to pursue any or all of the lawful objectives of a New York chartered mutual
savings bank chartered under Article VI and Article XVI of the New York Banking
Law, and to exercise all of the express, implied, and incidental powers
conferred thereby and all acts amendatory thereof and supplemental thereto,
other than right to accept deposits, subject to the Constitution and the laws of
the State of New York as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the New York State Banking Department (the "NYSBD"). In addition, the Mutual
Holding Company shall possess all of the rights and powers available to a mutual
holding company under Article VI-C of the New York Banking Law.
SECTION 4: CAPITAL. The Mutual Holding Company shall have no capital
stock.
SECTION 5: TRUSTEES. The Mutual Holding Company shall be under the
direction of a board of Trustees. The authorized number of Trustees shall not
be fewer than seven (7) nor more than twenty (20), as determined from time to
time by resolution of the Board of Trustees. Trustees shall be elected by a
vote of a majority of the Board of Trustees. Notwithstanding the foregoing,
Trustees may be removed for good cause as determined by the Board of Trustees.
<PAGE>
SECTION 6: INCORPORATORS. The name, place of residence and citizenship of
each incorporator is set forth below:
Full name Residence Citizenship
- --------- --------- -----------
Nicholas J. Christakos 4216 Syracuse Rd New York/USA
Cazenovia, NY 13035
Michael R. Kallet 412 Elizabeth Street New York/USA
Oneida, NY 13421
Patricia D. Caprio RD 2 Box 318 New York/USA
Hamilton, NY 13346
Edward J. Clarke 106 Lincklaes Street New York/USA
Cazenovia, NY 13035-1031
James J. Devine 624 Deerfield Drive New York/USA
Oneida, NY 13421
John E. Haskell 414 South Avenue New York/USA
Oneida, NY 13421
William D. Matthews 621 Patio Circle Dr. New York/USA
Oneida, NY 13421
Michael W. Milmoe 115 Stroud Street New York/USA
Canastota, NY 13032
Richard B. Myers 312 Broad Street New York/USA
Oneida, NY 13421
Frank O. White, Jr. RD 2 Box 44 New York/USA
Hamilton, NY 13346
SECTION 7. INITIAL TRUSTEES. The names of the incorporators who
shall be Trustees until the first annual meeting are the same individuals named
in Section 6 above.
SECTION 8: AMENDMENT. Any amendment to this Organization
Certificate shall be adopted by a majority vote of the Board of Trustees and
shall be effective upon the filing of the amendment with the NYSBD or otherwise
as provided in such procedures as may be set forth by the regulations of the
NYSBD.
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IN WITNESS WHEREOF, we have made, signed and acknowledged this
Organization Certificate in duplicate, this ______________ day of _________,
1998.
___________________________________
Michael R. Kallet
President and Chief Executive
Officer
_______________________________ ___________________________________
Nicholas J. Christakos, Trustee John E. Haskell, Trustee
_______________________________ ___________________________________
Michael R. Kallet, Trustee William D. Matthews, Trustee
_______________________________ ___________________________________
Patricia D. Caprio, Trustee Michael W. Milmoe, Trustee
_______________________________ ___________________________________
Edward J. Clarke, Trustee Richard B. Myers, Trustee
_______________________________ ___________________________________
James J. Devine, Trustee Frank O. White, Jr., Trustee
___________________________________
Patricia A. Zupan
Secretary
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STATE OF NEW YORK )
) ss:
COUNTY OF MADISON )
On the____ day of ________, 1998, there personally appeared before me
Nicholas J. Christakos, Michael R. Kallet, Patricia D. Caprio, Edward J. Clarke,
James J. Devine, John E. Haskell, William D. Matthews, Michael W. Milmoe,
Richard B. Myers and Frank O. White, Jr., to me known to be the individuals
described in and who executed the foregoing certificate, and severally
acknowledged to me that they executed the same and that the contents thereof are
true.
____________________________
Notary Public
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EXHIBIT C-2
BYLAWS
OF
ONEIDA FINANCIAL, MHC
SECTION 1. NUMBER AND QUALIFICATIONS OF TRUSTEES. The number of Trustees
of Oneida Financial, MHC (the "Mutual Holding Company") shall be as determined
from time to time by resolution of the Board of Trustees. Such number shall not
be less than seven (7) or more than twenty (20). Each of the Trustees shall be
a citizen of the United States and at least eighteen (18) years of age and shall
not be a Trustee, officer or employee of any other banking organization (other
than The Oneida Savings Bank). No person shall be eligible for election as a
Trustee who is seventy (70) years of age or more. As used in these Bylaws, the
phrase "all the Trustees" shall mean the total number of Trustees the Mutual
Holding Company would have if there were no vacancies on the Board of Trustees.
SECTION 2. ELECTION AND TERM OF OFFICE. Except as otherwise provided by
law or these Bylaws, each Trustee of the Mutual Holding Company shall be elected
at a regular meeting of the Board of Trustees and shall hold office until his or
her resignation or removal or other forfeiting or vacating of his or her office.
SECTION 3. MEETINGS OF THE BOARD. The Board of Trustees shall meet
regularly without notice at the principal office of the Mutual Holding Company
at least once each year at an hour and date fixed by resolution of the Board,
provided that the place of meeting may be changed by the Trustees. The President
or the Chairman of the Board of the Mutual Holding Company may call a special
meeting. If the President is absent or disabled, any two or more Trustees may
do so. A majority of the authorized Trustees shall constitute a quorum for the
transaction of business. The act of a majority of the Trustees present at any
meeting at which there is a quorum shall be the act of the Board. Action may be
taken without a meeting if unanimous written consent is obtained for such
action. The meetings shall be under the direction of a Chairman, appointed
annually by the Board, or in the absence of the Chairman, the meetings shall be
under the direction of the President.
SECTION 4. NOTICE OF MEETING. Any regular meeting of the Board of
Trustees may be held without notice, if the date, hour or place of such meeting
have been fixed by the Board of Trustees. Except as provided in the preceding
sentence, notice of each regular or special meeting of the Board of Trustees,
stating the date, hour and place thereof, shall be given by the Secretary to
each Trustee (a) not less than seventy-two (72) hours before the meeting by
depositing the notice in the United States mail, with first-class postage
thereon prepaid, directed to each Trustee at the address designated by him or
her for such purpose (or, if none is designated, at his or her last known
address) or (b) not less than twenty-four (24) hours before the meeting by (i)
delivering the same to each Trustee personally, (ii) sending the same by
facsimile or other electronic transmission to the address designated by him or
her for such purpose (or, if none is designated, to his or her last known
address) or (iii) delivering the notice to the address designated by him or her
for such purpose (or, if none is designated, to his or her last known address).
Notice of a meeting need not be given to any Trustee who submits a signed waiver
of notice whether before or after the meeting or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him or
her.
<PAGE>
SECTION 5. OFFICERS, EMPLOYEES AND AGENTS. At the annual meeting of the
Board of Trustees of the Mutual Holding Company, the Board shall elect a
Chairman from among the members of the Board of Trustees, a President, one or
more Vice Presidents, a Secretary, and a Treasurer; provided, that the offices
of President and Secretary may not be held by the same person and a Vice
President may also be the Treasurer. The Board may appoint such additional
officers, employees, and agents as it may from time to time determine. The term
of office of all officers shall be one year or until their respective successors
are elected and qualified; but any officer may be removed at any time by the
Board. In the absence of designation from time to time of powers and duties by
the Board, the officers shall have such powers and duties as generally pertain
to their respective offices.
The Mutual Holding Company will indemnify any present or former Trustee,
officer or employee to the maximum extent permitted or required by law. The
right to be indemnified will extend to the beneficiaries and legal
representatives of each person entitled to be indemnified. The right to be
indemnified shall apply regardless of any other rights to which the Trustee,
officer or employee or his or her beneficiaries or legal representatives may be
entitled. This provision establishes a contract right which may be enforced by
any person covered. Any indemnification by the Mutual Holding Company of the
Mutual Holding Company's personnel is subject to any applicable rules or
regulations of the New York State Banking Department (the "NYSBD").
SECTION 6. RESIGNATION OR REMOVAL OF TRUSTEES. Any Trustee may resign at
any time by sending a written notice of such resignation to the office of the
Mutual Holding Company delivered to the Secretary. Unless otherwise specified
therein, such resignation shall take effect upon receipt of such written notice
by the Secretary. Any Trustee may be removed for cause as provided by law, at
any regular meeting of the Board of Trustees by the affirmative vote of three-
fourths (3/4ths) of all the Trustees, provided that notice of such meeting
referring to the proposed action shall have been given to each Trustee in
accordance with these Bylaws. The office of any Trustee so removed shall be
forfeited and become vacant as provided by law.
SECTION 7. TRUSTEE EMERITI. The Board may elect annually Emeriti Members
of the Board consisting of former Board Members who have retired after being no
longer eligible for re-election as a Trustee because of the age limit set forth
in Section1 of these Bylaws. No Emeritus Member may be elected or serve after
his/her seventy-fifth (75th) birthday. Trustees Emeriti must have previously
served as members of the Board of Trustees. Emeriti Members are entitled to
receive notice of all Board Meetings. They may attend Board Meetings but shall
not have the right to vote nor shall such position carry with it any of the
responsibilities, powers and privileges of the regular members of the Board.
2
<PAGE>
SECTION 8. POWERS OF THE BOARD. The Board of Trustees shall have the
power:
(a) By resolution, to appoint from among its members and remove an
executive committee, which committee shall have and may exercise the powers of
the Board between the meetings of the Board, but no such committee shall have
the authority of the Board to amend the Organization Certificate or Bylaws,
adopt a plan of merger, consolidation, dissolution, or provide for the
disposition of all or substantially all the property and assets of the Mutual
Holding Company. Such committee shall not operate to relieve the Board, or any
member thereof, of any responsibility imposed by law;
(b) To appoint and remove by resolution the members of such other
committees as may be deemed necessary and prescribe the duties thereof;
(c) To fix the compensation of Trustees, officers, and employees, and
to remove any officer or employee at any time with or without cause; and
(d) Such other powers as permitted, expressly or impliedly, by law
and regulation.
SECTION 9. EXECUTION OF INSTRUMENTS, GENERALLY. All documents and
instruments or writings of any nature shall be signed, executed, verified,
acknowledged, and delivered by such officers, agents, or employees of the Mutual
Holding Company or any one of them and in such manner as from time to time may
be determined by resolution of the Board. All notes, drafts, acceptances,
checks, endorsements, and all evidences of indebtedness of the Mutual Holding
Company whatsoever shall be signed by such officer or officers or such agent or
agents of the Mutual Holding Company and in such manner as the Board may from
time to time determine. Endorsements for deposit to the credit of the Mutual
Holding Company in any of its duly authorized depositories shall be made in such
manner as the Board may from time to time determine. Proxies to vote with
respect to shares or accounts of other associations or stock of other
corporations owned by, or standing in the name of, the Mutual Holding Company
may be executed and delivered from time to time on behalf of the Mutual Holding
Company by the President or a Vice President and the Secretary or an Assistant
Secretary of the Mutual Holding Company or by any other persons so authorized by
the Board.
SECTION 10. SEAL. The seal of the Mutual Holding Company shall be in such
form as may be determined from time to time by the Board of Trustees. The seal
on any Mutual Holding Company obligation for the payment of money may be a
facsimile.
SECTION 11. AMENDMENT. Adoption of any Bylaw amendment, as long as
consistent with applicable law, rules and regulations, and which adequately
addresses the subject and purpose of the stated Bylaw section, shall be
effective upon the affirmative majority vote of the Board of Trustees.
3
<PAGE>
EXHIBIT 4
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ONEIDA FINANCIAL CORP.
ONEIDA, NEW YORK
$.10 par value common stock--fully paid and non-assessable
This certifies that _____________________________ is the owner of __________
shares of the common stock of Oneida Financial Corp. (the "Corporation"), a
Delaware corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
Dated:____________________
_______________________________ ________________________________
Secretary (SEAL) President
<PAGE>
The shares evidenced by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of 5%
of the outstanding shares of Common Stock (the "Limit") be entitled or permitted
to any vote in respect of shares held in excess of the Limit, except that such
restriction shall not apply to Oneida Financial, MHC.
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will furnish
to any shareholder upon request and without charge a full description of each
class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the voting stock of the Corporation, voting
together as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Certificate of
Incorporation.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF TRANS MIN ACT - _______________ Custodian ____________________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Transfers to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as _____________________________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
________________________________________________________________________________
(please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated, _____________________________
In the presence of Signature:
______________________________________ ___________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK]
September 16, 1998
The Board of Trustees
The Oneida Savings Bank
182 Main Street
Oneida, New York 13421-1676
RE: ONEIDA FINANCIAL CORP.
COMMON STOCK PAR VALUE $.10 PER SHARE
-------------------------------------
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Oneida Financial Corp.
(the "Company") Common Stock, par value $.10 per share ("Common Stock"). We
have reviewed the Company's proposed Stock Holding Company Certificate of
Incorporation, Registration Statement on Form S-1 ("Form S-1"), as well as
applicable statutes and regulations governing the Company and the offer and sale
of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form S-1, the Common Stock, when sold, will be legally issued, fully paid and
non-assessable.
This Opinion has been prepared for the use of the Company in connection
with its Registration Statement on Form S-1, and we hereby consent to the filing
of this Opinion as an exhibit to such registration statement and to our firm
being referenced under the caption "Legal Matters."
Very truly yours,
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
/s/ Alan Schick
--------------------------
By: Alan Schick
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
September 17, 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>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
A PROFESSIONAL CORPORATION
Board of Trustees
The Oneida Savings Bank
September 17, 1998
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>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
A PROFESSIONAL CORPORATION
Board of Trustees
The Oneida Savings Bank
September 17, 1998
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>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
A PROFESSIONAL CORPORATION
Board of Trustees
The Oneida Savings Bank
September 17, 1998
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. For what are represented to be valid business purposes, the
Bank's Board of Trustees has decided to
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
A PROFESSIONAL CORPORATION
Board of Trustees
The Oneida Savings Bank
September 17, 1998
Page 5
convert to a mutual holding company structure pursuant to certain federal and
state laws and regulations. The following steps are proposed:
(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>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
A PROFESSIONAL CORPORATION
Board of Trustees
The Oneida Savings Bank
September 17, 1998
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>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK APPEARS HERE]
A PROFESSIONAL CORPORATION
Board of Trustees
The Oneida Savings Bank
September 17, 1998
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. 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 8.2
[LOGO OF FINPRO]
[LETTERHEAD APPEARS HERE]
September 17, 1998
Board of Trustees
Oneida Financial Corp.
The Oneida Savings Bank
182 Main Street
Oneida, New York 13421-1676
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Reorganization adopted by the Board of Trustees
of The Oneida Savings Bank (the "Bank"), whereby the Bank will convert from a
New York chartered mutual savings bank to a New York chartered stock savings
bank and issue all of the Bank's stock to Oneida Financial Corp. (the "Holding
Company"). Simultaneously, the Holding Company will issue shares of common
stock.
We understand that in accordance with the Plan of Reorganization, Subscription
Rights to purchase shares of the Bank's Common Stock in the Holding Company are
to be issued to (i) Eligible Account Holders, (ii) Tax-Qualified Employee Plans,
(iii) Supplemental Eligible Account Holders, and (iv) employees, officers, and
trustees. Based solely on our observation that the Subscription Rights will be
available to such Recipients without cost, will be legally non-transferable and
of short duration, and will afford such parties the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in the Community Offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value;
and
(2) the price at which the Subscription Rights are exercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Bank's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the Reorganization
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
Donald J. Musso
Director
<PAGE>
EXHIBIT 10.1
THE ONEIDA SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1998)
<PAGE>
THE ONEIDA SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of
_____________, 1998, by The Oneida Savings Bank, a New York chartered stock
savings bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions by the Employer and the payment
of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
______________________________ By: ____________________________
Secretary President
<PAGE>
C0NTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Section 1. Plan Identity................................................................................... -1-
-------------
1.1 Name...................................................................................... -1-
----
1.2 Purpose................................................................................... -1-
-------
1.3 Effective Date............................................................................ -1-
--------------
1.4 Fiscal Period............................................................................. -1-
-------------
1.5 Single Plan for All Employers............................................................. -1-
-----------------------------
1.6 Interpretation of Provisions.............................................................. -1-
----------------------------
Section 2. Definitions..................................................................................... -1-
-----------
Section 3. Eligibility for Participation............................................................. -7-
-----------------------------
3.1 Initial Eligibility....................................................................... -7-
-------------------
3.2 Definition of Eligibility Year............................................................ -7-
------------------------------
3.3 Terminated Employees...................................................................... -7-
--------------------
3.4 Certain Employees Ineligible.............................................................. -7-
----------------------------
3.5 Participation and Reparticipation......................................................... -7-
---------------------------------
3.6 Omission of Eligible Employee............................................................. -7-
-----------------------------
3.7 Inclusion of Ineligible Employee.......................................................... -7-
--------------------------------
Section 4. Contributions and Credits................................................................. -8-
-------------------------
4.1 Discretionary Contributions............................................................... -8-
---------------------------
4.2 Contributions for Stock Obligations....................................................... -8-
-----------------------------------
4.3 Definitions Related to Contributions...................................................... -8-
------------------------------------
4.4 Conditions as to Contributions............................................................ -9-
------------------------------
4.5 Transfers................................................................................. -9-
---------
Section 5. Limitations on Contributions and Allocations.............................................. -9-
--------------------------------------------
5.1 Limitation on Annual Additions............................................................ -9-
------------------------------
5.2 Coordinated Limitation With Other Plans................................................... -11-
---------------------------------------
5.3 Effect of Limitations..................................................................... -11-
---------------------
5.4 Limitations as to Certain Participants.................................................... -11-
--------------------------------------
Section 6. Trust Fund and Its Investment............................................................. -12-
-----------------------------
6.1 Creation of Trust Fund.................................................................... -12-
----------------------
6.2 Stock Fund and Investment Fund............................................................ -12-
------------------------------
6.3 Acquisition of Stock...................................................................... -12-
--------------------
6.4 Participants' Option to Diversify......................................................... -13-
---------------------------------
Section 7. Voting Rights and Dividends on Stock...................................................... -14-
------------------------------------
7.1 Voting and Tendering of Stock............................................................. -14-
-----------------------------
7.2 Dividends on Stock........................................................................ -15-
------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Section 8. Adjustments to Accounts................................................................... -15-
-----------------------
8.1 Adjustments for Transactions.............................................................. -15-
----------------------------
8.2 Valuation of Investment Fund.............................................................. -15-
----------------------------
8.3 Adjustments for Investment Experience..................................................... -16-
-------------------------------------
Section 9. Vesting of Participants' Interests........................................................ -16-
----------------------------------
9.1 Deferred Vesting in Accounts.............................................................. -16-
----------------------------
9.2 Computation of Vesting Years.............................................................. -16-
----------------------------
9.3 Full Vesting Upon Certain Events.......................................................... -17-
--------------------------------
9.4 Full Vesting Upon Plan Termination........................................................ -18-
----------------------------------
9.5 Forfeiture, Repayment, and Restoral....................................................... -18-
-----------------------------------
9.6 Accounting for Forfeitures................................................................ -18-
--------------------------
9.7 Vesting and Nonforfeitability............................................................. -18-
-----------------------------
Section 10. Payment of Benefits....................................................................... -18-
-------------------
10.1 Benefits for Participants................................................................. -18-
-------------------------
10.2 Time for Distribution..................................................................... -19-
---------------------
10.3 Marital Status............................................................................ -20-
--------------
10.4 Delay in Benefit Determination............................................................ -20-
------------------------------
10.5 Accounting for Benefit Payments........................................................... -20-
-------------------------------
10.6 Options to Receive and Sell Stock......................................................... -20-
---------------------------------
10.7 Restrictions on Disposition of Stock...................................................... -21-
------------------------------------
10.8 Continuing Loan Provisions; Creations of Protections and Rights........................... -21-
---------------------------------------------------------------
10.9 Direct Rollover of Eligible Distribution.................................................. -21-
----------------------------------------
10.10 In Service Distribution of Roll-over Account.............................................. -22-
--------------------------------------------
10.11 Waiver of 30 Day Period After Notice of Distribution...................................... -22-
----------------------------------------------------
Section 11. Rules Governing Benefit Claims and Review of Appeals...................................... -22-
----------------------------------------------------
11.1 Claim for Benefits........................................................................ -22-
------------------
11.2 Notification by Committee................................................................. -22-
-------------------------
11.3 Claims Review Procedure................................................................... -23-
-----------------------
Section 12. The Committee and Its Functions........................................................... -23-
-------------------------------
12.1 Authority of Committee.................................................................... -23-
----------------------
12.2 Identity of Committee..................................................................... -23-
---------------------
12.3 Duties of Committee....................................................................... -23-
-------------------
12.4 Valuation of Stock........................................................................ -24-
------------------
12.5 Compliance with ERISA..................................................................... -24-
---------------------
12.6 Action by Committee....................................................................... -24-
-------------------
12.7 Execution of Documents.................................................................... -24-
----------------------
12.8 Adoption of Rules......................................................................... -24-
-----------------
12.9 Responsibilities to Participants.......................................................... -24-
--------------------------------
12.10 Alternative Payees in Event of Incapacity................................................. -25-
-----------------------------------------
12.11 Indemnification by Employers.............................................................. -25-
----------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
12.12 Nonparticipation by Interested Member..................................................... -25-
-------------------------------------
Section 13. Adoption, Amendment, or Termination of the Plan........................................... -25-
-----------------------------------------------
13.1 Adoption of Plan by Other Employers....................................................... -25-
-----------------------------------
13.2 Adoption of Plan by Successor............................................................. -25-
-----------------------------
13.3 Plan Adoption Subject to Qualification.................................................... -25-
--------------------------------------
13.4 Right to Amend or Terminate............................................................... -26-
---------------------------
Section 14. Miscellaneous Provisions.................................................................. -26-
------------------------
14.1 Plan Creates No Employment Rights......................................................... -26-
---------------------------------
14.2 Nonassignability of Benefits.............................................................. -26-
----------------------------
14.3 Limit of Employer Liability............................................................... -26-
---------------------------
14.4 Treatment of Expenses..................................................................... -27-
---------------------
14.5 Number and Gender......................................................................... -27-
-----------------
14.6 Nondiversion of Assets.................................................................... -27-
----------------------
14.7 Separability of Provisions................................................................ -27-
--------------------------
14.8 Service of Process........................................................................ -27-
------------------
14.9 Governing State Law....................................................................... -27-
-------------------
14.10 Employer Contributions Conditioned on Deductibility....................................... -27-
---------------------------------------------------
14.11 Unclaimed Accounts........................................................................ -27-
------------------
14.12 Qualified Domestic Relations Order........................................................ -28-
----------------------------------
Section 15. Top-Heavy Provisions...................................................................... -28-
--------------------
15.1 Top-Heavy Plan............................................................................ -28-
--------------
15.2 Super Top-Heavy Plan...................................................................... -29-
--------------------
15.3 Definitions............................................................................... -29-
-----------
15.4 Top-Heavy Rules of Application............................................................ -30-
------------------------------
15.5 Top-Heavy Ratio........................................................................... -31-
---------------
15.6 Minimum Contributions..................................................................... -31-
---------------------
15.7 Minimum Vesting........................................................................... -32-
---------------
15.8 Top-Heavy Provisions Control in Top-Heavy Plan............................................ -32-
----------------------------------------------
</TABLE>
(iii)
<PAGE>
THE ONEIDA SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
-------------
1.1 NAME. The name of this Plan is "The Oneida Savings Bank Employee
----
Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
-------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is January 1, 1998.
--------------
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a January
-------------
1 to December 31 fiscal year for the purpose of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a single
-----------------------------
plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and the
----------------------------
Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement
under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and applied
in a manner consistent with this intent and shall be administered at all times
and in all respects in a nondiscriminatory manner.
SECTION 2. DEFINITIONS.
-----------
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"ACTIVE PARTICIPANT" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
"BANK" means The Oneida Savings Bank and any entity which succeeds to the
business of The Oneida Savings Bank and adopts this Plan as its own pursuant to
Section 14.2.
<PAGE>
"BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"BREAK IN SERVICE" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day on which an Employee has 500 or fewer Hours of Service, in
which an Employee has 500 or fewer Hours of Service. Solely for this purpose,
an Employee shall be considered employed for his normal hours of paid employment
during a Recognized Absence (said Employee shall not be credited with more than
501 Hours of Service to avoid a Break in Service), unless he does not resume his
Service at the end of the Recognized Absence. Further, if an Employee is absent
for any period beginning on or after January 1, 1985, (i) by reason of the
Employee's pregnancy, (ii) by reason of the birth of the Employee's child, (iii)
by reason of the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) for purposes of caring for such child
for a period beginning immediately after such birth or placement, the Employee
shall be credited with the Hours of Service which would normally have been
credited but for such absence, up to a maximum of 501 Hours of Service.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"COMPANY" means Oneida Financial Corp., the stock holding company of the
Bank.
"DISABILITY" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, which disability is expected
to be permanent or of long and indefinite duration. However, this term shall
not include any disability directly or indirectly resulting from or related to
habitual drunkenness or addiction to narcotics, a criminal act or attempt,
service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"EARLY RETIREMENT" means retirement on or after a Participant's attainment
of age 55 and the completion of ten years of Service for an Employer. If the
Participant separates from Service before satisfying the age requirement, but
has satisfied the Service requirement, the Participant will be entitled to elect
early retirement upon satisfaction of the age requirement.
"EFFECTIVE DATE" means January 1, 1998.
-2-
<PAGE>
"EMPLOYEE" means any individual who is or has been employed or self-
employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's 415 Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"EMPLOYER" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"ENTRY DATE" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L. 93-
406, as amended).
"415 COMPENSATION"
(a) shall mean wages, as defined in Code Section 3401(a) for purposes
of income tax withholding at the source.
(b) For Plan Years beginning after December 31, 1997, any elective
deferral as defined in Code Section 402(g)(3) (any Employer contributions
made on behalf of a Participant to the extent not includible in gross
income and any Employer contributions to purchase an annuity contract under
Code Section 403(b) under a salary reduction agreement) and any amount
which is contributed or deferred by the Employer at the election of the
Participant and which is not includible in gross income of the Participant
by reason of Code Section 125 (Cafeteria Plan) shall also be included in
the definition of 415 Compensation.
(c) 415 Compensation in excess of $160,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-section, the
$160,000 limit shall be referred to as the "applicable limit" for the Plan
Year in question. The $160,000 limit shall be adjusted for increases in
the cost of living in accordance with Section 401(a)(17)(B) of the Code,
effective for the Plan Year which begins within the applicable calendar
year. For purposes of the applicable limit, 415 Compensation shall be
prorated over short Plan Years.
-3-
<PAGE>
"HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or had 415
Compensation exceeding $80,000 and was among the most highly compensated one-
fifth of all Employees. For this purpose:
(a) "415 Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period which an Employee performs no duties. No more than
501 Hours of Service will be credited under this paragraph for any single
continuous period (whether or not such period occurs in a single
computation period). Further, no Hours of Service shall be credited on
account of payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability insurance
laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties. The same Hours of Service will not be credited both under paragraph
(a) or (b) as the case may be, and under this paragraph (c). These hours
will be credited to the employee for the computation period or periods to
which the award or agreement pertains rather than the computation period in
which the award agreement or payment is made.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of Service. However, an
Employee shall be credited only for his normal working hours during a paid
absence.
-4-
<PAGE>
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"INVESTMENT FUND" means that portion of the Trust Fund consisting of assets
other than Stock. Notwithstanding the above, assets from the Investment Fund may
be used to purchase Stock in the open market or otherwise, or used to pay on the
Stock Obligation, and shares so purchased will be allocated to a Participant's
Stock Fund.
"NORMAL RETIREMENT" means retirement on or after the later of a
Participant's 65th birthday or fifth year of Service.
"NORMAL RETIREMENT DATE" means the later of the date on which a Participant
attains age 65 or completes five years of Service.
"PARTICIPANT" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"PLAN YEAR" means the twelve month period commencing January 1 and ending
December 31, 1998 and each period of 12 consecutive months beginning on January
1 of each succeeding year.
"RECOGNIZED ABSENCE" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leave on a nondiscriminatory
basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Sec. 2021).
"ROLL OVER ACCOUNT" means the separate account established to hold a
Participant's roll-over contributions and direct transfers.
"SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States.
An Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Section 414(b) or 414(c)
of the Code, and a member of the
-5-
<PAGE>
controlled group or one of the trades and businesses is an Employer, (ii) for a
period after 1979 in which the other entity is a member of an affiliated service
group within the meaning of Section 414(m) of the Code, and a member of the
affiliated service group is an Employer, or (iii) all employers aggregated with
the Employer under Section 414(o) of the Code (but not until the Proposed
Regulations under Section 414(o) become effective).
"SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former spouse shall be treated
as the Spouse or surviving Spouse to the extent provided under a qualified
domestic relations order as described in section 414(p) of the Code.
"STOCK" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"STOCK FUND" means that portion of the Trust Fund consisting of Stock.
"STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined in Treasury
Regulations (S) 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"TRUST" OR "TRUST FUND" means the trust fund created under this Plan.
"TRUST AGREEMENT" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a co-
mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled trust fund. With respect to the allocation of investment responsibility
for the assets of the Trust Fund, the provisions of Article II of the Trust
Agreement are incorporated herein by reference.
"TRUSTEE" means one or more corporate persons or individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"UNALLOCATED STOCK FUND" means that portion of the Stock Fund consisting of
the Plan's holding of Stock which have been acquired in exchange for one or more
Stock obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2
"VALUATION DATE" means the last day of the Plan Year and each other date as
of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
-6-
<PAGE>
"VESTING YEAR" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
SECTION 3. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of the
-------------------
Entry Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not
in active Service with an Employer on the date he would otherwise first
enter the Plan, his entry shall be deferred until the next day he is in
Service.
3.2 DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means an
------------------------------
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he has an Hour of Service,
and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each January 1 after that first day of Service.
3.3 TERMINATED EMPLOYEES. No Employee shall have any interest or rights
--------------------
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in the
----------------------------
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan.
3.5 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of
---------------------------------
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after 5 consecutive one year Breaks in Service with
a vested Account balance in the Plan shall re-enter the Plan as of the date of
his return to Service with an Employer.
3.6 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee
-----------------------------
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any person
--------------------------------
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion
-7-
<PAGE>
is not made until after a contribution for the year has been made, the Employer
shall not be entitled to recover the contribution made with respect to the
ineligible person regardless of whether or not a deduction is allowable with
respect to the ineligible person shall constitute a forfeiture for the Plan Year
in which the discovery is made.
SECTION 4. CONTRIBUTIONS AND CREDITS.
-------------------------
4.1 DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to time
---------------------------
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
-----------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii)
the sum of (i) above, and the remaining principal and interest payments required
(or projected to be required on the basis of the interest rate in effect at the
end of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this Plan,
------------------------------------
the following terms have the meanings specified:
"ACTIVE PARTICIPANT" means a Participant who has satisfied the eligibility
requirements under Section 3 and who has at least 1000 Hours of Service during
the current Plan Year. However, a Participant shall not qualify as an Active
Participant unless (i) he is in active Service with an Employer as
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of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
"CASH COMPENSATION" means a Participant's 415 Compensation as defined in
Section 2 of the Plan and shall also include amounts contributed under a salary
reduction agreement pursuant to Section 401(k) or Section 125 of the Code.
In the event a Plan Year is a period of less than 12 months for any reason,
then Cash Compensation for the short period shall not exceed the pro rata
portion of this limit created by multiplying a fraction which is the number of
months in the short period divided by twelve times the annual compensation
limit.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in
------------------------------
all events be subject to the limitations set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
4.5 TRANSFERS. This Plan shall accept direct and indirect transfers,
---------
including roll-over contributions from other tax-qualified plans, provided,
however, that this Plan shall not accept any direct or indirect transfers from
any other retirement plan that is tax-qualified under Section 401(a) of the Code
and which is subject to the survivor annuity requirements of section 401(a)(11)
and section 417 of the Code.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
--------------------------------------------
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything herein to
------------------------------
the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the total
contributions for a Plan Year to the Accounts of Highly Paid Employees,
then allocation of such amount shall be adjusted so that such excess will
not occur.
5.1-2 After adjustment, if any, required by the preceding paragraph,
the annual additions during any Plan Year to any Participant's Account
under this and any other defined contribution plans maintained by the
Employer or an affiliate (within the purview of Section 414(b), (c) and (m)
and Section 415(h) of the Code, which affiliate shall be deemed the
Employer for this purpose) shall not exceed the lesser of $30,000 (or such
other dollar amount which results from cost-of-living adjustments under
Section 415(d) of the Code) or "25 percent of the Participant's 415
Compensation for such limitation year." In the event that annual additions
exceed the aforesaid limitations, they shall be reduced in the following
priority:
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(i) If the Participant is covered by the Plan at the end of the Plan
Year, any excess amount at the end of the Plan Year that cannot be
allocated to the Participant's Account shall be used to reduce the Employer
contribution for such Participant in the next limitation year and any
succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end of the
Plan Year, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future Employer
contributions for all remaining Participants in the next limitation year
and each succeeding limitation year if necessary.
(iii) If a suspense account is in existence at any time during a
limitation year, it will not participate in any allocation of investment
gains and losses. All amounts held in suspense accounts must be allocated
to Participant's Accounts before any contributions may be made to the Plan
for the limitation year.
(iv) If a suspense account exists at the time of Plan termination,
amounts held in the suspense account that cannot be allocated shall revert
to the Employer.
5.1-3 For purposes of this Section 5.1 and the following Section 5.2,
the "annual addition" to a Participant's accounts means the sum of (i)
Employer contributions, (ii) Employee contributions, if any, and (iii)
forfeitures. Annual additions to a defined contribution plan also include
amounts allocated, after March 31, 1984, to an individual medical account,
as defined in Section 415(l)(2) of the Internal Revenue Code, which is part
of a pension or annuity plan maintained by the Employer, amounts derived
from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee under
a welfare benefit fund, as defined in Section 419A(d) of the Internal
Revenue Code, maintained by the Employer. For these purposes, annual
additions to a defined contribution plan shall not include the allocation
of the excess amounts remaining in the Unallocated Stock Fund subsequent to
a sale of stock from such fund in accordance with a transaction described
in Section 8.1 of the Plan. The $30,000 limitations referred to shall, for
each limitation year ending after 1988, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of the
Employer contributions to the Plan for a year which are deductible under
Section 404(a)(9) of the Code are allocated to Highly Paid Employees
(within the meaning of Section 414(q) of the Internal Revenue Code), the
limitations imposed herein shall not apply to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were acquired
with the proceeds of a loan described in Section 404(a)(9)(A) of the Code),
or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5 If the Employer contributes amounts, on behalf of Employees
covered by this Plan, to other "defined contribution plans" as defined in
Section 3(34) of ERISA, the limitation on annual additions provided in this
Section shall be applied to annual additions in the aggregate to this Plan
-10-
<PAGE>
and to such other plans. Reduction of annual additions, where required,
shall be accomplished first by reductions under such other plan pursuant to
the directions of the named fiduciary for administration of such other
plans or under priorities, if any, established under the terms of such
other plans and then by allocating any remaining excess for this Plan in
the manner and priority set out above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month period
beginning each January 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the limitation
---------------------------------------
prescribed by Section 5.1 with respect to the annual addition to a Participant's
Accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the accrued benefit shall be limited so that the sum of his defined plan
fraction and his defined contribution plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his Accounts through the current year, and (ii)
the denominator of which is the sum of the lesser of the following amounts
-A- and -B- determined for the current limitation year and each prior
limitation year of Service with an Employer: -A- is 1.25 times the dollar
limit in effect for the year under Section 415(c)(1)(A) of the Code, or 1.0
times such dollar limitation if the Plan is super top-heavy, and -B-is 35
percent of the Participant's 415 Compensation for such year. Further, if
the Participant participated in any related defined contribution plan in
any years beginning before 1976, any excess of the sum of the actual annual
additions to the Participant's Accounts for those years over the maximum
annual additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into account as to each such year only to the
extent that his average annual voluntary contribution in those years
exceeded 10 percent of his average annual 415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
super top-heavy, and (b) 1.4 times the Participant's average 415
Compensation during his highest-paid three consecutive limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever action may
---------------------
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the limitations
--------------------------------------
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that
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<PAGE>
none of such Stock, and no other assets in lieu of such Stock, are allocated to
the Accounts of certain Participants in order to comply with Section 409(n) of
the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date of sale and ending on the later of (1) the date that is
ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
SECTION 6. TRUST FUND AND ITS INVESTMENT.
-----------------------------
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
----------------------
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the Trustee
------------------------------
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in its
--------------------
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay
for such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a
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<PAGE>
disqualified person within the meaning of Section 4975(e)(2) of the Code, or a
loan to the Plan which is guaranteed by a disqualified person. A Stock
Obligation includes a direct loan of cash, a purchase-money transaction, and an
assumption of an obligation of a tax-qualified employee stock ownership plan
under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the term
"guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation in order to qualify as an "exempt loan" is not a refinancing of the
Stock Obligation or the making of another Stock Obligation. The term "exempt
loan" refers to a loan that satisfies the provisions of this paragraph. A "non-
exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be
subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets other than
Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and from
cash dividends received on Stock, in the last case, however, subject to the
further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of
Plan assets transferred in satisfaction of the Stock Obligation must not
exceed the amount of the default. If the lender is a disqualified person
within the meaning of Section 4975 of the Code, a Stock Obligation must
provide for a transfer of Plan assets upon default only upon and to the
extent of the failure of the Plan to meet the payment schedule of said
Stock Obligation. For purposes of this paragraph, the making of a guarantee
does not make a person a lender.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide for a
---------------------------------
procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may
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<PAGE>
be made within each year of the qualified election period and shall continue for
the 90-day period immediately following the last day of each year in the
qualified election period. Once a Participant makes such election, the Plan
must complete diversification in accordance with such election within 90 days
after the end of the period during which the election could be made for the Plan
Year. In the discretion of the Committee, the Plan may satisfy the
diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to
the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section 404(c)
of ERISA.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
------------------------------------
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote all
-----------------------------
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision
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hereunder to the contrary, Stock must be tendered by the Trustee in a
manner determined by the Trustee to be for the exclusive benefit of the
Participants and Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account
are used to repay the Stock Obligation, Stock with a fair market value equal to
the dividends so used must be allocated to such Participant's Account in lieu of
the dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS.
-----------------------
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant to
----------------------------
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account.
Any benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the Trustee
----------------------------
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
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<PAGE>
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of the
-------------------------------------
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
----------------------------------
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in his
----------------------------
Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 5 0%
5 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a "Vesting
----------------------------
Year" means generally a calendar year in which an Employee has at least 1,000
Hours of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, including Service with other
employers as provided in the definition of "Service". Notwithstanding the above,
an Employee who was employed with The Oneida Savings Bank, a New York mutual
bank (the "Mutual Bank") which is the predecessor to the Bank, shall receive
credit for vesting purposes for each calendar year of continuous employment with
the Mutual Bank in which such Employee completed 1,000 Hours of Service (such
years shall also be referred to as "Vesting Years"). However, a Participant's
Vesting Years shall be computed subject to the following conditions and
qualifications:
9.2-1 A Participant's Vesting Years shall not include any Service
prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated
before five (5) consecutive Breaks in Service shall be determined without
regard to any Service after such five consecutive Breaks in Service.
Further, if a Participant has five (5) consecutive Breaks in Service before
his interest in his Account has become vested to some extent, pre-Break
years of Service shall not be required to be taken into account for
purposes of determining his post-Break vested percentage.
9.2-3 In the case of a Participant who has 5 or more consecutive 1-
year Breaks in Service, the Participant's pre-break Service will count in
vesting of the Employer-derived post-break accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in the
accrued benefit attributable to Employer contributions at the
time of separation from Service, or
(ii) upon returning to Service the number of consecutive 1-year
Breaks in Service is less than the number of years of Service.
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9.2-4 Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
9.2-5 If any amendment changes the vesting schedule, including an
automatic change to or from a top-heavy vesting schedule, any Participant
with three (3) or more Vesting Years may, by filing a written request with
the Employer, elect to have his vested percentage computed under the
vesting schedule in effect prior to the amendment. The election period
must begin not later than the later of sixty (60) days after the amendment
is adopted, the amendment becomes effective, or the Participant is issued
written notice of the amendment by the Employer or the Committee.
9.3 FULL VESTING UPON CERTAIN EVENTS.
--------------------------------
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his Account
shall fully vest on the Participant's Normal Retirement Date. The Participant's
interest shall also fully vest in the event that his Service is terminated by
Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest in
the event of a "Change in Control" of the Bank, or the Company. For these
purposes, "Change in Control" shall mean a change in control of a nature that:
(i) would be required to be reported in response to Item 1(a) of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Bank Holding Company Act, as amended ("BHCA"), and applicable rules and
regulations promulgated thereunder, as in effect at the time of the Change in
Control; or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (a) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner"(as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of Company's outstanding securities except for any securities purchased by the
Bank's employee stock ownership plan or trust; or (b) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the surviving institution
occurs; or (d) a proxy statement soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the Plan
are to be exchanged for or converted into cash or property or securities not
issued by the Company; or (e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
9.3-3 Upon a Change in Control described in Section 9.3-2, the Plan shall
be terminated and the Plan Administrator shall direct the Trustee to sell a
sufficient amount of Stock from the Unallocated Stock Fund to repay any
outstanding Stock Obligation in full. The proceeds of such sale shall be used to
repay
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such Stock Obligation. After repayment of the Stock Obligation, all remaining
shares in the Unallocated Stock Fund (or the proceeds thereof, if applicable)
shall be treated as earnings and shall be allocated in accordance with the
requirements of Section 8.1.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1, a
----------------------------------
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each affected Participant who is in Service shall
fully vest with respect to that part of the Plan which is terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
-----------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks In Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have a received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 ACCOUNTING FOR FORFEITURES. If a portion of a Participant's Account
--------------------------
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
-----------------------------
Account which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
-------------------
10.1 BENEFITS FOR PARTICIPANTS. For a Participant whose Service ends for
-------------------------
any reason, distribution will be made to or for the benefit of the Participant
or, in the case of the Participant's death, his Beneficiary, by payment in a
lump sum, in accordance with Section 10.2.
Notwithstanding the foregoing, if the balance credited to his Account
exceeds $5,000, his benefits shall not be paid before the latest of his 65th
birthday or the tenth anniversary of the year in which he commenced
participation in the Plan unless he elects an early payment date in a written
election filed with the Committee. A Participant may modify such an election at
any time, provided any new benefit payment
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date is at least 30 days after a modified election is delivered to the
Committee, subject to the provisions of Section 10.11 hereof.
10.2 TIME FOR DISTRIBUTION.
---------------------
10.2.1 Distribution of the balance of a Participant's Account
generally shall commence as soon as practicable after the last day of the
Plan Year next following his termination of Service for any reason, but no
later than one year after the close of the Plan Year:
(i) in which the Participant separates from Service by
reason of Normal Retirement, Disability, or death; or
(ii) which is the fifth Plan Year following the year in
which the Participant resigns or is dismissed, unless he is
reemployed before such date.
10.2.2 Unless the Participant elects otherwise, the distribution of
the balance of a Participant's Account shall commence not later than the 60th
day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect to
a 5-percent owner (as defined in Code Section 416), distribution of a
Participant's Account shall commence (whether or not he remains in the
employ of the Employer) not later than the April 1 of the calendar year
next following the calendar year in which the Participant attains age 70-
1/2, and (2) with respect to all other Participants, payment of a
Participant's benefit will commence not later than April 1 of the calendar
year following the calendar year in which the Participant attains age 70-
1/2, or, if later, the year in which the Participant retires. A
Participant's benefit from that portion of his Account committed to the
Investment Fund shall be calculated on the basis of the most recent
Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his
death shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall
commence not later than one year after the end of the Plan Year in
which the Participant died, however, if the Participant's Beneficiary
is his surviving Spouse, distributions may commence on the date on
which the Participant would have attained age 70-1/2.
(ii) If a married Participant dies before his benefit
payments begin, then unless he has specifically elected otherwise the
Committee shall cause the balance in his Account to be paid to his
Spouse. No election by a married Participant of a different
Beneficiary shall be valid unless the election is accompanied by the
Spouse's written consent, which
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<PAGE>
(i) must acknowledge the effect of the election, (ii) must explicitly
provide either that the designated Beneficiary may not subsequently
be changed by the Participant without the Spouse's further consent,
or that it may be changed without such consent, and (iii) must be
witnessed by the Committee, its representative, or a notary public.
(This requirement shall not apply if the Participant establishes to
the Committee's satisfaction that the Spouse may not be located.)
10.3 MARITAL STATUS. The Committee shall from time to time take whatever
--------------
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
-------------------------------
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of virtually all
---------------------------------
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of Stock to
make the required distribution. Alternatively, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in cash. In all other
cases, the Participant's vested interest in the Stock Fund shall be distributed
in shares of Stock, and his vested interest in the Investment Fund shall be
distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. Similarly,
the put option shall not apply with respect to the portion of a Participant's
Account which the Employee elected to have reinvested under Code Section
401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed
by the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock.
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<PAGE>
Notwithstanding anything herein to the contrary, in the case of a plan
established by a Bank (as defined in Code Section 581), the put option shall not
apply if prohibited by a federal or state law and Participants are entitled to
elect their benefits be distributed in cash.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
period not longer than five years from the day after the put right is exercised,
with adequate security and interest at a reasonable rate on the unpaid balance,
all such terms to be set forth in a promissory note delivered to the seller with
normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
------------------------------------
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS.
---------------------------------------------------------------
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or
----------------------------------------
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the Participant and the Participant's Beneficiary, or for
a specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
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<PAGE>
10.9-2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to the surviving Spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code
Section 414(p).
10.10 IN SERVICE DISTRIBUTION OF ROLL-OVER ACCOUNT. Upon the written
--------------------------------------------
election of a Participant delivered to the Committee, all or any portion of the
amounts held in the Participant's Roll-over Account, shall be distributed to the
Participant at any time within 30 days or as soon thereafter as is reasonably
practicable.
10.11 WAIVER OF 30 DAY PERIOD AFTER NOTICE OF DISTRIBUTION. If a
----------------------------------------------------
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as applicable,
clearly informs the Participant that the Participant has a
right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect
a distribution (and, if applicable, a particular option),
and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
----------------------------------------------------
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the day before the date on which benefits become
payable, he shall be presumed to have filed a claim for payment for the
Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim
-------------------------
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
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<PAGE>
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
-------------------------------
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have no investment responsibility with respect to the Investment
Fund except to the extent, if any, specifically provided in the Trust Agreement.
In the discharge of its duties, the Committee may employ accountants, actuaries,
legal counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three or
---------------------
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records may
-------------------
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the Plan Committee under ERISA and other
laws.
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<PAGE>
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Board as to the application of Employer contributions to
Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Trustee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's investment in Stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents to pay
their reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
------------------
established by reported trading on a generally recognized public market, the
valuation of such Stock shall be determined by an independent appraiser. For
purposes of the preceding sentence, the term "independent appraiser" means any
appraiser meeting requirements similar to the requirements of the regulations
prescribed under Section 170(a)(1) of the Code.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
---------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be governed
-------------------
by the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
----------------------
shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
-----------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
--------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
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<PAGE>
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee
-----------------------------------------
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
-------------------------------------
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
-----------------------------------------------
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the Bank,
-----------------------------------
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer shall
-----------------------------
be reorganized by way of merger, consolidation, transfer of assets or otherwise,
so that an entity other than an Employer shall succeed to all or substantially
all of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
--------------------------------------
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification
-25-
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under Section 401(a). If this Plan is held by the Internal Revenue Service not
to qualify initially under Section 401(a) either as originally adopted or as
amended, each Employer's contributions to the Trust under this Plan (including
any earnings thereon) shall be returned to it and this Plan shall be terminated.
In the event that this Plan is amended after its initial qualification and the
Plan as amended is held by the Internal Revenue Service not to qualify under
Section 401(a), the amendment may be modified retroactively to the earliest date
permitted by U.S. Treasury Regulations in order to secure approval of the
amendment under Section 401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue this Plan
---------------------------
as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be
any transfer of assets to a successor plan or merger or consolidation with
another plan unless, in the event of the termination of the successor plan or
the surviving plan immediately following such transfer, merger, or
consolidation, each participant or beneficiary would be entitled to a benefit
equal to or greater than the benefit he would have been entitled to if the plan
in which he was previously a participant or beneficiary had terminated
immediately prior to such transfer, merger, or consolidation. Following a
termination of this Plan by the Bank, the Trustee shall continue to administer
the Trust and pay benefits in accordance with the Plan as amended from time to
time and the Committee's instructions.
SECTION 14. MISCELLANEOUS PROVISIONS.
------------------------
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
---------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.12 hereof.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employer with
---------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
-26-
<PAGE>
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee and
---------------------
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted to
-----------------
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and
----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is held
--------------------------
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon the
------------------
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in accordance
-------------------
with the laws of the State of New York to the extent those laws are applicable
under the provisions of ERISA.
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
---------------------------------------------------
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees shall
------------------
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary are
unknown to the Trustees, the Plan will forfeit the benefit, provided that
the benefit is subject to a claim for reinstatement if the Participant or
Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the Trustees
shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
-27-
<PAGE>
14.12 QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not apply
----------------------------------
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated by Administrator
under the provisions of the Retirement Equity Act of 1984. Further, to the
extent provided under a "qualified domestic relations order", a former Spouse of
a Participant shall be treated as the Spouse or surviving Spouse for all
purposes under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order and
the Plan's procedures for determining the qualified status of domestic
relations orders, and
(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan Committee
shall establish reasonable procedures to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Employer or
Plan Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Plan Committee shall segregate in a separate account in the Plan
or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order
(or modification thereof) is determined to be a qualified domestic relations
order, the Employer or the Plan Committee shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto. If within
eighteen (18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
SECTION 15. TOP-HEAVY PROVISIONS.
--------------------
15.1 TOP-HEAVY PLAN. For any Plan Year beginning after December 31,
--------------
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds sixty percent (60%); or
-28-
<PAGE>
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 SUPER TOP-HEAVY PLAN For any Plan Year beginning after December 31,
--------------------
1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent
(90%) and this Plan is not part of any required aggregation group or permissive
aggregation group.
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 DEFINITIONS.
-----------
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date", with respect to the first Plan Year
of any plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year. If
any other plan has a Determination Date which differs from this Plan's
Determination Date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's Determination Date falling within the same
calendar years as this Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having 415 Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose annual compensation exceeds $150,000. For purposes of
determining whether an Employee is a Key Employee, annual compensation
means compensation as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employee pursuant to a salary
reduction agreement which are excludable from the Employee's gross income
under Section 125, Section 402(e)(3), Section 402(H)(1)(B) or Section
403(b) of the Code. The Beneficiary of a Key Employee shall also be
considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time during
the five years ending on the top-heavy Determination Date for the Plan Year
has received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
-29-
<PAGE>
15.3-4 A "required aggregation group" includes (a) each qualified
Plan of the Employer in which at least one Key Employee participates in the
Plan Year containing the Determination Date and any of the four (4)
preceding Plan Years, and (b) any other qualified Plan of the Employer
which enables a Plan described in (a) to meet the requirements of Code
Sections 401(a)(4) and 410. For purposes of the preceding sentence, a
qualified Plan of the Employer includes a terminated Plan maintained by the
Employer within the five (5) year period ending on the Determination Date.
In the case of a required aggregation group, each Plan in the group will be
considered a top-heavy Plan if the required aggregation group is a top-
heavy group. No Plan in the required aggregation group will be considered
a top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or (m) or
(o) (but only after the Code Section 414(o) regulations become effective)
are considered a single Employer.
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the Employer
that are not required to be aggregated but which, when considered as a
group with the required aggregation group, satisfy the requirements of Code
Sections 401(a)(4) and 410 and are comparable to the Plans in the required
aggregation group. No Plan in the permissive aggregation group will be
considered a top-heavy Plan if the permissive aggregation group is not a
top-heavy group. Only a Plan that is part of the required aggregation
group will be considered a top-heavy Plan if the permissive aggregation
group is top-heavy.
15.4 TOP-HEAVY RULES OF APPLICATION.
------------------------------
For purposes of determining the value of Account balances and the
present value of accrued benefits the following provisions shall apply:
15.4-1 The value of Account balances and the present value of
accrued benefits will be determined as of the most recent Valuation Date
that falls within or ends with the twelve (12) month period ending on the
Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy, the
present value of an individual's accrued benefits and an individual's
Account balances is counted only once each year.
15.4-3 The Account balances and accrued benefits of a Participant
who is not presently a Key Employee but who was a Key Employee in a Plan
Year beginning on or after January 1, 1984 will be disregarded.
15.4-4 Employer contributions attributable to a salary reduction or
similar arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a Plan of the Employer. No
distribution, however, made from the Plan to an individual (other than the
beneficiary of a deceased Employee who was an Employee within the five (5)
year period ending on the Determination Date) who has not been an Employee
at any time during the five (5) year period ending on the Determination
Date shall be taken into account in determining whether
-30-
<PAGE>
the Plan is top-heavy. Also, any amounts recontributed by an Employee upon
becoming a Participant in the Plan shall no longer be counted as a
distribution under this paragraph.
15.4-7 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a terminated Plan of the Employer,
provided that such Plan (if not terminated) would have been required to be
included in the aggregation group.
15.4-8 Accrued benefits and Account balances of an individual shall
not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the
five (5) year period ending on the applicable Determination Date.
Compensation for purposes of this subparagraph shall not include any
payments made to an individual by the Employer pursuant to a qualified or
non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount of
the Account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated
by the Employee except as described below. If a rollover was received by
this Plan after December 31, 1983, the rollover or transfer voluntarily
initiated by the Employee was received prior to January 1, 1984, then the
rollover or transfer shall be considered as part of the accrued benefit by
the Plan receiving such rollover or transfer. If this Plan transfers or
rolls over funds to another Plan in a transaction voluntarily initiated by
the Employee after December 31, 1983, then this Plan shall count the
distribution for purposes of determining Account balances or the present
value of accrued benefits. A transfer incident to a merger or consolidation
of two or more Plans of the Employer (including Plans of related Employers
treated as a single Employer under Code Section 414), or a transfer or
rollover between Plans of the Employer, shall not be considered as
voluntarily initiated by the Employee.
15.5 TOP-HEAVY RATIO.
---------------
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the Account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the Account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer shall
---------------------
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
-31-
<PAGE>
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's 415 Compensation shall
include amounts the Key Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on behalf of each
Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's 415 Compensation
for that year.
15.7 MINIMUM VESTING. If a Participant's vested interest in his Account
---------------
is to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
15.8 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN. In the event this
----------------------------------------------
Plan becomes top-heavy and a conflict arises between the top-heavy provisions
herein set forth and the remaining provisions set forth in this Plan, the top-
heavy provisions shall control.
-32-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a subsidiary of Oneida Financial Corp. following the
Reorganization:
Name State of Incorporation
---- ----------------------
The Oneida Savings Bank New York
<PAGE>
EXHIBIT 23.2
PRICEWATERHOUSECOOPERS [LOGO]
PricewaterhouseCoopers LLP
One Lincoln Center
Syracuse NY 13202
Telephone (315) 474 8541
Facsimile (315) 474 0259
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of 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
September 15, 1998
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF FINPRO APPEARS HERE]
Board of Trustees
Oneida Financial Corp.
The Oneida Savings Bank
182 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
September 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,475
<INT-BEARING-DEPOSITS> 1,373
<FED-FUNDS-SOLD> 8,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,185
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 141,765
<ALLOWANCE> 1,721
<TOTAL-ASSETS> 217,642
<DEPOSITS> 189,217
<SHORT-TERM> 0
<LIABILITIES-OTHER> 394
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 28,031
<TOTAL-LIABILITIES-AND-EQUITY> 217,642
<INTEREST-LOAN> 6,093
<INTEREST-INVEST> 1,771
<INTEREST-OTHER> 148
<INTEREST-TOTAL> 8,012
<INTEREST-DEPOSIT> 3,922
<INTEREST-EXPENSE> 3,922
<INTEREST-INCOME-NET> 4,089
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 3,123
<INCOME-PRETAX> 1,354
<INCOME-PRE-EXTRAORDINARY> 1,354
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.93
<LOANS-NON> 667
<LOANS-PAST> 40
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,793
<CHARGE-OFFS> 117
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 1,721
<ALLOWANCE-DOMESTIC> 1,109
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 612
</TABLE>
<PAGE>
EXHIBIT 99.2
ONEIDA FINANCIAL CORP.
PROPOSED HOLDING COMPANY FOR
THE ONEIDA SAVINGS BANK
ONEIDA, NEW YORK
PROPOSED MARKETING MATERIALS
<PAGE>
Marketing Materials for
Oneida Financial Corp.
Oneida, New York
Table of Contents
-----------------
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
A. Explanation
B. Quantity and Method of Distribution
C. Example
IV. Officer and Director Support Brochure
A. Explanation
B. Method of Distribution
C. Example
V. IRA Mailing
A. Explanation
B. Quantity and Method of Distribution
C. IRA Mailing Example
VI. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VII. Invitations
A. Explanation
B. Quantity - Method of Distribution
C. Examples
VIII. Letters
A. Explanation
B. Method of Distribution
C. Examples
IX. Proxygram
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers, community members and other
interested investors receive prompt accurate information in a simultaneous
manner, the Bank will forward press releases to area newspapers, radio
stations, etc. at various points during the Conversion and Reorganization
process.
Only press releases approved by Issuer's Counsel, and the FDIC and the New
York State Banking Department will be forwarded for publication in any
manner.
B. Schedule
1. Approval of Conversion and Reorganization
2. Close of Stock Offering
<PAGE>
National and Local Distribution List
------------------------------------
The Bank should provide a supplemental distribution list that includes all local
newspapers that it considers to be within its market area.
(TO BE PROVIDED)
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Michael R. Kallet
President and Chief Executive Officer
The Oneida Savings Bank
(315) 363-2000
THE ONEIDA SAVINGS BANK
-----------------------
REORGANIZATION FROM MUTUAL HOLDING COMPANY TO STOCK
---------------------------------------------------
HOLDING COMPANY APPROVED
-------------------------
Michael R. Kallet, President and Chief Executive Officer of The Oneida
Savings Bank (the "Bank"), Oneida, New York-, announced today that the Bank has
received approval from the Federal Deposit Insurance Corporation and the New
York State Banking Department to reorganize from the mutual form of ownership to
the mutual holding company form of organization. As part of the Reorganization,
the Bank will become a wholly-owned subsidiary of Oneida Financial Corp.
("Oneida Financial"), to serve as the holding company of the Bank.
Pursuant to a plan of conversion and reorganization, Oneida Financial is
offering up to ________ shares, subject to adjustment, of its common stock, at a
price of $10.00 per share. The stock will be offered on a priority basis to
depositors of the bank as of December 31, 1996, Oneida Savings Bank's Employee
Stock Ownership Plan and depositors of the Bank as of December 31, 1997.
Concurrent with the Subscription Offering, and subject to availability, stock
will be offered to persons who reside in Madison County, New York, the cities
and towns of Annsville, Camden, Florence, Sherrill, Vernon, Verona and Vienna in
Oneida County and the towns of Fabius, Manlius and Pompey in Onondaga County.
The Subscription and Community Offering (together, the "Offering") will be
managed by Trident Securities, Inc. of Raleigh, North Carolina. Prospectuses
describing, among other things, the terms of the Offering will be mailed to
eligible depositors of the Bank on or about November _____, 1998.
As a result of the reorganization, the Bank will operate as a subsidiary of
Oneida
<PAGE>
Financial Corp. According to Mr. Kallet, "Our day to day operations will not
change as a result of the reorganization and deposits will continue to be
insured by the FDIC up to the applicable legal limits."
Customers or members of the community with questions concerning the
reorganization should call the Stock Information Center at (315)
________________, or visit the Bank's main office at 182 Main Street in
Lockport.
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Oneida Financial Corp. The offer is made only by the Prospectus. The shares
of Common Stock are not deposits or savings accounts and will not be insured by
---
the Federal Deposit Insurance Corporation or any other government agency.
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Michael R. Kallet
President and Chief Executive Officer
The Oneida Savings Bank
(315) 363-2000
ONEIDA FINANCIAL CORP. COMPLETES REORGANIZATION AND STOCK SALE
--------------------------------------------------------------
Oneida, New York - (_______, 1998) Michael R. Kallet, President and Chief
Executive Officer of The Oneida Savings Bank (the "Bank"), announced today that
Oneida Financial Corp. (the "Company"), the holding company for the Bank, will
complete its stock offering on _________, 1998 in connection with the Bank's
Conversion and Reorganization from the mutual form of organization to the mutual
holding company form of organization. __________ shares were sold at $10.00 per
share in connection with the stock offering.
On ________, 1998, the Bank's Plan of Conversion and Reorganization was
approved by the Bank's voting depositors at a Special Meeting.
Mr. Kallet indicated that the board of trustees of the Bank want to express
their thanks for the response to the stock offering and that the Bank looks
forward to continuing to serve the needs of its customers and the community as a
stock institution. The offering was managed by Trident Securities, Inc. The
stock is expected to commence trading on the Nasdaq National Market System
under the symbol "______" on ___________, 1998.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify the Bank's
customers and members of the local community that the Conversion and
Reorganization offering is underway.
The intended use of advertisement "B" is to remind the Bank's customers and
members of the local community of the closing date of the stock offering.
B. Media Schedule
1. Advertisement A - To be run immediately following regulatory approval
and run as often as weekly thereafter.
2. Advertisement B - To be run during the last week of the subscription
offering.
The Bank may, depending upon the response from customers and the community,
choose to run fewer ads or no ads at all.
<PAGE>
Advertisement (A)
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the Prospectus. These shares
have not been approved or disapproved by the Securities and Exchange Commission,
the Federal Deposit Insurance Corporation, nor has such commission, or
corporation passed upon the accuracy or adequacy of the prospectus. Any
representation to the contrary is unlawful.
NEW ISSUE _______, 1998
- ---------
________ SHARES
These shares are being offered pursuant
to a Plan of Conversion and Reorganization whereby
THE ONEIDA SAVINGS BANK
Oneida, New York will
convert from the mutual form of ownership
to the mutual holding company form of organization
and become a wholly-owned subsidiary of
ONEIDA FINANCIAL CORP.
COMMON STOCK
_______________
PRICE $10.00 PER SHARE
_______________
TRIDENT SECURITIES, INC.
For a copy of the prospectus call (315) ________.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from the undersigned or such other brokers and dealers
as may legally offer these securities in such state.
- --------------------------------------------------------------------------------
<PAGE>
Advertisement (B)
- --------------------------------------------------------------------------------
ATTENTION: THE ONEIDA SAVINGS BANK'S ELIGIBLE
DEPOSITORS AND MEMBERS OF OUR LOCAL COMMUNITY
_____________, IS THE DEADLINE TO
ORDER STOCK OF ONEIDA FINANCIAL CORP.
Eligible depositors of The Oneida Savings Bank
and members of our local community have the opportunity
to invest in The Oneida Savings Bank by subscribing
for common stock in its proposed holding company
ONEIDA FINANCIAL CORP.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (315) _____________.
This announcement is not an offer to sell or a solicitation of an offer to buy
the stock of Oneida Financial Corp. The offer is made only by the Prospectus.
The shares of Common Stock are not deposits or savings accounts and will not be
insured by the Federal Deposit Insurance Corporation or any other government
agency.
- --------------------------------------------------------------------------------
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
Conversion and Reorganization. It serves to answer some of the most
commonly asked questions in "plain, everyday language". Although most of
the answers are taken verbatim from the Prospectus, it saves a prospective
investor from searching for the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and Answer
brochure. However, regardless of the method the brochures are always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all eligible account holders of the Bank.
2. Question and Answer brochures are available at the Bank.
3. Question and Answer brochures are distributed in information packets
at community meetings.
4. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
<PAGE>
QUESTIONS AND ANSWERS CONCERNING
THE PLAN OF MUTUAL HOLDING
COMPANY REORGANIZATION
The Oneida Savings Bank
Oneida, New York
Questions and Answers Regarding the Subscription and Community Offering
MUTUAL HOLDING COMPANY REORGANIZATION
The Oneida Savings Bank's Board of Trustees have unanimously adopted a Plan
of Reorganization pursuant to which The Oneida Savings Bank (the "Bank") will
reorganize from a New York chartered mutual savings bank into a New York
chartered stock savings bank. As part of the Reorganization, the Bank will
become a wholly owned subsidiary of a stock holding company (the "Holding
Company") and the Holding Company will become a subsidiary of the Mutual Holding
Company. In conjunction with this Reorganization, the Holding Company will
offer up to 49% of its common stock in a stock offering to the depositors of the
Bank. The remaining stock, which will not constitute less than a majority of
the common stock, will be owned by the Mutual Holding Company.
The Reorganization is subject to approval by the Bank's depositors and the
appropriate regulatory authorities. Complete details on the Reorganization are
contained in the Prospectus and Proxy Statement.
1. Q. WHAT WILL BE THE EFFECT OF THE REORGANIZATION?
A. - The Bank will create a Holding Company named Oneida Financial Corp.
("Oneida Financial") and a Mutual Holding Company as part of the
Reorganization.
- Oneida Financial Corp. will own 100% of the Bank's stock.
- The Mutual Holding Company will own no less than 51% of the stock
of Oneida Financial.
- Stockholders will own no more than 49% of Oneida Financial.
- Qualifying depositors will receive subscription rights to purchase
stock in Oneida Financial.
2. Q. WHAT IS THE REASON FOR THE CONVERSION AND REORGANIZATION?
A. The Board of Trustees of The Oneida Savings Bank has studied the issue
of Mutual Holding Company Reorganizations for quite some time. With
the many regulatory changes our industry faces today, the Board felt
that being in the Mutual Holding Company form of ownership provided us
with greater regulatory and capital structure flexibility to meet our
future challenges.
The Reorganization will permit the Holding Company to issue capital
stock, which is a source of capital not available to mutual savings
banks. If the Bank elected to undertake a standard conversion,
applicable regulations would have
<PAGE>
required a greater amount of stock to be sold, resulting in the
raising of an amount of capital that could not be effectively utilized
by the Bank.
The Reorganization will also provide the Bank with additional
flexibility to structure and finance the expansion of it's operations
including the possible acquisition of other financial institutions.
At the same time, The Oneida Savings Bank's mutual form of ownership
and it's desire to remain an independent savings bank will be
preserved. It is very important to the Bank to remain a community
oriented institution focused on providing a high quality of service to
our customers.
3. Q. WILL THE REORGANIZATION HAVE ANY EFFECT ON MY SAVINGS ACCOUNT OR
LOAN ACCOUNT WITH THE BANK?
A. No. CUSTOMERS WILL BE SERVED IN THE SAME OFFICES BY THE SAME STAFF.
The Reorganization will not affect the amount, interest rate or
withdrawal rights of deposit accounts, which will continue to be
insured by the Federal Deposit Insurance Corporation to the maximum
legal limit. Likewise, the loan accounts and rights of borrowers will
not be affected.
4. Q. WILL THERE BE CHANGES IN TRUSTEES, OFFICERS OR EMPLOYEES OF THE
BANK AS A RESULT OF THE REORGANIZATION?
A. No. Officers and employees of the Bank will continue in their current
capacities. The trustees of the Bank will serve as the initial
directors of the Holding Company.
5. Q. DOES THE COMPANY ANTICIPATE PAYING CASH DIVIDENDS ON THE HOLDING
COMPANY'S COMMON STOCK?
A. The Company does not initially intend to pay a cash dividend,
although it may consider the payment of dividends in the future. The
Holding Company's ability to pay dividends will depend on the net
proceeds retained from the Offerings and on dividends received from
the Bank, which is subject to various regulatory restrictions on the
payment of dividends.
6. Q. HOW WILL THE PROCEEDS FROM THE OFFERINGS BE USED?
A. Net proceeds from the sale of the Stock are estimated to be between
$____ million and $____ million. The Holding Company plans to
contribute to the Bank ____% or $_______ of the net proceeds (at the
midpoint) from the Offerings and retain the remainder of the net
proceeds. The Holding Company intends to use a portion of the net
proceeds retained by it to make a loan directly to an employee stock
ownership plan (the "ESOP") to enable the ESOP to purchase ___% of the
common stock. The remainder of the net proceeds retained by the
Holding Company will initially be invested in short-term interest-
bearing deposits and marketable securities. Funds retained by the
Holding Company may be used to support the future expansion of
operations and for other business or investment purposes, including
the acquisition of other financial institutions and/or branch offices,
although there are no current plans, arrangements, understandings or
agreements regarding such expansion or acquisitions. Subject to
applicable
<PAGE>
limitations, such funds also may be used in the future to repurchase
shares of common stock. Funds contributed to the Bank from the Holding
Company will be used for general business purposes. The proceeds will
be used to support the Bank's lending and investment activities and
thereby enhance the Bank's capabilities to service the borrowing and
other financial needs of the communities it serves.
7. Q. HOW WILL THE COMMUNITY BENEFIT FROM THE REORGANIZATION?
A. In conjunction with the Reorganization, the Board of Trustees expects
to create a community foundation dedicated to the promotion of
charitable purposes including community development, grants or
donations to support housing assistance, not-for-profit community
groups and other similar community minded projects and organizations.
The Bank expects to contribute to the Foundation 2% of the shares
issued in the Reorganization plus $100,000 in cash. The foundation,
which is subject to regulatory approval, is being created by the Bank
to share the Bank's success with the local communities it serves.
VOTING - YOUR VOTE IS IMPORTANT
THE ONEIDA SAVINGS BANK'S DEPOSITORS (AS DEFINED BELOW) ARE BEING ASKED TO
APPROVE THE PLAN OF REORGANIZATION, WHICH WAS ADOPTED BY THE BOARD OF TRUSTEES
OF THE BANK AND APPROVED BY STATE AND FEDERAL REGULATORS. A COPY OF THE PLAN OF
REORGANIZATION MAY BE OBTAINED FROM ANY BANK OFFICE OR BY CALLING THE STOCK
INFORMATION CENTER.
VOTING ON THE PLAN DOES NOT AFFECT DEPOSIT OR LOAN ACCOUNTS AT THE BANK, AND
DOES NOT OBLIGATE DEPOSITORS TO PURCHASE STOCK IN THE OFFERINGS.
8. Q. WHICH CUSTOMERS OF THE BANK ARE BEING ASKED TO VOTE ON THE PLAN?
A. Depositors of the Bank, as of the Voting Record Date, will be
eligible to vote on the Plan. The Voting Depositors have been
provided with Proxy Cards and Proxy Statements describing the Plan.
Each depositor, as of the Voting Record Date, will be entitled to
cast one vote for each $100 or fraction thereof of the withdrawable
value of any savings accounts in the Bank as of _____________, 1998,
the Voting Record Date. Depositors eligible to vote are called "Voting
Depositors". The maximum number of votes eligible to be cast by any
depositor may not exceed 1,000. Approval of the Plan requires the
affirmative vote of a majority of the total votes eligible to be cast,
and 75% of the aggregate dollar amount of deposits of Voting
Depositors entitled to vote at the Special Meeting of Depositors.
THE BOARD OF TRUSTEES URGE DEPOSITORS TO VOTE FOR THE PLAN. NOT
VOTING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PLAN. Without
sufficient favorable votes, the Reorganization cannot be completed.
In that event, funds submitted by investors in connection with the
Offerings would be promptly returned, with interest.
<PAGE>
9. Q. HOW DO I VOTE BY PROXY?
A. Please read the Proxy Statement that you receive. You may vote by
completing, signing and returning the Proxy Card in the Proxy Return
Envelope provided. PLEASE RESPOND PROMPTLY.
10. Q. WHY HAVE I RECEIVED MORE THAN ONE PROXY CARD?
A. If you have more than one deposit account at the Bank, you could
-----
receive more than one informational packet and each packet should
contain a separate Proxy Card, depending on the ownership structure of
your accounts. PLEASE VOTE, SIGN AND PROMPTLY RETURN ALL PROXY CARDS.
11. Q. AM I OBLIGATED TO PURCHASE STOCK IF I VOTE IN FAVOR OF THE PLAN?
<PAGE>
A. No. Voting in no way obligates you to subscribe for stock. To
subscribe for stock, you must submit your order on a separate order
form along with the appropriate payment.
THE OFFERINGS
INVESTMENT IN COMMON STOCK INVOLVES CERTAIN RISKS. BEFORE MAKING AN INVESTMENT
DECISION, PLEASE CAREFULLY READ THE ENCLOSED PROSPECTUS, INCLUDING THE SECTION
ENTITLED "RISK FACTORS."
12. Q. WHO MAY PURCHASE CONVERSION STOCK IN THE OFFERINGS?
A. The Offerings consist of (i) a SUBSCRIPTION OFFERING to certain past
and current depositors of the Bank and (ii) COMMUNITY OFFERING,
INITIALLY, 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, and the towns of Fabius, Manlius
and Pompey in Onondaga County.
The common stock is being offered in the following order of priority:
(i) depositors of the Bank with account balances of $100 or more as
of the close of business on December 31, 1996 ("Eligible Account
Holders"); (ii) the ESOP; and (iii) depositors of the Bank with
account balances of $100 or more as of the close of business on
December 30, 1998 ("Supplemental Eligible Account Holders").
To the extent that shares remain available for purchase, a concurrent
Community Offering may commence without notice at any time after the
commencement of the Subscription Offering and may terminate at any
time without notice but may not terminate later than _______, 1998.
The right of any person to purchase shares in the Community Offering,
if any, is subject to the absolute right of the Board to accept or
reject such purchases in whole or in part.
13. Q. WHAT IS THE PRICE PER SHARE?
A. The shares of Conversion Stock are being offered at a Purchase Price
of $_____ per share. All subscribers will pay the same price per
share.
14. Q. WHEN MUST ONE PLACE AN ORDER FOR SHARES OF STOCK?
A. Eligible depositors wishing to exercise their subscription rights must
return a completed Stock Order Form to The Oneida Savings Bank,
together with full payment or appropriate instructions authorizing a
withdrawal from a The Oneida Savings Bank deposit account, on or prior
to the close of the Subscription Offering which will be 12:00 noon,
Eastern time on _________, 1998, the expiration date of the
Subscription Offering.
15. Q. HOW DOES ONE PAY FOR STOCK DURING THE OFFERING?
A. First, one may pay for stock with cash (if delivered in person to a
The Oneida Savings Bank office) or by check or money order.
Subscription funds will earn interest at the Bank's passbook rate from
the day the Bank receives them until the
<PAGE>
completion or termination of the Reorganization.
Second, one may authorize the bank to withdraw funds from a The Oneida
Savings Bank savings account or certificate of deposit without early
withdrawal penalty. These funds will continue to earn interest at the
rate in effect for the account until completion of the offering at
which time funds will be withdrawn for the stock purchase. Funds
remaining in this account (if any) will continue to earn at the
contractual rate unless the withdrawal reduces the account balance
below the applicable minimum in which case the depositor will receive
interest at the passbook rate. A hold will be placed on the
depositor's account for the amount specified for stock payment. Such
subscribers will not have access to these funds from the day the Bank
receives the stock order until the completion or termination of the
Reorganization.
16. Q. HOW MANY SHARES OF STOCK WILL BE OFFERED?
A. Oneida Financial Corp. is offering between _____ and _____ shares of
its common stock at a price of $10.00 per share. The Offering may be
increased to ______ shares without notice to you if market or
financial conditions change prior to completion of the offering.
17. Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF SHARES WHICH MAY BE
SUBSCRIBED FOR DURING THE OFFERING PERIOD?
A. The minimum number of shares that may be purchased is 25 (or $250).
The maximum number of shares for any individual person or persons
ordering through a single account is 10,000 shares (or $100,000). In
certain instances your order may be grouped together with orders by
other persons who are associated with you or with whom you are acting
concert, and in that event, the aggregate order may not exceed 20,000
shares (or $200,000).
18. Q. MUST ONE PAY A COMMISSION ON THE STOCK SUBSCRIBED FOR DURING THIS
OFFERING?
A. No. Subscribers will not pay a commission on stock purchased in the
Subscription Offering, the Community Offering, if any, or Syndicated
Community Offering, if any.
19. Q. WILL SUBSCRIBERS RECEIVE INTEREST ON FUNDS SUBMITTED FOR STOCK
SUBSCRIPTIONS?
A. Yes. The Oneida Savings Bank will pay its current passbook rate from
the date funds are received (with a completed Stock Order Form) during
the Subscription and Community Offerings until completion of the
Reorganization.
20. Q. HOW MUCH STOCK DO THE TRUSTEES AND OFFICERS OF THE ONEIDA SAVINGS
BANK INTEND TO SUBSCRIBE FOR THROUGH THE SUBSCRIPTION OFFERING?
A. Trustees and executive officers intend to subscribe for $________ in
stock. The purchase price paid by trustees and officers will be the
same as that paid by customers and the general public.
<PAGE>
21. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE TO ANOTHER PARTY?
A. No. Pursuant to federal regulations, Subscription Rights granted to
Eligible Account Holders and Supplemental Eligible Account Holders may
be exercised only by the person(s) to whom they are granted. Any
person found to be transferring or selling Subscription Rights will be
subject to forfeiture of such rights and other penalties.
22. Q. IF A DEPOSITOR CLOSED AN ACCOUNT SEVERAL MONTHS AGO WILL THEY
STILL BE ELIGIBLE TO SUBSCRIBE FOR STOCK?
A. If they were an account holder with at least $100 on deposit on
December 31, 1996, the Eligibility Record Date, or the Supplemental
Eligibility Record Date, they may be eligible to subscribe for stock
regardless of whether or not they continue to hold an Oneida Savings
Bank account.
23. Q. MAY ONE OBTAIN A LOAN FROM THE ONEIDA SAVINGS BANK USING STOCK AS
COLLATERAL TO PAY FOR SHARES?
A. No. Federal regulations do not allow the Bank to make loans for this
purpose, but other financial institutions may make a loan for this
purpose.
24. Q. WILL THE FDIC (FEDERAL DEPOSIT INSURANCE CORPORATION) INSURE THE
SHARES OF STOCK?
A. No. The shares will not be insured by the FDIC. No stock is insured.
However, the FDIC will continue to insure savings accounts and
certificates of deposit up to the applicable limits allowed by law.
25. Q. WILL THERE BE A MARKET FOR THE STOCK FOLLOWING THE CONVERSION?
A. The Oneida Savings Bank has never issued stock before, and
consequently there is no established market for its common stock. The
Bank has received conditional approval to have the common stock quoted
on the NASDAQ National Market under the symbol "ONFC." Trident
Securities, Inc. intends to make a market in the common stock.
However, purchasers of common stock should recognize that no assurance
can be given that an active and liquid trading market will develop or,
if developed, will be maintained.
26. Q. CAN ONE PURCHASE STOCK USING FUNDS IN AN ONEIDA SAVINGS BANK IRA
ACCOUNT?
A. If one wishes to utilize Individual Retirement Account deposits held
at The Oneida Savings Bank to subscribe for stock, potential
subscribers are encouraged to call The Oneida Savings Bank Stock
Information Center for assistance. There will be no early withdrawal
or IRS penalties incurred by these transactions, but additional
paperwork will be necessary. The deadline for using a Oneida IRA will
be one week prior to the expiration of the offering.
27. Q. HOW DOES ONE OBTAIN FURTHER INFORMATION CONCERNING THE STOCK
OFFERING?
A. All interested investors are invited to call the Stock Information
Center for further information or for a copy of the Prospectus, Stock
Order Form, Proxy Statement and Proxy Card. The Stock Information
Center will be set up so that it can assist customers in their
purchase of stock and answer their questions concerning the
Reorganization.
<PAGE>
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ONEIDA FINANCIAL CORP. COMMON STOCK. OFFERS TO BUY OR TO SELL
MAY BE MADE ONLY BY THE PROSPECTUS. IF YOU ARE CONSIDERING PURCHASING STOCK, YOU
SHOULD READ THE PROSPECTUS PRIOR TO MAKING AN INVESTMENT DECISION. COPIES OF
THE PROSPECTUS MAY BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (315)
_______________.
THE SHARES OF ONEIDA FINANCIAL CORP. COMMON STOCK BEING OFFERED IN THE
OFFERINGS AND THE EXCHANGE ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE SAVINGS BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
IV. Officer and Trustee Brochure
A. Explanation
An Officer and Trustee Brochure merely highlights in brochure form the
purchase commitments shown in the Prospectus.
B. Quantity
An Officer and Trustee brochure is proposed to be sent out in the initial
mailing to all the customers and stockholders of the Bank along with the
Prospectus. Alternatively, the information contained in this brochure may
be combined with the Question and Answer brochure.
<PAGE>
TRUSTEE AND EXECUTIVE OFFICER
INTENDED PURCHASES
<TABLE>
<CAPTION>
Number of Percent
Name Aggregate Purchase Price Shares at Midpoint
- ---- ------------------------ --------- -----------
<S> <C> <C> <C>
Nicholas J. Christakos Chairman of the Board
Michael R. Kallet President, Chief Financial
Officer and Trustee
Patricia D. Caprio Trustee
Edward J. Clarke Trustee
James J. Devine Trustee
John e. Haskell Trustee
Rodney D. Kent Trustee
William D. Matthews Trustee
Michael W. Milmoe Trustee
Richard B. Myers Trustee
Frank O. White, Jr. Trustee
Thomas H. Dixon Senior Vice President and
Senior Lending Officer
Eric E. Stickels Senior Vice President and
Chief Financial Officer
All Trustees and Executive
Officers as a group
(12 persons)
*less than .1%
(1) Includes purchases by
associates.
</TABLE>
<PAGE>
V. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of the
Bank in order to alert the customers that funds held in an IRA can be used
to purchase stock. Since this transaction is not as simple as designating
funds from a certificate of deposit like a normal stock purchase, this
letter informs the customer that this process is slightly more detailed and
involves a personal visit to the Bank.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of the Bank.
These letters would be mailed following regulatory approval of the
Conversion and Reorganization and after each customer or stockholder has
received the initial mailing containing a Proxy Statement and a Prospectus.
C. Example - See following page.
<PAGE>
The Oneida Savings Bank Letterhead
________, 1998
Dear Individual Retirement Account Participant:
As you know, The Oneida Savings Bank (the "Bank") is in the process of
converting from the mutual form of ownership to the stock form of ownership
whereby the Bank will become a wholly-owned subsidiary of Oneida Financial Corp.
(the "Company") which will own all of the stock of the Bank. Through the
Conversion and Reorganization, certain current and former customers have a
priority right to purchase shares of common stock of the Company in a
Subscription Offering. The Company currently is offering up to __________
shares, subject to adjustment, of the Company at a price of $10.00 per share.
As the holder of an individual retirement account ("IRA") at the Bank, you
have an opportunity to become a stockholder in the Company using some or all of
the funds being held in your IRA. If you desire to purchase shares of common
stock of the Company through your IRA, the Bank can assist you in self-directing
those funds. This process can be done without an early withdrawal penalty and
generally without a negative tax consequence to your retirement account.
If you are interested in receiving more information on self-directing your
IRA, please contact our Stock Information Center at (315) ____________. Because
it may take several days to process the necessary IRA forms, a response is
requested (but not required) by _______, 1998 to accommodate your interest.
Sincerely,
Michael R. Kallet
President and Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
Oneida Financial Corp. Common Stock. The offer is made only by the Prospectus,
which was recently mailed to you. THE SHARES OF ONEIDA FINANCIAL CORP. COMMON
STOCK ARE NOT DEPOSITS AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE
---
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
VI. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to the
Bank's customers and members of the local community that the stock sale is
underway and (2) to remind customers and members of the local community of
the end of the Subscription and Community Offerings.
B. Quantity
Approximately 2 - 3 Counter cards may be used in each branch location.
Approximately 1 - 2 Lobby posters may be used at each branch office.
C. Example
<PAGE>
C. POSTER
OR
COUNTER CARD
Oneida Financial Corp.
Proposed Holding Company for
The Oneida Savings Bank
"STOCK OFFERING MATERIALS
AVAILABLE HERE"
Subscription and Community Offerings End
_______, 1998
<PAGE>
VII. Invitations
A. Explanation
In order to educate customers and the public about the stock offering, the
Bank may hold several Community Meetings in various locations. In an
effort to target a group of interested investors Trident will request that
each Trustee and Officer of the Bank submit a list of prospective investors
that he/she would like to invite to a Community Meeting.
Prospectuses are given to each prospect at the Community meeting.
B. Quantity and Method of Distribution
An invitation is mailed to each prospect.
<PAGE>
The Trustees, Officers & Employees
of
The Oneida Savings Bank
cordially invite you
to attend a brief presentation
regarding the stock offering of
Oneida Financial Corp.
Please join us at
Place
Address
on
Date
at Time
for hors d'oeuvres
R.S.V.P.
(315) _________________
<PAGE>
VIII. Letters
A. Explanation
Once the application for Conversion and Reorganization has received
regulatory approval, the Bank may send out a series of up to three letters
to targeted prospects. These letters are used to help facilitate the
marketing effort to this group. All prospects will receive a Prospectus as
soon as they are available.
B. Method of Distribution
Each prospect is sent a series of up to three letters during the
Subscription and Community Offerings.
C. Examples
1. Introductory letter
2. A. Thank you letter
or
B. Sorry you were unable to attend letter
3. Final reminder letter
<PAGE>
Example 1
(Introductory Letter) (non-eligible prospects)
(The Oneida Savings Bank Letterhead)
_______, 1998
Name
Address
City, State, Zip
Dear Name:
You have probably read recently in the newspaper that The Oneida Savings
Bank (the "Bank") will soon be converting from the mutual holding company form
of organization to stock form as part of our Reorganization as a mutual holding
company. This Conversion and Reorganization is the biggest step in the history
of the Bank in that it allows customers, community members, employees, officers
and trustees the opportunity to subscribe for stock in our new holding company -
Oneida Financial Corp. (the "Company").
I have enclosed a Prospectus and a Stock Order Form that will allow you to
subscribe for shares and possibly become a charter stockholder of the Company
should you so desire. In addition, we will be holding several presentations for
friends of the Bank in order to review the Conversion and Reorganization and the
merits of becoming a charter stockholder of the Company. You will receive an
invitation shortly.
I hope that if you have any questions you will feel free to call me or the
Bank's Stock Information Center at (315) _____________. I look forward to
seeing you at our presentation.
Sincerely,
William F. Kallet
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
deposits and are not insured by the Federal Deposit Insurance Corporation or any
other governmental agency.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
Example 2A
(Thank You Letter)
(The Oneida Savings Bank Letterhead)
___________, 1998
Name
Address
City, State, Zip
Dear Name:
On behalf of the Board of Trustees and management of The Oneida Savings
Bank, I would like to thank you for attending our recent presentation regarding
the stock offering by Oneida Financial Corp. We are enthusiastic about the
stock offering and look forward to completing the Subscription and Community
Offerings on or about _______, 1998.
I hope that you will join me in being a charter stockholder, and once again
thank you for your interest.
Sincerely,
Michael R. Kallet
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Bank Insurance Fund or any other governmental agency.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
Example 2B
(Sorry You Were Unable to Attend)
(The Oneida Savings Bank Letterhead)
_______________, 1998
Name
Address
City, State, Zip
Dear Name:
I am sorry you were unable to attend our recent presentation regarding The
Oneida Savings Bank's Conversion and Reorganization. The Board of Trustees and
management are committed to building long term stockholder value, and as a group
we are investing over $______ of our own funds in Oneida Financial Corp. We are
enthusiastic about the stock offering and look forward to completing the
Subscription and Community Offerings on or about _______, 1998.
We have established a Stock Information Center to answer any questions
regarding the stock offering. Should you require any assistance between now and
_______, I encourage you either to stop by any office of The Oneida Savings Bank
or to call our Stock Information Center at (315) ____________.
I hope you will join me in becoming a charter stockholder of Oneida
Financial Corp.
Sincerely,
Michael R. Kallet
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Bank Insurance Fund or any other governmental agency.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
Example 3
(Final Reminder Letter)
(The Oneida Savings Bank Letterhead)
___________, 1998
Name
Address
City, State, Zip
Dear Name:
Just a quick note to remind you that the deadline is quickly approaching
for subscribing for stock in Oneida Financial Corp., the proposed holding
company for The Oneida Savings Bank. I hope you will join me in becoming a
charter stockholder in New York's newest publicly owned financial institution
holding company.
The deadline for subscribing for shares to become a charter stockholder is
_______, 1998. If you have any questions, I hope you will call our Stock
Information Center at (315) __________________.
Once again, I look forward to having you join me as a stockholder of Oneida
Financial Corp.
Sincerely,
Michael R. Kallet
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Bank Insurance Fund or any other governmental agency.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
IX. Proxygram
A. Explanation
A proxygram is used when the majority of votes needed to adopt the Plan of
Conversion and Reorganization is still outstanding. The proxygram is
mailed to those "target vote" depositors who have not previously returned
their signed proxy.
Target vote depositors are determined by the Conversion Agent.
B. Example
<PAGE>
B. Example
- --------------------------------------------------------------------------------
P R O X Y G R A M
THE ONEIDA SAVINGS BANK
YOUR VOTE ON OUR PLAN OF CONVERSION AND REORGANIZATION HAS NOT BEEN RECEIVED.
- --------- ---------------------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE PLAN.
VOTING FOR THE CONVERSION AND REORGANIZATION WILL NOT AFFECT THE INSURANCE OF
YOUR ACCOUNT. IT WILL CONTINUE TO BE INSURED UP TO $100,000 BY THE FEDERAL
------------------------------------------------------------
DEPOSIT INSURANCE CORPORATION.
- -----------------------------
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
----------------------------
PROXY CARD TO THE ONEIDA SAVINGS BANK TODAY. PLEASE VOTE ALL PROXY CARDS
---
RECEIVED.
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION AND REORGANIZATION.
THANK YOU.
THE BOARD OF TRUSTEES AND MANAGEMENT OF
THE ONEIDA SAVINGS BANK
- --------------------------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (315) __________.
<PAGE>
EXHIBIT 99.4
PROSPECTUS SUPPLEMENT
ONEIDA FINANCIAL CORP.
THE ONEIDA SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
This Prospectus Supplement is being provided to participants (the
"Participants") in The Oneida Savings Bank 401(k) Savings Plan in RSI Retirement
Trust (the "Plan"). The Oneida Savings Bank (the "Bank") is reorganizing from
the mutual form of organization to the mutual holding company form of
organization, and shares of Common Stock of Oneida Financial Corp. (the
"Company") will be issued to certain depositors and the public (the "Offering").
As a Participant, you may direct the trustee of the Plan to purchase Company
common stock ("Common Stock") in the Offering with amounts allocated to your
account under the Plan. The Plan would invest in Common Stock through the
Oneida Financial Corp. Stock Fund ("Employer Stock Fund"). Since the Plan
actually purchases the Common Stock, you would acquire only a "participation
interest" in the shares and would not own the shares directly. This Prospectus
Supplement relates to your initial election to direct that all or a portion of
your account be invested in the Employer Stock Fund in the Offering. Your will
be able to provide alternative investment instructions to the trustee in the
event that the Offering is oversubscribed and the total amount allocated to your
account cannot be used by the trustee to purchase Common Stock. You will be
entitled to direct the investment of your account in the Employer Stock Fund
after the Offering is completed.
The Prospectus of the Company dated _________, 1998 (the "Prospectus")
which is attached to this Prospectus Supplement includes detailed information
with respect to the mutual holding company reorganization and related stock
offering, and the financial condition, results of operations and business of the
Bank. This Prospectus Supplement, which provides information with respect to the
Plan, should be read only in conjunction with the Prospectus. Defined terms
have the same meaning as is set forth in the Prospectus.
____________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT AS TO AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS"
BEGINNING ON PAGE __ OF THE PROSPECTUS
_____________________
THE INTERESTS IN THE PLAN AND THE OFFERING OF THE COMMON STOCK HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY OTHER FEDERAL OR STATE AGENCY.
NO OFFICE, CORPORATION, COMMISSION, BUREAU OR OTHER AGENCY HAS PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE PARTICIPATION INTERESTS OFFERED HEREBY ARE NOT (1) SAVINGS ACCOUNTS OR
DEPOSITS; (2) FEDERALLY INSURED OR GUARANTEED, OR (3) GUARANTEED BY THE COMPANY
OR THE BANK. THE PLAN'S ENTIRE INVESTMENT IN COMMON STOCK IS SUBJECT TO LOSS.
The date of this Prospectus Supplement is _________, 1998.
<PAGE>
NOTICE TO PARTICIPANTS IN
THE ONEIDA SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Attached to this Notice is a copy of the Prospectus and Prospectus
Supplement relating to the offer and sale of participation interests and shares
of common stock, par value $.10 per share (the "Common Stock") of Oneida
Financial Corp. (the "Company").
The Oneida Savings Bank 401(k) Savings Plan in RSI Retirement Trust (the
"Plan") enables you to direct the investment of all or a portion of your account
balance into one of seven alternative investment funds. In connection with the
reorganization of The Oneida Savings Bank (the "Bank") from the mutual form of
organization to the mutual holding company form of organization, the Bank
established an Employer Stock Fund as an additional investment option under the
Plan. The Prospectus Supplement has been prepared and distributed to you so
that you can make an informed decision regarding your opportunity to invest all
or a portion of your account balance in the Plan in the Employer Stock Fund. In
the event the offering is oversubscribed and the trustee is unable to use the
full amount allocated by you to purchase Common Stock in the offering, you may
either (i) elect alternative investments from among the seven other funds
offered, or (ii) direct the trustee to hold the funds transferred to the
Employer Stock Fund and purchase Common Stock in the open market after the
offering. The other funds selected by the trustees of the Plan in which you
may invest include: Core Equity Fund, Emerging Growth Equity Fund, Value Equity
Fund, Actively Managed Bond Fund, Intermediate-Term Bond Fund, Short-Term
Investment Fund and International Equity Fund.
The Plan's feature which allows participants the opportunity to direct the
investment of their account balances is intended to satisfy the requirements of
Section 404(c) of the Employee Retirement Income Security Act of 1974 ("ERISA").
The effect of this is two-fold. First, you will not be deemed a 'fiduciary' by
virtue of your exercise of investment discretion. Second, no person who
otherwise is a fiduciary (for example, the employer, the Plan administrator, or
the Plan's trustee) is liable under the fiduciary responsibility provision of
ERISA for any loss which results from your exercise of control over the assets
in your Plan account.
Because you will be entitled to invest all or a portion of your account
balance in the Plan in the Employer Stock Fund which will be invested in Common
Stock, the regulations under Section 404(c) of ERISA require that the Plan
establish procedures that ensure the confidentiality of your decision to
purchase, hold, or sell employer securities, except to the extent that
disclosure of such information is necessary to comply with federal or state laws
not preempted by ERISA. These regulations also require that your exercise of
voting and similar rights with respect to the Employer Stock Fund be conducted
pursuant to procedures that ensure the confidentiality of your exercise of these
rights. Accordingly, the Plan committee designates Joanne Mobriant, Director of
Human Resources of the Bank, as the person to whom your investment instructions
should be returned. Joanne Mobriant will transfer your investment instructions
directly to ______________________, c/o ___________________________________, the
trustee for the Employer Stock Fund during the Offering. In the case of an
event that involves a potential for undue employer influence, you will be
instructed to return your instructions directly to ____________________________.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE OFFERING..............................................................................................1
Securities Offered...............................................................................1
Election to Purchase Common Stock in the Offering; Priorities....................................1
Value of Participation Interests.................................................................2
Method of Director Transfer......................................................................2
Time for Directing Transfer......................................................................2
Irrevocability of Transfer Direction.............................................................2
Direction to Purchase Common Stock After the Offering............................................2
Purchase Price of Common Stock...................................................................3
Nature of a Participant's Interest in Common Stock...............................................3
Voting Rights of Common Stock....................................................................3
DESCRIPTION OF THE PLAN...................................................................................4
Introduction.....................................................................................4
Eligibility and Participation....................................................................5
Contributions Under the Plan.....................................................................5
Limitations on Contributions.....................................................................5
Investment of Contributions and Account Balances.................................................7
Benefits Under the Plan.........................................................................10
Withdrawals and Distributions From the Plan.....................................................10
Administration of the Plan......................................................................12
Reports to Plan Participants....................................................................12
Plan Administrator..............................................................................12
Amendment and Termination.......................................................................13
Merger, Consolidation or Transfer...............................................................13
Federal Income Tax Consequences.................................................................13
ERISA and Other Qualifications..................................................................16
SEC Reporting and Short-Swing Profit Liability..................................................17
Financial Information Regarding Plan Assets.....................................................17
LEGAL OPINION............................................................................................17
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan. Up
to 220,000 shares (assuming a purchase price of $10 per share) of Common Stock
may be acquired by the Plan as part of the Offering to be held in the employer
stock fund ("Employer Stock Fund"). The Company is the issuer of the Common
Stock. Only employees of the Bank or its subsidiaries may become Participants in
the Plan. The Common Stock to be issued hereby is conditioned on the
consummation of the Reorganization. A Participant's investment in the Employer
Stock Fund in the Offering is subject to the priority set forth in the Plan of
Reorganization. Information with regard to the Plan is contained in this
Prospectus Supplement and information with regard to the Reorganization and the
financial condition, results of operation and business of the Bank is contained
in the attached Prospectus. The address of the principal executive office of the
Bank is 182 Main Street, Oneida, New York 13421-1676. The Bank's telephone
number is (315) 363-2000.
ELECTION TO PURCHASE COMMON STOCK IN THE OFFERING; PRIORITIES
The Plan permits each Participant to direct the investment of his or her
account balance among eight investment alternatives which include the Employer
Stock Fund in multiples of 10%. The Trustee (defined herein) of the Employer
Stock Fund will purchase Common Stock offered for sale in connection with the
Offering in accordance with each Participant's directions. IN THE EVENT THE
OFFERING IS OVERSUBSCRIBED AND THE TRUSTEE IS UNABLE TO USE THE FULL AMOUNT
ALLOCATED BY A PARTICIPANT TO PURCHASE COMMON STOCK IN THE OFFERING,
PARTICIPANTS MAY EITHER (I) ELECT ALTERNATIVE INVESTMENTS FROM AMONG THE SEVEN
OTHER FUNDS OFFERED, OR (II) DIRECT THE TRUSTEE TO HOLD THE FUNDS TRANSFERRED TO
THE EMPLOYER STOCK FUND AND PURCHASE COMMON STOCK IN THE OPEN MARKET AFTER THE
OFFERING. If a Participant fails to direct the investment of his or her account
balance, the Participant's account balance will remain in the other investment
funds of the Plan as previously directed by the Participant. If a Participant
has never made an investment election, the Participant's account balance will be
invested in the Short-Term Investment Fund.
The shares of Common Stock to be sold in the Offering are being offered in
accordance with the following priorities: (i) depositors of the Bank with
account balances totaling at least $100 as of December 31, 1996 ("Eligible
Account Holders"); (ii) tax-qualified employee plans of the Bank, including the
Employee Stock Ownership Plan ("ESOP"); (iii) depositors of the Bank with
account balances of $100 or more as of September 30, 1998 who are not Eligible
Account Holders ("Supplemental Eligible Account Holders"); (iv) employees,
officers and trustees of the Bank; and (v) certain members of the general
public, with preference 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, and the towns of Fabius, Manlius and Pompey
in Onondaga county.
To the extent that the Plan or the Participants fall into one of these
categories, the Participants are being permitted to use funds in their Plan
account to subscribe or pay for the Common Stock being acquired. Common Stock so
purchased will be placed in a Participant's Employer Stock Fund
1
<PAGE>
account within his or her Plan account. Funds not transferred to the Employer
Stock Fund will remain in the other investment funds of the Plan as directed by
the Participant.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan were valued at approximately $2 million as of June
30, 1998. Each Participant was informed of the value of his or her beneficial
interest in the Plan as of June 30, 1998. The $2 million value represents the
aggregate market value as of June 30, 1998, of all Participants' accounts and
earnings thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
Each Participant shall receive a form (the "Investment Election Form")
which provides for a Participant to direct that all or a portion of his or her
beneficial interest in the Plan (in multiples of 10%) be transferred to the
Employer Stock Fund. If a Participant wishes to invest all or part of his or
her beneficial interest in the assets of the Plan to the purchase of Common
Stock issued in connection with the Offering, he or she should indicate that
decision on the Investment Election Form.
TIME FOR DIRECTING TRANSFER
Directions to transfer amounts to the Employer Stock Fund in order to
purchase Common Stock issued in connection with the Offering must be returned to
Joanne Mobriant, Director of Human Resources at the Bank, no later than 12 p.m.
on November __, 1998.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Offering is irrevocable.
Participants, however, will be able to direct the investment of their accounts
under the Plan as explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE OFFERING
After the Offering, a Participant will continue to be able to direct that a
certain percentage of his or her interest in the Plan be transferred to the
Employer Stock Fund and invested in Common Stock or to the other investment
funds available under the Plan (amounts invested in the investment funds may be
invested in multiples of 10% from 10% to 100%). Alternatively, a Participant may
direct that all or any portion of his or her interest in the Plan be transferred
to the following funds in accordance with the terms of the Plan:
2
<PAGE>
. Core Equity Fund
. Emerging Growth Equity Fund
. Value Equity Fund
. Actively Managed Bond Fund
. Intermediate-Term Bond Fund
. Short-Term Investment Fund
. International Equity Fund
(Said funds, together with the Employer Stock Fund being hereinafter referred to
as the "Plan Funds"). Participants are permitted to direct that future
contributions (in multiples of 10%) made to the Plan by or on their behalf will
be invested among any of the Plan Funds. The allocation of a Participant's
interest in a Plan Fund may be changed not more often than once per quarter.
Note that the election to invest in the Employer Stock Fund during the Offering
will not be considered to be the Participant's quarterly allocation election.
Special restrictions may apply to transfers directed to and from the Employer
Stock Fund by those Participants who are officers, directors and principal
shareholders of the Company who are subject to the provisions of Section 16(b)
of the Securities and Exchange Act of 1934 ("Exchange Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Offering will be used by __________________________
(the "Employer Stock Fund Trustee") to purchase shares of Common Stock, except
in the event of an oversubscription, as discussed above. The price paid for such
shares of Common Stock will be the same price as is paid by all other persons
who purchase shares of Common Stock in the Offering.
Subsequent to the Offering, Common Stock purchased by the Employer Stock
Fund Trustee will be acquired in open market transactions. The prices paid by
the Employer Stock Fund Trustee for shares of Common Stock will not exceed
"adequate consideration" as defined in Section 3(18) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Employer Stock Fund
Trustee, as Trustee. Shares of Common Stock acquired at the direction of a
Participant will be allocated to the Participant's account under the Plan.
Therefore, earnings with respect to a Participant's account should not be
affected by the investment designations (including investments in Common Stock)
of other Participants. The Employer Stock Fund Trustee as record holder will
vote such allocated and unallocated shares, if any, as directed by Participants.
VOTING RIGHTS OF COMMON STOCK
The Employer Stock Fund Trustee generally will exercise voting rights
attributable to all Common Stock held by the Trust as directed by Participants
with interests in the Employer Stock
3
<PAGE>
Fund. With respect to each matter as to which holders of Common Stock have a
right to vote, each Participant will be allocated voting instruction rights
reflecting such Participant's proportionate interest in the Employer Stock Fund.
The number of shares of Common Stock held in the Employer Stock Fund that are
voted in the affirmative and negative on each matter shall be proportionate to
the number of voting instruction rights exercised by Participants in the
affirmative and negative respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
Effective January 1, 1988, the Bank adopted the Oneida Savings Bank
Incentive Savings Plan (the "Prior Plan"). Effective as of October 1, 1994, the
Prior Plan was amended and restated in its entirety and RSI Retirement Trust was
named successor trustee. The Plan is a profit sharing plan with a cash or
deferred compensation feature established in accordance with the requirements
under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan is qualified under Section 401(a) of the Code,
and its related trust is qualified under Section 501(a) of the Code.
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
----------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase plan). The Plan
is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding
requirements contained in Title IV of ERISA are not applicable to Participants
(as defined below) or beneficiaries under the Plan.
Reference to full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in their
entirety by the full text of the Plan. Words capitalized but not defined in the
following discussion have the same meaning as set forth in the Plan. Copies of
the Plan are available to all employees by filing a request with the Plan
Administrator, c/o The Oneida Savings Bank, Attention: Joanne Mobriant, Human
Resources Director, 182 Main Street, Oneida, New York 13421-1676. Each employee
is urged to read carefully the full text of the Plan.
4
<PAGE>
ELIGIBILITY AND PARTICIPATION
Any salaried or hourly-paid employee of the Bank is eligible to participate
in the Plan on the first day of the payroll of any calendar month following
completion of a one (1) year of Eligibility Service with the Bank. The plan
year is January 1 to December 31 (the "Plan Year").
As of June 30, 1998, there were approximately 75 employees eligible to
participate in the Plan, and 69 employees participating by making salary
deferral contributions.
CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Each Participant in the Plan is permitted to
-------------------------
elect to defer such Participant's compensation (as defined below) on a pre-tax
basis up to the lesser of 10% of annual Compensation (expressed in terms of
whole percentages) or the applicable limit under the Code (for 1998, the
applicable limit is $10,000) and subject to certain other restrictions imposed
by the Code, and to have that amount contributed to the Plan on such
Participant's behalf. (Under the Code, the pre-tax basis could be increased to
the lesser of 25% of annual Compensation or the $10,000 applicable limit). For
purposes of the Plan, "Compensation" means, generally, a Participant's total
compensation received from the Bank, including amounts the Participant elects to
defer as salary contributions to the Plan. 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. In 1998, the annual Compensation
of each Participant taken into account under the Plan was, and is, limited to
$160,000. (Limits established by the Internal Revenue Service ("IRS") are
subject to increase pursuant to an annual cost of living adjustment, as
permitted by the Code). A Participant may elect to modify the amount
contributed to the Plan once per calendar quarter effective the first payroll
period following the Participant's written notice to the Plan Administrator,
provided such notice is filed with the Plan Administrator at least 10 days
before it is to become effective. However, special restrictions apply to
persons subject to Section 16 of the Exchange Act.
Employer Contributions. The Bank makes matching contributions to the Plan
----------------------
equal to 100% of the elective deferral contributions, up to a maximum of 3% of a
Participant's Compensation.
The Bank may also make discretionary Special Contributions on behalf of
Non-Highly Compensated Employees equal to a percentage of each eligible
Participant's Compensation, to be determined each year by the Bank.
LIMITATIONS ON CONTRIBUTIONS
Limitation on Employee Salary Deferrals. The annual amount of deferred
-----------------------------------------
Compensation of a Participant (when aggregated with any elective deferrals of
the Participant under a simplified employee pension plan or a tax-deferred
annuity) may not exceed the limitation contained in Section 402(g) of the Code,
adjusted for increases in the cost of living as permitted by the Code (the
5
<PAGE>
limitation for 1998 is $10,000). Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross income for
federal income tax purposes in the year they are made. In addition, any such
excess deferral will again be subject to federal income tax when distributed by
the Plan to the Participant, unless the excess deferral (together with any
income allocable thereto) is distributed to the Participant not later than the
first April 15th following the close of the taxable year in which the excess
deferral is made. Any income on the excess deferral that is distributed not
later than such date shall be treated, for federal income tax purposes, as
earned and received by the Participant in the taxable year in which the
distribution is made.
Limitations on Annual Additions and Benefits. Pursuant to the
----------------------------------------------
requirements of the Code, the Plan provides that the amount of contributions and
forfeitures allocated to each Participant's account during any Plan Year may not
exceed the lesser of $30,000 or 25% of the Participant's Compensation for the
Plan Year. In addition, annual additions are limited to the extent necessary to
prevent contributions on behalf of any employee from exceeding the employee's
combined plan limit, i.e., a limit that takes into account the contributions and
benefits made on behalf of an employee to all plans of the Bank. To the extent
that these limitations have been exceeded with respect to a Participant, the
Plan Administrator shall use the excess amounts in the next limitation year (and
succeeding limitation years, if necessary) to reduce Basic Contributions,
Matching Contributions and Special Contributions for that Participant if such
Participant is an Eligible Employee (as defined) during the next limitation
year, or if the Participant is not an Eligible Employee, allocate and reallocate
the excess amounts in the next limitation year (and succeeding limitation years,
if necessary) to all Participants then actively participating in the Plan.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limits the amount of salary deferral
contributions and matching contributions that may be made to the Plan in any
Plan Year on behalf of Highly Compensated Employees (defined below) in relation
to the amount of salary deferral contributions made by or on behalf of all other
employees eligible to participate in the Plan. Specifically, the "actual
deferral percentage" ("ADP") (i.e., the average of the actual deferral ratios,
expressed as a percentage, of each Eligible Employee's salary deferral
contribution if any, for the Plan Year over the employee's Compensation), of the
Highly Compensated Employees must meet either of the following tests: (i) the
ADP of the eligible Highly Compensated Employees is not more than 125% of the
ADP of all other Eligible Employees, or (ii) the ADP of the eligible Highly
Compensated Employees is not more than 200% of the ADP of all other Eligible
Employees, and the excess of the ADP for the eligible Highly Compensated
Employees over the ADP of all other Eligible Employees is not more than two
percentage points. Similarly, the actual contribution percentage ("ACP") (i.e.,
the average of the actual contribution ratios, expressed as a percentage, of
each Eligible Employee's matching contributions, if any, for the Plan Year over
the employee's Compensation) of the Highly Compensated Employees must meet
either of the following tests: (i) the ACP of the eligible Highly Compensated
Employees is not more than 125% of the ACP of all other Eligible Employees, or
(ii) the ACP of the eligible Highly Compensated Employees is not more than 200%
of the ACP of all other Eligible Employees, and the excess of the ACP for the
eligible Highly Compensated Employees over the ACP of all other employees is not
more than two percentage points.
6
<PAGE>
In general, for Plan Years beginning in 1998, a Highly Compensated
Employee includes any employee, who, (1) during the Plan Year or the preceding
Plan Year, was at any time a 5% owner (i.e., owns directly or indirectly more
than 5% of the stock of an employer, or stock possessing more than 5% of the
total combined voting power of all stock of an employer), or (2) for the
preceding Plan Year, received Compensation from an employer in excess of $80,000
(in 1998), and (if the employer elects for a Plan Year) was in the group
consisting of the top 20% of employees when ranked on the basis of Compensation
paid during the Plan Year. The dollar amounts set forth above are adjusted
annually to reflect increases in the cost of living.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the ADP limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. Moreover, the Bank will be subject to a 10%
excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are re-characterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Bank
with respect to any excess aggregate contributions, unless such amounts, plus
any income allocable thereto, are distributed within 2 1/2 months following the
close of the Plan Year in which they arose.
INVESTMENT OF CONTRIBUTIONS AND ACCOUNT BALANCES
All amounts credited to Participants' accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Directors.
Prior to the Offering, Participants have been provided the opportunity to
direct the investment of their accounts into one of the following Plan Funds:
A. Core Equity Fund
B. Emerging Growth Equity Fund
C. Value Equity Fund
D. Actively Managed Bond Fund
E. Intermediate-Term Bond Fund
F. Short-Term Investment Fund
G. International Equity Fund
The Plan now provides that in addition to the funds specified above, a
Participant may direct the Trustee to invest all or a portion of his account in
the Employer Stock Fund. A Participant may elect to have both past
contributions (and earnings), as well as future contributions to the
Participant's accounts invested in either the Employer Stock Fund or among the
Plan Funds listed
7
<PAGE>
above. Transfers of past contributions (and the earnings thereon) do not affect
the investment mix of future contributions. The transfer of past contributions
may be made not more than once in any calendar quarter and will be effective as
soon as possible following the Participant's written notice to the Plan
Administrator, provided such notice is filed with the Plan Administrator at
least 10 days before it is to become effective. The election to change the
investment of future contributions may be made not more than once in any
calendar quarter and will be effective the first payroll period following the
Participant's written notice to the Plan Administrator, provided such notice is
filed with the Plan Administrator at least 10 days before it is to become
effective. Alternatively, a Participant's investment elections will be
effective if made in any other manner deemed appropriate by the Plan
Administrator if such manner is communicated in writing to the Participants by
the Plan Administrator. Any amounts credited to a Participant's accounts for
which investment directions are not given will be invested in the Short-Term
Investment Fund.
The net gain (or loss) of the Plan Funds from investments (including
interest payments, dividends, realized and unrealized gains and losses on
securities, and expenses paid from the Trust) will be allocated daily. For
purposes of such allocations, all assets of the Trust are valued at fair market
value.
A. PREVIOUS FUNDS
Prior to the effective date of the Offering, contributions under the Plan
have been invested in the seven funds specified above. The following table
provides performance data with respect to the investment funds available under
the Plan, based on information provided to the Company by RSI Retirement Trust.
NET INVESTMENT PERFORMANCE FOR PERIODS ENDED JUNE 30, 1998
----------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Annualized
Ended
Fund 6/30/98 12 Months 3 Years 5 Years 10 Years
- ---- ------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
A. Core Equity Fund 0.02% 22.50% 26.57% 21.09% 17.02%
B. Emerging Growth Equity Fund -6.05 9.43 19.37 19.96 16.31
C. Value Equity Fund 0.73 25.18 28.79 20.42 14.62
D. Actively Managed Bond Fund 2.80 11.53 7.73 6.45 8.61
E. Intermediate-Term Bond Fund 1.87 7.79 6.31 5.39 7.62
F. Short-Term Investment Fund 1.24 5.01 4.91 4.42 5.29
G. International Equity Fund 2.03 3.17 13.25 10.73 7.69
</TABLE>
The following is a description of each of the Plan's seven investment
funds:
Account A (Core Equity Fund). This fund seeks capital appreciation and
-----------------------------
income and invests in a broadly diversified group of high quality, large
capitalization companies exhibiting sustainable growth in earnings and
dividends.
8
<PAGE>
Account B (Emerging Growth Equity Fund). This fund seeks capital appreciation
----------------------------------------
and income by investing primarily in stocks of smaller companies with higher-
than-average earnings and dividend growth potential. The fund will generally
have a higher degree of risk and price volatility than the portfolios of the
Core Equity Fund and the Value Equity Fund.
Account C (Value Equity Fund). This fund seeks capital appreciation and
-----------------------------
income and invests heavily in out-of-favor stocks of financially sound companies
that are selling at unjustifiably low market valuations based on price/earnings
ratios, price-to-book ratios.
Account D (Actively Managed Bond Fund). This fund invests in high quality
---------------------------------------
fixed income securities and seeks both principal appreciation and income. The
maturity structure of this fund is expected to vary substantially based on the
perceived relative attractiveness of different areas of the fixed income market.
At least 65% of its assets must be invested in securities issued or backed by
the United States government, or its agencies or instrumentalities.
Account E (Intermediate-Term Bond Fund). This fund seeks principal
---------------------------------------
appreciation and income and invests in high quality fixed-income vehicles that
mature within 10 years or have expected average lives of 10 years or less. At
least 65% of its assets must be invested in securities issued or backed by the
United States government, or its agencies or instrumentalities.
Account F (Short-Term Investment Fund). This fund is invested in high
---------------------------------------
quality, money market instruments with a maximum average maturity of one year.
This fund focuses on preservation of principal while producing a competitive
money market return.
Account G (International Equity Fund). This fund seeks capital appreciation
-------------------------------------
and income by investing in stocks of companies headquartered in foreign
countries. Each selection is based on companies whose current prices do not
reflect the true earnings potential and therefore, are selling at "undervalued"
prices.
B. THE EMPLOYER STOCK FUND
The Employer Stock Fund will consist of investments in Common Stock made
during and after the completion of the Offering and Reorganization. After the
Offering, the Employer Stock Fund Trustee will, to the extent practicable, use
all amounts held by it in the Employer Stock Fund, including cash dividends paid
on Common Stock held in the Employer Stock Fund, to purchase shares of Common
Stock of the Company. All purchases will be made at prevailing market prices.
Under certain circumstances, the Employer Stock Fund Trustee may be required to
limit the daily volume of shares purchased. Pending investment in Common Stock,
assets held in the Employer Stock Fund may be placed in Bank deposits and other
short-term investments.
The expenses of managing each Plan Fund, including investment management
fees, commissions, and other transaction costs, are charged against the assets
of the total applicable Fund. A Participant's account will be adjusted to
reflect changes in the value of shares of Common Stock resulting from stock
dividends, stock splits and similar changes.
9
<PAGE>
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund. Performance will be dependent upon a number of
factors, including the financial condition and profitability of the Company and
the Bank and market conditions for the Common Stock generally.
INVESTMENT IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS IN
INVESTMENT IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISKS
FACTORS, SEE THE PROSPECTUS. NEITHER THE BANK NOR THE PLAN GUARANTEE THE
PERFORMANCE OF THE EMPLOYER STOCK FUND NOR ARE THE AMOUNTS IN THE EMPLOYER STOCK
FUND OR ANY OF THE PLAN FUNDS INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION.
BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his or her before-tax contributions, after-tax contributions and
rollover contributions and the earnings thereon under the Plan. A Participant
is vested in any matching contributions and earnings thereon in accordance with
the following schedule:
Years of Employment Vesting Percentage
------------------- ------------------
less than 1 year 0%
1 year but less than 2 20%
2 years but less than 3 40%
3 years but less than 4 60%
4 years but less than 5 80%
5 years or more 100%
A Participant will also be 100% vested in matching contributions,
regardless of his or her years of employment, upon attainment of normal
retirement age under the Plan. Any non-vested contributions which are forfeited
shall be allocated to matching contribution accounts of eligible employees who
are employed on the last day of the Plan Year or eligible employees who retire,
become disabled or die during the Plan Year.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A
10
<PAGE>
SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE PRIOR TO
THE PARTICIPANT'S ATTAINMENT OF AGE 59- 1/2, REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK OR AFTER
TERMINATION OF EMPLOYMENT.
Withdrawals Prior to Termination of Employment. A Participant may make a
-----------------------------------------------
withdrawal from his or her accounts after age 59 1/2 for any reason no more than
once in a calendar year. A Participant may make a withdrawal from his or her
accounts prior to termination of employment before age 59 1/2 only in the event
of financial hardship, subject to the hardship distribution rules under the
Plan. A Participant may borrow against his or her accounts at any time for any
reason a minimum of $1,000 and a maximum of the lesser of: 50% of the
Participant's accounts (including the vested portion of the matching
contribution account) and $50,000 reduced by the largest outstanding loan
balance during the past 12 months. All loans, including the renewal,
renegotiation, modification or extension of an existing loan are subject to a
loan origination fee.
Distribution Upon Retirement or Disability. Payment of benefits to a
-------------------------------------------
Participant who retires, incurs a disability, or otherwise terminates employment
shall be made in a single cash payment in monthly, quarterly, semi-annual or
annual installments, up to a maximum payment period of 10 years, which period
cannot exceed the life expectancy of the Participant (or the Participant and his
designated beneficiary), or may be transferred to another qualified employee
benefit plan. Benefit payments ordinarily commence as soon as practicable after
the Participant's normal retirement date (the later of age 65 or the completion
of 5 years of participation in the Plan) following: (i) retirement on or after
attainment of normal retirement age; (ii) retirement on or after early
retirement (age 60 and 5 years of participation in the Plan), or (iii)
termination of service due to disability. Alternatively, at the Participant's
election, a Participant may receive a distribution of his accounts after he has
terminated employment or may defer receipt until after the Participant's normal
retirement or actual retirement (if later) date. With respect to a 5% owner,
benefit payments must commence no later than April 1 following the calendar year
in which the Participant attains age 70 1/2.
Distribution Upon Death. If a Participant dies prior to receipt of the
------------------------
entire value of his or her Plan accounts and the Participant elected a single
cash payment or did not make an election as to how payments are to be made,
payment will be made to the beneficiary in a single cash payment generally as
soon as possible following the Participant's death. Payment will be deferred if
the Participant had previously elected a later payment date. However, a
Participant who has designated his or her surviving spouse as beneficiary and
the Participant dies prior to age 70 1/2, payment to his or her spouse will be
made no later than the date the Participant would have attained age 70 1/2. If
the Participant dies after age 70 1/2, payment to the spouse will be made as
soon as possible after the date of death. If the beneficiary is not the
Participant's spouse, payment will be made within one year of the date of death.
If a Participant is receiving installment payments and dies before receipt of
all installments, the designated beneficiary will continue to receive the
installments in the same manner as the Participant.
11
<PAGE>
Distribution Upon Termination for Any Other Reason. Distribution of
---------------------------------------------------
benefits to a Participant with a Plan account value exceeding $3,500, who
terminates employment for any other reason, will not be made to the Participant
at the time of termination but shall be made upon the Participant's attainment
of normal retirement age. Alternatively, at the Participant's election, a
Participant may receive a distribution of his accounts after he has terminated
employment.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
The trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustee. The trustee is appointed by the Board of Directors of the Bank to
-------
serve at its pleasure. The trustees of the RSI Retirement Trust are the trustees
of the Plan, other than of the Employer Stock Fund, for which
_________________________________ serves as the Employer Stock Fund Trustee. The
trustees are referred to collectively herein as the Trustee.
The Trustee receives and holds the contributions to the Plan in trust and
distributes the account balances to Participants and beneficiaries in accordance
with the terms of the Plan and the directions of the Plan Administrator. The
Trustee is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Trustee will furnish to each Participant a statement quarterly showing
(i) the balance in the Participant's accounts as of the end of that period, (ii)
the amount of contributions allocated to such Participant's accounts for that
period, and (iii) the adjustments to such Participant's accounts to reflect
earnings or losses (if any), distributions made, loans disbursed, loan
repayments and/or transfers between investment funds.
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by the plan
administrator (the "Plan Administrator"). The Bank is the Plan Administrator and
has designated Michael R. Kallet, the Bank's President and Chief Executive
Officer, to supervise its responsibilities as such. The address and telephone
number of the Plan Administrator is c/o The Oneida Savings Bank, 182 Main
Street, Oneida, NY 13421-1676, telephone number (315) 363-2000. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures
12
<PAGE>
for filing applications for benefits, preparation and distribution of
information explaining the Plan, maintenance of Plan records, books of account
and all other data necessary for the proper administration of the Plan, and
preparation and filing of all returns and reports relating to the Plan which are
required to be filed with the U.S. Department of Labor and the IRS, and for all
disclosures required to be made to Participants, beneficiaries, and others under
Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his or her accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. Participants are urged to
consult their tax advisors with respect to any distribution from the Plan and
transactions involving the Plan.
The Plan is qualified under Section 401(a) and 401(k) of the Code and the
related Trust is exempt from tax under Section 501(a) of the Code. A plan that
is qualified under these sections of the Code is afforded special tax treatment
which include the following: (1) the Bank is allowed an immediate tax deduction
for the amount contributed to the Plan each year; (2) Participants pay no
current income tax on amounts contributed by the Bank on their behalf; and (3)
Earnings of the Plan are tax-exempt thereby permitting the tax-free accumulation
of income and gains on investments. The Plan
13
<PAGE>
will be administered to comply in operation with the requirements of the Code as
of the applicable effective date of any change in the law. The Bank expects to
timely adopt any amendments to the Plan that may be necessary to maintain the
qualified status of the Plan under the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's account and the investment
earnings on the account are not includable in a Participant's federal taxable
income until such contributions or earnings are actually distributed or
withdrawn from the Plan. Special tax treatment may apply to the taxable portion
of any distribution that includes Common Stock or qualifies as a Lump Sum
Distribution (as described below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or the
---------------------
beneficiary of a Participant will qualify as a lump sum distribution ("Lump Sum
Distribution") if it is made: (i) within one taxable year of the Participant or
beneficiary; (ii) on account of the Participant's death, disability or
separation from service, or after the Participant attains age 59 1/2; and (ii)
consists of the balance to the credit of the Participant under this Plan and all
other profit sharing plans, if any, maintained by the Bank. The portion of any
Lump Sum Distribution that is required to be included in the Participant's or
beneficiary's taxable income for federal income tax purposes (the"total taxable
amount") consists of the entire amount of such Lump Sum Distribution less the
amount of after-tax contributions, if any, made by the Participant to any other
profit sharing plan maintained by the Bank which is included in such
distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
----------------
Distribution that is attributable to participation after 1973 in the Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit-sharing plan maintained by the Bank), may elect
to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1985 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule.
14
<PAGE>
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
-----------------------------------------------
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations to be issued by the IRS.
Contribution to Another Qualified Plan or to an IRA. A Participant may
----------------------------------------------------
defer federal income taxation of all or any portion of the total taxable amount
of a Lump Sum Distribution (including the proceeds from the sale of any Common
Stock included in the Lump Sum Distribution) to the extent that such amount, or
a portion thereof, is contributed, within 60 days after the date of its receipt
by the Participant, to another qualified plan or to an individual retirement
account ("IRA"). If less than the total taxable amount of a Lump Sum
Distribution is contributed to another qualified plan or to an IRA within the
applicable 60-day period, the amount not so contributed must be included in the
Participant's income for federal income tax purposes and will not be eligible
for the special averaging rules or for capital gains treatment. Additionally, a
Participant may defer the federal income taxation of any portion of an amount
distributed from the Plan on account of the Participant's disability or
separation from service, generally, if the amount is distributed within one
taxable year of the Participant, and such amount is contributed, within 60 days
after the date of its receipt by the Participant, to an IRA. Prior to 1993,
following the partial distribution of a Participant's account, any remaining
balance under the Plan (and the balance to the credit of the Participant under
any other profit sharing plan sponsored by the Bank) would not be eligible for
the special averaging rules or for capital gains treatment. For these purposes,
a "partial distribution" is a distribution within one taxable year of the
Participant equal to at least 50% of the balance of a Participant's account
("Partial Distribution").
Pursuant to a change in the law, effective January 1, 1993, virtually all
distributions from the Plan may be rolled over to another qualified Plan or to
an IRA without regard to whether the distribution is a Lump Sum Distribution or
a Partial Distribution. Effective January 1, 1993, Participants have the right
to elect to have the Trustee transfer all or any portion of an "eligible
rollover distribution" directly to another plan qualified under Section 401(a)
of the Code or to an IRA. If the Participant does not elect to have an "eligible
rollover distribution" transferred directly to another qualified plan or to an
IRA, the distribution will be subject to a mandatory federal withholding tax
equal to 20% of the taxable distribution. An "eligible rollover distribution"
means
15
<PAGE>
any amount distributed from the Plan except: (1) a distribution that is (a) one
of a series of substantially equal periodic payments made (not less frequently
than annually) over the Participant's life or the joint life of the Participant
and the Participant's designated beneficiary, or (b) for a specified period of
ten years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law.
The beneficiary of a Participant who is the Participant's surviving spouse
also may defer federal income taxation of all or any portion of a distribution
from the Plan to the extent that such amount, or a portion thereof, is
contributed within 60 days after the date of its receipt by the surviving
spouse, to an IRA. If all or any portion of the total taxable amount of a Lump
Sum Distribution is contributed by the surviving spouse of a Participant to an
IRA within the applicable 60-day period, any subsequent distribution from the
IRA will not be eligible for the special averaging rules or for capital gains
treatment. Any amount received by the Participant's surviving spouse that is not
contributed to another qualified plan or to an IRA within the applicable 60-day
period, and any amount received by a nonspouse beneficiary will be included in
such beneficiary's income for federal tax purposes in the year in which it is
received.
Additional Tax on Early Distributions. A Participant who receives a
--------------------------------------
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate or a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary, (iv)
made to the Participant after separation from service on account of early
retirement under the Plan after attainment of age 55, (v) made to pay medical
expenses to the extent deductible for federal income tax purposes, (vi) payments
made to an alternate payee pursuant to a qualified domestic relations order, or
(vii) made to effect the distribution of excess contributions or excess
deferrals.
ERISA AND OTHER QUALIFICATIONS
As noted above, the Plan is subject to certain provisions of the ERISA and
has received a favorable determination that it is qualified under Section 401(a)
of the Code.
The foregoing is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.
Accordingly, each Participant is urged to consult a tax advisor concerning the
federal, state and local tax consequences of participating in and receiving
distributions from the Plan.
16
<PAGE>
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Exchange Act imposes reporting and liability requirements
on officers, directors, and persons beneficially owning more than 10% of the
equity securities (such as the Common Stock) of public companies. Section 16(a)
of the Exchange Act requires the filing of reports of beneficial ownership.
Within 10 days of becoming a person subject to the reporting requirements of
Section 16(a), a Form 3 reporting initial beneficial ownership must be filed
with the Securities and Exchange Commission ("SEC"). Certain changes in
beneficial ownership, such as purchases, sales and gifts must be reported
periodically, either on a Form 4 within 10 days after the end of the month in
which a change occurs, or annually on a Form 5 within 45 days after the close of
the Company's fiscal year. Certain discretionary transactions in and beneficial
ownership of the Common Stock through the Employer Stock Fund of the Plan by
officers, directors and persons beneficially owning more than 10% of the Common
Stock must be reported to the SEC by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Exchange Act provides for the recovery by the Company of profits realized by
an officer, director or any person beneficially owning more than 10% of the
Common Stock ("Section 16(b) Persons") resulting from non-exempt purchases and
sales of the Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon the
timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, under the Plan, Section 16(b) Persons are required to hold shares of
Common Stock distributed from the Plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Employer Stock Fund for six months after receiving such a
distribution.
FINANCIAL INFORMATION REGARDING PLAN ASSETS
Financial statements representing the net assets available for Plan
benefits at June 30, 1998 are attached to this Prospectus Supplement.
LEGAL OPINION
The validity of the issuance of the Common Stock will be passed upon by
Luse Lehman Gorman Pomerenk & Schick, A Professional Corporation, Washington,
D.C., which firm acted as special counsel to the Bank in connection with the
Bank's Reorganization into the mutual holding company form of ownership.
17
<PAGE>
THE ONEIDA SAVINGS BANK
401(k) SAVINGS PLAN IN RSI RETIREMENT TRUST
Statement of Net Assets Available for Plan Benefits
with Fund Information
June 30, 1998
<TABLE>
<CAPTION>
Assets
------ Core Emerging Growth Value Actively Managed Intermediate-Term Short-Term International
Equity Fund Equity Fund Equity Fund Bond Fund Bond Fund Investment Fund Equity Fund
Investments ----------- ----------- ----------- --------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,223,55 411,419 8,454 166,640 111,278 74,451 8,174
Forfeitures $ 213
Total Value of Accounts $ 2,004,180
Outstanding Loans Receivable $ 0
-----------
Total Assets $ 2,004,180
Liabilities $ 0
- ----------- -----------
Net Assets Available for Plan
Benefits $ 2,004,180
===========
</TABLE>
18
