As filed with the Securities and Exchange Commission on March 19, 1999
Registration No. 333-69959
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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OSWEGO COUNTY BANCORP, INC.
(in organization)
(Name of Small Business Issuer in its to be filed Articles of Incorporation)
----------
<TABLE>
<S> <C> <C>
Delaware 6711 To be Requested
------------------------------ -------------------------------------- -------------------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Gregory J. Kreis
President and Chief Executive Officer
44 East Bridge Street
Oswego, New York 13126
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
John P. Soukenik, Esq.
Hugh T. Wilkinson, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
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Approximate date of commencement of proposed sale to 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 under 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, please check the
following box and list the Securities Act registration 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, please check the following box. [ ]
<TABLE>
<CAPTION>
=====================================================================================================================
Amount Proposed Maximum Amount of
Title of each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share(1)......... 759,220 shares $10.00 $7,592,200(2) $2,111(3)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of Common Stock to be issued to the Oswego County
Charitable Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
The Registrant hereby amends this Registration Statement on such date
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
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 Commission acting pursuant to said section 8(a)
may determine.
Disclosure alternative used (check one): Alternative 1 Alternative 2 x
---- -----
================================================================================
<PAGE>
PROSPECTUS
Up to 700,925 Shares of Common Stock
OSWEGO COUNTY BANCORP, INC.
(in organization)
(Proposed Holding Company for
Oswego County Savings Bank)
- --------------------------------------------------------------------------------
Oswego County Bancorp, Inc. was formed to own all of the common stock
of Oswego County Savings Bank. The shares being offered to the public in this
prospectus will represent 49% or less of the common stock of Oswego County
Bancorp, Inc. At least 51% of the outstanding common stock will be issued to
Oswego County MHC, a mutual holding company owned by the depositors of Oswego
County Savings Bank.
- --------------------------------------------------------------------------------
TERMS OF THE OFFERING
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum as Adjusted
------- -------- ------- -----------
<S> <C> <C> <C> <C>
Per Share Price.................................... $ 10.00 $10.00 $ 10.00 $ 10.00
Number of Shares................................... 450,500 530,000 609,500 700,925
Underwriting Commission and Other Expenses......... $592,200 $592,200 $592,200 $592,200
Net Proceeds to Oswego County Bancorp, Inc. ....... $3,912,800 $4,707,800 $5,502,800 $6,417,050
Net Proceeds Per Share............................. $8.69 $8.88 $9.03 $9.16
</TABLE>
Please refer to "Risk Factors" beginning on page ____ of this document.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the New York State Banking Department, nor any other
federal agency or 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.
Friedman, Billings, Ramsey & Co., Inc.
________________ ____, 1999
<PAGE>
QUESTIONS AND ANSWERS
The following are frequently asked questions. References in this
document to "we," "us," "our," and "Oswego County Bancorp" refer to Oswego
County Bancorp, Inc. and, in some cases, to both Oswego County Bancorp, Inc. and
Oswego County Savings Bank. References to "Oswego County Savings" refer to
Oswego County Savings Bank.
Q: HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT
PRICE?
A: We are offering up to 609,500 shares of common stock at $10.00 per
share. We must sell at least 450,500 shares. Without notice to you,
we may sell up to 700,925 shares.
Q: WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A: Yes, you can sell your stock unless you are one of our officers,
directors or trustees. However, you cannot be sure that someone will
want to buy your stock.
Q: WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR
GUARANTEED BY ANY GOVERNMENT AGENCY?
A: No. Unlike insured deposit accounts at Oswego County Savings your
stock will not be insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
Q: HOW MUCH STOCK MAY I ORDER?
A: There are limits on how much stock you can order. These limits are
discussed in this prospectus and on the stock order form.
Q: WHEN IS THE DEADLINE TO ORDER STOCK?
A: We must receive your signed order form with payment no later than
_____________ 12:00 noon, New York time, on __________________, 1999.
Q: HOW DO I PURCHASE THE STOCK?
A: First, you should read this prospectus. Then, complete and return the
enclosed stock order and certification form, together with your
payment.
Q: CAN I CHANGE MY MIND AFTER I ORDER STOCK?
A: No. After we receive your order form and payment, you may not cancel
or modify your order.
Q: HOW CAN I PAY FOR THE STOCK?
A: You have three options: (1) pay cash if it is delivered to us in
person; (2) send us a check or money order; or (3) authorize a
withdrawal from your deposit account at Oswego County Savings,
without any penalty for early withdrawal. Please do not send cash in
the mail.
2
<PAGE>
Q: WILL I RECEIVE INTEREST ON MY PAYMENT?
A: Yes. Payments will be placed in an interest bearing account at Oswego
County Savings, and will earn interest at our passbook rate.
Depositors who authorize a withdrawal from their accounts at Oswego
County Savings will continue to receive interest on their accounts
until the funds are withdrawn.
Q: CAN I PAY FOR STOCK USING FUNDS IN MY INDIVIDUAL RETIREMENT
ACCOUNT OR IRA AT OSWEGO COUNTY SAVINGS?
A: No. You cannot pay for stock with your individual retirement account
at Oswego County Savings. You may, however, establish a self-directed
individual retirement account with an outside trustee to pay for
stock using your IRA funds. Please call our Stock Center at
(315)___-____ to get more information. Please understand that this
process takes time, so please make arrangements as soon as possible.
Q: WHAT HAPPENS IF THERE IS NOT ENOUGH STOCK TO FILL ALL
ORDERS?
A: You may not receive any or all of the stock that you ordered.
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS?
A: For answers to your other questions please read this prospectus. You
can also call the Stock Center at (315)___-____, [_________ through
_______], between the hours of ____ a.m. and ____ p.m. You may also
write to:
Stock Center
Oswego, New York
Please note that the Stock Center will be closed for [bank holidays]. TO ENSURE
THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO ___________,
1999, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO _________,
1999 OR HAND DELIVERED ANY LATER THAN TWO DAYS PRIOR TO ___________, 1999.
3
<PAGE>
SUMMARY
The summary highlights selected information from this document and
may not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements.
The Companies:
Oswego County Bancorp, Inc.
44 East Bridge Street
Oswego, New York 13126
Oswego County Bancorp will be the holding company for Oswego County
Savings when our change in structure is complete. It is not currently an
operating company and has not engaged in any business to date.
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126
Oswego County Savings is a New York-chartered mutual savings bank. At
December 31, 1998, we had total assets of $110.9 million, deposits of $96.6
million, and net worth of $11.7 million. We are changing our structure by
becoming a stock savings bank.
We are a community-oriented savings bank serving primarily Oswego
County, New York and the surrounding counties through four full-service banking
offices located in Oswego, Fulton and Pulaski, New York. We emphasize single
family (one-to four-units) residential lending.
Oswego County MHC
44 East Bridge Street
Oswego, New York 13126
Upon completion of our change in structure and the stock offering,
Oswego County MHC will own 51% or more of the outstanding shares of Oswego
County Bancorp. Persons who as depositors of Oswego County Savings have
liquidation and voting rights as of the date of the change in structure will
have those rights automatically exchanged for identical rights in Oswego County
MHC after the change in structure.
Oswego County MHC is not expected to engage in any business activity
other than holding 51% or more of the shares of Oswego County Bancorp and
investing any funds retained by it.
Commitment to Our Community
To further Oswego County Savings' commitment to its community, Oswego
County Savings has established the Oswego County Charitable Foundation. Oswego
County Bancorp will contribute up to 24,380 shares of Oswego County Bancorp
common stock to the foundation.
4
<PAGE>
The Stock Offering
We are offering between 450,500 and 609,500 shares of Oswego County
Bancorp common stock at $10.00 per share. Because of changes in financial market
conditions before we complete the stock offering, the offering may increase to
700,925 shares with the approval of the New York State Banking Department and
the Federal Deposit Insurance Corporation without any notice to you. If so, you
will not have the chance to change or cancel your stock order.
Friedman, Billings, Ramsey & Co., Inc. will assist us in selling the
stock. For further information about Friedman, Billings, Ramsey & Co., Inc.'s
role in the stock offering, see "Our Corporate Change and Stock Offering -
Marketing Arrangements."
How We Determined the Offering Range and the $10.00 Price Per Share
The independent appraisal by RP Financial, L.C., dated as of March 5,
1999, established the offering range. This appraisal was based on our financial
condition and operations and the effect of the additional capital raised in this
offering. The $10.00 price per share was determined by our board of trustees and
is the price most commonly used in stock offerings involving conversions of
mutual savings institutions. RP Financial will update the appraisal before the
completion of the stock offering.
After completion of the change in structure and the stock offering,
each share of Oswego County Bancorp common stock, including the shares
contributed to Oswego County MHC and the Oswego County Charitable Foundation,
will have a book value of $12.23, at the maximum of the offering range. This
means the price paid for each share sold in this offering will be 81.8% of the
book value. This ratio is one important factor used by RP Financial in
determining the appraised value of Oswego County Savings.
Persons Who Can Order Stock
We are offering the shares of common stock to those with subscription
rights in the following order of priority:
(1) Depositors who held at least $100 with us on September 30, 1997.
(2) The Oswego County Bancorp employee stock ownership plan.
(3) Depositors who held at least $100 with us on March 31, 1999.
(4) Oswego County Savings' trustees, officers and employees.
Shares of common stock not subscribed for in the subscription
offering will be offered to the general public in a direct community offering
and, if necessary, a syndicated public offering.
See pages __ to __.
5
<PAGE>
Termination of the Offering
The subscription offering will end on [June __], 1999. If all of the
shares are not subscribed for and we do not get orders for the remaining shares
by [August __], 1999, we will either:
(1) promptly return any payment you made to us, with interest, or
cancel any withdrawal authorization you gave us; or
(2) extend the offering, if allowed, and give you notice of the
extension and of your rights to cancel or change your order. If
we extend the offering and you do not respond to the notice,
then we will cancel your order and return your payment, with
interest, or cancel any withdrawal authorization you gave us.
How We Will Use the Proceeds Raised From the Sale of Common Stock
We intend to use the net proceeds received from the stock offering as
follows:
$2,995 Retained by Oswego County Bancorp in short-term
investments for general corporate purposes
100 Capitalization of Oswego County MHC
488 Employee stock ownership plan loan
1,920 Used to buy the stock of Oswego County Savings
------
$5,503 Net proceeds from stock offering at the maximum
====== of the offering range
We intend to use the proceeds at Oswego County Savings primarily to
increase our lending and investments.
We Plan to Establish a Dividend Policy
We plan to establish a policy to pay dividends on the common stock.
The board of directors has not yet determined the initial annual amount of the
dividends. Dividends are not guaranteed and will depend on our ability to pay
them. We will not pay or take any steps to pay a tax-free dividend which
qualifies as a return of capital for one year following the stock offering. See
page __.
The Common Stock Will be Traded on the Over-the-Counter Market
We expect our common stock to be traded on the over-the-counter
market through the OTC "Electronic Bulletin Board" under the symbol "____." [Our
application to list our stock on the over-the-counter market through the OTC
Bulletin Board is currently pending.] Persons purchasing shares may not be able
to sell their shares at a price equal to or above $10.00.
Our Board and Management Will Receive Benefits Following the Offering
Employee Stock Ownership Plan. This plan intends to purchase up to 8%
of the shares sold in this offering. A loan from Oswego County Bancorp to the
plan, funded by a portion of the proceeds from this offering, will be used to
purchase these shares. If shares are not available
6
<PAGE>
for purchase by the employee stock ownership plan in the subscription offering,
then the plan intends to purchase the shares in the open market. The employee
stock ownership plan will provide a retirement benefit to all employees eligible
to participate in the plan.
Long-Term Equity Compensation Plans. We also intend to adopt a stock
option plan and a restricted stock plan for the benefit of directors, officers
and employees, subject to shareholder approval. If we adopt the restricted stock
plan, some of these individuals will be awarded stock at no cost to them. As a
result, both the employee stock ownership plan and the restricted stock plan
will increase the voting control of management without a cash outlay.
The following table presents the total value of the shares of common
stock, at the maximum of the offering range, which would be acquired by the
employee stock ownership plan and the total value of all shares to be available
for award and issuance under the restricted stock plan. The table assumes that
the value of the shares is the same as the purchase price in the offering. The
table does not include a value for the options because the price for the option
shares will be equal to the fair market value of the common stock on the day
that the options are granted. As a result, financial gains can be realized under
an option only if the market price of the common stock increases.
Percentage of
Estimated Shares Sold
Value of Shares in the Offering
--------------- ---------------
Employee Stock Ownership Plan.......... $487,600 8.0%
Restricted Stock Awards................ 243,800 4.0
Stock Options.......................... 609,500 10.0
---------- ----
Total....................... $1,340,900 22.0%
========== ====
For further discussion of benefits to management, see "Management."
We Intend to Contribute Stock to a New Charitable Foundation
To continue our long-standing commitment to our local community, we
intend to establish a charitable foundation, the Oswego County Charitable
Foundation, and to fund the foundation with shares of our common stock with a
total value equal to 4% of the shares sold in this offering. Based on the
maximum amount of shares offered, we will issue 24,380 shares to the foundation,
worth $243,800. We plan for the foundation to support charitable causes in
Oswego County Savings' primary market area. Charitable contributions by Oswego
County Savings totaled $32,000 in 1997 and $40,000 in 1998. If we do establish
the foundation, then the value of the common stock will be lower than if the
stock offering were completed without the foundation. For a further discussion
of the financial impact of the foundation, see "Risk Factors - The establishment
of Oswego County Charitable Foundation will reduce our earnings," "Pro Forma
Data" and "Comparison of Valuation and Pro Forma Information With No
Foundation."
Background of Our Corporate Change
Originally, we planned to change our structure to a mutual holding
company as part of our proposed plan to merge with Pathfinder Bancorp, Inc. and
its local savings bank subsidiary, Oswego City Savings Bank. In January 1999,
Pathfinder and we jointly decided to terminate our merger plans because of the
difficulty in obtaining approvals from bank regulators. Even though we are not
now planning to merge with Oswego City Savings, we continue to think that we
should change our corporate structure. Forming a mutual holding company and
selling stock may help us in the future if we want to enter into other
acquisition transactions. We do expect to explore all of our options to improve
our bank including acquisitions of other companies that we think could help us.
We may look at areas outside of traditional banking services. We may also
consider trying to form another deal with Pathfinder and Oswego City Savings.
But, for now, we have no plans to enter into another deal with anyone and we are
not discussing any transaction with anyone else. We may or may not enter into a
combination in the future. However, the mutual holding company structure permits
us to consider more options in the future.
7
<PAGE>
Stock Center
If you have any questions regarding the offering or our change in
structure, please call the Stock Center at (315) ___-____.
You May Not Sell or Give Away Your Subscription Rights
Subscription rights may not be transferred and we will act to ensure
that you do not transfer your subscription rights. We will not accept any stock
orders that we believe involve the transfer of subscription rights.
Important Risks in Owning Oswego County Bancorp, Inc.'s Common Stock
Before you decide to purchase stock, you should read the "Risk
Factors" section on pages __ to __ of this document.
8
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The summary information presented below under "Selected Financial
Condition Data" and "Selected Operations Data" for, and as of the end of, each
of the years in the three-year period ended December 31, 1998 is derived from
our audited financial statements. The following information is only a summary
and you should read it in conjunction with our financial statements and notes
beginning on page F-__.
At December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(Dollars In Thousands)
Selected Financial Condition Data:
Total assets $110,866 $111,993 $115,650
Cash and due from banks(1) 4,007 4,083 4,723
Federal funds sold and other short-term
investments 2,600 2,681 12,819
Securities held to maturity 13,730 10,441 10,106
Securities available for sale 14,784 10,921 5
Loans, net 71,013 79,052 83,504
Deposits 96,564 97,899 102,015
Net worth 11,694 11,392 11,197
Year Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(Dollars In Thousands)
Selected Operations Data:
Total interest income $7,915 $8,252 $8,169
Total interest expense 3,388 3,738 3,973
------ ------ ------
Net interest income 4,527 4,514 4,196
Provision for loan losses 120 525 1,141
Noninterest income 469 516 502
Noninterest expense 4,405 4,115 3,737
------ ------ ------
Income (loss) before income tax expense 471 390 (180)
(benefit)
Income tax expense (benefit) 162 201 (119)
------ ------ ------
Net income (loss) $ 309 $ 189 $ (61)
====== ====== ======
9
<PAGE>
At or For the Year Ended
December 31,
-----------------------------------
1998 1997 1996
-------- ------- --------
Selected Ratios:(2)
Return (loss) on average assets 0.28% 0.17% (0.05)%
Return (loss) on average equity 2.71 1.60 (0.52)
Average equity to average assets 10.38 10.41 10.04
Equity to assets at year end 10.55 10.17 9.68
Interest rate spread(3) 3.73 3.68 3.28
Net interest margin(3) 4.37 4.25 3.83
Non-performing loans to total loans
at year end(4) 2.34 2.20 2.56
Non-performing assets to total assets
at year end(4) 1.70 2.12 2.31
Allowance for loan losses to total
non-performing loans 63.23 79.43 72.61
Average interest-earning assets to
average interest-bearing liabilities 119.48 116.19 114.99
Net interest income after provision
for loan losses to total noninterest
expenses 100.05 96.48 81.78
Noninterest expenses to average
total assets 4.02 3.62 3.19
- ------------------------------
(1) Includes cash and due from banks as well as interest-earning deposits in
other institutions.
(2) With the exception of end of year ratios, all ratios are based on average
monthly balances.
(3) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average rate on interest-bearing
liabilities. Net interest margin represents net interest income as a
percentage of average interest-earning assets.
(4) Non-performing loans consist of non-accrual loans, and non-performing
assets consist of non-performing loans and real estate acquired by
foreclosure.
10
<PAGE>
RISK FACTORS
You should consider these risk factors, in addition to the other
information in this prospectus, before deciding whether to make an investment in
this stock.
Rising interest rates may hurt our profits.
To be profitable, we have to earn more money from the interest we
receive on loans and investments we make than we pay to our depositors in
interest. If interest rates rise, our net interest income could be negatively
affected if interest paid on interest-bearing liabilities, such as deposits,
increases more quickly than interest received on interest-earning assets, such
as loans, mortgage-related and investment securities. This would cause income to
go down. In addition, rising interest rates may hurt our income because they may
reduce the demand for loans and the market value of our mortgage-backed and
investment securities. For a further discussion of how changes in interest rates
could affect us, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Assets and Liability Management and Market
Risk Analysis."
Oswego County MHC will own 51% or more of the stock of Oswego County Bancorp.
This means that Oswego County MHC will have enough votes to control what happens
on most matters put to a vote of stockholders.
Oswego County MHC is required by the New York State Banking
Department to own 51% or more of the common stock of Oswego County Bancorp. The
board of trustees of Oswego County MHC will have the power to vote this stock.
Therefore, the board of Oswego County MHC will control the results of most
matters put to a vote of stockholders of Oswego County Bancorp. We cannot assure
you that the votes cast by Oswego County MHC will be in your personal best
interests. For more information regarding your lack of voting control over
Oswego County Bancorp, see "Oswego County MHC" and "Restrictions on Acquisition
of Oswego County Bancorp and Oswego County Savings."
After the change in structure and stock offering, our net income-to-equity ratio
will be low compared to other companies and our compensation expenses will
increase. This could negatively impact the price of our stock.
The proceeds we will receive from the sale of our common stock will
significantly increase our capital and it will take us time to profitably use
all of it in our business operations. Our compensation expenses will also
increase because of the costs associated with the employee stock ownership and
stock-based incentive plans. Therefore, we expect our return on equity to be
[below] our historical level and less than our regional and national peers. This
low return on equity could hurt our stock price. We cannot guarantee when or if
we will achieve returns on equity that are comparable to industry peers. For
further information regarding pro forma income and expenses, see "Pro Forma
Data."
You could have difficulty selling your stock if an active trading market does
not develop.
Because we are a new company, there is no market for our stock. We
anticipate our stock to be traded on the over-the-counter market through the OTC
"Electronic Bulletin Board" under the symbol "_____." However, it is unlikely
that an active and liquid trading market will
11
<PAGE>
develop or be maintained due to the relatively small size of the offering.
Friedman, Billings, Ramsey & Co. has informed us that it will attempt to make a
market in our stock.
The slow recovery of local economy may hurt our profits.
Substantially all of Oswego County Savings' loans and deposits are
generated within Oswego County, New York, which is located on Lake Ontario
approximately 30 miles northwest of Syracuse, New York. The recession of the
early 1990s adversely affected this market area, increasing unemployment and
restricting economic growth. Two large area employers closed their operations in
the mid 1990s resulting in the loss of approximately 850 jobs. The area's
recovery has been slower than many other parts of the United States, especially
the real estate market. Management estimates that residential real estate prices
have fallen by approximately 20 to 30% over the last decade. Despite the slow
economic recovery and the large layoffs, the market area's largest employers,
including Niagara Mohawk Power, Alcan Aluminum and Nestle, and the presence of
the State University of New York, College at Oswego provide a stable source of
employment to the area. However, the market area continues to experience limited
population and economic growth and the unemployment rate, while lower in recent
periods, is still higher than the United States and New York averages. If Oswego
County Savings continues to rely almost exclusively on the Oswego County market
area as its source of loans and deposits, the market's economic growth and
stability will have a direct impact on Oswego County Savings' profitability.
The establishment of the Oswego County Charitable Foundation will reduce our
earnings.
Oswego County Bancorp intends to contribute to the Oswego County
Charitable Foundation shares of its common stock equal to 4% of the shares sold
in the stock offering, worth up to $243,800, at the time of contribution. This
contribution will be a significant expense to Oswego County Bancorp and will
decrease our operating results for the year ending December 31, 1999. For a
further discussion regarding the effect of the contribution to the foundation,
see "Pro Forma Data."
The contribution to the Oswego County Charitable Foundation means that your
total ownership will be 0.8% less after we make the contribution.
If you purchase shares, then your voting interests in Oswego County
Bancorp will be reduced by 0.8% when we contribute our shares to the foundation.
For a further discussion regarding the effect of the contribution to the
foundation, see "Pro Forma Data," "Comparison of Valuation and Pro Form
Information With No Foundation" and "Our Corporate Change and Stock Offering -
Oswego County Charitable Foundation."
We intend to grant stock options and restricted stock to the board and
management following the change in structure and stock offering which could
further reduce your voting interest.
If approved by a majority vote of the shareholders, excluding the
shares owned by Oswego County MHC, we intend to establish a stock option plan
with a number of shares equal to 10% of the shares issued to the public and a
restricted stock plan with a number of shares equal to 4% of the shares issued
to the public. The restricted stock would be worth $243,800 at the purchase
price and assuming the maximum of the estimated offering range, for the benefit
of directors, officers and employees of Oswego County Bancorp and Oswego County
12
<PAGE>
Savings. Stock options can be exercised later on by the recipient by paying an
amount equal to the fair market value of the stock on the date of the grant.
This payment is not made until the option is actually exercised by the
recipient. Restricted stock is a bonus paid in the form of stock rather than
cash, and is not paid for by the recipient. Awards under these plans will reduce
the voting interests of all stockholders. For further discussion regarding these
plans, see "Pro Forma Data" and "Management - Benefits - Other Stock Benefit
Plans."
If computer systems do not properly work on January 1, 2000, our
business operations will be disrupted.
If our computer systems and the computer systems operated by our
third party vendors do not properly work on January 1, 2000, then we could
experience a disruption in our business operations. As a result, our financial
condition and results of operations could be weakened. In addition, if we do not
do a good job preparing for the January 1, 2000 date change, then regulators may
take action against us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000 Issues."
13
<PAGE>
OSWEGO COUNTY BANCORP, INC.
After completing our change in structure, the stock offering and a
planned contribution of shares to the Oswego County Charitable Foundation, we
will appear as shown below:
----------------------
| DEPOSITORS OF OSWEGO |
| COUNTY SAVINGS BANK |
---------------------- Total Public Shares
| - - - - - - - - - - - - - - - - - - - - - - - - - -
| | |
---------------------- | ----------------------- --------------- |
| | | | | | OSWEGO COUNTY | |
| OSWEGO COUNTY MHC | | | MINORITY STOCKHOLDERS | | CHARITABLE | |
| | | | | FOUNDATION | |
---------------------- | ----------------------- --------------- |
| | | | |
| | | | |
| | | | |
| 52.9% of the | | 45.3% of the | 1.8% of the |
| common stock | | common stock | common stock|
| - - - - - - - |- - - - - - - - - - - -|- - - - - - -
| | |
| | |
| | |
------------------------------------------------------------------------------
| OSWEGO COUNTY BANCORP, INC. |
------------------------------------------------------------------------------
|
| 100% of the common stock
|
|
|
------------------------------------------------------------------------------
| OSWEGO COUNTY SAVINGS BANK |
------------------------------------------------------------------------------
Oswego County Bancorp was incorporated under Delaware law to hold all
of the stock of Oswego County Savings. Oswego County Bancorp has applied for the
approval of the Board of Governors of the Federal Reserve System to become a
bank holding company and will be subject to regulation by that agency. See "How
We are Regulated - Oswego County Bancorp, Inc." Oswego County Bancorp will have
no significant assets other than all of the outstanding shares of common stock
of Oswego County Savings, the $3.0 million of the net proceeds it keeps and its
loan to the Oswego County Bancorp employee stock ownership plan ("ESOP"). Oswego
County Bancorp will have no significant liabilities. See "How We Intend to Use
the Proceeds." Initially, the management of Oswego County Bancorp and Oswego
County Savings will be substantially the same and Oswego County Bancorp will use
the offices of Oswego County Savings. Oswego County Bancorp intends to utilize
the support staff of Oswego County Savings from time to time and will pay Oswego
County Savings for this expense. If Oswego County Bancorp expands or changes its
business in the future, we may hire our own employees.
We believe the proposed mutual holding company structure will give us
more flexibility to change our business activities by forming new companies
which we would own, or by buying other companies, including other financial
institutions and financial services companies. We do not have any current plans
to do these things. Oswego County Bancorp intends to pay for its business
activities with the proceeds it keeps from the stock sale and the money we earn
from investing the proceeds, as well as from dividends from Oswego County
Saving. See "Our Policy Regarding Dividends."
14
<PAGE>
The principal executive offices of Oswego County Bancorp will be
located at 44 East Bridge Street, Oswego, New York 13126, and its telephone
number will be (315)___-____.
OSWEGO COUNTY SAVINGS BANK
Oswego County Savings is a New York-chartered and Federal Deposit
Insurance Corporation-insured mutual savings bank with four full-service
offices. At December 31, 1998, Oswego County Savings had total assets of $110.9
million, total deposits of $96.6 million and [equity] of $11.7 million. For more
information regarding the business and operations of Oswego County Savings see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business of Oswego County Savings Bank."
Oswego County Savings is examined and regulated by the New York State
Banking Department and by the Federal Deposit Insurance Corporation, its primary
federal regulator.
The executive offices of Oswego County Savings are located at 44 East
Bridge Street, Oswego, New York 13126, and its telephone number is
(315)___-____.
OSWEGO COUNTY MHC
Oswego County MHC, a New York mutual holding company, will be formed
as part of the restructuring of Oswego County Savings under the [Plan of
Reorganization and Stock Issuance Plan]. Persons who as depositors of Oswego
County Savings have liquidation and voting rights in Oswego County Savings as of
the date of the reorganization will have those rights automatically exchanged
for identical rights in Oswego County MHC after the reorganization as long as
they remain depositors of Oswego County Savings. Trustees of Oswego County MHC
will have the authority to elect any new or replacement trustees.
Oswego County MHC's principal assets will be the shares of common
stock, par value $.01 per share, of Oswego County Bancorp received in the
reorganization and $100,000 contributed by Oswego County Savings as its initial
capitalization. Initially, Oswego County MHC does not intend to conduct any
business except to own at least 51% of the common stock of Oswego County Bancorp
and invest the funds received from Oswego County Savings. Oswego County MHC will
be formed as a New York mutual savings bank with no authority to accept
deposits. It will be regulated by the New York State Banking Department and will
be subject to the limitations and restrictions imposed on bank holding companies
by the Bank Holding Company Act. See "How We are Regulated - Oswego County MHC."
The executive offices of Oswego County MHC will be located at 44 East
Bridge Street, Oswego, New York 13126, and its telephone number will be
(315)___-____.
HOW WE INTEND TO USE THE PROCEEDS
Although the actual amount of net proceeds we receive from the sale
of the shares of common stock cannot be determined until the reorganization and
stock offering is completed, we anticipate that the net proceeds from the sale
of the shares of common stock will be between $3.9 million and $5.5 million, and
up to $6.4 million assuming a 15% increase in the estimated value of the common
stock sold in this offering. See "Pro Forma Data" and "Our Corporate Change and
Stock Offering - How We Determined Our Price and the Number of Shares to be
Issued in the Stock Offering" for the assumptions we used to arrive at these
amounts.
15
<PAGE>
Oswego County Bancorp will retain $3.0 million of the net offering
proceeds after it uses $1.9 million to purchase all of the capital stock of
Oswego County Savings to be issued in the reorganization and $488,000 to
make a loan to the employee stock ownership plan. Oswego County Bancorp intends
to use a portion of the net proceeds to make a loan directly to the employee
stock ownership plan to enable the employee stock ownership plan to purchase up
to 8.0% of the shares of common stock sold in the stock offering of between
450,500 and 609,500 shares of Oswego County Bancorp common stock at $10.00 per
share through the Subscription Offering, the Community Offering and the
Syndicated Public Offering (the "Offerings"). Based upon the issuance of 450,500
shares of common stock and 609,500 shares of common stock at the minimum and
maximum of the estimated offering range, respectively, the loan to the employee
stock ownership plan would be $360,400 and $487,600, respectively. See
"Management - Benefits - Employee Stock Ownership Plan." The remaining net
proceeds retained by Oswego County Bancorp initially may be used to invest in
U.S. Government and federal agency securities of various maturities,
mortgage-backed or other securities, deposits in either Oswego County Savings or
other financial institutions, or a combination thereof. The net proceeds
retained by Oswego County Bancorp may ultimately be used to:
o support Oswego County Savings' lending activities; or
o support the future expansion of operations through the
establishment of additional banking offices or other
customer facilities or through acquisitions of other
financial institutions or branch offices, although no such
acquisition transactions are specifically being considered
at this time.
The net proceeds from the Offerings may also be used for other business and
investment purposes, including the payment of regular or special cash dividends,
possible repurchases of the common stock or returns of capital. Oswego County
Bancorp and Oswego County Savings have committed, however, not to take any
action to further the payment of any return of capital on the common stock
during the one-year period subsequent to completion of the reorganization
Management of Oswego County Bancorp expects to consider further expanding or
diversifying our activities, as opportunities become available.
Following the one-year anniversary of the completion of the
reorganization, to the extent permitted by the Federal Deposit Insurance
Corporation and the New York State Banking Department and based upon
then-existing facts and circumstances, Oswego County Bancorp's board of
directors may determine to repurchase shares of common stock, subject to any
applicable requirements. Facts and circumstances may include but not be limited
to:
o market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of
the rate of return and risk involved in the investment, the
ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and an
improvement in Oswego County Bancorp's return on equity;
o 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 benefits plans; and
16
<PAGE>
o any other circumstances in which repurchases would be in
the best interests of Oswego County Bancorp and its
stockholders.
Any stock repurchases will be subject to the determination of Oswego County
Bancorp's board of directors that Oswego County Savings will be capitalized in
excess of all applicable regulatory requirements after any such repurchases.
The portion of the net proceeds used by Oswego County Bancorp to
purchase the capital stock of Oswego County Savings will be added to Oswego
County Savings' general funds to be used for general corporate purposes,
including increased lending and investment activities. While the amount of net
proceeds received by Oswego County Savings will further strengthen Oswego County
Savings' capital position, which already exceeds all regulatory requirements, we
are not reorganizing primarily to raise capital. After the reorganization and
stock offering, based upon the maximum of the estimated offering range, Oswego
County Savings' core capital ratio will be approximately 12.4%. As a result,
Oswego County Savings will continue to be a well-capitalized institution.
The net proceeds may vary because total expenses of the
reorganization and stock offering may be more or less than those estimated. The
net proceeds will also vary if the number of shares to be issued in the
reorganization and stock offering is adjusted to reflect a change in the
estimated pro forma market value of Oswego County Savings. Payments for shares
made through withdrawals from existing deposit accounts at Oswego County Savings
will not result in the receipt of new funds for investment by Oswego County
Savings but will result in a reduction of Oswego County Savings' interest
expense and liabilities as funds are transferred from interest-bearing
certificates or other deposit accounts.
MARKET FOR THE COMMON STOCK
Oswego County Bancorp and Oswego County Savings have never issued
capital stock, so there is no established market for the common stock at this
time. Oswego County Bancorp has applied to have its common stock traded on the
over-the-counter market through the OTC "Electronic Bulletin Board" under the
symbol "_____." Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
these quoted prices, subject to various securities laws and other regulatory
requirements. Additionally, the development of a liquid public market depends on
the existence of willing buyers and sellers, the presence of which is not within
the control of Oswego County Bancorp, Oswego County Savings or any market maker.
Due to the relatively small size of the stock offering, it is unlikely that an
active and liquid market will develop or be maintained. Purchasers of common
stock should have a long-term investment intent and should recognize that the
absence of an active trading market may make it difficult to sell their shares
at or above the purchase price.
OUR POLICY REGARDING DIVIDENDS
Following completion of the reorganization, the board of directors of
Oswego County Bancorp intends to establish a policy to pay dividends on our
common stock. The payment of dividends will depend upon a number of factors,
including capital requirements, the financial condition of Oswego County Bancorp
and Oswego County Savings and results of operations, tax considerations,
statutory and regulatory limitations, and general economic conditions. No
assurances can be given that any dividends will be paid or that, if paid, will
not be reduced or
17
<PAGE>
eliminated in future periods. Special cash dividends, stock dividends or returns
of capital may, to the extent permitted by Federal Deposit Insurance Corporation
and New York State Banking Department policy and regulations, be paid in
addition to, or in lieu of, regular cash dividends. Oswego County Bancorp
intends to file consolidated tax returns with Oswego County Savings.
Accordingly, it is anticipated that any cash distributions made by Oswego County
Bancorp to its stockholders would be treated as cash dividends and not as
non-taxable return of capital for federal and state tax purposes. Oswego County
Bancorp anticipates that any dividends it declares will be paid to all of its
shareholders, including Oswego County MHC. Under current regulatory policies
applicable to bank holding companies, Oswego County MHC does not believe that it
would receive Federal Reserve Board approval to waive dividends which it would
otherwise receive as a shareholder of Oswego County Bancorp.
Dividends from Oswego County Bancorp will depend, in large part, upon
receipt of dividends from Oswego County Savings, because Oswego County Bancorp
initially will have no source of income other than dividends from Oswego County
Savings. Dividends from Oswego County Bancorp will also depend on earnings from
the investment of proceeds from the sale of shares of common stock retained by
Oswego County Bancorp, and interest payments received by Oswego County Bancorp
on the loan to the employee stock ownership plan. See "How We Are Regulated -
Limitations on Dividends."
Any payment of dividends by Oswego County Savings to Oswego County
Bancorp which would be deemed to be drawn out of Oswego County Savings' bad debt
reserves would require a payment of taxes at the then-current tax rate by Oswego
County Savings on the amount of earnings deemed to be removed from the reserves
for such distribution. Oswego County Savings does not intend to make any
distribution to Oswego County Bancorp that would create such a federal tax
liability. See "Taxation."
OSWEGO COUNTY SAVINGS BANK
EXCEEDS ALL REGULATORY CAPITAL REQUIREMENTS
At December 31, 1998, Oswego County Savings exceeded all of the
regulatory capital requirements applicable to it. The table on the following
page shows the historical regulatory capital of Oswego County Savings at
December 31, 1998 and the pro forma regulatory capital of Oswego County Savings
after giving effect to the reorganization and stock offering, based upon the
sale of the number of shares shown in the table. The Federal Reserve Board has
adopted capital adequacy guidelines for bank holding companies, on a
consolidated basis, substantially similar to the FDIC requirements for Oswego
County Savings. The pro forma regulatory capital amounts do not include the
amounts to be loaned to the employee stock ownership plan and contributed to the
restricted stock plan.
18
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at December 31, 1998
--------------------------------------------------------------------------------------
Actual, as of Maximum As
December 31, 1998 Minimum Midpoint Maximum Adjusted(1)
-------------------- -------------------- -------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital and
Retained
Earnings Under
Generally
Accepted
Accounting
Principles... $11,694 10.5% $13,010 11.6% $13,312 11.8% $13,614 12.0% $13,962 12.3%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Leverage capital:
Capital level(3).. $11,694 10.7% $13,010 11.7% $13,312 11.9% $13,614 12.1% $13,962 12.4%
Requirement(4).... 4,387 4.0 4,454 4.0 4,469 4.0 4,484 4.0 4,500 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess....... $ 7,307 6.7% $ 8,556 7.7% $ 8,843 7.9% $ 9,131 8.1% $ 9,461 8.4%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-based capital:
Tier 1 capital
level(3)(5)....... $11,694 15.5% $13,010 17.0% $13,312 17.3% $13,614 17.6% $13,962 18.0%
Requirement....... 3,023 4.0 3,069 4.0 3,079 4.0 3,089 4.0 3,100 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess........ $ 8,671 11.5% $ 9,941 13.0% $10,233 13.3% $10,525 13.6% $10,861 14.0%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Total capital
level(3)(5)....... $12,639 16.7% $13,955 18.2% $14,257 10.5% $14,559 18.9% $14,907 19.2%
Requirement....... 6,047 8.0 6,138 8.0 6,158 8.0 6,178 8.0 6,201 8.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess........ $ 6,592 8.7% $ 7,817 10.2% $ 8,099 10.5% $ 8,381 10.9% $ 8,706 11.2%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
- --------------------------
(1) As adjusted to give effect to an increase in the number of shares that
could occur due to an increase in the estimated valuation range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market conditions or general financial and economic conditions
following the beginning of the stock offering.
(2) Leverage capital levels are shown as a percentage of average 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 Oswego County Savings of the
Recognition 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 Oswego County MHC by Oswego County Savings with $100,000. See
"Management of Oswego County Savings Bank--Executive Compensation" for a
discussion of the restricted stock 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 "How We Are Regulated - Federal Regulation of Oswego County Savings --
Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the average risk-weighting of Oswego County Savings' risk-weighted
assets as of December 31, 1998.
19
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Oswego
County Savings at December 31, 1998 and the pro forma consolidated
capitalization of Oswego County Bancorp after giving effect to the Offerings,
based upon the sale of the number of shares shown below and the other
assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Oswego County Bancorp Pro Forma Based upon the
Sale at $10.00 Per Share of
---------------------------------------------------------------------
Oswego
County 450,500 530,000 609,500 700,925
Savings Shares Shares Shares Shares (adjusted
Historical (Minimum) (Midpoint) (Maximum) Maximum)(1)
------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................. $96,564 $96,564 $96,564 $96,564 $96,564
Total deposits and other borrowings ......... $96,564 $96,564 $96,564 $96,564 $96,564
======= ======= ======= ======= =======
Stockholders' equity:
Common Stock, $.01 par value, 7,500,000
shares authorized; shares to be issued
as reflected(3).......................... - 10 12 13 15
Preferred Stock, $____ par value, 1,000,000
shares authorized; none to be issued
Additional paid-in capital .................. -- 4,083 4,908 5,733 6,682
Retained earnings(4)......................... 11,695 11,595 11,595 11,595 11,595
Tax benefit of contribution to
Foundation(5)........................ - 68 81 93 107
Accumulated other comprehensive
income ............................. (1) (1) (1) (1) (1)
Less:
Expense of contribution to Foundation..... -- (180) (212) (244) (280)
Common stock acquired by ESOP(6).......... -- (360) (424) (488) (561)
Common stock acquired by Recognition
Plan(7)................................. - (180) (212) (244) (280)
------- ------- ------- ------- -------
Total stockholders' equity................... $11,694 $15,035 $15,747 $16,458 $17,277
======= ======= ======= ======= =======
</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 stock 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) Reflects the sale of shares in the stock offering, including the issuance
of additional shares of common stock to the foundation. No effect has been
given to the issuance of additional shares of common stock under the stock
option plan to be adopted by Oswego County Bancorp and presented for
approval of stockholders following the stock 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 minority ownership interest. See
"Management -- Benefits -- Other Stock Benefit Plans."
(4) The retained earnings of Oswego County Savings will continue to be
substantially restricted after the stock offering. See "Dividend Policy"
and "How We Are Regulated - New York Regulation of Oswego County Savings."
Assumes that Oswego County MHC will be capitalized by Oswego County Savings
with $100,000.
(5) Represents the tax effect of the contribution to the Oswego County
Charitable Foundation based on a 38% tax rate. The tax deduction for
charitable contributions is limited annually to 10% of Oswego County
Bancorp's consolidated annual taxable income, subject to the ability of
Oswego County Bancorp to carry forward and utilize any unused
20
<PAGE>
portion of the deduction for five years following the year in which the
contribution is made. The realization of the deferred tax benefit
attributable to such carryforward will depend on Oswego County Bancorp's
ability to generate sufficient consolidated taxable income during the
five-year carryforward period.
(6) Assumes that 8% of the minority ownership interest will be purchased by the
ESOP and that the funds used to acquire the ESOP shares will be borrowed
from Oswego County Bancorp. The common stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management Benefits
-- Employee Stock Ownership Plan."
(7) Assumes that, subsequent to the stock offering, an amount equal to 4% of
the minority ownership interest is purchased by the restricted stock plan
through open market purchases. The actual purchase price per share may be
more or less than $10.00. The common stock to be purchased by the
restricted stock plan is reflected as a reduction to stockholders' equity.
See "Risk Factors -- We intend to grant stock options and restricted stock
to the board and management following the change in structure and stock
offering which could further reduce your voting control," footnote 3 to the
table under "Pro Forma Data," and "Management -- Benefits -- Other Stock
Benefit Plans."
21
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the reorganization is completed. However, net proceeds are
currently estimated to be between $3.9 million and $5.5 million, or $6.4 million
in the event the estimated offering range is increased by 15%, based upon the
following assumptions:
o all shares of common stock will be sold in the offering of
non-transferable rights to subscribe for the common stock,
in order of priority, to Eligible Account Holders, the
employee stock ownership plan, Supplemental Eligible
Account Holders and Trustees, Officers and Employees
("Subscription Offering");
o Friedman, Billings, Ramsey & Co., Inc. will receive a fixed
fee of $100,000;
o Oswego County Bancorp will contribute to the foundation an
amount of common stock equal to 4.0% of the common stock
sold in the Offerings from authorized but unissued shares;
and
o total expenses, including the fee paid to Friedman,
Billings, Ramsey & Co., Inc., will be $592,200. Actual
expenses may vary from those estimated.
Pro forma consolidated net income and stockholders' equity of Oswego
County Bancorp have been calculated for the fiscal year ended December 31, 1998,
as if the common stock to be issued in the stock offering had been sold at the
beginning of the period and the net proceeds had been invested at 4.52%, which
represents the yield on one-year U.S. Government securities at December 31,
1998. In light of changes in interest rates in recent periods, this yield is
deemed by Oswego County Bancorp and Oswego County Savings to more accurately
reflect pro forma reinvestment rates than the arithmetic average method. The
effect of withdrawals from deposit accounts for the purchase of common stock has
not been reflected. A tax rate of 38.0% has been assumed for the period,
resulting in an after-tax yield of 2.80% for the year ended December 31, 1998.
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 shares purchased by the employee stock
ownership plan and the effect of the issuance of shares to the foundation. See
Note 3 to the tables below. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "How We Intend to Use the Proceeds," Oswego County Bancorp
intends to retain 50% of the net proceeds from the offering and from that amount
to make a loan to fund the purchase of 8.0% of the common stock by the employee
stock ownership plan.
No effect has been given in the tables to the issuance of additional
shares of common stock pursuant to the proposed stock option plan. See
"Management - Benefits - Other Stock Benefit Plans." The table below gives
effect to the restricted stock plan, which is expected to be adopted by Oswego
County Bancorp following the reorganization and presented along with the stock
option plan to stockholders for approval at an annual or special meeting of
stockholders to be held at least six months following the completion of the
reorganization. If the restricted stock plan is approved by stockholders, the
restricted stock plan intends to acquire an amount of common stock equal to 4.0%
of the shares of common stock sold in the stock offering, either through open
market purchases or from authorized but unissued shares of common stock, if
permissible. The table below assumes that stockholder approval has been
obtained, as to which
22
<PAGE>
there can be no assurance, and that the shares acquired by the restricted stock
plan are purchased in the open market at the purchase price in the stock
offering. No effect has been given to Oswego County Bancorp's results of
operations after the reorganization, the market price of the common stock after
the reorganization or a less than 4.0% purchase by the restricted stock plan.
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 stockholders' equity represents the difference
between the stated amount of assets and liabilities of Oswego County Bancorp
computed in accordance with generally accepted accounting principles ("GAAP").
The following table gives effect to the issuance of authorized but
unissued shares of the common stock to the foundation concurrently with the
completion of the reorganization. The pro forma stockholders' equity is not
intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
in the event of liquidation.
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum as Adjusted
450,500 530,000 609,500 700,925
$10.00 $10.00 $10.00 $10.00
per Share per Share per Share per Share(7)
--------- --------- --------- ------------
(Dollars In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds....................................................... $4,505 $5,300 $6,095 $7,009
Plus: shares issued to the foundation................................ 180 212 244 280
------- ------- ------- -------
Pro forma market capitalization...................................... $4,685 $5,512 $6,339 $7,290
Gross proceeds....................................................... 4,505 5,300 6,095 7,009
Less cash contribution to foundation................................. 592 592 592 592
------- ------- ------- -------
Expenses
Estimated net proceeds............................................ $3,913 $4,708 $5,503 $6,417
Less: common stock purchased by ESOP................................. (360) (424) (488) (561)
Less: common stock purchased by restricted stock plan................ (180) (212) (244) (280)
------- ------- ------- -------
Estimated net proceeds, as adjusted............................... 3,372 4,072 4,772 5,576
For the Year Ended December 31, 1998
Historical........................................................ $ 309 $ 309 $ 309 $ 309
Pro forma income on net proceeds.................................. 95 114 134 156
Pro forma ESOP adjustment(2)...................................... (22) (26) (30) (35)
Pro forma restricted stock plan adjustment(3)..................... (22) (26) (30) (35)
------- ------- ------- -------
Pro forma net income(1)......................................... $ 360 $ 371 $ 383 $ 395
======= ======= ======= =======
Per share net income (reflects SOP 93-6)(1)
Historical........................................................ $0.32 $0.27 $0.24 $0.21
Pro forma income on net proceeds.................................. 0.10 0.10 0.10 0.10
Pro forma ESOP adjustment(2)...................................... (0.02) (0.02) (0.02) (0.02)
Pro forma restricted stock plan adjustment(3)..................... (0.02) (0.02) (0.02) (0.02)
------- ------- ------- -------
Pro forma net income per share.................................. $0.38 $0.33 $0.30 $0.27
At December 31, 1998
Stockholders' equity:
Historical........................................................ $11,694 $11,694 $11,694 $11,694
Estimated net proceeds............................................ 3,913 4,708 5,503 6,417
Less: capitalization of the Oswego County MHC..................... (100) (100) (100) (100)
Plus: shares issued to foundation................................. 180 212 244 280
Less: contribution to foundation.................................. (180) (212) (244) (280)
Plus: tax benefit of the contribution to the foundation........... 68 81 93 107
23
<PAGE>
Less: common stock acquired by ESOP............................... (360) (424) (488) (561)
Less: common stock acquired by restricted stock plan.............. (180) (212) (244) (280)
------- ------- ------- -------
Pro forma stockholders' equity(3)(4)(5)......................... $15,035 $15,747 $16,458 $17,277
======= ======= ======= =======
Stockholders' equity per share(6)
Historical........................................................ $11.75 $9.98 $8.68 $7.55
Estimated net proceeds............................................ 3.93 4.02 4.09 4.14
Less: capitalization of the Oswego County MHC..................... (0.10) (0.09) (0.07) (0.06)
Plus: shares issued to foundation................................. 0.18 0.18 0.18 0.18
Less: contribution to foundation.................................. (0.18) (0.18) (0.18) (0.18)
Plus: tax benefit of the contribution to the foundation........... 0.07 0.07 0.07 0.07
Less: common stock acquired by ESOP(2)............................ (0.36) (0.36) (0.36) (0.36)
Less: common stock acquired by restricted stock plan(3)........... (0.18) (0.18) (0.18) (0.18)
------- ------- ------- -------
Pro forma stockholders' equity per share(3)(4)(5)............... $15.11 $13.44 $12.23 $11.16
======= ======= ======= =======
Offering price as a percentage of pro forma net earnings per share... 26.32 30.30 33.33 37.04
======= ======= ======= =======
Offering price as a percentage of pro forma stockholders' equity per
share(6).......................................................... 66.18% 74.40% 81.77% 89.61%
</TABLE>
- ----------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in 1999 as a result of the establishment of the Oswego County Charitable
Foundation. Oswego County Bancorp will recognize an after-tax expense for
the amount of the contribution to the foundation which is expected to be
$112,000, $131,000 $151,000 and $174,000 at the minimum, midpoint, maximum
and adjusted maximum of the estimated valuation range, respectively.
Assuming the contribution to the foundation was incurred during the year
ended December 31, 1998, pro forma net income per share would be $0.26,
0.21, 0.18 and 0.15 at the minimum, midpoint, maximum and adjusted maximum,
respectively. Per share net income data is based on 963,084, 1,133,040,
1,302,996, and 1,498,445 shares outstanding, which represents shares issued
in the stock offering, shares contributed to the foundation and shares to
be allocated or distributed under the ESOP and restricted stock 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 Oswego County Bancorp. The amount to be borrowed
reflected as a reduction of stockholders' equity. Oswego County Bancorp
intends to make annual contributions to the ESOP in an amount at least
equal to the principal and interest requirement of the debt. Oswego County
Bancorp's total annual payment of the ESOP debt is based upon ten equal
annual installments of principal, with an assumed interest rate at __%. The
pro forma net income assumes: (i) that Oswego County Bancorp's contribution
to the ESOP is equivalent to the debt service requirement for the year
ended December 31, 1998, and was made at the end of the period; (ii) that
3,604, 4,204, 4,826, and 5,607 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, 1998, at an
average fair value of $10.00 per share in accordance with Statement of
Position ("SOP") 93-6; and (iii) only the ESOP shares committed to be
released were considered outstanding for purposes of the net income per
share calculations. See "Management--Benefits--Employee Stock Ownership
Plan."
(3) Gives effect to the restricted stock plan expected to be adopted by Oswego
County Bancorp following the stock offering. This plan intends to acquire a
number of shares of common stock equal to 4% of the minority ownership
interest, or 18,020, 21,200, 24,380 and 28,037 shares of common stock at
the minimum, midpoint, maximum and adjusted maximum of the estimated
valuation range, respectively, either through open market purchases, if
permissible, or from authorized-but-unissued shares of common stock or
treasury stock of Oswego County Bancorp, if any. Funds used by the
restricted stock plan to purchase the shares will be contributed to the
plan by Oswego County Bancorp. In calculating the pro forma effect of the
restricted stock plan, it is assumed that the shares were acquired by the
restricted stock plan at the beginning of the period presented in open
market purchases at the purchase 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 restricted stock plan
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.8% and pro forma net income per
share would be $0.37, $0.33, $0.30 and $0.27 at the minimum, midpoint,
maximum and adjusted maximum of the estimated valuation range,
respectively, and pro forma stockholders' equity per share would be $15.01,
$13.39, $12.18, and $11.14 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--Benefits."
(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 Oswego
County Bancorp following the stock offering. Under the stock option plan,
an amount equal to 10% of the minority ownership interest, or 45,050,
53,000, 60,950 and 70,093 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
24
<PAGE>
options to be granted under the stock option plan. The issuance of common
stock pursuant to the exercise of options under the stock option plan will
result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price of
$10.00 per share, the pro forma net income per share would be $0.38, $0.33,
$0.30 and $0.27, respectively, and the pro forma stockholders' equity per
share would be $14.88, $13.30, $12.13 and $11.11, respectively. See
"Management--Benefits--Other Stock Benefit Plans."
(5) The retained earnings of Oswego County Savings will continue to be
substantially restricted after the stock offering. See "Dividend Policy"
and "Regulation--New York Bank Regulation."
(6) Stockholders' equity per share data is based upon 995,520, 1,171,200,
1,346,880 and 1,548,912 shares outstanding representing shares issued in
the stock offering, shares purchased by the ESOP and the restricted stock
plan, and shares contributed to the foundation.
(7) As adjusted to give effect to an increase in the number of shares that
could occur due to an increase in the estimated valuation range of up to
15% as a result of regulatory considerations, demand for the shares, or
changes in market or general financial and economic conditions following
the commencement of the stock offering.
25
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Oswego County Charitable Foundation was not
being established as part of the reorganization, RP Financial has estimated that
the pro forma aggregate market capitalization of Oswego County Bancorp would be
approximately $5.5 million at the midpoint, which is approximately $18,000
greater than the pro forma aggregate market capitalization of Oswego County
Bancorp if the foundation is included, and would result in an approximately
$230,000 increase in the amount of common stock offered for sale in the stock
offering. At the mid-point, the pro forma price to book ratio without the
foundation would be 75.53%, compared to 74.40% with the foundation. The pro
forma price to earnings ratio would be the same with or without the foundation.
Further, assuming the midpoint of the estimated offering range, pro forma
stockholders' equity per share and pro forma earnings per share without the
foundation would be $13.24 and $0.33, respectively, and $13.44 and $0.33,
respectively, with the foundation. There is no assurance that in the event the
foundation was not formed that the appraisal prepared at the time would have
concluded that the pro forma market value of Oswego County Bancorp would be the
same as that estimated on the following table. 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
maximum, as adjusted, of the estimated offering range, assuming the
reorganization and stock offering was completed at December 31, 1998 without the
establishment of the foundation.
<TABLE>
<CAPTION>
At the Minimum At the Midpoint
-------------------------------- -------------------------------
With With
Foundation No Foundation Foundation No Foundation
---------- ------------- ---------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Estimated offering amount.................... $ 4,505 $ 4,701 $ 5,300 $ 5,530
Pro forma market capitalization.............. 4,685 4,701 5,512 5,530
Total assets................................. 114,207 114,311 114,919 115,041
Total liabilities............................ 98,338 98,338 98,338 98,338
Pro forma stockholders' equity............... 15,035 15,139 15,747 15,869
Pro forma consolidated net earnings.......... 360 362 371 375
Pro forma stockholders' equity per share..... 15.11 14.84 13.44 13.24
Pro forma consolidated net earnings per
share..................................... 0.38 0.37 0.33 0.33
Pro Forma Pricing Ratios:
Price/Stockholders' Equity................ 66.18% 67.39% 74.40% 75.53%
Price/Earnings............................ 26.32 27.03 30.30 30.30
Price/Assets.............................. 8.72% 8.92% 10.19% 10.43%
Pro Forma Financial Ratios:
Return on Assets ......................... 0.42% 0.42% 0.43% 0.43%
Return on Stockholders' Equity ........... 3.19% 3.19% 3.14% 3.15%
Stockholders' Equity /Assets.............. 13.16% 13.24% 13.70% 13.79%
<CAPTION>
At the Maximum,
At the Maximum As Adjusted
-------------------------------- -------------------------------
With With
Foundation No Foundation Foundation No Foundation
---------- ------------- ---------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Estimated offering amount.................... $ 6,095 $ 6,360 $ 7,009 $ 7,314
Pro forma market capitalization.............. 6,339 6,360 7,290 7,314
Total assets................................. 115,630 115,771 116,449 116,610
Total liabilities............................ 98,338 98,338 98,338 98,338
Pro forma stockholders' equity............... 16,458 16,599 17,277 17,438
Pro forma consolidated net earnings.......... 383 385 395 401
Pro forma stockholders' equity per share..... 12.23 12.03 11.16 11.00
Pro forma consolidated net earnings per
share..................................... 0.30 0.29 0.27 0.27
Pro Forma Pricing Ratios:
Price/Stockholders' Equity................ 81.77% 83.13% 89.61% 90.91%
Price/Earnings............................ 33.33 34.48 37.04 37.04
Price/Assets.............................. 11.65% 11.92% 13.30% 13.61%
Pro Forma Financial Ratios:
Return on Assets ......................... 0.44% 0.44% 0.45% 0.46%
Return on Stockholders' Equity ........... 3.10% 3.09% 3.05% 3.07%
Stockholders' Equity /Assets.............. 14.23% 14.34% 14.84% 14.95%
</TABLE>
26
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statement of Income
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Interest income:
Loans $6,252,969 $6,860,107
Securities 1,480,880 1,151,073
Federal funds sold and other short-term investments 180,949 240,519
---------- ---------
Total interest income 7,914,798 8,251,699
---------- ---------
Interest expense - deposits 3,388,168 3,737,612
---------- ---------
Net interest income 4,526,630 4,514,087
Provision for loan losses 120,000 524,816
---------- ---------
Net interest income after provision for loan losses 4,406,630 3,989,271
---------- ---------
Noninterest income:
Service charges 387,125 415,445
Recovery for Nationar 22,192 54,400
Other 59,526 46,417
---------- ---------
Total noninterest income 468,843 516,262
---------- ---------
Noninterest expenses:
Salaries and employee benefits 1,923,984 1,923,888
Occupancy and equipment 670,735 600,078
Deposit insurance premiums 11,738 12,342
Data processing 267,782 221,695
Office supplies, printing and postage 186,750 240,691
Professional fees 251,231 237,923
Merger expenses 171,213 145,278
Real estate owned, net 302,213 198,545
Trustee fees and benefits 151,918 172,175
Marketing and advertising 120,616 93,375
Other 346,585 269,302
---------- ---------
Total noninterest expenses 4,404,765 4,115,292
---------- ---------
Income before income tax expense 470,708 390,241
Income tax expense 162,000 201,350
---------- ---------
Net income $ 308,708 $ 188,891
========== =========
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Oswego County Savings' results of operations depend primarily on its
net interest income, which is the difference between interest and dividend
income on interest-earning assets and interest expense on interest-bearing
deposits. Interest-earning assets principally consist of loans and securities.
Oswego County Savings' results of operations also are affected by the provision
for losses on loans; the level of its noninterest income; its general,
administrative and other expenses, including compensation and benefits,
occupancy and equipment expense, real estate owned expense and other expenses;
and its income tax expense. Results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of regulatory
authorities.
Forward-Looking Statements
This prospectus contains forward-looking statements which are based
on assumptions and describe future plans, strategies and expectations of Oswego
County Savings. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar words. Our ability to predict results or the actual effect of future
plans or strategies is uncertain. Factors which could have a material adverse
effect on our operations include, but are not limited to, changes in interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in our market areas and accounting principles and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and you should not rely too much on these statements.
Management Strategy
When Oswego County Savings' chairman, president and chief executive
officer retired in June 1996, our Board of Trustees formed a committee to search
for his replacement. The search process culminated with the hiring of Gregory
Kreis as president and chief executive officer in January 1997. Mr. Kreis had 29
years of banking experience in three commercial banks in Vermont, most recently
as president and chief executive officer of a $145 million community bank in
southern Vermont. Since joining Oswego County Savings, Mr. Kreis has retained
the services of several experienced officers, including a new senior consumer
and mortgage lending officer, a new commercial lending officer and a new human
resources and training officer. In addition, we created the new positions of
operations officer and compliance/security officer and promoted then-current
officers to fill those positions. The internal auditor was transferred to the
position of treasurer and chief financial officer and we retained an independent
outside firm to conduct our internal audit procedures.
The new management team reviewed and revised our policies and
procedures in all major areas. Under the direction of new management, we also
undertook a comprehensive review of all non-performing assets, our major loans
and all of our commercial mortgage loans. As a result of
28
<PAGE>
this review, we increased our provisions for loan losses to $1.1 million in 1996
and $525,000 in 1997.
During the past two years we also have implemented new and more
stringent loan underwriting policies and procedures in an effort to diversify
our operations while, at the same time, improving our asset quality. We believe
that we now have the management team and the policies and procedures in place
which will permit us to proceed with our operating strategy.
Certain highlights of Oswego County Savings' operating strategy
include the following:
o Community Banking. We are committed to meeting the
financial needs of our customers in Oswego County, New York
and surrounding counties. We believe that our size and
local base permit us to be more effective in servicing our
customers than non-local competitors because of our ability
to quickly and effectively provide senior management
responses to customer needs and inquiries.
o Emphasis on Retail Deposits. Our liability strategy
emphasizes retail deposits drawn from the four full-service
offices in our market area rather than institutional or
wholesale deposits. At December 31, 1998, we consider our
demand savings and money market accounts of $58.3 million,
or 60.4% of our total deposit base of $96.6 million, to be
core deposits.
o Single-Family Residential Lending. A cornerstone of our
lending program has long been single-family (one-to
four-units) residential lending. At December 31, 1998, we
had $60.8 million (or 84.4% of total loans) of
single-family residential mortgage loans and home equity
loans. We will continue to be an active originator of
single-family residential mortgage loans because we believe
that they provide acceptable yields and credit risk.
o Asset Quality. Our new management team has significantly
improved our asset quality. The ratio of non-performing
assets to total assets was 1.70% at December 31, 1998
compared to 2.31% at December 31, 1996.
o Net Interest Margin. We manage our interest-rate risk
exposure by monitoring the levels of interest-rate
sensitive assets and liabilities. We have maintained a
relatively strong net interest margin due primarily to our
high level of adjustable-rate mortgage loans and core
deposits. For the year ended December 31, 1998, our net
interest margin was 4.37%. In recent years, our real estate
mortgage loans have consisted almost entirely of
adjustable-rate loans. In early 1998, we began offering
fixed-rate, single-family residential mortgage loans, but
only under terms and conditions which will permit their
resale into the secondary market. We expect to begin
selling our fixed-rate mortgage loans during 1999 and $4.3
million of our loans were classified held for sale at
December 31, 1998. Sales of fixed-rate mortgage loans
should help us to protect ourselves against interest rate
risk. Since we plan to continue servicing any loans we
sell, sales of fixed-rate loans will improve our income
from servicing fees.
29
<PAGE>
o Diversification Efforts. We are diversifying our banking
products, and we are increasing our efforts in making
commercial business loans and consumer loans, particularly
home equity lines of credit. Commercial business loans and
consumer loans generally have higher yields than
residential mortgage loans and generally should improve our
interest-rate risk profile because they have relatively
short terms and interest rates which are adjustable or
variable. We also are expanding our market area into North
Syracuse, New York, which abuts the southern border of
Oswego County. We expect to open our first branch office in
North Syracuse in the summer of 1999.
Market Risk Analysis
Efforts to Address Interest Rate Risk. To minimize the potential for
adverse effects of material changes in interest rates on our results of
operations, Oswego County Savings has implemented asset and liability management
policies designed to better match the maturities and repricing terms of our
interest-earning assets and interest-bearing liabilities. Our policies have
consisted primarily of the following:
o originating adjustable or variable rate long-term loans for
portfolio,
o purchasing adjustable-rate mortgage-backed securities and short-term
investment securities,
o since February 1998, originating fixed-rate one-to four-family
residential loans with terms of 15 to 30 years under terms and
conditions which will permit their sale in the secondary market, and
o managing interest expense, by maintaining a strong retail deposit
base and emphasizing core deposits.
From the early 1980s until early 1998, Oswego County Savings
originated primarily adjustable-rate mortgage loans and did not originate
fixed-rate residential mortgage loans with terms of over 15 years. Most of our
single-family residential mortgage loans have interest rates which adjust every
one or three years. Oswego County Savings' portfolio of adjustable-rate one-to
four-family residential mortgage loans amounted to $49.2 million or 83.3% of all
residential mortgage loans at December 31, 1998. As long term interest rates
decreased during the 1990s, most of our customers have indicated a preference
for fixed-rate residential mortgage loans. In February 1998, we began the
origination of long-term, fixed-rate one-to-four family residential mortgage
loans in order to provide a full range of products to customers, but only under
terms, conditions and documentation which allow their sale in the secondary
market.
In order to better match the maturity or repricing of
interest-bearing liabilities with the maturity of our interest-earning assets,
Oswego County Savings offers certificates of deposit with terms in excess of one
year. At December 31, 1998, $9.9 million or 26.0% of our certificates of deposit
mature in more than one year. In our efforts to address interest-rate risk, we
pay higher rates on longer term and higher balance certificates of deposit.
30
<PAGE>
Oswego County Savings considers its savings deposit and money market
accounts to be core deposits that are less likely to be withdrawn if interest
rates rise. Our savings and money market accounts have variable interest rates,
and we believe that we can adjust the interest rate on the accounts to retain a
substantial portion of these deposits. While the amount of savings and money
market accounts has declined in recent years, savings and money market accounts
amounted to $46.7 million or 48.3% of total deposits at December 31, 1998.
Measurement of Interest Rate Risk. Prolonged increases in market
rates of interest could adversely affect our interest rate spread and net
interest margin since the repricing of certain of our assets and liabilities
assumed to mature or reprice within a stated period may in fact mature or
reprice at different times and at different volumes. Moreover, prolonged
increases in interest rates could adversely affect the demand for residential
mortgage loans within our primary market area. The asset and liability
management committee regularly reviews interest rate risk. We forecast the
impact of alternative interest rate environments on net interest income and
market value of portfolio equity, which is defined as the net present value of
an institution's existing assets, liabilities and off-balance sheet instruments.
We also evaluate such impacts against the maximum potential changes in net
interest income and market value of portfolio equity that are authorized by the
board of trustees of Oswego County Savings.
The following table sets forth at December 31, 1998 the estimated
percentage and dollar change in Oswego County Savings' net interest income over
a four-quarter period and market value of portfolio equity based on the
indicated changes in interest rates. The assumptions used by management to
evaluate the vulnerability of our operations to changes in interest rates in the
table below are primarily based on our assumptions. Although we believe these
assumptions to be reasonable, the interest rate sensitivity of the assets and
liabilities and the estimated effects of changes in interest rates on net
interest income and the market value of portfolio equity indicated in the
following table could vary substantially if different assumptions were used or
actual experience differs from such assumptions.
The following table presents the Bank's internal calculations of net
interest income and net portfolio value at December 31, 1998.
<TABLE>
<CAPTION>
Change in Interest
Rates in Basis Points Net Interest Income Net Portfolio Value
- ---------------------- ------------------------------------------------ ----------------------------------------------
Dollar Percentage Dollar Percentage
Estimated Change from Change Estimated Change Change from
Amount Base from Base Amount from Base Base
--------- ----------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
+400 $3,755 $(534) (12.44)% $10,670 $(3,905) (26.79)%
+200 4,160 (129) (3.00) 12,543 (2,032) (13.94)
Base 4,289 -- -- 14,575 -- --
-200 4,442 153 3.58 15,044 469 3.22
-400 4,892 603 14.07 15,488 913 6.26
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain shortcomings are inherent in the methodology used in the
above interest rate risk measurement. Modeling changes in net portfolio value
requires the making of assumptions which may or may not reflect the manner in
which actual yields and costs respond to changes in market interest rates. In
this regard, the above table's presentation assumes that the composition of our
interest sensitive assets and liabilities existing at the beginning of a period
remains
31
<PAGE>
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the above table provides an indication of our
interest-rate risk exposure at a particular point in time, these measurements
are not intended to and do not provide a precise forecast of the effect of
changes in market interest rates on our net interest income and will differ from
actual results.
Financial Condition
Our total assets decreased by $1.1 million or 1.0% to $110.9 million
at December 31, 1998 from $112.0 million at December 31, 1997. The decrease was
primarily due to an $8.4 million or 10.4% decline in the loan portfolio.
We believe that the decrease in total loans reflects the recent
consumer preference for fixed-rate residential mortgage loans and the continued
high levels of mortgage loan refinancings. Because we did not resume offering
fixed-rate residential mortgage loans until February 1998, we believe we were at
a competitive disadvantage compared to those lenders who have marketed
fixed-rate mortgage loans for a longer period of time. While our level of total
loan originations increased by 13.6% in 1998 compared to 1997, loan principal
reductions were substantially greater in 1998. At December 31, 1998, Oswego
County Savings net loans amounted to $71.0 million or 64.0% of total assets
compared to $79.1 million or 70.6% of total assets at December 31, 1997.
Our total securities increased by $7.2 million to $28.5 million at
December 31, 1998 compared to $21.4 million at December 31, 1997. The primary
reason for the increase in securities was our reinvestment of available funds
from loan repayments. Securities represented 25.7% and 19.1% of total assets at
December 31, 1998 and December 31, 1997, respectively.
We held $195,000 of real estate owned at December 31, 1998 compared
to $599,000 at December 31, 1997. Such decline reflects, in part, our efforts to
reduce our level of non-performing assets. In recent years we have reduced the
level of our total non-performing assets and non-performing loans. We also
charged-off $526,000 in loans in 1998. At December 31, 1998, our allowance for
loan losses equaled $1.1 million representing 1.48% of total loans outstanding
and 63.3% of total non-accruing loans.
Our total deposits decreased during 1998 by $1.3 million to $96.6
million at December 31, 1998 from $97.9 million at December 31, 1997. Time
deposits decreased by $1.5 million and savings and money market accounts
decreased by $1.8 million, while demand deposits increased by $2.0 million
during the year. The decrease in total deposits is partly attributable to our
decision not to renew jumbo time deposits at the current market rates. Jumbo
deposits are accounts with a balance of more than $100,000. The decrease in
deposits at Oswego County Savings, as in banks throughout the country, also
reflects the flow of funds into and alternative investments such as mutual
funds.
Our total net worth was $11.7 million at December 31, 1998, an
increase of $303,000 from December 31, 1997. The increase was due to net income
of $309,000 during the year ended December 31, 1998 less a $6,000 decrease in
the net unrealized gain on securities available for sale.
32
<PAGE>
Average Balances, Net Interest Income and Yields Earned and Rates
Paid. The following table presents for the periods indicated the total dollar
amount of interest income from Oswego County Savings' average interest-earning
assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates, and the net
interest margin. All average balances are based on monthly balances. We do not
believe that the monthly averages differ significantly from what the daily
averages would have been during these periods.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- ---------- -------- --------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans gross(1) $ 75,648 $ 6,253 8.27% $ 83,388 $ 6,860 8.23%
Securities(2) 24,706 1,481 5.99 19,062 1,151 6.04
Federal funds sold and other
short term investments 3,232 181 5.60 3,733 241 6.46
-------- ------- -------- -------
Total interest-earning assets 103,586 7,915 7.64 106,183 8,252 7.77
Noninterest-earning assets 6,094 7,405
-------- --------
Total assets $109,680 $113,588
======== ========
Interest-bearing liabilities:
Deposits(3) $ 86,698 3,388 3.91 91,384 3,738 4.09
-------- ------- -------- -------
Noninterest-bearing deposits 10,474 9,217
Other noninterest-bearing liabilities 1,125 1,162
-------- --------
Total liabilities 98,297 101,763
Net worth 11,383 11,825
-------- --------
Total liabilities and net worth $109,680 $113,588
======== ========
Net interest income; average
interest rate spread $ 4,527 3.73% $ 4,514 3.68%
======= =======
Net interest margin(4) 4.37% 4.25%
Average interest-earning assets to
average interest-bearing liabilities 119.48% 116.19%
</TABLE>
- ----------------------
(1) Excludes non-accruing loans.
(2) Average balance represents the carrying amount of securities available for
sale and securities held to maturity.
(3) Excludes noninterest-bearing checking accounts.
(4) Equals net interest income divided by average interest-earning assets.
33
<PAGE>
Rate/Volume Analysis. The following table describes the extent to
which changes in interest rates and changes in volume of interest-related assets
and liabilities have affected Oswego County Savings' interest income and expense
during the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), and (ii)
changes in rate (change in rate multiplied by prior year volume). The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
Year Ended December 31,
1998 vs. 1997
--------------------------------------
Increase(Decrease)
Due to Total
------------------------- Increase
Volume Rate Decrease)
----------- ---------- ----------
(In Thousands)
Interest-earning assets:
Loans $(640) $ 33 $(607)
Securities 339 (9) 330
Short-term investments (30) (30) (60)
----- ---- -----
Total interest-earning assets (331) (6) (337)
----- ---- -----
Interest-bearing liabilities:
Deposits (187) (163) (350)
----- ---- -----
Increase (decrease) in net interest
income $(144) $157 $ 13
===== ==== =====
Results of Operations
Oswego County Savings' net income was $309,000 for the year ended
December 31, 1998, an increase of $120,000 as compared to net income of $189,000
in 1997.
Net Interest Income. Net interest income is determined by the average
interest rate spread (i.e., the difference between the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities) and the relative amounts of interest-earning assets and
interest-bearing liabilities. Our net interest income remained relatively stable
at $4.5 million for both 1998 and 1997. For the year ended December 31, 1998,
net interest income decreased by $144,000 due to volume but was offset by
$157,000 because of interest rate increases.
Interest Income. Total interest income decreased by $337,000, or
4.1%, to $7.9 million for 1998 compared to $8.3 million for 1997. The primary
reason for the decrease in interest income was a decrease in interest earned on
our outstanding loans. Interest income on loans decreased by $607,000 or 8.9%
during 1998 compared to 1997. The average balance of Oswego County Savings' loan
portfolio has decreased from $83.4 million in 1997 to $75.6 million in 1998,
while the average yield on our loan portfolio increased slightly from 8.23% in
1997 to 8.27% in 1998.
34
<PAGE>
Income from Oswego County Savings' securities portfolio increased by
$330,000 during 1998 to $1.5 million compared to $1.2 million in 1997. The 28.7%
increase in interest income from securities during 1998 was due primarily to a
29.6% increase in our average balance of securities to $24.7 million for 1998
compared to $19.1 million in 1997. The average yield on the securities portfolio
decreased to 5.99% in 1998 compared to 6.04% in 1997.
Other interest income, which consists of interest on federal funds
sold and other short-term investments, was $181,000 in 1998 as compared to
$241,000 in 1997. The average amount of federal funds and short-term investments
decreased from $3.7 million in 1997 to $3.2 million in 1998. The average yields
on these investments, which are generally more market sensitive, fluctuated from
6.46% in 1997 to 5.60% in 1998.
Interest Expense. Interest expense, which consisted solely of
interest paid on deposits in both 1998 and 1997, was $3.4 million in 1998
compared to $3.7 million in 1997. The primary reason for the $349,000, or 9.3%,
decrease in interest expense in 1998 was a $4.7 million, or 5.1%, decrease in
the average balance of interest-bearing deposits in 1998 together with an 18
basis point reduction in the average rate paid on these deposits in 1998
compared to 1997.
Provision for Loan Losses. The provisions for loan losses were
$120,000 and $525,000 for 1998 and 1997, respectively. These provisions were
based upon, among other variables, non-accruing loans totaling $1.7 million and
$1.8 million at December 31, 1998 and December 31, 1997, respectively. The
provision for loan losses in 1997 also reflects our extensive review, which
began in early 1997, of our loan portfolio and its inherent risk elements.
Actual loan charge-offs, net of recoveries, were $460,000 in 1998 and $699,000
in 1997 which was a result of our effort during the past two years to perform
remedial action on past historical nonperforming loan relationships and reduce
the extent of poor credit quality loans.
Although we believe that our allowance for loan losses was adequate
at December 31, 1998, there can be no assurances that additions to such
allowance will not be necessary in future periods, which would adversely affect
our results of operations. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review our allowance
for loan losses and the carrying value of our other nonperforming assets based
on their judgements about information available to them at the time of their
examination. No assurance can be given whether any of such agencies might
require us to make additional provisions for loan losses in the future. However,
as we continue to increase the amount of our loan originations and diversify the
types of loans we offer, we may need to increase the amount of future provisions
for loan losses.
Noninterest Income. Non-interest income decreased by $47,000 or 9.1%
during 1998 as compared to 1997. The decrease in 1998 was partially the result
of a decrease of $28,000 or 6.8% in income from service charges and recoveries
from Nationar of $54,000 in 1997 as compared to $22,000 in 1998.
Noninterest Expenses. Non-interest expenses increased during 1998 by
$290,000, or 7.0%, to $4.4 million compared to $4.1 million in 1997. The primary
reasons for the increase in
35
<PAGE>
noninterest expense in 1998 compared to 1997 were a $71,000 increase in
occupancy and equipment expenses, a $46,000 increase in data processing costs
and a $104,000 increase in net real estate owned expense. The increase in
occupancy and equipment expense was caused by increased depreciation expense as
we had capital expenditures, primarily for computer equipment, of $177,000 in
1998 and $397,000 in 1997. The increase in data processing cost in 1998 reflects
our efforts to continue to improve our data processing capabilities as well as
efforts to prepare for the year 2000. Real estate owned expenses increased in
1998 partly as a result of our efforts to act more aggressively with respect to
non-performing assets and to acquire and dispose of such assets in a more
expeditious manner. Merger expense of $171,000 in 1998 and $145,000 in 1997
reflect costs incurred with the planned merger of Oswego County Savings with
Pathfinder Bancorp, ("Pathfinder") a publicly traded stock holding company and
whose wholly owned subsidiary is Oswego City Savings Bank. On January 18, 1999,
we terminated the proposed merger with Pathfinder as a result of certain
regulatory matters.
Income Taxes. Income tax expense decreased by $39,000 in 1998 to
$162,0000 as compared to $201,000 in 1997. The income tax rate declined from
34.4% in 1998 to 51.6% in 1997. The income tax rate decrease was due to 1997
non-deductible merger-related expenses becoming deductible in 1998.
Liquidity and Capital Resources
Oswego County Savings' liquidity, represented by cash and cash
equivalents and securities available for sale, is a product of its operating,
investing and financing activities. Our primary sources of funds are deposits;
the amortization, prepayment and maturity of outstanding loans, securities and
other short-term investments; and funds provided from operations. While
scheduled payments from the amortization of loans, maturing securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, Oswego County Savings invests
excess funds in federal funds sold and other short-term interest- earning assets
which provide liquidity to meet lending requirements. We have been able to
generate sufficient cash through our deposits and have not utilized borrowings
as a source of funds during the past five years.
Liquidity management is both a daily and long-term function of
business management. Excess liquidity is generally invested in short-term
investments such as federal funds sold or U.S. Treasury securities. On a longer
term basis, we maintain a strategy of investing in various lending products.
Most of such products have either short-terms (five years or less)or interest
rates that adjust at least every three years. We use our sources of funds
primarily to meet our ongoing commitments, to pay maturing certificates of
deposit and savings withdrawals, fund loan commitments and maintain a portfolio
of investment securities. At December 31, 1998, we had outstanding commitments
to originate loans and unused letters of credit aggregating $2.4 million and
$20,000, respectively, consisting primarily of fixed and adjustable-rate
residential loans that are expected to close on or prior to March 31, 1999.
Certificates of deposit scheduled to mature in one year or less at December 31,
1998, totaled $28.3 million. Based on historical experience, we believe that a
significant portion of maturing deposits will remain with Oswego County Savings.
We anticipate that we will continue to have sufficient deposit funds, together
with borrowings, as needed, to meet our current commitments.
36
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein
have been prepared in conformity with generally accepted accounting principles,
which generally require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation. Unlike most industrial companies,
virtually all of Oswego County Savings' assets and liabilities are monetary in
nature. As a result, interest rates generally have a more significant impact on
Oswego County Savings' performance than does the effect of inflation.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations. We have conducted a thorough assessment of our internal systems
as well as the efforts of our outside data processing service provider. During
this assessment phase, we identified all in-house systems and third party
relationships, and assessed whether they were "mission-critical."
Mission-critical is defined as a system that is vital to the successful
continuance of a core business activity. The assessment includes both
information technology systems and non-information technology systems. Examples
of non-information technology systems include utility and telephone companies,
security systems, and correspondent financial organizations. Also included in
our assessment was the identification of those systems and vendors whom we have
control over and those that we do not control. Examples of those vendors whom
Oswego County Savings has control over include organizations which Oswego County
Savings has a material relationship with. Vendors whom Oswego County Savings has
no control over include utility companies.
The most important mission critical matter concerns the data
processing provided by our third party service bureau. The service bureau with
which we operate is providing us with periodic updates of its compliance
progress. We have participated in testing with the provider which generated
satisfactory results. The service bureau has indicated that it will be
compliant. We believe that we would use manual systems as a contingency plan if
power or communication capabilities were not available. There can be no
assurance in this regard, however, and it is possible that as a result we could
experience data processing delays, errors or failures, all of which could have a
material adverse impact on our financial condition and results of operations. We
estimate that our expenses related to year 2000 compliance will be approximately
$350,000, including over $250,000 incurred through December 31, 1998 in
compliance related costs for upgrading our computer network and telephone
system.
We have also evaluated our non-information technology systems to
determine if such systems may have embedded technology that could also be
affected by the year 2000 problem. We have determined that there are only a few
systems of this type that could be affected. We have been informed by the
vendors that the systems are or will be year 2000 compliant by year 2000.
37
<PAGE>
Computer problems experienced by our commercial borrowers could have
an adverse effect on their business operations and their ability to repay their
loans when due. Oswego County has begun evaluating Year 2000 readiness of its
commercial loan applicants as part of the loan underwriting process and is
calling upon major existing borrowers to assess their readiness and identify
potential problems. There are currently no significant concerns due to the
nature of the commercial loans made by the Bank.
Impact of New Accounting Standards
On January 1, 1998, we adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to net worth, such as the mark to
market adjustment on securities available for sale. For us, comprehensive income
represents net income plus other comprehensive income, which consists of the net
change in after-tax unrealized gains or losses on securities available for sale
for the period. Accumulated other comprehensive income in the accompanying
statements of financial condition represents the net unrealized gains or losses
on securities available for sale as of the reporting dates. Comprehensive income
for 1998 and 1997 was $303,000 and $194,000, respectively.
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 requires public companies to report financial and
other information about key revenue producing segments of the entity for which
such information is available and is utilized by the chief operating decision
maker. Specific information to be reported for individual segments includes
profit or loss, certain specific revenue and expense items, and total assets. A
reconciliation of segment financial information to amounts reported in the
financial statements is also provided. As a community-oriented financial
institution, substantially all of our operations involve the delivery of loan
and deposit products to customers. Management makes operating decisions and
assesses performance based on an ongoing review of these community banking
operations, which constitute Oswego County Savings' only operating segment for
financial reporting purposes. Therefore, the adoption of SFAS No. 131 did not
result in any change in Oswego County Savings reporting.
The FASB issued SFAS No. 132, Employers' Disclosures about Pensions
and Other Post-retirement Benefits, in February 1998. This statement revises
employers' disclosures about pension and other post-retirement benefit plans. It
does not change the measurement or the recognition of these plans. The statement
was effective for our year-end 1998 reporting and did not impact our financial
position or results of operations.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. This statement requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial condition and that those instruments be measured at fair value. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. This statement is effective for fiscal years after June 15, 1999,
although earlier adoption is permitted. We anticipate, based on current
activities, that the adoption of SFAS No. 133 will not have an effect
38
<PAGE>
on our financial position or results of operations.
In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, which amends SFAS No 65,
Accounting for Certain Mortgage Banking Activities. This statement conforms the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the accounting for such
securities by a non-mortgage banking enterprise. This statement is effective for
the first quarter beginning after December 15, 1998, and will not have any
impact on our financial position or results of operations as we do not currently
securitize mortgage loans.
39
<PAGE>
BUSINESS
Lending Activities
General. At December 31, 1998, Oswego County Savings' total loans
amounted to $72.1 million. Net of the $1.1 million allowance for loan losses,
our loans were $71.0 million at December 31, 1998 representing 64.0% of our
total assets at that date. The principal lending activity of Oswego County
Savings is the origination of single-family (one-to four-units) residential real
estate loans, home equity loans, and commercial real estate loans. To a lesser
extent, Oswego County Savings also makes commercial loans and consumer loans. At
December 31, 1998, $60.8 million or 84.4% of our total loans consisted of
residential mortgage and home equity loans. Commercial mortgage loans totaled
$9.0 million on that date, representing 12.4% of total loans. Commercial loans
totaled $265,000 and consumer loans totaled $2.0 million at December 31, 1998.
The types of loans that Oswego County Savings may originate are
subject to federal and state laws and regulations. Interest rates charged by us
on loans are affected principally by loan demand and the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are, in turn, affected by general economic conditions, the monetary
policy of the federal government, including the Federal Reserve Board,
legislative and tax policies, and governmental budgetary matters.
A New York-chartered savings bank generally may not make loans to one
borrower and related entities in an amount which exceeds 15% of its unimpaired
capital and surplus, although loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are fully
secured by readily marketable securities. At December 31, 1998, Oswego County
Savings' limit on loans-to-one borrower was $1.8 million and its five largest
loans or groups of loans-to-one borrower, including related entities, aggregated
$799,000, $730,000, $710,000, $667,000 and $633,000. Four of Oswego County
Savings' five largest loans or groups of loans were performing in accordance
with their terms at December 31, 1998. The $709,000 group of loans consists of
two loans. Both loans were current at December 31, 1998, but have occasionally
been delinquent in the past. The $667,000 group of loans consists of seven loans
secured by various residential, commercial and other properties in Oswego County
Savings' market area. The borrower filed bankruptcy in early 1996, all of the
loans are in default and Oswego County Savings is attempting to foreclose on the
collateral.
Our Loan Portfolio. The following table sets forth the composition of
our loan portfolio by type of loan at the dates indicated. Residential mortgages
at December 31, 1998 include loans held for sale of $4.3 million.
40
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ ------------------------
Amount % Amount % Amount %
-------- ------- -------- ------- -------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgages and
home equity loans $60,829 84.39% $67,405 83.78% $70,687 83.08%
Commercial mortgages 8,950 12.42 11,145 13.85 11,490 13.50
Commercial loans 265 0.37 276 0.34 589 0.69
Consumer loans 2,037 2.82 1,634 2.03 2,321 2.73
------- ------ ------- ------ ------- ------
Total loans 72,081 100.00% 80,460 100.00% 85,087 100.00%
====== ====== ======
Allowance for loan losses (1,068) (1,408) (1,583)
------- ------- -------
Net loans $71,013 $79,052 $83,504
======= ======= =======
</TABLE>
Loans Due or Adjusting After One Year. The following table sets forth
the dollar amount of all loans, before net items, due or adjusting after one
year from December 31, 1998 as shown in the preceding table. The table lists the
total loans in each category as well as those with fixed interest rates and
those with floating or adjustable interest rates.
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In Thousands)
Residential mortgages and
home equity loans $ 9,882 $11,880 $21,762
Commercial mortgages 1,408 1,503 2,911
Commercial loans 265 -- 265
Consumer loans 1,496 426 1,922
------- ------- -------
Total $13,051 $13,809 $26,860
======= ======= =======
Origination, Purchase and Sale of Loans. The lending activities of
Oswego County Savings are subject to the written, non-discriminatory,
underwriting standards and loan origination procedures established by our Board
of Trustees, management, secondary market investors such as Freddie Mac and
private mortgage insurance companies. We obtain loan originations from a variety
of sources, including referrals from real estate brokers, developers, builders,
existing customers, newspaper, radio and walk-in customers. Loan applications
are taken by our lending personnel, and the loan origination department
supervises the procurement of credit reports, appraisals and other documentation
involved with a loan. Property valuations are performed by independent outside
appraisers licensed in New York State. We require a borrower to obtain hazard
insurance on any property securing a loan and we usually require title insurance
on all newly originated mortgage loans.
Our loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. A loan application file is
first reviewed by a loan originator or branch manager and then underwritten to
established standards and policies. The Board has granted underwriting authority
to branch managers, loan underwriters, the senior loan officer and the president
in varying levels. Our Board Loan Committee usually must approve any loan we
make over $100,000, except those
41
<PAGE>
which conform to standards permitting their resale into the secondary market
(which must be approved by one of four designated officers).
Historically, we have originated substantially all of the loans in
our portfolio and held them until maturity. However, in early 1998, because of
customer preference for fixed-rate mortgage loans, we began originating
long-term, fixed-rate residential mortgage loans with terms conforming to
secondary market standards. We expect to begin selling our recently originated
fixed-rate mortgage loans into the secondary market during 1999. These loans
held for sale were $4.3 million at December 31, 1998. Historically, Oswego
County Savings rarely purchased loans. In the future, as we become more active
in commercial business lending, we may purchase more loans and more
participation interests in loans. If we begin purchasing loans or participating
interests, we expect that they would have to satisfy our own loan underwriting
standards.
The following table shows total loans originated and repaid during
the years ended December 31, 1998 and 1997. No loans were purchased or sold
during the periods shown.
Year Ended December 31,
-------------------------------
1998 1997
-------- ---------
(In Thousands)
Loan originations:
Residential mortgages, home equity and
commercial mortgage loans $6,214 $ 5,337
Commercial loans 296 30
Consumer loans 962 1,211
------ -----
Total loans originated 7,472 6,578
Loan principal reductions (15,050) (9,757)
Decrease due to other
items, net (801) (1,448)
--------- ----------
Net $(8,379) $(4,627)
======= ======
Residential Mortgages and Home Equity Loans. Historically, Oswego
County Savings has concentrated its lending activities on the origination of
loans secured primarily by first mortgage liens on existing single-family
(one-to four-units) residences and home equity loans secured by second mortgages
on single-family residences. At December 31, 1998, $60.8 million or 84.4% of our
total loans consisted of such loans.
From the early 1980s until early 1998, Oswego County Savings
originated primarily adjustable-rate residential mortgage loans in order to
manage its interest-rate risk. However, in February 1998, Oswego County Savings
commenced the origination of long-term, fixed-rate single-family residential
mortgage loans in order to provide a full range of products to its customers,
but only under terms, conditions and documentation which conform to standards
which permit their resale in the secondary market.
Our adjustable-rate, single-family, residential mortgage loans
generally have up to 30- year terms and an interest rate which adjusts every
year or three years in accordance with a designated index, (currently the weekly
average yield on U.S. Treasury securities adjusted to a constant comparable
maturity of one year or three years, respectively, as made available by the
Federal Reserve Board). Oswego County Savings generally does not offer deeply
discounted
42
<PAGE>
interest rates. Our loans generally have a cap on the amount of any increase or
decrease in the interest rate during the applicable adjustment period, and
various caps, depending on when the loan was originated, on the amount which the
interest rate can increase or decrease over the life of the loan. Our
adjustable-rate loans currently being originated are not assumable without our
consent, and do not contain prepayment penalties. Oswego County Savings has not
engaged in the practice of using a cap on the payments that could allow the loan
balance to increase rather than decrease, resulting in negative amortization.
Adjustable-rate loans decrease the risks associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payment by the borrower rises to the extent permitted by the terms of the loan,
thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. We believe that these risks, which have not had a material
adverse effect on us to date, generally are less than the risks associated with
holding fixed-rate loans in an increasing interest rate environment.
Approximately $49.2 million or 83.3% of the permanent residential mortgage loans
in Oswego County Savings' loan portfolio at December 31, 1998 had adjustable
interest rates.
The demand for adjustable-rate loans in our primary market area has
been a function of several factors, including the level of interest rates, the
expectations of changes in the level of interest rates and the difference
between the interest rates and loan fees offered for fixed-rate loans and
adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate
residential loans that can be originated at any time is largely determined by
the demand for each in a competitive environment. Due to the generally lower
rates of interest prevailing in recent periods, demand for adjustable-rate,
single-family residential mortgage loans in our primary market decreased as
consumer preference for fixed-rate loans increased. In order to meet the demands
of the marketplace, Oswego County Savings initiated its fixed-rate residential
mortgage loan program.
We are permitted by law to lend up to 100% of the appraised value of
the real property securing a residential loan; however, if the amount of a
residential loan originated or refinanced exceeds 90% of the appraised value,
Oswego County Savings is required by federal regulations to obtain private
mortgage insurance on the portion of the principal amount that exceeds 80% of
the appraised value of the security property. Pursuant to underwriting
guidelines adopted by the Board of Trustees, Oswego County Savings will lend up
to 95% of the appraised value of the property securing a single-family
residential loan, and generally requires borrowers to obtain private mortgage
insurance on the portion of the principal amount of the loan that exceeds 80% of
the appraised value of the security property.
Oswego County Savings generally requires title insurance insuring the
priority and validity of its mortgage lien, as well as fire and extended
coverage casualty insurance in order to protect the properties securing its
residential and other mortgage loans. Borrowers may be required to advance
funds, with each monthly payment of principal and interest, to a loan escrow
account from which the Bank makes disbursements for items such as real estate
taxes, hazard insurance premiums and mortgage insurance premiums as they become
due. The properties securing all of Oswego County Savings' mortgage loans are
appraised by independent appraisers licensed in New York State.
Home equity loans are originated by Oswego County Savings for up to
75% of the appraised value, less the amount of any existing prior liens on the
property. We secure our home
43
<PAGE>
equity loans with a mortgage on the property (generally a second mortgage) and
will originate the loan even if another institution holds the first mortgage.
There is a maximum term of five years on fixed-rate and 15 years on
adjustable-rate home equity loans. At December 31, 1998, home equity loans
totaled $1.8 million or 2.5% of Oswego County Savings' total loans. We recently
began offering home equity lines of credit in amounts of up to 80% of the
appraised value, or 90% if we already have a first lien on the property, less
the amount of existing prior liens.
Consumer Loans. Oswego County Savings may make loans for a wide
variety of personal or consumer purposes. At December 31, 1998, $2.0 million or
2.8% of Oswego County's total loans consisted of consumer loans. We originate
consumer loans in order to provide a full range of financial services to our
customers and because such loans generally have shorter terms and higher
interest rates than single-family residential mortgage loans. The consumer loans
offered by Oswego County Savings include loans secured by deposit accounts,
automobile loans, recreational vehicle loans, boat loans and other miscellaneous
secured and unsecured personal consumer loans.
Oswego County Savings' loans secured by deposit accounts amounted to
$248,000 or .34% of Oswego County's total loans at December 31, 1998. Such loans
are originated for up to 100% of the account balance, with a hold placed on the
account restricting the withdrawal of the account balance. The interest rate on
the loan is typically equal to the interest rate paid on the deposit account
plus 3.0%. We offer automobile loans on both new and used vehicles, with most of
the loans secured by used vehicles. Our automobile loans have terms of up to
five years and have fixed interest rates. Automobile loans amounted to $529,000
or 0.73% of total loans at December 31, 1998. Our unsecured personal lines of
credit and loans amounted to $426,000 and $585,000, respectively, at December
31, 1998.
Consumer loans generally have shorter terms and higher interest rates
than mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness and personal bankruptcy. In
most cases, any repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding loan balance because
of improper repair and maintenance of the underlying security. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. Oswego County Savings believes that the generally higher yields
earned on consumer loans compensate for the increased credit risk associated
with such loans and that consumer loans are important to its efforts to increase
rate sensitivity, shorten the average maturity of its loan portfolio and provide
a full range of services to its customers.
Commercial Mortgage Loans. At December 31, 1998, $9.0 million or
12.4% of Oswego County Savings' total loans consisted of commercial mortgage
loans. At December 31, 1998, our commercial mortgage loan portfolio consisted of
72 loans with an average balance of approximately $124,000. A majority of our
commercial mortgage loans are secured by mixed-use (partly commercial and partly
residential) and by apartment buildings located in primary market area.
44
<PAGE>
Commercial mortgage lending is generally considered to involve a
higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers. In addition, the payment experience on loans
secured by income-producing properties is typically dependent on the successful
operation of the related real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market or in the economy
generally.
Commercial Business Loans. Oswego County Savings had $265,000 in
commercial business loans at December 31, 1998. Prior to 1998, we had not been
an active originator of commercial business loans. However, we have implemented
a new commercial loan policy and have hired an experienced commercial loan
underwriter, and we expect to increase the amount of commercial business loans
which we originate. We plan to concentrate our efforts on making commercial
business loans in amounts of $50,000 to $1.0 million to small to medium sized
businesses located in our market area. We have targeted commercial business
loans for expansion due to the generally higher yields of such loans, their
relatively short terms and the prevalence of adjustable or floating rates of
interest.
Commercial business loans generally are deemed to involve a greater
degree of risk than single-family residential mortgage loans. While commercial
business lending is relatively new to us and we are attempting to aggressively
increase our originations of commercial business loans, Oswego County Savings
has hired an experienced commercial loan officer and has implemented policies
and procedures for commercial business lending which we think are prudent.
Loan Origination Fees. In addition to interest earned on loans, we
receive loan origination fees or "points" on the origination of commercial
mortgage loans. Loan points are a percentage of the principal amount of the
mortgage loan and are charged to the borrower in connection with the origination
of the loan.
Asset Quality
General. When a borrower fails to make a required payment on a loan,
we attempt to cure the deficiency by contacting the borrower and seeking
payment. Late charges are generally imposed following the tenth day after a
payment is due on consumer loans and the fifteenth day after a payment is due on
mortgage loans. In most cases, deficiencies are cured promptly. If a delinquency
extends beyond 30 days, the loan and payment history is reviewed and efforts are
made to collect the loan. While Oswego County Savings generally prefers to work
with borrowers to resolve such problems, when the account becomes 60 to 90 days
delinquent, we institute foreclosure or other proceedings, as necessary, to
minimize any potential loss.
A loan is placed on non-accrual status when it is 90 days or more
past due. In addition, Oswego County Savings places any loan on non-accrual
status if any part of it is classified as doubtful (or loss or if any part has
been charged off.) When a loan is placed on non-accrual status, total interest
accrued and unpaid to date is reversed and charged to interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
45
<PAGE>
Real estate acquired by Oswego County Savings as a result of
foreclosure or by deed-in-lieu of foreclosure under generally accepted
accounting principles are classified as real estate owned until sold. Real
estate owned properties are carried at the lower of fair value minus estimated
costs to sell the property, or cost (generally the balance of the loan on the
property at the date of acquisition). Writedowns from recorded investments to
estimated fair value which are required at the time of foreclosure are charged
to the allowance for loan losses. After the date of acquisition, all costs
incurred in maintaining the property are expensed and costs incurred for the
improvement or development of such property are capitalized. Adjustments to
carrying value of such properties that result from subsequent declines in fair
value are charged to operations in the period in which the decline occurs.
Delinquent Loans. The following table sets forth information
concerning delinquent loans at December 31, 1998 and 1997, in dollar amount and
as a percentage of Oswego County Savings' total loan portfolio. The amounts
presented are the total outstanding principal balances of the related loans,
rather than the actual payment amounts which were past due.
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------------------------------------------------------------
Residential
Mortgages and Commercial Commercial Consumer
Home Equity Loans Mortgages Loans Loans Total
----------------------- ---------------- --------------- ---------------- ------------------
Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ -- ------ -- ------ --
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent
for:
30 - 59 days $1,655 2.30% $51 .07% -- -- $ 9 .01% $1,715 2.38%
60 - 89 days 150 .21 -- -- -- -- 11 .02 161 .22
90 days and over 630 .87 637 .88 -- -- 7 .01 1,274 1.77
------ ---- --- --- --- --- --- --- ------ ----
Total delinquent
loans $2,435 3.38% $688 .95% -- -- $27 .04% $3,150 4.37%
====== ==== ==== === === === === === ====== ====
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------------------------------------
Residential
Mortgages and Commercial Commercial Consumer
Home Equity Loans Mortgages Loans Loans Total
----------------------- ---------------- --------------- ---------------- ------------------
Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ -- ------ -- ------ --
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent
for:
30 - 59 days $2,693 3.35% $135 .17% $-- --% $ 8 .01% $2,836 3.53%
60 - 89 days 343 .43 -- -- -- -- 11 .02 354 .45
90 days and over 1,105 1.37 520 .65 -- -- 2 .00 1,627 2.03
------ ---- ---- --- --- --- --- --- ------ ----
Total delinquent
loans $4,141 5.15% $655 .82% $-- --% $21 .03% $4,817 6.00%
====== ==== ==== === === === === === ====== ====
</TABLE>
46
<PAGE>
Non-Performing Assets. The following table sets forth the amounts and
categories of Oswego County Savings' non-performing assets at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
1998 1997 1996
------ ------ -----
(Dollars In Thousands)
<S> <C> <C> <C>
Non-accruing loans:
Residential mortgages and home equity loans $1,017 $1,323 $2,029
Commercial mortgages 671 449 122
Consumer -- 2 29
Commercial -- -- --
------ ------ ------
Total $1,688 $1,774 $2,180
====== ====== ======
Foreclosed assets:
Residential real estate 128 514 403
Commercial real estate 67 85 88
------ ------ ------
Consumer -- -- -
------ ------ ------
Commercial -- -- -
------ ------ ------
Total $ 195 $ 599 $ 491
====== ====== ======
Total non-performing assets $1,883 $2,373 $2,671
====== ====== ======
Total as a percentage of total assets 1.70% 2.12% 2.31%
====== ====== ======
</TABLE>
Oswego County Savings had no accruing loans which were more than 90
days delinquent at December 31, 1998, 1997 or 1996. If all non-accruing loans
had been current in accordance with their terms during the years ended December
31, 1998 and 1997, additional interest income on such loans would have amounted
to $81,000 and $122,000, respectively.
Classified Assets. Federal regulations require that each insured
savings bank classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Another category
designated "special mention" also must be established and maintained for assets
which do not currently expose an insured institution to a sufficient degree of
risk to warrant classification as substandard, doubtful or loss. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan and lease losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's regulatory capital, while
specific valuation allowances for loan losses do not qualify as regulatory
capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved.
47
<PAGE>
Exclusive of any assets classified as loss which have been fully
reserved or charged-off, Oswego County Savings' classified assets at December
31, 1998 consisted of $1.3 million of assets classified as substandard, which
represented 1.1% of total assets. We had no loans classified as doubtful or loss
at such date.
Allowance for Loan Losses. At December 31, 1998, our allowance for
loan losses amounted to $1.1 million or 1.48% of the total loan portfolio.
Oswego County Savings' loan portfolio consists primarily of residential
mortgage, home equity and commercial mortgage loans and, to a lesser extent,
consumer loans and commercial loans. We regularly review the loan portfolio and
make provisions for loan losses in order to maintain the adequacy of the
allowance for loan losses. The allowance for loan losses consists of amounts
specifically allocated to non-performing loans and potential problem loans (if
any) as well as allowances determined for each major loan category. Loan
categories such as single-family residential mortgages and consumer loans are
generally evaluated on an aggregate or "pool" basis by applying loss factors to
the current balances of the various loan categories. The loss factors are
determined by management based on an evaluation of historical loss experience,
delinquency trends, volume and type of lending conducted, and the impact of
current economic conditions in our market area. While we use the best
information available to make evaluations, future adjustments to the allowance
may be necessary if conditions differ substantially from the assumptions used in
making the evaluation. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review our allowance for loan
losses. Such agencies may require Oswego County Savings to recognize additions
to the allowance based on their judgments about information available to them at
the time of their examinations.
The following table sets forth an analysis of Oswego County Savings'
allowance for loan losses during the periods indicated.
Year Ended December 31,
--------------------------
1998 1997
-------- --------
(Dollars In Thousands)
Total loans outstanding at end of period $72,082 $80,460
======= =======
Average loans outstanding $75,648 $83,388
======= =======
Allowance for loan losses at beginning of period $ 1,409 $ 1,583
Charge-offs(1) (526) (724)
Recoveries 65 25
------- -------
Net charge-offs (461) (699)
Provision for loan losses 120 525
------- -------
Allowance for loan losses at end of period $ 1,068 $ 1,409
======= =======
Allowance for loan losses as a percent of
total loans outstanding 1.48% 1.75%
==== ====
Ratio of net charge-offs to average loans
outstanding 0.61% 0.84%
==== ====
- ----------------------
(1) Charge-offs in 1998 and 1997 primarily consisted of nonowner occupied
multifamily loans.
48
<PAGE>
The following table presents the allocation of Oswego County Savings'
allowance for loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1998 1997
------------------------------- ---------------------------------
Loan Loan
Category Category
Amount as a % Amount as a %
of of Total of of Total
Allowance Loans Allowance Loans
--------------- ------------- -------------- ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Residential mortgages and
home equity loans $ 527 84.39% $ 702 83.78%
Commercial mortgages 408 12.42 550 13.85
Commercial loans 9 0.37 5 0.34
Consumer loans 42 2.82 38 2.03
Unallocated 82 -- 114 -
------ ----- ------ -----
Total $1,068 $100% $1,409 100%
====== ===== ====== =====
</TABLE>
Securities
Oswego County Savings has authority to invest in various types of
liquid assets, including United States Treasury obligations, securities of
various federal agencies and of state and municipal governments, certificates of
deposit at federally insured banks and savings institutions and federal funds.
Each purchase of a security is ratified by the Board of Trustees and the Asset
Liability Management Committee.
Oswego County Savings' securities portfolio's largest component are
securities issued by U.S. government-sponsored agencies which had a carrying
value of $20.3 million or 71.0% of the portfolio as of December 31, 1998. As of
that same date, the portfolio also included $1.0 million of U.S. Treasury
securities, $4.2 million of general obligations of corporations and
municipalities and $3.1 million of mortgage-backed securities.
At December 31, 1998, Oswego County's investment securities portfolio
had an amortized cost of $28.5 million or 25.7% of total assets as of such date.
The amortized cost of securities classified as held to maturity at December 31,
1998 was $13.7 million with a fair value of $13.8 million. The amortized cost
and fair value of securities available for sale at December 31, 1998 were both
$14.8 million.
49
<PAGE>
The following table sets forth certain information relating to Oswego
County Savings' securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1998 1997
-------------------------- --------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Securities available for sale Debt securities:
United States Treasury $ 1,007 $ 1,020 $ 4,017 $ 4,027
United States Government
agency obligations 13,776 13,762 6,893 6,892
------- ------- ------- -------
Total debt securities 14,783 14,782 10,910 10,919
Equity securities - corporate
stocks 2 2 2 2
------- ------- ------- -------
Total securities available
for sale 14,785 14,784 10,912 10,921
------- ------- ------- -------
Securities held to maturity Debt securities:
Corporate and municipal securities 4,125 4,156 4,809 4,823
Mortgage-backed securities:
GNMA 2,164 2,150 62 65
FNMA 426 419 54 56
FHLMC 22 23 29 30
Small Business
Administration 503 500 -- --
United States Government
agency obligations 6,491 6,544 2,338 2,348
------- ------- ------- -------
United States Treasury -- -- 3,149 3,152
Total securities held to
maturity 13,731 13,792 10,441 10,475
------- ------- ------- -------
Total securities $28,516 $28,576 $21,353 $21,396
======= ======= ======= =======
</TABLE>
Mortgage-Backed Securities. Mortgage-backed securities represent a
participation interest in a pool of single-family or multi-family mortgages, the
principal and interest payments on which are passed from the mortgage
originators, through intermediaries (generally U.S. Government agencies and
government-sponsored enterprises) that pool and repackage the participation
interests in the form of securities, to investors such as Oswego County Savings.
Such U.S. Government agencies and government-sponsored enterprises, which
guarantee the payment of principal and interest to investors, primarily include
Freddie Mac, Fannie Mae and Ginnie Mae.
Freddie Mac, which is a corporation chartered by the U.S. Government,
issues participation certificates backed principally by conventional mortgage
loans. Freddie Mac guarantees the timely payment of interest and the ultimate
return of principal on participation
50
<PAGE>
certificates. Fannie Mae is a private corporation chartered by the U.S. Congress
with a mandate to establish a secondary market for mortgage loans. Fannie Mae
guarantees the timely payment of principal and interest on Fannie Mae
securities. Ginnie Mae is a government agency within the Department of Housing
and Urban Development which is intended to help finance government-assisted
housing programs. The timely payment of principal and interest on GNMA
securities is guaranteed by the GNMA and backed by the full faith and credit of
the U.S. Government. Because these government sponsored agencies were
established to provide support for low- and middle-income housing, there are
limits to the maximum size of loans that qualify for these programs. To
accommodate larger-sized loans, and loans that, for other reasons, do not
conform to the agency programs, a number of private institutions have
established their own home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security thus approximates the life of the
underlying mortgages.
At December 31, 1998, the amortized cost and fair value of Oswego
County Savings' mortgage-backed securities amounted $3.1 million, which
represented 2.8% of our total assets at that date. All of Oswego County Savings'
$3.1 million of mortgage-backed securities at December 31, 1998 were insured or
guaranteed by Ginnie Mae, Freddie Mac, the Small Business Administration and
Fannie Mae, and all of those securities were classified as held to maturity.
Approximately 95.0% of our mortgage-backed securities had adjustable rates of
interest at December 31, 1998.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer the investor nominal credit risk. In addition,
mortgage-backed securities are more liquid than individual mortgage loans and
may be used to collateralize borrowings or other obligations of Oswego County
Savings.
The following table sets forth the activity in our mortgage-backed
securities portfolio during the periods indicated.
At or For the Year Ended December 31,
-------------------------------------
1998 1997
---- ----
(Dollars in Thousands)
Mortgage-backed securities at
beginning of period (amortized cost) $ 145 $179
Purchases 3,425 --
Repayments (448) (34)
Discount accretion, net 7 --
------ ----
Mortgage-backed securities at end
of period (amortized cost) $3,115 $145
====== ====
Mortgage-backed securities at end
of period (fair value) $3,092 $151
====== ====
Weighted average yield at end of
period 6.91% 8.03%
51
<PAGE>
Sources of Funds
General. Deposits are the primary source of Oswego County Savings'
funds for lending and other investment purposes. In addition to deposits, we
derive funds from principal and interest payments on loans and mortgage-backed
securities. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. While we generally have not used borrowings
as a source of funds, they may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources, or on a longer term
basis for general business purposes.
Deposits. Oswego County Savings' deposit products include a broad
selection of deposit instruments, including demand deposits, money market
deposits, savings deposits and time deposits. Deposit account terms vary, with
the principal differences being the minimum balance required, the time periods
the funds must remain on deposit and the interest rate.
Our deposits are obtained primarily from residents of Oswego County
in New York State. We estimate that less than 1% of our current deposits are
obtained from customers residing outside of New York State. We do not pay fees
to brokers to solicit funds for deposit with Oswego County Savings or actively
solicit negotiable-rate certificates of deposit with balances of $100,000 or
more. Previous management of Oswego Savings periodically would solicit larger
($100,000) certificates of deposit from out-of-state residents. In order to
attract out-of-state deposits, we would pay higher rates. This practice was
discontinued in 1997 and substantially all certificates of deposit from
out-of-state residents matured in 1997 and 1998, and have not been renewed.
We set interest rates, maturity terms, service fees and withdrawal
penalties on a periodic basis. Determination of rates and terms are predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal and state regulations.
52
<PAGE>
The following table sets forth activity in our deposits during the
periods indicated.
Year Ended December 31,
--------------------------------
1998 1997
---- ----
(Dollars In Thousands)
Beginning balance $97,899 $102,015
------- --------
Net decrease before
interest credited(1) (4,723) (7,854)
Interest credited 3,388 3,738
------- --------
Net decrease in deposits (1,335) (4,116)
------- --------
Ending balance $96,564 $ 97,899
======= ========
- ---------------------
(1) The information provided is net of deposits and withdrawals because the
gross amount of deposits and withdrawals is not readily available.
The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by Oswego County Savings at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1998 1997
------------------------------------------------------------------
Amount % Amount %
---------- -------- ---------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Time deposits:
2.00% - 3.99% $ 34 0.03% $ -- --%
4.00% - 5.99% 33,724 34.92 33,071 33.78
6.00% - 7.99% 4, 489 4.66 6,626 6.77
------- ------ ------- ------
Total time deposits: 38,247 39.61 39,697 40.55
------- ------ ------- ------
Transaction accounts:
Savings deposits 46,365 48.02 47,969 49.00
Money market deposits 322 0.33 566 0.58
Demand deposits 11,630 12.04 9,666 9.87
------- ------ ------- ------
Total transaction
accounts 58,317 60.39 58,201 59.45
------- ------ ------- ------
Total deposits $96,564 100.00% $97,899 100.00%
======= ====== ======= ======
</TABLE>
53
<PAGE>
The following table presents the average balance of each type of
deposit and the average rate paid on each type of deposit for the periods
indicated.
Year Ended December 31,
-------------------------------------------------
1998 1997
------------------- ---------------------
Average Average
Average Rate Average Rate
Balance Paid Balance Paid
------- ------- ------- -------
(Dollars In Thousands)
NOW $ 595 2.34% $ -- --%
Savings deposits 47,346 2.40 49,883 3.01
Demand deposits 10,474 -- 9,217 --
Money market deposits 500 2.73 793 2.68
Time deposits 38,257 5.41 40,708 5.44
------- ---- -------- ----
Total deposits $97,172 3.91% $100,601 4.09%
======= ==== ======== ====
The following table shows the interest rate and maturity information
for our certificates of deposit at December 31, 1998.
<TABLE>
<CAPTION>
Maturity Date
------------------------------------------------------------------------------------------------------------------
Over six
Six Months Months Over 1 Over 2 Over 3
or Less to 1 Year to 2 Years to 3 Years Years Total
------------------ ------------------ ------------------ ------------------ -------------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Amount $16,949 $11,350 4122 1897 3929 $38,247
Average Rate 5.12% 5.17% 5.65% 5.48% 5.83% 5.29%
</TABLE>
The following table sets forth the maturities of our certificates of
deposit having principal amounts of $100,000 or more at December 31, 1998.
Certificates of deposit maturing
in quarter ending: Amount
-------------------------------- -------------------
(Dollars In Thousands)
March 31, 1999 $ 417
June 30, 1999 1,996
September 30, 1999 718
After September 30, 1999 2,447
------
Total certificates of deposit with
balances of $100,000 or more $5,578
======
Subsidiaries
Oswego County Savings currently has no subsidiaries.
54
<PAGE>
Legal Proceedings
Oswego County Savings is involved in routine legal proceedings
occurring in the ordinary course of business which, in the aggregate, we believe
to be immaterial to our financial condition and results of operations.
Employees
Oswego County Savings had 48 full-time employees and six part-time
employees at December 31, 1998. None of these employees is represented by a
collective bargaining agent, and we believe that we enjoy good relations with
our personnel.
Properties
The following table sets forth certain information relating to Oswego
County Savings' offices at December 31, 1998.
Net Book Value
Owned of Property and Leasehold Deposits at
or Improvement at December 31,
Location Leased December 31, 1998 1998
- ----------------------- -------- ------------------------- -------------
Executive Office: (Dollars In Thousands)
44 East Bridge Street
Oswego, New York 13126 Owned $165 $43,020
Branch Offices:
4879 N Jefferson Street
Pulaski, New York 13142 Owned 357 29,705
1930 Rt. 3 West
Fulton, New York 13069 Owned 143 14,374
30 W. Utica Street
Oswego, New York 13126 Owned 903 9,465
-------
$96,564
=======
In addition to the above, we have contracted to purchase a building
at 700 North Main Street, Route 11 in North Syracuse, New York. We hope to open
a new branch office at this site in the summer of 1999.
55
<PAGE>
HOW WE ARE REGULATED
General
Oswego County Savings is a New York-chartered mutual savings bank,
and its deposit accounts are insured up to applicable limits by the FDIC under
the Bank Insurance Fund. Oswego County Savings is subject to extensive
regulation by the Department as its chartering agency, and by the FDIC as the
deposit insurer. After the reorganization, Oswego County will be a New
York-chartered stock savings bank with deposits insured under the Bank Insurance
Fund, and will continue to be subject to extensive regulation by the Department
and the FDIC. Except as otherwise indicated below, the discussion that follows
of the regulations that currently apply to Oswego County Savings will apply to
the same extent to Oswego County Savings after the reorganization.
Oswego County Savings must file reports with the Department and the
FDIC concerning its activities and financial condition, and it must obtain
regulatory approval prior to entering into certain transactions, such as mergers
with, or acquisitions of, other depository institutions and opening or acquiring
branch offices. The Department and the FDIC conduct periodic examinations to
assess Oswego County Savings' compliance with various regulatory requirements,
to ascertain the condition of Oswego County Savings and to ensure that Oswego
County Savings is being operated in a safe and sound manner. This regulation and
supervision is intended primarily for the protection of the deposit insurance
funds and depositors. The regulatory authorities have extensive discretion in
connection with the exercise of their supervisory and enforcement activities,
including the setting of policies with respect to the classification of assets
and the establishment of adequate loan loss reserves for regulatory purposes.
Oswego County Bancorp, as a bank holding company, also is required to file
certain reports with, and otherwise comply with, the rules and regulations of
the Federal Reserve Board and the Department and with the rules and regulations
of the SEC under the federal securities laws. Any change in the regulations
governing Oswego County Savings or Oswego County Bancorp, whether by a bank
regulatory agency or through legislation, could have a material adverse impact
on Oswego County and Oswego County Bancorp and their operations and
shareholders.
The following is a summary of laws and regulations applicable to
Oswego County Savings, Oswego County Bancorp and Oswego County MHC. The
operations of Oswego County Savings and Oswego County Bancorp may be affected by
legislative and regulatory changes as well as by changes in the policies of
various regulatory authorities.
New York Regulation of Oswego County Savings
Powers. Oswego County Savings gets its lending, investment and other
powers primarily from provisions of the New York Banking Law and regulations.
Under these laws and regulations, savings banks, including Oswego County
Savings, 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. A savings bank
may also exercise trust powers upon approval of the New York Banking Board. The
exercise of these
56
<PAGE>
lending, investment and other powers are limited by federal law and regulations.
See "-- Federal Regulation of Oswego County Savings -- Activity Restrictions on
State-Chartered Banks."
Community Reinvestment Act. The New York Banking Law, like the
federal Community Reinvestment Act ("CRA") discussed below, requires New York
banking institutions to serve the credit needs of its local community ("NY
CRA"). Under the regulations, the Department makes biennial community
reinvestment evaluations of each banking institution and assess each
institution's compliance with the NY CRA. Oswego County Savings' latest NY CRA
rating was "satisfactory."
Limitations on Dividends. Under the New York Banking Law, Oswego
County Savings will not be able to declare, credit or pay any dividends if
capital is impaired or would be impaired as a result of the dividend. In
addition, the New York Banking Law provides that Oswego County Savings cannot
declare and pay dividends in any calendar year in excess of its "net profits"
for such year combined with its "retained net profits" of the two preceding
years, less any required transfer to surplus or a fund for the retirement of
preferred stock, without prior regulatory approval.
Enforcement. Under the New York Banking Law, the Superintendent may
issue an order to a New York-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. The Superintendent also has authority
to take possession of a New York banking organization under certain
circumstances, including when it appears that the banking organization is
conducting its business in an unauthorized or unsafe manner, is in an unsound or
unsafe condition to transact its business or has an impairment of its capital.
Federal Regulation of Oswego County Savings
Capital Requirements. The FDIC has adopted risk-based minimum capital
regulations for insured state nonmember banks, such as Oswego County Savings.
The regulations establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among insured depository institutions. Risk-based capital ratios are determined
by allocating assets and specified off-balance sheet commitments to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
required for the categories perceived as representing greater risk. State
nonmember banks must maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8.0%, and a minimum ratio of Tier 1 capital to
risk-weighted assets of 4.0%. Tier 1 capital includes common equity, certain
noncumulative perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations. Total capital consists of Tier 1
capital plus supplementary (Tier 2) capital which 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. In addition, insured state nonmember
banks must maintain a ratio of Tier 1 capital to average total assets (leverage
ratio) of at least 3% to 5%, depending on the bank's CAMELS rating.
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Capital requirements higher than these minimum requirements may be
established for a particular bank if the FDIC determines that a bank's capital
is, or may become, inadequate in view of its particular circumstances.
Individual minimum capital requirements may be appropriate if a bank is
receiving special supervisory attention, has a high degree of exposure to
interest rate risk or poses other safety and soundness concerns. Oswego County
currently is not subject to any individually imposed minimum capital
requirements.
Failure to meet capital guidelines could subject Oswego County
Savings to a variety of enforcement actions, including issuance of a capital
directive, the termination of deposit insurance, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon banks that fail
to meet applicable capital requirements under the FDIC's prompt corrective
action regulations.
The FDIC assesses Oswego County Savings' exposure to declines in the
economic value of the bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate Oswego County Savings' capital for interest rate risk on a
case-by-case basis, with consideration of both quantitative and qualitative
factors. Applicable considerations include the quality of the bank's interest
rate risk management process, the overall financial condition of the bank and
the level of other risks at the bank for which capital is needed. Institutions
with significant interest rate risk may be required to hold additional capital.
Activity Restrictions on State-Chartered Banks. Section 24 of the
Federal Deposit Insurance Act generally limits the activities and investments of
state-chartered insured banks and their subsidiaries to those permissible for
federally chartered national banks and their subsidiaries except for such
activities and investments that are specifically exempted by law or that the
FDIC determines would pose no significant risk to the Bank Insurance Fund. Any
bank that held, at the time of passage of Section 24, an impermissible
investment or engaged in an impermissible activity and that did not receive FDIC
approval to retain the investment or to continue the activity was required to
submit to the FDIC a plan for divesting of the investment or activity as quickly
and prudently as possible.
Enforcement. The FDIC has extensive enforcement authority over Oswego
County Savings. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease and desist orders and to
remove directors and officers. In general, these enforcement actions may be
initiated in response to violations of laws and regulations and to unsafe or
unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver
or conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible equity to total assets that is equal to or less than 2%. See
"-- Prompt Corrective Action." The FDIC may also appoint a conservator or
receiver for a state bank on the basis of the institution's financial condition
or upon the occurrence of certain events, including: (1) insolvency; (2)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (3) existence of an unsafe or unsound condition to
transact business; (4) likelihood that a bank will be unable to meet the demands
of its depositors or to pay its obligations in the normal course of business;
and (5)
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insufficient capital. In the event of any such appointment, it is likely that
stockholders of the institution would not receive anything for their interests
in the institution and such interest ultimately would be extinguished.
Deposit Insurance. Oswego County Savings is subject to quarterly
payments on semiannual insurance premium assessments for its FDIC deposit
insurance. The FDIC implements a risk-based deposit insurance assessment system.
Deposit insurance assessment rates currently are within a range of $0.00 to
$0.27 per $100 of insured deposits (subject to a $2,000 minimum), depending on
the assessment risk classification assigned to each institution. Under current
FDIC assessment guidelines, Oswego County Savings expects that it will incur
only the minimum FDIC deposit insurance assessments for the first half of 1999.
However, the deposit insurance assessments imposed by the FDIC are subject to
change.
FDIC insurance on deposits may be terminated by the FDIC, after
notice and hearing, upon a finding by the FDIC that the insured bank has engaged
or is engaging in unsafe or unsound practices, or is in an unsafe or unsound
condition to continue operations as an insured bank, or has violated any
applicable law, regulation, rule or order of, or condition imposed by or written
agreement entered into with the FDIC.
Community Reinvestment Act. Under the CRA, as implemented by FDIC
regulations, a savings bank has an 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 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 the institution.
The FDIC rates an institution based on its actual performance in
meeting community needs. The evaluation system focuses on a lending test, an
investment test, and a service test.
In its most recent examination for CRA performance, Oswego County
Savings received an "Satisfactory" rating from the FDIC.
Safety and Soundness Standards. Oswego County Savings is subject to
certain FDIC standards designed to maintain the safety and soundness of
individual banks and the banking system. The FDIC has prescribed safety and
soundness guidelines relating to (1) internal controls, information systems and
internal audit systems; (2) loan documentation; (3) credit underwriting; (4)
interest rate exposure; (5) asset growth and quality; (6) earnings; and (7)
compensation and benefit standards for officers, directors, employees and
principal stockholders. The guidelines are intended to set out standards that
the FDIC will use to identify and address problems at institutions before
capital becomes impaired. Institutions are required to, among other things,
establish and maintain a system to identify problem assets and prevent
deterioration of those assets in a manner commensurate with their size and the
nature and scope of their operations. Furthermore, institutions must establish
and maintain a system to evaluate and monitor earnings and ensure that earnings
are sufficient to maintain adequate capital and reserves in a manner
commensurate with their size and the nature and scope of their operation.
A bank not meeting one or more of the safety and soundness guidelines
may be required to file a compliance plan with the FDIC. In the event that an
institution were to fail to submit an
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acceptable compliance plan or fail in any material respect to implement an
accepted compliance plan within the time allowed by the FDIC, the institution
would be required to correct the deficiency and the FDIC would also be
authorized to: (1) restrict asset growth; (2) require the institution to
increase its ratio of tangible equity to assets; (3) restrict the rates of
interest that the institution may pay; or (4) take any other action that would
better carry out the purpose of the corrective action. Oswego County Savings
believes it was in compliance with all such safety and soundness guidelines as
of the date of this prospectus.
The FDIC periodically conducts examinations of insured institutions
and, based upon evaluations, may require a revaluation of assets of an insured
institution and may require the establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets.
Prompt Corrective Action. Under the FDIC's prompt corrective action
regulations, insured institutions will be considered:
(1) "well capitalized" if the institution has a total
risk-based capital ratio of 10% or greater, a Tier 1
risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater provided that the institution is not
subject to an order, written agreement, capital directive
or prompt corrective action directive to meet and maintain
a specified capital level for any capital measure;
(2) "adequately capitalized" if the institution has a total
risk-based capital ratio of 8% or greater, a Tier 1 risk
based capital ratio of 4% or greater and a leverage ratio
of 4% or greater (3% or greater if the institution is rated
composite CAMELS 1 in its most recent report of examination
and is not experiencing or anticipating significant
growth);
(3) "undercapitalized" if the institution has a total
risk-based capital ratio that is less than 8%, or a Tier 1
risk-based ratio of less than 4% and a leverage ratio that
is less than 4% (3% if the institution is rated composite
CAMELS 1 in its most recent report of examination and is
not experiencing or anticipating significant growth);
(4) "significantly undercapitalized" if the institution has a
total risk-based capital ratio that is less than 6%, Tier 1
risk-based capital ratio of less than 3% or a leverage
ratio that is less than 3%; and
(5) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets that is equal to
or less than 2%.
Under certain circumstances, the FDIC can reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized 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). At December 31, 1998, Oswego County Savings was
classified as a "well capitalized" institution.
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An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to the FDIC. An undercapitalized institution
also is generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except in accordance with an accepted capital restoration plan or with
the approval of the FDIC. In addition, the FDIC may take any other action that
it determines will better carry out the purpose of prompt corrective action
initiatives.
Dividend Restrictions. Oswego County Savings is not permitted to pay
dividends if, as the result of the payment, it would become undercapitalized, as
defined in the prompt corrective action regulations of the FDIC. In addition, if
Oswego County Savings becomes "undercapitalized" under the "prompt corrective
action" initiatives of the FDIC, payment of dividends would be prohibited
without the prior approval of the FDIC. Oswego County Savings also could be
subject to these dividend restrictions if the FDIC determines that Oswego County
Savings is in an unsafe or unsound condition or engaging in an unsafe or unsound
practice.
Required Reserves. Under Federal Reserve Board regulations, Oswego
County Savings is required to maintain non-interest-earning reserves against its
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves of 3% must be
maintained against aggregate transaction accounts of $46.5 million or less
(subject to adjustment) and an initial reserve of $1,395,000 plus 10% (subject
to adjustment between 8% and 14%) against that portion of total transaction
accounts in excess of $46.5 million. The first $4.9 million of otherwise
reservable balances (subject to adjustments) are exempted from the reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce Oswego County Savings' interest-earning assets.
Holding Company Regulation
Federal Bank Holding Company Regulation. Upon consummation of the
reorganization, the Oswego County MHC and Oswego County Bancorp, 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, 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 stock offering, the
Oswego County MHC and Oswego County Bancorp 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 Oswego County Savings. On a pro
forma consolidated basis after the reorganization and stock offering, the pro
forma regulatory capital of Oswego County MHC and Oswego County Bancorp
stockholders' equity will exceed these requirements.
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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 Bank Holding Company Act, a bank holding company must
obtain Federal Reserve Board approval before: (1) 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);
(2) acquiring all or substantially all of the assets of another bank or bank
holding company; or (3) merging or consolidating with another bank holding
company.
The Bank Holding Company Act 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 the
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 a 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% statewide 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 the transaction is prohibited by the law of any state, unless the home
state of one of the banks "opted out" by adopting a law which applies equally to
all out-of-state banks and expressly prohibits merger transactions
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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 the federal law, 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 determine 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.
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 bank holding company is a
banking institution, another banking institution, or 10% or more of the voting
stock of each of two or more banking institutions. In general, a bank holding
company controlling, directly or indirectly, only one banking institution will
not be deemed to be a bank holding company for the purposes of the New York
State Banking Law. Under New York State Banking Law, the prior approval of the
Banking Board is required before: (1) any action is taken that causes any
company to become a bank holding company; (2) any action is taken that causes
any banking institution to become or be merged or consolidated with a subsidiary
of a bank holding company; (3) any bank holding company acquires direct or
indirect ownership or control of more than 5% of the voting stock of a banking
institution; (4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (5) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Additionally, certain restrictions apply to New York State
bank holding companies regarding the acquisition of banking institutions which
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York State bank holding companies are
subject to limitations regarding their affiliation with securities underwriting
or brokerage firms and other bank holding companies and limitations regarding
loans obtained from its subsidiaries. Neither Oswego County MHC nor Oswego
County Bancorp will be a bank holding company for purposes of New York State law
upon the effective date of the reorganization.
Mutual Holding Company Regulation. Under New York law, the Oswego
County MHC may exercise all powers and privileges of a New York-chartered mutual
savings bank,
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except for the power of accepting deposits. The Oswego County MHC is also
permitted to exercise all powers and engage in all activities permitted to a
bank holding company under the Bank Holding Company Act.
Dividend Waivers by the Oswego County MHC. It has been the policy of
many mutual holding companies to waive the receipt of dividends declared by any
savings institution subsidiary or mid-tier stock holding company. 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 Oswego
County MHC of dividends paid on the common stock. In particular, the Oswego
County MHC is expected to be required to obtain prior Federal Reserve Board
approval before it may waive any dividends. As of the date of the prospectus,
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 any waived dividends must be maintained in a restricted
capital account which would be added to any liquidation account of Oswego County
Savings, and would not be available for distribution to minority stockholders.
The restricted capital account and liquidation account amounts would not be
reflected in Oswego County Savings' financial statements or the notes thereto,
but would be considered as a notational or memorandum account of Oswego County
Savings, and would be maintained in accordance with the rules, regulations and
policy of the Office of Thrift Supervision as administered by the Federal
Reserve Board, and any other rules, regulations and policies adopted by the
Federal Reserve Board.
Management does not believe that the Oswego County MHC will
initially waive dividends declared by Oswego County Savings . If the Oswego
County MHC decides that it is in its best interest to waive a particular
dividend to be paid by Oswego County Savings, and the Federal Reserve Board
approves such waiver, then Oswego County Savings would pay such dividend only to
minority stockholders, and the amount of the dividend waived by the Oswego
County MHC would be treated in the manner described above. Oswego County MHC's
decision to waive a particular dividend will depend on a number of factors,
including the Oswego County MHC's capital needs, the investment alternatives
available to the Oswego County MHC as compared to those available to Oswego
County Savings, and regulatory approvals. There can be no assurance (1) that
after the reorganization the Oswego County MHC will waive dividends paid by
Oswego County Savings, (2) that the Federal Reserve Board will approve any
dividend waivers by the Oswego County MHC or (3) of the terms that may be
imposed by the Federal Reserve Board on any dividend waiver.
Conversion of the Oswego County MHC to Stock Form. New York law,
regulations of the Department and the plan of reorganization permit the Oswego
County MHC to convert from the mutual to the capital stock form of organization
(a "conversion transaction"). There can be no
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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 Oswego County MHC would merge with and into
Oswego County Savings with Oswego County Savings as the resulting entity, and
certain depositors of Oswego County Savings 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 Oswego County MHC 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, 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 also would be affected by any
purchases by those persons in the offering that would be conducted as part of
the conversion transaction. To date, the Federal Reserve Board has not approved
the waiver of dividends by mutual holding companies under its supervision.
In addition, if Oswego County MHC is permitted by state and federal
regulators to waive dividends it would otherwise be entitled to receive as a
shareholder of Oswego County Bancorp, the number of shares issued to minority
stockholders in a mutual-to-stock conversion would be reduced to reflect the
aggregate amount of dividends waived by the Oswego County MHC.
TAXATION
Federal Taxation
General. The Oswego County MHC, Oswego County Bancorp and Oswego
County Savings 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 Oswego County MHC, Oswego County Bancorp and Oswego County
Savings. Oswego County Savings' federal income tax returns have been audited or
closed without audit by the Internal Revenue Service through 1994.
Method of Accounting. For federal income tax purposes, Oswego County
Savings currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31. After the reorganization,
Oswego County Bancorp and Oswego County Savings will file consolidated income
tax returns on the accrual method. Oswego County MHC will file a separate
return.
Bad Debt Reserves. In August 1997, legislation was enacted that
repealed the reserve method of accounting (including the percentage of taxable
income method) previously used by many savings institutions to calculate their
bad debt reserve for federal income tax purposes. Savings institutions with $500
million or less in assets may, however, continue to use the experience method.
Oswego County Savings must recapture that portion of its tax bad debt
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reserve at December 31, 1995 which exceeded the amount that could have been
taken under the experience method for post-1987 tax years. At December 31, 1995,
Oswego County Savings' post-1987 excess reserves amounted to approximately
$210,000. The recapture is occurring over a six-year period, which began on
January 1, 1996. The legislation also requires savings institutions to account
for bad debts for federal income tax purposes on the same basis as commercial
banks for tax years beginning after December 31, 1995. This change in tax
accounting method and recapture of excess bad debt reserves is adequately
provided for in Oswego County Savings' deferred tax liability.
At December 31, 1998, the total federal income tax reserves of Oswego
County Savings were approximately $1,107,000, exclusive of the $105,000
post-1987 reserve which has not yet been recaptured.
Charitable Contributions. A corporation's deduction for charitable
contributions is limited to 10% of taxable income without regard to deductions
for charitable contributions, NOL carrybacks and capital loss carrybacks.
Contributions which exceed the above limitation can be carried over to the five
succeeding tax years.
Distributions. If Oswego County Savings were to distribute cash or
property to its stockholders, and the distribution was treated as being from its
accumulated tax bad debt reserves, the distribution would cause Oswego County
Savings to have additional taxable income. A distribution is from accumulated
bad debt reserves if (a) the reserves exceed the amount that would have been
accumulated on the basis of actual loss experience, and (b) the distribution is
a "non-qualified distribution." A distribution with respect to stock is a
non-qualified distribution to the extent that, for federal income tax purposes,
(1) it is in redemption of shares, (2) it is pursuant to a liquidation of the
institution, or (3) in the case of a current distribution, together with all
other such distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits. The amount of additional
taxable income created by a non-qualified distribution is an amount that when
reduced by the tax attributable to it is equal to the amount of the
distribution.
Capital Gains and Corporate Dividends-Received Deduction. Corporate
net capital gains are taxed at a maximum rate of 35%. Corporations which own 20%
or more of the stock of a corporation distributing a dividend may deduct 80% of
the dividends received. Corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct 70% of the dividends received.
However, a corporation that receives dividends from a member of the same
affiliated group of corporations may deduct 100% of the dividends received.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. Tax preference items include (a) depreciation and (b) 75% of the excess
(if any) of (1) adjusted current earnings as defined in the Code, over (2) AMTI
(determined without regard to this preference and prior to reduction by net
operating losses).
Net Operating Loss Carryovers. For tax years beginning after August
5, 1997, a financial institution may carry back net operating losses to the
preceding two taxable years and
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forward to the succeeding 20 taxable years. At December 31, 1998, the Bank had
no net operating loss carryforwards for federal income tax purposes.
New York State Taxation
General. Oswego County Savings and Oswego County Bancorp will report
income on a combined calender year basis to New York State. The Oswego County
MHC will not be included in the combined return. The franchise tax on banking
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.
Bad Debt Deduction. New York State enacted legislation in 1996, which
among other things, decoupled the federal and New York State tax laws regarding
thrift bad debt deductions and permits the continued use of Oswego County
Savings debt reserve method under Section 593. Thus, provided Oswego County
Savings continues to satisfy certain definitional tests and other conditions, it
is permitted to continue to compute the annual for bad debt deduction using
either a six year moving average experience method or a statutory percentage
equal to 32% of Oswego County Savings' New York State taxable income.
MANAGEMENT
Management of Oswego County Bancorp
The board of directors of Oswego County Bancorp will consist of the
same individuals who serve as trustees of Oswego County Savings. The board of
directors of Oswego County Bancorp is divided into three classes, each of which
contains approximately one-third of the board. The directors shall be elected by
the stockholders of Oswego County Bancorp for staggered three-year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Kreis and Schneible, has a term of office expiring at the
first annual meeting of stockholders, a second class, consisting of Messrs.
Frassinelli, and Heins, has a term of office expiring at the second annual
meeting of stockholders and a third class, consisting of Messrs. Brower, Shapiro
and Walrath has a term of office expiring at the third annual meeting of
stockholders.
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The following individuals are the executive officers of Oswego County
Bancorp and hold the offices set forth below opposite their name.
Position Held with Oswego County
Executive Age(1) Bancorp
- -------------------------- ------- ----------------------------------------
Gregory J. Kreis 52 President and Chief Executive Officer
Robert H. Hillick 51 Senior Vice President and Treasurer
Gregory H. May 45 Senior Vice President
Judith S. Percy 39 Senior Vice President
Mary E. Lilly 43 Vice President
Ronald Tascarella 40 Vice President
- -------------------------
(1) As of December 31, 1998
The executive officers of Oswego County Bancorp are elected annually
and hold office until their respective successors have been elected and
qualified or until death, resignation or removal by the board of directors.
Information concerning the principal occupations, employment and
compensation of the directors and executive officers of Oswego County Bancorp
during the past five years is set forth under "-- Management of Oswego County
Savings." The Oswego County Bancorp initially will not compensate its directors
or executive officers, but may determine that compensation for its directors is
appropriate in the future. However, we do not anticipate providing separate
compensation to them unless they devote significant time to the separate
management of Oswego County Bancorp's affairs. We do not expect this to occur
until Oswego County Bancorp becomes actively engaged in additional businesses
other than holding the stock of Oswego County Savings.
Management of Oswego County Savings
Because Oswego County Savings is a mutual savings bank, the members
of its board of trustees have been appointed by other trustees. Upon completion
of the reorganization and stock offering, the trustees of Oswego County Savings
immediately prior to the stock offering will continue to serve Oswego County
Savings in its stock form as directors until successors are elected and
qualified. Currently, each trustee serves until December 31 of the year of his
seventy-fifth birthday. Following the reorganization and stock offering,
directors of Oswego County Savings will serve staggered three-year terms or
until their successors are elected and qualified. Because Oswego County Bancorp
will own all the issued and outstanding capital stock of Oswego County Savings
following the reorganization and stock offering, the board of directors of
Oswego County Bancorp will elect the directors of Oswego County Savings. Except
for Mr. Brower who will not serve on the board of the Oswego County MHC, the
persons who are serving as trustees of Oswego County Savings will also serve as
trustees of the Oswego County MHC and as directors of Oswego County Bancorp upon
consummation of the reorganization and stock offering.
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The following table sets forth certain information regarding the
board of directors of Oswego County Savings.
Positions Held
With Director
Name Age(1) Oswego County Savings Since(2)
- ------------------- ------- ----------------------------- ---------
Michael R. Brower 48 Director 1996
Bruce P. Frassinelli 59 Chairman of the Board 1995
Paul J. Heins 59 Director 1989
Gregory J. Kreis 52 Director, President and Chief 1997
Executive Officer
Paul W. Schneible 50 Director 1996
Bernard Shapiro 72 Director 1963
Carl K. Walrath 71 Director 1974
- -----------------------------
(1) As of December 31, 1998.
(2) Includes service as a trustee of Oswego County Savings.
Biographical Information
The business experience of each director for at least the past five
years is set forth below.
Michael R. Brower. Mr. Brower is currently managing member and Chief
Executive Officer of the Oswego Cranberry Company. Previously, Mr. Brower served
as Executive Director, of the Oswego County Co-Operative Extension.
Bruce P. Frassinelli. Mr. Frassinelli retired as of January 1, 1999.
Previously, he was the publisher and editor of the Palladium Times Newspaper,
Oswego, New York.
Paul J. Heins. Mr. Heins is the owner of Paul's Big M Grocery Store,
Oswego, New York.
Gregory J. Kreis. Mr. Kreis has served as president and chief
executive officer of Oswego County Savings since January 1997. Previously, Mr.
Kreis served as president and chief executive office of Factory Point National
Bank, Manchester, Vermont.
Paul W. Schneible. Mr. Schneible is the owner of Paul W. Schneible,
CPA, Accountants and Consultants, Oswego, New York.
Bernard Shapiro. Mr. Shapiro is currently retired. Previously, Mr.
Shapiro was the owner of a retail clothing store.
Carl K. Walrath. Mr. Walrath is currently retired. Previously, Mr.
Walrath owned an insurance agency.
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Executive Officers Who Are Not Trustees
Each of the executive officers of Oswego County Savings will retain
his or her office following the reorganization. Officers are elected annually by
the board of directors of Oswego County Savings. Information about the current
position of each executive officer with Oswego County Savings who does not serve
as a director and their business experience for at least the past five years is
set forth below.
Robert H. Hillick. Mr. Hillick has been vice president and treasurer
since April 1997 and was promoted to senior vice president and treasurer in
December 1998. From 1993 until April 1997, he was the internal auditor. He is a
certified public accountant.
Gregory H. May. Mr. May was promoted to senior vice president,
consumer lending in December 1998. He joined Oswego County Savings in April 1997
as vice president, consumer lending. Prior to April 1997, he held a variety of
mortgage-related positions in upstate New York and most recently was regional
manager for the central region of Marine Midland Mortgage Company.
Judith S. Percy. Ms. Percy was promoted to senior vice president,
operations in December 1998. She is responsible for management information
systems as well as internal operations and facilities management. Previously,
she served as vice president of operations and has held a variety of positions
at Oswego County Savings since June 1979.
Mary E. Lilly. Ms. Lilly has been vice president, security and
compliance since May 1997. Previously, she had worked in most areas of Oswego
County Savings since starting in April 1974. Most recently she had managed the
Pulaski branch office.
Ronald Tascarella. Mr. Tascarella has been vice president, commercial
lending since June 1998. He has worked at several banks in central New York in
the commercial lending area since 1979. Most recently he had worked at
Skaneateles Savings Bank and The Savings Bank of Utica.
Meetings and Committees of Oswego County Savings
Oswego County Savings' board of trustees meets at least monthly and
may have additional special meetings. During the fiscal year ended December 31,
1998, the board of trustees held 15 meetings. No trustee attended fewer than 75%
in the aggregate of the total meetings of the board or committees on which the
trustee served for fiscal 1998. There are currently three committees of the
board of trustees consisting of the personnel and compensation committee, the
loan committee and the executive committee.
Compensation of Trustees
The chairman of the board of trustees receives $1,450 per board
meeting while the other non-employee trustees receive $1,250 per meeting. In
addition, the outside trustees receive $350 per committee meeting. Trustees
receive a fee only for the board and committee meetings that they attend.
Board fees are subject to periodic adjustment by the board of trustees.
See " -- Benefits -- Other Stock Benefit Plans."
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Deferred Compensation Plan for Trustees
In 1997, Oswego County Savings instituted a deferred compensation
plan for trustees who may elect to defer all or part of their annual trustee
fees to fund the plan. The plan provides that deferred fees are to be invested
in mutual funds, as selected by the individual trustees. At December 31, 1998,
deferred trustees fees included in Oswego County Savings' other liabilities
aggregated $184,000. Following consummation of the reorganization, the plan will
continue to operate in the same manner and will apply to the directors of Oswego
County Savings.
Executive Compensation
The following table sets forth the cash and certain other
compensation paid by Oswego County Savings for services rendered in all
capacities during the fiscal year ended December 31, 1998 to the president and
chief executive officer of Oswego County Savings. No other officers of Oswego
County Savings had compensation in excess of $100,000.
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation(1) Long Term Compensation
-------------------------------------- -------------------------------------
Awards Payouts
------------------------ --------
Other Securities
Name and Fiscal Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Stock(3) Options(3) Payouts Compensation(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory J. Kreis
President and Chief
Executive Officer 1998 $150,000 $20,000(2) - - - - - - - - $7,693
====================================================================================================================================
</TABLE>
(1) There were no perquisites with an aggregate value in excess of the lesser of
$50,000 or 10% of the executive's salary and bonus not included in the table as
part of the salary or bonus.
(2) Reflects the bonus received in fiscal 1998 for his performance in fiscal
1997.
(3) As a mutual savings bank, Oswego County Savings does not have stock-based
benefit plans. Oswego County Bancorp, however, intends to adopt stock-based
plans following the reorganization.
(4) Reflects a matching contribution of $5,338 made by Oswego County Savings
under a 401(k) plan and a life insurance premium of $2,355.
Report of Independent Compensation Consultant
Under the Department's regulations governing the reorganization,
Oswego County Savings must obtain the opinion of an independent compensation
consultant as to whether the total compensation for the executive officers and
trustees of Oswego County Savings, viewed as a whole and on an individual basis,
is reasonable and proper in comparison to the compensation provided to executive
officers and trustees of similar publicly traded financial institutions. Oswego
County Savings has obtained an opinion from ______________, which provides that,
based upon public data of similarly situated publicly traded financial
institutions operating in the relevant markets as of ________ ___, 1999, with
respect to the total cash compensation (base salary and annual incentive) for
executive officers and total compensation for trustees of Oswego
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County Savings, such compensation, viewed as whole and on an individual basis,
is reasonable in comparison to the total compensation (base salary, annual
incentives and estimated present value of long-term incentives) provided by
similarly situated publicly traded financial institutions, and that, with
respect to the amount of shares of common stock to be reserved under the ESOP,
stock option plan and restricted stock plan that the amounts reserved for
granting are reasonable in comparison to similar publicly traded financial
institutions.
Benefits
401(k) Plan. Oswego County Savings has a tax-qualified savings plan
with a salary deferral feature. Generally, a full-time employee who has attained
the age of 21 and completed one year of employment is eligible to participate. A
participant may make a deferral from 2% to 9% of his compensation up to $10,000,
indexed annually. Oswego County Savings makes matching contributions of 50% of
each participant's annual deferrals up to a maximum of 3% of compensation.
Oswego County Savings made an aggregate matching contribution of $ 36,000 for
fiscal 1998.
A participant is fully vested for his own deferrals, and vests over
five years in any matching contributions, other permissible discretionary
contributions, and reallocations of plan forfeitures. The plan allows a
participant to direct the investment of his individual plan accounts among
several investment options.
As part of the reorganization, Oswego County Savings amended the
401(k) plan to permit investments in a fund established to invest primarily in
the common stock of Oswego County Bancorp. A participant will have the
opportunity to invest all or any portion of his plan account balance in this
additional investment fund.
Oswego County Bancorp common stock will be held by the plan's trustee
for the benefit of the individual participants who choose to direct their
investments into the newly created fund. Generally, a participant will control
the exercise of the voting and tendering rights relating to the common stock
held for his benefit.
Defined Benefit Pension Plan. Oswego County Savings maintains a
non-contributory defined benefit pension plan covering substantially all of its
full-time employees. A participant is fully vested in the plan upon reaching
five years of service after obtaining the age of 18.
The normal retirement benefit is based upon a participant's highest
three-year average annual base earnings during the participant's final ten years
of service, subject to certain limitations required by the plan and the Internal
Revenue Code. The annual benefit provided to a participant at normal retirement
age (generally age 65) is determined as follows:
2% of the participant's average annual earnings.
multiplied by
the participant's years of credited service.
(Limited to 60% of the participant's average annual earnings)
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The plan also provides for early retirement benefits which are
calculated in the same manner as normal retirement benefits. However, benefits
are reduced when the participant chooses to begin the receipt of his benefits
prior to normal retirement age.
Employee Stock Ownership Plan. The Oswego County Bancorp has
established the ESOP for employees of Oswego County Bancorp and Oswego County
Savings to become effective upon the reorganization and stock offering.
Full-time employees of Oswego County Bancorp and Oswego County Savings who have
been credited with at least 1,000 hours of service during a twelve-month period
are eligible to participate in the ESOP.
As part of the reorganization and stock offering, in order to fund
the purchase of up to 8% of the common stock sold in the reorganization and
stock offering, it is anticipated that the ESOP will borrow funds from Oswego
County Bancorp. It is anticipated that the loan will equal 100% of the aggregate
purchase price of the common stock acquired by the ESOP. The loan to the ESOP
will be repaid principally from Oswego County Bancorp's and Oswego County
Savings' contributions to the ESOP over a period of not less than 10 years, and
the collateral for the loan will be the common stock purchased by the ESOP. The
interest rate for the ESOP loan is expected to be ______. The Oswego County
Bancorp may, in any plan year, make additional discretionary contributions for
the benefit of plan participants in either cash or shares of common stock, which
may be acquired through the purchase of outstanding shares in the market or from
individual stockholders, upon the original issuance of additional shares by
Oswego County Bancorp or upon the sale of treasury shares by Oswego County
Bancorp. These purchases, if made, would be funded through additional borrowings
by the ESOP or additional contributions from Oswego County Bancorp. The timing,
amount and manner of future contributions to the ESOP will be affected by
various factors, including prevailing regulatory policies, the requirements of
applicable laws and regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be
held in a suspense account and released to participant's accounts as debt
service payments are made. Shares released from the ESOP will be allocated to
each eligible participant's ESOP account based on the ratio of each such
participant's compensation to the total compensation of all eligible ESOP
participants. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount Oswego County Bancorp might otherwise have
contributed to the ESOP. Upon the completion of seven years of service, the
account balances of participants within the ESOP will become 100% vested. Credit
is given for years of service with Oswego County Savings prior to adoption of
the ESOP. In the case of a "change in control," as defined, however,
participants will become immediately fully vested in their account balances.
Benefits may be payable upon retirement or separation from service. The Oswego
County Bancorp's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated.
Messrs. Kreis and Hillick will serve as trustees of the ESOP. Under
the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and unallocated
shares will be voted in the same ratio on any matter as those allocated shares
for which instructions are given.
See "Risk Factors - After the change in structure and stock offering,
our net income-to-equity ratio will be low compared to other companies and our
compensation expenses will
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<PAGE>
increase. This could negatively impact the price of our stock." for discussion
which addresses compensation expense to be incurred as a result of the ESOP.
GAAP requires that any borrowing by the ESOP from an independent
third party be reflected as a liability on Oswego County Bancorp's statement of
financial condition. Since the ESOP is borrowing from Oswego County Bancorp,
such obligation is not treated as a liability, but the cost of the shares
acquired by the ESOP will be deducted from Oswego County Bancorp's stockholders'
equity. If the ESOP purchases newly issued shares from Oswego County Bancorp,
total stockholders' equity would neither increase nor decrease, but per share
stockholders' equity and per share net earnings would decrease as the newly
issued shares are allocated to the ESOP participants.
The ESOP will be subject to the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations of the IRS and the Department of Labor thereunder.
Other Stock Benefit Plans. In the future, we plan to consider the
implementation of a stock option plan and a restricted stock plan for the
benefit of selected directors, officers and employees. We anticipate that the
stock option plan and restricted stock plan will have reserved a number of
shares equal to 10% and 4%, respectively, of Oswego County Bancorp common stock
sold in the stock offering. Grants of common stock under the restricted stock
plan will be made without cost to the recipient. If a determination is made to
implement a stock option plan or restricted stock plan, it is anticipated that
any such plans will be submitted to stockholders for their consideration at
which time stockholders would be provided with detailed information regarding
such plan. If such plans are approved, and effected, they will have a dilutive
effect on Oswego County Bancorp's stockholders as well as affect Oswego County
Bancorp's net income and stockholders' equity, although the actual results
cannot be determined until such plans are implemented. Any stock option plan or
restricted stock plan will not be implemented less than six months after the
date of the completion of the reorganization.
Loans and Other Transactions with Officers and Trustees
Under New York Banking Law, Oswego County Savings, as a mutual
institution, can only make a loan to a trustee or a person who is an "executive
officer" for regulatory purposes if the loan is secured by a first mortgage on a
primary residence or by a deposit account with Oswego County Savings. However,
it is Oswego County Savings' policy not to make loans to its trustees and
executive officers. Following the reorganization, Oswego County Savings, as a
stock institution, will not be subject to this restriction.
Any loans we would make to our trustees and executive officers are
also subject to Sections 22(h), 23A and 23B of the Federal Reserve Act which
limit the amount of loans and other transactions with affiliated persons of
Oswego County Savings.
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of Oswego County Bancorp's
directors and for all of the directors and executive officers as a group, the
proposed purchases of common stock,
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<PAGE>
assuming sufficient shares are available to satisfy their subscriptions. The
amounts include shares that may be purchased through individual retirement
accounts and by associates.
<TABLE>
<CAPTION>
At the Minimum of the Estimated At the Maximum of the
Offering Range Estimated Offering Range
------------------------------------- ----------------------------------
As a Percent
Number of As a Percent of Number of of Shares
Name Amount Shares Shares Offered(1) Shares Offered(1)
- ------------------------------ --------------- -------------- ---------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Michael R. Brower $50,000 5,000 1.1 5,000 *
Bruce P. Frassinelli 7,500 750 * 750 *
Paul J. Heins 5,000 500 * 500 *
Gregory J. Kreis 150,000 15,000 3.3 15,000 2.5
Paul W. Schneible 50,000 5,000 * 5,000 *
Bernard Shapiro 25,000 2,500 * 2,500 *
Carl K. Walrath 25,000 2,500 * 2,500 *
Robert H. Hillick 25,000 2,500 * 2,500 *
Gregory H. May 5,000 500 * 500 *
Judith S. Percy 10,000 1,000 * 1,000 *
Mary E. Lilly 12,500 1,250 * 1,250 *
Ronald Tascarella 10,000 1,000 * 1,000 *
All directors and executive $375,000 37,500 8.3 37,500 6.2
officers as a group (twelve
persons)
</TABLE>
- ----------------
1 An asterisk indicates a percentage of shares offered of less than one
percent.
In addition, the ESOP currently intends to purchase 8% of the common
stock sold in the stock offering for the benefit of officers and employees.
Stock options and stock grants may also be granted in the future to directors,
officers and employees upon the receipt of stockholder approval of Oswego County
Bancorp's proposed stock benefit plans. See "Management Management of the Bank -
Benefits" for a description of these plans.
OUR CORPORATE CHANGE AND STOCK OFFERING
General
On March 19, 1998, the Board of Trustees of Oswego County Savings
adopted the Plan of Reorganization from a Mutual Savings Bank to a Mutual
Holding Company as amended on December 17, 1998 and March 18, 1999, and under
this plan, Oswego County Savings will reorganize into the New York mutual
holding company structure as a wholly owned subsidiary of Oswego County Bancorp,
which in turn will be a majority-owned subsidiary of Oswego County MHC.
Following receipt of all required regulatory approvals, the approval of the
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<PAGE>
depositors of Oswego County Savings entitled to vote on the plan of
reorganization, and the satisfaction of all other conditions precedent to the
reorganization, Oswego County Savings will complete the reorganization. Oswego
County Savings in its stock form will continue to conduct its business and
operations from the same offices with the same personnel as Oswego County
Savings conducted prior to the reorganization. The reorganization will not
affect the balances, interest rates or other terms of Oswego County Savings'
loans or deposit accounts, and the deposit accounts will continue to be insured
by the FDIC. Oswego County MHC initially will be capitalized with $100,000. When
the reorganization is completed, Oswego County MHC will use this capital for
general corporate purposes.
Under the plan of reorganization, we will accomplish our corporate
change as follows or in any other manner that is consistent with applicable New
York and federal law and regulations and the intent of the plan of
reorganization:
(1) Oswego County Savings will organize an interim New York
stock savings bank as a wholly owned subsidiary ("Interim
One");
(2) Interim One will organize an interim New York stock savings
bank as a wholly owned subsidiary ("Interim Two");
(3) Interim One will organize Oswego County Bancorp as a wholly
owned subsidiary;
(4) Oswego County Savings will convert its charter to a New
York stock savings bank charter to become Oswego County
Savings and Interim One will convert its charter to a New
York mutual holding company charter to become the Oswego
County MHC;
(5) simultaneously with step (4), Interim Two will merge with
and into Oswego County Savings with Oswego County Savings
as the resulting institution;
(6) all of the initially issued stock of Oswego County Savings
will be transferred to Oswego County MHC in exchange for
depositor interests in Oswego County MHC;
(7) Oswego County MHC will contribute the capital stock of
Oswego County Savings to Oswego County Bancorp, and Oswego
County Savings will become a wholly owned subsidiary of
Oswego County Bancorp; and
(8) contemporaneously with the reorganization, Oswego County
Bancorp will offer for sale in the stock offering shares of
common stock based on the pro forma market value of Oswego
County Bancorp and Oswego County Savings.
Oswego County Bancorp expects to receive the approval of the Federal
Reserve Board to become a bank holding company and to own all of the common
stock of Oswego County Savings. Oswego County Bancorp intends to contribute at
least 50% of the net proceeds of the stock offering to Oswego County Savings.
The reorganization will occur only upon completion of the sale of all of the
shares of common stock to be issued under the plan of reorganization.
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The following is a summary of material aspects of the reorganization
and stock offering. The summary is qualified in its entirety by reference to the
provisions of the plan of reorganization. Copies of the plan of reorganization
are available for inspection at any office of Oswego County Savings and at the
office of the New York Superintendent and the FDIC. The plan of reorganization
is also filed as an exhibit to the Registration Statement of which this
prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
THE BOARD OF TRUSTEES OF THE BANK HAS ADOPTED, THE DEPARTMENT HAS
APPROVED AND THE FDIC HAS NOT OBJECTED TO THE PLAN OF REORGANIZATION SUBJECT TO
APPROVAL BY THE DEPOSITORS OF OSWEGO COUNTY SAVINGS ENTITLED TO VOTE ON THE
MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. DEPARTMENT AND FDIC
ACTIONS, HOWEVER, DO NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN
OF REORGANIZATION BY THOSE AGENCIES.
Our Reasons For the Corporate Change
As a mutual institution, Oswego County Savings has no authority to
issue shares of capital stock and consequently has no access to market sources
of equity capital. Only by generating and retaining earnings from year to year
is Oswego County Savings able to enhance its capital position.
As a stock corporation upon consummation of the reorganization,
Oswego County Savings will be organized in the form used by commercial banks,
most major corporations and a majority of savings institutions. The ability to
raise new equity capital through the issuance and sale of the capital stock of
Oswego County Savings or Oswego County Bancorp will allow Oswego County Savings
the flexibility to increase its capital position more rapidly than by
accumulating earnings and at times deemed advantageous by the board of directors
of Oswego County Savings. It will also support future growth and expanded
operations, including increased lending and investment activities, as business
and regulatory needs require. The ability to attract new capital also will help
Oswego County Savings address the needs of the communities it serves and
increase its ability to make acquisitions or expand into new businesses. The
acquisition alternatives available to Oswego County Savings are quite limited as
a mutual institution, because of the regulatory policy that the surviving
institution in a merger involving a mutual institution generally must be in
mutual form. After the completion of the reorganization, Oswego County Savings
will have increased ability to merge with other mutual and stock institutions
and Oswego County Bancorp may acquire control of other mutual or stock savings
associations and retain the acquired association as a separate subsidiary of
Oswego County Bancorp. Finally, the ability to issue capital stock will enable
Oswego County Savings to establish stock compensation plans for directors,
officers and employees, giving them equity interests in Oswego County Savings
and greater incentive to improve its performance. For a description of the stock
benefit plans which will be adopted by Oswego County Savings in connection with
the reorganization, see "Management -- Benefits -- Other Stock Benefit Plans."
Although the reorganization will improve Oswego County Savings' ability to raise
capital and general business flexibility those advantages will be limited by the
requirement in applicable laws and regulations that a mutual holding company
maintain at least a 51% ownership interest in its savings association
subsidiary. Those advantages are also limited by Oswego County Bancorp's
proposed offering of up to approximately 49% of its to-be-outstanding common
stock,
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<PAGE>
including the proposed issuance of shares to the Oswego County Charitable
Foundation, which will affect Oswego County Bancorp's ability to issue
additional shares of common stock in the future absent additional issuances of
stock to Oswego County MHC.
Oswego County Savings could also achieve the advantages of the
reorganization if it were to reorganize into a wholly owned subsidiary of a
stock-form holding company, known as a standard conversion, rather than as a
second-tier subsidiary of a mutual holding company. A standard conversion also
would free Oswego County Savings from the restrictions on its ability to raise
capital which result from the requirement that its mutual holding company
maintain a 51% ownership interest in Oswego County Bancorp.
FDIC and Department regulations require that a savings institution
converting to stock form in a standard conversion sell all of its
to-be-outstanding capital stock rather than a minority interest. The amount of
equity capital that would be raised in a standard conversion would be
substantially more than that which could be raised in a minority stock offering
by a subsidiary of a mutual holding company. A standard conversion would make it
more difficult for Oswego County Savings to maximize the return on its equity. A
standard conversion also would eliminate all aspects of the mutual form of
organization. Completion of the reorganization does not eliminate the
possibility of the Oswego County MHC converting from mutual to stock form in the
future. However, a standard conversion is not contemplated at this time. See
"-Oswego County MHC May Consider Converting to the Stock Form in the Future."
After considering the advantages and disadvantages of the
reorganization, as well as applicable fiduciary duties and alternative
transactions, including a reorganization into a wholly owned subsidiary of a
stock holding company rather than as a second-tier subsidiary of a mutual
holding company, the board of trustees of Oswego County Savings unanimously
determined that the reorganization is in the best interests of Oswego County
Savings and equitable to its depositors.
Effects of the Corporate Change
General. The reorganization will have no effect on Oswego County
Savings' current business of accepting deposits and investing its funds in loans
and other investments permitted by law. The reorganization will not result in
any change in the existing services provided to depositors and borrowers, or in
existing offices, management and staff. Oswego County Savings will continue to
be subject to regulation, supervision and examination by the Department and the
FDIC.
Deposits and Loans. Each holder of a deposit account in Oswego County
Savings at the time of the reorganization will continue as an account holder in
Oswego County Savings after the reorganization, and the reorganization will not
affect the deposit balance, interest rate or other terms of those accounts. Each
account will be insured by the FDIC to the same extent as before the
reorganization. Depositors in Oswego County Savings will continue to hold their
existing certificates, passbooks and other evidence of their accounts. The
reorganization will not affect the loans of any borrower from Oswego County
Savings. The amount, interest rate, maturity, security for and obligations under
each loan will remain as they existed prior to the reorganization. See "- Voting
Rights" and "- Depositor Rights If We Liquidate" below for a discussion of the
effects of the reorganization on the voting and liquidation rights of the
depositors of Oswego County Savings.
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Continuity. During the reorganization and stock offering process, the
normal business of Oswego County Savings of accepting deposits and making loans
will continue without interruption. Following completion of the reorganization
and stock offering, Oswego County Savings will continue to be subject to
regulation by the FDIC and Department, and FDIC insurance of accounts will
continue without interruption. After the reorganization and stock offering,
Oswego County Savings will continue to provide services for depositors and
borrowers under current policies and by its current management and staff.
The board of trustees currently serving Oswego County Savings will
serve as the board of directors of Oswego County Savings after the
reorganization and stock offering. The board of directors of Oswego County
Bancorp will consist of the individuals currently serving on the board of
trustees of Oswego County Savings. All current officers of Oswego County Savings
will retain their positions with Oswego County Savings after the reorganization
and stock offering.
Voting Rights. After completion of the reorganization and stock
offering, voting rights will be vested exclusively in the stockholders of Oswego
County Bancorp which, in turn, will own all of the stock of Oswego County
Savings. Each holder of common stock will be entitled to vote on any matter to
be considered by the stockholders of Oswego County Bancorp, subject to the
provisions of Oswego County Bancorp's certificate of incorporation. Depositors
in Oswego County Savings will continue to hold limited voting rights to vote on
a mutual-to-stock transaction through their interest in the Oswego County MHC.
As a New York-chartered mutual holding company, the Oswego County MHC
will have no authorized capital stock and, thus, no stockholders. The plan of
reorganization provides for the governing authority of the Oswego County MHC to
be held by the board of trustees of the Oswego County MHC. Successors to members
of the board of trustees of the MHC are elected by remaining members. As a
result, the board of trustees of the Oswego County MHC will be able to govern
the operations of the Oswego County MHC and Oswego County Bancorp,
notwithstanding objections raised by stockholders of Oswego County Bancorp.
Depositors Rights If We Liquidate. In the event of a voluntary
liquidation of Oswego County Savings prior to the reorganization, holders of
deposit accounts in Oswego County Savings would be entitled to distribution of
any assets of Oswego County Savings remaining after the satisfaction of the
claims of depositors, to the extent of their deposit balances, and all other
creditors. Following the reorganization, the holder of the common stock, which
will be Oswego County Bancorp, would be entitled to any assets remaining upon a
liquidation, dissolution or winding-up of Oswego County Savings and, except
through their liquidation interests in Oswego County MHC, discussed below,
holders of deposit accounts in Oswego County Savings would have no interest in
these assets.
In the event of a voluntary or involuntary liquidation, dissolution
or winding up of Oswego County MHC following completion of the reorganization,
holders of deposit accounts in Oswego County Savings would be entitled, pro rata
to the value of their accounts, to distribution of any assets of the Oswego
County MHC remaining after the claims of all creditors of Oswego County MHC are
satisfied. Stockholders of Oswego County Bancorp will have no liquidation or
other rights with respect to Oswego County MHC unless they are also depositors
of Oswego County Savings.
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In the event of a liquidation, dissolution or winding up of Oswego
County Bancorp, each holder of common stock would be entitled to receive, after
payment of all debts and liabilities of Oswego County Bancorp, a pro rata
portion of all assets of Oswego County Bancorp available for distribution to
holders of the common stock.
There currently are no plans to liquidate Oswego County Savings,
Oswego County Bancorp or Oswego County MHC.
Tax Effects of Our Corporate Change and Stock Offering. Oswego County
Savings has received an opinion from its special counsel, Elias, Matz, Tiernan &
Herrick L.L.P., Washington, D.C., as to the material federal income tax
consequences of the reorganization and stock offering to Oswego County Savings,
Oswego County Bancorp and Oswego County MHC, and as to the generally applicable
material federal income tax consequences of the reorganization and stock
offering to Oswego County Savings' account holders and to persons who purchase
common stock in the stock offering.
The opinion provides that, among other things:
o Oswego County Savings' adoption of a charter in stock form,
known as the bank conversion, will qualify as a tax-free
reorganization under Internal Revenue Code of 1986, as
amended, Section 368(a)(1)(F);
o no gain or loss will be recognized by Oswego County Savings
or the stock bank in the bank conversion;
o no gain or loss will be recognized by the depositors of
Oswego County Savings on the receipt of equity interests
with respect to Oswego County MHC in exchange for their
equity interests surrendered therefor;
o the receipt of stock by depositors for equity interests in
Oswego County MHC will constitute a tax-free exchange of
property solely for voting "stock" pursuant to Internal
Revenue Code Section 351;
o the transfer by Oswego County MHC of the stock bank's stock
to Oswego County Bancorp will constitute a tax-free
exchange of property solely for voting stock pursuant to
Internal Revenue Code Section 351;
o Oswego County MHC will recognize no gain or loss upon the
transfer of the stock bank stock to Oswego County Bancorp
in exchange for common stock pursuant to Internal Revenue
Code Section 351;
o Oswego County Bancorp will recognize no gain or loss upon
its receipt of stock bank stock from Oswego County MHC in
exchange for common stock;
o Oswego County Bancorp will recognize no gain or loss upon
the receipt of money in exchange for shares of common
stock;
o no gain or loss will be recognized by Oswego County
Savings' account holders upon the issuance to them of
accounts in the stock bank,
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in the same dollar amounts and on the same terms and
conditions as their accounts at Oswego County Savings
immediately prior to the reorganization and stock offering;
and
o gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the
reorganization and stock offering, but only to the extent
such subscription rights are deemed to have value, as
discussed below.
The opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based in part
upon, and subject to the continuing validity in all material respects through
the date of the reorganization and stock offering of various representations of
Oswego County Savings and upon certain assumptions and qualifications, including
that the reorganization and offering are consummated in the manner and according
to the terms provided in the plan of reorganization. The opinion is also based
upon the Internal Revenue Code, regulations now in effect or proposed, current
administrative rulings and practice and judicial authority, all of which are
subject to change and any change may be made with retroactive effect. Unlike
private letter rulings received from the IRS, an opinion is not binding upon the
IRS and there can be no assurance that the IRS will not take a position contrary
to the positions reflected in the opinion, or that the opinion will be upheld by
the courts if challenged by the IRS.
Oswego County Savings has also obtained an opinion from KPMG LLP that
the income tax effects of the reorganization and offering under New York tax
laws will be substantially the same as described above with respect to federal
income tax laws.
Oswego County Bancorp and Oswego County Savings have received a
letter from RP Financial stating its belief that the subscription rights do not
have any value, because those rights are acquired by the recipients without
cost, are nontransferable and of short duration, and afford the recipients the
right only to purchase the common stock at a price equal to its estimated fair
market value, which will be the same price as the purchase price for the
unsubscribed shares of common stock. If the subscription rights granted to
eligible subscribers are deemed to have an ascertainable value, receipt of those
rights would be taxable probably only to those eligible subscribers who exercise
the subscription rights, either as a capital gain or ordinary income, in an
amount equal to that value. Eligible subscribers are encouraged to consult with
their own tax advisor as to the tax consequences in the event that such
subscription rights are deemed to have an ascertainable value. Unlike private
rulings, the letter of RP Financial is not binding on the IRS, and the IRS could
disagree with conclusions reached in the letter. In the event of any
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Oswego County Charitable Foundation
General. To continue Oswego County Savings' commitment to the
communities that it serves, the plan of reorganization provides that Oswego
County Savings and Oswego County Bancorp will establish the Foundation, which
will be incorporated under Delaware law as a non-stock corporation. The
foundation will be funded with common stock of Oswego County Bancorp. By
increasing Oswego County Savings' visibility and reputation in the communities
that it serves, Oswego County Savings believes that the foundation will enhance
the long-term value of Oswego County Savings' community banking franchise. The
foundation will be
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dedicated to charitable purposes within the communities served by Oswego County
Savings, including community development activities.
Purpose of the Foundation. The purpose of the foundation is to
provide funding to support charitable causes and community development
activities. Traditionally, Oswego County Savings has emphasized community
lending and community development activities within the communities that it
serves. The foundation is being formed as a complement to Oswego County
Saving's existing community activities. While Oswego County Savings intends to
continue to emphasize community lending and community development activities
following the reorganization, such activities are not Oswego County Savings'
sole corporate purpose. The Oswego County Charitable Foundation, conversely,
will be completely dedicated to community activities and the promotion of
charitable causes, and may be able to support such activities in ways that are
not currently available to Oswego County Savings. Oswego County Savings believes
that the foundation will enable Oswego County Bancorp and Oswego County Savings
to assist their local community in areas beyond community development and
lending. Oswego County Savings believes the establishment of the foundation will
increase its activities in the affordable housing area.
The board of directors believes the establishment of a charitable
foundation is consistent with Oswego County Savings' commitment to community
service. The board further believes that the funding of the foundation with
common stock of Oswego County Bancorp is a means of enabling the communities
served by Oswego County Savings to share in the growth and success of Oswego
County Bancorp long after completion of the reorganization and stock offering.
The foundation will accomplish that goal by providing for continued ties between
the foundation and Oswego County Savings, forming a partnership with Oswego
County Savings's community. The establishment of the foundation also will enable
Oswego County Bancorp and Oswego County Savings to develop a unified charitable
donation strategy. Oswego County Savings, however, does not expect the
contribution to the foundation to take the place of its traditional community
lending activities. In this respect, Oswego County Savings may continue to make
contributions to other charitable organizations and/or it may make additional
contributions to the foundation.
Structure of the Foundation. Under Oswego County Charitable
Foundation's bylaws, the foundation's initial board of directors will be
comprised of [ ] members of Oswego County Bancorp's and Oswego County Savings'
boards of directors (Messrs. ______ and _______) and ____ other individuals
chosen based on their commitment and service to charitable and community
purposes. The other persons expected to serve as directors of the foundation are
________________. None of these persons is affiliated with Oswego County Bancorp
or Oswego County Savings. There are no plans to change the size of the
foundation's board of directors during the one-year period after the completion
of the reorganization. Oswego County Savings currently intends that less than a
majority of Oswego County Savings's directors also will serve as directors of
the foundation.
A nominating committee of the foundation's board will nominate
individuals eligible for election to the board of directors. The members of the
foundation, who are comprised of its board members, will elect the directors
from those nominated by the nominating committee. Directors will be divided into
three classes with each class appointed for three-year terms. It is not
anticipated that the members of Oswego County Bancorp's and Oswego County
Savings' boards of directors who also serve as a director of the foundation will
receive any additional compensation for serving as a director of the foundation.
No determination has been made
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whether the other foundation directors will receive any compensation. The
certificate of incorporation of the 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. The foundation's
certificate of incorporation also provides that no part of the net earnings of
the foundation will inure to the benefit of, or be distributable to its
directors, officers or members. No award, grant or distribution will be made
by the foundation to any director, officer or employee of Oswego County Bancorp
or Oswego County Savings or to any of their affiliates. In addition, any of
those persons, to the extent that they serve as an officer, director or employee
of the foundation will be subject to the conflict of interest rules of the FDIC
and the Department.
The authority for the affairs of the foundation will be vested in the
board of directors of the foundation. The foundation directors will be
responsible for establishing the policies of the foundation with respect to
grants or donations by the foundation, consistent with the purposes of the
foundation. Although no formal policy governing foundation grants exists at this
time, the foundation's board of directors will adopt a policy upon establishment
of the foundation. As directors of a nonprofit corporation, directors of the
foundation will at all times be bound by their fiduciary duty to advance the
foundation's charitable goals, to protect the assets of the foundation and to
act in a manner consistent with its charitable purpose. The directors of the
foundation will also be responsible for directing the activities of the
foundation, including the management of the common stock of Oswego County
Bancorp held by the foundation. However, it is expected that as a condition to
receiving the approval of the Department and the nonobjection of the FDIC to the
Oswego County Savings' reorganization and stock offering, that the foundation
will be required to commit to the Department and the FDIC that all shares of
common stock held by the foundation will be voted in the same ratio as all other
shares of Oswego County Bancorp's common stock, other than shares held by Oswego
County MHC, on all proposals considered by stockholders. However, the Department
and the FDIC would waive this voting restriction under certain circumstances.
The foundation's place of business is expected to be located at
Oswego County Savings' administrative offices. Initially, the foundation is
expected to have no separate employees but will utilize the staff of Oswego
County Savings and may pay Oswego County Savings for the value of these
services. The board of directors of the foundation will appoint such officers as
may be necessary to manage the operations of the foundation. In this regard, it
is expected that Oswego County Savings will be required to provide the FDIC with
a commitment that, to the extent applicable, Oswego County Savings will comply
with the affiliate restrictions set forth in Sections 23A and 23B of the Federal
Reserve Act with respect to any transactions between Oswego County Savings and
the foundation.
Oswego County Bancorp intends to capitalize Oswego County Charitable
Foundation with the number of shares equal to 4.0 % of the shares of common
stock of Oswego County Bancorp sold in the stock offering which would have a
market value of $_______ to $_______ ($_______ at the maximum, as adjusted),
based on the purchase price of $10.00 per share. Messrs. ___________, who will
serve as initial directors of the foundation, and their affiliates, intend to
purchase, subject to availability, an aggregate of ______ shares of common
stock. No other director of the foundation expects to purchase any shares of
common stock. The shares of common stock to be acquired by the foundation, when
combined with the proposed purchases of shares of common stock by Messrs.
__________ and their affiliates will total _____
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shares or ____% of the total number of shares of common stock to be issued and
outstanding (assuming the sale of ______ shares of common stock).
Oswego County Charitable Foundation will receive working capital from
any dividends that may be paid on the common stock, and subject to applicable
federal and state laws, loans collateralized by the common stock or from the
proceeds of the sale of any of the common stock in the open market from time to
time as may be permitted to provide the foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Internal Revenue Code, the
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 Oswego County Bancorp
is that the amount of common stock that may be sold by the foundation in any one
year shall not exceed 5% of the average market value of the assets held by the
foundation, except where the board of directors of the 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 foundation's assets
and as such would jeopardize the foundation's capacity to carry out its
charitable purposes. Failure to distribute this minimum return will require the
payment of substantial federal taxes. Upon completion of the reorganization and
the stock offering and the contribution of shares of common stock to the
foundation, Oswego County Bancorp would have 995,520, 1,171,200, 1,346,880, and
1,548,912 shares issued and outstanding based on the minimum, midpoint and
maximum of the estimated offering range. Because Oswego County Bancorp will have
an increased number of shares outstanding, the voting and ownership interests of
minority stockholders in Oswego County Bancorp's common stock would be diluted
to 45.3% as compared to a 47.1% interest in Oswego County Bancorp if the
foundation was not established. For additional discussion of the dilutive
effect, see "Pro Forma Data."
Tax Considerations. Oswego County Bancorp and Oswego County Savings
have been advised by their outside tax advisors that an organization created and
operated for the above charitable purposes would generally qualify as a Section
501(c)(3) exempt organization under the Internal Revenue Code, and that this
type of an organization would likely be classified as a private foundation as
determined in Section 501 of the Internal Revenue Code. The foundation will
submit a timely request to the IRS to be recognized as an exempt organization.
As long as the foundation files its application for recognition of tax-exempt
status within 15 months from the date of its organization, and provided the IRS
approves the application, the effective date of the foundation's status as a
Section 501(c)(3) organization will be the date of its organization. Oswego
County Bancorp's and Oswego County Savings' outside tax advisor, however, has
not rendered any advice on the regulatory condition to the contribution which is
expected to require that all shares of common stock of Oswego County Bancorp
held by the foundation must be voted in the same ratio as all other outstanding
shares of common stock of Oswego County Bancorp, other than shares held by
Oswego County MHC, on all proposals considered by stockholders of Oswego County
Bancorp. Consistent with the expected condition, in the event that Oswego County
Bancorp or the foundation receives an opinion of its legal counsel that
compliance with this voting restriction would have the effect of causing the
foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the foundation, or subject the foundation to an
excise tax under Section 4941 of the Internal Revenue Code, it is expected that
the FDIC and the [Superintendent] would waive such voting restriction upon
submission of a legal opinion(s) by Oswego County Bancorp or the foundation
satisfactory to them. See "- Regulatory Conditions Imposed on the Foundation."
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Under Delaware law, Oswego County Bancorp is authorized by statute to
make charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Internal Revenue Code, Oswego County Bancorp
is generally allowed a deduction for charitable contributions made to qualifying
donees within the taxable year of up to 10% of its taxable income of the
consolidated group of corporations (with certain modifications) for that year.
Charitable contributions made by Oswego County Bancorp in excess of the annual
deductible amount will be deductible over each of the five succeeding taxable
years, subject to certain limitations. Oswego County Bancorp and Oswego County
Savings believe that the reorganization presents a unique opportunity to
establish and fund a charitable foundation given the substantial amount of
additional capital being raised in the reorganization. In making such a
determination, Oswego County Bancorp and Oswego County Savings considered the
dilutive impact of the contribution of common stock to the foundation on the
amount of common stock available to be offered for sale in the stock offering.
Based on such consideration, Oswego County Bancorp and Oswego County Savings
believe that the contribution to the foundation in excess of the 10% annual
deduction limitation is justified given Oswego County Savings' capital position
and its earnings, the substantial additional capital being raised in the stock
offering and the potential benefits of the foundation to the communities served
by Oswego County Savings. In this regard, assuming the sale of shares at the
maximum of the estimated offering range, Oswego County Bancorp would have pro
forma stockholders' equity of $_____ million or ___% of pro forma consolidated
assets and Oswego County Saving's pro forma tangible, core and total risk-based
capital ratios would be __%, __% and __%, respectively. See "Oswego County
Savings Regulatory Capital Requirements," "Capitalization," "Comparison of
Valuation and Pro Forma Information with No Foundation" and "Pro Forma Data."
Oswego County Bancorp and Oswego County Savings believe that the amount of the
charitable contribution is reasonable given Oswego County Bancorp's and Oswego
County Saving's pro forma capital positions. As such, Oswego County Bancorp and
Oswego County Savings believe that the contribution does not raise safety and
soundness concerns.
Oswego County Bancorp and Oswego County Savings have received an
opinion of their outside tax advisors that Oswego County Bancorp's contribution
of its own stock to the foundation should not constitute an act of self-dealing.
Oswego County Bancorp should also, more likely than not 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 foundation is required to pay
to Oswego County Bancorp for such stock, subject to the annual deduction
limitation described above. Oswego County Bancorp, however, would be able to
carry forward any unused portion of the deduction for five years following the
contribution, subject to certain limitations. Oswego County Bancorp's and Oswego
County Savings' outside tax advisors, however, have not rendered advice as to
fair market value for purposes of determining the amount of the tax deduction.
If the foundation would have been established in fiscal 1998, Oswego County
Bancorp would have received a federal tax benefit of approximately $_____ based
on an assumed tax rate of 40.0% and a deduction for the contribution of common
stock equal to $_____ or 10% of current federal taxable income for the year .
Assuming the close of the Offerings at the maximum of the estimated price range,
Oswego County Bancorp estimates that all of the contribution should be
deductible over the six-year period. Oswego County Bancorp and/or Oswego County
Savings may make further contributions to the foundation following the initial
contribution. In addition, Oswego County Savings and Oswego County Bancorp also
may continue to make charitable contributions to other qualifying
organizations. Any of
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these future contributions would be based on an assessment of, among other
factors, the financial condition of Oswego County Bancorp and Oswego County
Savings at that time, the interests of stockholders and depositors of Oswego
County Bancorp and Oswego County Savings, and the financial condition and
operations of the foundation.
Although Oswego County Bancorp and Oswego County Savings have
received an opinion of their outside tax advisors that Oswego County Bancorp
will more likely than not be entitled to a deduction for the charitable
contribution, there can be no assurances that the IRS will recognize the
foundation as a Section 501(c)(3) exempt organization or that a deduction for
the charitable contribution will be allowed. In either case, Oswego County
Bancorp's contribution to the foundation would be expensed without tax benefit,
resulting in a reduction in earnings in the year in which the IRS makes the
determination. [Cross references deleted]
As a private 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 foundation will generally be subject
to a federal excise tax of 2.0%. The foundation will be required to make an
annual filing with the IRS within four and one-half months after the close of
the foundation's fiscal year. The foundation also 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 the public notice. The
information return for a private 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 foundation's
managers and a concise statement of the purpose of each grant. Numerous other
restrictions exist in the operation of the foundation including transactions
with related entities, level of investment and distributions for charitable
purposes.
Regulatory Conditions Imposed on the Foundation. Establishment of
Oswego County Foundation is expected to be subject to the following conditions
being agreed to in writing by the foundation as a condition to receiving the
FDIC's nonobjection and the Superintendent's approval of the reorganization:
(1) the foundation will be subject to examination by the FDIC
and the Department;
(2) the foundation must comply with supervisory directives
imposed by the FDIC and the Department;
(3) the foundation will operate in accordance with written
policies adopted by its board of directors, including a
conflict of interest policy; and
(4) any shares of common stock held by the foundation must be
voted in the same ratio as all other shares of common
stock, other than shares held by Oswego County MHC, voting
on all proposals considered by stockholders of Oswego
County Bancorp; provided, however, that, consistent with
the condition, the FDIC and the Department would waive this
voting restriction under certain circumstances and subject
to certain conditions if compliance with the voting
restriction would:
o cause a violation of the law of the State of
Delaware;
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o would cause the foundation to lose its
tax-exempt status or otherwise have a material
and adverse tax consequence on the foundation;
or
o would cause the foundation to be subject to an
excise tax under Section 4941 of the Internal
Revenue Code.
In order to obtain a waiver, Oswego County Bancorp's or the
foundation's legal counsel would be required to render an opinion satisfactory
to the FDIC and the Department. While there is no current intention for Oswego
County Bancorp or the foundation to seek a waiver from the FDIC and the
Department from these restrictions, 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 an unconditional waiver of the voting
restriction. If the voting restriction is waived or becomes unenforceable, the
FDIC and the Department may either impose a condition that provides a certain
portion of the members of the foundation's board of directors shall be persons
who are not directors, officers or employees of Oswego County Bancorp, Oswego
County Savings or any affiliate or impose other conditions relating to control
of the foundation's common stock as is determined by the FDIC or the Department
to be appropriate at the time. In no event would the voting restriction survive
the sale of shares of the common stock held by the foundation.
How We Determined Our Price and Number of Shares to be Issued in the Stock
Offering
The plan of reorganization requires that the purchase price of the
common stock must be based on the appraised pro forma market value of Oswego
County Bancorp and Oswego County Savings, as determined on the basis of an
independent valuation. Oswego County Savings has retained RP Financial to make
this valuation. For its services in making the appraisal, RP Financial's fees
and out-of-pocket expenses are estimated to be $42,500. Oswego County Savings
has agreed to indemnify RP Financial and any employees of RP Financial who act
for or on behalf of RP Financial in connection with the appraisal against any
and all loss, cost, damage, claim, liability or expense of any kind, including
claims under federal and state securities laws, arising out of any misstatement
or untrue statement of a material fact or an omission to state a material fact
in the information supplied by Oswego County Savings to RP Financial, unless RP
Financial is determined to be negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon the
information contained in this prospectus, including the financial statements. RP
Financial also considered the following factors, among others:
o the present and projected operating results and financial
condition of Oswego County Bancorp and Oswego County
Savings and the economic and demographic conditions in
Oswego County Saving's existing marketing area;
o certain historical, financial and other information
relating to Oswego County Savings;
o a comparative evaluation of the operating and financial
statistics of Oswego County Savings with those of other
similarly situated publicly traded mutual holding companies
located in New York and the Northeast region;
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o the aggregate size of the stock offering;
o the impact of the reorganization and stock offering on
Oswego County Savings' net worth and earnings potential;
o the proposed dividend policy of Oswego County Bancorp and
Oswego County Savings; and
o the trading market for securities of comparable
institutions and general conditions in the market for such
securities.
In its review of the appraisal provided by RP Financial, the board of
trustees reviewed the methodologies and the appropriateness of the assumptions
used by RP Financial in addition to the factors enumerated above, and the board
of trustees believes that such assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised Oswego County
Bancorp and Oswego County Savings that in its opinion, dated March 5, 1999, the
estimated pro forma market value of the common stock on a fully converted basis,
assuming a contribution to a charitable foundation in an amount equal to 4.0% of
the shares sold, ranged from a minimum of $10.1 million to a maximum of $13.8
million with a midpoint of $12.0 million. The board of trustees of Oswego County
Savings determined that the common stock should be sold at $10.00 per share and
that 46.1% of the to-be-outstanding shares, prior to the contribution to the
foundation, should be offered to minority stockholders. Based on the estimated
valuation range and the purchase price, the number of shares of common stock
that Oswego County Bancorp will issue will range from between 450,500 shares to
609,500 with a midpoint of 530,000 shares. The anticipated issuance to the
foundation of a number of shares equal to 4% of the shares of common stock sold
in the stock offering will result in shareholders other than Oswego County MHC
and the foundation owning 47.1% of the shares of the common stock outstanding at
the conclusion of the reorganization and stock offering. The remaining shares of
Oswego County Bancorp's common stock that are not sold in the stock offering or
contributed to the foundation will be issued to Oswego County MHC. The estimated
valuation range may be amended with the approval of the FDIC and Superintendent,
if required, or if necessitated by subsequent developments in the financial
condition of Oswego County Bancorp and Oswego County Savings or market
conditions generally. In the event the estimated valuation range is updated to
amend the value of the common stock below $10.1 million or above $15.8 million,
which is the maximum of the estimated valuation range, as adjusted by 15%, the
new appraisal will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent
practices and policies of the FDIC and the Department, in the event Oswego
County Bancorp receives orders for common stock in excess of $___ million (the
maximum of the estimated offering range) and up to $___ million (the maximum of
the estimated offering range, as adjusted by 15%), Oswego County Bancorp may be
required by the FDIC and Department to accept all such orders. No assurances,
however, can be made that Oswego County Bancorp will receive orders for common
stock in excess of the maximum of the estimated offering range or that, if such
orders are received, that all such orders will be accepted because Oswego County
Bancorp's final valuation and number of
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shares to be issued are subject to the receipt of an updated appraisal from RP
Financial which reflects such an increase in the valuation and the approval of
such increase by the FDIC and Department. There is no obligation or
understanding on the part of management to take and/or pay for any shares in
order to complete the reorganization and stock offering.
RP Financial's valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing the shares.
RP Financial did not independently verify the financial statements and other
information provided by Oswego County Savings, nor did RP Financial value
independently the assets or liabilities of Oswego County Savings. The valuation
considers Oswego County Savings as a going concern and should not be considered
as an indication of the liquidation value of Oswego County Savings. Moreover,
because the 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 common stock in the stock
offering will thereafter be able to sell those shares at prices at or above the
purchase price or in the range of the valuation described above.
Prior to completion of the reorganization and stock offering, the
maximum of the estimated offering range may be increased up to 15% and the
number of shares of common stock may be increased to up to 700,925 shares to
reflect changes in market and financial conditions, without the resolicitation
of subscribers. See "- Limitations on Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the estimated offering range to fill unfilled orders in the
Subscription Offering.
No sale of shares of common stock in the reorganization and stock
offering may be consummated unless prior to such consummation RP Financial
confirms to Oswego County Savings, the FDIC and the Superintendent that nothing
of a material nature has occurred which, taking into account all relevant
factors, would cause it to conclude that the aggregate value of the common stock
to be issued is materially incompatible with the estimate of the aggregate
consolidated pro forma market value of Oswego County Bancorp and Oswego County
Savings. If this confirmation is not received, Oswego County Bancorp may cancel
the offerings, extend the offerings and establish a new estimated offering
range, extend, reopen or hold a new offering or take any other action the FDIC
and Superintendent may permit or require.
Depending upon market or financial conditions following the
commencement of the subscription offering, the total number of shares of common
stock may be increased or decreased without a resolicitation of subscribers,
provided that the product of the total number of shares times the purchase price
is not below the minimum or more than 15% above the maximum of the estimated
offering range. In the event market or financial conditions change so as to
cause the aggregate purchase price of the shares to be below the minimum of the
estimated offering range or more than 15% above the maximum of the range,
purchasers will be resolicited and be permitted to continue their orders, in
which case they will need to reconfirm their subscriptions prior to 20 days
before the end of the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest at Oswego County
Savings' passbook rate of interest, or be permitted to modify or rescind their
subscriptions. Any change in the estimated offering range must be approved by
the FDIC the Superintendent. If the number of shares of common stock issued in
the reorganization is increased due to an increase of up to 15% in the estimated
offering range to reflect changes in market or financial conditions, persons who
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subscribed for the maximum number of shares will be given the opportunity to
subscribe for the adjusted maximum number of shares. See "- Limitations on Stock
Purchases."
An increase in the number of shares of common stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and Oswego County Bancorp's pro forma net income
and stockholders' equity on a per share basis while increasing pro forma net
income and stockholders' equity on an aggregate basis. A decrease in the number
of shares of common stock would increase both a subscriber's ownership interest
and Oswego County Bancorp's pro forma net income and stockholders' equity on a
per share basis while decreasing pro forma net income and stockholders' equity
on an aggregate basis. See "Risk Factors - We intend to grant stock options and
restricted stock to the board and management following the change in structure
and stock offering which could further reduce your voting interest" and "Pro
Forma Data."
Copies of the appraisal report of RP Financial, including any
amendments, and the detailed report of the appraiser setting forth the method
and assumptions for the appraisal are available for inspection at each office
of Oswego County Savings and the other locations specified under "Additional
Information."
Subscription Offering and Subscription Rights
In accordance with the plan of reorganization, rights to subscribe
for the purchase of common stock have been granted to the following persons in
the following order of descending priority:
o depositors of Oswego County Savings with accounts of at
least $100 as of the close of business on September 30,
1997,
o tax-qualified employee stock benefit plans,
o depositors of Oswego County Savings with accounts of at
least $100 as of close of business on March 31, 1999, and
o trustees officers and employees of Oswego County Savings.
All subscriptions received will be subject to the availability of
common stock after satisfaction of all subscriptions of all persons having prior
rights in the subscription offering and to the maximum and minimum purchase
limitations set forth in the plan of reorganization and as described below under
"- Limitations on Stock Purchases."
Preference Category No. 1: Eligible Account Holders. Each Eligible
Account Holder shall receive, without payment, first priority, nontransferable
subscription rights to subscribe for shares of common stock in an amount equal
to the greater of:
(1) $150,000 or 15,000 shares of common stock;
(2) one-tenth of one percent of the total offering of shares of
common stock; or
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(3) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares
of common stock to be issued by a fraction, of which the
numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator of which is the
total amount of qualifying deposits of all Eligible Account
Holders, in each case as of the close of business on
September 30, 1997 (the "Eligibility Record Date"), subject
to the overall purchase limitations. See "- Limitations on
Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing Eligible Account
Holders so as to permit each subscribing Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares. After
each subscribing Eligible Account Holder has been allocated the lesser of the
number of shares subscribed for or 100 shares, the remaining shares will be
allocated among the subscribing Eligible Account Holders whose subscriptions
remain unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all subscribing
Eligible Account Holders whose subscriptions remain unfilled, provided that no
fractional shares shall be issued.
To ensure proper allocation of stock, each Eligible Account Holder
must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in fewer shares
being allocated than if all accounts had been disclosed. The subscription rights
of Eligible Account Holders who are also trustees or officers of Oswego County
Savings or their associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to increased deposits
in the year preceding September 30, 1997.
Preference Category No. 2: Tax-Qualified Employee Stock Benefit
Plans: Each tax-qualified employee stock benefit plan, including the employee
stock ownership plan, shall receive, without payment, second priority,
nontransferable subscription rights to purchase, in the aggregate, up to 10% of
the common stock, including any increase in the number of shares of common stock
after the date hereof as a result of an increase of up to 15% in the maximum of
the estimated offering range. The ESOP intends to purchase 8% of the shares of
common stock sold in the stock offering, or 36,040 shares and 48,760 shares
based on the minimum and maximum of the estimated offering range, respectively.
Subscriptions by the ESOP will not be aggregated with shares of common stock
purchased directly by or which are otherwise attributable to any other
participants in the Subscription and Community Offerings, including
subscriptions of any of Oswego County Savings' directors, officers, employees or
their associates. See "Management - Benefits - Employee Stock Ownership Plan."
Preference Category No. 3: Supplemental Eligible Account Holders. To
the extent that there are sufficient shares remaining after satisfaction of
subscriptions by Eligible Account Holders and the Tax-Qualified Employee Stock
Benefit Plans, each Supplemental Eligible Account Holder will receive, without
payment therefor, third priority, nontransferable subscription rights to
subscribe for in the Subscription Offering up to the greater of:
(1) $150,000 or 15,000 shares of common stock;
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(2) one-tenth of one percent of the total offering of shares of
common stock; or
(3) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares
of common stock to be issued by a fraction, of which the
numerator is the amount of qualifying deposit of the
Supplemental Eligible Account Holder and the denominator of
which is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders, in each case as of
the close of business on March 31, 1999 (the "Supplemental
Eligibility Record Date"), subject to the overall purchase
limitations. See "- Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders, available shares
first will be allocated among subscribing Supplemental Eligible Account Holders
so as to permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining available will be allocated among the
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled, provided that no fractional
shares shall be issued.
Preference Category No. 4: Trustees, Officers and Employees. To the
extent that there are sufficient shares remaining after satisfaction of all
subscriptions by Eligible Account Holders, the ESOP and Supplemental Eligible
Account Holders, then trustees, officers and employees of Oswego County Savings
will receive, without payment, fourth priority, nontransferable subscription
rights to subscribe for, in this category, an aggregate of up to 15% of the
shares of common stock offered in the Subscription Offering. The ability of
trustees, officers and employees to purchase common stock under this category is
in addition to rights which are otherwise available to them under the plan of
reorganization as they may fall within higher priority categories, and the plan
of reorganization generally allows such persons to purchase in the aggregate up
to 24% of common stock sold in the stock offering. See "- Limitations on Stock
Purchases."
In the event of an over subscription in this category, subscription
rights will be allocated among the individual trustees, officers and employees
on a point system basis, whereby such individuals will receive subscription
rights in the proportion that the number of points assigned to each of them
bears to the total points assigned to all trustees, officers and employees,
provided that no fractional shares shall be issued. One point will be assigned
for each year of service with Oswego County Savings, one point for each salary
increment of $5,000 per annum and five points for each office presently held in
Oswego County Savings, including trusteeships. For information as to the number
of shares proposed to be purchased by certain of the trustees, directors and
officers, see "Proposed Management Purchases."
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00, noon, Oswego, New York Time, on June __, 1999
(the "Subscription Expiration Date"), unless extended for up to 45 days or for
such additional periods by Oswego County Bancorp and Oswego County Savings as
may be approved by the FDIC and the Superintendent. The
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Subscription Offering may not be extended beyond _________, 2001. Subscription
rights which have not been exercised prior to the Subscription Expiration Date
(unless extended) will become void.
Oswego County Bancorp and Oswego County Savings will not execute
orders until at least the minimum number of shares of common stock (450,500
shares) have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Subscription Expiration Date,
unless such period is extended with the consent of the FDIC and the
Superintendent, all funds delivered to Oswego County Savings pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be canceled. If an extension beyond the
45-day period following the Subscription Expiration Date is granted, Oswego
County Bancorp and Oswego County Savings will notify subscribers of the
extension of time and of any rights of subscribers to modify or rescind their
subscriptions.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and
trustees, officers and employees of Oswego County Savings, we anticipate that we
will offer shares pursuant to the plan of reorganization to certain members of
the general public, with preference given to natural persons residing in Oswego
County, New York. These natural persons are referred to as preferred
subscribers. Persons, together with associates of and persons acting in concert
these such persons, may purchase up to the greater of (1) $150,000 or 15,000
shares of common stock, or (2) one-tenth of one percent (0.10%) of the total
offering of shares of common stock, subject to the maximum purchase limitations.
See "- Limitations on Stock Purchases." This amount may be increased at the sole
discretion of Oswego County Savings up to 5%, provided that any such increased
amount may not exceed the maximum purchase limit provided to subscribers in the
Subscription Offering. See "- Limitations on Stock Purchases." The opportunity
to subscribe for shares of common stock in any Community Offering category will
be subject to the right of Oswego County Bancorp and Oswego County Savings, in
their sole discretion, to accept or reject any orders made in the Community
Offering in whole or in part either at the time of receipt of an order or as
soon as practicable following the Expiration Date. The Community Offering may be
commenced concurrent with, during or promptly after the Subscription Offering.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Community Offering, available
stock will be allocated first to each Preferred Subscriber whose order is
accepted by Oswego County Bancorp, in an amount equal to the lesser of 100
shares or the number of shares subscribed for by each such Preferred Subscriber,
if possible. Thereafter, unallocated shares will be allocated among the
Preferred Subscribers whose accepted orders remain unsatisfied on an equal
number of shares basis per order until all orders have been filled or the
remaining shares have been allocated, provided that no fractional shares shall
be issued.
Orders for common stock in the Community Offering will first be
filled to a maximum of 2% of the total number of shares of common stock sold in
the stock offering and thereafter any
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remaining shares shall be allocated on an equal number of shares basis per order
until all orders have been filled. If there are any shares remaining, shares
will be allocated to other members of the general public who subscribe in the
Community Offering applying the same allocation described above for Preferred
Subscribers.
Syndicated Community Offering
As a final step in the stock offering, the plan of reorganization
provides that, if feasible, all shares of common stock not purchased in the
Subscription and Community Offerings may be offered for sale to the general
public through a syndicate of registered broker-dealers known as selected
dealers. We call this the syndicated community offering. Oswego County Savings
expects to market any shares which remain unsubscribed after the Subscription
and Community Offerings through the Syndicated Community Offering. The Oswego
County Bancorp and Oswego County Savings have the right to reject orders in
whole or part in their sole discretion in the Syndicated Community Offering.
Neither Friedman Billings nor any registered broker-dealer shall have any
obligation to take or purchase any shares of common stock in the Syndicated
Community Offering; however, Friedman Billings has agreed to use its best
efforts in the sale of shares in the Syndicated Community Offering.
The price at which common stock is sold in the Syndicated Community
Offering will be the same price at which shares are offered and sold in the
Subscription and Community Offerings. No person will be permitted to subscribe
in the Syndicated Community Offering for more than $150,000 or 15,000 shares of
common stock, subject to the maximum purchase limitations. See "- Limitations on
Stock Purchases." This amount may be increased to up to 5% of the total offering
of shares in the [Subscription] Offering, provided that orders for common stock
in the Syndicated Community Offering will first be filled to a maximum of 2% of
the total number of shares of common stock sold in the stock offering.
Thereafter, any remaining shares will be allocated on an equal number of shares
basis per order until all orders have been filled.
Friedman Billings may enter into agreements with the selected
dealers, to assist in the sale of the shares in the Syndicated Community
Offering, although no such agreements exist as of the date of this prospectus.
No orders may be placed or filled by or for a selected dealer during the
Subscription Offering. After the close of the Subscription Offering, Friedman
Billings will instruct selected dealers as to the number of shares to be
allocated to each selected dealer. Only after the close of the Subscription
Offering and upon allocation of shares to selected dealers may selected dealers
take orders from their customers. During the Subscription and Community
Offerings, selected dealers may only solicit indications of interest from their
customers to place orders with Oswego County Bancorp on the date set as the
order date for the purchase of shares of common stock. When, and if, Friedman
Billings and Oswego County Savings believe that enough indications of interest
and orders have not been received in the Subscription and Community Offerings to
complete the reorganization and stock offering, Friedman Billings will request,
as of the order date, selected dealers to submit orders to purchase shares for
which they have previously received indications of interest from their
customers. Selected dealers will send confirmations of the orders to those
customers on the next business day after the order date. Selected dealers will
debit the accounts of their customers on the settlement date, which will be
three business days from the order date. Customers who authorize selected
dealers to debit their brokerage accounts are required to have the funds for
payment in their account on but not before the settlement date. On the
settlement date, selected dealers will remit funds to the account
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established by Oswego County Savings for each selected dealer. Each customer's
funds forwarded to Oswego County Savings, along with all other accounts held in
the same title, will be insured by the FDIC up to $100,000 in accordance with
applicable FDIC regulations. After payment has been received by Oswego County
Savings from selected dealers, funds will earn interest at Oswego County
Savings' passbook rate until the consummation or termination of the
reorganization and stock offering. Funds will be promptly returned, with
interest, in the event the reorganization and stock offering is not completed as
described above.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by Oswego County
Savings with the approval of the FDIC and the Superintendent. See "- How We
Determine Our Price and Number of Shares to be Issued in the Stock Offering"
above for a discussion of rights of subscribers, if any, in the event an
extension is granted.
Persons in Nonqualified States or Foreign Countries
Oswego County Savings will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons reside who
are entitled to subscribe for stock pursuant to the plan of reorganization.
However, the plan of reorganization does not provide for the common stock to be
offered or sold to any person who resides in a foreign country.
Limitations on Stock Purchases
The plan of reorganization includes the following limitations on the
number of shares of common stock which may be purchased in the stock offering:
(1) No fewer than 25 shares of common stock may be
purchased, to the extent shares are available;
(2) Each Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of:
(a) $150,000 or 15,000 shares of common
stock;
(b) one-tenth of one percent of the total
offering of shares of common stock; or
(c) 15 times the product (rounded down to
the next whole number) obtained by
multiplying the total number of shares
of common stock to be issued by a
fraction, of which the numerator is
the amount of the qualifying deposit
of the Eligible Account Holder and the
denominator is the total amount of
qualifying deposits of all Eligible
Account Holders, in each case as of
the close of business on the
Eligibility Record Date, subject to
the overall limitation in clause (7)
below;
(3) The Tax-Qualified Employee Stock Benefit Plans,
including the employee stock ownership plan, may purchase in the
aggregate up to 10% of the shares of common stock sold in the stock
offering, including any additional shares issued in the event of an
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increase in the estimated offering range; although at this time the
employee stock ownership plan intends to purchase only 8% of those
shares;
(4) Each Supplemental Eligible Account Holder may subscribe
for and purchase in the Subscription Offering up to the greater of:
(a) $150,000 or 15,000 shares of common
stock;
(b) one-tenth of one percent of the total
offering of shares of common stock; or
(c) 15 times the product (rounded down to
the next whole number) obtained by
multiplying the total number of shares
of common stock to be issued by a
fraction, of which the numerator is
the amount of the qualifying deposit
of the Supplemental Eligible Account
Holder and the denominator is the
total amount of qualifying deposits of
all Supplemental Eligible Account
Holders, in each case as of the close
of business on the Supplemental
Eligibility Record Date, subject to
the overall limitation in clause (7)
below;
(5) Any Person purchasing shares of common stock in the
Community Offering may purchase in the Community Offering up to the
greater of:
(a) $150,000 or15,000 shares of common
stock; or
(b) one-tenth of one percent of the total
offering of shares of common stock,
subject to the overall limitation in
clause (7) below;
(6) Any person purchasing shares of common stock in the
Syndicated Community Offering may purchase in the Syndicated
Community Offering up to $150,000 or 15,000 shares of common stock,
subject to the overall limitation in clause (7) below;
(7) Except for the Tax-Qualified Employee Stock Benefit
Plans and certain Eligible Account Holders and Supplemental Eligible
Account Holders whose subscription rights are based upon the amount
of their deposits, the maximum number of shares of common stock
subscribed for or purchased in all categories of the stock offering
by any person, together with associates of and groups of persons
acting in concert with such persons, shall not exceed 5% of common
stock sold in stock offering; and
(8) No more than 24% of the total number of shares offered
for sale in the stock offering may be purchased by trustees and
officers of Oswego County Savings. No more than 34% of the total
number of shares offered for sale in the stock offering may be
purchased by directors and officers of Oswego County Savings and
their associates in the aggregate.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the depositors
of Oswego County Savings, the
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individual amount permitted to be subscribed for may be increased up to a
maximum of 5% of the number of shares sold in the stock offering. If such amount
is increased, subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of Oswego County Savings may be, given
the opportunity to increase their subscriptions up to the then applicable limit.
The term "associate" of a person is defined to mean:
o any corporation or other organization (other than Oswego
County Bancorp, Oswego County MHC and Oswego County Savings
or a majority-owned subsidiary of the Oswego County
Savings) 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
o 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,
provided, however, that such term shall not include any
tax-qualified employee stock benefit plan of Oswego County
Bancorp and Oswego County Savings in which such person has
a substantial beneficial interest or serves as a trustee or
in a similar fiduciary capacity
o any relative or spouse of such person, or any relative of
such spouse, who either has the same home as such person or
who is a director or officer of Oswego County Savings or
any of their subsidiaries.
The term "acting in concert" is defined to mean (1) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement, or (2) a
combination or pooling of voting 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.
Oswego County Savings may presume that certain persons are acting in concert
based upon, among other things, joint account relationships and the fact that
such persons have filed joint Schedules 13D with the SEC with respect to other
companies.
Marketing Arrangements
Oswego County Bancorp and Oswego County Savings have retained
Friedman Billings to consult with and to advise Oswego County Savings, and to
assist Oswego County Bancorp, on a best efforts basis, in the distribution of
the shares of common stock in the Subscription and Community Offering. The
services that Friedman Billings will provide include, but are not limited to:
o training the employees of Oswego County Savings who will
perform certain ministerial functions in the Subscription
and Community Offering regarding the mechanics and
regulatory requirements of the stock offering process;
o managing the Stock Center by assisting interested stock
subscribers and by keeping records of all stock orders;
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o preparing marketing materials; and
o assisting in the solicitation of proxies from Oswego County
Savings' depositors for use at Oswego County Savings'
special meeting.
For its services, Friedman Billings will receive a management fee of
$20,000 and a marketing fee of $100,000. In the event that selected dealers are
used to assist in the sale of shares of common stock in the Community Offering,
the dealers will be paid a fee of up to ___% a of the aggregate purchase price
of the shares sold by such dealers. Oswego County Savings has agreed to
indemnify Friedman Billings against certain claims or liabilities, including
certain liabilities under the Securities Act, and will contribute to payments
Friedman Billings may be required to make in connection with any such claims or
liabilities.
Sales of shares of common stock will be made primarily by registered
representatives affiliated with Friedman Billings or by the broker-dealers
managed by Friedman Billings. Friedman Billings has undertaken that the shares
of common stock will be sold in a manner which will ensure that the distribution
standards of the New York Stock Exchange (round lots, public shares, and
aggregate market value) will be met. The Stock Center will be established at the
main office of Oswego County Savings. Oswego County Bancorp will rely on Rule
3a4-1 of the Exchange Act and sales of common stock will be conducted within the
requirements of this rule, so as to permit officers, trustees, directors and
employees to participate in the sale of the common stock in those states where
the law permits. No officer, trustees, director or employee of Oswego County
Bancorp or Oswego County Savings will be compensated directly or indirectly by
the payment of commissions or other remuneration in connection with his or her
participation in the sale of common stock.
Oswego County Savings may utilize certain space in its offices for
activities related to the Offerings. FDIC and Department [rules] impose certain
restrictions on securities sales activities by Oswego County Bancorp or Oswego
County Savings. Among other requirements, if the offices of Oswego County
Savings or any affiliate are utilized, no commissions, bonuses, or payments may
be made to employees (except standard compensation to securities personnel of
registered broker-dealers), no offers or sales may be made by tellers or at the
teller counter, sales activities must be conducted in a segregated or separately
identifiable area of the Oswego County Savings' offices apart from the area used
by the general public for deposit activities and offers and sales must be made
only by regular, full-time Oswego County Savings employees or securities
personnel who are subject to supervision by a registered broker-dealer. In
addition, subscribers must sign a certification form acknowledging that the
common stock is not federally insured or guaranteed and that he or she has
received a copy of this prospectus and understands the risks involved in
purchasing any shares of common stock. Oswego County Bancorp and Oswego County
Savings will comply with the above-described FDIC and Department [rules] as well
as Federal and state securities laws.
Procedure for Purchasing Shares in the Subscription Offering
To ensure that each purchaser receives a prospectus at least 48 hours
before the Subscription Expiration Date, unless extended, in accordance with
Rule 15c2-8 of the Exchange Act, no prospectus will be mailed any later than
five days prior to that date or hand delivered any
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later than two days prior to such date. Execution of the order form will confirm
receipt or delivery in accordance with Rule 15c2-8. Order forms will only be
distributed with a prospectus.
To purchase shares in the Subscription Offering, an executed order
form with the required payment for each share subscribed for, or with
appropriate authorization for withdrawal from a deposit account at Oswego County
Savings, which may be given by completing the appropriate blanks in the order
form, must be received by Oswego County Savings by 12:00 noon, Oswego, New York
Time, on the Subscription Expiration Date, unless extended. In addition, Oswego
County Bancorp and Oswego County Savings will require a prospective purchaser to
execute a certification in the form required by applicable FDIC and Department
regulations in connection with any sale of common stock. Order forms, which are
not received by such time or are executed defectively or are received without
full payment, or appropriate withdrawal instructions, are not required to be
accepted. Further, Oswego County Savings will not accept orders submitted on
photocopied or facsimilied order forms nor order forms unaccompanied by an
executed certification form. Oswego County Savings has the right to waive or
permit the correction of incomplete or improperly executed forms, but does not
represent that it will do so. Once received, an executed order form may not be
modified, amended or rescinded without the consent of Oswego County Savings,
unless the stock offering has not been completed within 45 days after the end of
the Subscription Offering, unless that period has been extended.
To ensure that Eligible Account Holders and Supplemental Eligible
Account Holders are properly identified as to their stock purchase priority,
depositors as of the close of business on the Eligibility Record Date (September
30, 1997) or the Supplemental Eligibility Record Date (March 31, 1999) must list
all accounts on the stock order form giving all names in each account
and the account numbers.
Payment for subscriptions may be made:
o in cash if delivered in persons;
o by check or money order; or
o by authorization of withdrawal from deposit
accounts maintained with Oswego County Savings.
No wire transfers will be accepted. Interest will be paid on payments
made by cash, check or money order at Oswego County Savings' passbook rate of
interest from the date payment is received until completion or termination of
the stock offering. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the reorganization, but a hold will be placed on such funds,
thereby making them unavailable to the depositor until completion or termination
of the stock offering.
If a subscriber authorizes Oswego County Savings to withdraw the
amount of the purchase price from his deposit account, Oswego County Savings
will do so as of the effective date of the stock offering. Oswego County Savings
will waive any applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is reduced
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<PAGE>
below the applicable minimum balance requirement at the time that the funds
actually are transferred under the authorization, the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at the passbook rate.
If the ESOP subscribes for shares during the Subscription Offering,
the ESOP will not be required to pay for the shares subscribed for at the time
it subscribes, but rather, may pay for such shares of common stock subscribed
for by it at the purchase price upon consummation of the Subscription and
Community Offerings, if all shares are sold, or upon consummation of the
Syndicated Community Offering if shares remain to be sold in such offering,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or Oswego County
Bancorp to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of common stock in the Subscription and Community Offerings
provided such IRAs are not maintained at Oswego County Savings. ERISA provisions
and IRS regulations require that officers, trustees and 10% stockholders who use
self-directed IRA funds to purchase shares of common stock in the Offerings make
such purchases for the exclusive benefit of the IRAs. Any interested parties
wishing to use IRA funds for stock purchases are advised to contact the Stock
Center at (315) ___-____ for additional information.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the FDIC and Department [rules and regulations], no
person with subscription rights may transfer or enter into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the plan of reorganization or the shares of common stock to
be issued upon their exercise. Subscription rights may be exercised only by the
person to whom they are granted and only for his account. Each person exercising
such subscription rights will be required to certify that he is purchasing
shares solely for his own account and that he has no agreement or understanding
regarding the sale or transfer of those shares. [Federal regulations] also
prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of common
stock prior to the completion of the stock offering.
Oswego County Savings will refer to the FDIC, Department and the SEC
any situations that it believes may involve a transfer of subscription rights
and will not honor orders believed by it to involve the transfer of subscription
rights.
Delivery of Certificates
Certificates representing common stock issued in the stock offering
will be mailed by Oswego County Bancorp's transfer agent to the persons entitled
thereto at the addresses of such persons appearing on the stock order form as
soon as practicable following consummation of the reorganization. Any
certificates returned as undeliverable will be held by Oswego County Bancorp
until claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for common stock are
available and delivered to subscribers, subscribers may not be able to sell the
shares of common stock for which they have subscribed, even though trading of
the common stock may have commenced.
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<PAGE>
Required Approvals and Nonobjections
Various approvals or nonobjections of the FDIC and Department are
required to complete the reorganization and stock offering. The FDIC has not
objected to and Department has approved the plan of reorganization, subject to
approval by Oswego County Savings' depositors and other standard conditions.
Oswego County Bancorp's bank holding company application is currently pending
with the Federal Reserve Board.
Oswego County Bancorp is required to make certain filings with state
securities regulatory authorities in connection with the issuance of common
stock in the stock offering.
Restrictions on Purchase or Transfer of Shares After the Corporate Change
All shares of common stock purchased in connection with the
reorganization by a director or an officer of Oswego County Bancorp or Oswego
County Savings will be subject to a restriction that the shares not be sold for
a period of one year following the reorganization except in the event of the
death of such director or officer or judicial declaration of incompetency or
pursuant to a merger or similar transaction approved by the FDIC and the
Department. Each certificate for restricted shares will bear a legend giving
notice of this restriction on transfer, and instructions will be issued that any
transfer within the time period of any certificate or record ownership of those
shares other than as provided above is a violation of the restriction. Any
shares of common stock issued at a later date within this one year period as a
stock dividend, stock split or otherwise with respect to the restricted stock
will be subject to the same restrictions.
Purchases of common stock by directors, executive officers and their
associates during the three-year period following completion of the
reorganization may be made only through a broker or dealer registered with the
SEC, except with the prior written approval of the FDIC and the Superintendent.
This restriction does not apply, however, to negotiated transactions involving
more than 1% of Oswego County Bancorp's outstanding common stock or to certain
purchases of stock pursuant to an employee stock benefit plan.
Pursuant to FDIC and Department regulations, Oswego County Bancorp
will generally be prohibited from repurchasing any shares of the common stock
within one year following consummation of the reorganization, [although the FDIC
and Department under their current policies may approve a request to repurchase
shares of common stock following the six-month anniversary of the
reorganization.] During the second and third years following the reorganization,
Oswego County Bancorp may not repurchase any shares of its common stock other
than pursuant to:
o an offer to all stockholders on a pro rata basis which is
approved by the FDIC and Department (provided, however,
that the Oswego County MHC may be excluded with the
approval of the FDIC and Department);
o the repurchase of qualifying shares of a director, if any;
o purchases in the open market by a tax-qualified or
non-tax-qualified employee stock benefit plan in an amount
reasonable and appropriate to fund the plan; or
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o purchases that are part of an open-market stock repurchase
program not involving more than 5% of its outstanding
capital stock during a 12-month period, if the repurchases
do not cause Oswego County Savings to become
undercapitalized and Oswego County Savings provides to the
Regional Director of the FDIC and Department no later than
10 days prior to the commencement of a repurchase program
written notice containing a full description of the program
to be undertaken and such program is not disapproved by the
Regional Director.
The FDIC and Department may permit stock repurchases in excess of
such amounts prior to the third anniversary of the reorganization if exceptional
circumstances are shown to exist.
CERTAIN RESTRICTIONS ON ACQUISITION
OF OSWEGO COUNTY BANCORP AND OSWEGO COUNTY SAVINGS
The principal regulatory restrictions which affect the ability of any
person, firm or entity to acquire Oswego County Bancorp, Oswego County Savings
or their respective capital stock are described below. Also discussed are
certain provisions in Oswego County Bancorp's certificate of incorporation and
bylaws which may be deemed to affect the ability of a person, firm or entity to
acquire Oswego County Bancorp.
Oswego County MHC Structure. Under New York law, the plan of
reorganization and Oswego County Bancorp's governing corporate instruments, at
least 51% of Oswego County Bancorp's voting shares must be owned by Oswego
County MHC. Oswego County MHC will be controlled by its board of trustees, who
will consist of persons, except for one person, who also are members of the
board of directors of Oswego County Bancorp and Oswego County Savings. Oswego
County MHC will be able to elect all members of the board of directors of Oswego
County Bancorp, and as a general matter, will be able to control the outcome of
all matters presented to the stockholders of Oswego County Bancorp for
resolution by vote, except for matters that require a vote greater than a
majority. Oswego County MHC, acting through its board of trustees, will be able
to control the business and operations of Oswego County Bancorp and Oswego
County Savings will be able to prevent any challenge to the ownership or control
of Oswego County Bancorp by minority stockholders. Accordingly, a change in
control of Oswego County Bancorp or Oswego County Savings cannot occur unless
Oswego County MHC first converts to the stock form of organization. Although New
York law, applicable regulations and the plan of reorganization permit Oswego
County MHC to convert from the mutual to the capital stock form of organization,
it is not anticipated that a conversion of Oswego County MHC will occur in the
foreseeable future.
In addition to the anti-takeover aspects of the mutual holding
company structure, the following provisions of Oswego County Bancorp's
certificate of incorporation and bylaws and certain other regulatory provisions
will restrict the ability to 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 Oswego County Bancorp's certification of incorporation
and bylaws and Oswego County Savings' proposed restated organizational
certificate and bylaws, reference should be made in each case to the document in
question. Each of these documents is part of Oswego County Savings' application
to the Superintendent and Oswego County Bancorp's registration
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<PAGE>
statement filed with the SEC. See "Additional Information." The following
discussion does not reflect the powers and provisions of Oswego County Savings'
organization certificate.
Provisions of Oswego County Bancorp'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 Oswego County Bancorp 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 (1) 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 Oswego County Bancorp, inclusive of shares of such class held by Oswego
County MHC (provided that such limitation shall not apply to Oswego County MHC
or any tax-qualified employee stock benefit plans maintained by Oswego County
Bancorp); and that (2) 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 Oswego County Bancorp's
board of directors and also a majority of the outstanding shares of Oswego
County Bancorp'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 Oswego County Bancorp 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 (1) the holding company has registered securities under
Section 12 of the Exchange Act or (2) 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 common stock will be registered under Section 12 of
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the Exchange Act, any acquisition of 10% or more of the common stock will give
rise to a rebuttable presumption that the acquirer of such stock controls Oswego
County Bancorp, requiring the acquirer, 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 Oswego County Bancorp. See "How We
Are Regulated."
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.
Benefit Plans
In addition to the provisions of Oswego County Bancorp's certificate
of incorporation and bylaws described above, certain benefit plans of Oswego
County Bancorp and Oswego County Savings adopted in connection with the
reorganization and stock offering contain provisions which also may discourage
hostile takeover attempts which the board of directors of Oswego County Savings
might conclude are not in the best interests of Oswego County Bancorp and Oswego
County Savings or Oswego County Bancorp's stockholders. For a description of the
benefit plans and the provisions of such plans relating to changes in control of
Oswego County Bancorp or Oswego County Savings, see "Management -- Benefits."
DESCRIPTION OF CAPITAL STOCK OF OSWEGO COUNTY BANCORP
General
Oswego County Bancorp is authorized to issue ______ shares of common
stock having a par value of $0.01 per share and ______shares of preferred stock
having a par value of $0.01 per share (the "Preferred Stock"). Oswego County
Bancorp currently expects to issue up to a maximum of ______ shares (______
shares in the event that the maximum of the estimated offering range is
increased by 15%) of common stock and no shares of preferred stock in the stock
offering. 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 common stock.
Upon payment of the purchase price for the common stock in accordance with the
plan of reorganization, all of the stock will be duly authorized, fully paid and
nonassessable. Presented below is a description of all aspects of Oswego County
Bancorp's capital stock which are deemed material to an investment decision with
respect to the stock offering.
The common stock of Oswego County Bancorp will represent
nonwithdrawable capital, will not be an account of an insurable type, and will
not be insured by the FDIC.
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Common Stock
Distributions. Oswego County Bancorp can pay dividends if, as and
when declared by its board of directors, subject to compliance with limitations
which are imposed by law. See "Dividend Policy." The holders of common stock of
Oswego County Bancorp will be entitled to receive and share equally in any
dividends declared by the board of directors of Oswego County Bancorp out of
legally available funds. If Oswego County Bancorp issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. Upon consummation of the reorganization, the holders
of common stock will possess exclusive voting rights in Oswego County Bancorp.
Each holder of common stock will be entitled to one vote per share and will not
have any right to cumulate votes in the election of directors. Under certain
circumstances, shares in excess of 10.0% of the issued and outstanding shares of
common stock may be considered "excess shares" and, accordingly, not be entitled
to vote. See "Restrictions on Acquisition of Oswego County Bancorp and Oswego
County Savings." If Oswego County Bancorp issues preferred stock, holders of the
preferred stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding
up of Oswego County Savings, Oswego County Bancorp, as holder of Oswego County
Savings' capital stock, would be entitled to receive, after payment or provision
for payment of all debts and liabilities of Oswego County Savings (including all
deposit accounts and accrued interest thereon), all assets of Oswego County
Savings available for distribution. In the event of liquidation, dissolution or
winding up of Oswego County Bancorp, the holders of its common stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Oswego County Bancorp available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
Rights to Buy Additional Shares. Holders of the common stock Oswego
County Bancorp will not be entitled to preemptive rights with respect to any
shares which may be issued. A preemptive right is a priority right to buy
additional shares if Oswego County Bancorp issues more shares in the future. The
common stock is not subject to redemption.
Preferred Stock
None of the shares of Oswego County Bancorp's authorized preferred
stock will be issued in the stock offering. Preferred stock may be issued with
preferences and designations determined by the board of directors from time to
time. The board of directors can, without stockholder approval, issue preferred
stock with voting, dividend, liquidation and conversion rights which could
dilute the voting strength of the holders of the common stock and may assist
management in impeding an unfriendly takeover or attempted change in control.
Oswego County Bancorp has no present plans to issue preferred stock.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Oswego County Bancorp's common
stock is ___________________.
EXPERTS
The financial statements of Oswego County Savings as of December 31,
1998 and 1997, and for the years then ended have been included in this
prospectus in reliance upon the report of KPMG LLP, independent public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary
of its report to Oswego County Savings setting forth its opinion as to the
estimated pro forma market value of the common stock upon reorganization and its
opinion with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax
consequences of the reorganization will be passed upon for Oswego County Savings
by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to
Oswego County Savings and Oswego County Bancorp. The New York income tax
consequences of the reorganization will be passed upon for Oswego County Savings
by KPMG LLP. The federal income tax consequences of certain matters relating to
establishment of the foundation will be passed upon for Oswego County Savings by
KPMG LLP. Certain legal matters will be passed upon for Friedman Billings by
Breyer & Associates, Washington, D.C.
ADDITIONAL INFORMATION
Oswego County Bancorp has filed with the SEC a registration statement
under the Securities Act with respect to the common stock offered by this
prospectus. As permitted by the rules and regulations of the SEC, this
prospectus does not contain all the information set forth in the registration
statement. The entire registration statement, including the appraisal report
which is an exhibit to the registration statement, can be examined without
charge at the public reference facilities of the SEC located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. In addition, the SEC maintains a web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, including Oswego County
Bancorp, that file electronically with the SEC. The statements contained in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement summarize the provisions of such contract
or other document which are deemed material. However, those summaries are, of
necessity, brief descriptions of those documents and are not necessarily
complete; each statement is qualified by reference to the specific contract or
document.
106
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Oswego County Savings has filed an application with the Department
with respect to the reorganization. Under the Department's rules and
regulations, this prospectus omits certain information contained in that
application. The application may be examined at the Department's office at 2
Rector Street, New York, New York and at Oswego County Savings' main office at
44 East Bridge Street, Oswego, New York 13126.
In connection with the reorganization, Oswego County Bancorp will
register its common stock with the SEC under Section 12 of the Exchange Act,
and, upon such registration, Oswego County Bancorp and the holders of its stock
will become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the plan of reorganization, Oswego
County Bancorp has undertaken that it will not terminate such registration for a
period of at least three years following the reorganization.
A copy of the plan of reorganization and the certificate of
incorporation and bylaws of Oswego County Bancorp and the organization
certificate and bylaws of Oswego County Savings and Oswego County MHC are
available without charge from Oswego County Savings. Requests for this
information should be directed to: [______________________], Oswego County
Savings Bank, 44 East Bridge Street, Oswego, New York 13126.
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INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.............................................. F-1
Statements of Financial Condition as of December 31, 1998 and
1997 .......................................................... F-2
Statements of Income for the Years Ended December 31, 1998 and
1997........................................................... F-3
Statements of Net Worth and Comprehensive Income for the Years
Ended December 31, 1998 and 1997............................... F-4
Statements of Cash Flows for the Years Ended December 31, 1998
and 1997....................................................... F-5
Notes to Financial Statements............................................. F-6
All schedules are omitted as the required information is not applicable or the
information is presented in the financial statements.
[The financial statements of Oswego County Bancorp have been omitted because
Oswego County Bancorp has not yet issued any stock, has no assets or
liabilities, and has not conducted any business other than of an organizational
nature.]
108
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Financial Statements
Years ended December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Trustees
Oswego County Savings Bank:
We have audited the accompanying statements of financial condition of Oswego
County Savings Bank as of December 31, 1998 and 1997, and the related statements
of income, net worth and comprehensive income, and cash flows for the years then
ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oswego County Savings Bank as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
-------------------------
February 12, 1999
Syracuse, New York
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
------------- -------------
<S> <C> <C>
Cash and due from banks $ 4,006,570 4,083,082
Federal funds sold and other short-term investments 2,600,000 2,681,128
Securities held to maturity, fair value of $13,791,754 in
1998 and $10,474,998 in 1997 13,729,905 10,441,133
Securities available for sale, at fair value 14,783,994 10,920,781
Loans 72,081,642 80,460,302
Less allowance for loan losses 1,068,420 1,408,797
------------- -------------
Loans, net 71,013,222 79,051,505
------------- -------------
Real estate owned 195,067 599,387
Premises and equipment, net 2,244,769 2,324,351
Accrued interest receivable 856,418 925,591
Other assets 1,435,960 966,423
------------- -------------
Total assets $ 110,865,905 111,993,381
============= =============
Liabilities and Net Worth
Deposits:
Demand 11,629,803 9,665,784
Savings and money market 46,687,391 48,535,652
Time 38,247,054 39,697,366
------------- -------------
96,564,248 97,898,802
Escrow deposits 1,318,444 1,458,361
Other liabilities 1,288,914 1,244,595
------------- -------------
Total liabilities 99,171,606 100,601,758
------------- -------------
Commitments and contingencies (note 11)
Net worth:
Surplus 3,728,639 3,728,639
Undivided profits, substantially restricted 7,966,281 7,657,573
Accumulated other comprehensive income (621) 5,411
------------- -------------
Total net worth 11,694,299 11,391,623
------------- -------------
Total liabilities and net worth $ 110,865,905 111,993,381
============= =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Income
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Loans $6,252,969 6,860,107
Securities 1,480,880 1,151,073
Federal funds sold and other short-term investments 180,949 240,519
---------- ----------
Total interest income 7,914,798 8,251,699
Interest expense on deposits 3,388,168 3,737,612
---------- ----------
Net interest income 4,526,630 4,514,087
Provision for loan losses 120,000 524,816
---------- ----------
Net interest income after provision for loan losses 4,406,630 3,989,271
---------- ----------
Noninterest income:
Service charges 387,125 415,445
Recovery for Nationar 22,192 54,400
Other 59,526 46,417
---------- ----------
Total noninterest income 468,843 516,262
---------- ----------
Noninterest expenses:
Salaries and employee benefits 1,923,984 1,923,888
Occupancy and equipment 670,735 600,078
Data processing 267,782 221,695
Office supplies, printing and postage 186,750 240,691
Professional fees 251,231 237,923
Merger expenses 171,213 145,278
Real estate owned, net 302,213 198,545
Trustee fees and benefits 151,918 172,175
Marketing and advertising 120,616 93,375
Deposit insurance premiums 11,738 12,342
Other 346,585 269,302
---------- ----------
Total noninterest expenses 4,404,765 4,115,292
---------- ----------
Income before income tax expense 470,708 390,241
Income tax expense 162,000 201,350
---------- ----------
Net income $ 308,708 188,891
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Net Worth and Comprehensive Income
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Undivided Comprehensive Total
Surplus Profits Income Net Worth
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 3,728,639 7,468,682 -- 11,197,321
Comprehensive income:
Net income -- 188,891 -- 188,891
Net change in the unrealized gain
on securities available
for sale, net of taxes -- -- 5,411 5,411
-----------
Total comprehensive income 194,302
----------- ----------- ----------- -----------
Balance, December 31, 1997 3,728,639 7,657,573 5,411 11,391,623
Comprehensive income:
Net income -- 308,708 -- 308,708
Net change in the unrealized gain
(loss) on securities available
for sale, net of taxes -- -- (6,032) (6,032)
-----------
Total comprehensive income 302,676
----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 3,728,639 7,966,281 (621) 11,694,299
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 308,708 188,891
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 256,136 167,572
Provision for loan losses 120,000 524,816
Recovery for Nationar (22,192) (54,400)
Loss on sale of real estate owned 145,171 254,427
Gain on sale of securities (2,292) --
Security amortization (accretion) 32,601 (14,393)
Deferred income taxes 98,730 11,088
Change in:
Accrued interest receivable 69,173 (178,793)
Other assets (537,787) 236,894
Other liabilities 43,819 524,196
------------ ------------
Net cash provided by operating activities 512,067 1,660,298
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of and principal collected on
securities held to maturity 9,722,545 4,167,664
Proceeds from sale of securities available for sale 2,002,032 --
Proceeds from maturity of and principal collected on
securities available for sale 6,895,973 1,000,000
Purchases of securities held to maturity (13,038,664) (4,498,070)
Purchases of securities available for sale (12,778,000) (11,900,616)
Principal collections of loans, net of loan originations 7,643,216 3,204,679
Proceeds from sale of real estate owned 534,216 360,300
Purchases of premises and equipment, net (176,554) (396,834)
------------ ------------
Net cash used in investing activities 804,764 (8,062,877)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand, savings and money market deposits 115,758 (390,850)
Net decrease in time deposits (1,450,312) (3,725,542)
Net decrease in escrow deposits (139,917) (258,949)
------------ ------------
Net cash used in financing activities (1,474,471) (4,375,341)
------------ ------------
Net decrease in cash and cash equivalents (157,640) (10,777,920)
Cash and cash equivalents at beginning of year 6,764,210 17,542,130
------------ ------------
Cash and cash equivalents at end of year $ 6,606,570 6,764,210
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3,388,168 3,737,612
Income taxes 195,750 243,000
============ ============
Non-cash investing and financing activities:
Transfer of loans to real estate owned $ 275,067 723,123
============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(1) Reorganization, Stock Issuance and Merger
Oswego County Savings Bank (the Bank) is a mutual savings bank that is
subject to regulation by the New York State Banking Department and the
Federal Deposit Insurance Corporation (FDIC). The Bank provides financial
services to individuals and businesses primarily in Oswego County in New
York State.
On December 17, 1998, the Board of Trustees of the Bank adopted the
Amended and Restated Plan of Reorganization (the Plan), pursuant to which
the Bank will reorganize into the mutual holding company form of
organization as a wholly-owned subsidiary of Oswego County Bancorp, Inc.,
a mid-tier stock holding company that will be a majority-owned subsidiary
of Oswego County MHC (the MHC). Following receipt of all required
regulatory approvals, the approval of the depositors of the Bank entitled
to vote on the Plan of Reorganization, and the satisfaction of all other
conditions precedent to the Reorganization, the Bank will consummate the
Reorganization. Pursuant to the Plan, the Reorganization will be effected
in a manner that is consistent with applicable New York and federal law
and regulations. Contemporaneously with the Reorganization, Oswego County
Bancorp, Inc. will sell a Minority Interest in shares of Common Stock in
a public stock offering (Offering). Subsequent to the Reorganization and
Offering, the minority interest will represent 49% or less of the Oswego
County Bancorp, Inc.'s outstanding shares, with the MHC owning at least
51%.
The Reorganization will be accounted for as a change in corporate form
with no resulting change in the historical basis of the Bank's assets,
liabilities and equity. Subsequent to the Reorganization, the existing
liquidation rights of the Bank's depositors as of the effective date will
be transferred to the MHC, and records will be maintained to ensure such
rights receive statutory priority in the event of a future mutual to
stock conversion or the MHC's liquidation.
In the event that the Reorganization and Offering are not successfully
completed, the costs incurred in connection with the Reorganization and
Offering will be expensed at the time that the unsuccessful completion is
determined. The Bank has incurred stock issuance costs of $162,000 as of
December 31, 1998, which are included in other assets.
The Bank intends to establish a Foundation as part of the Offering, to
which it will make a contribution in the form of shares of common stock
equal to 4.0% of the shares sold in the Offering. The Foundation will be
dedicated exclusively to supporting charitable causes and community
development in the Bank's primary market area. The Bank will incur an
expense equal to the fair value of the shares contributed to the
Foundation, offset in part by a tax benefit, during the quarter in which
the contribution is made. This expense will likely have a material impact
on the Bank's earnings for such quarter and for fiscal 1999.
On September 4, 1997, the trustees of the Bank approved a proposed merger
and entered into a merger agreement with Pathfinder Bancorp, Inc.
(Pathfinder), a publicly traded bank which is 54% owned by Pathfinder
Bancorp M.H.C.. On January 28, 1999, the Bank terminated its proposed
merger with Pathfinder as a result of certain regulatory considerations.
Expenses related to this terminated merger, totaling $171,000 in 1998 and
$145,000 in 1997 are included in noninterest expenses.
(Continued)
F-6
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(2) Summary of Significant Accounting Policies
The accounting policies of the Bank conform to generally accepted
accounting principles. The following is a description of the more
significant accounting policies followed by the Bank.
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 at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
(a) Securities
The Bank classifies its securities as either available for sale or
held to maturity, as the Bank does not hold any securities
considered to be trading. Held to maturity securities are those
debt securities for which the Bank has the positive intent and the
ability to hold until maturity. All other securities not included
in held to maturity are classified as available for sale.
Held to maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Available for
sale securities are recorded at fair value. Unrealized holding
gains and losses, net of the related tax effect, on available for
sale securities are excluded from earnings and are reported as
accumulated other comprehensive income (a component of net worth)
until realized.
A decline in the fair value of any available for sale or held to
maturity security below cost, that is deemed other than temporary,
is charged to earnings resulting in the establishment of a new
cost basis for the security.
Premiums and discounts are amortized or accreted over the life of
the related security as an adjustment to yield using the effective
interest method. Dividends and interest income are recognized when
earned. Realized gains and losses on securities are recognized on
the trade date and are calculated using the specific
identification method for determining the cost of securities sold.
(b) Loans
Loans (other than those held for sale) are reported at the
principal amount outstanding. Fees and certain direct origination
costs related to lending activities are recognized in income as
incurred, as the amounts are immaterial.
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to income.
(Continued)
F-7
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
Generally, the Bank places all loans that are 90 days or more past
due on non-accrual status. In addition, the Bank places any loan
on non-accrual status if any part of it is classified as doubtful
or loss, or if any part has been charged off. When a loan is
placed on non-accrual status, total interest accrued and unpaid to
date is reversed by a charge to interest income. Subsequent
payments are either applied to the outstanding principal balance
or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
(c) Allowance for Loan Losses
The Bank's provision for loan losses charged to operations is
based upon management's evaluation of the loan portfolio. The
allowance for loan losses is maintained at an amount management
deems adequate to provide for probable loan losses considering the
character of the loan portfolio, economic conditions, analysis of
specific loans and historical loss experience. While management
uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examinations.
The Bank considers a loan impaired when, based on current
information and events, it is probable that it will be unable to
collect all amounts of principal and interest under the original
terms of the agreement. Large groups of smaller balance,
homogeneous loans such as the Bank's residential mortgages, home
equity loans and consumer loans are collectively evaluated for
impairment. Accordingly, the Bank measures impaired commercial
mortgages and commercial loans based on the present value of
future cash flows discounted at the loan's effective interest
rate, or at the fair value of the collateral if the loan is
collateral dependent. Impairment losses are recognized as a
component of the allowance for loan losses.
(d) Real Estate Owned
Real estate owned includes property acquired through, or in lieu
of, formal foreclosure. Write-downs to estimated fair value which
are required at the time of foreclosure are charged to the
allowance for loan losses. After transfer, the property is carried
at the lower of cost or fair value, less estimated selling
expenses. Adjustments to the carrying value of such properties
that result from subsequent declines in fair value are charged to
operations in the period in which the declines occur.
(e) Premises and Equipment
Land is carried at cost and buildings, furniture and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed primarily on the straight-line method over the estimated
service lives of the assets.
(Continued)
F-8
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(f) Income Taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income tax expense in the period which includes the enactment
date.
(g) Pension and Other Postretirement Benefits
The Bank has a defined benefit pension plan covering substantially
all of its employees. Benefits are based on credited years of
service and the employee's average compensation prior to
retirement. The Bank's funding policy is to contribute annually at
least the minimum required by law. Plan assets are invested in the
general account of the Retirement System for Savings Institutions.
The Bank sponsors an unfunded defined benefit plan that covers all
of its full time employees and provides postretirement medical and
life insurance benefits. Employees are eligible for these benefits
if they retire under the Bank's defined benefit pension plan and
have attained age 55 with at least 5 years of service. Employees
are required to contribute a portion of the premium. The Bank
accrues the cost of these benefits to employees and the employees'
beneficiaries during the years that the employees render the
necessary service.
In 1998, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits. This statement revises
employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or the
recognition of these plans. The statement did not impact its
financial position or results of operations of the Bank.
(h) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and Federal funds
sold and other short-term investments with maturities less than 90
days.
(i) Financial Instruments With Off-Balance Sheet Risk
The Bank does not engage in the use of derivative financial
instruments and the Bank's only financial instruments with
off-balance sheet risk are commercial and residential mortgage
commitments. These off-balance sheet items are shown in the Bank's
statement of financial condition upon funding.
(Continued)
F-9
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(j) Comprehensive Income
In 1998, the Bank adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This statement establishes
standards for reporting and display of comprehensive income and
its components. Comprehensive income, presented in the statements
of net worth and comprehensive income, consists of net income and
the net change for the period in after-tax unrealized gains or
losses on securities available for sale. Accumulated other
comprehensive income in the accompanying statements of financial
condition represents the net unrealized gains or losses on
securities available for sale as of the reporting dates. Prior
year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
(k) Segment Information
In 1998, the Bank adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 requires public companies to report
financial and other information about key revenue producing
segments of the entity for which such information is available and
is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit
or loss, certain specific revenue and expense items, and total
assets. A reconciliation of segment financial information to
amounts reported in the financial statements is also provided. As
a community-oriented financial institution, substantially all of
the Bank's operations involve the delivery of loan and deposit
products to customers. Management makes operating decisions and
assesses performance based on an ongoing review of these community
banking operations, which constitute the Bank's only operating
segment for financial reporting purposes. Therefore, the adoption
of SFAS No. 131 did not result in any changes in the Bank's
reporting.
(l) Other Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. This statement requires that
all derivatives be recognized as either assets or liabilities in
the statement of financial condition and that those instruments be
measured at fair value. The accounting for changes in the fair
value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. This
statement is effective for fiscal years beginning after June 15,
1999, although earlier adoption is permitted. The Bank
anticipates, based on current activities, that the adoption of
SFAS No. 133 will not have an effect on its financial position or
results of operations. SFAS No. 133 also permits certain
reclassification of securities to the available for sale category
from the held to maturity category. The Bank has no current
intention to reclassify any securities pursuant to SFAS No. 133.
(Continued)
F-10
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained After the Securitization of
Mortgage Loans Held for Sale by a Mortgage-Banking Enterprise,
which amends SFAS No. 65, Accounting for Certain Mortgage Banking
Activities. This statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the accounting for such
securities by a nonmortgage banking enterprise. This statement is
effective for the first quarter beginning after December 15, 1998,
and will not have any impact on the Bank's financial position or
results of operations as the Bank does not currently securitize
mortgage loans.
(3) Securities
The amortized cost and fair value of securities are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities available for sale
Debt securities:
United States Treasury $ 1,007,329 12,981 -- 1,020,310
United States Government
agency obligations 13,775,760 46,954 60,556 13,762,158
----------- ----------- ----------- -----------
Total debt securities 14,783,089 59,935 60,556 14,782,468
----------- ----------- ----------- -----------
Equity securities:
Corporate stocks 1,526 -- -- 1,526
----------- ----------- ----------- -----------
Total securities available
for sale $14,784,615 59,935 60,556 14,783,994
=========== =========== =========== ===========
Securities held to maturity
Debt securities:
United States Government
agency obligations $ 6,490,874 57,163 4,352 6,543,685
Corporate and municipal securities 4,124,589 36,764 5,107 4,156,246
Mortgage-backed securities:
Ginnie Mae 2,164,204 2,701 17,263 2,149,642
Fannie Mae 425,714 1,690 8,133 419,271
Freddie Mac 22,024 886 -- 22,910
Small Business Administration 502,500 -- 2,500 500,000
----------- ----------- ----------- -----------
Total securities held
to maturity $13,729,905 99,204 37,355 13,791,754
=========== =========== =========== ===========
</TABLE>
(Continued)
F-11
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities available for sale
Debt securities:
United States Treasury $ 4,016,906 10,457 483 4,026,880
United States Government
agency obligations 6,893,178 10,765 11,568 6,892,375
----------- ----------- ----------- -----------
Total debt securities 10,910,084 21,222 12,051 10,919,255
----------- ----------- ----------- -----------
Equity securities:
Corporate stocks 1,526 -- -- 1,526
----------- ----------- ----------- -----------
Total securities available
for sale $10,911,610 21,222 12,051 10,920,781
=========== =========== =========== ===========
Securities held to maturity
Debt securities:
United States Treasury $ 3,148,730 3,804 62 3,152,472
United States Government
agency obligations 2,337,957 9,852 -- 2,347,809
Corporate and municipal securities 4,809,088 15,775 1,478 4,823,385
Mortgage-backed securities:
Ginnie Mae 62,175 2,968 -- 65,143
Fannie Mae 54,115 2,001 -- 56,116
Freddie Mac 29,068 1,005 -- 30,073
----------- ----------- ----------- -----------
Total securities held
to maturity $10,441,133 35,405 1,540 10,474,998
=========== =========== =========== ===========
</TABLE>
Proceeds from the sale of securities available for sale during 1998 were
$2,002,032, with gross gains of $2,448 and gross losses of $156 realized
on those sales. The Bank did not sell any securities available for sale
in 1997. No securities held to maturity were sold in 1998 and 1997.
The reclassification adjustment for net gains of sales of securities
included in net income, net of tax was $1,375 which adjusted the change
in unrealized loss on securities available for sale for the year ended
December 31, 1998 to $4,657. The Bank had no reclassification adjustment
in 1997.
(Continued)
F-12
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
The following is a tabulation of debt securities, excluding
mortgage-backed securities, by the period remaining to the earlier of
maturity or call date as of December 31, 1998:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
--------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,007,330 1,020,310 757,027 760,635
Due after one year through five years 10,977,548 11,006,875 8,175,433 8,235,586
Due after five years through ten years 2,798,211 2,755,283 1,233,085 1,252,884
Due after ten years -- -- 449,918 450,826
----------- ----------- ----------- -----------
Total $14,783,089 14,782,468 10,615,463 10,699,931
=========== =========== =========== ===========
</TABLE>
(4) Loans
The following is a summary of loans outstanding:
December 31,
------------------------------
1998 1997
------------ ------------
Residential mortgages and
home equity loans $ 60,829,098 67,404,958
Commercial mortgages 8,949,614 11,144,890
Commercial loans 265,536 276,443
Consumer loans 2,037,394 1,634,011
------------ ------------
Total loans 72,081,642 80,460,302
Allowance for loan losses (1,068,420) (1,408,797)
------------ ------------
Net loans $ 71,013,222 79,051,505
============ ============
The Bank's market area is generally Oswego County in Central New York
State. Substantially all of the Bank's portfolio is located in its market
area and, accordingly, the ultimate collectibility of the Bank's loan
portfolio is susceptible to changes in market conditions in this area.
The Bank's concentration of credit risk by loan type is shown in the
above schedule of loans outstanding. Other than general economic risks,
management is not aware of any material concentrations of credit risk to
any industry or individual borrower.
Residential mortgage loans classified as held for sale were $4,286,000 at
December 31, 1998 and none at December 31, 1997. The Bank had no sales of
loans during 1998 or 1997 and there were no outstanding commitments to
sell loans at December 31, 1998. An adjustment to reduce loans held for
sale to the lower of aggregate cost or market value was not required at
December 31, 1998.
(Continued)
F-13
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(5) Allowance for Loan Losses
The following is a summary of changes in the allowance for loan losses:
Years ended December 31,
----------------------------
1998 1997
----------- -----------
Balance at beginning of year $ 1,408,797 1,583,299
Provision for loan losses 120,000 524,816
Loan charge-offs (525,704) (724,304)
Recoveries 65,327 24,986
----------- -----------
Balance at end of year $ 1,068,420 1,408,797
=========== ===========
The principal balance of all loans not accruing interest amounted to
approximately $1,688,000 and $1,774,000 at December 31, 1998 and 1997,
respectively. The forgone interest income on non-accruing loans was
$81,400 and $121,600 for the years ended December 31, 1998 and 1997,
respectively.
At December 31, 1998 and 1997, the recorded investment in impaired loans
totaled $979,900 and $1,308,800, respectively. The impairment allowance
associated with these loans was $168,000 and $315,900 at December 31,
1998 and 1997, respectively. The average recorded investment in impaired
loans during the year was approximately $1,301,000 and $1,728,000 for
1998 and 1997, respectively. The amount of interest income recognized on
impaired loans (while such loans were considered impaired) was not
significant for the years ended December 31, 1998 and 1997.
(6) Premises and Equipment
Premises and equipment at December 31 consist of the following:
1998 1997
---------- ----------
Land $ 426,250 426,250
Buildings and improvements 2,569,185 2,556,974
Furniture and equipment 1,932,299 1,893,794
---------- ----------
4,927,734 4,877,018
Accumulated depreciation 2,682,965 2,552,667
---------- ----------
Net $2,244,769 2,324,351
========== ==========
On December 16, 1998, the Bank entered into an agreement to purchase a
bank branch building located in North Syracuse, New York for
approximately $575,000. The purchase is expected to be completed by July
15, 1999.
(Continued)
F-14
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(7) Deposits
Time deposit contractual maturities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- ----------
<S> <C> <C>
Within one year $28,299,303 30,331,083
After one year and within two years 4,121,692 5,626,894
After two years and within three years 1,897,166 1,996,810
After three years and within four years 1,169,240 893,080
After four years and within five years 2,759,653 849,499
----------- -----------
$38,247,054 39,697,366
=========== ===========
</TABLE>
Certificates of deposit of $100,000 and over were $5,577,867 and
$4,218,572 at December 31, 1998 and 1997, respectively.
(8) Income Taxes
Total income tax expense for the years ended December 31 was allocated
as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income before income tax expense $ 162,000 201,350
Change in net worth for unrealized gain
(loss) on securities available for sale (3,760) 3,760
--------- ---------
Total $ 158,240 205,110
========= =========
Income tax expense attributable to income from operations consisted of
the following:
Current Deferred Total
------- -------- -----
Year ended December 31, 1998:
Federal $ 51,509 74,257 125,766
State 11,761 24,473 36,234
-------- -------- --------
Total $ 63,270 98,730 162,000
======== ======== ========
Year ended December 31, 1997:
Federal 141,318 21,645 162,963
State 48,944 (10,557) 38,387
-------- -------- --------
Total $190,262 11,088 201,350
======== ======== ========
</TABLE>
(Continued)
F-15
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
Actual income tax expense attributable to income before income taxes
differed from the amounts computed by applying the Federal statutory
income tax rate to pre-tax income as follows:
Years ended December 31,
------------------------
1998 1997
--------- ----------
Federal income tax expense
(benefit) at statutory rate $ 160,041 132,682
Increase (decrease) resulting from:
Merger costs (46,323) 46,323
Tax-exempt interest income (12,525) (2,762)
State taxes, net of Federal income
tax benefit 23,914 25,335
Nondeductible expenses 3,749 1,266
Other, net 33,144 (1,494)
--------- ---------
Actual income tax expense $ 162,000 201,350
========= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 426,727 662,535
Postretirement benefits 162,595 119,467
Deferred compensation 150,455 104,607
Other 63,310 7,530
--------- ---------
Total gross deferred tax assets 803,087 894,139
--------- ---------
Deferred tax liabilities:
Excess tax bad debt reserve over base year 211,106 223,021
Depreciation 97,219 116,893
Prepaid pension expenses 114,229 79,592
Net unrealized gain on securities
available for sale -- 3,760
Other 13,289 8,659
Total gross deferred tax
liabilities 435,843 431,925
--------- ---------
Net deferred tax asset, included in
other assets $ 367,244 462,214
========= =========
</TABLE>
(Continued)
F-16
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
At December 31, 1998, the Bank's base-year tax bad debt reserves of
approximately $1,107,000 represent aggregate bad debt deductions taken
under the Internal Revenue Code, for which a deferred tax liability has
not been provided. The use of these reserves for purposes other than to
absorb losses on loans, or if the Bank fails to qualify as a Bank for
Federal income tax purposes, would result in taxable income to the Bank.
However, management does not intend to enter into any transactions that
would cause these reserves to become taxable and, accordingly, associated
deferred tax liabilities of approximately $450,000 have not been
recognized.
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income
within the loss carryback period. A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred tax
assets will not be realized. In assessing the need for a valuation
allowance, management considers the scheduled reversal of the deferred
tax liabilities, the level of historical taxable income and projected
future taxable income over the periods in which the temporary differences
comprising the deferred tax assets will be deductible. Based on its
assessment, management determined that no valuation allowance is
necessary.
(9) Benefit Plans
Pension and Other Postretirement Plans
The following table sets forth the defined benefit pension plan's and the
other postretirement benefit plan's change in benefit obligation, change
in fair value of plan assets, and the funded status for the years ended
December 31, 1998 and 1997, using the most recent actuarial data measured
at October 1, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 2,960,364 3,011,700 756,037 949,079
Service cost 66,829 67,689 42,444 19,148
Interest cost 202,349 221,786 52,923 66,436
Amendments -- -- (70,713) --
Actuarial (gain)/loss 172,319 288,712 82,802 (255,408)
Benefits paid (164,217) (164,056) (22,314) (23,218)
Settlements -- (465,467) -- --
----------- ----------- ----------- -----------
Benefit obligation at end of year 3,237,644 2,960,364 841,179 756,037
----------- ----------- ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year 3,587,233 3,446,413 -- --
Actual return on plan assets 6,660 751,499 -- --
Employer contributions -- 18,844 22,314 23,218
Benefits paid (164,217) (164,056) (22,314) (23,218)
Settlements -- (465,467) -- --
----------- ----------- ----------- -----------
Fair value of plan assets at end of year 3,429,676 3,587,233 -- --
----------- ----------- ----------- -----------
Funded status (deficit) 192,032 626,869 (841,179) (756,037)
Unamortized net (asset) obligation at transition (50,395) (83,034) 434,081 659,662
Unrecognized net (gain) loss subsequent
to transition 141,853 (348,033) -- (168,092)
Unamortized prior service cost 2,512 3,478 -- (41,146)
----------- ----------- ----------- -----------
Prepaid (accrued) benefit cost $ 286,002 199,280 (407,098) (305,613)
=========== =========== =========== ===========
</TABLE>
(Continued)
F-17
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
Pension cost (income) consists of the following components for the years
ended December 31, 1998 and 1997:
1998 1997
--------- ---------
Service cost $ 66,829 67,689
Interest on projected benefit obligation 202,349 221,786
Expected return on plan assets (280,410) (269,831)
Amortization of net transition asset (21,355) (24,713)
Amortization of unrecognized gain (2,943) --
Amortization of prior service cost 966 966
Settlement credit (52,158) --
--------- ---------
Net periodic pension cost (income) $ (86,722) (4,103)
========= =========
Weighted average discount rate 6.50% 7.25%
========= =========
Expected long-term rate of return 8.00% 8.00%
========= =========
The projected benefit obligation assumed a long-term rate of increase in
future compensation levels of 4.5% for 1998 and 5.0% for 1997. The
unamortized net asset at transition is being amortized over 12 years from
inception.
Net periodic postretirement benefit cost for the years ended December 31,
1998 and 1997 included the following components:
1998 1997
--------- ----------
Service cost $ 42,444 19,148
Interest cost on accumulated benefit
obligation 52,923 66,436
Amortization of transition obligation 38,804 38,804
Amortization of prior service asset (2,420) --
Amortization of unrecognized loss (7,952) --
--------- ---------
Net periodic postretirement benefit cost $ 123,799 124,388
========= =========
For measurement purposes, a 9.0% and 9.5% annual rate of increase in the
per capita cost of average health care benefits for retirees was assumed
for 1998 and 1997, respectively. The rate was assumed to decrease
gradually to 5.0% by 2008 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated postretirement
benefit obligation at December 31, 1998 by $2,345, and the net periodic
postretirement benefit cost by $69,174 for the year then ended. The
weighted average discount rate used in determining the accumulated
postretirement obligation was 6.5% for 1998 and 7.0% for 1997.
(Continued)
F-18
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
Other Benefit Plans
In 1997, the Bank instituted a deferred compensation plan for Trustees
(the "Trustees' Deferred Compensation Plan"), under which participants
may elect to defer all or part of their annual trustee fees to fund the
Trustees' Deferred Compensation Plan. The plan provides that deferred
fees are to be invested in mutual funds, as selected by the individual
trustees. At December 31, 1998 and 1997, deferred trustees fees included
in other liabilities aggregated $183,654 and $83,569, respectively.
The Bank sponsors a defined contribution profit sharing 401(k) plan
covering substantially all employees. The Bank matches certain
percentages of each eligible employee's contribution to the plan. Expense
for the plan amounted to $37,583 and $47,409 in 1998 and 1997,
respectively.
(10) Regulatory Capital Requirements
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 framework 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 Tier I capital (as
defined) to average assets (as defined). Management believes, as of
December 31, 1998 and 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC
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 as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Bank's category.
(Continued)
F-19
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
The Bank's regulatory capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To Be "Well
Capitalized" Under
Actual Minimum Regulatory Regulatory Capital
Regulatory Capital Capital Requirements Requirements
----------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to risk weighted assets) $12,639,099 16.7% $ 6,046,720 8.0% $ 7,558,400 10.0%
Tier I Capital
(to risk weighted assets) 11,694,299 15.5 3,023,360 4.0 4,535,040 6.0
Tier I Capital
(to average assets) 11,694,299 10.7 4,387,200 4.0 5,484,000 5.0
As of December 31, 1997:
Total Capital
(to risk weighted assets) $12,154,623 19.9% $ 4,883,440 8.0% $ 6,104,300 10.0%
Tier I Capital
(to risk weighted assets) 11,391,623 18.7 2,441,720 4.0 3,662,580 6.0
Tier I Capital
(to average assets) 11,391,623 10.0 4,543,520 4.0 5,679,400 5.0
</TABLE>
(11) Commitments and Contingencies
In the normal course of business, there are various outstanding
commitments and contingent liabilities, such as guarantees, and
commitments to extend credit, which are not reflected in the accompanying
financial statements. The Bank does not anticipate losses as a result of
these transactions. Mortgage and other loan commitments outstanding at
December 31, 1998 and 1997 amounted to $2.4 million and $120,000,
respectively. Fixed interest rates on mortgage and other loan commitments
outstanding can change prior to closing only if interest rates decrease.
Variable rate loans float prior to closing. Outstanding commitments on
letters of credit at December 31, 1998 and 1997 amounted to $20,000 and
$90,500, respectively.
In February 1995, the Superintendent of Banks for the State of New York
seized Nationar, a check-clearing and trust company, freezing all of
Nationar's assets. On that date, the Bank had demand accounts with
Nationar of approximately $62,700, Nationar capital stock of $5,400,
Nationar preferred stock of $19,200, a pledged security of $80,000 held
by Nationar and Nationar capital debentures of $120,000. Based on
information set forth in certain publicly available documents, at the
time, management believed that there was a reasonable likelihood that the
Bank would not recover all amounts owed by Nationar. Accordingly,
management charged-off the Bank's investments in Nationar stock during
1995 and established additional loss provisions of $120,000 and $14,200
during 1995 and 1996, respectively, which were credited to noninterest
income. The Bank received distributions totaling $22,000, $54,000 and
$154,300 in 1998, 1997 and 1996 respectively. Total losses net of
distributions received over the three-year period, relating to Nationar,
were approximately $57,000.
(Continued)
F-20
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
In the normal conduct of business, the Bank is currently involved in
various litigation matters. In the opinion of management, the ultimate
disposition of these matters should not have a material adverse effect on
the financial position of the Bank.
(12) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, as
amended by SFAS No. 119, Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments, requires disclosures
about the fair value of financial instruments for which it is practicable
to estimate fair value. The definition of a financial instrument includes
many of the assets and liabilities recognized in the Bank's statement of
financial condition, as well as certain off-balance sheet items. Fair
value is defined in SFAS Nos. 107 and 119 as the amount at which a
financial instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used by the Bank in estimating
the fair values of its financial instruments:
(a) Cash and Cash Equivalents
For these short-term instruments that are available on demand or
that generally mature in ninety days or less, the carrying value
approximates fair value.
(b) Securities
Fair values for securities are based on quoted market prices,
where available. Where quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments.
(c) Loans
For variable rate loans that reprice frequently and have no
significant credit risk, fair values are based on carrying
amounts. The fair values of fixed rate loans are estimated through
discounted cash flow analyses using interest rates currently being
offered for loans with similar terms and credit quality.
Delinquent loans are valued using the discounted cash flow methods
described above. While credit risk is a component of the discount
rate used to value loans, delinquent loans are presumed to possess
additional risk. Therefore, the calculated fair values of loans
are reduced by the allowance for loan losses.
(Continued)
F-21
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
(d) Deposits
The fair values disclosed for demand, savings and money market
deposits are, by definition, equal to the carrying amounts payable
on demand at the reporting date. The fair value of fixed maturity
time deposits is estimated using a discounted cash flow approach.
This approach applies interest rates currently being offered on
these accounts to a schedule of weighted average expected monthly
maturities on time deposits.
The estimated fair values of the Bank's financial instruments as
of December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 6,606,570 6,606,570 6,764,210 6,764,210
Securities 28,513,899 28,575,748 21,361,914 21,395,779
Net loans 71,013,222 71,037,893 79,051,505 78,960,453
Financial liabilities:
Demand, savings and money
market deposits 58,317,194 58,317,194 58,201,436 58,201,436
Time deposits 38,247,054 38,214,263 39,697,366 39,693,795
Escrow deposits 1,318,444 1,318,444 1,458,361 1,458,361
</TABLE>
The fair value of commitments to extend credit are equal to the
deferred fees outstanding, as the contractual rates and fees
approximate those currently charged to originate similar
commitments.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
F-22
<PAGE>
<TABLE>
<S> <C>
============================================================================== ==============================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made, Oswego County Bancorp, Inc.
such information shall not be relied upon as having been authorized by Oswego (in organization)
County Bancorp, Oswego County Savings or Friedman, Billings and Ramsey & Co.,
Inc. This Prospectus does not constitute an offer to sell or a solicitation of (Holding Company for
an offer to buy any of the securities offered hereby to any person in any Oswego County Savings Bank)
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. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of Oswego County Bancorp or Oswego Up to 700,925 Shares
County Savings since any of the dates as of which information is furnished
herein or since the date hereof.
Common Stock
Table of Contents
Page
----
Summary..................................................
Selected Financial and Other Data........................
Risk Factors............................................. -------------------------------
Oswego County Bancorp, Inc...............................
Oswego County Savings Bank............................... PROSPECTUS
Oswego County MHC........................................
How We Intend to Use the Proceeds........................ -------------------------------
Market for the Common Stock..............................
Our Policy Regarding Dividends...........................
Oswego County Savings Bank Exceeds All
Regulatory Capital Requirements..........................
Capitalization...........................................
Pro Forma Data........................................... Friedman, Billings, Ramsey & Co., Inc.
Comparison of Valuation and Pro Forma
Information With No Foundation........................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................
Business ................................................
How We Are Regulated..................................... _______________, 1999
Taxation.................................................
Management...............................................
Proposed Management Purchases............................
Our Corporate Change and Stock Offering..................
Certain Restrictions on Acquisition of
Oswego County Bancorp and Oswego
County Savings .......................................
Description of Capital Stock of Oswego County
Bancorp...............................................
Transfer Agent and Registrar.............................
Experts..................................................
Legal and Tax Opinions...................................
Additional Information...................................
Index to Financial Statements............................
Until __________ ___, 199__ (90 days after the date of this prospectus), 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.
============================================================================== ==============================================
</TABLE>
109
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Compensation Consultant...................................... $ 20,000
SEC filing fees.............................................. 2,500
Department filing fees....................................... 10,000
Nasdaq filing fees .......................................... 1,200
Printing, postage and mailing ............................... 60,000
Legal fees .................................................. 150,000
Blue Sky filing fees and expenses............................ 10,000
Investment bankers and expenses.............................. 110,000
Investment bankers counsel................................... 40,000
Accounting fees.............................................. 125,000
Appraiser's fees............................................. 42,500
Conversion agent fees and expenses........................... 11,000
Miscellaneous................................................ 10,000
--------
Total........................................................ $592,200
========
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their capacity
as such. The Certificate of Incorporation of the Company provides that the
directors, officers, employees and agents of the Company shall be indemnified to
the full extent permitted by law. Such indemnity shall extend to expenses,
including attorney's fees, judgments, fines and amounts paid in the settlement,
prosecution or defense of the foregoing actions.
Article 9 of the Registrant's Certificate of Incorporation provides as follows:
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
II-1
<PAGE>
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 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
II-2
<PAGE>
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.
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.
Item 15 Recent Sales of Unregistered Securities
Not applicable.
II-3
<PAGE>
Item 16. Exhibits and Financial Statements Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 **Engagement Letter with Friedman, Billings, Ramsey & Co., Inc.
1.2 *Form of Agency Agreement with Friedman, Billings, Ramsey & Co., Inc.
2.1 Amended and Restated Plan of Reorganization from Mutual Savings Bank to
Mutual Holding Company and Plan of Stock Issuance.
3.1 **Certificate of Incorporation of Oswego County Bancorp, Inc.
3.2 **Bylaws of Oswego County Bancorp, Inc.
3.3 Restated New York Organization Certificate of Oswego County Savings
Bank
3.4 **Restated Bylaws of Oswego County Savings Bank
3.5 Restated Organization Certificate of Oswego County MHC
3.6 **Bylaws of Oswego County MHC
4.1 **Form of Stock Certificate of Oswego County Bancorp, Inc.
4.2 **Form of Stock Certificate of Oswego County Savings Bank
5.0 *Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: federal tax
matters
8.2 *Opinion re: New York tax matters
8.3 Letter of RP Financial, LC. re: Subscription Rights
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibits
5.0 and 8.1, respectively)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of RP Financial, LC.
24.0 Power of Attorney, included in signature pages
27.0 **Financial Data Schedule
99.1 *Appraisal Report of RP Financial, LC., dated March 5, 1999
99.2 *Subscription Order Form and Instructions
99.3 *Additional Solicitation Material
99.4 Proxy Statement and Form of Proxy
- ---------------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under
the rules of Regulation S-X.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, 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 of 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Form SB-2 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the State of New
York on March 18, 1999.
Oswego County Bancorp, Inc.
(in organization)
By: /s/ Gregory J. Kreis
-------------------------------
Gregory J. Kreis
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Gregory J. Kreis, his true and lawful
attorney, with full power to sign for each person and in such person's name and
capacity indicated below, and with full power of substitution, any and all
amendments to this Registration Statement, hereby ratifying and confirming such
person's signature as it may be signed by said attorney to any and all
amendments.
<TABLE>
<CAPTION>
Name Title Date
- ----------------------------------- ---------------------------------- ---------------------------
<S> <C> <C>
/s/ Gregory Kreis Director, President and March 18, 1999
- ---------------------------- Chief Executive Officer
Gregory J. Kreis
/s/ Robert H. Hillick Senior Vice President and March 18, 1999
- ---------------------------- Treasurer
Robert H. Hillick
/s/ Michael R. Brower Director March 18, 1999
- ----------------------------
Michael R. Brower
/s/ Bruce P. Frassinelli Chairman of the Board March 18, 1999
- ----------------------------
Bruce P. Frassinelli
/s/ Paul J. Heins Director March 18, 1999
- ----------------------------
Paul J. Heins
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
- ----------------------------------- ---------------------------------- ---------------------------
<S> <C> <C>
/s/ Paul W. Schneible Director March 18, 1999
- ----------------------------
Paul W. Schneible
/s/ Bernard Shapiro Director March 18, 1999
- ----------------------------
Bernard Shapiro
/s/ Carl K. Walrath Director March 18, 1999
- ----------------------------
Carl K. Walrath
</TABLE>
II-7
Ehibit 2.1
OSWEGO COUNTY SAVINGS BANK
AMENDED AND RESTATED PLAN OF REORGANIZATION
FROM MUTUAL SAVINGS BANK TO MUTUAL HOLDING COMPANY
AND PLAN OF STOCK ISSUANCE
1. GENERAL.
On March 19, 1998, the Board of Trustees of Oswego County Savings Bank
(the "Bank" or "Oswego"), a New York-chartered, mutual savings bank, adopted a
Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company,
pursuant to which the Bank proposed to reorganize into the mutual holding
company form of organization pursuant to the laws of the State of New York (the
"MHC Reorganization"). On December 17, 1998, the Bank's Board of Trustees
determined to amend and restate the Bank's Plan of Reorganization and adopted an
Amended and Restated Plan of Reorganization and Plan of Stock Issuance (the
"Plan"). The December 17, 1998 amendment to the Plan included provisions for (i)
the organization of a mid-tier stock holding company that will hold all of the
common stock of the Bank following the MHC Reorganization; (ii) the public
offering by the mid-tier stock holding company of a minority ownership interest
in its common stock; and (iii) the organization of a charitable foundation.
As part of the MHC Reorganization, the Bank will (i) organize an
interim New York stock savings bank as a wholly owned subsidiary ("Interim
One"); (ii) Interim One will organize an interim New York stock savings bank as
a wholly owned subsidiary ("Interim Two"); (iii) Interim One will organize a
Delaware stock corporation ("SHC") as a wholly owned subsidiary of Interim One;
(iv) the Bank will convert to stock form and exchange its charter for a New York
stock savings bank charter ("Stock-form Bank"); (v) the shares of Interim One
will be cancelled and its charter will be exchanged for a New York mutual
holding company charter ("MHC"); (vi) Interim Two will merge with and into the
Stock-form Bank, with Stock-form Bank surviving as a subsidiary of MHC; (vii)
depositors of the Bank will hold certain liquidation and limited voting rights
in the MHC; and (viii) the MHC will transfer all of the outstanding shares of
Stock-form Bank to SHC. The MHC Reorganization shall be accomplished in
accordance with the procedures set forth in this Plan and the requirements of
applicable laws and regulations and the policies of the Banking Department of
the State of New York (the "Department").
Upon consummation of the MHC Reorganization, the converted Stock-form
Bank will be deemed to be a continuation of the Bank, and all property of the
Bank, including its right, title and interest in and to all property of whatever
kind and nature, all interests and assets previously existing or pertaining to
the Bank, or which would issue to the Bank immediately by operation of law and
without the necessity of any conveyance or transfer and without any further act
or deed, will vest in the Stock-form Bank. The Stock-form Bank will have, hold
and enjoy the same in its right and fully to the same extent as the same was
possessed, held and enjoyed by the Bank. The Stock-form Bank will continue to
have, succeed to, and be responsible for all rights, liabilities and obligations
of the Bank and, immediately upon consummation of the MHC Reorganization, will
continue its main office, its branch offices and other operations at the then
current locations of the Bank.
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This Plan is subject to the approval of the Department and the FDIC and
must receive the affirmative vote of its depositors by the margins set forth in
Section 3 of this Plan. Implementation of this Plan also is subject to the
approval of all other applicable regulatory authorities, as well as the receipt
of favorable rulings or opinions as to the tax consequences of the MHC
Reorganization.
The MHC Reorganization will enable the Bank to raise new equity capital
through the issuance and sale of shares of capital stock of the SHC. Ready
access to new sources of capital not historically available to mutual savings
institutions will allow the Bank the flexibility to enhance its capital position
more rapidly than by accumulating earnings, and at times deemed advantageous by
the Boards of Directors of the Stock-form Bank and the SHC, thereby supporting
future deposit growth and expanded operations (including increased lending and
investment activities) as business and regulatory needs dictate. The ability to
attract new capital also will assist in increasing the capabilities of the Bank
to address the needs of the communities it serves, as well as enhance its
ability to effect acquisitions. The ability of the SHC to issue capital stock
also will enable the SHC and the Stock-form Bank to establish stock compensation
plans for directors, officers and employees, thereby granting them equity
interests in the SHC and greater incentive to improve its performance.
It is anticipated that the SHC will conduct an initial offering of its
common stock (which in the aggregate shall be 49% or less of the total
to-be-outstanding common stock of the SHC) following consummation of the MHC
Reorganization (the "Stock Offering"), subject to the approval of the Board of
Directors of the SHC and the Department. The actual issuance of shares of common
stock of the SHC in this manner shall not be a condition to the MHC
Reorganization, unless otherwise required by the Board of Trustees of the Bank.
As part of the MHC Reorganization, and consistent with the Bank's
ongoing commitment either to combine with Oswego City or 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
SHC may donate to the charitable foundation immediately following the MHC
Reorganization cash, securities or Common Stock in an amount equal to up to 4%
of the Common Stock issued in the Stock Offering.
In adopting this Plan, the Board of Trustees of the Bank determined
that the MHC Reorganization was advisable and in the best interests of the Bank
and its depositors.
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2. DEFINITIONS.
In most cases, the meaning of the terms used in this Plan are made
clear from their context and the language of the Plan. Certain of these terms,
however, require further explanation, as follows:
2.1. "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 another 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.
2.2. "Actual Purchase Price" means the price per share at which the
Common Stock is ultimately sold by the SHC to Participants in the Subscription
Offering and Persons in the Community Offering and/or Syndicated Community
Offering in accordance with the terms hereof.
2.3. "Affiliate" means a Person who, directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified.
2.4. "Associate," when used to indicate a relationship with any Person,
means (i) a corporation or organization (other than the Bank, MHC or a
majority-owned subsidiary of either of the same) 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 (exclusive of any
tax-qualified employee stock benefit plan and any non-tax-qualified employee
stock benefit plan of the Bank or the SHC in which such Person has a substantial
beneficial interest or serves as a 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 or
the Stock-form Bank or any of their subsidiaries; and (iv) any Person acting in
concert with any of the Persons or entities specified in clauses (i) through
(iii) above.
2.5. "Bank" means Oswego County Savings Bank, a New York-chartered
mutual savings bank.
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2.6. "Banking Board" means the New York Banking Board.
2.7. "BHCA" means the Bank Holding Company Act of 1956, as amended.
2.8. "Capital Stock" means any and all authorized capital stock of the
SHC.
2.9. "Code" means the Internal Revenue Code of 1986, as amended.
2.10. "Common Stock" means common stock, par value $0.01 per share, of
the SHC.
2.11. "Community Offering" means the offering for sale by the SHC of
any shares of Common Stock not subscribed for in the Subscription Offering to
certain Persons who receive a Prospectus, with a preference to natural persons
residing in Oswego County, New York.
2.12. "Department" means the Banking Department of the State of New
York or any successor thereto.
2.13. "Deposit Account" means withdrawable or repurchasable shares,
investment certificates or deposits or other savings accounts, including money
market deposit accounts, negotiable order of withdrawal accounts and demand
accounts, held by an account holder or depositor of the Bank.
2.14 "Depositors" means the holders of Qualifying Deposits on the
Voting Record Date.
2.15. "Director, Trustee, Officer and Employee" means the terms as
applied respectively to any Person who is a Director, Trustee, Officer or
Employee of the Bank, the Stock-form Bank, the SHC, the MHC or any subsidiary
thereof.
2.16. "Effective Date" means the date upon which the MHC Reorganization
is completed pursuant to this Plan and applicable laws and regulations.
2.17. "Eligible Account Holder" means any Person holding a Qualifying
Deposit on the Eligibility Record Date for purposes of determining eligibility
for Subscription Rights.
2.18. "Eligibility Record Date" means the date for determining
Qualifying Deposits of Eligible Account Holders and is the close of business on
September 30, 1997.
2.19. "Employee" means any person who is a full or part-time employee
of the Bank or the Stock-form Bank at the Effective Date.
2.20. "Estimated Price Range " means the range of the estimated
aggregate pro forma market value of the total number of shares of Common Stock
to be issued in the Stock Issuance, as determined by the Independent Appraiser
in accordance with Section 9 hereof.
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2.21. "FDIC" means the Federal Deposit Insurance Corporation.
2.22. "FRB" means the Board of Governors of the Federal Reserve System.
2.23. "Foundation" means the charitable foundation organized in
connection with this Plan.
2.24. "Independent Appraiser" means the independent investment banking
or financial consulting firm retained by the Bank to prepare the Independent
Valuation.
2.25. "Independent Valuation" means the estimated pro forma market
value of the Common Stock to be outstanding upon consummation of the MHC
Reorganization and the Stock Issuance, as determined by the Independent
Appraiser in accordance with Section 9 hereof.
2.26. "Initial Purchase Price" means the price per share to be paid
initially by Participants for shares of Common Stock subscribed for in the
Subscription Offering and by Persons for shares of Common Stock ordered in the
Community Offering and/or Syndicated Community Offering.
2.27. "Insider" means any officer, trustee or director of the Bank or
any Affiliate of the Bank, and any Person acting in concert with any such
officer, trustee or director.
2.28. "MHC" means the mutual holding company resulting from the MHC
Reorganization, which mutual holding company shall be named "Oswego County MHC"
or such other name as may be selected by the Board of Trustees of the MHC.
2.29. "MHC Reorganization" collectively means all steps which are
necessary for the Bank to reorganize into the mutual holding company form of
organization in the manner specified herein.
2.30. "Merger" means the merger of the Bank with and into the
Stock-form Bank pursuant to the terms of the Agreement of Merger included as
Appendix A hereto.
2.31. "NYBL" means the New York Banking Law.
2.32. "Offerings" means the Subscription Offering, the Community
Offering and the Syndicated Community Offering or Public Offering.
2.33. "Officer" means the chairman of the Board of Trustees, president,
vice-president, secretary, treasurer or principal financial officer,
comptroller or principal accounting officer and any other Person performing
similar functions with respect to any organization, whether incorporated or
unincorporated.
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2.34. "Order Form" means the form provided on behalf of the Bank,
containing all such terms and provisions as set forth in Section 18 hereof, to a
Person by which Common Stock may be ordered in the Stock Offering.
2.35. "Other Investors" means Persons within or without the State of
New York who may be offered the opportunity to purchase Common Stock in the
Stock Offering to be conducted by the Bank pursuant to this Plan.
2.36. "Participant " means any Eligible Account Holder, Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holder, and Director,
Trustee, Officer and Employee.
2.37. "Person" means any corporation, partnership, trust,
unincorporated association or any other entity or a natural person.
2.38. "Plan" means this Amended and Restated Plan of Reorganization
from Mutual Savings Bank to Mutual Holding Company and Plan of Stock Issuance,
including all Appendices hereto, as adopted by the Board of Trustees of the Bank
and as may be amended from time to time pursuant to the terms hereof.
2.39. "Preferred Stock" means any and all authorized Preferred Stock of
the SHC.
2.40. "Prospectus" means the one or more documents to be used in
offering the Common Stock in the Subscription Offering and, to the extent
applicable, Community Offering and Syndicated Community Offering and for
providing information to Participants and other Persons in connection with such
offerings.
2.41. "Public Offering" means an underwritten firm commitment offering
to the public through one or more underwriters.
2.42. "Purchase Price" means the uniform price per share at which the
Common Stock is ultimately sold by the SHC to Persons in the Stock Offering in
accordance with the terms hereof.
2.43. "Qualifying Deposit" means the aggregate balance of all Deposit
Accounts of each account holder or depositor in the Bank at the close of
business on the Eligibility Record Date, the Supplemental Record Date or the
Voting Record Date, as the case may be, provided such aggregate balance is not
less than $100.00.
2.44. "SEC" means the Securities and Exchange Commission.
2.45. "SHC" means "Oswego County Bancorp, Inc.," a to-be-formed
Delaware stock corporation, which, upon consummation of the MHC Reorganization,
shall own 100% of the issued and outstanding shares of capital stock of the
Stock-form Bank and which shall be a majority-owned subsidiary of the MHC.
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2.46. "Special Meeting" means the Special Meeting of Depositors of the
Bank called for the sole purpose of submitting this Plan and related documents
to the Depositors for their approval or disapproval, including any adjournment
of such meeting.
2.47. "Stock-form Bank" means Oswego County Savings Bank, a New
York-chartered, stock subsidiary of the SHC upon consummation of the MHC
Reorganization.
2.48. "Stock Offering" means the offering for sale by the SHC of shares
of Common Stock to the Persons and in the priorities set forth in Section 10 of
this Plan, subject to the other provisions of this Plan, including without
limitation the limitations on purchases of Common Stock set forth in Section 16
hereof.
2.49. "Subscription Offering" means the offering of the Common Stock to
Participants.
2.50. "Subscription Rights" means non-transferable rights to subscribe
for Common Stock granted to Participants pursuant to the terms of this Plan.
2.51. "Superintendent" means the Superintendent of the Banking
Department of the State of New York.
2.52. "Supplemental Eligibility Record Date" if applicable, means the
date for determining Qualifying Deposits of Supplemental Eligible Account
Holders and shall be required by the FDIC if the Eligibility Record Date is more
than 15 months prior to the date of the latest amendment to the Notice of Intent
to Convert to the Stock Form and the Application for Approval of a Mutual
Savings Bank Holding Company Reorganization filed prior to approval of such
notice and application by the FDIC and the Superintendent, respectively. If
applicable, the Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding the FDIC and the Superintendent nonobjection and
approval of such notice and application submitted by the Bank pursuant to the
Plan.
2.53. "Supplemental Eligible Account Holder" if applicable, means any
Persons, except Trustees and Officers of the Bank and their Associates, holding
a Qualifying Deposit at the close of business on the Supplemental Eligibility
Record Date.
2.54. "Syndicated Community Offering " means the offering for sale by a
syndicate of broker-dealers to the general public of shares of Common Stock not
purchased in the Subscription Offering and the Community Offering.
2.55. "Tax-Qualified Employee Stock Benefit Plan" means any defined
benefit plan or defined contribution plan, such as an employee stock ownership
plan, stock bonus plan, profit- sharing plan or other plan, which is established
for the benefit of the Employees of the Bank, the MHC, the SHC, the Stock-form
Bank or any of its Affiliates and which, with its related trust, meets the
requirements to be qualified under Section 401 of the Code as from time to time
in effect. A
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("Non-Tax-Qualified Employee Stock Benefit Plan") is any defined benefit plan or
defined contribution plan which is not so qualified.
2.56. "Voting Record Date" means the date for determining the
eligibility of Depositors to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR THE MHC REORGANIZATION.
The Bank shall provide the Superintendent with written notice of the
proposed MHC Reorganization. Such notice shall include a copy of this Plan, the
proposed organization certificate and bylaws for MHC, the SHC and the Stock-form
Bank and such other information as is required by applicable laws and
regulations or as the Superintendent may otherwise require. After the Bank's
adoption of the Plan, the Bank shall provide public notice of its plan to
reorganize. Such notice shall also be made by means of the posting of a notice
in a conspicuous place in its branch offices (which term shall not include
separate electronic facilities), the issuance of a press release containing all
material details of the proposed MHC Reorganization (and such other information
required to make the press release not false or misleading) and the placing of
an advertisement containing such material details (and such other information,
if any) in a newspaper of general circulation in the communities where the
principal office and branches of the Bank are located. In addition to the
foregoing, the Bank shall file such applications, publish such notices and take
such other action as may be necessary to obtain the approval of the
Superintendent and, to the extent required, the Banking Board, of this Plan and
the transactions contemplated hereby.
Simultaneously with or as soon as practicable after the Bank's
submission to the Superintendent of its application to reorganize, the Bank and
the Stock-form Bank shall submit to the FDIC a notice of its intent to
reorganize into a mutual holding company organization and applications to secure
deposit insurance for the Stock-form Bank and to obtain permission to merge the
Bank with and into the Stock-form Bank pursuant to the Agreement of Merger
included as Appendix A hereto. In connection therewith, the Bank and the
Stock-form Bank shall cause the publication of such notices and take such other
actions as may be required by applicable laws and regulations. Approval of such
applications by the FDIC is a condition precedent to consummation of the MHC
Reorganization.
Simultaneously with or as soon as practicable after the Bank's
submission to the Superintendent of its application to reorganize, the MHC shall
submit an application to the FRB pursuant to Section 3 of the BHCA to acquire
the SHC and the Stock-form Bank and to operate them after the MHC
Reorganization. Simultaneously with or as soon as practicable after the Bank's
submission to reorganize, SHC shall submit an application to the FRB pursuant to
Section 3 of the BHCA to acquire the Stock-form Bank and to operate the
Stock-form Bank after the MCH Reorganization. In connection therewith, the MHC,
the SHC and the Stock-form Bank shall cause the publication of such notices and
take such other actions as may be required by applicable laws and regulations.
Approval of such applications by the FRB is a condition precedent to the
consummation of the MHC Reorganization.
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When the Superintendent shall have determined to approve or disapprove
the Plan or the MHC Reorganization, the Superintendent shall so advise the Bank
in writing. In order to approve the Plan, no provision contained in this Plan
may be determined by the Superintendent to be inequitable or detrimental to any
of the Bank, MHC, the SHC, the Stock-form Bank or the depositors of the Bank, or
to be contrary to the public interest.
If this Plan is approved by the Superintendent, and following the
receipt of all other required regulatory approvals, the Superintendent shall
endorse approval on an organization certificate for each of the MHC and the
Stock-form Bank and cause them to be filed in the office of the Superintendent
and with the clerk of the county in which the principal office of each is
located. Upon the filing of such organization certificates, the existence of MHC
and the Stock-form Bank shall commence.
If approved by the Superintendent, the Bank shall submit this Plan, as
well as the organization certificate and bylaws of the MHC and the Stock-form
Bank to be effective upon consummation of the MHC Reorganization, to the Bank's
Eligible Account Holders for approval at the Special Meeting, which shall be
held upon written notice given no less than 20 days nor more than 45 days prior
to the date of such meeting. Such notice shall be sent by first class mail
postage prepaid and shall consist of a notice of Special Meeting and be
accompanied by a proxy statement and proxy card which includes such information
as is required by applicable laws and regulations or as the Superintendent
otherwise may require. At the Special Meeting, (i) all Depositors shall be
entitled to approve or disapprove this Plan, either in person or by valid proxy,
(ii) each Eligible Account Holder shall be entitled to cast one vote for each
full $100 of Qualifying Deposits, (iii) no Eligible Account Holder shall be
entitled to cast more than 1,000 votes, and (iv) no specific minimum amount of
Qualifying Deposits shall be required to be present either in person or by proxy
at the Special Meeting in order to constitute a quorum for the transaction of
business. This Plan must be approved by the affirmative vote of (i) at least 75%
of the aggregate dollar amount of the book value of deposits of the Bank
represented at the Special Meeting either in person or by valid proxy and
entitled to vote there at and (ii) at least a majority of the total votes
eligible to be cast by Depositors entitled to vote at the Special Meeting.
Within five days after the Special Meeting, the President and Secretary of the
Bank shall certify to the Superintendent the result of the vote taken at such
meeting.
Following the approval of the Depositors of this Plan and the receipt
of all required regulatory approvals, including without limitation the
Superintendent, the Banking Board, the FDIC and the FRB, the Bank will (i)
organize Interim One; (ii) Interim One will organize Interim Two; (iii) Interim
One will organize SHC as a wholly owned subsidiary of Interim One; (iv) the Bank
will convert to stock form and exchange its charter for a New York stock savings
bank charter (Stock- form Bank); (v) the shares of Interim One will be cancelled
and its charter will be exchanged for a New York mutual holding company charter;
(vi) Interim Two will merge with and into the Stock- form Bank, with the
Stock-form Bank surviving as a subsidiary of the MHC; (vii) former depositors of
the Bank will have limited voting and liquidated interests in the MHC; and
(viii) the MHC will transfer all of the outstanding shares of Stock-form Bank to
the SHC. The MHC will have an
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Organization Certificate and Bylaws in the form attached hereto as Exhibits A
and B, respectively, which are incorporated herein. Additionally, the SHC will
have an Organization Certificate and Bylaws in the form attached hereto as
Exhibits C and D, respectively, and the Stock-form Bank will have an
Organization Certificate and Bylaws in the form attached hereto as Exhibits E
and F, respectively, which are incorporated herein by reference.
Upon consummation of the MHC Reorganization, substantially all of the
assets and liabilities of the Bank shall be vested in the Stock-form Bank as the
survivor of the merger of Interim Two into the Stock-form Bank. All assets,
rights, obligations and liabilities of whatever nature of the Bank that are not
expressly retained by the MHC shall be deemed transferred to the Stock-form
Bank.
The trustees and officers of the Bank shall take all appropriate
actions to facilitate the MHC Reorganization, including obtaining insurance of
deposits for the Stock-form Bank, taking all appropriate actions to effect the
transactions referenced in the immediately preceding paragraph and preparing,
filing and prosecuting such applications, filings and notices as may be required
under applicable laws and regulations and policies of the Department and the
FDIC to effect the MHC Reorganization.
As a result of the MHC Reorganization, the Bank will become a New
York-chartered stock- form savings bank and a wholly owned subsidiary of the
SHC, and the SHC will be a majority owned subsidiary of the MHC.
4. POWERS AND AUTHORITIES OF THE MHC, THE SHC AND THE STOCK- FORM BANK.
The rights and powers of the MHC, the SHC and the Stock-form Bank upon
consummation of the MHC Reorganization will be as specified in their respective
Organization Certificate and Bylaws, applicable laws and regulations (including,
in the case of the MHC and SHC, the BHCA and rules and regulations thereunder)
and policies of governing regulatory authorities. In addition, although the SHC
will be organized under the laws of the State of Delaware, it may also be
subject to rules and policies under New York law and the oversight of the
Superintendent.
Upon consummation of the MHC Reorganization, the MHC and SHC shall (i)
possess all the rights, powers and privileges, except deposit-taking powers, and
shall be subject to all the limitations, not inconsistent with Article VI-C of
the NYBL, of a mutual savings bank under Articles VI and XVI of the NYBL, and
(ii) be subject to the BHCA, provided that, notwithstanding anything herein to
the contrary, the MHC and the SHC shall not exercise any rights, powers or
privileges pursuant to any provision of federal law applicable to bank holding
companies or savings and loan holding companies which are not also authorized
under Article VI of the NYBL.
Notwithstanding any inconsistent provisions of Sections 14-e, 600, 601,
601-a or 601-b of the NYBL, and subject to the General Regulations of the
Banking Board, the MHC may:
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(a) merge with, acquire or purchase the assets of a mutual holding
company established pursuant to Article VI-C of the NYBL or the savings
and loan holding company provisions of the Home Owners' Loan Act, as
amended;
(b) acquire or purchase the assets or stock of a stock savings bank, a
stock savings and loan association, a stock federal savings bank or a
stock federal savings and loan association;
(c) acquire a mutual savings bank, a mutual savings and loan
association, a federal mutual savings bank or a federal mutual savings
and loan association through the merger of such institutions with a
stock subsidiary of such mutual holding company; and
(d) engage in any other acquisition or combination specifically
permitted by general or special regulations promulgated by the Banking
Board; provided, however, that under current law the Banking Board
shall have no power to permit any insurance activities other than those
expressly authorized under the NYBL or to expand by interpretation the
express provisions of federal law set forth in the BHCA.
Except to the extent permitted in Sections 3(f)(2) and (3) of the BHCA
and authorized by the NYBL, the powers of the MHC and the SHC shall not include
the power to directly or indirectly engage in: the sale or underwriting of
insurance; the formation or acquisition of an insurance agency or an insurance
company; or the issue, sale, distribution and underwriting of, or to deal in,
any security arising out of a contract issued by an insurance company and
subject to the supervision of the Superintendent of Insurance of the State of
New York.
The MHC and the SHC may not dispose of any interest in the common stock
of Stock-form Bank upon consummation of the MHC Reorganization except (i)
pursuant to an offering of common stock of the Bank following consummation of
the MHC Reorganization conducted in compliance with Article VI-C of the NYBL and
Parts 86 and 111 of the General Regulations of the Banking Board or (ii)
pursuant a pledge of such stock to secure borrowings upon the receipt of written
approval of the Superintendent.
Except to the extent such provisions are inconsistent with Article VI-C
of the NYBL, upon consummation of the MHC Reorganization the Bank shall be
subject to the same provisions of the NYBL as apply to savings banks which have
converted to stock form pursuant to Sections 14-e and 9019 of the NYBL.
Following consummation of the MHC Reorganization, the SHC shall have
authority to issue to Persons other than the MHC an amount of common stock and
securities convertible into common stock which in the aggregate is no more than
49% of the issued and outstanding common stock of the SHC, which authority shall
be conducted in accordance with the requirements of Article VI-C of the NYBL and
Parts 86 and 111 of the General Regulations of the Banking Board. Following
consummation of the MHC Reorganization, the SHC and the Bank also shall have
authority to issue equity or debt securities other than common stock and
securities convertible into common stock,
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subject to the terms of its organization certificate, including any amendments
thereto and any required regulatory approvals.
5. TAX CONSEQUENCES.
Consummation of the MHC Reorganization is expressly conditioned upon
prior receipt by the Bank and/or the SHC of (i) a ruling of the United States
Internal Revenue Service and/or an opinion of counsel to the effect that the MHC
Reorganization will not result in any gain or loss for federal income tax
purposes to the Bank, the Stock-form Bank, the MHC, the SHC or Depositors; and
(ii) a ruling and/or an opinion of counsel or tax advisor with respect to New
York taxation, to the effect that consummation of the MHC Reorganization will
not result in a taxable reorganization under the provisions of the applicable
codes or recapture of income or bad debt reserves by the MHC, the SHC, the Bank
or the Stock-form Bank.
6. TRANSFER OF DEPOSIT ACCOUNTS.
Each Deposit Account in the Bank at the time of the MHC Reorganization
will become, without further action by the account holder, a Deposit Account in
the Stock-form Bank after the MHC Reorganization, equivalent in withdrawable
amount to the withdrawal value, and subject to the same terms and conditions
(except as to liquidation rights), as such Deposit Account in the Bank at the
time of the MHC Reorganization.
7. VOTING AND OTHER RIGHTS OF SHAREHOLDERS OF THE STOCK-FORM
BANK.
Following the MHC Reorganization, voting rights with respect to the
Stock-form Bank will be held and exercised exclusively by the holder or holders
of the capital stock of the Stock-form Bank. Neither depositors in nor borrowers
from the Stock-form Bank will have any voting rights with respect to the
Stock-form Bank in their capacities as such.
8. LIQUIDATION RIGHTS.
(a) In the event of a liquidation of the subsidiary savings bank(s) and
subject to the rights of creditors, the depositors of the MHC's subsidiary
savings bank(s) as of the date of the liquidation shall have the right to the
entire net worth of the MHC. The amount distributed in a liquidation shall not
be a fixed amount but may increase or decrease over time. The rights of the
depositor of the MHC's subsidiary savings bank(s) to the MHC's net worth shall
not operate to restrict the use or application of the MHC's net worth accounts.
(b) In the event of a complete liquidation of the MHC, the entire net
worth of the MHC shall be distributed ratably among all the depositors of its
subsidiary savings bank(s) as of the date of the liquidation.
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(c) Upon the conversion of the MHC from a mutual to a stock-form
holding company pursuant to the terms of Section 23 hereof, the amount available
to the depositor of the MHC's subsidiary savings bank(s) shall become fixed as
of the date of the statement of financial condition contained in the final
offering circular utilized in the mutual-to-stock conversion. Each subsidiary
savings bank shall at that time establish a liquidation account, which
liquidation account shall in the aggregate equal the net worth of the subsidiary
savings bank as set forth in its latest statement of financial condition
contained in the offering circular utilized in the mutual-to stock conversion.
The liquidation account established by a subsidiary savings bank shall comply
with the rules contained in Section 86.4(g) of the General Regulations of the
Bank Board.
9. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF COMMON STOCK.
(a) The price at which shares of Common Stock shall be sold shall be
based on a pro forma valuation of the aggregate market value of the Common Stock
prepared by the Independent Appraiser. The valuation shall be based on financial
information relating to the SHC and the Bank, economic and financial conditions,
a comparison of the SHC and the Bank with selected publicly held financial
institutions and holding companies and with comparable financial institutions
and mutual holding companies and such other factors as the Independent Appraiser
may deem to be important, including, but not limited to, the projected operating
results and financial condition of the SHC and the Bank. The valuation shall be
stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Offerings as
market and financial conditions warrant and as may be required by the
Superintendent and the FDIC.
(b) Based upon the Independent Valuation, the Boards of Directors of
the SHC and the Bank shall fix the Initial Purchase Price and the number of
shares of Common Stock to be offered in the Subscription Offering, Community
Offering and/or Syndicated Community Offering. The Actual Purchase Price and the
total number of shares of Common Stock to be issued in the Offerings shall be
determined by the Boards of Directors of the SHC and the Bank upon conclusion of
such offerings in consultation with the Independent Appraiser and any financial
advisor or investment banker retained by the Bank in connection with such
offerings.
(c) Subject to the approval of the Superintendent and the FDIC, the
Estimated Price Range may be increased or decreased to reflect market and
economic conditions prior to completion of the Offerings and under such
circumstances the SHC may increase or decrease the total number of shares of
Common Stock to be issued in the Offerings to reflect any such change.
Notwithstanding anything to the contrary contained in this Plan, no
resolicitation of subscribers shall be required and subscribers shall not be
permitted to modify or cancel their subscriptions unless the gross proceeds from
the sale of the Common Stock issued in the Offerings are less than the minimum
or more than 15% above the maximum of the Estimated Price Range set forth in the
Prospectus. In the event of an increase in the total number of shares offered in
the Offerings due to
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an increase in the Estimated Price Range, the priority of share allocation shall
be as set forth in this Plan.
10. GENERAL PROCEDURE FOR THE STOCK OFFERING.
(a) As soon as practicable after the registration of the Common Stock
under the Securities Act of 1933, as amended, and after the receipt of all
required regulatory approvals, the Common Stock shall be first offered for sale
in a Subscription Offering to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, Trustees, Officers
and Employees. In the event of an oversubscription of shares of Common Stock,
the shares shall be sold, subject to the formulae set forth in Sections 11
through 14 of this Plan, in the following order of preference: (i) Eligible
Account Holders; (ii) Tax Qualified Employee Stock Benefit Plans; (iii)
Supplemental Eligible Account Holders; and (iv) Trustees, Officers and
Employees. It is anticipated that any shares of Common Stock remaining unsold
after the Subscription Offering will be sold through a Community Offering and/or
a Syndicated Community Offering. The purchase price per share for the Common
Stock shall be a uniform price determined in accordance with Section 9 hereof.
(b) The SHC and the Bank may retain and pay for the services of
financial and other advisors and investment bankers to assist in connection with
any or all aspects of the Offerings, including in connection with the
Subscription Offering, Community Offering and/or any Syndicated Community
Offering, the payment of fees to brokers and investment bankers for assisting
Persons in completing and/or submitting Order Forms. All fees, expenses,
retainers and similar items shall be reasonable.
11. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Each Eligible Account Holder shall receive, without payment,
non-transferable Subscription Rights to purchase up to the greater of (i)
$150,000 of Common Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering or
Public Offering), (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering or (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
offered in the Subscription Offering by a fraction, of which the numerator is
the amount of the Qualifying Deposits of the Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Eligible
Account Holders.
(b) In the event of an oversubscription for shares of Common Stock
pursuant to Section 5(a), available shares shall be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible Account Holder, to
the extent possible, to purchase a number of shares which will make his or her
total allocation equal to the lesser of the number of shares subscribed for or
100 shares. Any available shares remaining after each subscribing Eligible
Account Holder has been allocated the lesser of the number of shares subscribed
for or 100 shares shall be allocated among
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the subscribing Eligible Account Holders in the proportion which the Qualifying
Deposit of each such subscribing Eligible Account Holder bears to the total
Qualifying Deposits of all such subscribing Eligible Account Holders, provided
that no fractional shares shall be issued. Subscription Rights of Eligible
Account Holders who are also Trustees or Officers of the Bank and their
Associates shall be subordinated to those of other Eligible Account Holders to
the extent that they are attributable to increased deposits during the one year
period preceding the Eligibility Record Date.
12. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT
PLANS
Tax-Qualified Employee Stock Benefit Plans, including the employee
stock ownership plan to be established by the Bank ("ESOP"), shall receive,
without payment, non-transferable Subscription Rights to purchase in the
aggregate up to 10% of the Common Stock, including shares of Common Stock to be
issued in the Offerings as a result of an increase in the Estimated Price Range
after commencement of the Subscription Offering and prior to completion of the
Offering. The subscription rights granted to Tax-Qualified Employee Stock
Benefit Plans shall be subject to the availability of shares of Common Stock
after taking into account the shares of Common Stock purchased by Eligible
Account Holders. Shares of Common Stock purchased by any individual participant
("Plan Participant") in a Tax-Qualified Employee Stock Benefit Plan using funds
therein pursuant to the exercise of subscription rights granted to such
Participant in his individual capacity as an Eligible Account Holder and/or
Supplemental Eligible Account Holder and/or purchases by such Plan Participant
in the Community Offering shall not be deemed to be purchases by a Tax-
Qualified Employee Stock Benefit Plan for purposes of calculating the maximum
amount of Common Stock that Tax-Qualified Employee Stock Benefit Plans may
purchase pursuant to the first sentence of this Section 12 if the individual
Plan Participant controls or directs the investment authority with respect to
such account or subaccount. Consistent with applicable laws and regulations and
policies and practices of the Superintendent and the FDIC, the ESOP may use
funds contributed by the SHC or the Bank and/or borrowed from an independent
financial institution to exercise such Subscription Rights, and the SHC and the
Bank may make scheduled discretionary contributions thereto, provided that such
contributions do not cause the SHC or the Bank to fail to meet any applicable
capital maintenance requirements.
13. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS.
(a) Each Supplemental Eligible Account Holder shall receive, without
payment, non-transferable Subscription Rights to purchase up to the greater of
(i) $150,000 of Common Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering or
Public Offering), (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering or (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
offered in the Subscription Offering by a fraction, of which the numerator is
the amount of the Qualifying Deposits
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of the Supplemental Eligible Account Holder and the denominator is the total
amount of all Qualifying Deposits of all Supplemental Eligible Account Holders,
subject to the availability of shares of Common Stock for purchase after taking
into account the shares of Common Stock purchased by Eligible Account Holders
and the ESOP through the exercise of Subscription Rights under Sections 11 and
12 hereof.
(b) In the event of an oversubscription for shares of Common Stock
pursuant to Section 13(a), available shares shall be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation (including the number of shares,
if any, allocated in accordance with Section 11(a)) equal to the lesser of the
number of shares subscribed for or 100 shares. Any remaining available shares
shall be allocated among subscribing Supplemental Eligible Account Holders in
the proportion that the amount of their respective Qualifying Deposits bears to
the total amount of the Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders, provided that no fractional shares shall be issued.
14. SUBSCRIPTION RIGHTS OF TRUSTEES, OFFICERS AND EMPLOYEES.
(a) To the extent that there are sufficient shares remaining after
satisfaction of all subscriptions under the above categories, Trustees, Officers
and Employees of the Bank shall receive, without payment, non-transferable
subscription rights to purchase in this category, in the aggregate, up to 24% of
the shares of Common Stock offered in the Subscription Offering.
(b) In the event of oversubscription pursuant to Section 14(a),
Subscription Rights for the purchase of such shares shall be allocated among the
individual Trustees, Officers and Employees of the Bank on a point system basis,
whereby a point will be assigned for each year of employment and for each salary
increment of $5,000 per annum and five points for each office held in the Bank,
including a trusteeship. If any such Trustee, Officer or Employee does not
subscribe for his or her full allocation of shares, any shares not subscribed
for may be purchased by other Trustees, Officers and Employees in proportion to
their respective subscriptions, provided that no fractional shares shall be
issued.
15. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC
OFFERING AND OTHER OFFERINGS.
(a) If less than the total number of shares of the Common Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Common Stock shall, if practicable, be sold directly by the SHC and the Bank
in a Community Offering and/or a Syndicated Community Offering. Subject to the
requirements set forth herein, Common Stock sold in the Community Offering
and/or the Syndicated Community Offering shall achieve the widest possible
distribution of such stock.
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(b) In the event of a Community Offering, all shares of Common Stock
which are not subscribed for in the Subscription Offering shall be offered for
sale by means of a direct community marketing program, which may provide for the
use of brokers, dealers or investment banking firms experienced in the sale of
financial institution securities. Any available shares in excess of those not
subscribed for in the Subscription Offering will be available for purchase by
members of the general public who receive a Prospectus, with preference given to
natural persons residing in Oswego County, New York ("Preferred Subscribers").
(c) A Prospectus and Order Form shall be furnished to such Persons as
the SHC and the Bank may select in connection with the Community Offering and
each order for Common Stock in the Community Offering shall be subject to the
absolute right of the SHC and the Bank to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted by
the SHC, in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such Preferred Subscriber, if possible. Thereafter, any
shares remaining will be allocated among the Preferred Subscribers whose
subscriptions remain unsatisfied on an equal number of shares basis per order
until all orders have been filled or the remaining shares have been allocated,
provided no fractional shares shall be issued. If there are any shares remaining
after all subscriptions by Preferred Subscribers have been satisfied, such
remaining shares shall be allocated to Other Account Holders of the general
public who purchase in the Community Offering applying the same allocation
described above for Preferred Subscribers.
(d) The amount of Common Stock that any Person together with any
Associate thereof or group of Persons acting in concert may purchase in the
Community Offering shall not exceed the greater of (i) $150,000 or (ii)
one-tenth of 1% of the total offering of shares in the Subscription Offering,
provided, however, that this amount may be increased to 5% of the total offering
of shares in the Subscription Offering, subject to any required regulatory
approval but without the further approval of Depositors; provided, further, that
orders for Common Stock in the Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Common Stock sold in the
Offerings and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled, provided no
fractional shares shall be issued. The SHC and the Bank may commence the
Community Offering concurrently with, at any time during, or as soon as
practicable after the end of, the Subscription Offering, and the Community
Offering must be completed within 45 days after the completion of the
Subscription Offering, unless extended by the SHC and the Bank with any required
regulatory approval.
(e) Subject to such terms, conditions and procedures as may be
determined by the SHC and the Bank, all shares of Common Stock not subscribed
for in the Subscription Offering or ordered in the Community Offering may be
sold by a syndicate of broker-dealers to the general public in a Syndicated
Community Offering. Each order for Common Stock in the Syndicated Community
Offering shall be subject to the absolute right of the SHC and the Bank to
accept or reject any such order in whole or in part either at the time of
receipt of an order or as soon as practicable after
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completion of the Syndicated Community Offering. The amount of Common Stock that
any Person together with any Associate thereof or group of Persons acting in
concert may purchase in the Syndicated Community Offering shall not exceed
$150,000 provided, however, that this amount may be increased to 5% of the total
offering of shares in the Subscription Offering, subject to any required
regulatory approval but without the further approval of the Depositors; provided
further that orders for Common Stock in the Syndicated Community Offering shall
first be filled to a maximum of 2% of the total number of shares of Common Stock
sold in the Offering and thereafter any remaining shares shall be allocated on
an equal number of shares basis per order until all orders have been filled,
provided no fractional shares shall be issued. The SHC and the Bank may commence
the Syndicated Community Offering concurrently with, at any time during, or as
soon as practicable after the end of the Subscription Offering and/or Community
Offering, and the Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless extended by the SHC
and the Bank with any required regulatory approval.
(f) The SHC and the Bank may sell any shares of Common Stock remaining
following the Subscription Offering, Community Offering and/or the Syndicated
Community Offering in a Public Offering. The provisions of Section 15 hereof
shall not be applicable to the sales to underwriters for purposes of the Public
Offering but shall be applicable to sales by the underwriters to the public. The
price to be paid by the underwriters in such an offering shall be equal to the
Actual Purchase Price less an underwriting discount to be negotiated among such
underwriters and the Bank and the SHC, subject to any required regulatory
approval or consent.
(g) If for any reason a Syndicated Community Offering or Public
Offering of shares of Common Stock not sold in the Subscription Offering and the
Community Offering cannot be effected, or in the event that any insignificant
residue of shares of Common Stock is not sold in the Subscription Offering,
Community Offering or Syndicated Community Offering, the SHC and the Bank shall
use their best efforts to obtain other purchases in such manner and upon such
condition as may be satisfactory to the Superintendent and the FDIC.
16. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF COMMON STOCK.
(a) The aggregate amount of outstanding Common Stock owned or
controlled by Persons other than the MHC at the close of the Stock Offering
shall be no more than 49% of the total outstanding Common Stock.
(b) The aggregate amount of Common Stock acquired in the Stock Offering
by any one or more Tax-Qualified Employee Stock Benefit Plans, exclusive of any
Common Stock acquired by such plans in the secondary market, shall not exceed
ten percent (10%) of the (i) outstanding shares of Common Stock, or (ii)
stockholders' equity of the SHC, in each case held by Persons other than the MHC
at the close of the Stock Offering.
(c) The aggregate amount of Common Stock acquired in the Stock Offering
by any Non- Tax-Qualified Employee Stock Benefit Plan or any Insider of the Bank
and his or her Associates,
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exclusive of any Common Stock acquired by said plan, or such Insider and his or
her Associates, in the secondary market, shall not exceed ten percent (10%) of
the (i) outstanding shares of Common Stock, or (ii) stockholders' equity of the
SHC, held by Persons other than the MHC at the close of the Stock Offering.
(d) The aggregate amount of Common Stock acquired in the Stock Offering
by all Non- Tax-Qualified Employee Stock Benefit Plans and Insiders of the Bank
and their Associates shall not exceed thirty-four percent (34%) of the (i)
outstanding shares of Common Stock, or (ii) stockholders' equity of the SHC,
held by Persons other than the MHC at the close of the Stock Offering.
(e) Except in the case of Tax-Qualified Employee Stock Benefit Plans in
the aggregate, as set forth in Section 16(b) hereof, and certain Eligible
Account Holders and Supplemental Eligible Account Holders, and in addition to
the other restrictions and limitations set forth herein, the maximum amount of
Common Stock which any Person together with any Associate or group of Persons
acting in concert may, directly or indirectly, subscribe for or purchase in the
Stock Offering (including without limitation the Subscription Offering,
Community Offering and/or Syndicated Community Offering), shall not exceed 5% of
the total number of shares sold in the Offering.
(f) No Person may purchase fewer than 25 shares of Common Stock in the
Stock Offering, to the extent such shares are available; provided, however, that
if the Actual Purchase Price is greater than $20.00 per share, such minimum
number of shares shall be adjusted so that the aggregate Actual Purchase Price
for such minimum shares will not exceed $500.00.
(g) For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Trustees and Officers shall not be deemed to be
Associates or a group acting in concert solely as a result of their capacities
as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans
shall not be attributable to the individual trustees or beneficiaries of any
such plan for purposes of determining compliance with the limitations set forth
in Section 16(e) hereof, and (iii) shares purchased by Tax-Qualified Employee
Stock Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitation set forth in Section 16(d) hereof.
(h) Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the SHC and the Bank may increase or decrease
any of the purchase limitations set forth herein at any time. In the event that
either an individual purchase limitation or the number of shares of Common Stock
to be sold in the Stock Offering is increased after commencement of the Stock
Offering, any Person who ordered the maximum number of shares of Common Stock
shall be permitted to purchase an additional number of shares such that such
Person may subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
person who has priority rights to purchase shares of Common Stock in the Stock
Offering. In the event that either an individual purchase limitation or the
number of shares of Common Stock to be sold in the Stock Offering is decreased
after commencement of the Stock Offering, the orders of any Person who
subscribed for the maximum number of shares of Common
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Stock shall be decreased by the minimum amount necessary so that such Person
shall be in compliance with the then maximum number of shares permitted to be
subscribed for by such Person.
(i) The SHC and the Bank shall have the right to take any action as
they may, in their sole discretion, deem necessary, appropriate or advisable in
order to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section 16 and elsewhere in this Plan and the terms,
conditions and representations contained in the Order Form, including, but not
limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrence) to reject, limit or revoke acceptance of any order and
to delay, terminate or refuse to consummate any sale of Common Stock which they
believe might violate, or is designed to, or is any part of a plan to, evade or
circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and binding on all
Persons and the SHC and the Bank shall be free from any liability to any Person
on account of any such action.
17. TIMING OF STOCK OFFERING, MANNER OF PURCHASING COMMON
STOCK AND ORDER FORMS.
(a) The Stock Offering may be commenced concurrently with or at any
time after the mailing to the Depositors of the proxy statement to be used in
connection with the Special Meeting. The Stock Offering may be closed before the
Special Meeting, provided that the offer and sale of the Common Stock shall be
conditioned upon the approval of the Plan by the Depositors at the Special
Meeting.
(b) The exact timing of the commencement of the Stock Offering shall be
determined by the Bank and the SHC in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
it in connection with the Stock Offering. The Bank and the SHC may consider a
number of factors in determining the exact timing of the commencement of the
Stock Offering, including, but not limited to, its current and projected future
earnings, local and national economic conditions and the prevailing market for
stocks in general and stocks of financial institutions in particular. The Bank
and the SHC shall have the right to withdraw, terminate, suspend, delay, revoke
or modify any such Stock Offering, at any time and from time to time, as they in
their sole discretion may determine, without liability to any Person, subject to
any necessary regulatory approval or concurrence.
(c) The Bank and the SHC shall have the absolute right, in their sole
discretion and without liability to any Person, to reject any Order Form,
including, but not limited to, any Order Form (i) that is improperly completed
or executed; (ii) that is not timely received; (iii) that is not accompanied by
the proper payment (or authorization of withdrawal for payment); (iv) submitted
by a Person whose representations the Bank and the SHC believes to be false or
who they otherwise believe, either alone, or acting in concert with others, is
violating, evading or circumventing, or intends to violate, evade or circumvent,
the terms and conditions of this Plan. The Bank and the SHC may, but will not be
required to, waive any irregularity on any Order Form or may require the
submission of corrected Order Forms or the remittance of full payment for shares
of Common Stock by such date
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as they may specify. The interpretation of the Bank and the SHC of the terms and
conditions of the Order Forms shall be final and conclusive.
(d) The SHC and the Bank shall make reasonable efforts to comply with
the securities laws of all jurisdictions in the United States in which
Participants reside. However, no Participant will be offered or receive any
Common Stock under the Plan if such Participant resides in a foreign country.
18. PAYMENT FOR COMMON STOCK.
(a) Payment for shares of Common Stock ordered by Persons in the Stock
Offering shall be equal to the Purchase Price per share multiplied by the number
of shares which are being ordered. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Bank. In addition, the Bank and the SHC may elect to provide
Persons who have a Deposit Account with the Bank the opportunity to pay for
shares of Common Stock by authorizing the Bank to withdraw from such Deposit
Account an amount equal to the aggregate Purchase Price of such shares.
(b) Consistent with applicable laws and regulations and policies and
practices of the Superintendent and the FDIC, payment for shares of Common Stock
ordered by Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit Plans may
be made with funds contributed by the Bank and/or funds obtained pursuant to a
loan from an unrelated financial institution pursuant to a loan commitment which
is in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
(c) If a Person authorizes the Bank to withdraw the amount of the
Purchase Price from his or her Deposit Account, the Bank shall have the right to
make such withdrawal or to freeze funds equal to the aggregate Purchase Price
upon receipt of the Order Form. Notwithstanding any regulatory provisions
regarding penalties for early withdrawals from certificate accounts, the Bank
and the SHC may allow payment by means of withdrawal from certificate accounts
without the assessment of such penalties. In the case of an early withdrawal of
only a portion of such account, the certificate evidencing such account shall be
cancelled if any applicable minimum balance requirement ceases to be met. In
such case, the remaining balance will earn interest at the regular passbook
rate. However, where any applicable minimum balance is maintained in such
certificate account, the rate of return on the balance of the certificate
account shall remain the same as prior to such early withdrawal. This waiver of
the early withdrawal penalty applies only to withdrawals made in connection with
the purchase of Common Stock and is entirely within the discretion of the Bank.
(d) The Bank shall pay interest at not less than the passbook rate for
all amounts paid in cash, by check or money order to purchase shares of Common
Stock in the Stock Offering from the date payment is received until the Stock
Offering is completed or terminated.
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(e) Neither the Bank, the MHC, the SHC, the Stock-form Bank nor any
Affiliate thereof shall knowingly loan funds or otherwise extend credit to any
Person to purchase Common Stock.
(f) Each share of Common Stock issued in the Stock Offering shall be
non-assessable upon payment in full of the Purchase Price.
19. CONDITIONS TO THE OFFERING.
Consummation of the Stock Offering is subject to (i) consummation of
the MHC Reorganization, (ii) the receipt of all required federal and New York
State approvals for the issuance of Common Stock in the Stock Offering,
including without limitation the approval of the Superintendent and the FDIC,
and (iii) the sale in the Stock Offering of such minimum number of shares of
Common Stock within the Estimated Valuation Range as may be determined by the
Boards of Trustees of the Bank and the Board of Directors of the SHC.
20. REQUIREMENT FOLLOWING STOCK OFFERING FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING.
If the SHC has more than thirty-five (35) holders of any class of
Capital Stock at the close of the Stock Offering, the SHC shall register that
class of stock pursuant to the Securities Exchange Act of 1934, as amended, and
shall undertake not to deregister such stock for a period of three years
thereafter. In addition, if the SHC has more than one-hundred (100) holders of
any class of Capital Stock at the close of the Stock Offering, the SHC, to the
extent required by applicable laws and regulations and policies of the
Superintendent and the FDIC, 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 to have quotations for that class of stock disseminated on the Nasdaq Stock
Market.
21. REQUIREMENTS FOR CAPITAL STOCK PURCHASES BY DIRECTORS AND
OFFICERS FOLLOWING THE STOCK OFFERING.
For a period of three years following the Stock Offering, Insiders and
their Associates may not purchase, without the prior written approval of the
Superintendent and the FDIC, the Common Stock except from a broker-dealer
registered with the SEC. This prohibition shall not apply, however, to (i) a
negotiated transaction arrived at by direct negotiation between buyer and seller
and involving more than 1% of the outstanding class of Common Stock and (ii)
purchases of Common Stock made by and held by any Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plan which may be attributable to
individual Insiders and their Associates.
The foregoing restriction on purchases of Common Stock shall be in
addition to any restrictions that may be imposed by federal and state securities
laws.
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<PAGE>
22. RESTRICTIONS ON TRANSFER OF COMMON STOCK.
All shares of the Common Stock which are purchased in the Stock
Offering by Persons other than Insiders shall be transferable without
restriction. Unless otherwise permitted by the Superintendent and the FDIC,
shares of Common Stock purchased by Insiders and their Associates in the Stock
Offering shall be subject to the restriction that such shares shall 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 following the death or
judicial declaration of incompetency of the Insider or Associate. The shares of
Common Stock issued by the SHC to Insiders and their Associates shall bear the
following legend giving appropriate notice of such one year restriction:
The shares represented by this certificate may not be sold by the
registered holder hereof for a period of one year from the date of the
issuance printed hereon, except in the event of the death or judicial
declaration of incompetency of the registered holder.
In addition, the SHC shall give appropriate instructions to the
transfer agent for its Common Stock with respect to the applicable restrictions
relating to the transfer of restricted stock. Any shares issued at a later date
as a stock dividend, stock split or otherwise with respect to any such
restricted stock shall be subject to the same holding period restrictions as may
then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
23. SUBSEQUENT OFFERING OF CAPITAL STOCK OF THE SHC AND CONVERSION OF THE
MHC INTO A STOCK HOLDING COMPANY.
If approved by the Superintendent and/or any other applicable
regulatory authority, following consummation of the MHC Reorganization (i) the
SHC may sell shares of its capital stock to third persons other than the MHC and
(ii) the MHC may convert from a mutual to a stock form holding company, in each
case subject to the requirements of applicable laws and regulations, in each
case subject to the requirements of Article VI-C of the NYBL and Parts 86 and
111 of the General Regulations of the Bank Board and any other applicable laws
and regulations. The MHC, the SHC and the Bank are authorized to apply to the
Superintendent in connection with any such transaction for such variations from
the requirements of the General Regulations of the Bank Board and this Plan as
may be necessary and proper to effect the transaction.
The SHC may conduct one or more offerings of its capital stock (which
in the aggregate shall be no more than 49% of the total to-be-outstanding voting
stock of the SHC) following consummation of the MHC Reorganization, subject to
the approval of the Board of Directors of the SHC, the Bank and the
Superintendent and, if applicable, the FDIC. Each such offering shall be
conducted pursuant to a Stock Issuance Plan which meets the requirements of
applicable laws and
23
<PAGE>
regulations and policies of the Department and/or any other regulatory
authority. The actual timing of any offering of the SHC's capital stock shall be
in the discretion of the Board of Directors of the SHC. The Plan of Stock
Issuance adopted by the Bank in connection with this Plan, as amended, is hereby
incorporated herein by reference.
Neither the MHC, the SHC, the Bank nor the Stock-form Bank shall,
directly or indirectly, loan funds or otherwise extend credit to any Person for
the purpose of purchasing capital stock of the SHC issued in connection with any
of the transactions referred to in this Section 23.
24. STOCK COMPENSATION PLANS.
(a) The SHC, the MHC, the Stock-form Bank and the Bank are authorized
to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the MHC
Reorganization, including, without limitation, the ESOP. Subsequent to the
Offerings, the SHC and the Bank are authorized to adopt Non-Tax Qualified
Employee Stock Benefit Plans, including without limitation, stock option plans
and restricted Plans, provided however that, any such plan shall be implemented
in accordance with applicable law and the regulations of the Superintendent and
the FDIC, including any required stockholder approval.
(b) Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Common Stock in the Stock Offering, to the
extent permitted by the terms of such benefit plans and this Plan.
(c) The MHC, the SHC and the Stock-form Bank are authorized to enter
into employment or severance agreements with their executive officers.
25. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.
As part of the MHC Reorganization, the SHC and the Bank intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Code. To fund the Foundation, the Bank will
contribute funds prior to completion of the MHC Reorganization or, immediately
subsequent to the MHC Reorganization, the SHC will contribute authorized but
unissued shares of Common Stock in an amount not to exceed 4.0% of the number of
shares of Common Stock issued in the Stock Offering (provided, however, that
such amount may be reduced by the SHC and the Bank), or a combination thereof,
subject to the receipt of any required regulatory approval or consent. The
Foundation is being formed in connection with the MHC 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 minded, financial services institution.
24
<PAGE>
26. TRUSTEES AND OFFICERS.
Unless otherwise required by the Superintendent or the FDIC, each
Person serving as a trustee of the Bank at the time of the MHC Reorganization
shall serve as a trustee or director, as the case may be, of the MHC, the SHC
and the Stock-form Bank thereafter for the terms respectively specified in the
Organization Certificate and Bylaws of the MHC, the SHC and the Stock-form Bank
and until his or her successor is elected and qualified. The officers of the
MHC, the SHC and the Stock-form Bank shall be selected by their respective Board
of Directors or Trustees upon formation of such entity.
27. EXPENSES OF THE MHC REORGANIZATION AND STOCK OFFERING.
The Bank and the SHC shall use their best efforts to ensure that the
expenses incurred by them in connection with the Stock Offering are reasonable.
28. AMENDMENT OR TERMINATION.
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 Depositors. At any time after
submission of the Plan and proxy materials to the 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, Section 9 through 25, 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. 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 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 Depositors.
The Plan shall be terminated if the Reorganization is not completed
within 24 months from the date upon which the Depositors approve the Plan, and
may not be extended by the Bank or the Superintendent.
29. INTERPRETATION OF THE PLAN.
References herein to the NYBL and the General Regulations of the
Banking Board shall in all cases be deemed to refer to the provisions of the
same which were in effect at the time of adoption of this Plan by the Board of
Trustees and Depositors and any subsequent amendments to such provisions.
25
<PAGE>
Appendix A
AGREEMENT OF MERGER
Agreement of Merger, dated _____________, 1999, between Oswego County
Savings Bank ("the Bank"), a New York-chartered stock savings bank, and Interim
Two Savings Bank ("Subsidiary Bank") a newly formed New York-chartered stock
savings bank which is wholly owned by Oswego County MHC ("MHC"), a New
York-chartered mutual holding company.
W I T N E S S E T H:
WHEREAS, the Bank has adopted an Amended and Stated Plan of
Reorganization from Mutual Savings Bank to Mutual Holding Company and Plan of
Stock Issuance (the "Plan of MHC Reorganization"); and
WHEREAS, the Plan of MHC Reorganization requires that the Subsidiary
Bank be merged with and into the Bank pursuant to the terms hereof;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Plan of MHC Reorganization,
the parties hereto do mutually agree, intending to be legally bound, as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
1.1 "Effective Time" shall mean the date and time at which the merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 of this Agreement of Merger.
1.2 "Merger" shall refer to the merger of the Bank with and into
Subsidiary Bank as provided in Section 2.1 of this Agreement of Merger.
1.3 "Merging Corporations" shall collectively refer to Subsidiary Bank
and the Bank.
1.4 "NYBL" shall mean the New York Banking Law.
1.5 "Superintendent" shall mean the Superintendent of the Banking
Department of the State of New York.
1.6 "Surviving Corporation" shall refer to the Bank as the surviving
corporation of the Merger.
26
<PAGE>
ARTICLE II
TERMS OF THE MERGER
2.1 The Merger.
(a) Subject to the terms and conditions set forth herein and in the
Plan of MHC Reorganization, at the Effective Time, the Bank shall be merged with
and into Subsidiary Bank pursuant to Section 601 of the NYBL. Subsidiary Bank
shall be the Surviving Corporation of the Merger and shall continue to be
governed by the NYBL.
(b) As a result of the Merger, each share of common stock, par value
[$1.00] per share, of Subsidiary Bank issued and outstanding immediately prior
to the Effective Time shall remain issued and outstanding and shall constitute
the only shares of capital stock of the Surviving Corporation issued and
outstanding immediately after the Effective Time.
(c) At the Effective Time, the Surviving Corporation shall be
considered the same business and corporate entity as each of the Merging
Corporations and thereupon and thereafter all the property, rights, powers and
franchises of each of the Merging Corporations shall vest in the Surviving
Corporation and the Surviving Corporation shall be subject to and be deemed to
have assumed all of the debts, liabilities, obligations and duties of each of
the Merging Corporations and shall have succeeded to all of each of their
relationships, fiduciary or otherwise, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Corporation. Schedule 2.1 contains a list of each of the
deposit-taking offices of the Bank which shall be operated by the Surviving
Corporation. In addition, any reference to either of the Merging Corporations in
any contract, will or document, whether executed or taking effect before or
after the Effective Time, shall be considered a reference to the Surviving
Corporation if not inconsistent with the other provisions of the contract, will
or document; and any pending action or other judicial proceeding to which either
of the Merging Corporations is a party shall not be deemed to have abated or to
have been discontinued by reason of the Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the Merger had not been made
or the Surviving Corporation may be substituted as a party to such action or
proceeding, and any judgment, order or decree may be rendered for or against it
that might have been rendered for or against either of the Merging Corporations
if the Merger had not occurred.
2.2 Effective Time. The Merger shall become effective (a) on the date
and at the time immediately after which the Superintendent has (i) endorsed his
or her approval on this Agreement of Merger and caused said Agreement to be
filed with the Office of Superintendent pursuant to the provisions of Section
601-b of the NYBL, together with such certificates and other documents as may be
required by said Section 601-b or the Superintendent, and (ii) filed this
Agreement of Merger, together with the officers' certificates and the
resolutions of the Superintendent approving this Agreement of Merger, in the
office of the clerk of the county in which the principal office of the Surviving
Corporation is located, or (b) at such later time as may have been previously
specified by both of the parties hereto in a joint notice to the Superintendent.
2.3 Name of the Surviving Corporation. The name of the Surviving
Corporation shall be "Oswego County Savings Bank."
27
<PAGE>
2.4 Organization Certificate. On and after the Effective Time, the
Organization Certificate of the Bank shall be the Organization Certificate of
the Surviving Corporation until amended in accordance with applicable law.
2.5 Bylaws. On and after the Effective Time, the Bylaws of the Bank
shall be the Bylaws of the Surviving Corporation until amended in accordance
with applicable law.
2.6 Directors, Trustees and Officers. On and after the Effective Time,
until changed in accordance with the Organization Certificate and Bylaws of the
Surviving Corporation, (i) the directors of the Surviving Corporation shall be
the directors of the Bank immediately prior to the Effective Time and (ii) the
officers of the Surviving Corporation shall be the officers of the Bank
immediately prior to the Effective Time. The directors and officers of the
Surviving Corporation shall hold office in accordance with the Organization
Certificate and Bylaws of the Surviving Corporation.
ARTICLE III
MISCELLANEOUS
3.1 Conditions Precedent. The respective obligations of each party
under this Agreement of Merger shall be subject to (i) the satisfaction of the
conditions set forth herein and in the Plan of MHC Reorganization and (ii) the
approval of this Agreement of Merger by MHC, in its capacity as sole stockholder
of Subsidiary Bank.
3.2 Termination. This Agreement of Merger shall be terminated
automatically without further act or deed of either of the parties hereto in the
event of the termination of the Plan of MHC Reorganization in accordance with
the terms thereof.
3.3 Amendments. To the extent permitted by the NYBL, this Agreement of
Merger may be amended by a subsequent writing signed by the parties hereto upon
the approval of the board of directors of the Bank and the board of directors of
the Subsidiary Bank.
3.4 Successors. This Agreement of Merger shall be binding on the
successors of Subsidiary Bank and the Bank.
28
<PAGE>
IN WITNESS WHEREOF, Subsidiary Bank and the Bank have caused this
Agreement of Merger to be executed by their duly authorized officers as of the
day and year first above written.
OSWEGO COUNTY SAVINGS BANK
ATTEST:
By:
- ------------------------- --------------------------------------
Secretary Gregory J. Kreis,
President and Chief Executive Officer
INTERIM TWO SAVINGS BANK
ATTEST:
By:
- ------------------------- -------------------------------------
Secretary Gregory J. Kreis,
President and Chief Executive Officer
29
Exhibit 3.3
APPENDIX A
RESTATED ORGANIZATION CERTIFICATE
OF
OSWEGO COUNTY SAVINGS BANK
Under Section 8007
of the Banking Law
of the State of New York
ARTICLE I
NAME
The name of the corporation is "Oswego County Savings Bank" (the
"Bank").
ARTICLE II
PRINCIPAL OFFICE
The Bank's principal office is located at 44 East Bridge Street,
Oswego, New York 13126.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Bank is to pursue any or all of the lawful
objectives of a savings bank chartered under the Banking Law of the State of New
York and to exercise all of the express, implied and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, or as they
may hereafter be amended, subject to all lawful and applicable rules,
regulations and orders of the Banking Board of the State of New York (the
"Banking Board") and the New York Superintendent of Banks.
ARTICLE IV
CAPITAL STOCK
Section 1. Authorized Capital Stock. The total number of shares of all
classes of capital stock which the Bank has the authority to issue is 100, all
of which shall be common stock, $1.00 par value per share (the "Common Stock").
<PAGE>
Section 2. Designations, Powers, Rights, Qualifications, Limitations
and Restrictions Relating to the Capital Stock. A holder of Common Stock shall
be entitled to one vote for each share of Common Stock standing in the name of
such holder on the stock register of the Bank. Holders of Common Stock shall be
entitled to such dividends as may be declared by the Board of Directors out of
funds lawfully available therefor. Upon any liquidation, dissolution or winding
up of the affairs of the Bank, whether voluntary or involuntary, holders of
Common Stock shall be entitled to receive pro rata the avails of the assets of
the Bank remaining after payment of expenses of settling the Bank's affairs, the
satisfaction of all liabilities of the Bank and distribution of any amounts
remaining in any liquidation account established by the Bank for the benefit of
eligible deposit account holders therein under the Banking Law of the State of
New York and the regulations of the Banking Board thereunder.
ARTICLE V
PREEMPTIVE AND SUBSCRIPTION RIGHTS
No holder of shares of Common Stock shall be entitled as such, as a
matter of preemptive or preferential right, to subscribe for, purchase or
otherwise acquire any part of any new or additional issue of capital stock of
any class whatsoever of the Bank, or of securities convertible into capital
stock of any class whatsoever of the Bank, or of any warrants or other
instruments evidencing rights or options to subscribe for, purchase or otherwise
acquire such capital stock or securities, whether now or hereafter authorized or
whether issued for cash or other consideration or by way of dividend. Nothing
contained herein shall be deemed to affect subscription rights to which eligible
account holders of the Bank may be entitled pursuant to Article VI-C of the
Banking Law of the State of New York and the regulations of the Banking Board
thereunder.
ARTICLE VI
DURATION
The duration of the Bank is perpetual.
ARTICLE VII
BOARD OF DIRECTORS
The Bank shall be under the direction of a Board of Directors. The
number of directors shall not be less than seven (7) nor more than twenty (20).
The exact number of directors shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the Board of
Directors.
<PAGE>
ARTICLE VIII
ACTION BY STOCKHOLDERS BY WRITTEN CONSENT
Whenever stockholders of the Bank are required or permitted to take any
action by vote, such action may be taken without a meeting upon written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares of capital stock of the Bank entitled to vote thereon.
ARTICLE IX
AMENDMENT OF RESTATED ORGANIZATION CERTIFICATE
No amendment, addition, alteration, change or repeal of this Restated
Organization Certificate shall be made unless it is authorized by vote of the
holders of a majority of all outstanding shares entitled to vote thereon at a
meeting of stockholders or by unanimous written consent of stockholders pursuant
to Article IX hereof.
IN WITNESS WHEREOF, we hereby certify that the Bank was chartered under
the name "Oswego County Savings Bank" pursuant to an Organization Certificate
filed by the Superintendent of Banks of the State of New York on ___________
___, [1870]; that the Board of Trustees of the Bank and its eligible depositors
have approved an amendment of such Organization Certificate to convert it to the
stock form of organization and directed that the text of such Organization
Certificate, as amended, be restated to read in full as set forth above; and
that we have made, signed and acknowledged this certificate in duplicate, this
__ day of _____ 1999.
OSWEGO COUNTY SAVINGS BANK
By:______________________________
Gregory J. Kreis
President and Chief Executive Officer
By:______________________________
Christine M. Stark
Secretary
<PAGE>
STATE OF NEW YORK )
) ss:
OSWEGO COUNTY )
On the ____ day of __________ 1999, before me personally came Gregory
J. Kreis, to me known and known to me to be the individual described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed the same.
- -----------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
OSWEGO COUNTY )
On the ____ day of __________ 1999, before me personally came Christine
M. Stark, to me known and known to me to be the individual described in and who
executed the foregoing instrument, and she duly acknowledged to me that she
executed the same.
- -----------------------------------
Notary Public
Exhibit 3.5
RESTATED ORGANIZATION CERTIFICATE
OF
OSWEGO COUNTY MHC
(Formerly Interim One Savings Bank)
Under Articles VI, VI-C and XVI
of the Banking Law
of the State of New York
ARTICLE I
The name of the corporation is Oswego County MHC (the "Corporation").
ARTICLE II
PRINCIPAL OFFICE
The Corporation's principal office is located at 44 East Bridge Street,
Oswego, New York 13126-2547.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Corporation is to pursue any or all of the lawful
objectives of a mutual holding company and a mutual savings bank chartered under
the Banking Law of the State of New York except deposit-taking powers, and to
exercise all of the express, implied and incidental powers conferred thereby and
by all acts amendatory thereof and supplemental thereto, or as they may
hereafter be amended, subject to all lawful and applicable rules, regulations
and orders of the Banking Board of the State of New York (the "Banking Board")
and the New York Superintendent of Banks and any other lawful and applicable
laws, rules, regulations and orders.
ARTICLE IV
DURATION
The duration of the Corporation is perpetual.
1
<PAGE>
ARTICLE V
INCORPORATORS
The name, occupation, residence and post office address of each
incorporator of the Corporation is set forth below. All such incorporators are
citizens of the United States.
<TABLE>
<CAPTION>
===============================================================================================================
Name Occupation Residence and P.O. Address
<S> <C> <C>
Bruce P. Frassinelli Retired Publisher of the Palladium 139 Arcadia Avenue
Times Newspaper Oswego, NY 13126
Paul Heins Owner 1217 State Route 49
Paul's Big M Grogery Store Constantia, NY 13044
Paul W. Schneible Certified Public Accountant 112 Lakeshore Road
Oswego, NY 13126
Michael R. Brower Agriculture 56 Park Street
Pulaski, NY 13142
Bernard Shapiro Retired Clothier 15 Wheeler Avenue
Fayetteville, NY 13066
Carl K. Walrath Retired Insurance 47 Burden Drive
Oswego, NY 13126
Gregory Kreis President and CEO 944 Kingdom Road
Oswego County Savings Bank P.O. Box 3011
Oswego, NY 13126
===============================================================================================================
</TABLE>
The incorporators will not contribute any amounts to a surplus fund because the
Corporation, as a mutual holding company, does not have deposit-taking powers
and as a result thereof, the Superintendent of Banks of the State of New York
has waived the requirement to establish such a fund under the Banking Law of the
State of New York.
2
<PAGE>
ARTICLE VI
BOARD OF TRUSTEES
The Board of Trustees of the Corporation shall have the entire
management and control of the affairs of the Corporation. The number of trustees
shall not be less than seven (7) nor more than twenty (20). The exact number of
trustees shall be fixed from time to time by the Board of Trustees pursuant to a
resolution adopted by a majority of the Board of Trustees. The incorporators of
the Corporation, each of whom is free of the disqualifications specified in
Section 246 of the Banking Law of the State of New York, shall constitute the
first Board of Trustees of the Corporation.
ARTICLE VII
LIQUIDATION AND SUBSCRIPTION RIGHTS
Section 1. Liquidation Rights. As long as the Corporation is in the
mutual form of organization, the entire net worth of the Corporation, as it may
increase or decrease over time, shall constitute a liquidation account for the
benefit of holders of deposit accounts in Oswego County Savings Bank (the
"Bank") and any other savings bank subsidiary of the Corporation. In the event
of a complete liquidation of the Corporation (and only in such event), all
holders of deposit accounts in the Bank and any other savings bank subsidiary of
the Corporation on the record date established in connection with such
liquidation shall be entitled to receive pro rata the avails of the
Corporation's net worth after payment of expenses of settling the Corporation's
affairs and satisfaction of all liabilities of the Corporation. The designation
of the Corporation's net worth as a liquidation account shall not operate to
restrict the use or application of the net worth accounts of the Corporation.
In the event that the Corporation converts from the mutual to the stock
form of organization, the net worth of the Bank shall no longer be designated a
liquidation account and, instead, the Bank and any other savings bank subsidiary
of the Corporation shall at that time establish a liquidation account which
shall in the aggregate equal the Corporation's liquidation account as of its
last periodic report of condition immediately preceding such conversion from
mutual to stock form. The liquidation account established by the Bank and any
other savings bank subsidiary of the Corporation shall be in the same proportion
to the Corporation's liquidation account that the total deposits of the Bank and
any other qualifying savings bank subsidiary of the Corporation respectively
bears to the total deposits of all such subsidiary savings banks of the
Corporation and shall be in compliance with applicable provisions of the Banking
Law of the State of New York and regulations of the Banking Board thereunder.
Section 2. Subscription Rights. In the event that the Corporation
converts from the mutual to the stock form of organization, the eligible deposit
account holders in the Bank and any other savings bank subsidiary of the
Corporation shall be entitled to such subscription rights as may be required by
the Banking Law of the State of New York and regulations of the Banking Board
thereunder.
3
<PAGE>
Section 3. Limitation. Except as specifically set forth herein or in
the Banking Law of the State of New York and regulations of the Banking Board
thereunder, no holder of a deposit account in the Bank shall have any other
rights (including voting rights) as such with respect to the Corporation or any
of its assets or properties.
ARTICLE VIII
AMENDMENT OF ORGANIZATION CERTIFICATE
No amendment, addition, alteration, change or repeal of this
Organization Certificate shall be made unless it is authorized by vote of a
majority of the Board of Trustees of the Corporation.
IN WITNESS WHEREOF, we hereby certify that the Corporation was
chartered under the name "Interim One Savings Bank" pursuant to an Organization
Certificate filed by the Superintendent of Banks of the State of New York on
______________, 1999; that the Board of Trustees of the Corporation and the
eligible depositors of Oswego County Savings Bank have approved an amendment of
such Organization Certificate to change the name of the Corporation to "Oswego
County MHC" and directed that the text of such Organization Certificate, as
amended, be restated to read in full as set forth above; and that we have made,
signed and acknowledged this certificate in duplicate, this __ day of _____
1999.
OSWEGO COUNTY MHC
By:
----------------------------------------
Gregory J. Kreis
President and Chief Executive Officer
By:
-----------------------------------------
Christine M. Stark
Secretary
4
<PAGE>
STATE OF NEW YORK )
) ss:
OSWEGO COUNTY )
On the _____ day of ____________1999, before me personally came Gregory
J. Kreis, to me known and known to me to be the individual described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed the same.
Notary Public
STATE OF NEW YORK )
) ss:
OSWEGO COUNTY )
On the _____ day of ____________1999, before me personally came
Christine M. Stark, to me known and known to me to be the individual described
in and who executed the foregoing instrument, and she duly acknowledged to me
that she executed the same.
Notary Public
Exhibit 8.1
March 19, 1999
Board of Trustees
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126-2547
Re: Mutual Holding Company Formation and Stock Issuance
Gentlemen:
We have been requested as special counsel to Oswego County Savings
Bank, a New York-chartered mutual savings bank, (the "Bank") to express our
opinion concerning the federal income tax consequences relating to the proposed
conversion of the Bank from a mutual savings bank to a New York-chartered stock
savings bank to be called Oswego County Savings Bank (referred to as "Stock
Bank" after the conversion) and the formation of Oswego County MHC, a New
York-chartered mutual holding company (the "Mutual Holding Company") which will
acquire the stock of the Stock Bank and subsequently contribute the Stock Bank's
stock to Oswego County Bancorp, Inc. (the "Stock Holding Company").
For the purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary and appropriate, including but
not limited to: the Amended and Restated Plan of Reorganization from Mutual
Savings Bank to Mutual Holding Company and Plan of Stock Issuance, adopted on
March 19, 1998, as amended December 17, 1998 and March 18, 1999 (the "Plan of
Reorganization and Stock Issuance") , as adopted by the Bank's Board of
Trustees, as well as certain other documents relating to the Reorganization (as
defined below), some of which are described or referred to in the Plan of
Reorganization and Stock Issuance and which we 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
and Stock Issuance.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of all signatures thereon.
We have further assumed the absence of adverse facts not apparent from the face
of the instruments and documents we examined.
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 2
In issuing our opinions, we have assumed that the Plan of
Reorganization and Stock Issuance 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 Stock Issuance, and that the various representations
and warranties which have been provided to us are accurate, complete and true.
Accordingly, we express no opinion concerning the effect, if any, of variations
from the foregoing. We specifically express no opinion concerning tax matters
relating to the Reorganization under federal income tax laws, except on the
basis of the documents and assumptions described herein, and we express no
opinion concerning tax matters relating to the Reorganization under state or
local tax laws.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference and we
have assumed that the activities of the persons and entities identified in the
Plan of Reorganization and Stock Issuance will be conducted strictly in
accordance with the terms thereof. Any variations may affect the opinions we are
rendering.
We have referred solely to existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations promulgated thereunder, current administrative rulings, notices and
procedures and court decisions. Additionally, we reviewed certain Internal
Revenue Service (the "IRS") rulings which analyze transactions similar in form
to the transaction contemplated by the Plan of Reorganization and Stock
Issuance. See PLR 98-25-025 (June 16, 1998); PLR 97-41-020 (Oct. 10, 1997); and
PLR 97-35-028 (Aug. 29, 1997). 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.
BACKGROUND
As a New York-chartered mutual savings bank, the Bank, in mutual form,
has no authorized capital stock. Holders of the Bank's deposit accounts possess
certain liquidation and limited voting rights in the Bank (the "Account
Holders"). Specifically, each Account Holder has the right to share pro rata in
any proceeds distributed pursuant to a liquidation of the Bank and each Account
Holder has the right to vote on certain corporate matters (collectively referred
to as "Ownership Rights") .
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 3
Ownership Rights cease upon the closing of the Account Holder's deposit
accounts. Additionally, the Bank has a self-sustaining Board of Trustees,
whereby the Trustees fill vacancies in the Board of Trustees as vacancies
arise.
Pursuant to the Plan of Reorganization and Stock Issuance, the Stock
Holding Company will be incorporated under Delaware law and is expected to
receive the approval of the Board of Governors of the Federal Reserve System
(the "Federal Reserve") to serve as the Stock Bank's holding company. Subsequent
to the Reorganization, the Stock Holding Company will have no significant assets
other than the outstanding capital stock of the Stock Bank, the Offering's (as
defined below) net proceeds (after deducting any amounts infused into the Stock
Bank, certain expenses associated with the Offering and amounts used to fund the
Stock Holding Company's Employee Stock Ownership Plan (the "ESOP")), and a note
receivable from the ESOP. The Stock Holding Company's principal business will be
overseeing the business of the Stock Bank and investing the portion of the net
proceeds retained by it.
Further, the Bank will organize the Mutual Holding Company as a New
York-chartered mutual corporation with the powers set forth in its proposed
organizational certificate and bylaws. For as long as they remain Account
Holders, persons who had Ownership Rights with respect to the Bank as of the
date of the Reorganization will continue to have such rights solely with respect
to the Mutual Holding Company after the Reorganization. All persons who become
Account Holders after the Reorganization will also have liquidation and limited
voting rights with respect to the Mutual Holding Company. In the same manner as
the Bank, the Mutual Holding Company will be managed by a self-sustaining Board
of Trustees.
The Mutual Holding Company's principal assets will be the shares of the
Stock Holding Company's common stock (the "Common Stock") received pursuant to
the Plan of Reorganization and Stock Issuance and monies received as its initial
capitalization. Immediately after consummation of the Reorganization, it is
expected that the Mutual Holding Company will not engage in any business
activity other than its investment in, and control of, a majority of the issued
and outstanding shares of Common Stock. The Mutual Holding Company and Stock
Holding Company will each be deemed bank holding companies pursuant to Section 3
of the Bank Holding Company Act (12 U.S.C. ss.1842) and will be regulated by the
Federal Reserve. The Stock Bank will continue to be subject to and regulated by
the Federal Deposit Insurance Corporation and the New York State Banking
Department.
The primary purpose of the Reorganization is to establish a structure
that will allow the Bank to compete more effectively in the financial services
marketplace by strengthening its own franchise or by combining with other
financial institutions. The additional capital raised in the Offering will
support the growth and expansion of the Stock Bank as an independent
organization. The Stock
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 4
Bank can utilize its increased capital to expand its lending and investment
activities. This new corporate structure will expand the investment and
operating authority currently available to the Bank. In addition, the Offering
will provide depositors with the opportunity to become stockholders of the Stock
Holding Company.
Although the Bank believes that the Reorganization will create a
corporate structure more suited for business combinations (such as mergers and
acquisitions) with and/or into other financial institutions, the Bank has
represented that, as of the date of this opinion, the Bank has no intention or
contemplation of entering into any such transaction. This representation
includes the terminated merger previously contemplated between the Bank and
Oswego City Savings Bank ("Oswego City"). Oswego City and the Bank entered into
an Agreement and Plan of Merger, dated September 5, 1997 which was amended on
January 13, 1998, April 30, 1998 and December 18, 1998 ("Oswego City Merger").
Pursuant to the Oswego City Merger, the Bank agreed to merge into Oswego City.
However, due to concerns of certain bank regulatory agencies, the Oswego City
Merger was terminated on January 28, 1999. Accordingly, the Bank currently has
no plans to merge with or into any other entity, including Oswego City.
Subsequent to the Reorganization, the Stock Bank will operate independently and
assess its business prospects accordingly.
PROPOSED TRANSACTION
The Board of Trustees of the Bank adopted the Plan of Reorganization
and Stock Issuance. For what are represented to be valid business purposes, the
Bank's Board of Trustees has decided to convert to a mutual holding company
structure pursuant to Sections 333.4 and 303.161 of Title 12 of the Code of
Federal Regulations and Parts 86 and 111 of the General Regulations of the New
York State Banking Board. Pursuant to the Plan of Reorganization and Stock
Issuance, the following steps will occur on approximately the same date:
(i) The Bank will organize an interim New York-chartered stock
savings bank ("Interim One") as its wholly owned subsidiary;
(ii) Interim One will complete the organization, by the receipt of
stock, of a Delaware incorporated holding company and will hold
such company as its wholly owned subsidiary ("Stock Holding
Company"); and
(iii) Interim One will organize a New York-chartered stock savings
bank as its wholly owned subsidiary ("Interim Two").
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 5
The following transactions will occur simultaneously:
(iv) The Bank will convert its charter to a New York-chartered stock
savings bank organization and become a stock savings bank (the
"Stock Bank"). Such charter conversion is hereinafter referred
to as the "Bank Conversion." In the Bank Conversion, Account
Holders will constructively receive ownership interests in the
Stock Bank in exchange for their Ownership Rights in the Bank;
(v) Interim One will cancel its outstanding stock and convert its
charter to a New York-chartered mutual holding company charter
and thereby become the Mutual Holding Company;
(vi) Interim Two will merge with and into the Stock Bank with the
Stock Bank surviving. In connection with the merger, the shares
of Interim Two common stock owned by the Mutual Holding Company
prior to the merger shall be converted into and become shares of
Stock Bank common stock, and the former Account Holders of the
Bank who constructively hold ownership interests in the Stock
Bank will be deemed to transfer their ownership interests in the
Stock Bank to the Mutual Holding Company in exchange for
ownership interests in the Mutual Holding Company;
(vii) The Mutual Holding Company will contribute all of the Stock
Bank's outstanding shares of common stock to the Stock Holding
Company, its wholly owned subsidiary; and
(viii) Immediately following the contribution set forth in subparagraph
(vii), above, the Stock Holding Company will, subject to the
provisions of the Plan of Reorganization and Stock Issuance,
sell approximately 45.3% of its Common Stock in a Subscription
Offering and, if applicable, a Community Offering and/or
syndicated community offering (as such terms are defined in the
Plan of Reorganization and Stock Issuance and collectively
referred to as the "Offering").
The above-described 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
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 6
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 Ownership 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 for as long as they continue to hold deposit accounts
in the Stock Bank. All new depositors of the Stock Bank after the completion of
the Reorganization will have ownership interests solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts in 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 ownership interests in
the Stock Bank constructively received by the former members of the Bank will be
converted into ownership interests of the Mutual Holding Company. As a result,
the Stock Bank will be a wholly owned subsidiary of the Stock Holding Company,
which will be a wholly owned subsidiary of the Mutual Holding Company. The
Mutual Holding Company will not have any authorized capital stock.
The Stock 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. As long as the Mutual Holding Company is in existence,
however, the Mutual Holding Company must own at least fifty-one (51%) percent of
the voting stock of the Stock Holding Company.
Pursuant to the Plan of Reorganization and Stock Issuance, the shares
of Common Stock to be issued will first be offered through the Subscription
Offering pursuant to non-transferable subscription rights on the basis of
preference categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans;
(3) Supplemental Eligible Account Holders; and
(4) Employees, officers and trustees of the Bank.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered in a Community Offering and, if necessary, a syndicated
community offering.
The Plan of Reorganization and Stock Issuance provides that the Stock
Bank and the Stock Holding Company will form a charitable foundation to be named
the Oswego County Foundation
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 7
(the "Foundation"). The Foundation will be incorporated under Delaware law as a
non-stock corporation, and the Stock Holding Company will contribute to the
Foundation a number of shares of Common Stock equal to 4.0% of the shares of
Common Stock sold in the Offering. The Foundation will be dedicated to
supporting charitable organizations within the communities served by the Stock
Bank. The Foundation will submit a request to the IRS to be recognized as an
exempt organization under Code Section 501(c)(3).
OPINIONS
Based upon the forgoing and in reliance thereon, and subject to the
conditions, facts, representations and assumptions set forth herein, we are of
the opinion that:
With respect to the Bank Conversion:
1. The Bank Conversion 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 Code. (Rev. Rul. 80-105, 1980-1 C.B. 78.).
2. No gain or loss will be recognized by the Bank or the Stock
Bank as a result of the Bank Conversion. (Code Sections 361(a), 357(a)
and 1032(a)).
3. The Stock Bank's holding period for the assets received from
the Bank will include the period during which such assets were held by
the Bank. (Code Section 1223(2)).
4. The Stock Bank's basis in the assets of the Bank will be the
same as the basis of such assets in the hands of the Bank immediately
prior to the proposed transaction. (Code Section 362(b)).
5. The Stock Bank will succeed to and take into account the
Bank's earnings and profits, as of the date of the proposed
transaction. (Code Section 381).
With respect to the contribution of ownership interests in the Stock
Bank to the Mutual Holding Company for ownership interests therein (the "351
Transaction"):
6. The exchange of ownership interests in the Stock Bank 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 Code. Ownership interests in the Mutual Holding
Company will be treated as "stock" within the meaning of Code Section
351(a).
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 8
7. No gain or loss will be recognized by Account Holders of the
Bank on the transfer of their Ownership Rights in the Bank solely for
constructive ownership interests in the Stock Bank followed by an
exchange of their ownership interests in the Stock Bank solely for
ownership interests in the Mutual Holding Company. (Code Section
351(a)).
8. The basis in the ownership interests of the Mutual Holding
Company received in the transaction will be the same as the basis of
the property transferred in exchange therefor, reduced by the sum of
the liabilities assumed by the Mutual Holding Company or to which
assets transferred are taken subject to. (Code Section 358(a)(1)).
9. The Mutual Holding Company will recognize no gain or loss
upon the receipt of property from the owners of the Stock Bank in
exchange for ownership interests in the Mutual Holding Company. (Code
Section 1032(a)).
10. The Mutual Holding Company's basis in the property received
from the owners of the Stock Bank will be the same as the basis of such
property in the hands of the owners of the Stock Bank immediately prior
to the 351 Transaction. (Code Section 362(a)).
11. The Mutual Holding Company's holding period for the property
received from the owners of the Stock Bank will include the period
during which such property was held by the owners of the Stock Bank.
(Code Section 1223(2)).
With respect to the transfer of the Stock Bank's common stock by the
Mutual Holding Company to the Stock Holding Company and cash contributions from
the Stock Holding Company to the Stock Bank:
12. The transfer by the Mutual Holding Company of the common
stock of the Stock Bank, a wholly owned subsidiary, to its other wholly
owned subsidiary, the Stock Holding Company, will constitute a tax-free
exchange of property solely for voting stock pursuant to Code Section
351. The Mutual Holding Company will not receive additional shares of
Common Stock in this exchange because, at the time of the transfer, the
Mutual Holding Company will already own all of the outstanding shares
of Common Stock and the issuance of additional shares of Common Stock
would have no substantive effect.
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 9
13. The Mutual Holding Company will recognize no gain or loss
upon the transfer of the Stock Bank common stock to the Stock Holding
Company. (Code Section 351(a)).
14. The Stock Holding Company will recognize no gain or loss on
its receipt of the Stock Bank common stock. (Code Section 1032(a)).
15. The Stock Holding Company's basis in the Stock Bank common
stock will equal the basis of the Stock Bank common stock in the Mutual
Holding Company's hands immediately before the exchange. (Code Section
362(a)).
16. The Mutual Holding Company will increase its basis in its
shares of Common Stock by the Mutual Holding Company's basis in the
Stock Bank common stock transferred. (Code Section 358(a)).
17. The Stock Holding Company's holding period for the shares of
the Stock Bank common stock received from the Mutual Holding Company
will include the period that the Mutual Holding Company held, or is
deemed to have held, the shares. (Code Section 1223(2)).
18. No gain or loss will be recognized by the Stock Bank upon
its receipt of money from the Stock Holding Company. (Code Section
1032(a)). The Stock Holding Company will not receive additional shares
of Stock Bank common stock in exchange for any such money received
because the issuance of additional Stock Bank common stock to the Stock
Holding Company would be meaningless. The Stock Holding Company will be
solely contributing money to the Stock Bank and therefore will not
recognize any gain or loss upon such transfer. (Code Section 351(a);
Rev. Rul. 69-357, 1969-1 C.B. 101).
With respect to Account Holders and the issuance of Common Stock
pursuant to the Plan of Reorganization and Stock Issuance:
19. No gain or loss will be recognized by the Stock Holding
Company upon its receipt of money in exchange for shares of the Common
Stock (Code Section 1032(a)).
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 10
20. No gain or loss will be recognized by Eligible Account
Holders or Supplemental Eligible Account Holders of the Bank upon the
issuance to them of deposit accounts in the Stock Bank in the same
dollar amount and on the same terms and conditions in exchange for
their deposit accounts in the Bank held immediately prior to the
Reorganization. (Code Section 1001(a); Treas. Reg. Section
1.1001-1(a)).
21. The tax basis of the deposit accounts of the Eligible
Account Holders and Supplemental Eligible Account Holders in the Stock
Bank received as part of the Reorganization will equal the tax basis of
such account holders' corresponding deposit accounts in the Bank
surrendered in exchange therefor. (Code Section 1012).
22. Each depositor of the Bank will recognize gain upon the
receipt of his or her subscription rights deemed to have been received
for federal income tax purposes, but only to the extent of the excess
of the fair market value of a depositor's interest in such subscription
rights over the depositor's basis in the former interests in the Bank
other than deposit accounts. We understand that the Bank has received a
letter from RP Financial, LC. ("RP Financial") in which RP Financial
states its belief that, (i) the subscription rights will have no
ascertainable market value and (ii) the price of which the subscription
rights are exercisable will not be more or less than the estimated pro
forma value of the shares upon issuance. In the event that such a gain
is realized, it would be subject to immediate recognition.
23. No gain or loss will be recognized upon the exercise of a
subscription right in the Reorganization. (Rev. Rul. 56-572, 1956-2
C.B. 182).
24. The basis of the shares of Common Stock acquired in the
Offering will be equal to the purchase price of such shares, increased,
in the case of such shares acquired pursuant to the exercise of
subscription rights, by the fair market value, if any, of the
subscription rights exercised. (Code Section 1012).
25. The holding period of the Common Stock acquired pursuant to
the exercise of subscription rights will commence on the date on which
the subscription rights are exercised. (Code Section 1223(6)). The
holding period of the Common Stock acquired in the Community Offering
will commence on the date immediately following the date on which such
stock is purchased. (Rev. Rul. 70-598, 1970-2 C.B.
168; Rev. Rul. 66-97, 1966-1 C.B. 190).
<PAGE>
Board of Trustees
Oswego County Savings Bank
March 19, 1999
Page 11
* * *
26. The establishment of the Foundation by the Stock Bank and
the Stock Holding Company and the subsequent contribution of shares of
Common Stock to the Foundation by the Stock Holding Company will not
affect any of the foregoing opinions.
The opinions expressed above are limited to the income tax consequences
of the Reorganization under current federal tax laws. Further, our opinions are
based upon research of the Code, applicable Treasury Regulations, current
published administrative decisions of the IRS, existing judicial decisions as of
the date hereof and representations made by the Bank's management. No assurance
can be given that legislative, administrative or judicial decisions or
interpretations may not be forthcoming that will significantly change the
opinions set forth herein. We express no opinions other than those stated
immediately above as our opinions.
We hereby consent to the filing of this opinion as an exhibit to the
Bank's Form 86-AC and to the Stock Holding Company's Registration Statement on
Form SB-2 as filed with the Securities and Exchange Commission. We also consent
to the references to our firm in the Prospectus contained in Form SB-2 under the
captions "Effects of the Corporate Change - Tax Effects of Our Corporate Change
and Stock Offering" and "Legal and Tax Opinions," and to the summary of our
opinion in such Prospectus.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ John P. Soukenik
--------------------------------
John P. Soukenik, a Partner
Exhibit 8.3
March 18, 1999
Board of Trustees
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126
Re: Plan of Reorganization from Mutual Savings Bank to Mutual
Holding Company and Plan of Stock Issuance: Subscription Rights
Oswego County Savings Bank
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Reorganization from Mutual Savings Bank
to Mutual Holding Company and Plan of Stock Issuance (the "Plan") adopted by the
Board of Trustees of Oswego County Savings Bank ("Oswego County" or the "Bank").
Pursuant to the Plan, Oswego County will become a wholly-owned subsidiary of
Oswego County Bancorp, Inc. (the "Holding Company"), and the Holding Company
will issue a majority of its common stock to Oswego County, M.H.C. (the "MHC")
and sell a minority of its common stock to the public.
We understand that, in accordance with the Plan, subscription rights to
purchase shares of Common Stock in the Holding Company are to be issued to: (1)
Eligible Account Holders; (2) Tax-Qualified Employee Plans; (3) Supplemental
Eligible Account Holders; and (4) Trustees, Officers and Employees. Based solely
upon our observation that the subscription rights will be available to such
parties 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 belief that, as a factual matter:
(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 Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
Common Stock in the Subscription Offering will thereafter be able to buy or sell
such shares at the same price paid in the Subscription Offering.
Very truly yours,
/s/ RP FINANCIAL, LC.
---------------------
RP FINANCIAL, LC.
Exhibit 23.2
Independent Auditors' Consent
The Board of Trustees
Oswego County Savings Bank:
We consent to the inclusion in the Registration Statement on Form SB-2 of Oswego
County Bancorp, Inc. of our report dated February 12, 1999, on the statements of
financial condition of Oswego County Savings Bank as of December 31, 1998 and
1997, and the related statements of income, net worth and comprehensive income,
and cash flows for the years then ended. We further consent to the use of our
opinions included herein regarding certain income tax consequences of the
proposed reorganization and offering and of the proposed charitable foundation.
We consent to the references to our firm under the heading "OUR CORPORATE CHANGE
AND STOCK OFFERING - Tax Effects of Our Corporate Change and Stock Offering",
"OUR CORPORATE CHANGE AND STOCK OFFERING - Tax Considerations", "EXPERTS", and
"LEGAL AND TAX OPINIONS" in the prospectus.
/s/ KPMG LLP
Syracuse, New York
March 19, 1999
Exhibit 23.3
March 18, 1999
Board of Trustees
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126
Members of the Board:
We hereby consent to the use of our firm's name in the Application for
Conversion on Form 86-AC of Oswego County Savings Bank, Oswego, New York, and
any amendments thereto, and in the Form SB-2 Registration Statement and any
amendments thereto for Oswego County Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of Oswego County Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
Exhibit 99.4
OSWEGO COUNTY SAVINGS BANK
44 East Bridge Street
Oswego, New York 13126-2547
(315) 343-4100
--------------------
NOTICE OF SPECIAL MEETING OF DEPOSITORS
TO BE HELD ON ____________________, 1999
Notice is hereby given that a special meeting of depositors (the
"Special Meeting") of Oswego County Savings Bank ("Oswego County Savings") will
be held at Oswego County Savings' main office located at 44 East Bridge Street,
Oswego, New York, on ___________, 1999 at ________p.m., local time, to consider
and vote upon:
1. The Amended and Restated Plan of Reorganization from Mutual Savings
Bank to Mutual Holding Company and Plan of Stock Issuance (the "Plan")
under which (1) we will form Oswego County MHC, as a New York mutual
holding company ("Oswego County MHC"); (2) we will form Oswego County
Bancorp, Inc., as a Delaware Corporation ("Oswego County Bancorp"); (3)
we will reorganize Oswego County Savings into a capital stock savings
bank (the "Stock Bank") and issue 100% of the Stock Bank's to-be
outstanding common stock to Oswego County Bancorp; (4) we will
establish the Oswego County Charitable Foundation (the "Foundation"), a
Delaware non-stock corporation dedicated to the promotion of charitable
purposes within the communities served by Oswego County Savings; and
(5) Oswego County Bancorp will offer 45.3% of its common stock for sale
to depositors and the public in a subscription and community offering
and issue the remaining shares to the Foundation and to Oswego County
MHC; and
2. Such other business as may properly come before the meeting and any
adjournment(s) thereof. Management is not aware of any other matters
that may come before the Special Meeting.
The record date for determining Oswego County Savings' depositors
entitled to notice of, and to vote at, the Special Meeting, and at any
adjournment(s) thereof, is ______________, 1999 (the "Voting Record Date"). Only
holders of one or more Oswego County Savings deposit accounts as of the Voting
Record Date ("Voting Depositors") will be entitled to vote at the Special
Meetings or at any adjournment(s) of the Special Meeting. A deposit account
creates a single depositor relationship for voting purposes, even though more
than one person has an interest in such deposit account. Each Voting Depositor
has one vote for each $100, or fraction thereof, on deposit in such account as
of the Voting Record Date. No Voting Depositor will be entitled to cast more
than 1,000 votes. If there are insufficient votes for approval of the Plan at
the time of the Special Meeting, Oswego County Savings may postpone or adjourn
the Special Meeting to permit further solicitation of proxies. The following
Proxy and the Prospectus attached to it contain a more detailed description of
Oswego County Savings and the proposed reorganization and stock offering.
Please complete, date, sign and return the accompanying proxy card(s)
in the enclosed postage-paid envelope as soon as possible, whether or not you
plan to attend the Special Meeting. This will assure your representation at the
Special Meeting and may avoid the cost of additional communications. This will
not prevent you from voting in person if you attend the Special Meeting. You may
revoke your written proxy by a written instrument delivered to the secretary of
Oswego County Savings at any time prior to or at the Special Meeting. Properly
completed proxies will be voted in accordance with the instructions on the
proxy, or if we receive a proxy with no instructions we will vote the proxy for
approval of the Plan.
<PAGE>
Your proxy is solicited by the Board of Trustees of Oswego County
Savings. The Board of Trustees unanimously recommends that Voting Depositors
vote "FOR" approval of the Plan. Failure to return a proxy or to vote in person
will have the same effect as a vote against the Plan.
Voting in favor of the Plan will not obligate any person to purchase
common stock and voting against the Plan or failure to vote will not prevent any
person from purchasing common stock.
BY ORDER OF THE BOARD OF TRUSTEES
Oswego, New York
____________________, 1999 ________________________________
Secretary
<PAGE>
OSWEGO COUNTY SAVINGS BANK
44 East Bridge Street
Oswego, New York 13126-2547
(315) 343-4100
PROXY STATEMENT
SPECIAL MEETING OF DEPOSITORS
TO BE HELD ON ___________, 1999
- -------------------------------------------------------------------------------
INTRODUCTION
- -------------------------------------------------------------------------------
Purpose of the Special Meeting
This proxy statement, together with the prospectus of Oswego County
Bancorp, Inc. attached to it, constitutes the proxy statement for, and is being
furnished to eligible depositors ("Voting Depositors") of Oswego County Savings
Bank ("Oswego County Savings") as of _______________,1999 (the "Voting Record
Date,") in connection with the solicitation by the Board of Trustees of Oswego
County Savings of proxies to be voted at a special meeting of depositors (the
"Special Meeting"). The Special Meeting will be held on __________, 1999
at________ local time, at Oswego County Savings' main office located at 44 East
Bridge Street, Oswego, New York.
At the Special Meeting, Voting Depositors will be asked to consider and
vote upon the Amended and Restated Plan of Reorganization from Mutual Savings
Bank to Mutual Holding Company and Plan of Stock Issuance (the "Plan") under
which (1) we will form Oswego County MHC, as a New York mutual holding company
("Oswego County MHC"); (2) we will form Oswego County Bancorp, Inc., as a
Delaware corporation ("Oswego County Bancorp"); (3) we will reorganize Oswego
County Savings into a capital stock savings bank (the "Stock Bank") and issue
100% of the Stock Bank's to-be outstanding common stock to Oswego County
Bancorp; (4) we will establish the Oswego County Charitable Foundation (the
"Foundation"), a Delaware non-stock corporation dedicated to the promotion of
charitable purposes within the communities served by Oswego County Savings; and
(5) Oswego County Bancorp will offer 45.3% of its common stock for sale to
depositors and the public in a subscription and community offering and issue the
remaining shares to the Foundation and to Oswego County MHC;
Copies of the Plan are available without charge from Oswego County
Savings upon written request to the Secretary of Oswego County Savings Bank, 44
East Bridge Street, Oswego, New York 13126-2547.
Only Voting Depositors will be entitled to vote at the Special Meeting
and any adjournment(s) of the Special Meeting. Voting Depositors who execute
proxies for the Special Meeting retain the right to revoke them at any time.
Proxies may be revoked by sending written notice of revocation to the Secretary
of Oswego County Savings at the address of Oswego County Savings shown above or
sending a later-dated proxy which is received by Oswego County Savings no later
than _________, 1999. The presence of any Voting Depositor at the Special
Meeting who has given a proxy shall not revoke the proxy unless the Voting
Depositor delivers his or her ballot in person at the Special Meeting or
delivers a written revocation to the Secretary of Oswego County Savings prior to
the voting of such proxy. Proxies solicited and received by the Board of
Trustees of Oswego County Savings will be voted in accordance with the
directions given on the proxy. Where no instructions are included on the proxy,
the proxy will be voted FOR the proposals set forth in this proxy statement. If
any other matters are properly presented at the Special Meeting, proxies will be
voted on those matters in accordance with the directions of a majority of the
Board of Trustees. Management is not aware of any other matters to be presented
at the Special Meeting.
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YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF TRUSTEES
OF OSWEGO COUNTY SAVINGS FOR USE AT THE SPECIAL MEETING OF DEPOSITORS, AND ANY
ADJOURNMENT(S) OF THAT MEETING, FOR THE PURPOSES SET FORTH IN THE NOTICE OF
SPECIAL MEETING. THIS PROXY WILL NOT BE USED AT ANY OTHER MEETING.
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK ("SUPERINTENDENT")
HAS APPROVED THE PLAN SUBJECT TO THE APPROVAL OF THE VOTING DEPOSITORS OF OSWEGO
COUNTY SAVINGS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. IN ADDITION,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") HAS ISSUED A LETTER OF INTENT
TO ISSUE A NOTICE OF NONOBJECTION TO THE PLAN, SUBJECT TO THE SATISFACTION OF
CERTAIN CONDITIONS. HOWEVER, THE APPROVAL AND THE INTENT TO ISSUE A NOTICE OF
NONOBJECTION DO NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN.
OSWEGO COUNTY SAVINGS' BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE PLAN. FAILURE TO RETURN YOUR PROXY OR TO VOTE IN PERSON AT
THE MEETING WILL HAVE THE SAME EFFECT AS A NEGATIVE VOTE.
Voting Rights, Voting of Proxies and Vote Required for Approval
The Board of Trustees of Oswego County Savings has fixed the close of
business on ______________, 1999 as the Voting Record Date for the purpose of
determining the Voting Depositors entitled to notice of, and to vote at, the
Special Meeting. All holders of withdrawable accounts at Oswego County Savings
as of the Voting Record Date are considered Voting Depositors and are entitled
to notice of, and to vote at, the Special Meeting. Each Voting Depositor will be
entitled to one vote for each $100, or fraction thereof, on deposit in the
Voting Depositor's account on the Voting Record Date. However, no Voting
Depositor may cast more than 1,000 votes. An account will create a single
depositor relationship for voting purposes. Only one proxy may be cast for any
of these accounts, even though more than one person has an interest in an
account.
The Plan must be approved by the affirmative vote of (i) 75% in the
amount of deposit liabilities present in person or by proxy at the Special
Meeting, and (ii) more than 50% of the total votes eligible to be cast by Voting
Depositors at the Special Meeting. The Voting Depositors also may be asked to
consider other business as may properly come before the Special Meeting.
Management knows of no other business to be presented.
Any questions as to the eligibility of a Voting Depositor to vote or
the number of votes allocated to each Voting Depositor, or on any other matters
relating to the voting, will be resolved in final by the Secretary of Oswego
County Savings at or prior to the Special Meeting, and the records of Oswego
County Savings will control the resolution.
Persons Making the Solicitation
Management expects to use the services of Oswego County Savings
trustees, officers, and other employees to solicit proxies personally or by
telephone, telegraph or mail. The trustees, officers and employees will not
receive additional compensation for solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection with the proxy solicitation.
Proxies may also be solicited by representatives of Friedman, Billings, Ramsey &
Co., Inc., who will be compensated by Oswego County Savings in connection with
its services as financial advisor in the stock offering.
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APPROVAL OF THE AMENDED AND RESTATED PLAN OF REORGANIZATION FROM
MUTUAL SAVINGS BANK TO MUTUAL HOLDING COMPANY AND PLAN OF STOCK ISSUANCE
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The Superintendent has approved the Plan subject to the approval of
Oswego County Savings' Voting Depositors and the satisfaction of certain
conditions imposed by the Superintendent. The FDIC has issued a letter of intent
to issue a notice of nonobjection to the Plan, subject to the satisfaction of
certain conditions. However, such regulatory approval and the intent to issue a
letter of nonobjection do not constitute a recommendation or endorsement of the
Plan.
General
Pursuant to the Plan, Oswego County Savings will reorganize into a
two-tier mutual holding company structure. Under the Plan, Oswego County Savings
will form Oswego County MHC as its mutual holding company parent and Oswego
County Bancorp as its subsidiary. Oswego County Savings will then reorganize
into the Stock Bank and the Stock Bank will issue its stock to Oswego County
MHC. Oswego County MHC will contribute the Stock Bank's common stock to Oswego
County Bancorp. Oswego County Bancorp will issue shares of its common stock to
the public, Oswego County MHC and the Foundation. As a result, Oswego County
Bancorp will own all of the common stock of the Stock Bank. The Stock Bank will
succeed to the operations of Oswego County Savings in its mutual form. Oswego
County MHC and Oswego County Bancorp will be regulated by the New York State
Banking Department (the "Department") and the Federal Reserve Board.
Effect on Deposits
Upon completion of the reorganization, each deposit account in Oswego
County Savings at the date the reorganization is completed will become a deposit
account in the Stock Bank in the same amount and upon the same terms (including
interest rate) and conditions (including withdrawal rights). All depositors who
had voting and liquidation rights with respect to Oswego County Savings will
continue to have such rights solely with respect to Oswego County MHC. All
insured deposit accounts of Oswego County Savings that become deposit accounts
of the Stock Bank will continue to be federally insured up to the legal maximum
limit by the FDIC in the same manner as deposit accounts existing in Oswego
County Savings immediately prior to the reorganization.
Effect on Borrowings and Other Customer Relationships
The reorganization will not affect any borrower or other customer
relationships with Oswego County Savings, as each borrowing, contract or other
customer relationship will automatically continue with the Stock Bank on the
same terms (including interest rate) and conditions as existed with Oswego
County Savings immediately prior to the reorganization. Upon completion of the
reorganization, the Stock Bank may exercise any and all powers, rights and
privileges of, and shall be subject to all limitations applicable to, stock
savings banks under New York law.
The management, board of directors and branch locations of the Stock
Bank will be the same as the management, board of trustees and branch locations
of Oswego County Savings prior to the reorganization.
Federal and State Tax Consequences of the Reorganization
Oswego County Savings has received a legal opinion from the law firm of
Elias, Matz, Tiernan & Herrick L.L.P. that the reorganization will constitute a
non-taxable reorganization under the Internal Revenue Code (the "Code"). Oswego
County Savings has received an opinion from KPMG LLP that the Reorganization
will constitute a non-taxable reorganization under New York law. Unlike private
letter rulings, an opinion is not binding on the Internal Revenue Service
("IRS") or the New York Department of Taxation and either agency could disagree
with the conclusions reached therein. In the event of a disagreement, there can
be no assurance that the IRS or the New York Department of Taxation would not
prevail in a judicial or administrative proceeding.
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Accounting Treatment of Reorganization
The reorganization will result in no change to the accounting of Oswego
County Savings' assets, liabilities, and equity.
Regulatory Approvals
To complete the reorganization, the approval of the Federal Reserve
Board must be obtained for Oswego County Bancorp to acquire all of the issued
and outstanding stock of the Stock Bank and for Oswego County MHC to acquire a
majority of the issued and outstanding shares of Oswego County Bancorp. As a
result of the respective acquisitions, each of Oswego County MHC and Oswego
County Bancorp will become a bank holding company. The Department must approve
the formation of Oswego County MHC and the conversion of Oswego County Savings
to the Stock Bank, and the FDIC must issue its nonobjection to Oswego County
Savings' conversion to the Stock Bank.
Interpretation and Amendment of the Plan
If necessary or desirable, the terms of the Plan may be amended by a
majority vote of Oswego County Savings' Board of Trustees at any time prior to
submission of the Plan to a vote of depositors. At any time after submission of
the Plan to a vote of depositors, the terms of the Plan may be amended by a
majority vote of the Board of Trustees in response to comments received from the
Department or the FDIC, and may be amended for any other reason only with the
concurrence of the Department and the FDIC. The Plan may be terminated at any
time by a majority vote of the Board of Trustees prior to the depositor vote and
subsequent to the depositor vote with the concurrence of the Superintendent and
the FDIC.
Additional Information
A copy of the Plan, the proposed Certificate of Incorporation and
Bylaws of Oswego County Bancorp, the proposed Restated Organization Certificate
and Bylaws of the Stock Bank and the proposed Restated Organization Certificate
and Bylaws of Oswego County MHC are available without charge from Oswego County
Savings. Also, a copy of the Certificate of Incorporation and Bylaws of the
Foundation are available without charge from Oswego County Savings. Requests for
copies of any such documents should be directed to: Secretary, Oswego County
Savings Bank, 44 East Bridge Street, Oswego, New York 13126-2547.
THE ATTACHED PROSPECTUS IS AN INTEGRAL PART OF THIS PROXY STATEMENT AND
CONTAINS DETAILED INFORMATION ABOUT OSWEGO COUNTY SAVINGS, OSWEGO COUNTY
BANCORP, OSWEGO COUNTY MHC, THE FOUNDATION, THE REORGANIZATION AND STOCK
OFFERING, INCLUDING, THE RIGHTS OF ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS AND TRUSTEES, OFFICERS AND EMPLOYEES TO SUBSCRIBE FOR
SHARES OF OSWEGO COUNTY BANCORP'S COMMON STOCK. DEPOSITORS AS OF THE VOTING
RECORD DATE ARE URGED TO CONSIDER SUCH INFORMATION CAREFULLY PRIOR TO SUBMITTING
THEIR PROXIES OR SUBSCRIBING FOR SHARES OF OSWEGO COUNTY BANCORP COMMON STOCK.
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OSWEGO COUNTY SAVINGS BANK
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF OSWEGO COUNTY SAVINGS BANK
The undersigned depositor of Oswego County Savings Bank ("Oswego County
Savings") hereby appoints the Board of Trustees of Oswego County Savings as
proxy to cast all votes which the undersigned depositor is entitled to cast at a
special meeting of depositors to be held at Oswego County Savings' main office
located at 44 East Bridge Street, Oswego, New York at _______, New York time,
________, 1999 and at any and all adjournments and postponements of the special
meeting, and to act with respect to all votes that the undersigned would be
entitled to cast, if then personally present, in accordance with the
instructions on the reverse side hereof:
This proxy will be voted as directed by the undersigned depositor.
UNLESS CONTRARY DIRECTION IS GIVEN, A SIGNED PROXY WILL BE VOTED FOR ADOPTION OF
THE AMENDED AND RESTATED PLAN OF REORGANIZATION FROM MUTUAL SAVINGS BANK TO
MUTUAL HOLDING COMPANY AND PLAN OF STOCK ISSUANCE. In addition, this proxy will
be voted at the discretion of the Board of Trustees upon any other matter as may
properly come before the special meeting.
The undersigned depositor may revoke this proxy at any time before it
is voted by delivering to the Secretary of Oswego County Savings either a
written revocation of the proxy or a duly executed proxy bearing a later date,
or by appearing at the special meeting, filing a written revocation and voting
in person. The undersigned depositor hereby acknowledges receipt of the Notice
of Special Meeting Proxy Statement and accompanying Prospectus.
IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
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OSWEGO COUNTY SAVINGS BANK
IMPORTANT: Please sign your name exactly as it appears on this proxy. Joint
accounts need only one signature. When signing as an attorney, administrator,
agent, officer, executor, trustee, guardian, etc., please add your full title to
your signature.
FOR AGAINST
o o The Amended and Restated Plan of
Reorganization from Mutual Savings Bank
to Mutual Holding Company and Plan of
Stock Issuance (the "Plan") under which
(1) we will form Oswego County MHC, as a
New York mutual holding company ("Oswego
County MHC"); (2) we will form Oswego
County Bancorp, Inc., as a Delaware
corporation ("Oswego County Bancorp");
(3) we will reorganize Oswego County
Savings Bank into a capital stock
savings bank (the "Stock Bank") and
issue 100% of the Stock Bank's to-be
outstanding common stock to Oswego
County Bancorp; (4) we will establish
the Oswego County Charitable Foundation
(the "Foundation"), a Delaware non-stock
corporation dedicated to the promotion
of charitable purposes within the
communities served by Oswego County
Savings Bank; and (5) Oswego County
Bancorp will offer 45.3% of its common
stock for sale to depositors and the
public in a subscription and community
offering and issue the remaining shares
to the Foundation and to Oswego County
MHC.
Signature________________________________________ Date____________________, 1999
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD. PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
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