PROSPECTUS SUPPLEMENT
OSWEGO COUNTY BANCORP, INC.
The Oswego County Savings Bank 401(k) Plan
(Participation Interest in up to _______ shares of Oswego County Bancorp, Inc.)
Oswego County Bancorp, Inc. is providing this prospectus supplement to
the participants in The Oswego County Savings Bank 401(k) Plan. As a participant
in the 401(k) plan, you may direct the trustee of the plan to purchase common
stock of Oswego County Bancorp, Inc. in its offering with amounts allocated to
your account under the plan. Amounts not invested in Oswego County Bancorp, Inc.
common stock will remain invested in and among your previously selected
investment funds. If you decide not to allocate your funds available under your
401(k) account into Oswego County Bancorp, Inc. common stock or you cannot
acquire all of the common stock you want in the offering you may direct the
investment of your 401(k) account into the Oswego County Bancorp, Inc. common
stock investment fund at any time after the offering is completed.
The prospectus of Oswego County Bancorp, Inc. dated ____________ ____,
1999 attached to this prospectus supplement includes detailed information with
respect to the offering of Oswego County Bancorp, Inc. common stock, and the
financial condition, results of operations and description of the business of
Oswego County Bancorp, Inc. and Oswego County Savings Bank. You should read this
prospectus supplement only in conjunction with the attached prospectus.
-------------------------------
This Investment Involves a High Degree of Risk. You Should Purchase Shares Only
if You Can Afford a Complete Loss. See "Restrictions on Resale" at Page S-____
in this Prospectus Supplement and "Risk Factors" at Page 14
in the Attached Prospectus.
Neither the Securities and Exchange Commission nor any state or federal
agency has approved or disapproved these securities or determined that this
prospectus supplement is accurate or complete. Any representation to the
contrary is a criminal offense.
The participation interests offered by The Oswego County Savings Bank
401(k) Plan are not savings accounts or deposits and are not insured or
guaranteed by any government insurance fund, Oswego County Savings Bank or
Oswego County Bancorp, Inc.
-------------------------------
____________ ____, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE OFFERING...........................................................................................S-1
Summary of the Reorganization.................................................................S-1
Securities Offered............................................................................S-1
Election to Purchase Common Stock in the Offering; Priorities.................................S-1
Value of 401(k) Plan Account Balances.........................................................S-2
How to Use Plan Funds to Invest in the Offering...............................................S-2
Deadline for Participating in the Offering....................................................S-2
Irrevocability of Election to Participate in the Offering.....................................S-3
Direction to Purchase Common Stock After the Offering.........................................S-3
Purchase Price of Common Stock................................................................S-3
Nature of a Participant's Interest in the Common Stock........................................S-3
Voting Rights of Common Stock.................................................................S-4
DESCRIPTION OF THE 401(K) PLAN.........................................................................S-4
Introduction..................................................................................S-4
Employee Retirement Income Security Act.......................................................S-4
Reference to Full Text of Plan................................................................S-5
Eligibility and Participation.................................................................S-5
Contributions Under the Plan..................................................................S-5
Limitations on Contributions..................................................................S-6
Limitation on 401(k) Plan Contributions..............................................S-6
Limitation on Annual Additions and Benefits..........................................S-6
Limitation on Plan Contributions for Highly Compensated Employees....................S-6
Top-Heavy Plan Requirements..........................................................S-8
Investment of Contributions...................................................................S-8
General..............................................................................S-8
Previous Funds.......................................................................S-8
Oswego County Bancorp Stock Investment Fund..................................................S-11
Vesting......................................................................................S-12
Withdrawals and Distributions From the 401(k) Plan...........................................S-12
Withdrawals Prior to Termination of Employment or Age 59 1/2.................................S-12
Distribution Upon Death, Retirement, Disability or Termination of Employment.................S-13
Non-alienation of Benefits...................................................................S-13
Trustee......................................................................................S-13
Plan Administrator...........................................................................S-13
Reports to 401(k) Plan Participants..........................................................S-14
Amendment and Termination....................................................................S-14
Merger, Consolidation or Transfer............................................................S-14
Federal Income Tax Consequences..............................................................S-15
Lump Sum Distribution...............................................................S-15
Averaging Rules.....................................................................S-16
Common Stock Included in Lump Sum Distribution......................................S-17
Continuation or Rollovers to Another Qualified Plan or to an IRA....................S-17
Additional Tax on Early Distributions...............................................S-19
Additional Employee Retirement Income Security Act Considerations...................S-19
SEC Reporting and Short-Swing Profit Liability......................................S-19
LEGAL OPINION.........................................................................................S-20
</TABLE>
<PAGE>
THE OFFERING
Summary of the Reorganization
Oswego County Savings Bank is reorganizing into a New York-chartered
mutual holding company form, whereby the mutual savings bank will convert to a
New York-chartered stock savings bank as a wholly owned subsidiary of Oswego
County Bancorp, Inc. Oswego County Bancorp will become a majority-owned
subsidiary of Oswego County MHC, a New York- chartered mutual holding company.
Securities Offered
Oswego County Bancorp is offering participation interests to the
participant's in the 401(k) plan. These participation interests represent
indirect ownership of Oswego County Bancorp's common stock through the 401(k)
plan. The 401(k) plan may acquire up to ___________ shares (at a purchase price
of $ ________ per share) of common stock to be held by the 401(k) plan's trustee
in an investment fund established to primarily investment in the common stock of
Oswego County Bancorp. Oswego County Bancorp is the issuer of the common stock.
Only employees of Oswego County Savings Bank may become participants in the
401(k) plan. Oswego County Savings Bank will not offer these interests unless
Oswego County Savings Bank completes the reorganization into stock form. Your
ability to invest in the Oswego County Bancorp stock investment fund is subject
to the priority purchase rights described below. Information with regard to the
401(k) plan is contained in this prospectus supplement and information with
regard to the reorganization and the financial condition, results of operation
and business of Oswego County Savings Bank is contained in the attached
prospectus. This prospectus supplement should be read with the attached
prospectus. The address of the principal executive office of Oswego County
Savings Bank is 44 East Bridge Street, Oswego, New York 13126. Oswego County
Savings Bank's telephone number is (315) 343-4100.
Election to Purchase Common Stock in the Offering; Priorities
In connection with the reorganization, Oswego County Savings Bank has
amended its 401(k) plan to permit you to direct all or part of your 401(k)
account balance into the Oswego County Bancorp Stock Investment Fund to be used
to purchase the common stock issued in connection with the offering. The trustee
of the 401(k) plan will purchase common stock offered for sale in connection
with the offering in accordance with your directions.
In the event the offering is oversubscribed and the trustee is unable
to use the full amount allocated by you to purchase common stock in the
offering, the amount that cannot be invested in the Oswego County Bancorp Stock
Investment Fund will be reallocated on a pro rata basis to the other investment
options that you have previously selected. If you choose not to direct the
investment of your 401(k) account balance, your account balance will remain
allocated in and among the other investment options of the 401(k) plan as you
previously directed. If you have
S-1
<PAGE>
never made an investment election, your account balance will be invested in the
RSGroup Trust Company Stable Value Fund.
The shares of common stock to be sold in the offering are being offered
in the following order of priority:
(1) Depositors who held at least $100 with us on September 30, 1997.
(2) The Oswego County Bancorp, Inc. Employee Stock Ownership Plan.
(3) Depositors who held at least $100 with us on March 31, 1999.
(4) Oswego County Savings Bank's trustees, officers and employees.
To the extent you fall into one of these categories, you may use funds
in your 401(k) account to subscribe or pay for the common stock being offered.
Common stock so purchased will be placed in the Oswego County Bancorp Stock
Investment Fund and allocated to your 401(k) account. Limitations on the amount
of common stock that you may purchase in the offering will be calculated based
on the aggregate amount directly purchased by you in the offering together with
the amount purchased with funds allocated to your 401(k) account. See
"Limitations on Stock Purchases" at page ____ in the attached prospectus.
Value of 401(k) Plan Account Balances.
As of ____________ ____, 1999, the market value of the assets of the
401(k) plan equaled approximately $________________, representing the aggregate
market value of all the plan participants' accounts and earnings, less previous
withdrawals.
How to Use Plan Funds to Invest in the Offering
Accompanying this prospectus supplement is an Investment Election Form,
attached as Annex A, which will enable you to direct that all or a portion of
your 401(k) account balance, representing contributions through ____________
____, 1999, be transferred into the Oswego County Bancorp Stock Investment Fund.
If you wish to use all or any part of your 401(k) account balance to purchase
common stock issued in the offering, you must complete the attached Investment
Election Form.
Deadline for Participating in the Offering
If you wish to purchase common stock with your 401(k) account balance,
you must return your Investment Election Form to ____________,___________,
Oswego County Savings Bank, 44 East Bridge Street, Oswego, New York 13126, no
later than 12:00 noon on ____________ ____, 1999.
S-2
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Irrevocability of Election to Participate in the Offering
You may not revoke your election to transfer amounts credited to your
401(k) account into the Oswego County Bancorp Stock Investment Fund. At any time
after the offering and pursuant to the terms of the plan, you may change the
investment allocations of your 401(k) account balance as explained below.
Direction to Purchase Common Stock After the Offering
Whether or not you choose to purchase stock in the offering, you will
be able to purchase stock after the offering. You may direct a percentage of
your 401(k) account balance to be allocated and invested in the Oswego County
Bancorp Stock Investment Fund and/or in and among the other investment funds
available under the plan. You may change your investment allocation on an
unlimited basis. Special restrictions may apply to allocations directed to or
from the Oswego County Bancorp Stock Investment Fund by those participants who
are subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended, relating to the purchase and sale of securities by executive
officers, directors and principal shareholders of Oswego County Bancorp and
Oswego County Savings Bank.
If you are an officer or director of Oswego County Bancorp or Oswego
County Savings Bank, then you will not be able to transfer your initial
investment out of the Oswego County Bancorp Stock Investment Fund for a period
of one year following the consummation of the conversion.
Purchase Price of Common Stock
The trustee will use the funds transferred to the Oswego County Bancorp
Stock Investment Fund for the purchase of common stock in the offering, except
in the event of an oversubscription, as discussed above. The trustee will pay
$_______ per share, the same price as paid by all other persons who purchase
shares of common stock in the offering.
After the offering, the trustee will acquire common stock in open
market transactions at the prevailing market price. The trustee will pay
transaction fees associated with the purchase, sale or transfer of the common
stock from the assets of the investment fund.
Nature of a Participant's Interest in the Common Stock
The trustee holds the common stock, in trust, for the participants in
the 401(k) plan. Shares of common stock acquired by the trustee at your
discretion will be held in an investment fund with participation interests of
such fund allocated to your 401(k) account. Therefore, investment decisions of
other plan participants should not affect the earnings allocated to your
individual account.
S-3
<PAGE>
Voting Rights of Common Stock
Each participant who is allocated interests in the Oswego County
Bancorp Stock Investment Fund shall be entitled to direct the plan's trustee
with respect to the voting and tendering of their proportionate interest in the
fund. Each such participant will be allocated instruction rights reflecting
their proportionate interest in the Oswego County Bancorp Stock Investment Fund
and the trustee will vote and/or tender the common stock, as the case may be,
held in the Oswego County Bancorp Stock Investment Fund affirmatively and
negatively on each matter in proportion to the instructions received by the
trustee in a timely manner.
DESCRIPTION OF THE 401(K) PLAN
Introduction
Oswego County Savings Bank adopted the 401(k) plan effective January 1,
1992 and restated on June 1, 1999. As part of the reorganization and conversion
into a mutual holding company structure Oswego County Savings Bank amended the
401(k) plan to permit investments in a fund established to invest primarily in
the common stock of Oswego County Bancorp. The 401(k) plan is a tax-qualified
plan that permits participants to defer current compensation to their 401(k)
accounts.
Employee Retirement Income Security Act.
Oswego County Savings Bank intends that the 401(k) plan, in operation,
will comply with the requirements of the Internal Revenue Code and the Employee
Retirement Income Security Act. Oswego County Savings Bank may amend the 401(k)
plan from time to time in the future, as it sees fit or to maintain compliance
with federal law. Since the 401(k) plan is governed by the Employee Retirement
Income Securities Act, you are provided with various rights and protections as a
participant of a the plan. Although the 401(k) plan is subject to many of the
provisions of the Employee Retirement Security Act, your benefits under the
401(k) plan are not governed or insured by the Pension Benefit Guaranty
Corporation.
Generally, applicable federal law requires the 401(k) plan to impose
substantial restrictions on your right to withdraw amounts held for your benefit
under the plan prior to your retirement. Additionally, a substantial federal tax
penalty may be imposed on withdrawals made prior to your attainment of age
59 1/2, regardless of whether such a withdrawal occurs during or after your term
of employment.
S-4
<PAGE>
Reference to Full Text of Plan
The following statements are summaries of certain provisions of the
401(k) plan. They are not complete and are qualified in their entirety by the
full text of the 401(k) plan. You may obtain a copy of the 401(k) plan by filing
a request with Oswego County Savings Bank, 44 East Bridge Street, Oswego, New
York 13126, Attention: ________________. We urge each employee to read carefully
the full text of the 401(k) plan.
Eligibility and Participation
Any employee of Oswego County Savings Bank who has reached age 21 is
eligible to become a participant in the 401(k) plan on the first January 1st or
July 1st following the completion of one "year of service," a twelve consecutive
month period during which an employee completes at least 1,000 hours of service
with Oswego County Savings Bank. The plan year is January 1 to December 31.
As of ____________ ____ 1999, there were approximately ____ employees
eligible to participate in the 401(k) plan, and ____ employees participating by
making elective deferral contributions.
Contributions Under the Plan
401(k) Contributions. As a member of the 401(k) plan, you are permitted
to defer on a pre-tax basis from 1% to 12% of your compensation up to $10,000,
and to have that amount contributed to the 401(k) plan on your behalf. For
purposes of the 401(k) plan, "compensation" means your base pay plus
commissions, exclusive of any compensation deferred from a previous year, plus
pre-tax contributions made to this 401(k) plan or a section 125 cafeteria plan.
In 1999, the maximum amount of your annual salary that could be taken
into account under the 401(k) plan is limited to $160,000. Limits established by
the Internal Revenue Service are subject to increase pursuant to an annual cost
of living adjustment.
You may elect to modify the amount contributed to the 401(k) plan by
filing a new salary reduction agreement with the 401(k) plan administrator which
will be effective the first day of the next contribution reporting period.
However, Section 16 of the Securities Exchange Act of 1934 applies special
restrictions to those participants who are officers, directors and persons
beneficially owning more than 10% of Oswego County Bancorp.
After-Tax Contributions. Employee after-tax contributions are not
allowed under the plan.
Employer Contributions. If you make a deferral contribution, Oswego
County Savings Bank will make a matching contribution to your 401(k) account
equal to 50% of your deferral up to the first 6% of your compensation (a maximum
matching contribution of 3% of your
S-5
<PAGE>
compensation). Matching contributions are subject to revision by Oswego County
Savings Bank at any time. Matching contributions vest according to the vesting
schedule as set forth on Page S-____.
Limitations on Contributions
Limitation on 401(k) Plan Contributions. In 1999, the aggregate amount
of your elective deferral contributions may not exceed $10,000 for the calendar
year. The Internal Revenue Service will periodically increase this annual
limitation. If you defer salary in excess of this limitation, your gross income
for federal income tax purposes will include the excess in the year of the
deferral. In addition, unless the excess deferral is distributed before April 15
of the following year it will be taxed again in the year distributed. Income on
the excess deferral distribution by April 15 of the immediately succeeding year
will be treated, for federal income tax purposes, as earned and received by the
participant in the tax year in which the distribution is made.
Limitation on Annual Additions and Benefits. The contributions and
forfeitures you receive under the 401(k) plan and other defined contribution
plans qualified under Section 401 of the Internal Revenue Code (including the
newly adopted employee stock ownership plan), in the aggregate, cannot exceed
the lesser of $30,000 or 25% of you compensation. To the extent contributions
and forfeitures exceed these limitations, the amounts that would have been
credited to your account shall be administered as follows:
(1) any excess amount of employer contribution shall be deemed
forfeited as of the end of the plan year and reallocated among the accounts of
the other participants; and
(2) remaining excess amounts shall be held in an unallocated suspense
account to be used as contributions for the next plan year.
If you are also covered under Oswego County Bancorp's employee stock
ownership plan and your annual additions exceed the maximum permissible amount
after the above reductions are taken, the plan administrator may reduce your
employee stock ownership plan contributions so the total annual additions do not
exceed the limitation.
Limitation on Plan Contributions for Highly Compensated Employees. The
Internal Revenue Code limits the amount of elective deferral contributions and
matching contributions that may be made to the 401(k) plan in any plan year on
behalf of highly compensated employees. The limitation is based upon the
relationship between the deferrals of the highly compensated employees verse the
contributions made by or on behalf of all other employees eligible to
participate in the 401(k) plan. Specifically, the actual deferral percentage,
i.e., the average of the actual deferral ratios, expressed as a percentage, of
each eligible employee's elective deferral contribution, if any, for the plan
year over the employee's salary, must meet either of the following tests:
S-6
<PAGE>
(1) the average deferral percentage of the eligible highly compensated
employees is not more than 125% of the average deferral percentage of all other
eligible employees; or
(2) the average deferral percentage of the eligible highly compensated
employees is not more than 200% of the average deferral percentage of all other
eligible employees, and the excess of the average deferral percentage for the
eligible highly compensated employees over the average deferral percentage of
all other eligible employees is not more than two percentage points.
Similarly, the actual contribution percentage, i.e., the average of the
actual contribution ratios, expressed as a percentage, of each eligible
employee's matching contributions, if any, for the plan year over the employee's
salary, must meet either of the following test:
(1) the actual contribution percentage of the eligible highly
compensated employees is not more than 125% of the actual contribution
percentage of all other eligible employees; or
(2) the actual contribution percentage of the eligible highly
compensated employees is not more than 200% of the actual contribution
percentage of all other eligible employees, and the excess of the actual
contribution percentage for the eligible highly compensated employees over the
actual contribution percentage of all other employees is not more than two
percentage points.
Example: If the average deferral percentage of non-highly
compensated employees is 4%, the average deferral
percentage of highly compensated employees cannot
exceed 6%. Alternatively, if the average deferral
percentage of non-highly compensated employees is
10%, the maximum deferral percentage of highly
compensated employees cannot exceed 12.5%.
In general, for plan years beginning in 1999, a highly compensated
employee includes:
(1) an employee who, during the plan year or the preceding plan year,
was at any time a 5% owner of the stock of the employer; or stock processing
more than 5% of the total combined voting power of all stock of the employer.
(2) an employee who, for the preceding plan year, received salary from
the employer in excess of $80,000 and if Oswego County Savings Bank elects, was
in the group consisting of the top 20% of employees when ranked on the basis of
salary paid during the plan year. The dollar amounts set forth above are
adjusted annually to reflect increases in the cost of living.
The trustee will distribute amounts contributed by highly compensated
employees that exceed the average deferral percentage limitation in any plan
year, together with any income allocable. These contributions must be
distributed before the close of the following plan year, first to highly
compensated employees with the greatest dollar amount of deferrals, until the
plan satisfies the average deferral percentage test. Moreover, Oswego County
Savings Bank will be subject to a 10% excise tax on these contributions unless,
together with any income allocable
S-7
<PAGE>
thereto, they either are re-characterized or are distributed before the close of
the first 2 1/2 months following the plan year to which the contributions
relate.
In addition, the trustee will distribute, any contributions by highly
compensated employees that exceed the average contribution percentage limitation
on any plan year, together with any income allocable thereto, before the close
of the following plan year. A 10% excise tax will also be imposed on Oswego
County Savings Bank with respect to these contributions, unless such
contributions, plus any income allocable thereto, are distributed within 2 1/2
months following the close of the plan year in which they arose.
Top-Heavy Plan Requirements. If for any plan year that the plan is a
top-heavy plan (as defined below), then (i) Oswego County Savings Bank may be
required to make certain minimum contributions to the plan on behalf of non-key
employees (as defined below), and (ii) certain additional restrictions would
apply with respect to the combination of annual additions to the plan and
projected annual benefits under any defined benefit plan maintained by Oswego
County Savings Bank.
In general, the Plan will be regarded as a "top-heavy plan" for any
plan year if, as of the last day of the preceding plan year, the aggregate
balance of the accounts of participants who are key employees exceeds 60% of the
aggregate balance of the accounts of all participants. Key employees generally
include any employee who, at any time during the plan year or any of the four
preceding plan years, is (1) an officer of the employer having annual
compensation in excess of 50% of the amount under Section 415(b)(1)(A) of the
Internal Revenue Code ($130,000 for 1999), (2) one of the ten employees having
annual compensation greater than the Section 415(c)(1)(A) amount ($30,000 for
1999) and owning, directly or indirectly, the largest interests in the employer,
(3) a 5% owner of the employer, (i.e., owns directly or indirectly more than 5%
of the stock of the employer, or stock processing more than 5% of the total
combined voting power of all stock of the employer) or (4) a 1% owner of the
employer having annual compensation in excess of $150,000.
Investment of Contributions
General. All amounts credited to your accounts under the 401(k) plan
are held in the plan trust which is administered by the trustee appointed by
Oswego County Savings Bank's board of directors.
S-8
<PAGE>
Previous Funds. The annual percentage return on these funds for the
prior three years was:
<TABLE>
<CAPTION>
=================================================================================================================
Fund 1998 1997 1996
- ----------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Alliance Premier Growth A Equity Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
MFS Massachusetts Inv Growth A Equity Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
MFS Capital Opportunities A Equity Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Baron Asset Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Scudder International Equity Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
RSI Retirement Trust Actively Managed Bond Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
RSGroup Trust Company Stable Value Fund % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
RSGroup Trust Company Aggressive Asset Allocation % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
RSGroup Trust Company Moderate Asset Allocation % % %
- ----------------------------------------------------------------------------- ----------- ----------- -----------
RSGroup Trust Company Conservative Asset Allocation % % %
=================================================================================================================
</TABLE>
A brief summary of such funds is as follows:
Alliance Premier Growth A Equity Fund - The Alliance Premier Growth
Fund seeks long-term growth of capital by investing primarily in the equity
securities of a limited number of large, high-quality U.S. companies that are
judged likely to achieve superior earning growth. The fund is appropriate for
investors with a long-term investment horizon.
MFS Massachusetts Inv Growth A Equity Fund - The MFS Massachusetts
Investors Growth Stock Fund seeks long-term growth of capital and future income
by investing in common stocks of companies with better-than-average prospects
for long-term growth. The fund is appropriate for investors with a long-term
investment horizon.
MFS Capital Opportunities A Equity Fund - The MFS Capital Opportunities
Fund seeks capital appreciation by investing primarily in common stocks selling
at a discount to projected earnings growth. Income is a secondary consideration.
The fund is appropriate for investors with a long-term investment horizon.
Baron Asset Fund - The Baron Asset Fund seeks capital appreciation by
investing in securities of smaller companies which management believes are
undervalued or have superior growth potential. The fund is appropriate for
investors with a long-term investment horizon who are willing to accept greater
short-term changes in value for the potential of a higher long-term return.
S-9
<PAGE>
Scudder International Equity Fund - The Scudder International Fund
seeks long-term growth of capital by investing in foreign equities. The fund is
appropriate for investors with a long-term investment horizon. There are special
risks associated with an investment in this fund, including fluctuations in
exchange rates and political uncertainty.
RSI Retirement Trust Actively Managed Bond Fund -
RSGroup Trust Company Stable Value Fund - The Stable Value Fund is a
bank collective trust that seeks to protect principal from market volatility and
achieve returns comparable to short-term bond funds by investing in high
quality, interest stable instruments that are inherent in instruments in GICs,
BICs and synthetic stable value products with a relatively predictable annual
return.
RSGroup Trust Company Aggressive Asset Allocation - This diversified
investment fund is a bank collective trust that is ready-made asset allocated
portfolio for the investor with an "aggressive" risk profile who is stable to
leave their money invested through market cycles and are comfortable riding out
market declines when they occur. The fund has target exposure of 75% stocks and
25% bonds.
RSGroup Trust Company Moderate Asset Allocation - This diversified
investment fund is a bank collective trust that is a ready-made asset allocated
portfolio for the investor with a "moderate" risk profile who is stable to leave
their money invested through market cycles and are comfortable riding out market
declines when they occur. The fund has target exposure of 60% stocks and 40%
bonds.
RSGroup Trust Company Conservative Asset Allocation - This diversified
investment fund is a bank collective trust that is ready-made asset allocated
portfolio for the investor with a "conservative" risk profile who is stable to
leave their money invested through market cycles and are comfortable riding out
market declines when they occur. The fund has a target exposure of 40% stocks
and 60% bonds.
Prior to the effective date of the offering and as part of the normal
operation of the plan, you and the other participants were provided the
opportunity to direct the investment of your 401(k) accounts into and among the
following funds:
A. Alliance Premier Growth A Equity Fund
B. MFS Massachusetts Inv Growth A Equity Fund
C. MFS Capital Opportunities A Equity Fund
D. Baron Asset Fund
E. Scudder International Equity Fund
F. RSI Retirement Trust Actively Managed Bond Fund
G. RSGroup Trust Company Stable Value Fund
H. RSGroup Trust Company Aggressive Asset Allocation
I. RSGroup Trust Company Moderate Asset Allocation
J. RSGroup Trust Company Conservative Asset Allocation
S-10
<PAGE>
The 401(k) plan now provides that in addition to the funds specified
above, you may direct the trustee to invest all or a portion of your 401(k)
account in the Oswego County Bancorp Stock Investment Fund.
You may elect to have past contributions (including earnings thereon)
as well as future contributions to your 401(k) account invested either in the
Oswego County Bancorp Stock Investment Fund and/or in and among the other funds
listed above. Transfers of past contributions (and the earnings thereon) do not
affect the investment mix of future contributions.
If you make an election to direct any part of your 401(k) account into
the Oswego County Bancorp Stock Investment Fund, you may change your investment
decision at a future date. This may be done by filing a Change of Investment
Allocation Form with the 401(k) plan's administrator. The proceeds of the sale,
net of expenses, will be allocated to your 401(k) account and reallocated in
accordance with your alternative investment directions. Until an initial
effective direction is made by a participant, the participant's 401(k) account
will be invested in the RSGroup Trust Company Stable Value Fund.
Oswego County Bancorp Stock Investment Fund
The Oswego County Bancorp Stock Investment Fund will consist of
investments in common stock made on and after the effective date of the
offering. After the offering, the trustee will, to the extent practicable, use
all amounts held by it in the stock investment fund, (including cash dividends
paid on the common stock held) to purchase shares of common stock of Oswego
County Bancorp. It is expected that all purchases will be made at the then
prevailing market price. Under certain circumstances, the trustee may be
required to limit the daily volume of shares purchased. Pending investment in
common stock, assets held in the stock investment fund will be placed in the
RSGroup Trust Company Stable Value Fund an equivalent investment vehicle. Any
earnings that result therefrom will remain in and be utilized by the stock
investment fund.
Any brokerage commissions, transfer fees and other expenses incurred in
the sale and purchase of common stock for the stock investment fund will be paid
out of a cash account managed by the trustee. Therefore, although the
participants' 401(k) accounts will not be directly adjusted for such fees, the
market value of the fund its self and the units allocated to the participant's
accounts will be reduced.
As of the date of this prospectus supplement, none of the shares of
common stock have been issued or are outstanding and there is no established
market for the common stock. Accordingly, there is no record of the historical
performance of the Oswego County Bancorp Stock Investment Fund. Performance will
depend upon a number of factors, including the financial condition and
profitability of Oswego County Bancorp and Oswego County Savings Bank and market
conditions for the common stock generally.
Investments in the Oswego County Bancorp Stock Investment Fund involve
certain special risks as they are an indirect investment in the common stock of
the Oswego County Bancorp. For a discussion of these risk factors, see "Risk
Factors" on page 14 in the prospectus.
S-11
<PAGE>
Vesting
You are always 100% vested in your deferral contributions to the 401(k)
plan. You shall become vested in any employer matching contributions in
accordance with the following schedule:
----------------------------------- -------------------------
Years of Service Vested Percentage
----------------------------------- -------------------------
Less than 2 0%
----------------------------------- -------------------------
2 20%
----------------------------------- -------------------------
3 40%
----------------------------------- -------------------------
4 60%
----------------------------------- -------------------------
5 80%
----------------------------------- -------------------------
6 100%
----------------------------------- -------------------------
A year of service is granted provided the participant works at least
1,000 hours in the plan year.
You are also 100% vested in employer matching contributions made to
your 401(k) account, regardless of your years of service, upon attainment of
normal retirement age under the 401(k) plan, defined as age 65, death,
disability or upon the complete termination of the plan. Any non-vested employer
contributions which are forfeited will be reallocated to all eligible
participants at the end of the plan year in the same ratio as each participant's
salary bears to the total of the salary of all participants.
Withdrawals and Distributions From the 401(k) Plan
Federal law requires the 401(k) plan to impose substantial restrictions
on your right to withdraw amounts held for your benefit under the 401(k) plan
prior to termination of employment with Oswego County Savings Bank. A federal
tax penalty equal to 10% of the withdrawal, over and above the normal federal
and state income tax, may also be imposed on withdrawals made prior to your
attainment of age 59 1/2, regardless of whether the withdrawals occur during
your employment with Oswego County Savings Bank or after termination of such
employment.
Withdrawals Prior to Termination of Employment or Age 59 1/2
You may withdraw your deferral or employer matching contributions in
your 401(k) account prior to termination of employment or attaining age 59 1/2
only in the event of unforseen financial hardship, subject to the hardship
distribution rules under the plan. These requirements insure that you have a
true financial need before you make such a withdrawal.
S-12
<PAGE>
Distribution Upon Death, Retirement, Disability or Termination of Employment
Payment of your benefits upon your death, retirement, disability or
other termination of employment shall be made to you (or your beneficiary, as
the case may be) in a lump sum if your 401(k) account is no more that $5,000.
For distributions for other then death, if the value of your 401(k) account is
greater than $5,000, payout(s) of your benefits will be deferred until age 65
unless you select one of the following options.
o You may select a lump sum payment as of the plan's
valuation date following you date of termination.
Such lump sum may be subject to mandatory withholding
and/or the 10% federal excise tax for early
distributions.
o You may "rollover" your 401(k) account balance into
another qualified retirement plan or to an Individual
Retirement Account, as discussed below.
o You may have your account balance paid out as
monthly, quarterly, semi-annual or annual
installments commencing on a date of your choosing
over a period not to exceed 20 years. Depending upon
your particular circumstances, these installment
payments may be subjected to the 10% excise tax for
early distributions.
Benefit payments may be deferred until April 1 following the calendar
year in which you attain age 70 1/2. Minimum distributions must commence and
continue every year thereafter.
Non-alienation of Benefits
Except for federal income tax withholding and qualified domestic
relations order, your benefits payable under the 401(k) plan cannot be
alienated. Examples of alienation include transferring your benefits voluntarily
and having a creditor place a lien on your benefits. Any attempt to alienate
your benefits, whether voluntary or involuntary shall be void.
Trustee
The trustee with respect to the 401(k) plan is the named fiduciary of
the 401(k) plan. The board of trustees of Oswego County Savings Bank has
appointed RSGroup Trust Company as trustee of the 401(k) plan. The trustee
receives, holds and invests the contributions to the 401(k) plan in trust and
distributes them to you and your beneficiaries in accordance with the terms of
the 401(k) plan and the directions of the plan administrator. The trustee is
responsible for investment of the assets of the trust.
Plan Administrator
Currently, the 401(k) plan administrator is a committee appointed by
Oswego County Savings Bank. The address and telephone number of the plan
administrator is 44 East Bridge Street, Oswego, New York 13126, telephone number
(315) 343-4100. The 401(k) plan administrator is responsible for the
administration of the 401(k) plan, interpretation of the
S-13
<PAGE>
provisions of the 401(k) plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the 401(k)
plan, maintenance of 401(k) plan records, books of account and all other data
necessary for the proper administration of the 401(k) plan, and preparation and
filing of all returns and reports relating to the 401(k) plan which are required
to be filed, and for all disclosures required to be made to participants,
beneficiaries and others.
Reports to 401(k) Plan Participants
The 401(k) plan administrator will furnish you with a statement at
least quarterly showing:
(1) the balance in your 401(k) plan account as of the end of that
period;
(2) the amount of contributions allocated to your 401(k) plan account
for that period; and
(3) the adjustments to your 401(k) plan account to reflect earnings or
losses, distributions, loans disbursed, loan repayments and/or
transfers between investment funds.
Amendment and Termination
It is the intention of Oswego County Savings Bank to continue the
401(k) plan indefinitely. Nevertheless, Oswego County Savings Bank may terminate
the 401(k) plan at any time. If the 401(k) plan is terminated in whole or in
part, then regardless of other provisions in the 401(k) plan, you will have a
fully vested interest in your 401(k) account. Oswego County Savings Bank
reserves the right to make, from time to time, any amendment or amendments to
the 401(k) plan which do not cause any part of the trust to be used for, or
diverted to, any purpose other than the exclusive benefit of participants or
their beneficiaries; provided, however, that Oswego County Savings Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with the Employee Retirement Income Security Act and/or the
Internal Revenue Code.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the 401(k) plan with
another plan, or the transfer of the trust assets to another plan, the 401(k)
plan requires that you will be entitled to a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than the benefit
you would have been entitled to receive immediately before such merger,
consolidation or transfer.
S-14
<PAGE>
Federal Income Tax Consequences
General. The following is a summary of the material federal income tax
aspects of the 401(k) plan. However, statutory provisions are subject to change,
as are their interpretations, and their application may vary in individual
circumstances. The consequences under state and local income tax laws may not be
the same as under the federal income tax laws.
You Are Urged to Consult Your Tax Advisor With Respect To
Any Distribution From The 401(k) Plan And Transactions
Involving The 401(k) Plan.
The 401(k) plan is tax-qualified and the related trust is exempt from
taxation under the Internal Revenue Code. As a result, the 401(k) plan is
afforded special tax treatment which include the following:
(1) Oswego County Savings Bank is allowed an immediate tax deduction
for the amount contributed to the 401(k) plan each year;
(2) participants pay no current income tax on amounts contributed by
Oswego County Savings Bank on their behalf; and
(3) earnings of the 401(k) plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments.
The 401(k) plan will be administered to comply in operation with the
requirements of the Internal Revenue Code as of the effective date of any change
in the law. Oswego County Savings Bank expects to timely adopt any amendments to
the 401(k) plan that may be necessary to maintain the qualified status of the
401(k) plan under the Internal Revenue Code.
Assuming that the 401(k) plan is administered in accordance with the
requirements of the Internal Revenue Code, participation in the 401(k) plan
under existing federal income tax laws will have the following effects:
(1) The contributions to your 401(k) account and the investment
earnings on the account are not includable in your federal taxable income until
the contributions or earnings are actually distributed or withdrawn from the
401(k) plan. Special tax treatment may apply to the taxable portion of any
distribution that includes common stock or qualifies as a lump sum distribution,
as described below; and
(2) Income earned on assets held by the trust will not be taxable to
the trust.
Lump Sum Distribution. A distribution from the 401(k) plan to you or
your beneficiary will qualify as a lump sum distribution if it is made:
(1) within one calendar year;
S-15
<PAGE>
(2) on account of your death, disability or separation from service, or
after you attain age 59 1/2; and
(3) consists of your balance under this 401(k) plan and all other
profit sharing plans, if any, maintained by Oswego County Savings Bank. The
portion of any lump sum distribution that is required to be included in your
taxable income for federal income tax purposes, consists of the entire amount of
the lump sum distribution less the amount of after-tax contributions, if any,
made by you to this or any other profit sharing plan maintained by Oswego County
Savings Bank which is included as part of the lump sum distribution.
Averaging Rules. The portion of the total taxable amount of a lump sum
distribution that is attributable to participation after 1973 in the 401(k) plan
or in any other profit-sharing plan maintained by Oswego County Savings Bank,
referred to as the ordinary income portion, will be taxable generally as
ordinary income for federal income tax purposes. However, if you have completed
at least five years of participation in the 401(k) plan before the year in which
the distribution is made, you may elect to have the ordinary income portion of
the lump sum distribution taxed according to a special five-year averaging rule.
In general, five-year income averaging allows you to pay a separate tax
on the lump-sum distribution that approximates the tax that would have been due
if the distribution had been received in five equal annual installments. The
election of the special averaging rules apply only to one lump sum distribution
received by you provided such amount is received on or after you turn age 59 1/2
and you elect to have any other lump sum distribution from a qualified plan
received in the same year taxed under the special averaging rule. If your
beneficiary receives a lump sum distribution as the result of your death, your
beneficiary may elect five-year averaging without regard to whether you were a
participant in the plan for five years prior to your death.
Example: Smith, age 65 and married filing a joint federal tax return,
receives a lump-sum distribution of $150,000 from his corporation's
qualified plan and elects 5-year averaging. The tax is computed as
follows:
Amount of total distribution subject to tax $150,000.00
Tax at single rates on $30,000 (1/5 of $150,000) 5,988.50
Multiplied by 5 $ 29,942.50
Under a special grandfather rule, if you turned age 50 by 1985, you may
elect to have your lump sum distribution taxed under either the five-year
averaging rule or under the prior law's ten-year averaging rule; you also may
elect to have that portion of the lump sum distribution attributable to your
pre-1974 participation in the 401(k) plan taxed at a flat 20% rate as gain from
the sale of a capital asset.
For years beginning after December 31, 1999, five year income averaging
is repealed. The special grandfather rule is modified so that, if you qualify,
you can elect 10-year but not five year averaging.
S-16
<PAGE>
Common Stock Included in Lump Sum Distribution. If a lump sum
distribution includes common stock, the distribution generally will be taxed in
the manner described above under lump sum distributions rules, except that the
total taxable amount will be reduced by the amount of any net unrealized
appreciation with respect to such common stock, i.e., the net unrealized
appreciation is the excess of the value of such common stock at the time of the
distribution over the cost or other basis to the trust.
Example: Assume the 401(k) plan purchases 100 shares of common stock in
the offering at $10 per share. Ten dollars would be the cost basis of
the stock to the 401(k) plan. If the 401(k) plan distributes the common
stock to you in a lump sum distribution when the stock is trading at
$18 per share, you will be taxed in the year of distribution on the $10
cost basis of the stock to the 401(k) plan. The additional $8 per
share, or the net unrealized appreciation, will not be taxed until you
ultimately sell the stock.
The tax basis of such common stock for purposes of computing gain or
loss on its subsequent sale will be the value of the common stock at the time of
distribution less the amount of net unrealized appreciation.
Example: Assuming the same facts as above, your cost basis in the stock
is $10, which is the $18 value of the stock at the time of distribution
MINUS the $8 of net unrealized appreciation.
Any gain on a sale or other taxable disposition of such common stock,
to the extent of the amount of net unrealized appreciation at the time of
distribution, will be considered long-term capital gain regardless of the
holding period of such common stock. Any gain on a sale (or other taxable
disposition) of the common stock in excess of the amount of net unrealized
appreciation at the time of distribution will be considered short-term, mid-term
or long-term capital gain depending upon the length of the holding period of the
common stock.
Example: Assume you sell 50 shares of the stock in January, seven
months after you receive the distribution for $20 per share. You will
be taxed as follows: You will not be taxed again on the $10 cost basis
you recognized as income at the time of distribution. The $8 in net
unrealized appreciation will be taxed at long term capital gains rates.
However, the $2 appreciation in the value of the stock that occurred
since the distribution will be taxed at short term capital gains rates
since you have only held the stock for seven months following its
distribution to you.
As a recipient of a distribution you may elect to include the amount of
any net unrealized appreciation in the total taxable amount of such distribution
to the extent allowed by the regulations to be issued by the Internal Revenue
Service.
Contribution or Rollover to Another Qualified Plan or to an Individual
Retirement Account. You may defer federal income taxation of all or any portion
of the total taxable amount of a lump sum distribution, including the proceeds
from the sale of any common stock included in the lump sum distribution, to the
extent that such amount, or a portion thereof, is contributed
S-17
<PAGE>
("rolled over") within 60 days after the date of its receipt by you, to another
qualified plan or to an individual retirement account. If less than the total
taxable amount of a lump sum distribution is contributed to another qualified
plan or to an individual retirement account within the applicable 60-day period,
the amount not so contributed must be included in your income for federal income
tax purposes and will not be eligible for the special averaging rules or for
capital gains treatment.
Example: You receive a distribution of 500 shares of stock and $3,000
cash from the 401(k) plan on June 30. If you intend to roll your
distribution over to another tax qualified plan or individual
retirement account, you must do so no later than August 29, which is 60
days after you received the distribution. If you roll over all the
stock but none of the cash, you must include the $3,000 cash in your
income for the calendar year in which the distribution is made to you.
You generally may defer the federal income taxation of any portion of
any other distribution made on account of your disability or separation from
service, if the amount is distributed within one taxable year, and is
contributed, within 60 days after the date of its receipt by you, to an
individual retirement account.
Effective January 1, 1993, you have the right to elect to have the
trustee transfer all or any portion of an "eligible rollover distribution"
directly to another qualified plan or to an individual retirement account. If
you do not elect to have an eligible rollover distribution transferred directly
to another qualified plan or to an individual retirement account, the
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An eligible rollover distribution means any amount
distributed from the 401(k) plan except:
(1) a distribution that is (a) one of a series of substantially equal
periodic payments made, not less frequently than annually, over your
life or the joint lives of you and your designated beneficiary, or (b)
for a specified period of ten years or more;
(2) any amount that is required to be distributed under the minimum
distribution rules; and
(3) any other distributions excepted under applicable federal law.
If your beneficiary is your surviving spouse, he or she also may defer
federal income taxation of all or any portion of a distribution from the 401(k)
plan to the extent that such amount, or a portion thereof, is contributed within
60 days after the date of its receipt by your surviving spouse, to an individual
retirement account. If all or any portion of the total taxable amount of a lump
sum distribution is contributed by your surviving spouse to an individual
retirement account within the applicable 60-day period, any subsequent
distribution from the individual retirement account will not be eligible for the
special averaging rules or for capital gains treatment. Any amount received by
your surviving spouse that is not contributed to another qualified plan or to an
individual retirement account within the applicable 60-day period, and any
amount received by a nonspouse beneficiary will be included in such
beneficiary's income for federal tax purposes in the year in which it is
received.
S-18
<PAGE>
Additional Tax on Early Distributions. If you receive a distribution
from the 401(k) plan prior to attaining age 59 1/2 it will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an individual retirement account or another
qualified plan or the distribution is:
(1) made to a beneficiary, or to your estate, on or after your death;
(2) attributable to your disability;
(3) part of a series of substantially equal periodic payments not less
frequently than annually made for your life or life expectancy or the
joint lives or joint life expectancies of you and your beneficiary;
(4) made to you after separation from service on account of early
retirement under the 401(k) plan after attainment of age 55;
(5) made to pay medical expenses to the extent deductible for federal
income tax purposes;
(6) made to an alternate payee pursuant to a qualified domestic
relations order; or
(7) made to effect the distribution of excess contributions or excess
deferrals.
Additional Employee Retirement Income Security Act Considerations
As noted above, the plan is subject to certain provisions of the
Employee Retirement Income Security Act, including special provisions relating
to control over the plan's assets by participants and beneficiaries. The 401(k)
plan's feature that allows you to direct the investment of your account balances
is intended to satisfy the requirements of section 404(c) of the Employee
Retirement Income Security Act of 1974 relating to control over plan assets by a
participant or beneficiary. The effect of this is two-fold. First, you will not
be deemed a 'fiduciary' because of your exercise of investment discretion.
Second, no person who otherwise is a fiduciary, such as your employer, the plan
administrator, or the plan's trustee is liable under the fiduciary
responsibility provision of the Employee Retirement Income Security Act for any
loss which results from your exercise of control over the assets in your plan
account.
Securities and Exchange Commission Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934 imposes reporting and
liability requirements on officers, directors, and persons beneficially owning
more than 10% of public companies such as Oswego County Bancorp. Section 16(a)
of the Securities Exchange Act of 1934 requires the filing of reports of
beneficial ownership. Within 10 days of becoming an officer, director or person
beneficially owning more than 10% of the shares of Oswego County Bancorp, a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Changes in beneficial ownership, such as purchases, sales
and gifts
S-19
<PAGE>
generally must be reported periodically, either on a Form 4 within 10 days after
the end of the month in which a change occurs, or annually on a Form 5 within 45
days after the close of Oswego County Bancorp's fiscal year. Discretionary
transactions in and beneficial ownership of the common stock through the Oswego
County Bancorp Stock Investment Fund of the 401(k) plan by officers, directors
and persons beneficially owning more than 10% of the common stock of Oswego
County Bancorp generally must be reported to the Securities and Exchange
Commission by such individuals.
In addition to the reporting requirements described above, section
16(b) of the Securities Exchange Act of 1934 provides for the recovery by Oswego
County Bancorp of profits realized by an officer, director or any person
beneficially owning more than 10% of Oswego County Bancorp's common stock
resulting from non-exempt purchases and sales of Oswego County Bancorp's common
stock within any six-month period.
The Securities and Exchange Commission has adopted rules that provide
exemptions from the profit recovery provisions of section 16(b) for all
transactions in employer securities within an employee benefit plan, provided
certain requirements are met. These requirements generally involve restrictions
upon the timing of elections to acquire or dispose of employer securities for
the accounts of section 16(b) persons.
Except for distributions of common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons affected by section 16(b) are required to hold shares of common
stock distributed from the 401(k) plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Oswego County Bancorp Stock Investment Fund for six months after
receiving such a distribution.
LEGAL OPINION
The validity of the issuance of the common stock will be passed upon by
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D. C., which firm acted as
special counsel to Oswego County Bancorp, Inc. in connection with Oswego County
Savings Bank's reorganization from a mutual form to a stock form bank.
S-20
<PAGE>
ANNEX A
THE OSWEGO COUNTY SAVINGS BANK 401(k) PLAN
Investment Election Form
Name of 401(k) Plan Participant: ___________________________
Social Security Number: ___________________________
1. INSTRUCTIONS. The Oswego County Savings Bank 401(k) Plan now permits
participants to direct their 401(k) account balances into a new investment fund:
the Oswego County Bancorp Stock Investment Fund. The percentage of a
participant's 401(k) account transferred at the direction of the participant
into the Oswego County Bancorp Stock Investment Fund will be used to purchase
shares of common stock of Oswego County Bancorp, Inc.
To direct a transfer of all or a portion of the funds credited to your
401(k) account to the Oswego County Bancorp Stock Investment Fund, you should
complete and file this form with the Human Resources Department, no later noon
on ________ __, 1999. A representative for Oswego County Savings Bank will
retain a copy of this form and return a copy to you. If you need any assistance
in completing this form, please contact _______________. If you do not complete
and return this form to the Oswego County Savings Bank by noon on ________ __,
1999, the funds credited to your 401(k) account will continue to be invested in
accordance with your prior investment direction or in accordance with the terms
of the 401(k) plan if no investment direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the 401(k) plan
administrator to direct the Oswego County Savings Bank to sell the units
currently credited to my 401(k) account and to purchase units in the Oswego
County Bancorp Stock Investment Fund. Transfers of units from existing
investment funds must be in multiples of 1% or whole percentages:
<TABLE>
<CAPTION>
========================================== ====================================================
SELL UNITS FROM 401(k) plan Investment Funds
- ------------------------------------------ ----------------------------------------------------
<S> <C>
Sell _____% of A Alliance Premier Growth A Equity Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of B MFS Massachusetts Inv Growth A Equity Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of C MFS Capital Opportunities A Equity Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of D Baron Asset Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of E Scudder International Equity Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of F RSI Retirement Trust Actively Managed Bond Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of G RSGroup Trust Company Stable Value Fund
- ------------------------------------------ ----------------------------------------------------
Sell _____% of H RSGroup Trust Company Aggressive Asset Allocation
- ------------------------------------------ ----------------------------------------------------
Sell _____% of I RSGroup Trust Company Moderate Asset Allocation
- ------------------------------------------ ----------------------------------------------------
Sell _____% of J RSGroup Trust Company Conservative Asset Allocation
========================================== ====================================================
</TABLE>
A-1
<PAGE>
3. PURCHASER INFORMATION. The ability of a participant in the 401(k)
plan to purchase common stock in the reorganization of Oswego County Savings
Bank and the related stock issuance and to direct his or her current balances
into the Oswego County Bancorp Stock Investment Fund is based upon the
participant's status as an eligible account holder, supplemental eligible
account holder, or trustee, officer or employee of Oswego County Savings Bank,
as defined in the Oswego County Bancorp, Inc. prospectus. To the extent your
order cannot be filled with common stock purchased in the reorganization of
Oswego County Savings Bank and the related stock issuance, the amount not used
to purchase common stock will be returned to the other investment funds of the
401(k) plan pursuant to your existing investment directions. Please indicate
your status.
a. |_| Eligible Account Holder - Check here if you were a
depositor with $100.00 or more on deposit with Oswego
County Savings Bank as of September 30, 1997.
b. |_| Supplemental Eligible Account Holder - Check here
if you were a depositor with $100.00 or more on
deposit with Oswego County Savings Bank as of March
31, 1999, but are not an Eligible Account Holder.
c. |_| Trustees, Officers and Employees - Check here if
you are a Trustee, Officer or Employee of Oswego
County Savings Bank.
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Investment
Election Form shall be subject to all of the terms and conditions of the 401(k)
plan. I acknowledge that I have received a copy of the prospectus and the
prospectus supplement.
_____________________________
Signature of Participant
Date:________________________
ACKNOWLEDGMENT OF RECEIPT BY PLAN ADMINISTRATOR. This Investment Election Form
was received by the 401(k) plan administrator and will become effective on the
date noted below.
By:__________________________
Date:________________________
A-2
<PAGE>
PROSPECTUS
Up to 621,575 Shares of Common Stock
OSWEGO COUNTY BANCORP, INC.
(Proposed Holding Company for
Oswego County Savings Bank)
- --------------------------------------------------------------------------------
Oswego County Savings Bank formed a new corporation called Oswego
County Bancorp, Inc. to own all of the common stock of Oswego County Savings
Bank. Oswego County Bancorp, Inc. is offering to the public shares of its common
stock representing an ownership interest of up to 49%. Oswego County Bancorp,
Inc. will issue the remaining shares of its outstanding common stock to Oswego
County MHC, a mutual holding company. We must receive your signed order form
with payment no later than 12:00 noon, New York time, on June 22, 1999. We may
extend the offering period without regulatory approval until August 6, 1999 and
with regulatory approval up to May 24, 2001. You must order a minimum of 25
shares of common stock. We will hold funds received for subscription of shares
of common stock in a segregated account at Oswego County Savings Bank until
completion of the offering.
- --------------------------------------------------------------------------------
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................................... 399,500 470,000 540,500 621,575
Underwriting Commission and Other Expenses......... $707,700 $707,700 $707,700 $707,700
Net Proceeds to Oswego County Bancorp, Inc. ....... $3,287,300 $3,992,300 $4,697,300 $5,508,050
Net Proceeds Per Share............................. $8.23 $8.49 $8.69 $8.86
</TABLE>
Please refer to "Risk Factors" beginning on page 16 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. These securities are subject to investment risk and may
lose value.
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.
We have applied to list the common stock on the Over-the-Counter
Electronic Bulletin Board under the symbol "OCSB". In order to sell any
securities, the underwriter, Friedman, Billings, Ramsey & Co., Inc., must sell
the minimum amount of 399,500 shares of common stock. The underwriter is
required to use only its best efforts to sell the maximum amount of 540,500
shares of common stock.
Friedman, Billings, Ramsey & Co., Inc.
May 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers.......................................................................................1
Summary.....................................................................................................3
The Companies..........................................................................................3
Contribution of Oswego County Bancorp, Inc. Stock to a Charitable Foundation...........................3
The Stock Offering.....................................................................................4
Oswego County Bancorp, Inc. Shares to Be Issued........................................................4
How We Determined the Offering Range and the $10.00 Price Per Share....................................4
Persons Who Can Order Stock............................................................................5
Termination of the Offering............................................................................5
How We Will Use the Proceeds Raised From the Sale of Common Stock......................................5
We Plan to Establish a Dividend Policy.................................................................6
The Common Stock Will be Traded on the Over-the-Counter Market.........................................6
Our Board and Management Will Receive Benefits Following the Offering..................................6
We Intend to Contribute Stock to a New Charitable Foundation...........................................7
Background of Our Corporate Change.....................................................................7
Stock Center...........................................................................................7
You May Not Sell or Give Away Your Subscription Rights.................................................7
Important Risks in Owning Oswego County Bancorp, Inc.'s Common Stock...................................7
Selected Financial and Other Data...........................................................................8
Summary of Recent Developments.............................................................................10
Risk Factors...............................................................................................14
Oswego County Bancorp, Inc.................................................................................17
Oswego County Savings Bank.................................................................................18
Oswego County MHC..........................................................................................18
How We Intend To Use the Proceeds..........................................................................18
Market for the Common Stock................................................................................20
Our Policy Regarding Dividends.............................................................................20
Oswego County Savings Bank Exceeds All Regulatory Capital Requirements.....................................21
Capitalization.............................................................................................23
Pro Forma Data.............................................................................................25
Comparison of Valuation and Pro Forma Information With No Foundation.......................................29
Oswego County Savings Bank.................................................................................30
Management's Discussion and Analysis of Financial Condition and Results of Operations......................31
General...............................................................................................31
Forward-Looking Statements............................................................................31
Our Management Strategy...............................................................................31
Market Risk Analysis..................................................................................33
Financial Condition...................................................................................35
Results of Operations.................................................................................37
Liquidity and Capital Resources.......................................................................39
Impact of Inflation and Changing Prices...............................................................40
Year 2000 Compliance..................................................................................40
Impact of New Accounting Standards....................................................................41
Business...................................................................................................43
Lending Activities....................................................................................43
Asset Quality.........................................................................................48
Securities............................................................................................52
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Sources of Funds.......................................................................................55
Subsidiaries...........................................................................................57
Legal Proceedings......................................................................................58
Employees..............................................................................................58
Properties.............................................................................................58
How We Are Regulated........................................................................................59
General................................................................................................59
New York Regulation of Oswego County Savings...........................................................59
Federal Regulation of Oswego County Savings............................................................60
Holding Company Regulation.............................................................................64
Taxation....................................................................................................68
Federal Taxation.......................................................................................68
New York State Taxation................................................................................70
Management..................................................................................................70
Management of Oswego County Bancorp....................................................................70
Management of Oswego County Savings....................................................................71
Biographical Information...............................................................................72
Executive Officers Who Are Not Trustees................................................................73
Meetings and Committees of Oswego County Savings.......................................................73
Compensation of Trustees...............................................................................73
Deferred Compensation Plan for Trustees................................................................74
Executive Compensation.................................................................................74
Report of Independent Compensation Consultant..........................................................74
Benefits...............................................................................................75
Loans and Other Transactions with Officers and Trustees................................................77
Proposed Management Purchases...............................................................................77
Our Corporate Change and Stock Offering.....................................................................78
General................................................................................................78
Our Reasons For the Corporate Change...................................................................80
Effects of the Corporate Change........................................................................81
Oswego County Charitable Foundation....................................................................84
How We Determined Our Price and Number of Shares to be Issued in the Stock Offering....................90
Subscription Offering and Subscription Rights..........................................................93
Community Offering.....................................................................................96
Syndicated Community Offering..........................................................................97
Persons in Nonqualified States or Foreign Countries....................................................98
Limitations on Stock Purchases.........................................................................98
Marketing Arrangements................................................................................100
Procedure for Purchasing Shares in the Subscription Offering..........................................101
Restrictions on Transfer of Subscription Rights and Shares............................................103
Delivery of Certificates..............................................................................103
Required Approvals and Nonobjections..................................................................104
Restrictions on Purchase or Transfer of Shares After the Corporate Change.............................104
Certain Restrictions on Acquisition of Oswego County Bancorp and Oswego County
Savings..........................................................................................105
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Provisions of Oswego County Bancorp's Certificate of Incorporation and Bylaws..............................106
Federal Reserve Board Regulations..........................................................................106
New York Banking Law.......................................................................................107
Benefit Plans..............................................................................................107
Description Of Capital Stock Of Oswego County Bancorp...........................................................107
General....................................................................................................107
Common Stock...............................................................................................108
Preferred Stock............................................................................................108
Transfer Agent and Registrar...............................................................................109
Experts.........................................................................................................109
Legal and Tax Opinions..........................................................................................109
Additional Information..........................................................................................109
Index to Financial Statements...................................................................................111
</TABLE>
iii
<PAGE>
Questions and Answers
Q: Will the Reorganization Affect Any of my Deposit Account(s) or
Loan(s)?
A: No. The Reorganization will have no effect on the balance or terms of
any deposit account or loan, and the FDIC will continue to insure
your deposits to the maximum legal limit. Your deposit account will
not be converted to stock. Neither the FDIC nor any other
governmental agency will insure any common stock that you purchase in
the offering.
Q: Do I Have to Buy Stock?
A: No, you do not have to buy stock.
Q: How Many Shares of Stock Are Being Offered, and at What
Price?
We anticipate offering up to a maximum of 540,500 shares of common
stock at $10.00 per share. We must sell at least 399,500 shares.
However, without notice to you, we may increase the number of shares
we offer to up to 621,575 shares.
Q: Will I be Able to Sell my Stock After I Purchase It?
A: Yes, you can immediately 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 FDIC or any other
governmental 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. You must
order a minimum of 25 shares of Common stock
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 June 22, 1999. We must receive your
completed stock order and certification with your payment by the
above deadline.
Q: How Do I Purchase the Stock?
A: First, you should read this prospectus. Then, complete the enclosed
stock order and certification form by following the instructions
included in your packet of information. We must receive your
completed stock order and certification form with your payment by the
above deadline.
Q: Can I Change my Mind After I Order Stock?
A: No. After we receive your order form and payment, you may not change
or cancel your order without our consent. However, if we extend the
offering beyond August 6, 1999, we will give you an opportunity to
increase, decrease or recind 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 and converted by us into a check; (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.
Q: Will I Receive Interest on my Payment?
A: Yes. Payments will be placed in a segregated 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.
1
<PAGE>
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) 343-3181 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.
If we do not have sufficient shares to fill all of the orders of
eligible account holders, we will attempt to fill each eligible
holder's order for the lesser of 100 shares or their order. If shares
remain after this initial distribution, we will attempt to fill the
remaining portion of these orders based on a formula using the
balance of your account on the eligibility record date. We will use
the same allocation method to fill the orders of supplemental account
holders.
Q: How Will the Stock be Traded?
A: We expect our common stock will trade on the over-the-counter market
through the OTC "Electronic Bulletin Board." However, we cannot
assure you that an active and liquid market will develop.
Q: Will Dividends be Paid on the Stock?
A: Although we have made no determination to pay dividends, we plan to
establish a policy to pay dividends on the common stock following the
completion of the reorganization.
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) 343-3181, Monday through
Friday, between the hours of 8:00 a.m. and 5:00 p.m. You may also
write to:
Stock Center
44 East Bridge Street
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 June 22, 1999,
No Prospectus Will Be Mailed Any Later Than Five Days Prior to June 22, 1999 or
Hand Delivered Any Later Than Two Days Prior to June 22, 1999.
2
<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.
Contribution of Oswego County Bancorp, Inc. Stock to a Charitable Foundation
To further Oswego County Savings' commitment to its community, Oswego
County Savings has established the Oswego County Charitable Foundation. Two
members of Oswego County Bancorp's board of directors will serve on the
foundation's board of directors. However, persons unaffiliated with Oswego
County Bancorp will constitute a majority of the foundation's board of
directors. Oswego County Bancorp will contribute up to 21,620 shares of Oswego
County Bancorp common stock to the foundation. At the $10.00 per share price
offered to members of the public, the contributed shares have a value of
$216,200. Charitable contributions by Oswego County Savings totaled $40,000 in
1998, $32,000 in 1997 and $11,000 in 1996.
3
<PAGE>
The Stock Offering
We are offering between 399,500 and 540,500 shares of Oswego County
Bancorp common stock at $10.00 per share. If there are changes in financial
market conditions before we complete the stock offering, the offering may
increase to 621,575 shares with the approval of the New York State Banking
Department and the FDIC 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."
Oswego County Bancorp, Inc. Shares to be Issued
Maximum
Shareholders Minimum Midpoint Miximum As Adjusted
------------ ------- -------- ------- -----------
Oswego County MHC 471,750 555,000 638,250 733,988
Oswego County Charitable Foundation 15,980 18,800 21,620 24,863
Public Shareholders 399,500 470,000 540,500 621,575
------- ------- ------- -------
Total 887,230 1,043,800 1,200,370 1,380,426
======= ========= ========= =========
How We Determined the Offering Range and the $10.00 Price Per Share
The independent appraisal by RP Financial, LC, dated as of April
16, 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 $13.24, at the maximum of the offering range. This
means the price paid for each share sold in this offering will be 75.73% of the
book value. The following table presents a summary of selected pricing ratios
for comparable public thrift institutions used by RP Financial to help
establish the market value of Oswego County Bancorp, Inc. pursuant to the
valuation methodology described in RP Financial's appraisal analyses.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Price to Pro Forma Price Pro Forma Price to Price to
Earnings to Book Tangible Book Assets
Multiple Value Ratio Value Ratio
--------- --------------- ------------------ ---------
<S> <C> <C> <C> <C>
Oswego County Bancorp, Inc. (Fully Converted Basis)
15% above maximum 25.4x 60.9% 60.9% 11.5%
Maximum 23.2x 56.6% 56.6% 10.2%
Midpoint 21.1x 52.4% 52.4% 8.9%
Minimum 18.7x 47.6% 47.6% 7.7%
All Publicly-Traded Savings Institutions (Reported Basis)
As of April 16, 1999
Averages 15.8x 116.0% 120.6% 14.2%
Medians 14.5x 104.4% 107.1% 13.1%
Valuation Peer Group Institutions (Fully Converted Basis)
As of April 16, 1999
Averages 17.2x 79.4% 80.8% 16.7%
Medians 16.5x 78.5% 81.0% 14.9%
</TABLE>
4
<PAGE>
Persons Who Can Order Stock
We are offering the shares of common stock in a subscription offering
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; and
(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 97 to 99.
Termination of the Offering
The subscription offering will end on June 22, 1999. If all of the
shares are not subscribed for and we do not get orders for the remaining shares
by August 6, 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 your withdrawal authorization.
The latest possible extension date for the offering is
May 24, 2001.
How We Will Use the Proceeds Raised From the Sale of Common Stock
We plan to use the net proceeds received at the minimum, midpoint,
maximum and maximum, as adjusted, of the estimated valuation range as follows:
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum As Adjusted
------- -------- ------- -----------
<S> <C> <C> <C> <C>
Retained by Oswego County Bancorp $1,324,050 $1,620,150 $1,916,250 $2,256,765
Loaned to employee stock ownership plan to fund
its purchsae of Oswego County Bancorp stock $ 319,600 $ 376,000 $ 432,400 $ 497,260
Used to buy the stock of Oswego County Savings $1,643,650 $1,996,150 $2,348,650 $2,754,025
</TABLE>
5
<PAGE>
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 23.
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 "OCSB." 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. The plan will use a loan from Oswego County
Bancorp, funded by a portion of the proceeds from this offering, to purchase
these shares. If shares are not available 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 eligible employees.
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 receive 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 the employee stock ownership
plan would acquire 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, an optionholder can realize financial gains
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.......... $432,400 8.0%
Restricted Stock Awards................ 162,150 3.0
Stock Options.......................... -- 10.0
-------- ----
Total....................... $594,550 21.0%
======== ====
6
<PAGE>
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
established a charitable foundation, the Oswego County Charitable Foundation. We
intend to contribute shares of our common stock to the foundation 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 21,620 shares to the foundation, worth
$216,200. 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 contribute shares to
the foundation, then the value of the common stock will be lower than if the
stock offering were completed without the contribution. For a further discussion
of the financial impact of the foundation, see "Risk Factors - The establishment
of the 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.
Stock Center
If you have any questions regarding the offering or our change in
structure, please call the Stock Center at (315) 343-3181.
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 reject any stock
orders that we believe involve the transfer of subscription rights. Violations
may lead to actions by the Securities and Exchange Commission, the New York
Banking Department, the FDIC or other governmental agencies.
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 16 to 18 of this document.
7
<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 1998 and 1997 financial
statements and notes beginning on page F-2.
At December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
Selected Financial Condition Data:
Total assets $110,866 $111,993 $115,650
Cash and due from banks 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 66,727 79,052 83,504
Loans held for sale 4,286 -- --
Deposits 96,564 97,899 102,015
Net worth 11,694 11,392 11,197
Year Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(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)
====== ====== ======
8
<PAGE>
At or For the Year Ended
December 31,
-----------------------------------
1998 1997 1996
-------- ------- --------
Selected Ratios:(1)
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(3) 2.49 2.20 2.56
Non-performing assets to total assets
at year end(3) 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) With the exception of end of year ratios, all ratios are based on average
monthly balances.
(2) 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.
(3) Non-performing loans consist of non-accrual loans, and non-performing
assets consist of non-performing loans and real estate acquired by
foreclosure.
9
<PAGE>
Summary of Recent Developments
The following tables summarize certain financial and operational
information and other data for Oswego County Savings at or for the periods ended
March 31, 1999 and 1998 (unaudited) and December 31, 1998. Information at March
31, 1999 and for the three months ended March 31, 1999 and 1998 is unaudited,
but in the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
unaudited periods have been made. Information at and for the year ended December
31, 1998 is derived from the audited financial statements and should be read in
conjunction with the financial statements included elsewhere in this prospectus.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the entire year
or any other period.
Selected Financial Condition Data:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Total assets ........................................... $110,748 $110,866
Cash and due from banks ................................ 4,060 4,007
Federal funds sold and other short-term investments .... 2,400 2,600
Securities held to maturity ............................ 13,647 13,730
Securities available for sale .......................... 14,925 14,784
Loans, net ............................................. 65,249 66,727
Loans held for sale..................................... 5,712 4,286
Deposits ............................................... 97,021 96,564
Net worth .............................................. $ 11,780 $ 11,694
<CAPTION>
Selected Operations Data:
Three Months
Ended March 31,
---------------------
1999 1998
------ ------
(In thousands)
<S> <C> <C>
Total interest income ........................... $1,872 $2,014
Total interest expense .......................... 771 894
------ ------
Net interest income .......................... 1,101 1,120
Provision for loan losses ...................... 30 30
Non-interest income ............................ 116 101
Non-interest expenses .......................... 962 1,028
------ ------
Income before income tax expense ............... 225 163
Income tax expense ............................. 83 69
------ ------
Net income ..................................... $ 142 $ 94
====== ======
</TABLE>
10
<PAGE>
Selected Ratios (1):
<TABLE>
<CAPTION>
At or for the
Three Months
Ended March 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Return on average assets .................................. 0.52% 0.34%
Return on average equity .................................. 4.90 3.36
Average equity to average assets .......................... 10.69 10.25
Equity to assets, at end of period ........................ 10.64 10.25
Interest rate spread (2) .................................. 3.77 3.72
Net interest margin (2) ................................... 4.36 4.35
Non-performing loans to total loans at end of period (3)... 2.03 2.58
Non-performing assets to total assets at end of
period (3)............................................ 1.38 2.35
Allowance for loan losses to total non-performing loans ... 79.84 64.07
Average interest-earning assets to average
interest-bearing liabilities.......................... 119.54 118.40
Net interest income after provision for loan losses to
total non-interest expenses .......................... 111.33 106.03
Non-interest expenses to average total assets.............. 0.87 0.93
</TABLE>
- ----------------
(1) With the exception of end of period ratios, all other ratios, are based
on monthly average balances. Ratios have been annualized where
appropriate.
(2) The interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate of
interest-bearing liabilities. The net interest margin represents net
interest income as a percentage of average interest-earning assets.
(3) Non-performing loans consist of non-accrual loans, and non-performing
assets consist of non-performing loans and real estate acquired by
foreclosure.
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Total assets decreased by $118,000 or 0.1% from $110.9 million at
December 31, 1998 to $110.7 million at March 31, 1999. Net loans decreased by
$1.5 million during the three month period, from $66.7 million at December 31,
1998 to $65.2 million at March 31, 1999. The decrease in loans was caused by a
$2.4 million decline in residential mortgages and home equity loans as principal
paydowns exceeded originations. Commercial mortgages increased by $226 thousand
and consumer loans increased by $710,000 partially offsetting the decline in
residential mortgages and home equity loans. This shift in the mix of the loan
portfolio reflects the Bank's efforts to increase the yield on its loans and
improve its interest rate sensitivity with shorter term loans.
Loans held for sale which consist of fixed-rate residential mortgage
loans, increased by $1.4 million from $4.3 million at December 31, 1998 to $5.7
million at March 31, 1999. This increase was funded primarily by the net
principal paydowns of loans.
Securities held to maturity declined slightly from $13.7 million at
December 31, 1998 to $13.6 million at March 31, 1999, while securities available
for sale increased from $14.8 million at December 31, 1998 to $14.9 million at
March 31, 1999.
Deposits increased by $457,000 during the first quarter of 1999 to
$97.0 million due primarily to increased commercial type deposits.
11
<PAGE>
Our net worth increased by $86,000 during the three month period ended
March 31, 1999 from $11.7 million to $11.8 million. The increase resulted from
net income of $142,000, which was partially offset by a $56,000 increase in the
unrealized loss in securities available for sale.
Comparison of Operating Results for the Three Months ended March 31, 1999 and
March 31, 1998
Oswego County Savings' net income was $142,000 for the three months
ended March 31, 1999, an increase of $48,000 or 51.1% as compared to net income
of $94,000 for the three months ended March 31, 1998.
Our net interest income remained relatively stable at $1.1 million for
both the three months ended March 31, 1999 and 1998. Total interest income
decreased by $142,000, or 7.1%, to $1.9 million for the three months ended March
31, 1999 compared to $2.0 million for the comparable period in 1998. The primary
reason for the decrease in interest income was a decrease in the average loan
balance by $7.1 million as well as a decline in the average yield on loans by 28
basis points. Income from Oswego County Savings' securities portfolio increased
by $76,000 during the three months ended March 31, 1999 to $400,000 compared to
$324,000 in 1998. This 23.5% increase in interest income from securities during
the three months ended March 31, 1999 was due primarily to a $6.5 million
increase in our average balance of securities to $27.6 million during the three
months ended March 31,1999 compared to $21.1 million in the first quarter of
1998. The average yield on the securities portfolio decreased to 5.89% for the
three month period in 1999 compared to 6.24% for the same period in 1998.
Interest expense, which consisted solely of interest paid on deposits in both
three month periods ended March 31, 1999 and 1998, was $771,000 in 1999 compared
to $894,000 in 1998. The primary reason for the $123,000, or 13.8%, decrease in
interest expense in the 1999 period was a $2.5 million, or 2.8%, decrease in the
average balance of interest-bearing deposits together with a 47 basis point
reduction in the average rate paid on these deposits in the first quarter of
1999 compared to the same period in 1998.
The provisions for loan losses were $30,000 for both three month
periods ended March 31, 1999 and 1998. Actual loan charge-offs, net of
recoveries, were $21,000 for the three months ended March 31, 1999 and $156,000
in the first quarter of 1998. Nonperforming loans were $1.3 million at March 31,
1999 as compared to $1.7 million at December 31, 1998. Delinquent loans
decreased to $2.5 million at March 31, 1999 as compared to $3.2 million at
December 31, 1998.
Although we believe that our allowance for loan losses was adequate at
March 31, 1999, 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 judgments
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 increased by $15,000 during the three months ended
March 31, 1999 as compared to the same period in 1998. Noninterest expenses
decreased for the three months ended March 31, 1999 by $66,000, or 6.4%, to
$962,000 compared to $1.0 million in the same period in 1998. The primary
reasons for the decrease in noninterest expense were a $41,000 decrease in real
estate owned expenses, a $20,000 decrease in office supplies, printing and
postage and a $17,000 decrease in merger expenses. These decreases were
partially offset by a $19,000 increase in data processing costs during the three
months ended March 31, 1999 as compared to the same period in 1998. The decrease
in real estate owned expense is a result of the average real estate owned
balance decreasing to $185,000 in the quarter ended March 31, 1999 compared to
$550,000 in the comparable quarter of 1998. There were no merger expenses
incurred in 1999 as a result of the planned merger with Pathfinder Bancorp being
terminated. The increase in data processing cost in the first quarter of 1999
reflects our efforts to continue to improve our data processing capabilities as
well as efforts to prepare for the year 2000.
12
<PAGE>
Income tax expense increased by $14,000 for the three months ended
March 31, 1999 to $83,000 as compared to $69,000 in 1998. The income tax rate
declined to 36.9% in 1999 from 42.3% in 1998. The higher income tax rate in the
first quarter of 1998 was principally caused by merger-related expenses.
13
<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 - 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 will 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 the common stock of Oswego County Bancorp held by Oswego County MHC.
Therefore, the board of Oswego County MHC will control the results of most
matters put to a vote of stockholders of Oswego County Bancorp. In some cases,
Oswego County MHC may use its voting interest to prevent transactions favored by
investors. In addition, officers and directors of Oswego County Bancorp also
will likely vote their shares in favor of the positions taken by Oswego County
MHC. For more information regarding your lack of voting control over Oswego
County Bancorp, see "Oswego County MHC" and "Certain 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 will trade on the over-the-counter market through the OTC
"Electronic Bulletin Board" under the
14
<PAGE>
symbol "OCSB." However, it is unlikely that an active and liquid trading market
for our stock will 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 the local economy may hurt our profits.
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. Substantially all of Oswego County Savings' loans and
deposits are generated within Oswego County, New York, which is located
approximately 15 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. In addition, 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.
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 $216,200, 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 0.9% less after we make the contribution.
If you purchase shares, then your voting interests in Oswego County
Bancorp will be reduced by 0.9% 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 Forma
Information With No Foundation" and "Our Corporate Change and Stock Offering -
Oswego County Charitable Foundation."
The granting of stock options and restricted stock to the board and management
will further reduce your voting interest.
We intend to establish a stock option plan and restricted stock plan.
If we sell 540,500 shares of common stock in the offering, we plan to propose an
option plan with 54,050 additional shares. An optionholder can exercise a stock
option 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. If we sell 540,500 shares of common stock in the
offering, we plan to propose a restricted stock plan with 16,215 shares. We may
purchase these shares from our existing public shareholders or we may issue new
shares to the restricted stock plan. Restricted stock is a bonus in the form of
stock rather than cash, and is not paid for by the recipient. Awards under the
option plan will reduce the voting interests of all stockholders. An award under
the restricted stock plan will have the same effect if the shares are new
shares
15
<PAGE>
instead of shares purchased from existing shareholders. 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, it will
disrupt our business operations and could result in lower profits and stock
value.
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, we could
experience lower profits or losses and a lower stock value. 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 Compliance."
We have engaged Friedman, Billings, Ramsey & Co., Inc. to serve only
as our financial and marketing advisor and to its best efforts to solicit
subscriptions and purchase orders for common stock in the offering.
We have not engaged Friedman, Billings to prepare any report or opinion
constituting a recommendation or advice to us. They have not prepared an opinion
addressing the fairness of the purchase price or the market price following the
offering. Friedman, Billings has not reviewed the information included in this
prospectus to verify its accuracy or completeness. See "Our Corporate Change and
Stock Offering--Marketing Arrangements."
16
<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:
Total Public Shares
- - - - - - - - - - - - - - - - - - - - - - - - - -
| |
---------------------- | ----------------------- --------------- |
| | | | | | Oswego County | |
| Oswego County MHC | | | Minority Stockholders | | Charitable | |
| | | | | Foundation | |
---------------------- | ----------------------- --------------- |
| | | | |
| | | | |
| | | | |
| 53.2% of the | | 45.0% 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 |
------------------------------------------------------------------------------
We incorporated Oswego County Bancorp 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 - Holding Company Regulation." The only significant assets of
Oswego County Bancorp will be all of the outstanding shares of common stock of
Oswego County Savings, the net proceeds it keeps and its loan to the Oswego
County Bancorp employee stock ownership plan. Oswego County Bancorp will have no
significant liabilities. See "How We Intend to Use the Proceeds." Initially,
Oswego County Bancorp and Oswego County Savings will have substantially the same
management 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. We may form new companies
which we would own, or we may buy 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, the money it earns
from investing the proceeds and the dividends it receives from Oswego County
Savings. See "Our Policy Regarding Dividends."
17
<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)343-4100.
Oswego County Savings Bank
Oswego County Savings is a New York-chartered and FDIC-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
net worth 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."
Oswego County Savings is examined and regulated by the New York State
Banking Department and by the FDIC, 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)343-4100.
Oswego County MHC
As part of the restructuring of Oswego County Savings under the
Amended and Restated Plan of Reorganization and Plan of Stock Issuance, we will
form Oswego County MHC, a New York mutual holding company. Depositors of Oswego
County Savings have liquidation and voting rights in Oswego County Savings.
These depositors 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. The New York State Banking Department will regulate Oswego County MHC
and it will be subject to the limitations and restrictions imposed on bank
holding companies by the Bank Holding Company Act. See "How We Are Regulated -
Holding Company Regulation - Mutual Holding Company Regulation."
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)343-4100
How We Intend to Use the Proceeds
We cannot determine the actual amount of net proceeds from the sale of
the shares of common stock until we complete 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 $3.3 million and $4.7 million, and up to
$5.5 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 Number of Shares to be Issued in the
Stock Offering" for the assumptions we used to arrive at these amounts.
18
<PAGE>
We plan to use the net cash proceeds received at the minimum, midpoint,
maximum and maximum, as adjusted, at the estimated valuation range as follows:
<TABLE>
<CAPTION>
Maximum,
As
Minimum Midpoint Maximum Adjusted
------- -------- ------- --------
<S> <C> <C> <C> <C>
Retained by Oswego County Bancorp $1,324,050 $1,620,150 $1,916,250 $2,256,765
Loaned to employee stock ownership
plan to fund its purchase of
Oswego County Bancorp stock $ 319,600 $ 376,000 $ 432,400 $ 497,260
Used to buy the stock of Oswego
County Savings $1,643,650 $1,996,150 $2,348,650 $2,754,025
</TABLE>
Oswego County Bancorp plans to use the net proceeds to:
o make a loan to the employee stock ownership plan so that it can
purchase up to 8% of the shares of common stock sold in the
stock offering. The loan will range between $319,600 to
$497,260, depending on how many shares of common stock are sold
in the stock offering;
o contribute shares to the Oswego County Charitable Foundation.
The number of shares contributed to the foundation will have a
value ranging between $159,800 and $216,200, depending on how
many shares of common stock are sold in the stock offering; and
o 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.
Oswego County Bancorp may ultimately use the net proceeds retained by
it to:
o support Oswego County Savings' lending activities;
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 acquisition
transactions are specifically being considered at this time;
o pay 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; and
o expand or diversify our activities, as opportunities become
available.
Except with the prior approval of the New York Superintendent, neither
Oswego County Bancorp nor Oswego County Savings may repurchase any of its
outstanding common stock prior to the first anniversary of the completion of the
offering. It is the policy of the New York Superintendent not to authorize any
repurchases in the first six months after the completion of an offering. During
the second and third years following the offering, neither company may
repurchase in excess of five percent of its outstanding common stock in any
12-month period without the prior approval of the
19
<PAGE>
New York Superintendent. In determining whether to grant such approval, the New
York Supertintendent considers:
o financial condition and history of Oswego County Bancorp or
Oswego County Savings, as the case may be;
o the adequacy of its capital structure;
o its future earnings prospects;
o the quality of its management;
o whether the repurchase will result in fair treatment to the
shareholders of Oswego County Bancorp or Oswego County Savings,
as the case may be; and
o the public interest generally.
Prior to authorizing a stock repurchase, Oswego County Bancorp's board of
directors must determine that Oswego County Savings will have capital in excess
of all applicable regulatory requirements upon completion of the repurchases.
Oswego County Savings will use the portion of the net proceeds received
by it in exchange for its capital stock to:
o increase its funds used for general corporate purposes, and to
continue to diversify its banking products, especially
commercial business loans; and
o further strengthen Oswego County Savings' capital position,
which already exceeds all regulatory requirements. After the
reorganization and stock offering, based upon the maximum of the
estimated offering range, Oswego County Savings' core capital
ratio will be approximately 11.9%. As a result, Oswego County
Savings will continue to be a well-capitalized institution.
The net proceeds will vary if total expenses of the reorganization and
stock offering are more or less than those estimated. The net proceeds will also
vary if the number of shares 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 the 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 "OCSB." 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, a factor which is not in our
control. 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. Whether we pay dividends will depend upon a number of factors.
These factors include 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. We cannot give you assurances that we will pay any dividends or
that, if paid, we will not reduce or
20
<PAGE>
eliminate dividends in future periods. We may pay special cash dividends or
stock dividends in addition to, or in lieu of, regular cash dividends. It is
anticipated that we would treat any cash distributions made by Oswego County
Bancorp to its stockholders as cash dividends. We do not expect to make any
distributions which we would treat as a non-taxable return of capital for
federal and state tax purposes. Oswego County Bancorp anticipates that it will
pay any dividends it declares 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 upon:
o receipt of dividends from Oswego County Savings;
o earnings from the investment of proceeds from the sale of shares of
common stock retained by Oswego County Bancorp; and
o interest payments received by Oswego County Bancorp on the loan to the
employee stock ownership plan.
See "How We Are Regulated - New York Regulation of Oswego County
Savings - Limitations on Dividends."
We will avoid any payment of dividends that the IRS might consider to
be drawn out of Oswego County Savings' bad debt reserves. The IRS would require
Oswego County Savings to pay a tax at the then-current rate on the amount of
earnings deemed removed from the reserves. 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 below 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 ESOP and contributed to the restricted stock plan.
21
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at December 31, 1998
--------------------------------------------------------------------------------------
621,575 Shares
Actual, as of 399,500 Shares 470,000 Shares 540,500 Shares 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>
Net Worth under
generally
Accepted
Accounting
Principles...... $11,694 10.5% $12,798 11.4% $13,073 11.6% $13,348 11.8% $13,664 12.1%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Leverage capital:
Capital level(3).. $11,694 10.7% $12,798 11.5% $13,073 11.7% $13,348 11.9% $13,664 12.2%
requirement(4).... 4,387 4.0 4,444 4.0 4,457 4.0 4,471 4.0 4,486 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess....... $ 7,307 6.7% $ 8,354 7.5% $ 8,616 7.7% $ 8,877 7.9% $ 9,178 8.2%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-based capital:
Tier 1 capital
level(3)(5)....... $11,694 15.5% $12,798 16.7% $13,073 17.0% $13,348 17.3% $13,664 17.7%
Requirement....... 3,023 4.0 3,062 4.0 3,071 4.0 3,080 4.0 3,092 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess........ $ 8,671 11.5% $ 9,736 12.7% $10,002 13.0% $10,268 13.3% $10,573 13.7%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Total capital
level(3)(5)....... $12,639 16.7% $13,743 18.0% $14,018 18.3% $14,293 18.6% $14,609 18.9%
requirement....... 6,047 8.0 6,124 8.0 6,142 8.0 6,161 8.0 6,181 8.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess........ $ 6,592 8.7% $ 7,619 10.0% $ 7,876 10.3% $ 8,132 10.6% $ 8,428 10.9%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</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 3% 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 - Management of Oswego County Savings" 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.
22
<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
---------------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as Adjusted
Oswego 399,500 470,000 540,500 621,575
County Shares sold Shares sold Shares sold Shares sold
Savings at $10.00 at $10.00 at $10.00 at $10.00
Historical per Share per Share per Share per Share(1)
------------------------------------------------------------------------------------
(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).......................... $ - $ 9 $ 10 $ 12 $ 14
Preferred Stock, $0.01 par value, 1,000,000
shares authorized; none to be issued
Additional paid-in capital .................. -- 3,438 4,170 4,901 5,743
Retained earnings(4)......................... 11,695 11,595 11,595 11,595 11,595
Tax benefit of contribution to
foundation(5)........................ - 61 71 82 94
Accumulated other comprehensive
income ............................. (1) (1) (1) (1) (1)
Less:
Expense of contribution to foundation..... -- (160) (188) (216) (249)
Common stock acquired by ESOP(6).......... -- (320) (376) (432) (497)
Common stock acquired by restricted stock
plan(7)................................. - (120) (141) (162) (186)
------- ------- ------- ------- -------
Total stockholders' equity................... $11,694 $14,502 $15,140 $15,779 $16,513
======= ======= ======= ======= =======
</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 issuance of 887,230, 1,043,800, 1,200,370 and 1,380,426 shares
of common stock in the reorganization and stock offering at the minimum,
midpoint, maximum and adjusted maximum of the estimated valuation range,
respectively, including the issuance of 471,750, 550,000, 638,250 and
733,988 shares of common stock to Oswego County MHC at the minimum,
midpoint, maximum and adjusted maximum of the estimated valuation range,
respectively, and the issuance of 15,980, 18,800, 21,620 and 24,863 shares
of common stock to the Oswego County Charitable Foundation at the minimum,
midpoint, maximum and adjusted maximum of the estimated valuation range,
respectively. 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
23
<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 3% 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 -- The granting of stock options and restricted stock to
the board and management will change in structure and stock offering which
could further reduce your voting interest," footnote 3 to the table under
"Pro Forma Data," and "Management -- Benefits -- Other Stock Benefit
Plans."
24
<PAGE>
Pro Forma Data
We cannot determine the actual net proceeds from the sale of the
common stock until we complete the reorganization. However, we estimate net
proceeds to be between $3.3 million and $4.7 million, or $5.5 million in the
event the estimated offering range is increased by 15%. We base our estimate
upon the following assumptions:
o the sale of all shares of common stock in the subscription
offering to eligible account holders, the ESOP,
supplemental eligible account holders and trustees,
officers and employees;
o the payment to Friedman, Billings, Ramsey & Co., Inc. of a
fixed fee of $100,000;
o a contribution by Oswego County Bancorp to the foundation
of an amount of common stock equal to 4.0% of the common
stock sold in the Offerings from authorized but unissued
shares; and
o the incurrence of total expenses, including Friedman,
Billings, Ramsey & Co., Inc.'s fee, of $707,000. Actual
expenses may vary from our estimate.
In order to calculate the pro forma consolidated net income and
stockholders' equity of Oswego County Bancorp for the fiscal year ended December
31, 1998, we made certain assumptions. We assumed the stock sale had occurred on
January 1, 1998 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. We did not consider the effect of withdrawals from deposit accounts for
the purchase of common stock. We assumed a tax rate of 38.0% for 1998, resulting
in an after-tax yield of 2.80%. We calculated historical and pro forma per share
amounts 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 ESOP and the effect of the issuance of shares to the foundation. See Note 3
to the tables below. We gave no effect 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 cash proceeds from the offering from which it will make a loan to the
ESOP to purchase 8.0% of the common stock by the ESOP.
We gave no effect 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. We expect Oswego County Bancorp to adopt the plan
following the reorganization and to present the plan along with the stock option
plan to stockholders for approval at an annual or special meeting of
stockholders. In order to comply with applicable regulations, we will hold the
meeting at least six months following the completion of the reorganization. If
approved by stockholders, the restricted stock plan will acquire an amount of
common stock equal to 3.0% of the shares of common stock sold in the stock
offering. The plan will acquire the common stock through open market purchases
or from authorized but unissued shares, if permissible. The table below assumes
the receipt of stockholder approval
25
<PAGE>
and the acquisition of the shares by the restricted stock plan in the open
market $10.00 per share. We presented the pro forma expenses relating to the
restricted stock plan and the ESOP after taxes using a 38% tax rate. We gave no
effect 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 3.0% purchase by the restricted stock plan.
The following pro forma information may not be representative of the
actual financial effects of the foregoing transactions and may not be 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.
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 may not
represent the fair market value of the common stock. Amounts available for
distribution to stockholders in the event of liquidation may differ from the pro
forma amount.
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum as Adjusted
399,500 470,000 540,500 621,575
Shares sold Shares sold Shares sold Shares sold
at $10.00 at $10.00 at $10.00 at $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....................................................... $3,995 $4,700 $5,405 $6,216
Plus: shares issued to the foundation................................ 160 188 216 249
------- ------- ------- -------
Pro forma market capitalization...................................... $4,155 $4,888 $5,621 $6,465
Gross proceeds....................................................... 3,995 4,700 5,405 6,216
Less offering expenses............................................... (708) (708) (708) (708)
------- ------- ------- -------
Estimated net proceeds............................................ $3,287 $3,992 $4,697 $5,508
Less: common stock purchased by ESOP................................. (320) (376) (432) (497)
Less: common stock purchased by restricted stock plan................ (120) (141) (162) (186)
------- ------- ------- -------
Estimated net proceeds, as adjusted............................... $2,847 $3,475 $4,103 $4,825
======= ======= ======= =======
For the Year Ended December 31, 1998
Net income:
Historical........................................................ $ 309 $ 309 $ 309 $ 309
Pro forma income on net proceeds.................................. 80 97 115 135
Pro forma ESOP adjustment(2)...................................... (20) (23) (27) (31)
Pro forma restricted stock plan adjustment(3)..................... (15) (17) (20) (23)
------- ------- ------- -------
Pro forma net income(1)......................................... $ 354 $ 366 $ 377 $ 390
======= ======= ======= =======
Per share net income (reflects SOP 93-6)(1)
Historical........................................................ $0.36 $0.31 $0.27 $0.23
Pro forma income on net proceeds.................................. 0.09 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.................................. $0.41 $0.37 $0.33 $0.29
======= ======= ======= =======
At December 31, 1998
Stockholders' equity:
Historical........................................................ $11,694 $11,694 $11,694 $11,694
Estimated net proceeds............................................ 3,287 3,992 4,697 5,508
Less: capitalization of the Oswego County MHC..................... (100) (100) (100) (100)
Plus: shares issued to foundation................................. 160 188 216 249
Less: contribution to foundation.................................. (160) (188) (216) (249)
Plus: tax benefit of the contribution to the foundation(4)........ 61 71 82 94
26
<PAGE>
Less: common stock acquired by ESOP............................... (320) (376) (432) (497)
Less: common stock acquired by restricted stock plan.............. (120) (141) (162) (186)
------- ------- ------- -------
Pro forma stockholders' equity(3)(5)(6)......................... $14,502 $15,140 $15,779 $16,513
======= ======= ======= =======
Stockholders' equity per share(8)
Historical........................................................ $13.18 $11.20 $9.74 $8.47
Estimated net proceeds............................................ 3.70 3.82 3.91 3.99
Less: capitalization of the Oswego County MHC..................... (0.11) (0.10) (0.08) (0.07)
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)........... (0.14) (0.14) (0.14) (0.14)
------- ------- ------- -------
Pro forma stockholders' equity per share(3)(4)(5)............... $16.34 $14.49 $13.14 $11.96
======= ======= ======= =======
Offering price as a percentage of pro forma net earnings per share... 24.39 27.03 30.30 34.48
======= ======= ======= =======
Offering price as a percentage of pro forma stockholders' equity per
share(6).......................................................... 61.20% 69.01% 76.10% 83.61%
</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
$99,000, $117,000 $134,000 and $154,000 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 $0.30,
0.25, 0.21 and 0.18 at the minimum, midpoint, maximum and adjusted maximum,
respectively. Per share net income data is based on 858,466, 1,009,460,
1,161,454, and 1,335,672 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. 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 3,196, 3,760, 4,324, and 4,973 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 3% of the minority ownership
interest, or 11,985, 14,800, 16,125 and 18,647 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 $0.41, $0.36, $0.32 and $0.29 at the minimum, midpoint,
maximum and adjusted maximum of the estimated valuation range,
respectively, and pro forma stockholders' equity per share would be $16.26,
$14.45, $13.10, and $11.94 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."
27
<PAGE>
(4) 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 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.
(5) 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 39,950,
47,000, 54,050 and 62,158 shares at the minimum, midpoint, maximum and
adjusted maximum of the estimated valuation range, respectively, will be
reserved for future issuance upon the exercise of options to be granted
under the stock option plan. The issuance of common stock pursuant to the
exercise of options under the stock option plan will result in the dilution
of existing stockholders' interests. Assuming all options were exercised at
the end of the period at an exercise price of $10.00 per share, the pro
forma net income per share would be $0.40, $0.36, $0.32 and $0.29,
respectively, and the pro forma stockholders' equity per share would be
$16.09, $14.34, $13.03 and $11.90, respectively. See "Management--
Benefits--Other Stock Benefit Plans."
(6) The retained earnings of Oswego County Savings will continue to be
substantially restricted after the stock offering. See "Our Policy
Regarding Dividends" and "How We Are Regulated--New York Bank Regulation
of Oswego County Savings."
(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.
(8) Stockholders' equity per share data is based upon 887,230, 1,043,800,
1,200,370 and 1,380,426 shares outstanding representing shares issued in
the stock offering to Oswego County MHC and the public shares purchased by
the ESOP and the restricted stock plan, and shares contributed to the
foundation.
28
<PAGE>
Comparison of Valuation and Pro Forma Information With No Foundation
If we did not establish the Oswego County Charitable Foundation as
part of the reorganization, RP Financial estimates that the pro forma aggregate
market capitalization of Oswego County Bancorp would be approximately $5.0
million at the midpoint, which is approximately $64,000 greater than the pro
forma aggregate market capitalization of Oswego County Bancorp if the foundation
is included, and would result in an approximately $252,000 increase in the
amount of common stock offered for sale in the stock offering. At the midpoint,
the pro forma price to book ratio without the foundation would be 70.62%,
compared to 69.01% 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 $14.16 and $0.36,
respectively, and $14.49 and $0.37, respectively, with the foundation. If we did
not establish the foundation, there is no assurance that the pro forma market
value of Oswego County Bancorp in an appraisal prepared at that time would be
the same as the estimated value on the following table. RP Financial would base
its appraisal on the facts and circumstances existing at that time, including,
among other things, market and economic conditions.
For comparative purposes only, we have set forth below certain
pricing ratios and financial data and ratios, at the minimum, midpoint, maximum
and maximum, as adjusted, of the estimated offering range. We assumed that 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.................... $ 3,995 $ 4,209 $ 4,700 $ 4,952
Pro forma market capitalization.............. 4,155 4,209 4,888 4,952
Total assets................................. 113,674 113,804 114,312 114,465
Total liabilities............................ 98,338 98,338 98,338 98,338
Pro forma stockholders' equity............... 14,502 14,632 15,140 15,293
Pro forma consolidated net earnings.......... 354 357 366 370
Pro forma stockholders' equity per share..... 16.34 15.93 14.49 14.16
Pro forma consolidated net earnings per
share..................................... 0.41 0.41 0.37 0.36
Pro Forma Pricing Ratios:
Price/Stockholders' Equity................ 61.20% 62.77% 69.01% 70.62%
Price/Earnings............................ 24.39 24.39 27.03 27.78
Price/Assets.............................. 7.81% 8.07% 9.13% 9.44%
Pro Forma Financial Ratios:
Return on Assets ......................... 0.42% 0.42% 0.43% 0.43%
Return on Stockholders' Equity ........... 3.25% 3.25% 3.22% 3.23%
Stockholders' Equity /Assets.............. 12.76% 12.86% 13.24% 13.36%
<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.................... $ 5,405 $ 5,695 $ 6,216 $ 6,549
Pro forma market capitalization.............. 5,621 5,695 6,464 6,549
Total assets................................. 114,951 115,127 115,684 115,887
Total liabilities............................ 98,338 98,338 98,338 98,338
Pro forma stockholders' equity............... 15,779 15,955 16,512 16,715
Pro forma consolidated net earnings.......... 377 382 390 397
Pro forma stockholders' equity per share..... 13.14 12.85 11.96 11.70
Pro forma consolidated net earnings per
share..................................... 0.33 0.32 0.29 0.28
Pro Forma Pricing Ratios:
Price/Stockholders' Equity................ 76.10% 77.82% 83.61% 85.47%
Price/Earnings............................ 30.30 31.25 34.48 35.71
Price/Assets.............................. 10.44% 10.79% 11.93% 12.32%
Pro Forma Financial Ratios:
Return on Assets ......................... 0.44% 0.45% 0.45% 0.46%
Return on Stockholders' Equity ........... 3.19% 3.19% 3.15% 3.17%
Stockholders' Equity /Assets.............. 13.73% 13.86% 14.27% 14.42%
</TABLE>
29
<PAGE>
Oswego County Savings Bank
The following Statements of Income of Oswego County Savings for the
years ended December 31, 1998 and 1997 are a part of the audited financial
statements which appear beginning on page F-1 of this prospectus. You should
read these Statements of Income with the Financial Statements and Notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Prospectus.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
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 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 the financial statements.
30
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Oswego County Savings' results of operations depend primarily on our
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.
Our 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
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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 $56.5 million (or 83.4% 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 as 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.
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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
Onondaga County, 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
Our 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 87.0% 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.
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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.
How We Measure Interest Rate Risk. Prolonged increases in market
rates of interest could adversely affect our interest rate spread and net
interest margin. Moreover, prolonged increases in interest rates could adversely
affect the demand for residential mortgage loans within our primary market area.
Our 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 our 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. We have made certain assumptions in
preparing the table below. 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 our 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
--------- ----------- ---------- --------- --------- -----------
(Dollars in Thousands)
<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>
(1) Assumes an instantaneous uniform change in interest rates.
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
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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 a $12.7 million or 15.7% decline in the loan portfolio, which
was partially offset by an increase of $7.2 million in our securities and the
origination for sale of $4.3 million of loans.
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. In addition, at December 31,
1998, we held $4.3 million in loans which we intend to sell in the secondary
market. At December 31, 1998, Oswego County Savings net loans amounted to $66.7
million or 60.2% 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% of total assets at December
31, 1998 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 1.58% 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 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.
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<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) Includes loans held for sale. 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.
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<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(1) $(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
===== ==== =====
- ----------------------
(1) Includes loans held for sale.
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, which includes loans held for sale, 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.
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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 $350,000, 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 in 1998 and $525,000 for 1997. Provisions for loan losses are recorded
to maintain the allowance for loan losses at an amount management considers
adequate to cover loan losses which are deemed probable and can be estimated.
These provisions were based upon, a number of factors, including asset
classifications, management's assessment of the credit risk inherent in the
portfolio, historical loan loss experience, economic trends, industry experience
and trends, estimated collateral values and our underwriting policies. The
provision for loan losses of $120,000 in 1998 reflects a more normalized amount
while the provision of loan losses of $525,000 in 1997 reflects our extensive
review, which began in early 1997, of our loan portfolio. The review resulted in
$1.8 million of classified nonperforming loans at December 31, 1997. At December
31, 1998, $1.1 million of the total $1.7 million of nonperforming loans at that
date were also nonperforming loans at December 31, 1997 and had been properly
addressed and reserved for in 1997. Such loans have either been in a workout
process or in foreclosure proceedings. Also, contributing to the reduced 1998
provision for loan losses is the decline in delinquent loans. Delinquent loans
decreased by $1.7 million or 34.6% to $3.2 million at December 31, 1998 from
$4.8 million at December 31, 1997. We have aggressively acted to improve our
credit quality through stronger credit standards and closely monitoring problem
loans. 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. As a result of the overall
improvement of the loan portfolio quality, the allowance for loan losses has
declined to $1.1 million or 1.58% of the total loans at December 31, 1998 from
$1.4 million or 1.75% of total loans at December 31, 1997
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. The New York
Superintendent of Banks for the State of New York seized Nationar, a
correspondent bank and trust company, in February 1995. On that date, Oswego
County Savings had demand accounts with Nationar of approximately $63,000,
Nationar capital stock with a carrying value of $5,000, Nationar preferred stock
with a carrying value of $19,000, a pledged security of $80,000 held by Nationar
and Nationar capital debentures of $120,000. Due to the uncertainty of the
collectibility of these amounts owed, we charged off the capital and preferred
stock investments in 1995 and established loss provisions of $120,000 in 1995
and $14,000 in 1996. Our Bank, through distributions, has recovered amounts
totaling $22,000, $54,000 and $154,000 in 1998, 1997 and 1996, respectively. As
of December 31, 1998, the total Nationar losses, net of recoveries, were
$57,000.
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
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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. Professional fees also contributed to the increase in
noninterest expense increasing by $13,000 to $251,000 in 1998 from $238,000 in
1997. The primary reason for the increase in professional fees was a result of
increased utilization of computer consulting services in conjunction with year
2000 compliance and other consulting services. 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. Trustee fees represent compensation of
the board of trustees for services provided in attendance at board and committee
meetings. Trustee fees decreased to $152,000 in 1998 from $172,000 in 1997,
primarily due to greater attendance by trustees in 1997 as well as additional
special board meetings in 1997. The fees paid for attendance at special meetings
amounted to $31,000 in 1997 compared to $23,000 in 1998. The additional special
board meetings were a result of the proposed merger with Oswego City Savings
Bank. Marketing and advertising expense increased to $121,000 in 1998 from
$93,000 in 1997. The increase was primarily the result of increased advertising
of loan products, especially advertising associated with the introduction of
long-term, fixed-rate residential mortgage loans in 1998 by our Bank.
Income Taxes. Income tax expense decreased by $39,000 in 1998 to
$162,000 as compared to $201,000 in 1997. The income tax rate declined to 34.4%
in 1998 from 51.6% in 1997. The income tax rate decrease was primarily 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 of $2.4 million and unused letters of credit of $20,000. At
December 31, 1998, we also had certificates of deposit scheduled to mature in
one year or less totaling $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.
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<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 providers. 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. Our data processing system, operations
and teller software and platforms, automated teller machines and personal
computer network have been identified as "mission-critical." We have assessed
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 area concerns the primary data
processing services and software provided to us by a third party vendor. The
vendor has rewritten certain portions of the software, tested the system and
advised us that it is Year 2000 compliant. We also have tested the system and
believe it is Year 2000 compliant. The third party vendors which provide our
automated teller machines and the related software and network switches have
tested those machines and the system and advised us that they also are Year 2000
compliant. Our bank teller and platform software have been tested by the vendor
and us and found to be Year 2000 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.
We have developed contingency plans for all mission-critical areas of
the Bank. Those contingency plans are being drafted into one unified document
which is being reviewed and rewritten by a third-party consultant hired by us.
The contingency plans are based on operating in the event of no electrical power
and/or no communications, as well as failure of a mission-critical area for
whatever reason. Testing of the contingency plans will be accomplished on an
ongoing basis throughout the balance of 1999. Contingency plans necessarily call
for many tasks being done on a manual basis in the event of no power or no
communications. 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.
40
<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 Savings 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
limited amount of commercial loans made by Oswego County Savings.
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 benefit costs for
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
41
<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.
42
<PAGE>
Business
Lending Activities
Market Area. Oswego County Savings conducts operations out of its headquarters
office in Oswego, New York and three additional branch offices. We anticipate
opening a fourth branch office in North Syracuse, New York in the summer of
1999. The bulk of our loans and deposits are generated within Oswego County,
which is located on Lake Ontario approximately 30 miles northwest of Syracuse.
The markets served by Oswego County Savings are a combination of suburban and
rural areas.
Since 1990, Oswego County has experienced household and population
growth rates slightly above the average for the State of New York but well below
the national average. The 1997 population estimate of Oswego County was 126,000.
Forecasts of growth in the market area through 2003 indicate that population
growth will continue at a pace approximating recent historic levels or 0.3%.
Some significant job losses in the early 1990s contributed to a declining real
estate market and a relatively high unemployment rate. While the local economy
has been stable in recent years, it has not enjoyed the robust economy
experienced throughout most of the nation.
Local banking competition is substantial with two other savings banks
headquartered in the county. Additionally the county has branches of some of the
money center banks, large regional banks, statewide banks, and community banks
from other areas of New York State. There are a total of 32 banking offices in
Oswego County.
General. At December 31, 1998, Oswego County Savings' total loans
amounted to $67.8 million. Net of the $1.1 million allowance for loan losses,
our loans were $66.7 million at December 31, 1998 representing 60.3% 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, $56.5 million or 83.4% of our total loans consisted of
residential mortgage and home equity loans. Commercial mortgage loans totaled
$9.0 million on that date, representing 13.2% 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 $710,000 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.
43
<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(1) $56,543 83.40% $67,405 83.78% $70,687 83.08%
Commercial mortgages 8,950 13.20 11,145 13.85 11,490 13.50
Commercial loans 265 0.39 276 0.34 589 0.69
Consumer loans 2,037 3.01 1,634 2.03 2,321 2.73
------- ------ ------- ------ ------- ------
Total loans 67,795 100.00% 80,460 100.00% 85,087 100.00%
====== ====== ======
Allowance for loan losses (1,068) (1,408) (1,583)
------- ------- -------
Net loans(1) $66,727 $79,052 $83,504
======= ======= =======
</TABLE>
- --------------
(1) In addition, the Bank had $4.3 million of residential mortgage loans
classified as held for sale at Dececember 31, 1998.
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
======= ======= =======
(1) Includes loans held for sale.
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
44
<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 change $(8,379) $(4,627)
======= ======
(1) Includes loans held for sale.
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, $56.5 million or 83.4% 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
45
<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 87.0% 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.
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
46
<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 2.6% 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
3.0% 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 .37% 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 0.78% 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
13.2% 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.
47
<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.
48
<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(1) 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%
====== ==== ==== === === === === === ====== ====
- ----------
(1) Includes loans for sale.
<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 .43
90 days and over 1,105 1.37 520 .65 -- -- 2 .00 1,627 2.02
------ ---- ---- --- --- --- --- --- ------ ----
Total delinquent
loans $4,141 5.15% $655 .82% $-- --% $21 .03% $4,817 5.98%
====== ==== ==== === === === === === ====== ====
</TABLE>
49
<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.
50
<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 1.58% 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(1) $67,795 $80,460
======= =======
Average loans outstanding(2) $75,648 $83,388
======= =======
Allowance for loan losses at beginning of period $ 1,409 $ 1,583
Charge-offs(3) (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) 1.58% 1.75%
==== ====
Ratio of net charge-offs to average loans
outstanding(2) 0.61% 0.84%
==== ====
- ----------------------
(1) Excludes loans held for sale.
(2) Includes loans held for sale.
(3) Charge-offs in 1998 and 1997 primarily consisted of nonowner occupied
multifamily loans.
51
<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>
At 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 83.40% $ 702 83.78%
Commercial mortgages 408 13.20 550 13.85
Commercial loans 9 0.39 5 0.34
Consumer loans 42 3.01 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, certain
corporate securities, 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 Savings' 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.
52
<PAGE>
The following table sets forth certain information relating to Oswego
County Savings' securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At 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 3,153
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
53
<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%
54
<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 County 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.
55
<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 47,970 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 58,202 59.45
------- ------ ------- ------
Total deposits $96,564 100.00% $97,899 100.00%
======= ====== ======= ======
</TABLE>
56
<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 $4,122 $1,897 $3,929 $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.
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<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 plan to open
a new branch office at this site in the summer of 1999.
58
<PAGE>
How We Are Regulated
General
Oswego County Savings is a New York-chartered mutual savings bank,
and its deposit accounts are fully insured by the FDIC. Oswego County Savings is
subject to extensive regulation by both the Department and the FDIC. After the
reorganization, Oswego County will be a New York-chartered stock savings bank
with deposits insured by the FDIC 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. Oswego County Savings
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 periodically
examine Oswego County Savings' compliance with various regulatory requirements
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 exercising their supervisory and enforcement activities,
including the setting of policies regarding asset classification and loan loss
reserves.
Oswego County Bancorp, as a bank holding company, is required to file
certain reports with, and otherwise comply with, the rules and regulations of
the Federal Reserve Board and the Department. As a publicly held company, Oswego
County Bancorp is also subject to 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.
New York Regulation of Oswego County Savings
Powers. Oswego County Savings derives its lending, investment and
other powers primarily from provisions of the New York Banking Law and
regulations. Under these laws and regulations, savings banks, 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
59
<PAGE>
lending, investment and other powers, however, may be 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 discussed below, requires New York banking
institutions to serve the credit needs of its local community. Under the
regulations, the Department makes biennial community reinvestment evaluations of
each banking institution and assesses each institution's compliance with the New
York regulations for community reinvestment. Oswego County Savings' latest
rating from the Department was "satisfactory."
Limitations on Dividends. Under the New York Banking Law, Oswego
County Savings will not be able to declare, 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 or pay
dividends in any calendar year in excess of its "net profits" for that 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 New York
Superintendent may issue an order to a 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 New York 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 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. 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.
60
<PAGE>
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, 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. FDIC 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
that state-chartered insured banks and their subsidiaries may engage in as
principals to those permissible for national banks and their subsidiaries,
except for certain exemptions. 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)
61
<PAGE>
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.
Deposit Insurance. Oswego County Savings pays insurance premiums to
the FDIC for its 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, depending on the
assessment risk classification assigned to each institution. Oswego County
Savings expects to incur no deposit insurance assessments for the first half of
1999. However, the deposit insurance assessments imposed by the FDIC are subject
to change. The deposits of all financial institutions insured by the Bank
Insurance Fund of the FDIC are also subject to a special assessment. For the
quarter ended March 31, 1999, the special assessment is .0122% of an insured
institution's eligible deposits.
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 Community Reinvestment Act, 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 Community
Reinvestment Act 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 community reinvestment
performance, Oswego County Savings received a "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 to ensure that earnings
are sufficient to maintain adequate capital and reserves.
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
62
<PAGE>
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.
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% 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. 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 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 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, have been identified by the Federal Reserve Board as
activities closely related to the business of banking or managing or controlling
banks.
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. 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 the receipt of dividends declared 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. To date, the
Federal Reserve Board has not approved the waiver of dividends by mutual holding
companies under its supervision.
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 Bancorp. If the Oswego County MHC
decides that it is in its best interest to waive a particular dividend to be
paid by Oswego County Bancorp, and the Federal Reserve Board approves the
waiver, then Oswego County Bancorp would pay dividends 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 Bancorp, and
regulatory approvals. There can be no assurance (1) that after the
reorganization the Oswego County MHC will waive dividends paid by Oswego County
Bancorp, (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 Oswego County MHC to Stock Form. New York law,
regulations of the Department and the plan of reorganization permit 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 and Oswego County Bancorp
would merge with and into Oswego County Savings with Oswego County Savings as
the resulting entity. A conversion transaction may be structured in other ways
to comply with applicable regulatory requirements. 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. An appraiser will access the
value of any assets other than Oswego County Bancorp stock held by Oswego County
MHC. The value of those assets will cause a reduction in the number of shares
issued to minority shareholders in a conversion transaction.
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. To date, the
Federal Reserve Board has not approved the waiver of dividends by mutual holding
companies under its supervision.
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 bad debt tax reserves
of Oswego County Savings were approximately $1,107,000, exclusive of the
$105,000 post-1987 excess 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, Net operating loss carrybacks and capital loss
carrybacks. Contributions which exceed the above limitation can be carried over
to the five succeeding tax years.
Distributions. Earnings appropriated to our bad debt reserve and
claimed as a tax deduction including our supplemental reserves for losses will
not be available for the payment of cash dividends or for distribution
(including distributions made on dissolution or liquidation), unless we include
the amount in income, along with the amount deemed necessary to pay the
resulting federal income tax. If such amount is used for any purpose other than
bad debt losses, including a dividend distribution or a distribution in
liquidation, it will be subject to federal income tax at the then current rate.
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 alternative minimum tax (AMT) rules have been
devised to ensure that at least a minimum amount of income tax is paid by
high-income corporate taxpayers who take advantage of substantial tax savings
due to the use of certain tax deductions and exemptions. In essence, the AMT
functions as a recapture mechanism, reclaiming some of the tax deductions and
credits utilized by these taxpayers when calculating their regular federal
income tax liability. In general, a corporation's alternative minimum taxable
income (AMTI) is equal to its regular taxable income, increased by its
preference items for the year and adjusted by computing certain items under
special rules that negate the acceleration of certain tax benefits which are
available under the regular tax rules. The AMT rate is 20% of AMTI that exceeds
the AMTI exemption amount, reduced by the alternative minimum tax foreign tax
credit. Such preference items include adjustments for excess bad debts
deductions, accelerated depreciation deductions and net operating loss
carryovers.
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 will 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
- -------------------------- ------- ----------------------------------------
Paul W. Scheible 50 Chairman of the Board
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 trustees of Oswego County Savings.
Positions Held
With Trustee
Name Age(1) Oswego County Savings(1) Since
- ------------------- ------- ----------------------------- ---------
Michael R. Brower 48 Trustee 1996
Bruce P. Frassinelli 59 Chairman of the Board 1995
Paul J. Heins 59 Trustee 1989
Gregory J. Kreis 52 Trustee, President and Chief 1997
Executive Officer
Paul W. Schneible 50 Trustee 1996
Bernard Shapiro 72 Trustee 1963
Carl K. Walrath 71 Trustee 1974
- -----------------------------
(1) As of December 31, 1998.
Biographical Information
The business experience of each trustee 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 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 $ (2) - - - - - - - - $7,693
====================================================================================================================================
</TABLE>
(1) The Bank also provides Mr. Kreis with [the use of an automobile, club
membership dues and certain other personal benefits, the value of which is not
shown on the table.] The aggregate amount of these other benefits did not exceed
the lesser of $50,000 or 10% of Mr. Kreis's salary and bonus.
(2) Does not reflect the $20,000 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 William M. Mercer, Incorporated,
which provides that, based upon public data of similarly situated publicly
traded financial institutions operating in the relevant markets as of May
1999, with respect to the total cash compensation (base salary and annual
incentive) for executive officers and trustees of Oswego
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County Savings, their 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. However, no 401(k) Plan participant
may purchase more than $150,000 of the common stock sold in the offering through
the 401(k) Plan's subscription rights nor may aggregate purchases by plan
participants exceed 5% of the common stock sold in the offering. A participant's
ability to direct all or some of his vested account to purchase common stock in
the subscription offering will be dependent upon his or her status as an
eligible account holder, supplemental eligible account holder or trustee,
officer or employee of Oswego County Savings.
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. Oswego County Bancorp established the
ESOP for employees of Oswego County Bancorp and Oswego County Savings. The ESOP
will 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.
We anticipate that the ESOP will borrow funds from Oswego County
Bancorp to fund the purchase of up to 8% of the common stock sold in the stock
offering. We anticipate that the loan will equal 100% of the aggregate purchase
price of the common stock acquired by the ESOP. The ESOP will repay the loan
principally from Oswego County Bancorp's and Oswego County Savings'
contributions over a period of not less than 10 years. The collateral for the
loan will be the common stock purchased by the ESOP. Although we anticipate that
Oswego County Savings will make contributions to the ESOP, it is under no
obligation to make those contributions. We expect the interest rate for the ESOP
loan to be the prime rate as published in The Wall Street Journal plus 0.5%.
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. The ESOP would fund these purchases through additional borrowings
or additional contributions from Oswego County Bancorp. Various factors
including prevailing regulatory policies, the requirements of applicable laws
and regulations and market conditions, will affect the timing, amount and manner
of future contributions to the ESOP.
The ESOP will hold the shares purchases with the proceeds of the loan
in a suspense account and will release to participant's accounts as it makes
debt service payments. The ESOP will allocate the shares it releases 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. The ESOP will reallocate forfeitures 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. Oswego
County Bancorp's contributions to the ESOP are not fixed, so we cannot estimate
the benefits payable under the ESOP.
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. The trustees
will vote unallocated shares in the same ratio on any matter as those allocated
shares for which it receives instructions.
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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increase. This could negatively impact the price of our stock." for a discussion
which addresses compensation expense we will incur as a result of the ESOP.
GAAP requires that we reflect any borrowing by the ESOP from an
independent third party as a liability on Oswego County Bancorp's statement of
financial condition. Since the ESOP is borrowing from Oswego County Bancorp, we
will not treat the obligation as a liability, but we will deduct the cost of the
shares acquired by the ESOP 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 ESOP
allocates the newly issued shares to the ESOP participants.
The ESOP will be subject to the requirements of the Employee
Retirement Income Security Act of 1974 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. Each of these plans must
receive the approval of a majority of the shares of Oswego County Bancorp not
owned by Oswego County MHC. In addition, the stock option plan must receive the
prior approval of the New York Superintendent. We anticipate that the stock
option plan and restricted stock plan will have reserved a number of shares
equal to 10% and 3%, respectively, of Oswego County Bancorp common stock sold in
the stock offering. For example, if we issue 540,500 shares of common stock in
the stock offering, we would reserve 54,050 shares in the stock option plan and
16,215 shares in the restricted stock plan. At the issuance price of $10.00 per
share, the shares granted under the restricted stock plan would have an
aggregate value of $162,150. We plan to grant the options at an exercise price
equal to the fair market price of the common stock on the date of issuance. If
we grant all of the options, they would have an aggregate value of $54,050 for
each $1.00 increase in the market value of the common stock after the grant
date. A recipient will receive a grant of common stock under the restricted
stock plan without cost. If we determine to implement a stock option plan or
restricted stock plan, we anticipate that we will submit the plans to
stockholders for their consideration and more detailed information would be
provided at that time. If the plans are approved and effected, they will have a
dilutive effect on Oswego County Bancorp's stockholders and affect Oswego County
Bancorp's net income and stockholders' equity. We cannot determine the actual
results until we implement the plans. We will not implement any stock option
plan or restricted stock plan less than six months after the date of the
completion of the reorganization.
Loans and Other Transactions with Officers and Trustees
New York Banking Law does not permit Oswego County Savings, as a
mutual institution, to make a loan to a trustee. It is permitted to make a loan
to a nontrustee who is an 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 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 executive officers or our directors
following the reorganization 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 Savings'
trustees and for all of the trustees and executive officers as a group, the
proposed purchases of common stock,
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assuming sufficient shares are available to satisfy their subscriptions. The
purchases shown below include shares of common stock purchased under the
existing 401(k) plan. 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 1.3 5,000 *
Bruce P. Frassinelli 7,500 750 * 750 *
Paul J. Heins 5,000 500 * 500 *
Gregory J. Kreis 150,000 15,000 3.8 15,000 2.8
Paul W. Schneible 50,000 5,000 1.3 5,000 *
Bernard Shapiro 25,000 2,500 * 2,500 *
Carl K. Walrath 25,000 2,500 * 2,500 *
All trustees and executive $375,000 37,500 9.4 37,500 6.9
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-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. The Plan was amended on December 17, 1998, March 18, 1999 and
May 20, 1999. Under this plan, Oswego County Savings will reorganize into the
New York mutual holding company structure. Oswego County Savings will become a
wholly owned subsidiary of Oswego County Bancorp. In turn, Oswego County Bancorp
will become a majority-owned subsidiary of Oswego County MHC. Oswego County
Bancorp will then sell 45.0% of its shares to the public, contribute 1.8% to the
Oswego County Foundation and issue 53.2% of its shares to Oswego County MHC.
Following receipt of all required regulatory approvals, the approval of the
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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 have $100,000 of net worth. 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 Interim One Savings
Bank, an interim New York stock savings bank as a wholly
owned subsidiary;
(2) Interim One Savings Bank will organize Interim Two Savings
Bank, an interim New York stock savings bank as a wholly
owned subsidiary;
(3) Interim One Savings Bank 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. Interim One Savings Bank will convert its charter
to a New York mutual holding company charter to become
Oswego County MHC;
(5) simultaneously with step (4), Interim Two Savings Bank 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. You may obtain a copy of the plan of
reorganization from Oswego County Savings upon request. 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 Oswego County Savings Bank Has Adopted,
The Department Has Approved And The FDIC Has Indicated Its Intent To Issue A
Letter Of Nonobjection 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.
The form of corporate organizations used by commercial banks, most
major corporations and a majority of savings institutions is a stock
corporation. The reorganization will result in Oswego County Savings becoming a
stock form organization. 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. 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 Oswego County Bancorp may adopt 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, the requirement in applicable laws and
regulations that a mutual holding company maintain at least a 51% ownership
interest in its savings association subsidiary will limit those advantages.
Oswego County Bancorp's proposed offering of up to approximately 49% of its
to-be-outstanding common stock,
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including the proposed issuance of shares to the Oswego County Charitable
Foundation, limits those advantages. The percentage of the minority interest for
sale in the current offering will also 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. A standard
conversion would raise substantially more equity capital than the equity capital
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 "How We Are Regulated - Holding Company
Regulation - Conversion of Oswego County MHC to Stock Form."
Oswego County Savings board of trustees considered 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. After such consideration, the board of trustees
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. The regulation, supervision and
examination of the Department and the FDIC will continue to apply to Oswego
County Savings.
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. The reorganization will not
affect the deposit balance, interest rate or other terms of those accounts. The
FDIC will continue to insure each account 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 "- Stockholders and Depositors 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, the regulations of the FDIC and Department will continue to
apply to Oswego County Savings. 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, the stockholders of Oswego County Bancorp will have exclusive voting
rights in the company. Oswego County Bancorp, in turn, will own all of the stock
of Oswego County Savings. The stockholders of Oswego County Bancorp will
consider all corporate matters, subject to the provisions of Oswego County
Bancorp's certificate of incorporation. Depositors in Oswego County Savings will
continue to hold limited 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 that the board of trustees of Oswego County MHC will
hold the governing authority of the Oswego County MHC. Successors to members of
the board of trustees of Oswego County MHC are elected by remaining members. As
a result, the board of trustees of the Oswego County MHC govern the operations
of the Oswego County MHC and Oswego County Bancorp, notwithstanding objections
raised by stockholders of Oswego County Bancorp.
Liquidation Rights
In the unlikely event of a complete liquidation of Oswego County
Savings in its present mutual form, each depositor would have a claim to receive
his or her pro rata share of any assets of Oswego County Savings remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). To the extent there are remaining
assets, a depositor may have a claim to receive a pro rata share of the
remaining assets in the same proportion as the value of such depositor's deposit
accounts to the total value of all deposit accounts in Oswego County Savings at
the time of liquidation, subject to the right of the State of New York to
garnish such assets. After the reorganization, each depositor, in the event of a
complete liquidation, would have a claim as a creditor of Oswego County Savings.
However, except as described below, this claim would be solely in the amount of
the balance in the deposit account plus accrued interest. A depositor would not
have an interest in the value or assets of Oswego County Savings above that
amount.
The plan of reorganization provides for the establishment, upon the
completion of the reorganization, of a special "liquidation account" for the
benefit of eligible account holders and supplemental eligible account holders in
an amount equal to the surplus and reserves of Oswego County Savings as of the
date of its latest balance sheet contained in the final prospectus used in
connection with the reorganization. Each eligible account holder and
supplemental eligible account holder, who continues to maintain a deposit
account at Oswego County Savings, would, on a complete liquidation of Oswego
County Savings, have a claim to an interest in the liquidation account after
payment of all creditors but prior to any payment to the stockholders of Oswego
County Savings. Each eligible account holder and supplemental eligible account
holder would have an initial interest in such liquidation account for each
deposit account, with a balance of $100 or more held in Oswego County Savings on
September 30, 1997 and March 31, 1999, respectively ("Deposit Account"). Each
eligible account holder and supplemental eligible account holder will have a
claim to a pro rata interest in the total liquidation account for each of his or
her Deposit Accounts based on the proportion that the balance of each such
Deposit Account on September 30, 1997 and March 31, 1999, respectively, bore to
the balance of all Deposit Accounts in Oswego County Savings on such date.
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If, however, on the last day of any fiscal year of Oswego County
Savings commencing after September 30, 1997 or March 31, 1999, as the case may
be, the deposit balance in any Deposit Account of an eligible account holder or
supplemental eligible account holder is less than either (i) the amount of
qualifying deposits of such eligible account holder or supplemental eligible
account holder on September 30, 1997 or March 31, 1999, as the case may be, or
(ii) the deposit balance in such Deposit Account at the close of business on the
last day of any previous fiscal year of Oswego County Savings commencing after
September 30, 1997 or March 31, 1999, then such eligible account holder's or
supplemental eligible account holder's account balance would be reduced in an
amount equal to the reduction in such deposit balance, and such account balance
will cease to exist if such Deposit Account is closed. In addition, no interest
in the liquidation account would ever be increased despite any subsequent
increase in the deposit balances of any eligible account holder or supplemental
eligible account holder. Any assets remaining after the above liquidation rights
of eligible account holders and subsequent eligible account holders are
satisfied would be distributed to the stockholders of Oswego County Savings.
Neither Oswego County Savings nor Oswego County Bancorp shall be
required to set aside funds for the purpose of establishing the liquidation
account, and the creation and maintenance of the account will not operate to
restrict the use or application of any of the net worth accounts of Oswego
County Savings, except that neither Oswego County Savings nor Oswego County
Bancorp shall declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect would cause its net worth to be reduced below the
amount required for the liquidation account.
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. The opinion also addresses 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 Oswego County Savings or the stock bank will recognize no
gain or loss in the bank conversion;
o The depositors of Oswego County Savings will receive no
gain or loss on the receipt of equity interests with
respect to Oswego County MHC in exchange for the surrender
of their equity interests;
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 Oswego County Savings' account holders will recognize no
gain or loss 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 account holders will recognize gain or loss upon the
receipt or exercise of subscription rights in the
reorganization and stock offering, except to the extent
that 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. It is also based 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 is no assurance that the IRS will
not take a position contrary to the positions reflected in the opinion, or that
by the courts will uphold the opinion 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 is 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 Oswego County
Charitable Foundation, as a non-stock Delaware 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.
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' 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, two members of Oswego County Bancorp's and Oswego County
Savings' boards of directors (Messrs. Kreis and Walrath) and three other
individuals chosen based on their commitment and service to charitable and
community purposes will comprise the foundation's initial board of directors.
None of these persons is affiliated with Oswego County Bancorp or Oswego County
Savings. There are no plans to change the size or composition 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' directors also will serve as directors of
the foundation following the first anniversary of the completion of the
offering, the foundation may alter the size and composition of its board of
directors.
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.
We have not determined
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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. The foundation will make no award, grant or
distribution to any director, officer or employee of Oswego County Bancorp or
Oswego County Savings or to any of their affiliates. In addition, the conflict
of interest rules of the FDIC and the Department will apply to those persons, if
they serve as an officer, director or employee of the foundation.
The board of directors of the foundation will have the authority for
the affiars of the foundation. Among the responsibility of the foundation
directors is the establishment of the policies of the foundation with respect to
its grants or donations, 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
may waive this voting restriction under certain circumstances. If a waiver is
granted, the Department and the FDIC may impose additional conditions regarding
the composition of the foundation's board of directors.
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 the FDIC will require Oswego County Savings to provide it 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 $159,800 to $216,200 ($248,630 at the maximum, as adjusted),
based on the purchase price of $10.00 per share. Messrs. Kreis and Walrath, who
will serve as initial directors of the foundation, and their affiliates, intend
to purchase, subject to availability, an aggregate of 17,500 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. Kreis
and Walrath and their affiliates will total 39,120
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shares or 3.3% of the total number of shares of common stock to be issued and
outstanding, assuming the sale of 540,500 shares of common stock.
Oswego County Charitable Foundation will receive working capital from
any dividends 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 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. This condition does
not apply 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 887,230, 1,043,800, 1,200,370, and 1,380,426
shares issued and outstanding based on the minimum, midpoint, and maximum and
maximum as adjusted of the estimated offering range. Because Oswego County
Bancorp will have an increased number of shares outstanding, contribution to the
foundation will dilute the voting and ownership interests of minority
stockholders in Oswego County Bancorp's common stock to 45.0%. This compares to
a 45.9% interest in Oswego County Bancorp if the foundation was not established.
For additional discussion of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The outside tax advisor of Oswego County Bancorp
and Oswego County Savings has advised them 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 advised them 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 New York 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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Delaware law authorizes Oswego County Bancorp 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. The Internal Revenue Code generally allows 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 $15.8
million or 13.7% of pro forma consolidated assets and Oswego County Saving's pro
forma leverage, risk-based and total capital ratios would be 11.9%, 17.3% and
18.6%, respectively. See "Oswego County Savings Bank Exceeds All 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 advisor 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 advisor, however, have not rendered advice as to
fair market value for purposes of determining the amount of the tax deduction.
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 New York 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;
(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 could 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;
(5) the foundation must submit a proposed operating plan to the
FDIC prior to the reorganization; and
(6) the foundation must submit annual reports to the FDIC.
In order to obtain a waiver of condition number 4 above, 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 basis for the purchase
price of the common stock is the appraised pro forma market value of Oswego
County Bancorp and Oswego County Savings, as determined by 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 $30,000. 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.
To prepare the appraisal, RP Financial relied 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.
The board of trustees reviewed the methodologies and the
appropriateness of the assumptions used by RP Financial in addition to the
factors enumerated above. The board of trustees believes that such assumptions
were reasonable.
Based on the foregoing, RP Financial advised Oswego County Bancorp
and Oswego County Savings that in its opinion, dated April 16, 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 $8.9 million to a maximum of $12.0
million with a midpoint of $10.4 million. The board of trustees of Oswego County
Savings set the sales price of the common stock at $10.00 per share and the
percentage of shares offered to the public at 45.9% of the to-be-outstanding
shares, prior to the contribution to the foundation. 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 399,500 shares to
540,500 with a midpoint of 470,000 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 45.0% of the shares of the common stock outstanding at
the conclusion of the reorganization and stock offering. We will issue the
remaining shares of Oswego County Bancorp's common stock to Oswego County MHC.
We may amend the estimated valuation range 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 that we update the estimated valuation
range to amend the value of the common stock below $4.0 million or above $6.2
million, which is the maximum of the estimated valuation range, as adjusted by
15%, we will file the new appraisal 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 $6.2 million (the
maximum of the estimated offering range) and up to $6.2 million (the maximum of
the estimated offering range, as adjusted by 15%), the FDIC and Department may
require Oswego County Bancorp to accept all such orders. We are not certain
however, that Oswego County Bancorp will receive orders for common stock in
excess of the maximum of the estimated offering range or that, if we receive
those orders, that we will accept all orders. Oswego County Bancorp's final
valuation and the number of
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shares it issues are subject to the receipt of an updated appraisal from RP
Financial. The FDIC and Department must approve the updated appraisal. 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 you should not consider
it 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, if you
purchase common stock in the stock offering you may not 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, we may
increase the maximum of the estimated offering range up to 15% and the number of
shares of common stock up to 621,575 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.
We will not complete the sale of shares of common stock in the
reorganization and stock offering unless RP Financial confirms to Oswego County
Savings, the FDIC and the New York 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 we do
not receive this confirmation, Oswego County Bancorp may cancel the offering,
extend the offering and establish a new estimated offering range, extend,
reopen or hold a new offering or take any other action the FDIC and New York
Superintendent may permit or require.
Depending upon market or financial conditions following the
commencement of the subscription offering, we may increase or decrease the total
number of shares of common stock 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, we
will solicit purchasers and permit them to continue their orders. In such case
they will need to reconfirm their subscriptions prior to 20 days before the end
of the expiration of the resolicitation offering or we will promptly refund
their subscription funds with interest at Oswego County Savings' passbook rate
of interest. During this period, subscribers may also modify or rescind their
subscriptions. Any change in the estimated offering range must receive the
approval of the FDIC and the New York 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, we will give persons who
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subscribed for the maximum number of shares the opportunity to subscribe for the
adjusted maximum number of shares. If the estimated valuation range is adjusted
below $4.0 million or above $6.2 million, Oswego County Bancorp will offer
subscribers the opportunity to cancel their stock order. 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 - The granting of stock options and
restricted stock to the board and management will 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, we have granted rights
to subscribe for the purchase of common stock to the following persons in the
following order of descending priority:
o Eligible account holders -- 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 Supplemental eligible account holders -- 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 subject to the overall purchase
limitations. See "- Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, we will allocate shares first 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
we have allocated each subscribing eligible account holder the lesser of the
number of shares subscribed for or 100 shares, we will allocate the remaining
shares 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 we
will issue no fractional shares.
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 the allocation of
fewer shares than if an accountholder discloses all of his accounts. We will
subordinate the subscription rights of eligible account holders who are also
trustees or officers of Oswego County Savings or their associates 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 ESOP, 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 31,960 shares and 43,240 shares based on the minimum and
maximum of the estimated offering range, respectively. If the number of shares
is increased to 621,575 shares, the ESOP intends to purchase 49,726 shares. We
will not aggregate subscriptions by the ESOP 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' trustees, 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, 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, we will allocate
available shares first 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, we will allocate any remaining shares 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 we will issue no fractional
shares.
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 24% 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 25% of common stock sold in the stock offering. See "- Limitations on Stock
Purchases."
In the event of an over subscription in this category, we will
allocate subscription rights 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 we will issue no fractional shares. We will assign one
point 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 22, 1999
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
New York Superintendent. We may not extended the
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subscription offering beyond May 24, 2001. Subscription rights not exercised
prior to June 22, 1999 (unless extended) will become void.
Oswego County Bancorp and Oswego County Savings will not execute
orders until we receive subscription for or otherwise sell at least 399,500
shares. If we do not receive sufficient subscriptions or orders within 45 days
after June 22, 1999, unless such period is extended with the consent of the FDIC
and the New York Superintendent, we will return promptly all funds delivered to
Oswego County Savings into the subscription offering to the subscribers with
interest and we will cancel all withdrawal authorizations. If an extension
beyond the 45-day period following June 22, 1999 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
with these 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." We may increase this amount, in our sole
discretion, 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, we will
allocate available stock 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, we will allocate unallocated shares 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 we will issue no fractional shares.
Prior to filling larger orders, we will fill orders for common stock
in the community offering to a maximum of 2% of the shares sold in the stock
offering. Thereafter we will allocate any
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remaining shares on an equal number of shares basis per order until we fill all
orders. If there are any shares remaining, we will allocate shares 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 for the offering for sale to the general public through a syndicate of
registered broker-dealers known as selected dealers of all shares of common
stock not purchased in the subscription and community offerings. 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. 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. We will not permit any person 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." We may increase this amount to up to 5% of the total offering
of shares in the subscription offering, provided that we will fill orders for
common stock in the syndicated community offering first to a maximum of 2% of
the shares sold in the stock offering. Thereafter, we will allocate any
remaining shares shares on an equal number of shares basis per order until we
fill all orders.
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.
During the subscription offering, a selected dealer may neither place nor fill
an order. 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 insufficient indications of interest and orders have
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. FDIC insurance up
to $100,000 in accordance with applicable FDIC regulations will apply to each
customer's funds forwarded to Oswego County Savings, along with all other
accounts held in the same title. After we receive payment from selected dealers,
funds will earn interest at Oswego County Savings' passbook rate until the
consummation or termination of the reorganization and stock offering. We will
promptly return funds, 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 June 22, 1999, unless extended by Oswego County Savings with the
approval of the FDIC and the New York Superintendent. See "- How We Determined
Our Price and Number of Shares to be Issued in the Stock Offering" above for a
discussion of rights of subscribers, if any, if we receive an extension.
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 offer or sale of
the common stock to any person who resides in a foreign country.
Limitations on Stock Purchases
The plan of reorganization includes the following purchase
limitations:
(1) Each person must purchase no fewer than 25 shares of
common stock, 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 September 30,
1997, subject to the overall
limitation in clause (7) below;
(3) The tax-qualified employee stock benefit plans,
including the ESOP, 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. At this time the ESOP
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 March 31, 1999, 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 the stock offering; and
(8) Trustees and officers of Oswego County Savings may not
purchase in the aggregate more than 25% of the total number of shares
offered for sale in the stock offering.
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, we may increase the
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individual amount permitted to be subscribed for up to a maximum of 5% of the
number of shares sold in the stock offering. If such amount is increased, we
will notify subscribers for the maximum amount, and, in our discretion, we may
notify certain other large subscribers. We will give the notified subscribers
the opportunity to increase their subscriptions up to the then applicable limit.
The term "associate" of a person means:
o any corporation or other organization, other than Oswego
County Bancorp, Oswego County MHC and Oswego County Savings
or a majority-owned subsidiary of 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" means (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 filing by such persons of 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 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 Oswego County Bancorp
uses selected dealers to assist in the sale of shares of common stock in the
community offering, Friedman Billings will negotiate a fee with the 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.
Registered representatives affiliated with Friedman Billings or the
broker-dealers managed by Friedman Billings will participate in the sale of most
of the shares of common stock. Friedman Billings has undertaken that it will
sell the shares of common stock in a manner which will ensure that it meets the
distribution standards of the New York Stock Exchange. This includes standards
related to round lots, public shares, and aggregate market value. 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 will conduct
sales of common stock within the requirements of this rule, so as to permit
officers, trustees, directors and employees to participate where permitted by
applicable law in the sale of the common stock. No officer, trustee, director or
employee of Oswego County Bancorp or Oswego County Savings will receive direct
or indirect compensation in the form of commissions or other remuneration for
his participation in the sale of common stock.
Oswego County Savings may utilize certain space in its offices for
activities related to the Offerings. The FDIC and Department 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, (1) employees may not receive
commissions, bonuses, or payment, except standard compensation to securities
personnel of registered broker-dealers; (2) tellers may not make offers or
sales; (3) no other person may make offers or sales at the teller counter; (4)
persons must conduct sales activities 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 (5) 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, each subscriber must sign a certification form acknowledging that the
common stock is not federally insured or guaranteed and that he 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 June 22, 1999, unless extended, in accordance with Rule 15c2-8 of the
Exchange Act, we will not mail a prospectus 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. We will only distribute
order forms with a prospectus.
To purchase shares in the subscription offering, we must receive from
you 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, by Oswego County Savings by 12:00 noon, Oswego, New York
Time, on the June 22, 1999, 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 the FDIC and Department in connection with
any sale of common stock. We will not accept order forms to purchase shares in
the subscription offering if they are (1) not received by June 22, 1999, (2)
executed defectively, or (3) received without full payment or appropriate
withdrawal instructions. 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 we receive an executed
order form, you may not modify, amend or rescind it without the consent of
Oswego County Savings, unless we do not complete the stock offering within 45
days after the end of the subscription offering, unless we extend that period.
To ensure that we place our eligible account holders and supplemental
eligible account holders in their proper stock purchase priority, depositors as
of the close of business on the September 30, 1997 or March 31, 1999 must list
all accounts on the stock order form giving all names in each account and the
account numbers.
You may make payment for subscriptions:
o in cash if delivered in person;
o by check or money order; or
o by authorization of withdrawal from deposit
accounts maintained with Oswego County Savings.
We will not accept wire transfers. We will pay interest on payments
made by cash, check or money order at Oswego County Savings' passbook rate of
interest from the date we receive payment 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 we will place a hold on those funds. As a
result, the funds are 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 you reduce the remaining balance in a certificate account
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below the applicable minimum balance requirement when the funds actually are
transferred under the authorization, we will cancel the certificate 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,
we will not require the ESOP to pay for the shares subscribed for at the time it
subscribes, but rather, pay for its shares of common stock upon consummation of
the offering. We will permit this payment arrangement if the ESOP has in force
from the time of its subscription until the consummation of the offering, a loan
commitment from an unrelated financial institution or Oswego County Bancorp to
lend to the ESOP 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 that you maintain the IRA at an institution other than 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 offering make such purchases for the exclusive benefit of
the IRAs. We advise any parties wishing to use IRA funds for stock purchases to
contact the stock center at (315) 343-3181 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. Only a person holding a subscription right may
exercise it and the holder may only exercise it for his account. We will require
each person exercising a subscription right 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. FDIC and Department 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. Violations may lead to actions by these or other government agencies.
Delivery of Certificates
As soon as practicable following consummation of the reorganization,
our transfer agent will mail certificates representing common stock issued in
the stock offering to the persons entitled to certificates at the addresses of
such persons appearing on the stock order form. We will hold any certificates
returned as undeliverable until claimed by persons legally entitled to it 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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Required Approvals and Nonobjections
The completion of the reorganization and stock offering requires
various approvals or nonobjections from the FDIC and the Department. The FDIC
has advised us of its intention not to object to and the Department has approved
the plan of reorganization, subject to approval by Oswego County Savings'
depositors and other standard conditions. Oswego County MHC's and 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.
Directors, executive officers and their associates may purchase
common stock during the three-year period following completion of the
reorganization only through a broker or dealer registered with the SEC, except
with the prior written approval of the FDIC and the New York Superintendent.
This restriction does not apply, however, to certain purchases of stock pursuant
to an employee stock benefit plan.
Except with the prior approval of the New York Superintendent,
neither Oswego County Bancorp nor Oswego County Savings may repurchase any of
its outstanding common stock prior to the first anniversary of the completion of
the offering. It is the policy of the New York Superintendent not to authorize
any repurchases in the first six months after the completion of an offering.
During the second and third years following the offering, neither company may
repurchase in excess of five percent of its outstanding common stock in any
12-month period without the prior approval of the New York Superintendent. In
determining whether to grant such approval, the New York Superintendent
considers:
o the financial condition and history of Oswego County Bancorp or
Oswego County Savings, as the case may be;
o the adequacy of its capital structure;
o its future earnings prospects;
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o the quality of its management;
o whether the repurchase will result in fair treatment to the
shareholders of Oswego County Bancorp or Oswego County Savings, as
the case may be; and
o the public interest generally.
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,
Oswego County MHC must own at least 51% of Oswego County Bancorp's voting
shares. Oswego County MHC's board of trustees, which 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, will control Oswego County MHC. 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. Oswego County MHC's board of
trustees could prevent change in control even if it were supported by all of the
minority shareholders. Accordingly, a change in control of Oswego County Bancorp
or Oswego County Savings cannot occur unless it is supported by Oswego County
MHC or 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, we do not anticipate 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 of stockholders to influence management policies and
may have an anti-takeover effect. The following description of certain of these
provisions is necessarily general. 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, we
refer you each case to the document in question. Each of these documents is part
of Oswego County Savings' application to the New York Superintendent and Oswego
County Bancorp's registration
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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 the chairman of the board of Oswego County Bancorp
may call a special meeting of stockholders. A resolution adopted by a majority
of the board of directors may also require a special meeting. The certificate
does not authorize stockholders to call a special meeting.
Absence of Cumulative Voting. The certificate of incorporation
provides that there shall be no cumulative voting rights in the election of
directors.
Preferred Shares. The certificate of incorporation authorizes the
board of directors to issue up to one million shares of preferred stock. The
board of directors may use these additional shares to deter future attempts to
gain control of Oswego County Bancorp. The board of directors also has sole
authority to determine the terms of any one or more series of preferred stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of preferred stock, the
board has the power, to the extent consistent with its fiduciary duty, to issue
a series of preferred stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Limitation on Voting Rights. The certificate of incorporation
provides that 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. This limitation does not apply to Oswego County MHC or any tax-qualified
employee stock benefit plans maintained by Oswego County Bancorp. The
certificate also provides that 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
will not become a "beneficial owner" of shares as a result of receiving the
right to vote those shares under a revocable proxy.
Removal of Directors. Shareholders may remove any or all of the
directors. Removal may occur only for cause and only by the affirmative vote of
holders of at least 80% of the voting power entitled to vote in the election of
directors.
Amendments to Certificate of Incorporation and Bylaws. Oswego County
Bancorp's board of directors and also a majority of the outstanding shares of
Oswego County Bancorp's voting stock must approve amendments to the certificate
of incorporation. However, provisions relating to the call of special
stockholder meetings, directors, limitation on voting rights, amending the
bylaws, the procedure for amending the certificate of incorporation, evaluation
of offers to purchase Owsego County Bancorp or controlling interest thereof, and
director liability generally require the approval by at least 80% of the
outstanding voting stock.
An amendment to the bylaws requires 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.
Indemnification and Limits of Liability. Oswego County Bancorp's
Certificate of Incorporation provides for the elimination of personal liability
of the directors of Oswego County Bancorp for monetary damages to the fullest
extent permitted by Delaware law. Delaware law provides that directors (but not
officers) of corporations that have adopted this type of provision will have no
liability for monetary damages, except for (a) any breach of the director's duty
of loyalty to the corporation or its shareholders, (b) acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(c) the payment of certain unlawful dividends and the making of certain stock
purchases or redemptions, (d) any transaction from which the director derived an
improper personal benefit. This provision would absolve directors of personal
liability for negligence in the performance of their duties, including gross
negligence. It would not permit a director to be exculpated, however, for
liability for actions involving conflicts of interest or breaches of the
traditional "duty of loyalty" to Oswego County Bancorp and its shareholders, and
it would not affect the availability of injunctive or other equitable relief as
a remedy.
Article 9 of the certificate of incorporation provides that the
Oswego County Bancorp shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceedings, including actions by or in the right of Oswego County
Bancorp, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was a director, officer, employee or agent of
Oswego County Bancorp, or is or was serving at the request of Oswego County
Bancorp as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnification is
furnished to the full extent provided by law against expenses (including
attorney's fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with such actions, suit or proceeding. The
indemnification provisions also permit Oswego County Bancorp to pay reasonable
expenses in advance of the final disposition of any action, suit or proceeding
as authorized by Oswego County Bancorp's board of directors, provided that the
indemnified person undertakes to repay Oswego County Bancorp if it is ultimately
determined that such person was not entitled to indemnification.
The rights of indemnification provided in the Oswego County Bancorp's
certificate of incorporation are not exclusive of any other rights which may be
available under Oswego County Bancorp's bylaws, any insurance or other
agreement, by vote of shareholders or directors, regardless of whether directors
authorizing such indemnification are beneficiaries thereof or otherwise. In
addition, Oswego County Bancorp's bylaws authorize it to maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
Oswego County Bancorp, whether or not Oswego County Bancorp would have the power
to provide indemnification to such person. By action of the board of directors,
Oswego County Bancorp may create and fund a trust fund or other fund or form of
self-insurance arrangement of nature, and may enter into agreements with its
officers, directors, employees and agents for the purpose of securing or
insuring in any manner its obligation to indemnify or advance expenses provided
for in the provisions in the certificate of incorporation and bylaws regarding
indemnification. These provisions are designed to reduce, in appropriate cases,
the risks incident to serving as a director, officer, employee or agent and to
enable Oswego County Bancorp to attract and retain the best personnel available.
An amendment to the bylaws requires 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 Bank Holding Company Act,
together with the Federal Reserve Board regulations under those acts, require
that the consent of the Federal Reserve Board 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
106
<PAGE>
the Exchange Act, any acquisition of 10% or more of the common stock will
result in a rebuttable presumption that the acquirer of such stock controls
Oswego County Bancorp. The existence of this presumption requires the proposed
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 entity or
person takes any action that results in the acquisition of direct or indirect
control of a banking institution 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 that 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's certificate of incorporation authorizes it to
issue 7,500,000 shares of common stock having a par value of $0.01 per share and
1,000,000 shares of preferred stock having a par value of $0.01 per share.
Oswego County Bancorp currently expects to issue up to a maximum of 1,200,370
shares of common stock and no shares of preferred stock in the stock offering.
The number of shares of common stock issued will increase to 1,380,426 shares in
the event that the maximum of the estimated offering range is increased by 15%.
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 and will not be guaranteed by Oswego County Savings,
Oswego County Bancorp on Oswego County MHC.
107
<PAGE>
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 "Our Policy Regarding Dividends." 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 share of common stock will entitle the holder to one vote. A shareholder
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." "Excess shares" hold
no voting rights. See "Certain 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, has the right 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 have the
right 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 of
Oswego County Bancorp will not have to preemptive rights with respect to the
issuance of additional shares. 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
Oswego County Bancorp will not issue preferred stock in the stock
offering. In the future, the board of directors may determine to issue preferred
stock with preferences and designations. 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.
108
<PAGE>
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
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., special
counsel to Oswego County Savings and Oswego County Bancorp will pass upon the
legality of the common stock and the federal income tax consequences of the
reorganization. KPMG will pass upon the New York income tax consequences of the
reorganization. KPMG also will pass upon the federal income tax consequences of
certain matters relating to establishment of the foundation for Oswego County
Savings. Breyer & Associates, PC, Washington, D.C. will pass upon certain legal
matters for Friedman, Billings.
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. You can examine the entire registration statement, including the
appraisal report which is an exhibit to the registration statement, without
charge at the public reference facilities of the SEC located at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can obtain copies of such material
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 prospectus includes a summary of the
provisions of material contracts and other documents that are filed as exhibits
to the registration statement. Those summaries are brief descriptions and are
not always complete. You should refer to the specific contract or document for
more detailed and complete information.
109
<PAGE>
Oswego County Savings has filed an application with the Department
with respect to the reorganization and offering. 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 by mail to: Lisa King, Oswego County Savings
Bank, 44 East Bridge Street, Oswego, New York 13126 or by telephone by
contacting Ms. King at (315) 343-4100.
A copy of the appraisal report is also available for inspection at
Oswego County Savings' main office located at the above address.
110
<PAGE>
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.
111
<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
F-1
<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 67,795,362 80,460,302
Less allowance for loan losses 1,068,420 1,408,797
--------------------- -------------------
Loans, net 66,726,942 79,051,505
--------------------- -------------------
Loans held for sale 4,286,280 --
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 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 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
Originations of loans held for sale (4,286,280) --
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 (used in) operating activities (3,774,213) 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 11,929,496 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 provided by (used in) investing activities 5,091,044 (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
================== =================
See accompanying notes to financial statements.
</TABLE>
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. At the time of the Reorganization, the Bank will
establish a liquidation account in an amount equal to its capital as of
December 31, 1998 (the date of the latest statement of financial
condition included in this prospectus). The liquidation account will be
maintained for the benefit of both eligible and supplemental eligible
account holders who continue to maintain their deposit accounts at the
Bank after the Reorganization. The liquidation account will be reduced
annually to the extent that eligible and supplemental eligible account
holders have reduced their qualifying deposits as of each anniversary
date. Subsequent increases will not restore an account holder's interest
in the liquidation account. In the event of a complete liquidation of the
Bank, each eligible and supplemental eligible account holder would be
entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for the
account then held.
Subsequent to the Reorganization, the Bank may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the
effect thereof would cause its capital to be reduced below applicable
regulatory capital maintenance requirements, the amount required to be
maintained for the liquidation account, or if such declaration and
payment would otherwise violate regulatory requirements.
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.
F-6 (Continued)
<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.
F-7 (Continued)
<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.
F-8 (Continued)
<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.
F-9 (Continued)
<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.
F-10 (Continued)
<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>
F-11 (Continued)
<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 on 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.
F-12 (Continued)
<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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
Residential mortgages and
home equity loans $ 56,542,818 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 67,795,362 80,460,302
Allowance for loan losses (1,068,420) (1,408,797)
------------------- ------------------
Net loans $ 66,726,942 79,051,505
=================== ==================
</TABLE>
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.
F-13 (Continued)
<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:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
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
=================== ==================
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
------------------- ------------------
<S> <C> <C>
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
=================== ==================
</TABLE>
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.
F-14 (Continued)
<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
=================== ==================
</TABLE>
Income tax expense attributable to income from operations consisted of
the following:
<TABLE>
<CAPTION>
Current Deferred Total
------------------ ---------------- --------------
<S> <C> <C> <C>
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>
F-15 (Continued)
<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:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
Federal income tax expense
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
=================== ==================
</TABLE>
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>
F-16 (Continued)
<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 Benefit 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>
F-17 (Continued)
<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:
<TABLE>
<CAPTION>
1998 1997
------------------- ------------------
<S> <C> <C>
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%
================ ==================
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
------------------- ------------------
<S> <C> <C>
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
================ ==================
</TABLE>
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 $69,174, and the net periodic
postretirement benefit cost by $2,345 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.
F-18 (Continued)
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
December 31, 1998 and 1997
Other Benefit Plans
In 1997, the Bank instituted a nonqualified 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.
F-19 (Continued)
<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. The Bank received distributions
totaling $22,000, $54,000 and $154,300 in 1998, 1997 and 1996,
respectively, which were credited to noninterest income. Total losses net
of distributions received over the three-year period, relating to
Nationar, were approximately $57,000.
F-20 (Continued)
<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.
F-21 (Continued)
<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
County Bancorp, Oswego County Savings or Friedman, Billings, Ramsey & Co.,
Inc. This Prospectus does not constitute an offer to sell or a solicitation of (Proposed 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 621,575 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
----
Questions and Answers......................................1
Summary....................................................3
Selected Financial and Other Data..........................8
Summary of Recent Development.............................10
Risk Factors..............................................14 -------------------------------
Oswego County Bancorp, Inc................................17
Oswego County Savings Bank................................18 PROSPECTUS
Oswego County MHC.........................................18
How We Intend to Use the Proceeds.........................18 -------------------------------
Market for the Common Stock...............................20
Our Policy Regarding Dividends............................20
Oswego County Savings Bank Exceeds All
Regulatory Capital Requirements........................21
Capitalization............................................23
Pro Forma Data............................................25 Friedman, Billings, Ramsey & Co., Inc.
Comparison of Valuation and Pro Forma
Information With No Foundation.........................29
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................31
Business .................................................43
How We Are Regulated......................................59 May 24, 1999
Taxation..................................................68
Management................................................70
Proposed Management Purchases.............................77
Our Corporate Change and Stock Offering...................78
Certain Restrictions on Acquisition of
Oswego County Bancorp and Oswego
County Savings .......................................105
Description of Capital Stock of Oswego County
Bancorp...............................................107
Transfer Agent and Registrar.............................109
Experts..................................................109
Legal and Tax Opinions...................................109
Additional Information...................................109
Index to Financial Statements............................111
Until August 22, 1999 (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>
