SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year December 31, 1999 Commission file number 000-30140
OSWEGO COUNTY BANCORP, INC.
(Name of Small Business Issuer as specified in its Charter)
New York 16-1567491
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
44 East Bridge Street, Oswego, New York 13126
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number, including Area Code (315) 343-4100
- -----------------------------------------------------------------------
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the issuer: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
twelve months (or for such shorter period that the Issuer was required to file
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB,
[X]
The Issuer's revenues for its most recent fiscal year are $8,338,000.
The aggregate market value of the Common Stock held by non-affiliates,
computed by reference to the average bid and asked price, as of March 16, 2000,
was $3,313,000.
As of March 16, 2000, there were 887,230 shares of common stock issued
and outstanding.
<PAGE>
OSWEGO COUNTY BANCORP, INC.
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Stockholders for the fiscal year ended
December 31, 1999 (Part II, Item 7)
2. Proxy Statement for the 2000 Annual Meeting of Stockholders (Part III,
Items 9-12)
FORM 10-KSB INDEX
PAGE
PART I
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 23
ITEM 3. LEGAL PROCEEDINGS 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 24
MATTERS
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF 25
OPERATION
ITEM 7. FINANCIAL STATEMENTS 35
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 35
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL 35
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION 35
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 35
MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 35
ITEM 13. EXHIBITS, LIST AND REPORTS 35
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Market Area
Oswego County Bancorp, Inc. (the "Company" or "OCB") conducts
operations mainly through its wholly owned subsidiary, Oswego County Savings
Bank (the "Bank"), from the Bank's headquarters office in Oswego, New York and
four additional branch offices. The majority of loans and deposits held by the
Bank are generated within Oswego and northern Onondaga counties, a region
consisting of a mixture of suburban and rural areas.
Since 1990, Oswego County has experienced population growth rates
slightly above the average for the State of New York and well below the national
average, while Onondaga County's population has declined. The 1999 population
estimates for Oswego and Onondaga Counties were 124,000 and 456,000,
respectively. Syracuse, New York is located within Onondaga County. Some
significant job losses in Oswego County 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
economic conditions experienced in other parts of the nation.
Local banking competition is substantial with several other savings
institutions headquartered in the counties served by OCB. Additionally, branches
of money center banks, large regional banks, and certain other community banks
operate within Oswego and Onondaga Counties.
Lending Activities
General. At December 31, 1999, the Company's total loans amounted to
$73.1 million. Net of the $1.1 million allowance for loan losses, loans were
$72.0 million at December 31, 1999 representing 58.6% of total assets. OCB
offers the following types of loans: single-family residential, home equity,
commercial real estate, commercial business and consumer loans. At December 31,
1999, $55.6 million or 76.1% of total loans consisted of residential mortgage
and home equity loans. Commercial mortgage loans totaled $7.9 million on that
date, representing 10.8% of total loans. Commercial loans totaled $5.9 million
and consumer loans totaled $3.7 million at December 31, 1999.
The types of loans that the Company may originate are subject to
federal and state laws and regulations. Interest rates charged 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.
<PAGE>
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, 1999, the Bank's limit
on loans to one borrower was $2.0 million.
Loan Portfolio. The following table sets forth the composition of OCB's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1999 1998
---- ----
Amount % Amount %
--------- ------ ---------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential mortgages and
home equity loans $ 55,594 76.05% $ 60,829 84.39%
Commercial mortgages 7,857 10.75 8,950 12.42
Commercial loans 5,903 8.08 265 0.37
Consumer loans 3,744 5.12 2,037 2.82
-------- ------ -------- ------
Total loans 73,098 100.00% 72,081 100.00%
====== ======
Allowance for loan losses (1,069) (1,068)
------- -------
Net loans $ 72,029 $ 71,013
======== ========
</TABLE>
Loans Due or Adjusting After One Year. The following table sets forth
the dollar amount of all loans, before net items, due or adjusting after one
year from December 31, 1999. 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
Adjustable-
Fixed-Rate Rate Total
---------- -------- -----
(In Thousands)
Residential mortgages and
home equity loans $ 11,871 $ 10,140 $ 22,011
Commercial mortgages 798 1,032 1,830
Commercial loans 1,151 672 1,823
Consumer loans 1,661 21 1,682
-------- -------- --------
Total $ 15,481 $ 11,865 $ 27,346
======== ======== ========
Origination, Purchase and Sale of Loans. The lending activities of the
Company are subject to the written, non-discriminatory, underwriting standards
and loan origination procedures established by the Board of Directors,
management, secondary market investors such as Freddie Mac and private mortgage
insurance companies. The Company obtains 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 lending personnel, and the loan origination department supervises
the procurement of
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<PAGE>
credit reports, appraisals and other documentation involved with a loan.
Property valuations are performed by independent outside appraisers licensed in
New York State. OCB requires borrowers to obtain hazard insurance on any
property securing a loan, and title insurance is normally required on all newly
originated mortgage loans.
The 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, senior consumer and commercial loan
officers, and the president in varying levels. The Board Loan Committee usually
must approve any loan made over $100,000, except those which conform to
standards permitting their resale into the secondary market (which must be
approved by one of four designated officers).
Historically, the Company has originated substantially all of the loans
in the portfolio and held them until maturity. However, in early 1998, because
of customer preference for fixed-rate mortgage loans, OCB began originating
long-term, fixed-rate residential mortgage loans with terms conforming to
secondary market standards. While the Company has rarely purchased loans in the
past, in 2000 it expects to begin acquiring newly originated residential
mortgage loans from certain third party entities. Prior to purchase, such loans
will be evaluated under the Company's normal underwriting criteria.
Residential Mortgages and Home Equity Loans. Historically, the Company
has concentrated its lending activities on the origination of loans secured
primarily by first mortgage liens on existing single-family (one-to-four unit)
residences and home equity loans secured by second mortgages on single-family
residences. At December 31, 1999, $55.6 million or 76.1% of total loans
consisted of such loans.
From the early 1980s until early 1998, the Company originated primarily
adjustable-rate residential mortgage loans in order to manage its interest-rate
risk. However, in February 1998, the Company 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.
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). The Company generally does not offer deeply discounted interest rates.
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. Adjustable-rate loans
currently being originated are not assumable without the Company's consent, and
do not contain prepayment penalties. The company has not engaged in the practice
of establishing a cap on the payments that could allow the loan balance to
increase rather than decrease,
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<PAGE>
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. Management believes that these
risks, which have not had a material adverse effect on the Company to date,
generally are less than the risks associated with holding fixed-rate loans in an
increasing interest rate environment. Approximately $41.8 million or 78.1% of
the permanent residential mortgage loans in the loan portfolio at December 31,
1999 had adjustable interest rates.
The demand for adjustable-rate loans in OCB's primary market area has
been a function of several factors, including the level of interest rates, the
expectations for 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. Through mid 1999, interest
rate levels were conducive to originations of the Company's fixed rate
residential mortgages. As interest rates continued to rise in the latter part of
1999 and into early 2000, borrowers have preferred adjustable rate loans and
originations of such loans have increased.
Pursuant to underwriting guidelines adopted by the Board of Directors,
the Company 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. The Company
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 Company makes
disbursements for items such as real estate taxes, hazard insurance premiums and
mortgage insurance premiums as they become due. The properties securing mortgage
loans are appraised by independent appraisers licensed in New York State.
Home equity loans are originated for up to 80% of the appraised value,
less the amount of any existing prior liens on the property. OCB secures home
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 ten years on fixed-rate and 15 years on
adjustable-rate home equity loans. At December 31, 1999, home equity loans
totaled $1.3 million or 1.8% of total loans. OCB also offers home equity lines
of credit in amounts of up to 80% of the appraised value, or 90% if the Company
already has a first lien on the property, less the amount of existing prior
liens. At December 31, 1999, home equity lines of credit totaled $840,000 or
1.1% of total loans.
Consumer Loans. The Company makes loans for a wide variety of personal
or consumer purposes. At December 31, 1999, $3.7 million or 5.1% of total loans
consisted of consumer loans. OCB originates consumer loans in order to provide a
full range of financial services to customers and because such loans generally
have shorter terms and higher interest
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<PAGE>
rates than single-family residential mortgage loans. The consumer loans offered
include loans secured by deposit accounts, automobile loans, recreational
vehicle loans, boat loans and other miscellaneous secured and unsecured personal
consumer loans.
Loans secured by deposit accounts amounted to $226,000 or 0.3% of total
loans at December 31, 1999. 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%. OCB offers automobile loans
on both new and used vehicles, with most of the loans secured by used vehicles.
Automobile loans have terms of up to five years and have fixed interest rates.
Such loans amounted to $1.0 million or 1.4% of total loans at December 31, 1999.
Unsecured personal lines of credit amounted to $1.7 million or 2.4% of total
loans at December 31, 1999. Unsecured personal loans amounted to $684,000 or
0.9% of total loans at December 31, 1999.
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. The Company believes that generally higher yields earned on
consumer loans compensate for the increased credit risk associated with such
loans. Furthermore, consumer loans facilitate OCB's efforts to manage interest
rate risk and to provide a full range of services to its customers.
Commercial Mortgage Loans. At December 31, 1999, $7.9 million or 10.8%
of total loans consisted of commercial mortgage loans. The majority of
commercial mortgage loans are secured by mixed-use properties (partly commercial
and partly residential) and apartment buildings located in the Company's primary
market area. 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. The Company's portfolio of commercial
business loans amounted to $5.9 million at December 31, 1999. OCB had not been
an active originator of such loans until 1998 when an experienced commercial
lending manager joined the Company and began developing and promoting OCB's
related loan products. The Company concentrates its efforts on making commercial
business loans in amounts of $50,000 to $1.0 million to small and medium-sized
entities located in OCB's market area. OCB has targeted commercial business
loans for expansion because yields are generally higher, terms are typically
shorter and the
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<PAGE>
prevalence of adjustable or floating rates of interest is greater than in
certain other types of lending.
Commercial business loans are generally deemed to involve a greater
degree of risk than single-family residential mortgage loans. While commercial
business lending is relatively new to OCB, the Company has implemented
underwriting, monitoring and collection policies and procedures that management
believes to be prudent.
Loan Origination Fees. In addition to interest earned on loans, the
Company receives 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 which is charged to the borrower at the time the loan is
originated.
Asset Quality
General. When a borrower fails to make a required payment on a loan,
the Company attempts 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 and commercial 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 the Company
generally prefers to work with borrowers to resolve such problems, when the
account becomes 60 to 90 days delinquent, OCB institutes 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, the Company 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.
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified, under generally accepted accounting
principles, 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 to estimated fair value 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.
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<PAGE>
Non-Performing Assets. The following table sets forth the amounts and
categories of the company's non-performing assets at the dates indicated.
At December 31,
1999 1998
------ ------
(Dollars in Thousands)
Non-accruing loans:
Residential mortgages and home equity
loans $ 888 $1,017
Commercial mortgages 139 671
Consumer 37
------ ------
Total 1,064 1,688
------ ------
Restructured commercial mortgage loans 250
------
Total non-performing loans 1,314 1,688
------ ------
Foreclosed assets:
Residential real estate 255 128
Commercial real estate 67
------ ------
Total 255 195
------ ------
Total non-performing assets $1,569 $1,883
====== ======
Non-performing assets to total assets 1.28% 1.70%
====== ======
The Company had no accruing loans which were more than 90 days
delinquent at December 31, 1999 or 1998. If all non-accruing loans had been
current in accordance with their terms during the years ended December 31, 1999
and 1998, additional interest income on such loans would have amounted to
$56,000 and $81,000, 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 potential 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.
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<PAGE>
Exclusive of any assets classified as loss which have been fully
reserved or charged-off, the Company's classified assets at December 31, 1999
consisted of $617,000 of assets classified as substandard, which represented
0.5% of total assets. There were no assets classified as doubtful or loss at
such date.
Allowance for Loan Losses. At December 31, 1999, the allowance for loan
losses amounted to $1.1 million or 1.46% of the total loan portfolio. The
Company's loan portfolio consists primarily of residential mortgage, home equity
and commercial mortgage loans and, to a lesser extent, consumer loans and
commercial loans. Management regularly reviews the loan portfolio and makes
provisions for loan losses in order to maintain the adequacy of the allowance.
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 the
Company's market area. While OCB uses 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 the allowance for loan losses. Such agencies may
require the Company 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 the Company's allowance
for loan losses during the periods indicated.
Year Ended December 31,
1999 1998
------- -------
(Dollars in Thousands)
Total loans outstanding at end of period $ 73,098 $ 72,081
======== ========
Average loans outstanding $ 72,061 $ 75,648
======== ========
Allowance for loan losses
at beginning of period $ 1,068 $ 1,409
Charge-offs (157) (526)
Recoveries 38 65
-------- --------
Net charge-offs (119) (461)
Provision for loan losses 120 120
-------- --------
Allowance for loan losses at end of period $ 1,069 $ 1,068
======== ========
Allowance for loan losses as a percent of
total loans outstanding 1.46% 1.48%
======== ========
Ratio of net charge-offs to average loans
outstanding 0.17% 0.61%
======== ========
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The following table presents the allocation of the Company's allowance
for loan losses by type of loan at each of the dates indicated.
At December 31,
1999 1998
---- ----
Loan Loan
Category Category
Amount as a % Amount as a %
of of Total of of Total
Allowance Loans Allowance Loans
--------- ----- --------- -----
(Dollars in Thousands)
Residential mortgages and
home equity loans $ 377 76.05% $ 527 84.39%
Commercial mortgages 336 10.75 408 12.42
Commercial loans 134 8.08 9 0.37
Consumer loans 87 5.12 42 2.82
Unallocated 135 82
------ ------ ------ ------
Total $1,069 100.00% $1,068 100.00%
====== ====== ====== ======
Securities
The Company 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 Directors
and the Asset Liability Management Committee.
The largest component of the Company's securities portfolio are
securities issued by U.S. government-sponsored agencies which had a carrying
value of $25.2 million or 67.8% of the portfolio as of December 31, 1999. As of
that same date, the portfolio also included $8.2 million of general obligations
of corporations and municipalities and $3.1 million of mortgage-backed
securities.
At December 31, 1999, the Company's securities portfolio had an
amortized cost of $38.0 million. The amortized cost of securities classified as
held to maturity at December 31, 1999 was $16.3 million with a fair value of
$15.8 million. The amortized cost of securities available for sale at December
31, 1999 was $21.7 million with a fair value of $20.8 million.
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<PAGE>
The following table presents the composition of the Company's
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1999 1998
---- ----
Carrying Percent Carrying Percent
Value of Total Value of Total
------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Securities available for sale (fair value):
Debt securities:
United States Treasury $ -- -% $ 1,020 6.90%
United States Government
Agency obligations 20,202 96.97 13,762 93.09
Equity securities:
Corporate stocks 632 3.03 2 0.01
------- ------- ----------
Total securities available for sale $20,834 100.00% $14,784 100.00%
------- ---------- ------- ----------
Securities held to maturity (amortized cost):
Debt securities:
Corporate and municipal
Securities: $ 8,171 50.11% $ 4,125 30.04%
Mortgage-backed securities:
GNMA 1,369 8.39 2,164 15.76
FNMA 1,014 6.22 426 3.10
FHLMC 47 0.29 22 0.16
Small Business
Administration 711 4.36 502 3.66
United States Government
Agency obligations 4,995 30.63 6,491 47.28
------- ---------- ------- ----------
Total securities held to maturity $16,307 100.00% $13,730 100.00%
------- ---------- ------- ----------
Total securities $37,141 $28,514
======= =======
</TABLE>
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The following table presents information regarding the carrying value,
weighted average yields and contractual maturities of the Company's debt
securities available for sale and debt securities held to maturity, including
mortgage-backed securities, as of December 31, 1999. Weighted average yields are
based on amortized cost.
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------------------------------------------------------------------------
One Year More Than One More Than Five More Than
Or Less Year to Five Years Years to Ten Years Ten Years Total
------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available
for sale (fair value):
U.S. Government
Agency obligations $ -- -- $ 6,565 5.94% $13,637 6.70% $ -- -- $20,202 6.45%
======= ======= ======= ======= =======
Securities held to maturity
(amortized cost):
U.S. Government
Agency obligations $ 1,002 6.35% $ 3,993 5.90% $ -- -- $ -- -- $ 4,995 5.99%
Corporate and
Municipal securities 250 8.36% 3,469 6.46% 3,401 6.33% 1,051 6.22% 8,171 6.43%
Mortgage-backed
securities -- -- 1,539 6.28% 1,602 5.93% 3,141 6.10%
------- ------- ------- ------- -------
Total due $ 1,252 6.75% $ 7,462 6.16% $ 4,940 6.31% $ 2,653 6.04% $16,307 6.23%
======= ======= ======= ======= =======
</TABLE>
Mortgage-Backed Securities. Mortgage-backed securities represent a
participation interest in a pool of single-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 the Company. 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 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
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<PAGE>
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 of varying
maturities with interest rates that are within a range. The underlying pool of
mortgages may be fixed-rate or adjustable-rate, and prepayment risk is passed on
to the certificate holder. The life of a mortgage-backed pass-through security
approximates the life of the underlying mortgages.
At December 31, 1999, the amortized cost of the Company's
mortgage-backed securities amounted to $3.1 million, which represented 2.6% of
total assets at that date. All of the Company's mortgage-backed securities at
December 31, 1999 were insured or guaranteed by Ginnie Mae, Freddie Mac, the
Small Business Administration or Fannie Mae, and were classified as held to
maturity. Approximately 65% of OCB's mortgage-backed securities had adjustable
rates of interest at December 31, 1999.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of payment guarantees or credit enhancements
and fees paid to servicers. Furthermore, mortgage-backed securities are
generally more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Company.
Sources of Funds
General. Deposits are the primary source of the Company's funds for
lending and other investment purposes. In addition to deposits, funds are
derived from borrowings and 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. Prior to late 1999, the
company had generally not used borrowings as a source of funds. However,
borrowings 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.
In December 1999, OCB entered into a five-year, $5.0 million
convertible borrowing agreement with the Federal Home Loan Bank of New York
(FHLB-NY) to support growth in investments and loans. Interest is fixed at 6.0%
until December 2001 when the FHLB-NY may convert the borrowing into a new
arrangement at a then current interest rate. OCB securities with an amortized
cost of $6.2 million in December 1999 are pledged in support of the borrowing.
The Company also has available lines of credit under the FHLB-NY's
overnight and one-month repricing advance programs, amounting to $5.8 million in
each case. Interest rates under the one-month program would be subject to daily
adjustment. Also available to OCB are up to $5.0 million in collateralized
borrowings under an overnight line of credit with a commercial bank.
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Deposits. The Company's 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.
The Company's deposits are obtained primarily from residents of Oswego
County and Onondaga County in New York State. It is estimated that less than 1%
of current deposits are obtained from customers residing outside New York State.
brokers are not retained to solicit funds for deposit with the Company or to
actively solicit negotiable-rate certificates of deposit with balances of
$100,000 or more.
The Company sets 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.
The following table sets forth the dollar amount of deposits in the
various types of programs offered by the Company at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
Amount % Amount %
---------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Time deposits:
2.00% - 3.99% $ 42 0.04% $ 34 0.03%
4.00% - 5.99% 33,557 33.52 33,724 34.92
6.00% - 7.99% 4,190 4.18 4, 489 4.66
---------- -------- --------- ---------
Total time deposits: 37,789 37.74 38,247 39.61
---------- -------- --------- ---------
Transaction accounts:
Savings deposits 48,864 48.81 46,365 48.02
Money market deposits 136 0.14 322 0.33
Demand deposits 13,329 13.31 11,630 12.04
---------- -------- --------- ---------
Total transaction
accounts 62,329 62.26 58,317 60.39
---------- -------- --------- ---------
Total deposits $100,118 100.00% $96,564 100.00%
========== ======== ========= =========
</TABLE>
The following table sets forth the maturities of certificates of deposit with
principal amounts of $100,000 or more at December 31, 1999.
Certificates of deposit
maturing in quarter ending: Amount
--------------------------- ------
(Thousands)
March 31, 2000 $ 675
June 30, 2000 2,754
September 30, 2000 426
After September 30, 2000 2,686
--------
Total certificates of deposit with
balances of $100,000 or more $ 6,541
========
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REGULATION
General
The Bank is a New York-chartered stock savings bank, and its deposit
accounts are fully insured by the FDIC. The Bank is subject to extensive
regulation by both the New York State Banking Department (the "Department") and
the FDIC.
The Bank must file reports with the Department and the FDIC concerning
its activities and financial condition. The Bank 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 the Bank's compliance
with various regulatory requirements to ensure that the Bank 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.
OCB and Oswego County MHC, as bank holding companies, are required to
file certain reports with, and otherwise comply with, the rules and regulations
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") and the Department. As a publicly held company, OCB is also subject to
rules and regulations of the Securities and Exchange Commission ("SEC") under
the federal securities laws. Any change in the regulations governing the Bank or
OCB, whether by a regulatory agency or through legislation, could have a
material adverse impact on the Bank and OCB and their operations and
stockholders. The following is a summary of laws and regulations applicable to
the Bank, OCB and Oswego County MHC.
New York Regulation of the Bank
Powers. The Bank 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 lending,
investment and other powers, however, may be limited by federal law and
regulations.
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. The Bank's latest rating from the
Department was "satisfactory."
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<PAGE>
Limitations on Dividends. Under the New York Banking Law, the Bank 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 the Bank 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 the Bank
Capital Requirements. The FDIC has adopted risk-based minimum capital
regulations for insured state nonmember banks, such as the Bank. 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.
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. The Bank
currently is not subject to any individually imposed minimum capital
requirements.
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<PAGE>
Failure to meet capital guidelines could subject the Bank 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 the Bank's 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 the Bank's 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 the
Bank. 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) 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. The Bank's deposits are insured through the FDIC's
Bank Insurance Fund. Under the FDIC's risk-based insurance assessment system,
annual insurance premiums paid by banks may vary between $0.00 and $0.27 per
$100 of insured deposits, depending on the risk classification assigned to each
institution. Based on its risk classification, the Bank expects to incur no FDIC
deposit insurance premiums for the first half of 2000. However, deposit
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<PAGE>
insurance assessments imposed by the FDIC are subject to change. A second
assessment by the FDIC is based on the amount of insured deposits held by an
institution irrespective of assigned risk classification. The amount of the
Bank's second assessment, which is subject to change by the FDIC on a quarterly
basis, was approximately $5200 for each of the first two quarters of the year
2000.
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,
the Bank received a "satisfactory" rating from the FDIC.
Safety and Soundness Standards. The Bank 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 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
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<PAGE>
corrective action. The Bank believes it was in compliance with all such safety
and soundness guidelines as of December 31, 1999.
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, 1999, the Bank was classified as a "well
capitalized" institution.
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.
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<PAGE>
Dividend Restrictions. The Bank 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 the Bank
becomes "undercapitalized" under the "prompt corrective action" initiatives of
the FDIC, payment of dividends would be prohibited without the prior approval of
the FDIC. The Bank also could be subject to these dividend restrictions if the
FDIC determines that the Bank is in an unsafe or unsound condition or engaging
in an unsafe or unsound practice.
Required Reserves. Under Federal Reserve Board regulations, the Bank 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 the Bank's interest-earning assets.
Holding Company Regulation
Federal Bank Holding Company Regulation. Oswego County MHC and OCB are
bank holding companies, 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.
Oswego County MHC and OCB are subject to capital adequacy guidelines
for bank holding companies (on a consolidated basis) which are substantially
similar to those of the FDIC for the Bank. As of December 31, 1999, the
regulatory capital of Oswego County MHC and OCB exceeded these requirements.
Under Federal Reserve Board policy, a bank holding company must serve
as a source of strength for its subsidiary bank. Under this policy the Federal
Reserve Board may require, and has required in the past, a holding company to
contribute additional capital to an undercapitalized subsidiary bank.
Under the 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
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<PAGE>
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 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
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<PAGE>
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 OCB is a bank holding company
for purposes of New York State law.
Mutual Holding Company Regulation. Under New York law, Oswego County
MHC may exercise all powers and privileges of a New York-chartered mutual
savings bank, except for the power of accepting deposits. 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 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 of the Bank into holding company form,
however, the Federal Reserve Board imposed certain conditions on the waiver by
Oswego County MHC of the receipt of dividends declared on the common stock. In
particular, 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
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 the Bank, and would
not be available for distribution to minority stockholders. The restricted
capital account and liquidation account amounts would not be reflected in the
Bank's financial statements or the notes thereto, but would be considered as a
notational or memorandum account of the Bank, and would be maintained in
accordance with the rules, regulations and policies adopted or administered by
the Federal Reserve Board.
Management does not believe that Oswego County MHC will initially waive
dividends declared by OCB. If Oswego County MHC decides that it is in its best
interest to waive a particular dividend to be paid by OCB, and the Federal
Reserve Board approves the waiver, then
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<PAGE>
OCB would pay dividends only to minority stockholders, and the amount of the
dividend waived by 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 Oswego County MHC's capital needs, the
investment alternatives available to Oswego County MHC as compared to those
available to OCB, and regulatory approvals.
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 assurance when, if ever, a
conversion transaction will occur, and the board of trustees of Oswego County
MHC has no current intention or plan to undertake a conversion transaction. In a
conversion transaction, Oswego County MHC and OCB would merge with and into the
Bank with the Bank as the resulting entity, and certain depositors of the Bank
would receive the right to subscribe for additional shares of 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 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. An appraiser will assess the value of any
assets other than OCB 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. 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.
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
stockholder of OCB, 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 Oswego County MHC. To date, the Federal Reserve Board has
not approved the waiver of dividends by mutual holding companies under its
supervision.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act ("GLBA"), signed into law on November 12,
1999, will permit bank holding companies to offer their customers virtually any
type of financial service that is financial in nature or incidental thereto,
including banking, securities underwriting, and insurance (both underwriting and
agency). While certain provisions of GLBA became effective upon enactment, many
major provisions do not become effective until March 11, 2000 or May 2001 and
most of the regulations implementing the law have not yet been issued. As a
result,
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<PAGE>
while certain of the provisions of GLBA are summarized below, the overall impact
of GLBA on OCB and the Bank cannot be predicted at this time.
In order to engage in new financial activities, a bank holding company
must qualify and register with the Federal Reserve Board as a "financial holding
company" by demonstrating that each of its bank subsidiaries is "well
capitalized," "well managed," and has at least a "satisfactory" rating under the
Community Reinvestment Act.
These new financial activities authorized by GLBA may also be engaged
in by a "financial subsidiary" of a national or state bank, except for insurance
or annuity underwriting, insurance company portfolio investments, real estate
investment and development, and merchant banking, which must be conducted in a
financial holding company. In order for the new financial activities to be
engaged in by a financial subsidiary of a national or state bank, GLBA requires
each of the parent bank (and its sister-bank affiliates) to be well capitalized
and well managed; the aggregate consolidated assets of all of that bank's
financial subsidiaries may not exceed 45% of its consolidated total assets; and
the bank must have at least a satisfactory CRA rating.
GLBA establishes a system of functional regulation, under which the
federal banking agencies will regulate the banking activities of financial
holding companies and banks' financial subsidiaries, the SEC will regulate their
securities activities and state insurance regulators will regulate their
insurance activities.
GLBA also provides new protections against the transfer and use by
financial institutions of consumers' nonpublic, personal information.
ITEM 2. DESCRIPTION OF PROPERTY
Properties
The Company conducts business through its executive office and four
other banking offices in its primary market area. The properties are owned by
the Company and are listed below:
Executive Office:
44 East Bridge Street
Oswego, New York 13126
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<PAGE>
Branch Offices:
4879 North Jefferson Street
Pulaski, New York 13142
1930 State Route 3
Fulton, New York 13069
30 West Utica Street
Oswego, New York 13126
700 North Main Street
N. Syracuse, New York 13212
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are expected to be resolved
for amounts that would not be material to OCB's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITYHOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock, par value $.01 of OCB ("Common Stock") is traded on
the OTC Bulletin Board under the symbol OCSB. At the close of business on
December 31, 1999, there were 887,230 shares outstanding, held by approximately
378 shareholders of record. The high bid and low bid prices noted below for the
quarters of fiscal 1999 are obtained from the OTC
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<PAGE>
Bulletin Board. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not represent actual transactions.
Price Per Share
High Bid Low Bid
Third Quarter
(commencing July 13, 1999) 10.375 10.00
Fourth Quarter 10.25 9.00
The Company has not declared any dividends since its commencement of
operations on July 13, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On July 13, 1999, the Bank reorganized under a mutual holding company
structure as a wholly owned subsidiary of OCB, a mid-tier stock holding company
that became the majority-owned subsidiary of Oswego County MHC.
Contemporaneously with the reorganization, the Company sold in a public offering
399,500 shares of its common stock, par value $.01 ("Company Common Stock") at
$10.00 per share, raising net proceeds of $3.0 million. As an integral part of
the reorganization and public offering and in furtherance of the Company's
commitment to the communities it serves, the Bank and the Company have
established a charitable foundation known as the Oswego County Charitable
Foundation (the "Foundation") and have contributed 15,980 shares to the
Foundation. The Foundation will provide funding to support charitable causes and
community development activities, which will complement the Bank's existing
community activities. In addition, the Company established an Employee Stock
Ownership Plan (ESOP) for employees of the Company and the Bank, which became
effective with completion of the reorganization. The ESOP plan acquired 31,960
shares of OCB stock through January 2000 and has no immediate plans to purchase
additional shares.
The consolidated financial condition and operating results of the
Company are primarily dependent on its wholly owned subsidiary, the Bank, and
all references to the Company prior to July 13, 1999, except where otherwise
indicated are to the Bank.
General
The Company's results of operations depend primarily on net interest
income, which is the difference between income on interest-earning assets and
expense on interest-bearing deposits and borrowings. Interest-earning assets
principally consist of loans and securities. The Company's results of operations
also are affected by the provision for losses on loans; the level
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<PAGE>
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 document contains forward-looking statements which are based on
assumptions and describe future plans, strategies and expectations of the
Company. These forward-looking statements are generally identified by use of the
words "believe," "expect," "intend," "anticipate," "estimate," "project," or
similar words. OCB's ability to predict results and the actual effect of future
plans or strategies is uncertain. Factors which could have a material adverse
effect on 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 OCB's market areas and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements.
Comparison of Financial Condition at December 31, 1999 and December 31, 1998
Total assets increased by $12.0 million or 10.8% to $122.8 million at
December 31, 1999 from $110.9 million at December 31, 1998. The increase was
primarily due to a $2.6 million or 18.8% increase in securities held to maturity
and a $6.1 million or 40.9% increase in securities available for sale. Loans
outstanding increased $1.0 million from $72.1 million at December 31, 1998 to
$73.1 million at December 31, 1999. These asset increases were funded with net
stock offering proceeds of $3.0 million, $5.0 million in long-term borrowings
and a $3.6 million increase in total deposits from $96.6 million at December 31,
1998 to $100.1 million at December 31, 1999.
While total loans increased $1.0 million during 1999, the mix of
outstanding loans changed due to continued mortgage refinancings and successful
efforts in commercial lending. Total residential and home equity loans decreased
$5.2 million from $60.8 million at December 31, 1998 to $55.6 million at
December 31, 1999. The decrease in mortgage and home equity loans reflects
consumer preference in lower interest rate environments for fixed-rate
residential mortgage loans and the continued high levels of mortgage loan
refinancings in 1999. As interest rates have risen in the latter part of 1999
and in early 2000, refinancing has slowed and consumer interest in
adjustable-rate mortgages has increased. Commercial loans increased from
$265,000 at December 31, 1998 to $5.9 million at December 31, 1999. This
increase reflects the Company's continued efforts to diversify the loan
portfolio and to expand product offerings to include commercial term loans and
lines of credit. At December 31, 1999, net loans
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<PAGE>
amounted to $72.0 million or 58.6% of total assets, compared to $71.0 million or
64.1% at December 31, 1998.
Total securities available for sale increased $6.1 million from $14.8
million at December 31, 1998 to $20.8 million at December 31, 1999. Securities
held to maturity increased $2.6 million from $13.7 million at December 31, 1998
to $16.3 million at December 31, 1999. The increase in securities available for
sale was funded by increased deposit balances and long term borrowings. The
increases in securities held to maturity were primarily in municipal issues
which offer the Company favorable income tax benefits. Securities represented
30.2% of total assets at December 31, 1999 and 25.7% of total assets at December
31, 1998.
Real estate owned at December 31, 1999 was $255,000 compared to
$195,000 at December 31, 1998. During 1999, the Company continued to reduce the
level of non-performing loan amounts. Total non-performing loans decreased from
$1.7 million at December 31, 1998 to $1.3 million at December 31, 1999. Loan
charge-offs have also decreased from $526,000 in 1998 to $157,000 in 1999. At
December 31, 1999, the allowance for loan losses equaled $1.1 million
representing 1.46% of total loans outstanding and 81.35% of total non-performing
loans.
Total deposits increased during 1999 by $3.6 million to $100.1 million
at December 31, 1999 from $96.6 million at December 31, 1998. The increase was
centered in demand and savings deposits which increased $1.7 million and $2.3
million, respectively. Time deposit levels were consistent with the prior year.
Total shareholders' equity was $14.2 million at December 31, 1999, an
increase of $2.5 million from December 31, 1998. The increase was due primarily
to the offering proceeds offset by the increase in accumulated other
comprehensive loss and the unallocated ESOP shares, which are presented as a
reduction of shareholders' equity.
Results of Operations for the Year Ended December 31, 1999 Versus the Year Ended
December 31, 1998
Net income was $169,000 for the year ended December 31, 1999, compared
to $309,000 in 1998, reflecting the Company's 1999 contribution of common stock
valued at $160,000 to a charitable foundation, and costs associated with opening
a fifth banking office. Fiscal 1999 was a year of transition to public company
status and to an expanded base of operations.
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. Net interest income increased from $4.5 million in
1998 to $4.6 million in 1999 during a year in which market levels for short-term
interest rates increased by approximately 1.50%. The Company views favorably its
ability in 1999 to maintain a consistent level of net interest income in a
rising rate environment. OCB can offer no assurance, however, that it would be
able to achieve similar results during future periods. For the year
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<PAGE>
ended December 31, 1999, taxable equivalent net interest income increased by
$57,000 due to volume and $49,000 as the result of interest rate variances.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
(taxable equivalent basis). The following table presents for the periods
indicated the total dollar amount of interest income from the Company's 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. Taxable equivalent adjustments relating to
municipal securities totaled $41,000 in 1999 and $13,000 in 1998. Monthly
average balances utilized are not believed to differ significantly from averages
based on daily balances.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
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) $ 72,061 $ 5,770 8.01% $ 75,648 $ 6,253 8.27%
Securities (2) 31,059 1,868 6.01 24,706 1,494 6.05
Federal funds sold and
other short term investments 2,930 156 5.32 3,232 181 5.60
-------- -------- -------- --------
Total interest-earning 106,050 7,794 7.35 103,586 7,928 7.65
assets -------- --------
Noninterest-earning assets 8,346 6,094
-------- --------
Total assets $114,396 $109,680
======== ========
Interest-bearing liabilities:
Savings, NOW and money
market deposits (3) $ 49,445 1,222 2.47 $ 48,441 1,317 2.72
Time deposits 37,780 1,909 5.05 38,257 2,071 5.41
Borrowings 282 17 6.03 -- -- --
-------- -------- -------- -------- ------
Total interest-bearing
liabilities 87,507 3,148 3.60 86,698 3,388 3.91
Noninterest-bearing deposits 12,065 10,474
Other noninterest-bearing 1,482 1,125
liabilities -------- --------
Total liabilities 101,054 98,297
Shareholders' equity 13,342 11,383
-------- --------
Total liabilities and equity $114,396 $109,680
======== ========
Net interest income $ 4,646 $ 4,540
Interest rate spread 3.75% 3.74%
Net interest margin (4) 4.38% 4.38%
Average interest-earning assets
to average interest-bearing liabilities 121.19% 119.48%
</TABLE>
(1) Includes non-accruing loans. Interest is recognized on non-accruing
loans only as and when received.
(2) Average balance represents the amortized cost of securities with net
unrealized gains or losses on securities available for sale as a
component of noninterest-earning assets.
(3) Includes advance payments by borrowers for taxes and insurance
(mortgage escrow deposits).
(4) Equals net interest income divided by average interest-earning assets.
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<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's 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,
1999 vs. 1998
-------------
Increase(Decrease) Total
Due to Increase
Volume Rate (Decrease)
------ ---- ----------
(In Thousands)
Interest-earning assets:
Loans $(291) $(192) $(483)
Securities 382 (8) 374
Short-term investments (16) (9) (25)
----- ----- -----
Total interest-earning assets 75 (209) (134)
----- ----- -----
Interest-bearing liabilities:
Savings, NOW and money market deposits 27 (122) (95)
Time deposits (26) (136) (162)
Borrowings 17 -- 17
----- ----- -----
Total interest-bearing liabilities 18 (258) (240)
Increase in net interest income $ 57 $ 49 $ 106
===== ===== =====
Interest Income. Total interest income decreased by $134,000, or 2.1%,
to $7.8 million for 1999 compared to $7.9 million for 1998. The primary reason
for the decrease in interest income was a $483,000 decrease in interest earned
on outstanding loans reflecting mainly the pay down of higher yielding
adjustable rate residential mortgage loans. The average balance of loans
decreased $3.5 million from $75.6 million in 1998 to $72.1 million in 1999. The
average yield on the loan portfolio also decreased from 8.27% in 1998 to 8.01%
in 1999.
Income from securities increased by $374,000 during 1999 to $1.9
million, compared to $1.5 million in 1998. The increase in interest income from
securities during 1999 was due primarily to a $6.4 million increase in the
average balance of securities to $31.1 million for 1999 compared to $24.7
million in 1998. The average yield on the securities portfolio decreased
slightly to 6.01% in 1999 compared to 6.05% in 1998.
Other interest income, which consists of interest on federal funds sold
and other short-term investments, was $156,000 in 1999 as compared to $181,000
in 1998. The average amount of federal funds and short-term investments
decreased from $3.2 million in 1998 to $2.9 million in 1999. The average yields
on these investments decreased from 5.60% in 1998 to 5.32% in 1999.
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<PAGE>
Interest Expense. Interest expense, which consisted primarily of
interest paid on deposits, was $3.1 million in 1999 compared to $3.4 million in
1998. The primary reason for the $240,000 decrease in interest expense was a 31
basis point reduction in the average rate paid on these deposits in 1999
compared to 1998. This reflects the Company's increase in lower costing savings
and demand deposits, and reduced average rates paid on savings, demand and time
deposits. OCB offers its deposit customers tiered pricing schedules whereby
higher balances earn higher rates of interest.
Provision for Loan Losses. The provision for loan losses was $120,000
in both 1999 and 1998. Provisions for loan losses are recorded to maintain the
allowance for loan losses at an amount management considers adequate to cover
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 underwriting policies. Net loan charge-offs were $119,000
in 1999 and $461,000 in 1998, reflecting the Company's efforts during the past
three years to address problem loan situations in a timely manner. As a result
of improvement in loan portfolio quality, charge-offs and non-performing loans
declined during 1999. Total non-performing loans decreased from $1.7 million at
December 31, 1998 to $1.3 million at December 31, 1999. At December 31, 1999,
the allowance for loan losses equaled $1.1 million, representing 1.46% of total
loans outstanding and 81.35% of total non-performing loans.
Although the Company believes that the allowance for loan losses is
adequate, there can be no assurances that additions to such allowance will not
be necessary in future periods, adversely affecting results of operations. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review OCB's allowance for loan losses and the carrying
value of non-performing assets based on their judgements about information
available to them at the time of their examinations. No assurance can be given
as to whether any such agencies might require additional provisions for loan
losses in the future. Furthermore, as OCB attempts to increase the amount of
loan originations and diversify the types of loans offered, increased future
provisions for loan losses may be required.
Noninterest Income. Noninterest income increased by $116,000 during
1999 as compared to 1998. The increase reflects the Company's efforts to expand
commercial loan and deposit products, which result in greater service fee
levels. In addition, the Company extended efforts to reduce fee and service
charge waivers during 1999.
Noninterest Expenses. Noninterest expenses increased during 1999 by
$459,000, or 10.4%, to $4.9 million compared to $4.4 million in 1998. The
primary reasons for the increase were a 10.3% increase in salaries and benefits,
a 15.6% increase in occupancy and equipment expenses, a $170,000 increase in
professional fees, a $98,000 increase in data processing costs and a $160,000
increase in charitable contributions. Partially offsetting these increases were
the absence in 1999 of $171,000 in terminated merger expenses, and a reduction
of $217,000 in ORE expenses. Higher salary and benefit costs reflect the branch
opening, wage increases and inflationary increases in benefit expenses. The
increase in occupancy and equipment expense
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was caused by higher depreciation expense on capital expenditures, primarily for
the new branch and computer equipment. The increase in data processing costs in
1999 reflects efforts to continue to improve data processing capabilities,
inflationary increases in a data processing servicing contract, expenses
associated with ATMs installed in mid 1998, and costs to bring a new branch on
line. Professional fees include the costs of a profitability study, Y2K
consulting costs, and increased costs from operating as a publicly held company.
Increased charitable contributions reflect the $160,000 contribution of common
stock to Oswego County Charitable Foundation.
Income Taxes. Income tax expense decreased by $125,000 in 1999 to
$37,000 as compared to $162,000 in 1998, reflecting reduced pretax income and a
greater volume of tax exempt securities in 1999. The effective income tax rate
declined to 18.0% in 1999 from 34.4% in 1998.
Market Risk Analysis
Efforts to Address Interest Rate Risk. To reduce the potential for
materially adverse effects of changes in interest rates on results of
operations, the Company has implemented asset and liability management policies
designed to better match the maturities and repricing terms of interest-earning
assets and interest-bearing liabilities. The Company's 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
or intermediate-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, the Company originated primarily
adjustable-rate mortgage loans and did not originate fixed-rate residential
mortgage loans with terms over 15 years. Approximately 65% of OCB's
single-family residential mortgage loans have interest rates that adjust
annually or every three years. The Company's total portfolio of adjustable-rate
one-to-four family residential mortgage loans amounted to approximately 78% of
residential mortgages at December 31, 1999. As long term interest rates
decreased during the 1990s, many customers indicated a preference for fixed-rate
residential mortgage loans. In February 1998, the Company 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
late 1999 and early 2000, rising interest rates have enhanced the attractiveness
to customers of adjustable rate mortgages.
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<PAGE>
In order to better match the maturity or repricing of interest-bearing
liabilities and interest-earning assets, the Company offers certificates of
deposit with terms in excess of one year. At December 31, 1999, $10.7 million or
28.3% of OCB's certificates of deposit mature in more than one year. In the
company's efforts to address interest-rate risk, higher rates are paid on longer
term and higher balance certificates of deposit.
The Company considers its savings deposit and money market accounts to
be core deposits that are less likely to be withdrawn if interest rates rise.
OCB's savings and money market accounts have variable interest rates, and
management believes that the interest rates on the accounts can be adjusted to
retain a substantial portion of these deposits. Savings and money market
accounts amounted to $49.0 million or 48.9% of total deposits at December 31,
1999.
How OCB Measures Interest Rate Risk. Prolonged increases in market
rates of interest could adversely affect the interest rate spread and net
interest margin. Moreover, prolonged increases in interest rates could adversely
affect the demand for residential mortgage loans within OCB's primary market
area. The asset and liability management committee regularly reviews interest
rate risk. The Company forecasts 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 existing assets, liabilities and
off-balance sheet instruments. Such impacts are evaluated against the maximum
potential changes in net interest income and market value of portfolio equity
that are authorized by the board of directors.
The following table sets forth at December 31, 1999 the estimated
percentage and dollar change in the Company's net interest income over a
four-quarter period and the market value of portfolio equity based on the
indicated changes in interest rates. Certain assumptions have been made in
preparing the table below. Although management believes these assumptions to be
reasonable, the interest rate sensitivity of 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 if actual experience differs
from such assumptions.
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<PAGE>
The following table presents internal calculations of net interest income for a
twelve-month period and market value of portfolio equity at December 31, 1999,
under varying interest rate scenarios.
<TABLE>
<CAPTION>
Net Interest Income Market Value of Portfolio Equity
For Twelve-Month Period Based on December 31, 1999 Balances
-------------------------------------------- --------------------------------------------
Dollar Percentage Dollar Percentage
Change in Interest Estimated Change Change Estimated Change Change
Rates in Basis Points(1) Amount from Base from Base Amount from Base from Base
- --------------------- ------ --------- --------- ------ --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+400 $ 4,478 $ (544) (10.8)% $ 16,120 $ (1,782) (10.0)%
+200 4,880 (142) (2.8) 16,885 (1,017) (5.7)
Base 5,022 17,902
- -200 4,846 (176) (3.5) 17,962 60 .3
- -400 4,720 (302) (6.0) 16,498 (1,404) (7.8)
</TABLE>
- --------------------
(1) Assumes an instantaneous uniform change in interest rates. Basis point
equals 0.01%.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in net interest income and
market value of portfolio equity requires the utilization of assumptions that
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 interest sensitive assets and liabilities
existing at the beginning of a period remains 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 OCB's 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
the Company's net interest income and will differ from actual results.
Liquidity and Capital Resources
The Company's liquidity, represented by cash, cash equivalents,
securities available for sale and potential borrowings, is a product of its
operating, investing and financing activities. The primary sources of funds are
deposits and borrowings; 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, the
Company invests excess funds in federal funds sold and other short-term
interest-earning assets that provide liquidity to meet lending requirements. In
1999, the Company also utilized borrowings to fund a portion of its asset
growth.
Excess liquidity is generally invested in short-term investments such
as federal funds sold or U.S. Treasury securities. On a longer term basis, OCB
maintains a strategy of investing in various lending products. Such products
frequently have short terms (five years or less) or
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<PAGE>
interest rates that adjust at least every three years. funds are utilized to
meet ongoing commitments to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a portfolio of investment
securities. At December 31, 1999, the Company had outstanding commitments to
originate loans of $5.9 million and unused letters of credit of $233,000. At
December 31, 1999, OCB also had certificates of deposit scheduled to mature in
one year or less totaling $27.1 million. Based on historical experience,
management believes that a significant portion of maturing deposits will remain
with the Company. It is anticipated that OCB will continue to have sufficient
deposit funds and available borrowings to meet its current commitments.
In 1999, OCB entered into a five-year, convertible $5.0 million
borrowing arrangement with the Federal Home Loan Bank of New York (FHLB-NY).
Interest is fixed under the related agreement until December 2001 when the
FHLB-NY may replace the borrowing with a new arrangement at a then current
interest rate. Also available to the Company are overnight and one-month
borrowing facilities with the FHLB-NY, both amounting to $5.8 million, and a
$5.0 million overnight line of credit with a commercial bank.
The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal and New York State banking regulators.
Failure to meet minimum capital requirements could result in certain mandatory
and discretionary responses by regulators that could have a material effect on
the company's financial condition and results of operations. In addition, the
ability of the Company and the Bank to pay dividends is subject to regulations
administered by the banking agencies. At December 31, 1999, the Company and the
Bank exceeded minimum capital requirements of the agencies and also exceeded
levels established for banking organizations considered well capitalized by the
regulators. Additional information regarding regulatory capital status is
provided in notes to the Company's financial statements.
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 the Company's assets and liabilities are monetary in nature. As
a result, interest rates generally have a more significant impact on the
Company's performance than does the direct effect of inflation.
Potential Year 2000 Exposure
The company's Y2K efforts were effective and OCB entered the year 2000
without significant date-related problems. However, the Company will continue to
monitor its operations for any Y2K issues arising during the year.
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<PAGE>
Any computer problems experienced by OCB's commercial borrowers could
have an adverse effect on their business operations and their ability to repay
loans when due. At this time, the Company is not aware of any commercial
borrowers' year 2000 computer problems that would have a significant effect on
OCB's operating results.
ITEM 7. FINANCIAL STATEMENTS
For information concerning this Item, see the Company's balance sheet
and related financial statements at Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
The information required by Items 9, 10, 11 and 12 of this part is
presented in the Proxy Statement issued by the Board of Directors in connection
with the Annual Meeting of Stockholders to be held on April 20, 2000, which
information is hereby incorporated by reference into this Annual Report.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
DOCUMENTS FILED AS PART OF THIS REPORT
A. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Statements of Financial Condition as of December 31, 1999
and 1998
Consolidated Statements of Income for the Years Ended December 31, 1999
and 1998
-35-
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
Financial Statements are incorporated by reference to the Annual Report
to Stockholders, filed herewith as Exhibit 13.
B. EXHIBITS
(3) Articles of incorporation and by-laws
(i) Certificate of Incorporation of Oswego County
Bancorp, Inc.-- incorporated herein by reference to
Exhibit 3.1 on Form SB-2/A, dated May 4, 1999.
(ii) By-laws of Oswego County Bancorp, Inc.-- incorporated
herein by reference to Exhibit 3.2 on Form SB-2/A,
dated May 4, 1999.
(iii) Restated New York Organization Certificate of Oswego
County Savings Bank -- incorporated herein by
reference to Exhibit 3.3 on Form SB-2, dated December
30, 1998.
(iv) By-laws of Oswego County Savings Bank -- incorporated
herein by reference to Exhibit 3.4 on Form SB-2/A,
dated May 4, 1999.
(v) Restated Organization Certificate of Oswego County
MHC -- incorporated herein by reference to Exhibit
3.5 on Form SB-2, dated December 30, 1998.
(vi) By-laws of Oswego County MHC -- incorporated herein
by reference to Exhibit 3.6 on Form SB-2/A, dated May
4, 1999.
(4) Instruments defining rights of security holders, including
indentures
(i) Form of Stock Certificate of Oswego County Bancorp,
Inc.-- incorporated herein by reference to Exhibit
4.1 on Form SB-2, dated December 30, 1998.
(ii) Form of Stock Certificate of Oswego County Savings
Bank -- incorporated herein by reference to Exhibit
4.2 on Form SB-2/A, dated May 4, 1999.
-36-
<PAGE>
(10) Material contracts
(i) Directors Supplemental Retirement Benefit Plan, dated
March 15, 2000.
(ii) Executive Supplemental Retirement Income Agreement,
dated March 15, 2000, between Oswego County Savings
Bank and Gregory J. Kreis.
(iii) Trust Agreement dated as of February 1, 2000 between
Oswego County Savings Bank and Security Federal
Savings Bank.
(13) Annual Report to Stockholders for the year ended December 31,
1999.
(21) Subsidiaries of the registrant.
(i) Oswego County Savings Bank, organized under New York
law.
(27) Financial data schedule
(i) Financial data schedule, filed herewith.
-37-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OSWEGO COUNTY BANCORP, INC.
Registrant
DATE: March 16, 2000
By: /s/ Gregory J. Kreis By: /s/ Stephen B. Albright
------------------------------------- ---------------------------------
Gregory J. Kreis Stephen B. Albright
President and Chief Executive Officer Senior Vice President & Treasurer
(Principal Executive Officer) (Principal Financial Officer)
By: /s/ Elaine L. Miller
-------------------------------------
Elaine L. Miller
Controller
(Principal Accounting Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Michael R. Brower By: /s/ Bruce P. Frassinelli
-------------------------------- --------------------------
Michael R. Brower, Director Bruce P. Frassinelli, Director
March 16, 2000 March 16, 2000
By: /s/ Paul J. Heins By: /s/ Paul W. Schneible
-------------------------------- --------------------------
Paul J. Heins, Director Paul W. Schneible, Director
March 16, 2000 March 16, 2000
By: /s/ Bernard Shapiro By: /s/ Deborah F. Stanley
-------------------------------- --------------------------
Bernard Shapiro, Director Deborah F. Stanley, Director
March 16, 2000 March 16, 2000
By: /s/ Carl K. Walrath By: /s/ Gregory J. Kreis
-------------------------------- --------------------------
Carl K. Walrath, Director Gregory J. Kreis, Director
March 16, 2000 March 16, 2000
DIRECTOR SUPPLEMENTAL
RETIREMENT BENEFIT PLAN
OSWEGO COUNTY SAVINGS BANK
Oswego, New York
March 15, 2000
Financial Institution Consulting Corporation
700 Colonial Road, Suite 260
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 684-7414
(901) 684-7400
<PAGE>
DIRECTORS SUPPLEMENTAL RETIREMENT BENEFIT PLAN
This Directors Supplemental Retirement Benefit Plan (the "Plan"),
executed as of the 15th day March, 2000, formalizes the understanding by and
between OSWEGO COUNTY SAVINGS BANK. (the "Bank"), a state chartered savings
bank, and its directors, hereinafter referred to as "Director(s)", who shall be
eligible to participate in this Plan by execution of a Directors Supplemental
Retirement Benefit Plan Joinder Agreement ("Joinder Agreement") in a form
provided by the Bank. Any reference herein to the "Holding Company" shall mean
the Oswego County Bancorp, Inc. and any reference to the "Mutual Holding
Company" shall mean Oswego County Mutual Holding Co., M.H.C.
W I T N E S S E T H :
WHEREAS, the Directors serve the Bank as members of the Board of
Directors; and
WHEREAS, the Bank desires to honor, reward and recognize the Directors
who have provided long and faithful service to the Bank and to ensure the
continued service on the Board by such Directors until retirement age; and
WHEREAS, the Directors wish to be assured that they will be entitled to
a certain amount of extended compensation for some definite period of time from
and after retirement from active service with the Bank or other termination of
service and wish to provide their beneficiaries with benefits from and after
death; and
WHEREAS, the Bank and the Directors wish to provide the terms and
conditions upon which the Bank shall pay such extended compensation to the
Directors after retirement or other termination of service and/or death benefits
to their beneficiaries after death; and
WHEREAS, the Bank and the Directors intend this Plan to be considered
an unfunded arrangement, maintained primarily to provide supplemental retirement
income for such Directors; and
<PAGE>
WHEREAS, the Bank has adopted this Directors Supplemental Retirement
Benefit Plan which controls all issues relating to Retirement Benefits as
described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the Bank and the Directors agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Retirement Benefit which is
required to be expensed and accrued under generally accepted accounting
principles (GAAP) by any appropriate method which the Bank's Board of
Directors may require in the exercise of its sole discretion.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Administrator" means the Bank.
1.4 "Bank" means OSWEGO COUNTY SAVINGS BANK and any successor thereto.
1.5 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in the Director's Joinder Agreement to whom the deceased
Director's benefits are payable. If no Beneficiary is so designated,
then the Director's Spouse, if living, will be deemed the Beneficiary.
If the Director's Spouse is not living, then the Children of the
Director
<PAGE>
will be deemed the Beneficiaries and will take on a per stirpes basis.
If there are no living Children, then the Estate of the Director will
be deemed the Beneficiary.
1.6 "Benefit Age" shall be the birthday on which the Director becomes
eligible to receive the Retirement Benefit under the Plan. Such
birthday shall be designated in the Director's Joinder Agreement.
1.7 "Benefit Eligibility Date" shall be the date on which a Director is
entitled to receive his Retirement Benefit. A Director's "Benefit
Eligibility Date" shall occur on the 1st day of the month coincident
with or next following the month in which the Director attains his
Benefit Age designated in the Joinder Agreement.
1.8 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar
offenses), or final cease-and-desist order, material breach of any
provision of this Plan, or gross negligence in matters of material
importance to the Bank.
1.9 A "Change in Control" shall mean and include the following with respect
to the Mutual Holding Company, the Bank, or the Holding Company:
(2) a reorganization, merger, merger conversion, consolidation or
sale of all or substantially all of the assets of the Bank,
the Mutual Holding Company or the Holding Company, or a
similar transaction in which the Bank, the Mutual Holding
Company or the Holding Company is not the resulting entity; or
(3) individuals who constitute the board of directors of the Bank,
the Mutual Holding Company or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose
election was
4
<PAGE>
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for
election was approved by the Holding Company's nominating
committee which is comprised of members of the Incumbent
Board, shall be, for purposes of this clause (ii) considered
as though he were a member of the Incumbent Board.
Notwithstanding the foregoing, a "Change in Control" of the
Bank or the Holding Company shall not be deemed to have occurred if the
Mutual Holding Company ceases to own at least 51% of all outstanding
shares of stock of the Holding Company in connection with a liquidation
of the Mutual Holding Company into the Holding Company or a conversion
of the Mutual Holding Company from mutual to stock form.
In addition, "Change in Control" shall mean and include the
following with respect to the Bank or the Holding Company in the event
that the Mutual Holding Company converts to stock form or in the event
that the Holding Company issues shares of its common stock to
stockholders other than the Mutual Holding Company:
(1) a change in control of a nature that would be required to be
reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
(hereinafter the "Exchange Act"); or
(2) an acquisition of "control" as defined in the Bank Holding
Company Act and applicable regulations thereunder ("BHCA"), as
determined by the Board of Directors of the Bank or the
Holding Company; or
(3) at such time as:
(i) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) or "group acting in
concert" is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank
representing Twenty Percent (20%) or more of the
combined voting power of the Bank's or Holding
Company's outstanding securities ordinarily having
the right to vote at the elections of
5
<PAGE>
directors, except for any stock purchased by the
Bank's Employee Stock Ownership Plan and/or the trust
under such plan; or
(ii) a proxy statement is issued soliciting proxies from
the stockholders of the Holding Company by someone
other than the current management of the Holding
Company, seeking stockholder approval of a plan of
reorganization, merger, or consolidation of the
Holding Company with one or more corporations as a
result of which the outstanding shares of the class
of the Holding Company's securities are exchanged for
or converted into cash or property or securities not
issued by the Holding Company.
The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint venture,
a pool, a joint stock company, a trust, an unincorporated organization
or similar company, a syndicate or any other group formed for the
purpose of acquiring, holding or disposing of securities. The term
"acquire" means obtaining ownership, control, power to vote or sole
power of disposition of stock, directly or indirectly or through one or
more transactions or subsidiaries, through purchase, assignment,
transfer, exchange, succession or other means, including (1) an
increase in percentage ownership resulting from a redemption,
repurchase, reverse stock split or a similar transaction involving
other securities of the same class; and (2) the acquisition of stock by
a group of persons and/or companies acting in concert which shall be
deemed to occur upon the formation of such group, provided that an
investment advisor shall not be deemed to acquire the voting stock of
its advisee if the advisor (a) votes the stock only upon instruction
from the beneficial owner and (b) does not provide the beneficial owner
with advice concerning the voting of such stock. The term "security"
includes nontransferable subscription rights issued pursuant to a plan
of conversion, as well as a "security," as defined in 15 U.S.C. ss.
78c(2)(1); and 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,
6
<PAGE>
agreement or other arrangement, whether written or otherwise. Further,
acting in concert with any person or company shall also be deemed to be
acting in concert with any person or company that is acting in concert
with such other person or company.
Notwithstanding the above definitions, the boards of directors
of the Bank or the Holding Company, in their absolute discretion, may
make a finding that a Change in Control of the Bank or the Holding
Company has taken place without the occurrence of any or all of the
events enumerated above.
1.10 "Children" means the Director's children, or the issue of any deceased
Children, then living at the time payments are due the Children under
this Plan. The term "Children" shall include both natural and adopted
Children.
1.11 "Disability Benefit" means the monthly benefit payable to the Director
following a determination, in accordance with Subsection 3.6, that he
is no longer able, properly and satisfactorily, to perform his duties
as Director.
1.12 "Effective Date" of this Plan shall be March 15, 2000.
1.13 "Estate" means the estate of the Director.
1.14 "Interest Factor" means monthly compounding or discounting, as
applicable, at seven percent (7%) per annum.
1.15 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing within thirty (30) days following the
occurrence of the event which triggers distribution for One Hundred
Twenty (120) consecutive months. For purposes of the Survivor's
7
<PAGE>
Benefits payable hereunder, the Payout Period shall be One Hundred
Twenty (120) consecutive months.
1.16 "Plan Year" shall mean the calendar year.
1.17 "Spouse" means the individual to whom the Director is legally married
at the time of the Director's death.
8
<PAGE>
1.18 "Retirement Benefit" means an annual amount payable to the Director in
monthly installments throughout the Payout Period, equal to the amount
designated in the Director's Joinder Agreement and subject to
Subsection 3.1.
1.19 "Survivor's Benefit" means an annual amount payable to the Beneficiary
in monthly installments throughout the Payout Period, equal to the
amount designated in the Director's Joinder Agreement and subject to
Subsection 3.2.
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank intends to establish a rabbi trust into which the Bank intends
to contribute assets which shall be held therein, subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the plan
which establishes such rabbi trust, until the contributed assets are paid to the
Directors and their Beneficiaries in such manner and at such times as specified
in this Plan. It is the intention of the Bank to make contributions to the rabbi
trust to provide the Bank with a source of funds to assist it in meeting the
liabilities of this Plan. The rabbi trust and any assets held therein shall
conform to the terms of the rabbi trust agreement which has been established in
conjunction with this Plan. To the extent the language in this Plan is modified
by the language in the rabbi trust agreement, the rabbi trust agreement shall
supersede this Plan. Any contributions to the rabbi trust shall be made during
each Plan Year in accordance with the rabbi trust agreement. The amount of such
contribution(s) shall be at least equal to the Director's Accrued Benefit, if
any, less: (i) previous contributions made on behalf of the Director to the
rabbi trust, and (ii) earnings to date on all such previous contributions.
SECTION III
BENEFITS
3.1 Retirement Benefit. If the Director is in the service of the Bank until
reaching his Benefit Age, the Director shall be entitled to the
Retirement Benefit. Such Retirement Benefit
9
<PAGE>
shall commence on the 1st day of the month following the Director's
actual retirement or other termination of service on the Board, other
than a termination of service due to the Director's death, and shall be
payable in monthly installments throughout the Payout Period. In the
event a Director dies after commencement of the Retirement Benefit
payments but before completion of all such payments due and owing
hereunder, the Bank shall pay to the Director's Beneficiary a
continuation of the monthly installments for the remainder of the
Payout Period.
A Director may, upon proper notice, reduce his Benefit Age so long as
his Benefit Age, as modified, is not less than age sixty-five (65);
provided however, that the Director has served on the Board for not
less than ten (10) years from the effective date of this Plan. The
Director must give notice in writing at least twelve (12) months prior
to attaining his new Benefit Age, provided that such notice is given no
later than the calendar year prior to attainment of the new Benefit
Age. If the Director makes such an election, the Director shall be
entitled to the annuitized value of the Accrued Benefit (using the
Interest Factor) payable in monthly installments over the Payout Period
commencing within thirty (30) days of the Director's attainment of the
new Benefit Age. In the event that the Director dies after having given
notice of electing to retire at the new Benefit Age but before leaving
the service of the Bank or attaining the new Benefit Age, the
Director's beneficiary will be entitle to the annuitized value of the
Director's Accrued Benefit (using the Interest Factor) payable in
monthly installments over the Payout Period commencing within thirty
(30) days of the Director's death.
3.2 Death Prior to Benefit Age. If the Director dies prior to attaining his
Benefit Age but while in the service of the Bank, the Director's
Beneficiary shall be entitled to the Survivor's Benefit. The Survivor's
Benefit shall commence within thirty (30) days of the Director's death
and shall be payable in monthly installments throughout the Payout
Period.
10
<PAGE>
3.3 Voluntary or Involuntary Termination Other Than for Cause.
---------------------------------------------------------
(a) If the Director's service with the Bank is voluntarily or
involuntarily terminated prior to the attainment of his
Benefit Eligibility Date, for any reason other than for Cause,
the Director's death, disability, or following a Change in
Control (as defined), the Director (or his Beneficiary) shall
be entitled to the annuitized value (using the Interest
Factor) of (i) his vested Accrued Benefit calculated as of the
date of his termination of service, plus (ii) interest accrued
on such vested Accrued Benefit from the date of termination
until his Benefit Age.
Such benefit shall commence on the Director's Benefit
Eligibility Date and shall be payable in monthly installments
throughout the Payout Period. In the event the Director dies
at any time after commencement of payments hereunder, but
prior to completion of all such payments due and owing
hereunder, the Bank shall pay to the Director's Beneficiary a
continuation of the monthly installments for the remainder of
the Payout Period.
(b) If the Director dies after his voluntary or involuntary
termination of service occurring prior to his Benefit
Eligibility Date, and prior to the commencement of benefits
hereunder, the Director's Beneficiary shall be entitled to the
annuitized value (using the Interest Factor) of his Accrued
Benefit. The payment of such benefit shall commence within
thirty (30) days of the Director's death. The benefit shall be
payable in monthly installments over the Payout Period.
3.4 Termination of Service Related to a Change in Control.
-----------------------------------------------------
(a) If the Director's service is terminated (either voluntarily or
involuntarily) following or coincident with a Change in
Control, the Director shall be entitled to his full Retirement
Benefit (as if he had remained in service until his Benefit
11
<PAGE>
Age). Such benefit shall commence on the 1st day of the month
following his termination of service and shall be payable in
monthly installments throughout the Payout Period. In the
event that the Director dies at any time after commencement of
the payments, but prior to completion of all such payments due
and owing hereunder, the Bank, or its successor, shall pay to
the Director's Beneficiary a continuation of the monthly
installments for the remainder of the Payout Period.
(b) If, after such termination, the Director dies prior to
commencement of the benefits hereunder, the Director's
Beneficiary shall be entitled to the Survivor's Benefit which
shall commence within thirty (30) days of the Director's
death. The Survivor's Benefit shall be payable in monthly
installments over the Payout Period.
3.5 Termination for Cause. If the Director is terminated for Cause, all
benefits under this Plan shall be forfeited and this Plan shall become
null and void as to the Director.
3.6 Disability Benefit. Notwithstanding any other provision hereof, if
requested by the Director and approved by the Board of Directors, the
Director who has not attained his Benefit Eligibility Date shall be
entitled to receive the Disability Benefit hereunder, in any case in
which it is determined by a duly licensed physician selected by the
Bank, that the Director is no longer able, properly and satisfactorily,
to perform his regular duties as a Director, because of ill health,
accident, disability or general inability due to age. If the Director's
service is terminated pursuant to this paragraph and Board of Director
approval is obtained, the Director may elect to begin receiving the
Disability Benefit in lieu of any benefit available under Section 3.3,
which is not available prior to the Director's Benefit Eligibility
Date. The Disability Benefit shall equal the Director's Accrued
Benefit, annuitized (using the Interest Factor) over the Payout Period.
The Disability Benefit shall be payable in monthly installments over
the Payout Period commencing within thirty (30)
12
<PAGE>
days following the later of (i) the above mentioned disability
determination and (ii) the approval of the Disability Benefit by the
Board of Directors. In the event the Executive dies at any time after
termination of employment due to disability but prior to commencement
or completion of all payments due and owing hereunder, the Bank shall
pay to the Executive's Beneficiary a continuation of the monthly
installments for the remainder of the Payout Period.
SECTION IV
BENEFICIARY DESIGNATION
The Director shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Joinder Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
SECTION V
DIRECTOR'S RIGHT TO ASSETS
The rights of the Director, any Beneficiary, or any other person
claiming through the Director under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Director, the Beneficiary, or any
other person claiming through the Director, shall only have the right to receive
from the Bank those payments so specified under this Plan. The Director agrees
that he, his Beneficiary, or any other person claiming through him shall have no
rights or
13
<PAGE>
interests whatsoever in any asset of the Bank, including any insurance policies
or contracts which the Bank may possess or obtain to informally fund this Plan.
Any asset used or acquired by the Bank in connection with the liabilities it has
assumed under this Plan, unless expressly provided herein, shall not be deemed
to be held under any trust for the benefit of the Director or his Beneficiaries,
nor shall any asset be considered security for the performance of the
obligations of the Bank. Any such asset shall be and remain, a general,
unpledged, and unrestricted asset of the Bank.
SECTION VI
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The Director,
his Beneficiaries or any successor in interest to him shall be and remain simply
a general unsecured creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Plan or to refrain from the same and to
determine the extent, nature, and method of such asset purchases. Should the
Bank decide to purchase assets such as life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such assets at any time, in whole or in part. At no
time shall the Director be deemed to have any lien, right, title or interest in
or to any specific investment or to any assets of the Bank. If the Bank elects
to invest in a life insurance, disability or annuity policy upon the life of the
Director, then the Director shall assist the Bank by freely submitting to a
physical examination and by supplying such additional information necessary to
obtain such insurance or annuities.
14
<PAGE>
SECTION VII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Director nor any Beneficiary under this Plan shall have any
power or right to transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Director or his
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Director or any Beneficiary attempts
assignment, communication, hypothecation, transfer or disposal of the benefits
hereunder, the Bank's liabilities shall forthwith cease and terminate.
SECTION VIII
ACT PROVISIONS
8.1 Named Fiduciary and Administrator. The Bank, as Administrator, shall be
the Named Fiduciary of this Plan. As Administrator, the Bank shall be
responsible for the management, control and administration of the Plan
as established herein. The Administrator may delegate to others certain
aspects of the management and operational responsibilities of the Plan,
including the employment of advisors and the delegation of ministerial
duties to qualified individuals.
8.2 Claims Procedure and Arbitration. In the event that benefits under this
Plan are not paid to the Director (or to his Beneficiary in the case of
the Director's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are
refused. The Bank and its Board of Directors shall review the written
claim and, if the claim is denied, in whole or in part, they shall
provide in writing, within ninety (90) days of receipt of such claim,
their specific reasons for such denial, reference to the provisions of
15
<PAGE>
this Plan or the Joinder Agreement upon which the denial is based, and
any additional material or information necessary to perfect the claim.
Such writing by the Bank and its Board of Directors shall further
indicate the additional steps which must be undertaken by claimants if
an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Plan, the Joinder Agreement or any
documents relating thereto and submit any issues and comments, in
writing, they may feel appropriate. In its sole discretion, the
Administrator shall then review the second claim and provide a written
decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include
reference to specific provisions of this Plan or the Joinder Agreement
upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Plan and the Joinder Agreement or the
meaning and effect of the terms and conditions thereof, then claimants
may submit the dispute to mediation, administered by the American
Arbitration Association ("AAA") (or a mediator selected by the parties)
in accordance with the AAA's Commercial Mediation Rules. If mediation
is not successful in resolving the dispute, it shall be settled by
arbitration administered by the AAA under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
SECTION IX
MISCELLANEOUS
9.1 No Effect on Director's Rights. Nothing contained herein will confer
upon the Director the right to be retained in the service of the Bank
nor limit the right of the Bank to deal with the Director without
regard to the existence of the Plan.
16
<PAGE>
9.2 State Law. The Plan is established under, and will be construed
according to, the laws of the State of New York, to the extent such
laws are not preempted by the Act and valid regulations published
thereunder.
9.3 Severability. In the event that any of the provisions of this Plan or
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will
be given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforce ability of the remaining
provisions will not be affected thereby.
9.4 Incapacity of Recipient. In the event the Director is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the Plan
to which such Director is entitled shall be paid to such conservator or
other person legally charged with the care of his person or Estate.
9.5 Unclaimed Benefit. The Director shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of the Director is not made known to the Bank as of the
date upon which any payment of any benefits may first be made, the Bank
shall delay payment of the Director's benefit payment(s) until the
location of the Director is made known to the Bank; however, the Bank
shall only be obligated to hold such benefit payment(s) for the
Director until the expiration of thirty-six (36) months. Upon
expiration of the thirty-six (36) month period, the Bank may discharge
its obligation by payment to the Director's Beneficiary. If the
location of the Director's Beneficiary is not made known to the Bank by
the end of an additional two (2) month period following expiration of
the thirty-six (36) month period, the Bank may discharge its obligation
by payment to the Director's Estate. If there is no Estate in existence
at such time or if such fact cannot be determined by the Bank, the
Director and his
17
<PAGE>
Beneficiary(ies) shall thereupon forfeit any rights to the balance, if
any, of any benefits provided for such Director and/or Beneficiary
under this Plan.
9.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Bank, or as a member of the Board of Directors shall be personally
liable to the Director or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
9.7 Gender. Whenever in this Plan words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
9.8 Effect on Other Corporate Benefit Plans. Nothing contained in this Plan
shall affect the right of the Director to participate in or be covered
by any other corporate benefit available to Directors of the Bank
constituting a part of the Bank's existing or future compensation
structure.
9.9 Suicide. Notwithstanding anything to the contrary in this Plan, the
benefits otherwise provided herein shall not be payable and this Plan
shall become null and void with respect to the Director if the
Director's death results from suicide, whether sane or insane, within
twenty-four (24) months after the execution of his Joinder Agreement.
9.10 Inurement. This Plan shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Director, his
successors, heirs, executors, administrators, and Beneficiaries.
18
<PAGE>
9.11 Headings. Headings and sub-headings in this Plan are inserted for
reference and convenience only and shall not be deemed a part of this
Plan.
SECTION X
AMENDMENT/REVOCATION
This Plan shall not be amended, modified or revoked at any time, in
whole or part, as to any Director, without the mutual written consent of the
Director and the Bank, and such mutual consent shall be required even if the
Director is no longer in the service of the Bank.
SECTION XI
EXECUTION
11.1 This Plan sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this Plan.
11.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
shall together constitute one and the same instrument.
19
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Plan to be executed on the
day and date first above written.
ATTEST: OSWEGO COUNTY SAVINGS BANK.
/s/ Lisa King By: /s/ Gregory Kreis
- --------------------- ---------------------
Title: President & CEO
/s/ Paul Heins
_____________________
Paul Schneible Paul Heins
/s/ Bruce Frassinelli /s/ Michael R. Brower
- --------------------- ---------------------
Bruce Frassinelli Michael Brower
/s/ Deborah Stanley
- ---------------------
Deborah Stanley
20
<PAGE>
DIRECTORS SUPPLEMENTAL RETIREMENT BENEFIT PLAN
JOINDER AGREEMENT
I, Paul Schneible, and OSWEGO COUNTY SAVINGS BANK. hereby agree for
good and valuable consideration, the value of which is hereby acknowledged, that
I shall participate in the Directors Supplemental Retirement Benefit Plan
("Plan") established on March 15, 2000, by OSWEGO COUNTY SAVINGS BANK., as such
Plan may now exist or hereafter be modified; and do further agree to the terms
and conditions thereof.
I understand that I must execute this Directors Supplemental Retirement
Benefit Plan Joinder Agreement ("Joinder Agreement") as well as notify the
Administrator of such execution in order to participate in the Plan from its
Effective Date. Otherwise, I may execute this Joinder Agreement and give notice
of such execution to the Administrator at least thirty (30) days prior to any
February 1.
My "Benefit Age" shall be Sixty-Five (65).
My annual "Retirement Benefit" shall be Twenty-Seven Thousand Four
Hundred and Four Dollars ($27,404), subject to Subsection 3.1 and all relevant
Subsections of the Plan.
My annual "Survivor's Benefit" shall be Twenty-Seven Thousand Four
Hundred and Four Dollars ($27,404), subject to Subsection 3.2 and all relevant
Subsections of the Plan.
In general, I understand that my receipt (or my Beneficiary's receipt)
of the Retirement Benefit (or Survivor's Benefit) shall be subject to all
provisions of the Plan.
In general, I understand that if I voluntarily or involuntarily
terminate service at the Bank pursuant to Subsection 3.3 of the Plan and prior
to reaching my Benefit Age, for any reason other than for Cause, my retirement
benefit shall be computed in accordance with Subsection 3.3 of the Plan, and in
general such benefit shall be based on the annuitized value of (i) my Accrued
Benefit on such date, plus (ii) interest accrued on such Accrued Benefit from
the date of termination until my Benefit Age.
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY: _______________________________________________
SECONDARY BENEFICIARY: _______________________________________________
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Plan, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Bank.
Dated this __th day of ___________, 2000.
(Director)
(Bank's duly authorized Officer)
<PAGE>
DIRECTORS SUPPLEMENTAL RETIREMENT BENEFIT PLAN
JOINDER AGREEMENT
I, Paul Heins, and OSWEGO COUNTY SAVINGS BANK. hereby agree for good
and valuable consideration, the value of which is hereby acknowledged, that I
shall participate in the Directors Supplemental Retirement Benefit Plan ("Plan")
established on March 15, 2000, by OSWEGO COUNTY SAVINGS BANK., as such Plan may
now exist or hereafter be modified; and do further agree to the terms and
conditions thereof.
I understand that I must execute this Directors Supplemental Retirement
Benefit Plan Joinder Agreement ("Joinder Agreement") as well as notify the
Administrator of such execution in order to participate in the Plan from its
Effective Date. Otherwise, I may execute this Joinder Agreement and give notice
of such execution to the Administrator at least thirty (30) days prior to any
February 1.
My "Benefit Age" shall be Seventy-One (71).
My annual "Retirement Benefit" shall be Twenty Four Thousand Six
Hundred and Sixty-Seven Dollars ($24,667), subject to Subsection 3.1 and all
relevant Subsections of the Plan.
My annual "Survivor's Benefit" shall be Twenty Four Thousand Six
Hundred and Sixty-Seven Dollars ($24,667), subject to Subsection 3.2 and all
relevant Subsections of the Plan.
In general, I understand that my receipt (or my Beneficiary's receipt)
of the Retirement Benefit (or Survivor's Benefit) shall be subject to all
provisions of the Plan.
In general, I understand that if I voluntarily or involuntarily
terminate service at the Bank pursuant to Subsection 3.3 of the Plan and prior
to reaching my Benefit Age, for any reason other than for Cause, my retirement
benefit shall be computed in accordance with Subsection 3.3 of the Plan, and in
general such benefit shall be based on the annuitized value of (i) my Accrued
Benefit on such date, plus (ii) interest accrued on such Accrued Benefit from
the date of termination until my Benefit Age.
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY: /s/ Agnes M. Heins
SECONDARY BENEFICIARY: /s/ Heins Family Irrev. Trust
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Plan, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Bank.
Dated this 15th day of March, 2000.
/s/ Paul J. Heins
- ------------------
(Director)
/s/ Gregory Kreis
- -----------------
(Bank's duly authorized Officer)
President & CEO
<PAGE>
DIRECTORS SUPPLEMENTAL RETIREMENT BENEFIT PLAN
JOINDER AGREEMENT
I, Bruce Frassinelli, and OSWEGO COUNTY SAVINGS BANK. hereby agree for
good and valuable consideration, the value of which is hereby acknowledged, that
I shall participate in the Directors Supplemental Retirement Benefit Plan
("Plan") established on March 15, 2000, by OSWEGO COUNTY SAVINGS BANK., as such
Plan may now exist or hereafter be modified; and do further agree to the terms
and conditions thereof.
I understand that I must execute this Directors Supplemental Retirement
Benefit Plan Joinder Agreement ("Joinder Agreement") as well as notify the
Administrator of such execution in order to participate in the Plan from its
Effective Date. Otherwise, I may execute this Joinder Agreement and give notice
of such execution to the Administrator at least thirty (30) days prior to any
February 1.
My "Benefit Age" shall be Seventy-One (71).
My annual "Retirement Benefit" shall be Twenty Two Thousand One Hundred
and Forty-Nine Dollars ($22,149), subject to Subsection 3.1 and all relevant
Subsections of the Plan.
My annual "Survivor's Benefit" shall be Twenty Two Thousand One Hundred
and Forty-Nine Dollars ($22,149), subject to Subsection 3.2 and all relevant
Subsections of the Plan.
In general, I understand that my receipt (or my Beneficiary's receipt)
of the Retirement Benefit (or Survivor's Benefit) shall be subject to all
provisions of the Plan.
In general, I understand that if I voluntarily or involuntarily
terminate service at the Bank pursuant to Subsection 3.3 of the Plan and prior
to reaching my Benefit Age, for any reason other than for Cause, my retirement
benefit shall be computed in accordance with Subsection 3.3 of the Plan, and in
general such benefit shall be based on the annuitized value of (i) my Accrued
Benefit on such date, plus (ii) interest accrued on such Accrued Benefit from
the date of termination until my Benefit Age.
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY: /s/ Marie Frasinelli, Wife
Stephen Frasinelli
Michael Frasinelli [Sons}
Paul Frasinelli
SECONDARY BENEFICIARY: _______________________________________________
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Plan, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Bank.
Dated this 16th day of March, 2000.
/s/ Bruce Frassinelli
- ----------------------
(Director)
/s/ Gregory Kreis
- -----------------
(Bank's duly authorized Officer)
President & CEO
<PAGE>
DIRECTORS SUPPLEMENTAL RETIREMENT BENEFIT PLAN
JOINDER AGREEMENT
I, Michael Brower, and OSWEGO COUNTY SAVINGS BANK. hereby agree for
good and valuable consideration, the value of which is hereby acknowledged, that
I shall participate in the Directors Supplemental Retirement Benefit Plan
("Plan") established on March 15, 2000, by OSWEGO COUNTY SAVINGS BANK., as such
Plan may now exist or hereafter be modified; and do further agree to the terms
and conditions thereof.
I understand that I must execute this Directors Retirement Plan Joinder
Agreement ("Joinder Agreement") as well as notify the Administrator of such
execution in order to participate in the Plan from its Effective Date.
Otherwise, I may execute this Joinder Agreement and give notice of such
execution to the Administrator at least thirty (30) days prior to any February
1.
My "Benefit Age" shall be Sixty-Five (65).
My annual "Retirement Benefit" shall be Twenty Eight Thousand Five
Hundred and Ninety-Six Dollars ($28,596), subject to Subsection 3.1 and all
relevant Subsections of the Plan.
My annual "Survivor's Benefit" shall be Twenty Eight Thousand Five
Hundred and Ninety-Six Dollars ($28,596), subject to Subsection 3.2 and all
relevant Subsections of the Plan.
In general, I understand that my receipt (or my Beneficiary's receipt)
of the Retirement Benefit (or Survivor's Benefit) shall be subject to all
provisions of the Plan.
In general, I understand that if I voluntarily or involuntarily
terminate service at the Bank pursuant to Subsection 3.3 of the Plan and prior
to reaching my Benefit Age, for any reason other than for Cause, my retirement
benefit shall be computed in accordance with Subsection 3.3 of the Plan, and in
general such benefit shall be based on the annuitized value of (i) my Accrued
Benefit on such date, plus (ii) interest accrued on such Accrued Benefit from
the date of termination until my Benefit Age.
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY: /s/ Catherine J. Brower - Spouse
SECONDARY BENEFICIARY: /s/ Thomas MaryCate R. Brower Children
to share and share alike
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Plan, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Bank.
Dated this 16th day of March, 2000.
/s/ Michael R. Brower
- ----------------------
(Director)
/s/ Gregory Kreis
- ------------------
(Bank's duly authorized Officer)
President & CEO
<PAGE>
DIRECTORS SUPPLEMENTAL RETIREMENT BENEFIT PLAN
JOINDER AGREEMENT
I, Deborah Stanley, and OSWEGO COUNTY SAVINGS BANK. hereby agree for
good and valuable consideration, the value of which is hereby acknowledged, that
I shall participate in the Directors Supplemental Retirement Benefit Plan
("Plan") established on March 15, 2000, by OSWEGO COUNTY SAVINGS BANK., as such
Plan may now exist or hereafter be modified; and do further agree to the terms
and conditions thereof.
I understand that I must execute this Directors Retirement Plan Joinder
Agreement ("Joinder Agreement") as well as notify the Administrator of such
execution in order to participate in the Plan from its Effective Date.
Otherwise, I may execute this Joinder Agreement and give notice of such
execution to the Administrator at least thirty (30) days prior to any February
1.
My "Benefit Age" shall be Sixty-Five (65).
My annual "Retirement Benefit" shall be Twenty Four Thousand Six
Hundred and Forty Dollars ($24,640), subject to Subsection 3.1 and all relevant
Subsections of the Plan.
My annual "Survivor's Benefit" shall be Twenty Four Thousand Six
Hundred and Forty Dollars ($24,640), subject to Subsection 3.2 and all relevant
Subsections of the Plan.
In general, I understand that my receipt (or my Beneficiary's receipt)
of the Retirement Benefit (or Survivor's Benefit) shall be subject to all
provisions of the Plan.
In general, I understand that if I voluntarily or involuntarily
terminate service at the Bank pursuant to Subsection 3.3 of the Plan and prior
to reaching my Benefit Age, for any reason other than for Cause, my retirement
benefit shall be computed in accordance with Subsection 3.3 of the Plan, and in
general such benefit shall be based on the annuitized value of (i) my Accrued
Benefit on such date, plus (ii) interest accrued on such Accrued Benefit from
the date of termination until my Benefit Age.
I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time, and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY: /s/ Michael J. Stanley husband
SECONDARY BENEFICIARY: All children
-2-
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Plan, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Bank.
Dated this 16th day of March, 2000.
/s/ Deborah F. Stanley
- ----------------------
(Director)
/s/ Gregory Kreis
- ------------------
(Bank's duly authorized Officer)
President & CEO
-3-
<PAGE>
DIRECTOR SUPPLEMENTAL RETIREMENT BENEFIT PLAN
BENEFICIARY DESIGNATION
The Director, under the terms of theDirectors Supplemental Retirement
Benefit Plan executed by the Bank on March 15, 2000, hereby designates the
following Beneficiary to receive any guaranteed payments or death benefits under
such Plan, following his death:
PRIMARY BENEFICIARY: ____________________________________
SECONDARY BENEFICIARY: _________________________________
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: ______________________, 2000
- ----------------------------------- ------------------------------
(WITNESS) DIRECTOR
-4-
<PAGE>
Exhibit B
-5-
Exhibit 10(ii)
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT FOR
GREGORY J. KREIS
OSWEGO COUNTY SAVINGS BANK
Oswego, New York
March 15, 2000
Financial Institution Consulting Corporation
700 Colonial Road, Suite 260
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 684-7411
(901) 684-7400
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT FOR GREGORY J. KREIS
This Executive Supplemental Retirement Income Agreement ("Agreement"),
executed as of this 15th day of March, 2000, formalizes the understanding by and
between OSWEGO COUNTY SAVINGS BANK, a state chartered mutual savings bank having
its principal place of business in New York, hereinafter referred to as "Bank"
and Gregory J. Kreis, hereinafter referred to as "Executive." Any reference
herein to the "Holding Company" shall mean Oswego County Bancorp, Inc. and any
reference herein to the "Mutual Holding Company" shall mean Oswego County Mutual
Holding Co., M.H.C.
WITNESSETH:
WHEREAS, the Executive is employed by the Bank;
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by Executive and wishes to encourage continued employment;
WHEREAS, the Executive wishes to be assured that he will be entitled to
a certain amount of extended compensation for some definite period of time from
and after his retirement from active service with the Bank or other termination
of his employment and wishes to provide his beneficiary with benefits from and
after his death;
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Bank shall pay such extended compensation to Executive after his
retirement or other termination of his employment and/or death benefits to his
beneficiary after his death;
<PAGE>
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement, maintained primarily to provide supplemental retirement
income for the Executive, a member of a select group of management or highly
compensated employees of the Bank for purposes of the Employee Retirement Income
Security Act of 1974, as amended;
WHEREAS, the Bank has adopted this Executive Supplemental Retirement
Income Agreement which controls all issues relating to the Supplemental
Retirement Income Benefit as described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings below
unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Supplemental Retirement
Income Benefit which is required to be expensed and/or accrued under
generally accepted accounting principles by any appropriate methodology
which the Board of Directors may require in the exercise of its sole
discretion payable over the Payout Period.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
2
<PAGE>
1.3 "Bank" means OSWEGO COUNTY SAVINGS BANK and any successor thereto.
1.4 "Beneficiary" means the person or persons designated as beneficiary in
writing to the Bank to whom the share of a deceased Executive's account
is payable. If no beneficiary is so designated, then the Executive's
Spouse, if living, will be deemed the beneficiary. If the Executive's
Spouse is not living, then the Children of the Executive will be deemed
beneficiary. If there are no living Children, then the Estate of the
Executive will be deemed the beneficiary.
1.5 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations, including
driving while intoxicated, or similar offenses), final cease-and-desist
order, material breach of any provision of this Agreement, or gross
negligence in matters of material importance to the Bank.
1.6 A "Change in Control" shall mean and include the following with respect
to the Mutual Holding Company, the Bank, or the Holding Company:
(1) a reorganization, merger, merger conversion, consolidation or
sale of all or substantially all of the assets of the Bank,
the Mutual Holding Company or the Holding Company, or a
similar transaction in which the Bank, the Mutual Holding
Company or the Holding Company is not the resulting entity; or
3
<PAGE>
(2) individuals who constitute the board of directors of the Bank,
the Mutual Holding Company or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose
nomination for election was approved by the Holding Company's
nominating committee which is comprised of members of the
Incumbent Board, shall be, for purposes of this clause (ii)
considered as though he were a member of the Incumbent Board.
Notwithstanding the foregoing, a "Change in Control" of the Bank or the
Holding Company shall not be deemed to have occurred if the Mutual
Holding Company ceases to own at least 51% of all outstanding shares of
stock of the Holding Company in connection with a liquidation of the
Mutual Holding Company into the Holding Company or a conversion of the
Mutual Holding Company from mutual to stock form.
In addition, "Change in Control" shall mean and include the following
with respect to the Bank or the Holding Company in the event that the
Mutual Holding Company converts to stock form or in the event that the
Holding Company issues shares of its common stock to stockholders other
than the Mutual Holding Company:
(1) a change in control of a nature that would be required to be
reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
(hereinafter the "Exchange Act"); or
4
<PAGE>
(2) an acquisition of "control" as defined in the Bank Holding
Company Act and applicable regulations thereunder ("BHCA"), as
determined by the Board of Directors of the Bank or the
Holding Company; or
(3) at such time as:
(1) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) or "group acting in
concert" is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank
representing Twenty Percent (20%) or more of the
combined voting power of the Bank's or Holding
Company's outstanding securities ordinarily having
the right to vote at the elections of directors,
except for any stock purchased by the Bank's Employee
Stock Ownership Plan and/or the trust under such
plan; or
(2) a proxy statement is issued soliciting proxies from
the stockholders of the Holding Company by someone
other than the current management of the Holding
Company, seeking stockholder approval of a plan of
reorganization, merger, or consolidation of the
Holding Company with one or more corporations as a
result of which the outstanding shares of the class
of the Holding Company's securities are exchanged for
or converted into cash or property or securities not
issued by the Holding Company.
The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock
5
<PAGE>
company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose
of acquiring, holding or disposing of securities. The term
"acquire" means obtaining ownership, control, power to vote or
sole power of disposition of stock, directly or indirectly or
through one or more transactions or subsidiaries, through
purchase, assignment, transfer, exchange, succession or other
means, including (1) an increase in percentage ownership
resulting from a redemption, repurchase, reverse stock split
or a similar transaction involving other securities of the
same class; and (2) the acquisition of stock by a group of
persons and/or companies acting in concert which shall be
deemed to occur upon the formation of such group, provided
that an investment advisor shall not be deemed to acquire the
voting stock of its advisee if the advisor (a) votes the stock
only upon instruction from the beneficial owner and (b) does
not provide the beneficial owner with advice concerning the
voting of such stock. The term "security" includes
nontransferable subscription rights issued pursuant to a plan
of conversion, as well as a "security," as defined in 15
U.S.C. ss. 78c(2)(1); and 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. Further, acting in
concert with any person or company shall also be deemed to be
acting in concert with any person or company that is acting in
concert with such other person or company.
Notwithstanding the above definitions, the boards of directors
of the Bank or the Holding Company, in their absolute
discretion, may make a finding that a Change in Control of the
Bank or the Holding Company has taken place without the
occurrence of any or all of the events enumerated above.
6
<PAGE>
1.7 "Children" means the Executive's children, both natural and adopted and
any issue of any predeceased Children, then living at the time payments
are due the Children under this Agreement.
1.8 "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
1.9 "Effective Date" shall be the March 15, 2000.
1.10 "Estate" means the estate of the Executive.
1.11 "Interest Factor" means Seven Per Cent (7%) per annum.
1.12 "Normal Retirement Date" means the first day of the month coincident
with or next following the Executive's sixty-fifth (65th) birthday.
1.13 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing within thirty (30) days following the
occurrence of the event which triggers distribution and continuing for
One Hundred Eighty (180) consecutive months or for the life of the
Executive whichever is longer. For purposes of the Survivor's Benefit
payable hereunder, the Payout Period shall be One Hundred Eighty (180)
consecutive months.
1.14 "Permanently and Totally Disabled" means Executive has, for at least
six (6) months, been unable to perform the services incident to his
position with the Bank as a result of accidental bodily injury or
sickness and that the status is likely to continue for an indefinite
period, as reasonably determined subsequent to the expiration of the
six (6) month period by a duly licensed physician selected in good
faith by the Bank.
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1.15 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
1.16 "Suicide" means the act of intentionally killing oneself.
1.17 "Supplemental Retirement Income Benefit" means an annual amount,
payable over the Payout Period, equal to $152,333.
1.18 "Survivor's Benefit" means the benefit provided to Executive's
Beneficiary if the Executive dies while in active employment of the
Bank. Such Survivor's Benefit shall be an amount equal to the annual
sum of $75,000 payable in monthly installments over the Payout Period
if the Executive dies within the first five (5) years of service with
the Bank. The Survivor's Benefit shall be an amount equal to an annual
sum of $100,000 payable in monthly installments over the Payout Period
if the Executive dies after completing five (5) years of service with
the Bank but before completing ten (10) years of service with the bank.
The Survivor's Benefit shall be the Supplemental Retirement Income
Benefit payable in monthly installments over the Payout Period if the
Executive dies after completing ten (10) years of service with the
Bank.
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SECTION II
PRE RETIREMENT AND POST RETIREMENT DEATH BENEFITS
2.1 Death Prior to Termination of Employment. If Executive dies prior to
termination of employment with the Bank (but before commencement of
payment of the Supplemental Retirement Income Benefit to Executive),
his Beneficiary shall be entitled to the Survivor's Benefit. The first
installment shall begin within thirty (30) days after the date of death
of Executive and each succeeding installment shall be paid on the next
succeeding month thereof during the Payout Period.
2.2 Death After Change in Control. If Executive dies after termination of
employment with the Bank coincident with or following a Change in
Control (but before commencement of payment of the Supplemental
Retirement Income Benefit to Executive), his Beneficiary shall be
entitled to the full Survivor's Benefit (as if the Executive had
completed ten (10) years of service with the Bank) beginning within
thirty (30) days after the date of death of Executive and payable over
the Payout Period.
2.3 Death Subsequent to Retirement. In the event of death of Executive
while receiving monthly benefits under this Agreement or after
retirement but before commencement of payment of the Supplemental
Retirement Income Benefit to Executive, except under Section 3.3
hereof, then the unpaid balance of such monthly payments remaining to
be paid at that time shall continue to be paid monthly for the
remainder of the Payout Period to Executive's Beneficiary.
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2.4. Death After Termination of Employment Prior to Normal Retirement Age.
In the event of Executive's Death following a voluntary or involuntary
termination of employment with the Bank prior to his Normal Retirement
Date, for any reason other than Cause or following a Change in Control,
the Executive's Beneficiary shall be entitled to his Accrued Benefit
determined as of the date of termination of employment and annuitized
using the Interest Factor and payable in monthly installments over the
Payout Period.
2.5 Death by Reason of Suicide. In the event Executive dies by reason of
suicide at any time within twenty-six (26) months after execution of
this Agreement, the Bank shall be under no obligation to provide any
benefits to the Executive's Beneficiary.
2.6 Additional Death Benefit - Burial Expenses. In addition to the
above-described death benefits, upon his death, Executive's beneficiary
shall be entitled to receive a one-time lump sum death benefit in the
amount of Ten Thousand ($10,000.00) Dollars.
SECTION III
SUPPLEMENTAL RETIREMENT INCOME BENEFIT
AND DISABILITY BENEFIT
3.1 Normal Retirement Benefit. At Executive's retirement on or after the
Normal Retirement Date, the Bank shall commence payments of the
Supplemental Retirement Income Benefit to Executive. Such payments
shall commence the first day of the month next following the
Executive's retirement date and shall be payable in monthly
installments throughout the Payout Period.
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3.2 Disability. If Executive becomes Permanently and Totally Disabled prior
to reaching his retirement, while covered by the provisions of this
Agreement, Executive shall be entitled to his Accrued Benefit
(annuitized using the Interest Factor) at the time of disability.
Payments shall begin within thirty (30) days after Executive becomes
Permanently and Totally Disabled and payable in monthly installments
over the Payout Period. In the event the Executive dies at any time
after termination of employment due to disability but prior to
commencement or completion of all payments due and owing hereunder, the
Bank shall pay to the Executive's Beneficiary a continuation of the
monthly installments for the remainder of the Payout Period.
3.3 Voluntary or Involuntary Termination of Employment. If the Executive's
employment with the Bank is voluntarily or involuntarily terminated
prior to Normal Retirement Age, for any reason other than for Cause,
the Executive's death, disability, or following a Change in Control,
the Executive (or his Beneficiary) shall be entitled to his Accrued
Benefit as of the date of such termination, annuitized using the
Interest Factor. Such benefit shall commence within thirty (30) days of
such termination and shall be payable in monthly installments
throughout the Payout Period.
3.4 Termination of Service Related to a Change in Control. If a Change in
Control occurs at the Bank, and thereafter the Executive's employment
is terminated (either voluntarily or involuntarily), the Executive
shall be entitled to the Supplemental Retirement Income Benefit. Such
benefit shall commence within thirty (30) days of such termination and
shall be payable in monthly installments throughout the Payout Period.
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3.5 Termination for Cause. If the Executive is terminated for Cause, all
benefits under this Agreement shall be forfeited and this Agreement
shall become null and void.
SECTION IV
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary of the Executive, or any
other person claiming through the Executive under this Agreement, shall be
solely those of an unsecured general creditor of the Bank. The Executive, the
Beneficiary of the Executive, or any other person claiming through the
Executive, shall only have the right to receive from the Bank those payments as
specified under this Agreement. The Executive agrees that he, his Beneficiary,
or any other person claiming through him shall have no rights or interests
whatsoever in any asset of the Bank, including any insurance policies or
contracts which the Bank may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Agreement, except as expressly provided,
shall not be deemed to be held under any trust for the benefit of the Executive
or his Beneficiaries, nor shall it be considered security for the performance of
the obligations of the Bank. It shall be, and remain, a general, unpledged, and
unrestricted asset of the Asset of the Bank.
SECTION V
RESTRICTIONS UPON FUNDING
Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The Executive,
his Beneficiaries or any successor in interest to him shall be and
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remain simply a general creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right, at its sole discretion, to either fund the
obligations undertaken by this Agreement or to refrain from funding the same and
to determine the extent, nature, and method of such informal funding. Should the
Bank elect to fund this Agreement, in whole or in part, through the purchase of
life insurance, mutual funds, disability policies or annuities, the Bank
reserves the absolute right, in its sole discretion, to terminate such funding
at any time, in whole or in part. At no time shall Executive be deemed to have
any lien nor right, title or interest in or to any specific funding investment
or to any assets of the Bank. If the Bank elects to invest in a life insurance,
disability or annuity policy upon the life of the Executive, then Executive
shall assist the Bank by freely submitting to a physical examination and
supplying such additional information necessary to obtain such insurance or
annuities.
SECTION VI
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither Executive nor any Beneficiary under this Agreement shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event Executive or any Beneficiary
attempts assignment, communication, hypothecation, transfer or disposal of the
benefits hereunder, the Bank's liabilities shall forthwith cease and terminate.
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SECTION VII
ACT PROVISIONS
7.1 Named Fiduciary And Administrator. The Bank shall be the Named
Fiduciary and Administrator of this Agreement. As Administrator, the
Bank shall be responsible for the management, control and
administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Agreement, including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
7.2 Claims Procedure And Arbitration. In the event that benefits under this
Agreement are not paid to the Executive (or to his Beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made to
the Administrator named above within sixty (60) days from the date
payments are refused. The Administrator and its Board of Directors
shall review the written claim and, if the claim is denied, in whole or
in part, they shall provide in writing within ninety (90) days of
receipt of such claim their specific reasons for such denial, reference
to the provisions of this Agreement upon which the denial is based and
any additional material or information necessary to perfect the claim.
Such written notice shall further indicate the additional steps to be
taken by claimants if a further review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may
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review the Agreement or any documents relating thereto and submit any
issues, in writing, and comments they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and
provide a written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of the
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and effect of the
terms and conditions thereof, then claimants may submit the dispute to
mediation, administered by the American Arbitration Bank ("AAA") (or a
mediator selected by the parties) in accordance with the AAA's
Commercial Mediation Rules. If mediation is not successful in resolving
the dispute, it shall be settled by arbitration administered by the AAA
under its Commercial Arbitration Rules, and judgment on the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
Where a dispute arises as to the Bank's discharge of Executive for
Cause, such dispute shall likewise be submitted to arbitration as above
described and the parties hereto agree to be bound by the decision
thereunder.
SECTION VIII
MISCELLANEOUS
8.1 No Effect on Employment Rights. Nothing contained herein shall confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with the
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Executive without regard to the existence of this Agreement. The
provisions of 12 CFR Part 563.39 (including all of its subparts) shall
be fully applicable to this Agreement.
8.2 Disclosure. Each Executive shall receive a copy of his Agreement and
the Administrator will make available, upon request, a copy of the
rules and regulations that govern this type of Agreement.
8.3 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of New York, to the extent that
such laws are not preempted by the Act and valid regulations published
thereunder.
8.4 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
8.5 Incapacity of Recipient. In the event Executive is declared incompetent
and a conservator or other person legally charged with the care of his
person or of his estate is appointed, any benefits under the Agreement
to which such Executive is entitled shall be paid to such conservator
or other person legally charged with the care of his person or his
Estate. Except as provided above in this paragraph, when the Bank's
Board of Directors in its sole discretion, determines that an Executive
is unable to manage his financial affairs, the Board may direct the
Bank to make distributions to any person for the benefit of such
Executive.
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8.6 Unclaimed Benefit. Each Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of an Executive is not made known to the Bank within three
years after the date on which any payment of the Executive's
Supplemental Retirement Income Benefit may be made, payment may be made
as though the Executive had died at the end of the three-year period.
If, within one additional year after such three-year period has
elapsed, or, within three years after the actual death of the
Executive, the Bank is unable to locate any Beneficiary of the
Executive, then the Bank may fully discharge its obligation by payment
to the Estate.
8.7 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Bank, nor any individual
acting as an employee or agent of the Bank or as a member of the Board
of Directors shall be liable to any Executive, former Executive, or any
other person for any claim, loss, liability or expense incurred in
connection with the Agreement.
8.8 Gender. Whenever, in this Agreement, words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
8.9 Affect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in, or
be covered by, any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
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8.10 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
8.11 Establishment of Rabbi Trust. The Bank intends to establish a rabbi
trust into which the Bank intends to contribute assets which shall be
held therein, subject to the claims of the Bank's creditors in the
event of the Bank's "Insolvency" as defined in the agreement which
establishes such rabbi trust, until the contributed assets are paid to
the Executives and their Beneficiaries in such manner and at such times
as specified in this Agreement. It is the intention of the Bank to make
contributions to the rabbi trust to provide the Bank with a source of
funds to assist it in meeting the liabilities of this Agreement. The
rabbi trust and any assets held therein shall conform to the terms of
the rabbi trust agreement which has been established in conjunction
with this Agreement. To the extent the language in this Agreement is
modified by the language in the rabbi trust agreement, the rabbi trust
agreement shall supersede this Agreement. Any contributions to the
rabbi trust shall be made during each Plan Year in accordance with the
rabbi trust agreement. The amount of such contribution(s) shall be
equal to the full present value of all benefit accruals under this
Plan, if any, less: (i) previous contributions made on behalf of the
Executive to the rabbi trust, and (ii) earnings to date on all such
previous contributions.
8.12 Tax Withholding. The Bank may withhold from any benefit payable under
this Agreement all federal, state, city, or other taxes as shall be
required pursuant to any law or governmental regulation then in effect.
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SECTION IX
NON-COMPETITION AFTER NORMAL RETIREMENT
9.1 Non-Compete Clause. Except as stated in the second paragraph of this
subsection, the Executive expressly agrees that, as consideration for
the agreements of the Bank contained herein and as a condition to the
performance by the Bank of its obligations hereunder, throughout the
entire period beginning at the time of termination of employment until
the final payment is made to Executive, as provided herein, he will
not, without the prior written consent of the Bank, engage in, become
interested, directly or indirectly, as a sole proprietor, as a partner
in a partnership, or as a substantial shareholder in a corporation, nor
become associated with, in the capacity of an employee, director,
officer, principal, agent, trustee or in any other capacity whatsoever,
any enterprise conducted in the trading area of the business of the
Bank which enterprise is, or may deemed to be, competitive with any
business carried on by the Bank as of the date of the termination of
the Executive's employment or his retirement. The parties agree that
if, for any reason, any covenant contained herein is held by a court or
other tribunal to be unenforceable or invalid, that such court or
tribunal will have the authority to limit such covenant to that which
the court or tribunal deems proper under the circumstances and to
enforce such covenant as limited. Notwithstanding the foregoing,
Executive agrees to honor the terms of this Non-Compete Clause and not
to contest its enforceability.
In the event Executive's termination follows a Change in Control or
other material change in the Bank's structure or business activities,
Executive shall be entitled to his Supplemental Retirement Income
Benefit whether
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or not he enters into an arrangement that is deemed to be competitive
with the Bank.
9.2 Breach. In the event of any breach by the Executive of the agreements
and covenants contained herein, the Board of Directors of the Bank
shall direct that any unpaid balance of any payments to the Executive
under this Agreement be suspended, and shall thereupon notify the
Executive of such suspensions, in writing. Thereupon, if the Board of
Directors of the Bank shall determine that said breach by the Executive
has continued for a period of one (1) month following notification of
such suspension, all rights of the Executive and his Beneficiaries
under this Agreement, including rights to further payments hereunder,
shall thereupon terminate.
SECTION X
AMENDMENT/REVOCATION
This Agreement shall not be amended, modified, or revoked at any time,
in whole or part, without the mutual written consent of the Executive and the
Bank, and such mutual consent shall be required even if the Executive is no
longer employed by the Bank.
ARTICLE XI
EXECUTION
11.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
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11.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and date first above written.
ATTEST: EXECUTIVE
/s/ Lisa King /s/ Gregory Kreis
- -------------------- ---------------------------
Gregory J. Kreis
OSWEGO COUNTY SAVINGS BANK
By: /s/ Paul J. Heins
Title: Vice Chairman
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EXECUTIVE SUPPLEMENTAL RETIRE INCOME AGREEMENT
BENEFICIARY DESIGNATION
Executive, Gregory J. Kreis, under the terms of a certain Executive
Supplemental Retirement Income Agreement by and between him and OSWEGO COUNTY
SAVINGS BANK, Oswego, New York, dated March 15, 2000, hereby designates the
following Beneficiary to receive any guaranteed payments or death benefits under
such Agreement, following his death:
PRIMARY BENEFICIARY:
SECONDARY BENEFICIARY:
Such Beneficiary Designation is revocable.
DATE: __________________, 2000
- ------------------------------ ------------------------------
(WITNESS) (EXECUTIVE)
- ------------------------------
(WITNESS)
Exhibit 10(iii)
OSWEGO COUNTY SAVINGS BANK
RABBI TRUST FOR
THE EXECUTIVE SUPPLEMENTAL RETIREMENT
BENEFIT PLAN, THE DIRECTORS SUPPLEMENTAL
RETIREMENT BENEFIT PLAN, AND THE VOLUNTARY DEFERRED
COMPENSATION PLAN FOR DIRECTORS
OSWEGO COUNTY SAVINGS BANK
Oswego, New York
February 1, 2000
Financial Institution Consulting Corporation
700 Colonial Road, Suite 260
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 684-7414
(901) 684-7400
<PAGE>
OSWEGO COUNTY SAVINGS BANK
RABBI TRUST FOR
THE EXECUTIVE SUPPLEMENTAL RETIREMENT
BENEFIT PLAN, THE DIRECTORS SUPPLEMENTAL
RETIREMENT BENEFIT PLAN, AND THE VOLUNTARY DEFERRED
COMPENSATION PLAN FOR DIRECTORS
This Trust Agreement, effective as of the 1st day of February, 2000,
by and between OSWEGO COUNTY SAVINGS BANK, a state chartered stock savings bank,
or any successor corporation (hereinafter referred to as "Bank") with its
principal place of business in Oswego, New York, and SECURITY FEDERAL SAVINGS
BANK, with its principal place of business in the State of Indiana (hereinafter
referred to as "Trustee"). Any reference herein to the "Holding Company" shall
mean Oswego County Bancorp, Inc and any reference herein to the "Mutual Holding
Company" shall mean Oswego County Mutual Holding Co., M.H.C.
W I T N E S S E T H:
WHEREAS, Bank has adopted the Executive Supplemental Retirement Benefit
Plan and the Directors Supplemental Retirement Benefit Plan effective as of the
1st day of February, 2000 and the Voluntary Deferred Compensation Plan for
Directors effective as of the 1st day of March, 1997 (hereinafter referred to as
the "Plans"), and such Plans constitute non-qualified deferred compensation
plans.
WHEREAS, Bank has incurred or expects to incur liability under the
terms of the Plans with respect to the individual(s) participating in such
Plans;
WHEREAS, Bank wishes to establish a trust (hereinafter referred to as
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Bank's creditors in the event of Bank's Insolvency, as
herein defined, until paid to Plan participants, and their beneficiaries in such
manner and at such times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as unfunded plans, maintained primarily
<PAGE>
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees and non-employer directors, for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended;
WHEREAS, it is the intention of Bank to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plans (hereinafter referred to as "Contributions");
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION I
ESTABLISHMENT OF TRUST
(a) Bank hereby deposits with Trustee in trust, assets which shall
become the principal of the Trust to be held, administered and
disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Bank is
the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of Bank and shall be
used exclusively for the uses and purposes of the Plan
participants and general creditors as herein set forth. Plan
participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plans and this
Trust Agreement shall be mere unsecured contractual rights of
Plan participants and their beneficiaries against Bank. Any
assets held by the
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Trust will be subject to the claims of Bank's general
creditors under federal and state law in the event of
Insolvency, as defined in Section III(a) herein.
(e) The Trustee shall be accountable for all property and
Contributions received, but the Trustee shall have no duty to
see that the Contributions received are sufficient to provide
for the retirement, disability, or death benefits, nor shall
the Trustee be obligated to enforce or collect any
Contribution from the Bank. Notwithstanding the foregoing, in
the event of a Change in Control (as defined in Article XIII),
the Trustee shall have the right to monitor, enforce and/or
collect any Contributions due and owing from the Bank or to
give notice of any default in making Contributions to any
person.
(f) Within 75 (seventy-five) days following the end of each
calendar year, Bank shall, if necessary, be required to
irrevocably deposit additional cash or other property to the
Trust in an amount sufficient to pay each Plan participant or
beneficiary the benefits payable pursuant to the terms of the
Plan as of the close of such calendar year(s).
(g) Upon (i) a Change in Control, (ii) the death of a Plan
participant, or (iii) termination of employment with respect
to a Plan participant, following a Change in Control (as
defined in each Plan), Bank shall as soon as possible, but in
no event longer than seventy-five (75) days following such
event, make an additional irrevocable contribution to the
Trust in an amount that is sufficient to pay each Plan
participant or beneficiary the benefits to which such Plan
participants or his/her beneficiaries would be entitled
pursuant to the terms of the Plans as of the date such event
occurred.
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SECTION II
PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
(a) Bank shall deliver to Trustee a schedule (the "Payment Schedule") that
indicates the amounts payable in respect of each Plan participant (and
his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as provided for
or available under the Plans), and the time of commencement for payment
of such amounts. Except as otherwise provided herein, Trustee shall
make payments to the Plan participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall, in accordance
with the written instructions of the Bank, or in the event of a Change
in Control of the Bank, the written instructions of the Benefits
Determiner (as defined in Article XIII), withhold and report any
federal, state or local taxes that may be required to be withheld and
reported with respect to the payment of benefits pursuant to the terms
of the Plans and shall pay amounts withheld to the appropriate taxing
authorities. In addition, the Trustee shall be authorized to pay any
federal, state or local taxes to any governmental body that presents a
tax deficiency notice to the Trustee with respect to income or assets
of the Trust. The Bank shall deliver to the Trustee each year a
schedule which specifies the amount of taxes to be withheld, if any,
with respect to benefit payments to be made hereunder. Trustee shall be
entitled to rely conclusively on the written instructions of Bank, or
in the event of a Change in Control, the Benefits Determiner, as to all
tax reporting and withholding requirements.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Bank or such party
(other than the Trustee) as it shall designate under the Plans, and any
claim for such benefits shall be considered and reviewed under the
procedures set out in the Plans.
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(c) Bank may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plans.
Bank shall notify Trustee of its decision to make payment of benefits
directly, prior to the time amounts are payable to participants or
their beneficiaries. In addition, if the principal of the Trust, and
any earnings thereon, are not sufficient to make payments of benefits
in accordance with the terms of the Plans, Bank shall make the balance
of each such payment as it falls due. Trustee shall notify Bank if and
when such principal and earnings are not sufficient to discharge
obligations currently due under the Payment Schedule and shall have no
further obligation hereunder to anyone interested in the Trust.
(d) In the event of a Change in Control, Trustee shall rely on the written
direction of the Benefits Determiner who shall confirm the accuracy of
the Payment Schedule or who shall deliver to Trustee a new Payment
Schedule upon which Trustee may rely.
SECTION III
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO
TRUST BENEFICIARY WHEN BANK IS INSOLVENT
(a) Trustee shall cease payment of benefits to Plan participants and their
beneficiaries if the Bank is Insolvent. Bank shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Bank states to
it in writing that it is unable to pay its debts as they become due, or
(ii) Bank is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section I(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Bank under federal and state
law as set forth below.
5
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(1) The Board of Directors and the Chief Executive
Officer of Bank shall have the duty to inform Trustee
in writing of Bank's Insolvency. If a person claiming
to be a creditor of Bank alleges in writing to
Trustee that Bank has become Insolvent, Trustee shall
determine whether Bank is Insolvent and, pending such
determination, Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Bank's
Insolvency, or has received notice from Bank or a
person claiming to be a creditor alleging that Bank
is Insolvent, Trustee shall have no duty to inquire
whether Bank is Insolvent. Trustee may in all events
rely on such evidence concerning Bank's solvency as
may be furnished to Trustee and that provides Trustee
with a reasonable basis for making a determination
concerning Bank's solvency. Trustee shall have no
liability for any payments to Plan participants or
their beneficiaries after the occurrence of an
Insolvency but prior to its actual knowledge thereof.
(3) If at any time Trustee has determined that Bank is
Insolvent, Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold
the assets of the Trust for the benefit of Bank's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of Plan
participants or their beneficiaries to pursue their
rights as general creditors of Bank with respect to
benefits due under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance
with Section II of this Trust Agreement only after
Trustee has determined that Bank is not (or is no
longer) Insolvent.
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant
to Section III(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the
Plans for the period of such discontinuance, less the
aggregate amount of any payments made to Plan participants or
their
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<PAGE>
beneficiaries by Bank in lieu of the payments provided for
hereunder during any such period of discontinuance.
SECTION IV
PAYMENTS TO BANK
Except as provided in Sections III or XII hereof, Bank shall have no
right or power to direct Trustee to return to Bank or to divert to others any of
the Trust assets before all payment of benefits have been made to Plan
participants and their beneficiaries pursuant to the terms of the Plan.
SECTION V
TRUSTEE'S POWERS
(a) All rights associated with assets of the Trust shall be
exercised by Bank or Trustee, and shall in no event be
exercisable by or rest with Plan participants. Bank shall have
the right at anytime, and from time to time in its sole
discretion, to substitute assets, acceptable to the Trustee,
of equal fair market value for any asset held by the Trust.
This right is exercisable by the Bank in a non-fiduciary
capacity without the approval or consent of any person in a
fiduciary capacity.
(b) Subject to the foregoing, Trustee shall have the following
powers and authority in the administration of the assets of
the Trust, in addition to those vested in it elsewhere in this
Trust Agreement or by law:
(i) Subject to investment guidelines issued by Bank, to
invest and reinvest the assets of the Trust, without
distinction between principal and income, in
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any kind of property, real, personal or mixed,
tangible or intangible, and in any kind of
investment, security or obligation suitable for the
investment of Trust assets, including federal, state
and municipal tax-free obligations and other tax-free
investment vehicles, insurance policies and annuity
contracts, and any common trust fund, group trust,
pooled fund, or other commingled investment fund
maintained by the Trustee or any other Bank or entity
for trust investment purposes in which the Trust is
eligible to invest and the provisions governing such
fund shall be part of the Trust Agreement as though
fully restated herein;
(ii) To purchase, and maintain as owner, a life insurance
policy or policies with respect to participants;
provided, however, that the Trustee shall not be
required to purchase or take any action under a life
insurance policy or policies with respect to
participants unless directed to do so by the Bank,
which shall designate the face amount of said policy
or policies, the terms of the policy or policies and
the insurance company.
(iii) To sell for cash or on credit, to grant options,
convert, redeem, exchange for other securities or
other property, or otherwise to dispose of, any
security or other property at any time held except
that the Trustee shall have no right or obligation to
take any action with respect to any insurance
contract or policy unless so directed by the Bank, or
in the event of a Change in Control, by the Benefits
Determiner;
(iv) At the direction of the Bank, to settle, compromise
or submit to arbitration, any claims, debts or
damages, due or owning to or from the Trust, to
commence or defend suits or legal proceedings and to
represent the Trust in all suits or legal proceedings
provided, however, the Trustee shall not be expected
or required to undertake any of the foregoing unless
there are sufficient assets in the Trust with which
to do so, or the Trustee has received assurances by a
party to this Trust, satisfactory to the Trustee, of
the payment or reimbursement of the expenses
connected therewith;
8
<PAGE>
(v) To exercise any conversion privilege (other than
conversion privileges with respect to any insurance
policy, which shall be exercised only upon direction
of the Bank, or in the event of a Change in Control,
by the Benefits Determiner) and/or subscription right
available in connection with securities or other
property at any time held, to oppose or to consent to
the reorganization, consolidation, merger or
readjustment of the finances of any corporation, bank
or association or to the sale, mortgage, pledge or
lease of the property of any corporation, bank or
association any of the securities of which may at any
time be held and to do any act with reference
thereto, including the exercise of options, the
making of agreement or subscription, which may be
deemed necessary or advisable in connection
therewith, and to hold and retain any securities or
other properties so acquired;
(vi) To hold cash uninvested for a reasonable period of
time under the circumstances without liability for
interest, pending investment thereof or the
payment of expenses or making distributions
therewith;
(vii) To form corporations and to create trusts to hold
title to any securities or other property, all upon
such terms and conditions as may be deemed advisable;
(viii) To employ suitable agents and counsel and to pay
their reasonable expenses and compensation;
(ix) To register any securities held hereunder in the name
of the Trustee or in the name of a nominee with or
without the addition of words indicating that such
securities are held in a fiduciary capacity and to
hold any securities in bearer form and to combine
certificates representing such securities with
certificates of the same issue held by Trustee in
other fiduciary or representative capacities, or to
deposit securities in any qualified central
depository where such securities may be held in bulk
9
<PAGE>
in the name of the nominee of such depository with
securities deposited by other depositors, or deposit
securities issued by the United States Government, or
any agency or instrumentalities thereof, with a
Federal Reserve Bank;
(x) To make, execute and deliver, as trustee, any and all
conveyances, contracts, waivers, releases or other
instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers;
(xi) To have any and all other powers or authority, under
the laws of the state in which the Trustee's
principal executive offices are located, relevant to
performance in the capacity as Trustee; and
(xii) To settle, compromise or submit to arbitration, any
claims, debts or damages, due or owing to or from the
Trust, to commence or defend suits or legal
proceedings and to represent the Trust in all suits
or legal proceedings; provided, however, the Trustee
shall not be expected or required to undertake any of
the foregoing unless there are sufficient assets in
the Trust with which to do so, or the Trustee has
received assurances by a party to this Trust,
satisfactory to the Trustee, of the payment or
reimbursement of the expenses connected therewith.
SECTION VI
DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of
distributions, expenses and taxes, shall be accumulated and reinvested.
10
<PAGE>
SECTION VII
ACCOUNTING BY TRUSTEE
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between Bank
and Trustee. Within ninety (90) days following the close of each calendar year
and within sixty (60) days after the removal or resignation of Trustee, Trustee
shall deliver to Bank a written account of its administration of the Trust
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
SECTION VIII
RESPONSIBILITY OF TRUSTEE
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and
with like aims, provided, however, that Trustee shall incur no
liability to any person for any action taken pursuant to a
direction, request or approval given by Bank which is
contemplated by, and in conformity with, the terms of the
Plans or this Trust and is given in writing by Bank. In the
event of a dispute between Bank and a party, Trustee may apply
at the expense of the Trust
11
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to a court of competent jurisdiction located in the State of
Indiana to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, except where it is finally
determined by a court of competent jurisdiction that the
Trustee breached its duties under this Agreement, Bank agrees
to indemnify Trustee against Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees
and expenses) relating thereto and to be primarily liable for
such payments. If Bank does not pay such costs, expenses and
liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be
counsel for Bank generally) with respect to any of its duties
or obligations hereunder and charge their fees to the Trust if
they are not paid in a timely manner by Bank.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations
hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance
policy is acquired or held at the direction of Bank as an
asset of the Trust, Trustee shall have no power to name a
beneficiary of the policy other than the Trust, to assign the
policy other than to a successor trustee, or to loan to any
person (including Bank) the proceeds of any borrowing against
such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have
any power that could give this Trust the objective of carrying
on a business and dividing the gains therefrom, within the
meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code.
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<PAGE>
(g) Trustee shall be entitled to conclusively rely upon any
written notice, direction, instruction, certificate or other
communication believed by it to be genuine and to be signed by
the proper person or persons.
(h) Nothing contained in this Trust Agreement shall require
Trustee to risk or expend its own funds in the performance of
its duties hereunder. In the acceptance and performance of its
duties hereunder, Trustee acts solely as trustee of the Trust
and not in its individual capacity, and all persons, other
than Bank, having any claim against Trustee related to this
Trust Agreement or the actions or agreements of Trustee
contemplated hereby shall look solely to the Trust for the
payment or satisfaction thereof, except to the extent that
Trustee has engaged in willful misconduct or gross negligence,
or Trustee has willfully breached its obligation under this
Trust Agreement.
(i) Trustee shall not be responsible for determining whether a
Change in Control (as hereinafter defined) has occurred. Bank
will notify Trustee of the occurrence of a Change in Control,
and Trustee shall be entitled to rely conclusively upon such
notification for all purposes of a Change in Control hereunder
without any liability or further duty with respect thereto.
(j) Any amendment or amendments that are or may be made to the
Plan(s) shall not increase the Trustee's duties hereunder
without the express written consent of the Trustee.
SECTION IX
COMPENSATION AND EXPENSES OF TRUSTEE
Bank shall pay all administrative and Trustee's fees and expenses. If
not paid by Bank, the fees and expenses shall be paid from the Trust.
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<PAGE>
SECTION X
RESIGNATION AND REMOVAL OF TRUSTEE
(a) Trustee may resign at any time by written notice to Bank,
which shall be effective sixty (60) days after receipt of such
notice unless Bank and Trustee agree otherwise, whether or not
a successor has been appointed and qualifies. Trustee shall
pay or deliver property to the successor trustee or Bank (in
further trust, pending the appointment of a successor) as the
case may be, at the end of such period.
(b) Trustee may be removed by Bank on sixty (60) days notice to
Trustee or upon shorter notice accepted by Trustee. A
successor trustee may be removed by Bank on ninety (90) days
notice to such successor trustee or upon shorter notice
accepted by the successor trustee.
(c) If, at the time of a Change in Control (as defined herein),
the trustee is, other than serving as trustee hereunder, an
independent party with respect to the Bank, Trustee may not be
removed by Bank for two (2) years following the date of such
Change in Control. Such trustee also may not be removed by
Bank in anticipation of a Change in Control.
(d) If Trustee resigns at any time following a Change in Control,
or if Trustee is removed by Bank at any time following the
expiration of the two (2) year period (as described in Subpart
(c) above) following a Change in Control, the President of the
Bank, as in existence immediately prior to a Change in
Control, or in the event such person is deceased, the Benefits
Determiner, shall select a successor trustee in accordance
with the provisions of XI(a) hereof and such selection shall
be made on or before the effective date of Trustee's
resignation or removal. In all other instances of resignation
or removal, Bank shall select a successor trustee in
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<PAGE>
accordance with the provisions of XI(a) hereof, with such
selection being made on or before the effective date of
Trustee's resignation or removal.
(e) Upon resignation or removal of Trustee and appointment of a
successor trustee, all assets shall subsequently be promptly
transferred to the successor trustee, in accordance with
sub-section (a) hereof.
(f) If Trustee resigns or is removed under paragraph (a), (b), or
(d) of this Section X, a successor shall be appointed in
accordance with Section XI hereof, with such selection being
made on or before the effective date of resignation or
removal. If no such appointment has been made, Bank or Trustee
(as applicable) may apply to a court of competent jurisdiction
for appointment of a successor or for instructions. Should the
Trustee be required to apply to a court of competent
jurisdiction for such purpose, all expenses of Trustee in
connection with the proceeding shall be allowed as
administrative expenses of the Trust.
SECTION XI
APPOINTMENT OF SUCCESSOR
(a) If Trustee resigns or is removed pursuant to the provisions of
Section X hereof, Bank may appoint any third party, such as a
Bank trust department or other party that may be granted
corporate trustee powers under state law, to serve as
successor trustee hereunder. The appointment of a successor
trustee shall be effective when accepted in writing by the new
trustee. The new trustee shall have all of the rights and
powers of the former trustee, including ownership rights in
the Trust assets. The former trustee shall execute any
instrument necessary or reasonably requested by the successor
trustee to evidence the transfer.
(b) The successor trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust
assets, subject to Sections VII and VIII hereof. The successor
trustee shall not be responsible for and Bank shall
15
<PAGE>
indemnify and defend the successor trustee from any claim or
liability resulting from any action or inaction of any prior
trustee or from any other past event, or any condition
existing at the time it becomes successor trustee.
SECTION XII
AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Bank. Notwithstanding the foregoing,
no such amendment shall conflict with the terms of the Plan or
shall make the Trust revocable.
(b) The Trust shall not terminate until Plan participants and
their beneficiaries are no longer entitled to any benefits
pursuant to the terms of the Plans. Upon termination of the
Trust any assets remaining in the Trust shall be returned to
Bank. Notwithstanding the foregoing, if at any time prior to
the termination of the Trust pursuant to the provisions set
forth herein, the Trust has distributed its entire corpus, the
Trust shall terminate unless within sixty (60) days of
notification to the Bank by Trustee that all assets of the
Trust have been distributed, the Bank makes additional
contributions to the Trust for purposes of paying the benefits
set forth herein.
(c) Upon written approval of Plan participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the
Plans, Bank may terminate this Trust prior to the time all
benefit payments under the Plans have been made. All assets in
the Trust at termination shall, after payment of all amounts
due to Trustee and all fees, taxes, expenses chargeable to the
Trust, be returned to Bank.
(d) Section(s) I (one), II (two), V (five), IX (nine) and XI
(eleven) of this Trust Agreement may not be amended by Bank
(i) in anticipation of or (ii) for two (2) years following a
Change of Control, as defined herein.
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<PAGE>
SECTION XIII
MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered
or subjected to attachment, garnishment, levy, execution or
other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana. Nothing in
this Trust Agreement shall be construed to subject the Trust
to the Employee Retirement Income Security Act of 1974, as
amended.
(d) For purposes of this Trust, "Change in Control" shall mean and
include the following with respect to the Mutual Holding
Company, the Bank, or the Holding Company:
(i) a reorganization, merger, merger conversion,
consolidation or sale of all or substantially all of
the assets of the Bank, the Mutual Holding Company or
the Holding Company, or a similar transaction in
which the Bank, the Mutual Holding Company or the
Holding Company is not the resulting entity;
(ii) individuals who constitute the board of directors of
the Bank, the Mutual Holding Company or the Holding
Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or
whose
17
<PAGE>
nomination for election was approved by the Holding
Company's nominating committee which is comprised of
members of the Incumbent Board, shall be, for
purposes of this clause (ii) considered as though he
were a member of the Incumbent Board.
Notwithstanding the foregoing, a "Change in Control" of the
Bank or the Holding Company shall not be deemed to have
occurred if the Mutual Holding Company ceases to own at least
51% of all outstanding shares of stock of the Holding Company
in connection with a liquidation of the Mutual Holding Company
into the Holding Company or a conversion of the Mutual Holding
Company from mutual to stock form.
In addition, a Change in Control shall mean and include the
following with respect to the Bank or the Holding Company in
the event that the Mutual Holding Company converts to stock
form or in the event that the Holding Company issues shares of
its common stock to stockholders other than the Mutual Holding
Company:
(i) a change in control of a nature that would be
required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (hereinafter the
"Exchange Act"); or
(ii) an acquisition of "control" as defined in the Bank
Holding Company Act and applicable regulations
thereunder ("BHCA"), as determined by the Board of
Directors of the Bank or the Holding Company; or
(iii) at such time as:
(A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange
Act) or "group acting in concert" is or
becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange
18
<PAGE>
Act), directly or indirectly, of securities
of the Bank representing Twenty Percent
(20%) or more of the combined voting power
of the Bank's or Holding Company's
outstanding securities ordinarily having the
right to vote at the elections of directors,
except for any stock purchased by the Bank's
Employee Stock Ownership Plan and/or the
trust under such plan; or
(B) a proxy statement is issued soliciting
proxies from the stockholders of the Holding
Company by someone other than the current
management of the Holding Company, seeking
stockholder approval of a plan of
reorganization, merger, or consolidation of
the Holding Company with one or more
corporations as a result of which the
outstanding shares of the class of the
Holding Company's securities are exchanged
for or converted into cash or property or
securities not issued by the Holding
Company.
The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding
or disposing of securities. The term "acquire" means obtaining
ownership, control, power to vote or sole power of disposition
of stock, directly or indirectly or through one or more
transactions or subsidiaries, through purchase, assignment,
transfer, exchange, succession or other means, including (1)
an increase in percentage ownership resulting from a
redemption, repurchase, reverse stock split or a similar
transaction involving other securities of the same class; and
(2) the acquisition of stock by a group of persons and/or
companies acting in concert which shall be deemed to occur
upon the formation of such group, provided that an investment
advisor shall not be deemed to acquire the voting stock of its
advisee if the
19
<PAGE>
advisor (a) votes the stock only upon instruction from the
beneficial owner and (b) does not provide the beneficial owner
with advice concerning the voting of such stock. The term
"security" includes nontransferable subscription rights issued
pursuant to a plan of conversion, as well as a "security," as
defined in 15 U.S.C. ss. 78c(2)(1); and 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. Further, acting in
concert with any person or company shall also be deemed to be
acting in concert with any person or company that is acting in
concert with such other person or company.
Notwithstanding the above definitions, the boards of directors
of the Bank or the Holding Company, in their absolute
discretion, may make a finding that a Change in Control of the
Bank or the Holding Company has taken place without the
occurrence of any or all of the events enumerated above.
(e) The Bank shall be required to notify the Trustee of a Change
in Control or imminent Change in Control (for these purposes,
a Change in Control shall be imminent if it shall occur within
sixty (60) days from the date of said notice). The Trustee
shall not be charged with actual knowledge of a Change in
Control until it has received notice, in writing, of such
Change in Control or imminent Change in Control.
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<PAGE>
(f) Every direction or notice authorized hereunder shall be deemed
delivered to the Bank or the Trustee as the case may be:
(i) on the date it is personally delivered tothe
Bank or the Trustee at its respective
principal executive offices, or
(ii) three (3) business days after it is sent by
registered or certified mail, postage
prepaid, addressed to the Bank, the Trustee
or the benefits determiner at such principal
executive offices.
(g) The Trustee shall be fully protected in relying upon a
certification of an authorized representative of the Bank with
respect to any instruction, direction or approval of the Bank
required or permitted hereunder, and protected also in relying
upon the certification until a subsequent certification is
filed with the Trustee. The Trustee shall be fully protected
in acting upon any instrument, certificate, or paper believed
by it to be genuine and to be signed or presented by the
proper person or persons, and the Trustee shall be under no
duty to make any investigation or inquiry as to any statement
contained in any such writing, but may accept the same as
conclusive evidence of the trust and accuracy contained
therein.
(h) The Bank has appointed Financial Institution Consulting
Corporation as the "Benefits Determiner" to determine the
manner and amount of payments to be made to the participant
and/or the beneficiary under the Agreement in the event of any
dispute. In the event that the Benefits Determiner fails to
act or resigns, a successor benefits determiner shall be:
(i) selected by the Bank, if no Change in Control has
occurred at the Bank, or,
21
<PAGE>
(ii) selected jointly by the participant (or beneficiary,
if the participant is deceased) and the Trustee, if a
Change in Control has occurred at the Bank.
(i) Communications under this Trust Agreement shall be in writing
and shall be sent to the following addresses:
Trustee: Security Federal Savings Bank
314 Fourth Street
Logansport, Indiana 46947-3183
Attention: Trust Department
Telecopier: (219) 722-3760
Bank: Oswego County Savings Bank
44E. Bridge Street
Oswego, New York 13126-2179
Attention: Gregory Kreis, President & CEO
Telecopier: (315) 343-2481
(j) This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but all of which shall together constitute only one agreement.
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<PAGE>
IN WITNESS WHEREOF, this instrument has been executed as of the day and
year first above written.
ATTEST: OSWEGO COUNTY SAVINGS BANK
/s/ Mary E. Lilly By: /s/ Bruce P. Frassinelli
- -------------------------- -------------------------
Secretary Title: Chair, Personnel and
Compensation Committee
OCSB Board of Directors
ATTEST: SECURITY FEDERAL SAVINGS BANK
/s/ Maureen E. Prentice By:/s/ Suzanne Chilcott
- -------------------------- -------------------------
Secretary Title: Vice President & Sr. Trust
Officer
Oswego County Bancorp, Inc.
Annual Report to Shareholders
<PAGE>
Oswego County Savings Bank
Mission Statement:
Our mission is to be a financial service organization of undisputed integrity
serving central New York.
Our goal is to maximize the value of our shareholders' equity by helping our
customers attain their financial goals and potential.
Our specialty is providing individuals and small businesses with the personal,
professional and innovative financial services they desire delivered in a manner
that is above their expectations.
Our pledge is to manage entrusted resources for the benefit of our stockholders,
customers, communities and staff.
Strategic Objectives 2000-2002
Become a diversified financial service organization.
Expand traditional markets and methods of delivery.
Provide a work environment that attracts and retains highly qualified
individuals dedicated to the bank's goals.
Use technology to improve staff efficiency and provide electronic service
options.
<PAGE>
Oswego County Bancorp, Inc. and Oswego County Savings Bank
Board of Directors
[picture]
Back row, left to right: Paul J. Heins, Vice Chairman, Gregory J. Kreis, Bruce
P. Frassinelli, Deborah F. Stanley. Front row, left to right: Michael L. Brower,
Paul W. Schneible, Chairman, Carl K. Walrath. Missing: Bernard Shapiro.
Management Team
[picture]
Back row, left to right: Stephen Albright, Gregory J. Kreis, Gregory H. May,
Ronald Tascarella. Front row: Judith S. Percy, Mary E. Lilly.
<PAGE>
Annual Message to Shareholders
The year 1999 saw the most dramatic change for Oswego County Savings Bank in the
129 history of the Bank. Oswego County Savings Bank and Oswego City Savings Bank
jointly announced the termination of the merger agreement between the two banks
in January, seventeen months after signing the agreement. Although both banks
believed the merger would have been positive for our customers and the Oswego
County community, we were unsuccessful in gaining necessary regulatory
approvals. The Board of Trustees voted unanimously to begin the process to
convert from a mutual savings bank to a mutual holding company and stock bank
form of ownership. The Board felt strongly that to accommodate the strategic
vision for the future that the Bank would need additional capital. The
conversion was accomplished on the 14th of July with the completion of a
successful initial public offering of our stock.
In 1997 the Bank started an extensive review of all of our systems to determine
what needed to be done to ensure that a smooth transition to the year 2000 would
be accomplished. Hundreds of man-hours were dedicated to the project as well as
a substantial investment in new computer equipment and computer software. The
effort was successful and the New Year rolled in without a problem.
The good news regarding all of the Y2K preparation work was that our technology
took a significant step forward. New high-speed phone lines were installed to
all of our locations and a wide area network was established to improve customer
service and internal communication. Faster and more efficient personal computers
were acquired and additional software was installed to streamline tasks and add
new services.
The Main Office facility was renovated from top to bottom. Our Main Office
branch received new ceilings, lighting, carpet, fresh paint and a redesigned
teller line with a manager's office located next to it. All of our back room
operations were consolidated on our third floor in freshly remodeled space which
improved workflow.
In August a new branch located at 700 North Main Street in North Syracuse was
opened and represented the Bank's first branch outside of Oswego County. The
reception in that market has been gratifying and our growth is on target to meet
our first year budget. Also in August the Bank installed an ATM in the Hewitt
Student Union on the Oswego State University campus.
The Bank also began offering several new products during the year. A home equity
line of credit and several new fixed rate residential mortgage products were
introduced. An automatic overdraft privilege was added for our consumer checking
account customer's convenience. The OCSB MasterMoney Card was also introduced to
our checking account customers. This debit card may be used at OCSB ATMs as well
as a worldwide network of ATMs. Additionally the debit card can be used at
businesses worldwide that accept MasterCard transactions. The amount is
automatically deducted from the customer's checking account giving them
universal access to their funds.
<PAGE>
We expanded our services to the business community and were received warmly by
that group. Business loan and deposit balances grew substantially and two more
staff members were added to accommodate that growth. Our strategic direction is
to continue to grow this very important segment of the market. Based on the
volume of activity we are currently experiencing additional staff will be added
in 2000 to keep up with the demand.
The year 1999 was truly exciting as the Bank positioned itself to succeed in the
twenty first century. The year 2000 promises to be an equally exciting year as
many new loan and deposit product offerings are being readied for introduction.
A package to allow our customer's to bank from home or work via the Internet
will also be introduced. Non traditional banking services will also be available
in 2000 with a goal of being one stop financial services provider.
The Bank will celebrate our 130th anniversary in August. The Board's and
management's that have guided the Bank throughout those 130 years have steered a
course that kept the Bank sound and allowed it to grow and serve the citizens
and businesses of this region. The current Board, management team and staff are
equally committed to operating a strong and growing financial institution
dedicated to excellent service while meeting the changing needs of our
customers.
Paul W. Schneible Gregory J. Kreis
Chairman of the Board President & CEO
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On July 13, 1999, Oswego County Savings Bank (the "Bank") reorganized under a
mutual holding company structure as a wholly owned subsidiary of Oswego County
Bancorp, Inc. (the "Company" or "OCB"), a mid-tier stock holding company that
became the majority-owned subsidiary of Oswego County MHC (the "MHC").
Contemporaneously with the reorganization, the Company sold in a public offering
399,500 shares of its common stock, par value $.01 ("Company Common Stock") at
$10.00 per share, raising net proceeds of $3.0 million. As an integral part of
the reorganization and public offering and in furtherance of the Company's
commitment to the communities it serves, the Bank and the Company have
established a charitable foundation known as the Oswego County Charitable
Foundation (the "Foundation") and have contributed 15,980 shares to the
Foundation. The Foundation will provide funding to support charitable causes and
community development activities, which will complement the Bank's existing
community activities. In addition, the Company established an Employee Stock
Ownership Plan (ESOP) for employees of the Company and the Bank, which became
effective with completion of the reorganization. The ESOP plan acquired 31,960
shares of OCB stock through January 2000 and has no immediate plans to purchase
additional shares.
The consolidated financial condition and operating results of the Company are
primarily dependent on its wholly owned subsidiary, the Bank, and all references
to the Company prior to July 13, 1999, except where otherwise indicated are to
the Bank.
Comparison of Financial Condition at December 31, 1999 and December 31, 1998
Total assets increased by $12.0 million or 10.8% to $122.8 million at December
31, 1999 from $110.9 million at December 31, 1998. The increase was primarily
due to a $2.6 million or 18.8% increase in securities held to maturity and a
$6.1 million or 40.9% increase in securities available for sale. Loans
outstanding increased $1.0 million from $72.1 million at December 31, 1998 to
$73.1 million at December 31, 1999. These asset increases were funded with net
stock offering proceeds of $3.0 million, $5.0 million in long-term borrowings
and a $3.6 million increase in total deposits from $96.6 million at December 31,
1998 to $100.1 million at December 31, 1999.
While total loans increased $1.0 million during 1999, the mix of outstanding
loans changed due to continued mortgage refinancings and successful efforts in
commercial lending. Total residential and home equity loans decreased $5.2
million from $60.8 million at December 31, 1998 to $55.6 million at December 31,
1999. The decrease in mortgage and home equity loans reflects consumer
preference in lower interest rate environments for fixed-rate residential
mortgage loans and the continued high levels of mortgage loan refinancings in
1999. As interest rates have risen in the latter part of 1999 and in early 2000,
refinancing has slowed and consumer interest in adjustable-rate mortgages has
increased. Commercial loans increased from $265,000 at December 31, 1998 to $5.9
million at December 31, 1999. This increase reflects the Company's continued
efforts to diversify the loan portfolio and to expand product offerings to
include commercial term loans and lines of credit. At December 31, 1999, net
loans amounted
<PAGE>
to $72.0 million or 58.6% of total assets, compared to $71.0 million or 64.1% at
December 31, 1998. Total securities available for sale increased $6.1 million
from $14.8 million at December 31, 1998 to $20.8 million at December 31, 1999.
Securities held to maturity increased $2.6 million from $13.7 million at
December 31, 1998 to $16.3 million at December 31, 1999. The increase in
securities available for sale was funded by increased deposit balances and long
term borrowings. The increases in securities held to maturity were primarily in
municipal issues which offer the Company favorable income tax benefits.
Securities represented 30.2% of total assets at December 31, 1999 and 25.7% of
total assets at December 31, 1998.
Real estate owned at December 31, 1999 was $255,000 compared to $195,000 at
December 31, 1998. During 1999, the Company continued to reduce the level of
non-performing loan amounts. Total non-performing loans decreased from $1.7
million at December 31, 1998 to $1.3 million at December 31, 1999. Loan
charge-offs have also decreased from $526,000 in 1998 to $157,000 in 1999. At
December 31, 1999, the allowance for loan losses equaled $1.1 million
representing 1.46% of total loans outstanding and 81.35% of total non-performing
loans.
Total deposits increased during 1999 by $3.6 million to $100.1 million at
December 31, 1999 from $96.6 million at December 31, 1998. The increase was
centered in demand and savings deposits which increased $1.7 million and $2.3
million, respectively. Time deposit levels were consistent with the prior year.
Total shareholders' equity was $14.2 million at December 31, 1999, an increase
of $2.5 million from December 31, 1998. The increase was due primarily to the
offering proceeds offset by the increase in accumulated other comprehensive loss
and the unallocated ESOP shares, which are presented as a reduction of
shareholders' equity.
Results of Operations for the Year Ended December 31, 1999 Versus the Year Ended
December 31, 1998
Net income was $169,000 for the year ended December 31, 1999, compared to
$309,000 in 1998, reflecting the Company's 1999 contribution of $160,000 worth
of common stock to a charitable foundation and costs associated with opening a
fifth banking office. Fiscal 1999 was a year of transition to public company
status and to an expanded base of operations.
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. Net interest income increased from $4.5 million in
1998 to $4.6 million in 1999 during a year in which market levels for short-term
interest rates increased by approximately 1.50%. The Company views favorably its
ability in 1999 to maintain a consistent level of net interest income in a
rising rate environment. OCB can offer no assurance, however, that it would be
able to achieve similar results during future periods. For the year ended
December 31, 1999, taxable equivalent net interest income increased by $57,000
due to volume and $49,000 as the result of interest rate variances.
<PAGE>
Interest Income. Total interest income decreased by $134,000, or 2.1%, to $7.8
million for 1999 compared to $7.9 million for 1998. The primary reason for the
decrease in interest income was a $483,000 decrease in interest earned on
outstanding loans reflecting mainly the pay down of higher yielding adjustable
rate residential mortgage loans. The average balance of loans decreased $3.5
million from $75.6 million in 1998 to $72.1 million in 1999. The average yield
on the loan portfolio also decreased from 8.27% in 1998 to 8.01% in 1999.
Income from securities increased by $374,000 during 1999 to $1.9 million,
compared to $1.5 million in 1998. The increase in interest income from
securities during 1999 was due primarily to a $6.4 million increase in the
average balance of securities to $31.1 million for 1999 compared to $24.7
million in 1998. The average yield on the securities portfolio decreased
slightly to 6.01% in 1999 compared to 6.05% in 1998.
Other interest income, which consists of interest on federal funds sold and
other short-term investments, was $156,000 in 1999 as compared to $181,000 in
1998. The average amount of federal funds and short-term investments decreased
from $3.2 million in 1998 to $2.9 million in 1999. The average yields on these
investments decreased from 5.60% in 1998 to 5.32% in 1999.
Interest Expense. Interest expense, which consisted primarily of interest paid
on deposits, was $3.1 million in 1999 compared to $3.4 million in 1998. The
primary reason for the $240,000 decrease in interest expense was a 31 basis
point reduction in the average rate paid on these deposits in 1999 compared to
1998. This reflects the Company's increase in lower costing savings and demand
deposits, and reduced average rates paid on savings, demand and time deposits.
OCB offers its deposit customers tiered pricing schedules whereby higher
balances earn higher rates of interest.
Provision for Loan Losses. The provision for loan losses was $120,000 in both
1999 and 1998. Provisions for loan losses are recorded to maintain the allowance
for loan losses at an amount management considers adequate to cover 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
underwriting policies. Net loan charge-offs were $119,000 in 1999 and $461,000
in 1998, reflecting the Company's efforts during the past three years to address
problem loan situations in a timely manner. As a result of improvement in loan
portfolio quality, charge-offs and non-performing loans declined during 1999.
Total non-performing loans decreased from $1.7 million at December 31, 1998 to
$1.3 million at December 31, 1999. At December 31, 1999, the allowance for loan
losses equaled $1.1 million, representing 1.46% of total loans outstanding and
81.35% of total non-performing loans.
Noninterest Income. Noninterest income increased by $116,000 during 1999 as
compared to 1998. The increase reflects the Company's efforts to expand
commercial loan and deposit products, which result in greater service fee
levels. In addition, the Company extended efforts to reduce fee and service
charge waivers during 1999.
<PAGE>
Noninterest Expenses. Noninterest expenses increased during 1999 by $459,000, or
10.4%, to $4.9 million compared to $4.4 million in 1998. The primary reasons for
the increase were a 10.3% increase in salaries and benefits, a 15.6% increase in
occupancy and equipment expenses, a $170,000 increase in professional fees, a
$98,000 increase in data processing costs and a $160,000 increase in charitable
contributions. Partially offsetting these increases were the absence in 1999 of
$171,000 in terminated merger expenses, and a reduction of $217,000 in ORE
expenses. Higher salary and benefit costs reflect the branch opening, wage
increases and inflationary increases in benefit expenses. The increase in
occupancy and equipment expense was caused by higher depreciation expense on
capital expenditures, primarily for the new branch and computer equipment. The
increase in data processing costs in 1999 reflects efforts to continue to
improve data processing capabilities, inflationary increases in a data
processing servicing contract, expenses associated with ATMs installed in mid
1998, and costs to bring a new branch on line. Professional fees include the
costs of a profitability study, Y2K consulting costs, and increased costs from
operating as a publicly held company. Increased charitable contributions reflect
the $160,000 contribution of common stock to Oswego County Charitable
Foundation.
Income Taxes. Income tax expense decreased by $125,000 in 1999 to $37,000 as
compared to $162,000 in 1998, reflecting reduced pretax income and a greater
volume of tax exempt securities in 1999. The effective income tax rate declined
to 18.0% in 1999 from 34.4% in 1998.
[picture]
700 North Main Street, North Syracuse
Our newest branch opened August of 1999.
Stephen Sharkey Assistant Vice President and Branch Manager.
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Consolidated Financial Statements
Years ended December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Oswego County Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Oswego County Bancorp, Inc. and subsidiary (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Oswego County
Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
February 28, 2000
Syracuse, New York
<PAGE>
Statements of Financial Condition, p. 2
Statements of Operations, p. 4
Statements of Changes in Net Worth, p. 7
Statements of Cash Flows, p. 9
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1999 and 1998
(In thousands, except share data)
Assets 1999 1998
---- ----
Cash and due from banks $ 6,450 4,007
Federal funds sold and other short-term investments -- 2,600
Securities held to maturity, fair value of $15,829 in
1999 and $13,792 in 1998 16,307 13,730
Securities available for sale, at fair value 20,834 14,784
Loans 73,098 72,081
Less allowance for loan losses 1,069 1,068
-------- -------
Loans, net 72,029 71,013
-------- -------
Real estate owned 255 195
Premises and equipment, net 3,056 2,245
Accrued interest receivable 938 856
Other assets 2,980 1,436
-------- -------
Total assets $122,849 110,866
======== =======
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand $ 13,329 11,630
Savings and money market 49,000 46,687
Time 37,789 38,247
-------- -------
100,118 96,564
Escrow deposits 1,286 1,319
Short-term borrowings 900 --
Long-term debt 5,000 --
Other liabilities 1,326 1,289
-------- -------
Total liabilities $108,630 99,172
-------- -------
Commitments and contingencies (note 13)
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
no shares issued -- --
Common stock, $0.01 par value, 7,500,000 shares authorized,
887,230 shares issued at December 31, 1999 9 --
Additional paid-in capital 3,182 --
Retained earnings 11,764 11,695
Accumulated other comprehensive income (loss) (498) (1)
Unallocated common stock held by Employee Stock
Ownership
Plan (ESOP), 24,284 shares at December 31, 1999 (238) --
--------- -------
Total shareholders' equity 14,219 11,694
--------- -------
Total liabilities and shareholders' equity $ 122,849 110,866
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1999 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Interest income:
Loans $ 5,770 6,253
Securities 1,827 1,481
Federal funds sold and other short-term investments 156 181
------- -------
Total interest income 7,753 7,915
Interest expense:
Deposits and escrow accounts 3,131 3,388
Borrowings 17 --
------- -------
Total interest expense 3,148 3,388
------- -------
Net interest income 4,605 4,527
Provision for loan losses 120 120
------- -------
Net interest income after provision for loan losses 4,485 4,407
------- -------
Noninterest income:
Service charges 450 387
Nationar recovery -- 22
Net gains on securities transactions 7 2
Other 128 58
------- -------
Total noninterest income 585 469
------- -------
Noninterest expenses:
Salaries and employee benefits 2,122 1,924
Occupancy and equipment 776 671
Data processing 435 337
Office supplies, printing and postage 219 187
Professional fees 421 251
Merger expenses -- 171
Real estate owned, net 85 302
Director fees 128 138
Marketing and advertising 159 121
Contributions 200 40
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
Deposit insurance premiums 11 12
Other 308 251
------- -------
Total noninterest expenses 4,864 4,405
------- -------
Income before income tax expense 206 471
Income tax expense 37 162
------- -------
Net income $ 169 309
======= =======
Basic loss per share (for period after conversion to stock form) $ (0.17) ~~
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1999 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
Stock capital earnings
---------------- ---------------- ------------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ -- -- 11,386
Comprehensive income:
Net income -- -- 309
Net change in the unrealized gain (loss) on securities
available for sale, net of taxes -- -- --
Total comprehensive income
------------------- ---------------- ------------------
Balance at December 31, 1998 -- -- 11,695
Net proceeds from sale of 399,500 shares of common
stock in initial public offering 4 3,027 --
Initial capital contributions and issuance of common
stock to Oswego MHC (471,750 shares) 5 (5) (100)
Charitable contribution of common stock to the
Oswego County Charitable Foundation (15,980 -- 160 --
</TABLE>
6
<PAGE>
<TABLE>
shares)
Acquisition of common stock by ESOP (26,460 shares) -- -- --
Allocation of ESOP stock (2,176 shares) -- -- --
Comprehensive income:
Net income -- -- 169
Net change in the unrealized gain (loss) on securities
available for sale, net of taxes -- -- --
Total comprehensive income (loss)
-- ---------------- ---------------- ------------------
Balance at December 31, 1999 $ 9 3,182 11,764
=================== ================ ==================
<CAPTION>
Unallocated
Accumulated common
other stock
comprehensive held by
income (loss) ESOP Total
------------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at December 31, 1997 5 -- 11,391
Comprehensive income:
Net income -- -- 309
Net change in the unrealized gain (loss) on securities
available for sale, net of taxes (6) -- (6)
-----------------
Total comprehensive income 303
------------------- ----------------- -----------------
Balance at December 31, 1998 (1) -- 11,694
Net proceeds from sale of 399,500 shares of common
stock in initial public offering -- -- 3,031
Initial capital contributions and issuance of common
stock to Oswego MHC (471,750 shares) -- -- (100)
Charitable contribution of common stock to the
Oswego County Charitable Foundation (15,980 shares) -- -- 160
Acquisition of common stock by ESOP (26,460 shares) -- (259) (259)
Allocation of ESOP stock (2,176 shares) -- 21 21
Comprehensive income:
Net income -- -- 169
Net change in the unrealized gain (loss) on securities
available for sale, net of taxes (497) -- (497)
-----------------
Total comprehensive income (loss) (328)
------------------- ----------------- -----------------
Balance at December 31, 1999 (498) (238) 14,219
=================== ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
(In
thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 169 309
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 318 256
Provision for loan losses 120 120
Nationar recovery -- (22)
Writedown on real estate owned 46 32
(Gain) loss on sale of real estate owned (34) 113
Net gains on securities transactions (7) (2)
Net amortization on securities 31 32
Deferred income tax expense (benefit) (160) 99
Contribution to foundation 160 --
ESOP compensation expense 21 --
Change in:
Accrued interest receivable (82) 69
Other assets (1,052) (538)
Escrow deposits (33) (140)
Other liabilities 37 44
------- -------
Net cash provided by (used in) operating activities (466) 372
------- -------
Cash flows from investing activities:
Proceeds from maturity of and principal collected on
securities held to maturity 3,428 9,723
Proceeds from sale of securities available for sale 2,019 2,002
Proceeds from maturity of and principal collected on
securities available for sale 7,440 6,896
Purchases of securities held to maturity (6,039) (13,039)
Purchases of securities available for sale (16,328) (12,778)
Net (disbursements) receipts on loan originations and principal collections (1,496) 7,644
Proceeds from sale of real estate owned 288 534
Purchases of premises and equipment, net of disposals (1,129) (177)
------- -------
Net cash provided by (used in) investing activities (11,817) 805
------- -------
Cash flows from financing activities:
Net increase in demand, savings and money market deposits 4,012 116
Net decrease in time deposits (458) (1,450)
Net increase in short-term borrowings 900 --
Proceeds from issuance of long-term debt 5,000 --
Net proceeds from the issuance of common stock 3,031 --
Purchase of common stock by ESOP (259) --
Capitalization of Oswego MHC (100) --
------- -------
Net cash provided by (used in) in financing activities 12,126 (1,334)
------- -------
Net decrease in cash and cash equivalents (157) (157)
Cash and cash equivalents at beginning of year 6,607 6,764
------- -------
8
<PAGE>
Cash and cash equivalents at end of year $ 6,450 6,607
======== =======
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 3,131 3,388
Income taxes (1) 196
======== =======
Non-cash investing and financing activities:
Transfer of loans to real estate owned $ 360 275
======== =======
Adjustment of securities available for sale to fair value, net of taxes $ (497) (6)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Oswego County Bancorp, Inc. (the
"Parent Company") and its subsidiary (referred to together as the
"Company") conform to generally accepted accounting principles and
reporting practices followed by the banking industry. The more significant
policies are described below.
(a) Reorganization and Stock Offering
Oswego County Bancorp, Inc. is the parent company of Oswego County
Savings Bank (the "Bank"). On July 13, 1999, Oswego County Savings
Bank reorganized 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 became the
majority-owned subsidiary of Oswego County MHC (the "MHC").
Contemporaneously with the reorganization, Oswego County Bancorp,
Inc. sold 399,500 shares of its common stock at $10.00 per share,
raising net proceeds of $3.0 million, after offering costs of
$900,000. As an integral part of the reorganization and public
offering, the Company established a charitable foundation known as
the Oswego County Charitable Foundation (the "Foundation") and
contributed 15,980 shares to the Foundation. Contributions expense
for 1999 includes $160,000 for the fair value of these shares at the
contribution date. The Foundation will provide funding to support
charitable causes and community development activities. In addition,
the Company established an Employee Stock Ownership Plan (ESOP)
which became effective with the completion of the reorganization.
(b) Merger Termination
On January 28, 1999, the Bank terminated a proposed merger, as a
result of certain regulatory considerations. Expenses related to
this terminated merger totaling $171,000 in 1998 are included in
noninterest expenses.
(c) Basis of Presentation
The consolidated financial statements include the accounts of Oswego
County Bancorp, Inc. and its subsidiary, Oswego County Savings Bank.
All inter-company accounts and transactions have been eliminated in
consolidation. The Company utilizes the accrual method of accounting
for financial reporting purposes. Amounts in the prior years'
consolidated financial statements have been reclassified whenever
necessary to conform to the current year's presentation.
(Continued)
10
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities 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.
(e) Securities
The Company classifies its securities as either available for sale
or held to maturity, as the Company does not hold any securities
considered to be trading. Held to maturity securities are those debt
securities for which the Company 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 or loss until realized.
Non-marketable equity securities (principally Federal Home Loan Bank
Stock) are included in securities available for sale at cost since
there is no readily available market value.
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.
(f) Loans
Loans (other than those held for sale) are reported at the principal
amount outstanding. Fees and certain direct origination costs
related to lending activities are recognized in income as incurred,
as the amounts are immaterial.
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to income.
(Continued)
11
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Generally, the Company places all loans that are 90 days or more
past due on non-accrual status. In addition, the Company 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.
(g) Allowance for Loan Losses
The Company'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 Company's
allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examinations.
The Company 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 Company's residential mortgages, home equity loans
and consumer loans are collectively evaluated for impairment.
Accordingly, the Company 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.
(h) 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.
(i) Premises and Equipment
Land is carried at cost, and buildings, furniture and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed primarily on the straight-line method over the estimated
service lives of the assets.
(Continued)
12
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(j) 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
are also recognized for tax carryforwards such as charitable
contributions. 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. If it
is more likely than not that all, or a portion of the Company's
deferred tax assets will not be realized a valuation must be
established. 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.
(k) Pension and Other Postretirement Benefits
The Company 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 Company's funding policy is to contribute annually
at least the minimum required by law.
The Company 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 Company'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 medical
insurance premium. The Company accrues the cost of these benefits to
employees and the employees' beneficiaries during the years that the
employees render the necessary service.
(l) 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.
(m) Financial Instruments With Off-Balance Sheet Risk
The Company does not engage in the use of derivative financial
instruments and the Company's only financial instruments with
off-balance sheet risk are commercial and residential mortgage
commitments. These off-balance sheet items are shown in the
Company's statement of financial condition upon funding.
(Continued)
13
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(n) Comprehensive Income
Comprehensive income, presented in the consolidated statements of
changes in shareholders' equity, 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.
(o) Segment Information
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information 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
Company'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 Company's only operating
segment for financial reporting purposes. Therefore, the adoption of
SFAS No. 131 in 1998 did not result in any changes in the Company's
reporting.
(p) 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,
after amendment by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000, although earlier adoption is
permitted. The Company anticipates, based on current activities,
that the adoption of SFAS No. 133 will not have a significant 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.
(Continued)
14
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
In 1999, the Company adopted 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. Adoption of SFAS No. 134 did not have any impact on the
Company's financial position or results of operations.
(2) Securities
The amortized cost and fair value of securities are as follows:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- ---------- ---------- ----
(in thousands)
<S> <C> <C> <C> <C>
Securities available for sale
Debt securities:
United States Government
agency obligations $ 21,032 -- 830 20,202
Corporate stocks 632 -- -- 632
----------- -- --- ------
Total securities available
for sale $ 21,664 -- 830 20,834
=========== == === ======
Securities held to maturity
Debt securities:
United States Government
agency obligations $ 4,995 -- 77 4,918
Corporate and municipal securities 8,171 -- 339 7,832
Mortgage-backed securities:
Ginnie Mae 1,369 -- 17 1,352
Fannie Mae 1,014 1 37 978
Freddie Mac 47 1 -- 48
Small Business Administration 711 -- 10 701
----------- -- --- ------
Total securities held
to maturity $ 16,307 2 480 15,829
=========== == === ======
</TABLE>
(Continued)
15
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- ---------- ---------- ----
(in thousands)
<S> <C> <C> <C> <C>
Securities available for sale
Debt securities:
United States Treasury $ 1,007 13 -- 1,020
United States Government
agency obligations 13,776 47 61 13,762
Total debt securities 14,783 60 61 14,782
Equity securities:
Corporate stocks 2 -- -- 2
Total securities available
for sale $14,785 60 61 14,784
Securities held to maturity
Debt securities:
United States Government
agency obligations 6,491 57 4 6,544
Corporate and municipal securities 4,125 37 6 4,156
Mortgage-backed securities:
Ginnie Mae 2,164 3 17 2,150
Fannie Mae 426 1 8 419
Freddie Mac 22 1 -- 23
Small Business Administration 502 -- 2 500
Total securities held
to maturity $13,730 99 37 13,792
</TABLE>
Proceeds from the sale of securities available for sale during 1999 were
approximately $2,019,000 with gross gains of approximately $12,000 and no gross
losses realized on those sales. No gross gains and gross losses of approximately
$5,000 were realized from securities called during 1999. Proceeds from the sale
of securities available for sale during 1998 were approximately $2,002,000, with
gross gains of approximately $2,000 and no gross losses realized on those sales.
No securities held to maturity were sold in 1999 and 1998.
(Continued)
16
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The net gains on securities transactions included in 1999 net income, net of
tax, was approximately $4,000 which adjusted the unrealized holding loss on
securities available for sale arising during the year ended December 31, 1999 to
approximately $493,000. Net gains on securities transactions included in 1998
net income, net of tax, was approximately $1,000 which adjusted the unrealized
holding loss on securities available for sale arising during the year ended
December 31, 1998 to approximately $5,000.
Securities available for sale with an amortized cost of approximately $6.2
million at December 31, 1999 were pledged to secure borrowings from the Federal
Home Loan Bank. There were no securities pledged at December 31, 1998.
The following is a tabulation of debt securities, excluding mortgage-backed
securities, by contractual maturity as of December 31, 1999. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for sale Held to maturity
------------------ ----------------
Amortized Fair Amortized Fair
cost value cost value
--------- ---- --------- ----
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ -- -- 1,252 1,251
Due after one year through five years 6,785 6,565 7,462 7,303
Due after five years through ten years 14,247 13,637 3,401 3,201
Due after ten years -- -- 1,051 995
Total $ 21,032 20,202 13,166 12,750
========== ====== ====== ======
</TABLE>
(3) Loans
The following is a summary of loans outstanding:
December 31,
--------------------------------
1999 1998
---- ----
(in thousands)
Residential mortgages and
home equity loans $ 55,594 60,829
Commercial mortgages 7,857 8,950
Commercial loans 5,903 265
Consumer loans 3,744 2,037
----------- ------
Total loans 73,098 72,081
Allowance for loan losses (1,069) (1,068)
----------- ------
Net loans $ 72,029 71,013
=========== ======
(Continued)
17
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Included in residential mortgages and home equity loans at December 31, 1998
were $4.3 million of mortgage loans held for sale. During the second quarter of
1999 all mortgage loans held for sale were transferred to the loan portfolio.
Fair value of the loans held for sale approximated the carrying value at the
date of transfer.
The Company's market area is generally Oswego County and Onondaga County in
Central New York State. Substantially all of the Company's portfolio is located
in its market area and, accordingly, the ultimate collectibility of the
Company's loan portfolio is susceptible to changes in market conditions in this
area. The Company'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.
(4) Allowance for Loan Losses
The following is a summary of changes in the allowance for loan losses:
Years ended December 31,
------------------------
1999 1998
---- ----
(in thousands)
Balance at beginning of year $ 1,068 1,409
------------ -----
Provision for loan losses 120 120
Loan charge-offs (157) (526)
Recoveries 38 65
------------ -----
Balance at end of year $ 1,069 1,068
============ =====
The principal balance of all loans not accruing interest amounted to
approximately $1,064,000 and $1,688,000 at December 31, 1999 and 1998,
respectively. The forgone interest income on non-accruing loans was
approximately $56,000 and $81,000 for the years ended December 31, 1999 and
1998, respectively.
At December 31, 1999 and 1998, the recorded investment in impaired loans totaled
approximately $558,000 and $979,900, respectively. The impairment allowance
associated with these loans was approximately $99,000 and $168,000 at December
31, 1999 and 1998, respectively. The average recorded investment in impaired
loans during the year was approximately $701,000 and $1,301,000 for 1999 and
1998, 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, 1999 and 1998.
(Continued)
18
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(5) Premises and Equipment
Premises and equipment at December 31 consist of the following:
1999 1998
---- ----
(in thousands)
Land $ 601 426
Buildings and improvements 3,270 2,569
Furniture, fixtures and equipment 2,155 1,933
----------- ---
6,026 4,928
Accumulated depreciation (2,970) (2,683)
----------- ---
Premises and equipment, net $ 3,056 2,245
=========== =====
Depreciation expense was approximately $318,000 and $256,000 for the years ended
December 31, 1999 and 1998, respectively.
(6) Deposits
Time deposit contractual maturities are summarized as follows:
December 31,
------------
1999 1998
---- ----
(in thousands)
Within one year $ 27,076 28,299
After one year and within two years 5,420 4,122
After two years and within three years 1,650 1,897
After three years and within four years 2,977 1,169
After four years and within five years 666 2,760
--------- ------
$ 37,789 38,247
========= ======
Certificates of deposit of $100,000 and over were approximately $6,541,000 and
$5,578,000 at December 31, 1999 and 1998, respectively.
(Continued)
19
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(7) Long-Term Debt
In 1999, the Company began using fixed rate long-term borrowings,
principally convertible advances from the FHLB, as a source of funds.
Information on the borrowings at December 31, 1999 is summarized as follows:
Maturity date Amount Rate Call Date
(in thousands)
December 13, 2004 $ 5,000 6.00% Quarterly, beginning
December 13, 2001
(8) Income Taxes
Total income tax expense for the years ended December 31 was allocated as
follows:
1999 1998
(in thousands)
Income before income tax expense $ 37 162
Change in shareholders' equity
for unrealized loss on securities
available for sale (332) (4)
Total $(295) 158
(Continued)
20
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Income tax expense attributable to income before income taxes consisted
of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
(in thousands)
<S> <C> <C> <C>
Year ended December 31, 1999:
Federal $ 139 (96) 43
State 58 (64) (6)
------ --- --
Total $ 197 (160) 37
====== ==== ==
Year ended December 31, 1998:
Federal $ 51 74 126
State 12 25 36
------ --- --
Total $ 63 99 162
====== ==== ===
</TABLE>
Actual income tax expense attributable to income before income taxes differed
from the amounts computed by applying the Federal statutory income tax rate to
pre-tax income as follows:
Years ended December 31,
------------------------
1999 1998
---- ----
(in thousands)
Federal income tax expense
at statutory rate $ 70 160
Increase (decrease) resulting from:
Tax-exempt interest income (36) (13)
State taxes, net of Federal income
tax effect (4) 24
Merger costs -- (46)
Other, net 7 37
---- ---
Actual income tax expense $ 37 162
==== ===
(Continued)
21
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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:
1999 1998
------ -----
(in thousands)
Deferred tax assets:
Allowance for loan losses $ 417 427
Postretirement benefits 189 163
Deferred compensation 179 150
Charitable contribution carryover 74 --
Net unrealized loss on securities
available for sale 332 --
Other 12 63
------ ----
Total gross deferred tax assets 1,203 803
------ ----
Deferred tax liabilities:
Excess tax bad debt reserve over base year 158 211
Depreciation 73 97
Prepaid pension expenses 101 114
Net unrealized gain on securities
available for sale -- --
Other 12 14
------ ----
Total gross deferred tax liabilities 344 436
------ ----
Net deferred tax asset, included in
other assets $ 859 367
======= ====
In accordance with SFAS No. 109, the Company has not recognized deferred tax
liabilities with respect to the Bank's Federal and state base-year reserves of
approximately $1,107,000 at December 31, 1999, since the Company does not expect
that these amounts will become taxable in the foreseeable future. Under the tax
laws, as amended, events that would result in taxation of these reserves include
redemptions of the Bank's stock or certain excess distributions to the Parent
Company. The unrecognized deferred tax liability at December 31, 1999 with
respect to the base-year reserve was approximately $450,000.
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.
(Continued)
22
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(9) Earnings Per Share
The following table sets forth certain information regarding the
calculation of basic earnings per share for the year ended December 31,
1999, based on net loss for the period from July 14, 1999 to December 31,
1999. Earnings per share information for periods prior to the Company's
initial public offering on July 13, 1999 is not applicable. Unallocated
ESOP shares are not considered outstanding for earnings per share
computations. The shares become outstanding for earnings per share
computations when they are released for allocation. During the year ended
December 31, 1999, the Company did not have any potentially dilutive
securities outstanding.
Weighted
Net Average Per Share
Loss Shares Amount
-------------- -------- ---------
(in thousands)
Basic loss per share $ (150) 867,524 $ (0.17)
(10) 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, 1999 and 1998, using the most recent actuarial data measured
at October 1, 1999 and 1998 for the defined benefit pension plan and at
December 31, 1999 and 1998 for the other postretirement benefit plan:
<TABLE>
<CAPTION>
Pension benefits Postretirement benefits
---------------------- ----------------------
1999 1998 1999 1998
------- ------ ------ -----
(in thousands)
Change in benefit obligation:
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 3,238 2,961 841 756
Service cost 106 67 21 42
Interest cost 209 202 55 53
Amendments -- -- -- (71)
Actuarial (gain)/loss (375) 172 (16) 83
Benefits paid (164) (164) (49) (22)
Settlements (93) -- -- --
-------- ------- ------ ------
Benefit obligation at end of year 2,921 3,238 852 841
-------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 3,430 3,587 -- --
Actual return on plan assets 612 7 -- --
Employer contributions -- -- 49 22
Benefits paid (164) (164) (49) (22)
Settlements (93) -- -- --
-------- ------- ------ ------
Fair value of plan assets at end of year 3,785 3,430 -- --
-------- ------- ------ ------
Funded status (deficit) 864 192 (852) (841)
Unamortized net (asset) obligation at transition (29) (50) 407 434
Unamortized net (gain) loss subsequent to transition (577) 142 (44) --
Unamortized prior service cost 1 2 -- --
-------- ------- ------ ------
Prepaid (accrued) benefit cost $ 259 286 (489) (407)
======== ======= ====== ======
</TABLE>
(Continued)
23
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Net periodic pension cost (income) consists of the following components
for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------ ------
(dollars in thousands)
<S> <C> <C>
Service cost $ 106 67
Interest on projected benefit obligation 209 202
Expected return on plan assets (268) (281)
Amortization of net transition asset (21) (21)
Amortization of unrecognized gain -- (3)
Amortization of prior service cost 1 1
Settlement credit -- (52)
------- -------
Net periodic pension cost (income) $ 27 (87)
======= =======
Weighted average discount rate 7.75% 6.50%
======= =======
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 5.5% for 1999 and 4.5% for 1998. 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,
1999 and 1998 included the following components:
<TABLE>
<CAPTION>
1999 1998
------- ------
(in thousands)
<S> <C> <C>
Service cost $ 49 42
Interest cost on accumulated benefit
obligation 55 53
Amortization of transition obligation 27 39
Amortization of prior service asset -- (2)
Amortization of unrecognized loss -- (8)
------- -------
Net periodic postretirement benefit cost $131 124
======= =======
</TABLE>
(Continued)
24
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
For measurement purposes, a 7.5% and 9.0% annual rate of increase in the
per capita cost of average health care benefits for retirees was assumed
for 1999 and 1998, 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 approximately $89,000, and the
net periodic postretirement benefit cost by approximately $10,000 for the
year then ended. The weighted average discount rate used in determining
the accumulated postretirement obligation was 7.0% for 1999 and 6.5% for
1998.
Other Benefit Plans
In 1997, the Company instituted a nonqualified deferred compensation plan
for directors, under which participants may elect to defer all or part of
their annual director fees. The plan provides that deferred fees are to be
invested in mutual funds, as selected by the individual directors. At
December 31, 1999 and 1998, deferred director fees included in other
liabilities aggregated approximately $330,000 and $204,000, respectively.
The Company sponsors a defined contribution profit sharing 401(k) plan
covering substantially all employees. The Company matches certain
percentages of each eligible employee's contribution to the plan. Expense
for the plan amounted to approximately $36,000 and $38,000 in 1999 and
1998, respectively.
(11) Employee Stock Ownership Plan (ESOP)
The Company established an ESOP in conjunction with the Company's initial
public offering to provide substantially all employees of the Company the
opportunity to also become shareholders. The ESOP borrowed approximately
$259,000 from the Company and used the funds to purchase 26,460 shares of
the common stock of the Company. The loan will be repaid from the
Company's discretionary contributions to the ESOP over a period of
approximately ten years. At December 31, 1999, the loan had an outstanding
balance of approximately $259,000 and an interest rate of 8.5%. Both the
loan obligation and the unearned compensation will be reduced by the
amount of loan repayments to be made by the ESOP at the end of each plan
year ending on December 31. Shares purchased with the loan proceeds are
held in a suspense account for allocation among participants as the loan
is repaid. Shares released from the suspense account are allocated among
participants at the end of the plan year on the basis of relative
compensation in the year of allocation.
(Continued)
25
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Unallocated ESOP shares are pledged as collateral on the loan and are
reported as a reduction of shareholders' equity. The Company reports
compensation expense equal to the average market price of the shares to be
released from collateral at the end of the plan year. The Company recorded
approximately $21,000 of compensation expense related to the ESOP for the
year ended December 31, 1999.
The ESOP shares as of December 31, 1999 were as follows:
Allocated shares --
Shares released for allocation 2,176
Unallocated shares 24,284
-------
Total ESOP shares 26,460
=======
Market value of unallocated shares at
December 31, 1999 (in thousands) $ 228
=======
(12) Shareholders' Equity and Regulatory Matters
The Company's ability to pay dividends is primarily dependent upon the
ability of its subsidiary bank to pay dividends to the Company. The
payment of dividends by the Bank is subject to continued compliance with
minimum regulatory capital requirements. In addition, regulatory approval
is generally required prior to the Bank declaring dividends in an amount
in excess of net income for that year plus net income retained in the
preceding two years.
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 Company'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 and the Company (consolidated) 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 that, as of December 31, 1999 and 1998, the Bank and
the Company met all capital adequacy requirements to which they were
subject.
(Continued)
26
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
As of December 31, 1999, 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 have been no conditions or events since that
notification that management believes have changed the Bank's capital
classification.
The Bank and consolidated Company's regulatory capital amounts and ratios are
presented in the following table:
<TABLE>
<CAPTION>
Required Ratios
Actual -------------------------------
Regulatory Capital Minimum Classification
------------------------- Capital as Well
Amount Ratio Adequacy Capitalized
------ ----- -------- -----------
(dollars in thousands)
As of December 31, 1999:
<S> <C> <C> <C> <C>
Bank
Total Capital
(to risk weighted assets) $ 14,451 15.0% 8.0% 10.0%
Tier I Capital
(to risk weighted assets) 13,383 13.9 4.0 6.0
Tier I Capital
(to average assets) 13,383 11.7 4.0 5.0
Consolidated
Total Capital
(to risk weighted assets) 15,786 16.4 8.0 10.0
Tier I Capital
(to risk weighted assets) 14,717 15.3 4.0 6.0
Tier I Capital
(to average assets) 14,717 12.9 4.0 5.0
As of December 31, 1998:
Bank
Total Capital
(to risk weighted assets) 12,639 16.7 8.0 10.0
Tier I Capital
(to risk weighted assets) 11,694 15.5 4.0 6.0
Tier I Capital
(to average assets) 11,694 10.7 4.0 5.0
</TABLE>
In order to grant priority in the conversion to the eligible depositors, the
Bank established a special account at the time of conversion in an amount equal
to its total net worth at June 30, 1999. In the event of a future liquidation of
the converted bank (and only in such event), eligible account holders who
continue to maintain accounts shall be entitled to receive a distribution from
the special account. The total amount of the special account will be decreased
(as balances of eligible accounts are reduced) on annual determination dates. No
cash dividends may be paid to the shareholders and no shares may be repurchased
by the Company if such actions would reduce the Bank's shareholders' equity
below the amount required for the special account. At December 31, 1999, the
amount remaining in this liquidation account was $6.3 million.
(Continued)
27
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(13) 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 Company does not anticipate losses as a result
of these transactions. Mortgage and other loan commitments outstanding at
December 31, 1999 and 1998 amounted to approximately $5.9 million and $2.4
million, 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, 1999 and 1998 amounted to
approximately $233,000 and $20,000, respectively.
In the normal conduct of business, the Company 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 Company.
(14) 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 Company in
estimating the fair values of its financial instruments:
(a) Short-Term Financial Instruments
For short-term instruments that are available on demand or that
generally mature in ninety days or less, the carrying value
approximates fair value. Such instruments include cash and cash
equivalents, accrued interest receivable and accrued interest
payable.
(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.
(Continued)
28
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(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.
(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 Company's financial instruments as of December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------------------------- ------------------------------
Carrying Fair Carrying Fair
amount value amount value
-------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 6,450 6,450 6,607 6,607
Accrued interest receivable 938 938 856 856
Securities 37,141 36,663 28,514 28,576
Net loans 72,029 70,758 71,013 71,038
Financial liabilities:
Demand, savings and
money market deposits 62,329 62,329 58,317 58,317
Time deposits 37,789 37,739 38,247 38,214
Escrow deposits 1,286 1,286 1,319 1,319
Accrued interest payable 16 16 -- --
</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.
(Continued)
29
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(15) Condensed Financial Information of the Parent Company
The Parent Company began operations in conjunction with the Bank's
mutual-to-stock conversion and the Parent Company's initial public
offering of its common stock. The following represents the Parent
Company's statement of financial condition as of December 31, 1999, and
its statement of income and statement of cash flows for the period from
July 13, 1999 through December 31, 1999.
Statement of Financial Condition
as of December 31, 1999
(in thousands)
Assets
Cash and cash equivalents $ 1,268
Loan receivable from ESOP 259
Other assets 41
Investment in equity of subsidiary 12,885
--------
Total assets $ 14,453
========
Liabilities and Shareholders' Equity
Liabilities:
Payable to subsidiary $ 234
Total shareholders' equity 14,219
--------
Total liabilities and shareholders' equity $ 14,453
========
(Continued)
30
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Statement of Income
For the period July 13, 1999 through December 31, 1999
(in thousands)
Interest income:
Loans $ 8
Interest-bearing deposits 12
--------
Total interest income 20
--------
Non-interest expenses:
Contributions 160
Other non-interest expenses 35
--------
Total non-interest expenses 195
--------
Loss before income tax benefit and equity
in loss of subsidiary (175)
Income tax benefit 71
--------
Loss before equity in loss of
subsidiary (104)
Equity in loss of subsidiary (46)
--------
Net loss $ (150)
========
(Continued)
31
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Statement of Cash Flows
For the period July 13, 1999 through December 31, 1999
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (150)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in loss of subsidiary 46
Contribution to foundation 160
Net increase in other assets (41)
Net increase in intercompany payable to
subsidiary 234
--------
Net cash provided by operating
activities 249
--------
Cash flows from investing activities:
Investment in subsidiary (1,753)
Loan made to ESOP (259)
--------
Net cash used in investing activities (2,012)
--------
Cash flows from financing activities:
Net proceeds from the issuance of common stock 3,031
--------
Net increase in cash and cash
equivalents 1,268
Cash and cash equivalents at beginning of period --
--------
Cash and cash equivalents at end of period $ 1,268
--------
</TABLE>
32
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6450
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20834
<INVESTMENTS-CARRYING> 16307
<INVESTMENTS-MARKET> 15829
<LOANS> 73098
<ALLOWANCE> 1069
<TOTAL-ASSETS> 122849
<DEPOSITS> 101404
<SHORT-TERM> 900
<LIABILITIES-OTHER> 1326
<LONG-TERM> 5000
0
0
<COMMON> 9
<OTHER-SE> 14210
<TOTAL-LIABILITIES-AND-EQUITY> 122849
<INTEREST-LOAN> 5770
<INTEREST-INVEST> 1827
<INTEREST-OTHER> 156
<INTEREST-TOTAL> 7753
<INTEREST-DEPOSIT> 3131
<INTEREST-EXPENSE> 3148
<INTEREST-INCOME-NET> 4605
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 4864
<INCOME-PRETAX> 206
<INCOME-PRE-EXTRAORDINARY> 169
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
<YIELD-ACTUAL> 4.38
<LOANS-NON> 1064
<LOANS-PAST> 0
<LOANS-TROUBLED> 250
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1068
<CHARGE-OFFS> 157
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1069
<ALLOWANCE-DOMESTIC> 1069
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
