SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18533
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
(Name of Small Business Registrant in Its Charter)
New York 16-1168175
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
50 North Main Street, Castile, New York 14427
(Address of Principal Executive Offices) (Zip Code)
(716) 493-2577
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
Warrants to Purchase Shares of Common Stock
(Title of Class)
Check whether the Registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such 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
pursuant to Item 405 of Regulation S-B is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[ X ]
State Registrant's revenues for its most recent fiscal year:
$18,986,168.
The aggregate market value of the shares of Registrant's voting
stock held by non-affiliates of Registrant as of March 18, 1996 was
$23,973,720, based upon the average "Bid" and "Ask" price of
Registrant's common stock on said date.
The number of shares outstanding of Registrant's common stock as
of March 25, 1996 was 905,470.
Documents Incorporated by Reference
Portions of the Annual Report to Shareholders for the fiscal year
ended December 31, 1995 are incorporated into Part II of this Form 10-
KSB.
<PAGE>
PART I
Item 1 - Description of Business General
Letchworth Independent Bancshares Corporation is a bank
holding company incorporated under the laws of the State of New York
in 1981 (the "Company"). The Company has only one banking subsidiary,
The Bank of Castile, a commercial bank formed in 1869 and incorporated
under the laws of the State of New York in 1917 (the "Bank"). The
Bank is a full service, community-oriented, commercial bank which
offers a full range of commercial banking and consumer banking
services to businesses and individuals. The Bank, however, does not
provide trust services.
Market Area
The Bank conducts its operations through its main office
located in Castile, New York, and at its nine (9) branch offices in
towns situated in and around the areas commonly known as the
Letchworth State Park area and the Genesee Valley region of New York
State. Specifically, the Bank has branch offices in the Towns of
Avon, Batavia, Caledonia, Gainesville, LeRoy, Perry, York(Retsof), and
Warsaw in addition to its main office in Castile. On December 2, 1994,
the Bank purchased the Caledonia and Avon offices of The Chase
Manhattan Bank (National Association) ("Chase Manhattan"). Chase
Manhattan's Avon office was combined with the Bank's existing Avon
office and the Caledonia office became the 9th branch of the Bank.
The Bank's primary market includes the counties of Livingston,
Wyoming, and Genesee. In addition, adjoining sections of the
surrounding counties of Cattaraugus, Allegany, Monroe, and Erie are
also serviced. The Bank continues to place emphasis on the Route 5
Corridor just south of Monroe County and the City of Rochester.
Banking Services
The Bank is engaged in the general commercial banking
business and provides a full scope of loan and deposit services
related thereto. All of the deposit accounts offered by the Bank are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to
$100,000 per depositor. The Bank also offers a wide range of retail
services including checking, savings, and money market accounts, as
well as various types of time deposit instruments. Mortgage lending
activities include a variety of commercial, industrial and residential
loans secured by real estate and the Bank's installment loan
department makes direct auto, home improvement, and personal loans to
individuals. The Bank also offers safety deposit box services at all
of its branches.
In addition, beginning in 1992, the Bank, through an
arrangement with Circuit Agency, Inc., an affiliate of the New York
State Bankers Association, enabled annuity products to be offered to
its customers.
All of the Bank's lending is in its market area and
approximately nineteen percent (19%) of its loans are concentrated in
the farming and agricultural or related industries. The Bank has no
foreign loans. No other single industry or group of related
industries are responsible for a significant portion of the Bank's
loans. The Bank has no material concentrations of deposits from any
single customer or group of customers, nor does it rely on foreign
sources of funds or brokered deposits. The Bank does not utilize off-
balance sheet derivative instruments.
Competition
Management believes that the Company is a prominent
financial institution in its market area. Although the Bank faces
competition for deposits from other bank and non-bank financial
institutions, the Bank has been able to compete effectively for
deposits because of its image in the community as a community-oriented
bank and the loyalty of its local customers. The Bank has emphasized
personalized banking services and the advantage of local decision-
making in its banking business, and this emphasis appears to have been
well received by the public in the Bank's market area.
The Bank competes for deposits principally by offering
depositors a wide variety of deposit programs, convenient branch
locations and hours, tax-deferred retirement programs, and other
services, as well as providing the personalized services and local
decision-making noted above. The Bank also utilizes local advertising
to attract deposits.
In addition, the Bank is a major provider of mortgage loans
in its market area. Although the Bank faces competition for real
estate loans from mortgage banking companies, savings banks, savings
and loans associations, other commercial banks, insurance companies
and other institutional lenders, management believes that the Bank's
image in the community as a local bank gives the Bank a substantial
competitive advantage. Factors which affect competition include the
general availability of lendable funds and credit, general and local
economic conditions, current interest rate levels and mobility in the
mortgage markets.
Regulation
The Company is a bank holding company subject to the
provisions of the Bank Holding Company Act of 1956, as amended (the
"Act"). As a bank holding company, the Company is required to file
annual reports and such additional information as may be required by
the Federal Reserve Board pursuant to the Act. The Federal Reserve
Board has the authority to examine the Company and its subsidiaries.
The Bank is a stock form commercial bank chartered under the
laws of the State of New York, and its deposits are insured by the
FDIC. As such, the Bank is subject to the regulation, examination and
supervision of the Banking Department of the State of New York and the
FDIC. Such supervision and regulation, intended primarily for the
protection of depositors, restricts or prohibits certain activities
and neither the Company nor the Bank may enter into certain
transactions without meeting applicable regulatory tests, or without
notification to or prior approval of certain regulatory agencies.
Although the Bank is not a member of the Federal Reserve System, it is
also subject to Federal Reserve Board regulations that require it to
maintain certain reserves against its transaction accounts (primarily
checking and NOW accounts).
Personnel
As of December 31, 1995, the Company and its subsidiaries
had 101 full-time employees and 44 part-time employees. The employees
are not represented by any collective bargaining unit, and the
Company's management and the Bank's management considers its
relationship with its employees to be good.
Statistical Disclosure
Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
The following table reflects the components of the
Company's average assets, liabilities and shareholders' equity,
interest income earned and interest expense paid, average rates earned
and paid, and the net interest margin for the years ended December 31,
1995, 1994, and 1993, respectively.
<TABLE>
<CAPTION>
December 31, 1995
Assets
Average Average
Interest-earning asset Balance Interest Yield
<S> <C> <C> <C>
Loans
Loans (1) $125,819,403 $12,788,697 10.16%
Less allowance for
possible loan losses ( 1,586,241)
Net Loans 124,233,162
Investment securities
Taxable 55,948,083 3,603,440 6.44
Tax-exempt 21,352,540 1,088,331 5.10
Total investment
securities 77,300,623 4,691,771 6.07
Other interest-earning assets 0 0 0
Federal funds sold 6,639,348 397,103 5.98
Total interest-
earning assets (2) 208,173,133 17,877,571 8.59
Cash and due from banks 6,921,269
Premises and equipment, net 4,459,641
Accrued interest receivable 1,828,432
Other assets 2,645,883
Total assets $224,028,358
Liabilities and
Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demand deposits $ 26,285,775 $ 479,590 1.82%
Savings deposits 36,658,584 1,090,028 2.97
Money market deposits 11,990,156 332,510 2.77
Certificates of deposit 100,009,723 5,410,000 5.41
Total interest-bearing deposits 174,944,238 7,312,128 4.18
Federal funds purchased 0 0 0
Securities sold under agreement
to repurchase 1,164,094 66,160 5.68
Advances from Federal Home Loan
Bank and Other 3,210,917 232,073 7.23
Total interest-bearing liaiblities 179,319,249 7,610,361 4.25
Demand deposits 21,568,931
Other liabilities 1,647,857
Shareholders' equity 21,492,321
Total liaiblities and
shareholders' equity $224,028,358
Net interest income 10,267,210
Net interest spread 4.34%
Net interest margin (3) 4.93%
<PAGE>
December 31, 1994
Assets
Average Average
Interest-earning assets Balance Interest Yield
Loans
Loans (1) $115,048,113 $10,665,418 9.27%
Less allowance for
possible loan losses ( 1,459,494)
Net Loans 113,588,619
Investment securities
Taxable 41,622,229 2,353,604 5.65
Tax-exempt 16,609,272 828,048 4.99
Total investment
securities 58,231,501 3,181,652 5.46
Other interest-earning assets 391,351 15,138 3.87
Federal funds sold 4,379,110 173,644 3.97
Total interest-
earning assets (2) 176,590,581 14,035,852 7.95
Cash and due from banks 5,096,571
Premises and equipment, net 3,644,458
Accrued interest receivable 1,242,240
Other assets 2,614,756
Total assets $189,188,606
Liabilities and
Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demand deposits $ 21,976,525 $ 470,342 2.14%
Savings deposits 33,089,354 911,799 2.76
Money market deposits 11,241,650 295,338 2.63
Certificates of deposit 77,945,692 3,425,509 4.39
Total interest-bearing deposits 144,253,221 5,102,988 3.54
Federal funds purchased 105,548 5,291 5.01
Securities sold under agreement
to repurchase 1,087,949 36,048 3.31
Advances from Federal Home Loan
Bank and Other 1,487,759 87,659 5.89
Total interest-bearing liaiblities 146,934,477 5,231,986 3.56
Demand deposits 21,469,381
Other liabilities 1,407,466
Shareholders' equity 19,377,282
Total liaiblities and
shareholders' equity $189,188,606
Net interest income 8,803,866
Net interest spread 4.39%
Net interest margin (3) 4.99%
<PAGE>
December 31, 1993
Assets
Average Average
Interest-earning assets Balance Interest Yield
Loans
Loans (1) $105,209,708 $ 9,294,697 8.83%
Less allowance for
possible loan losses ( 1,364,227)
Net Loans 103,845,481
Investment securities
Taxable 32,772,709 2,072,324 6.32
Tax-exempt 13,568,288 690,507 5.09
Total investment
securities 46,340,997 2,762,831 5.96
Other interest-earning assets 1,406,750 44,296 3.15
Federal funds sold 4,431,756 131,069 2.96
Total interest-
earning assets (2) 156,024,984 12,232,893 7.84
Cash and due from banks 4,469,390
Premises and equipment, net 2,874,781
Accrued interest receivable 1,060,895
Other assets 2,150,859
Total assets $166,580,909
Liabilities and
Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demand deposits $ 22,798,000 $ 473,409 2.08%
Savings deposits 27,811,625 758,079 2.73
Money market deposits 14,295,000 343,700 2.40
Certificates of deposit 72,169,006 3,118,545 4.32
Total interest-bearing deposits 137,073,631 4,693,733 3.42
Federal funds purchased 0 0 0
Securities sold under agreement
to repurchase 624,658 16,532 2.65
Advances from Federal Home Loan
Bank and Other 197,885 8,386 4.24
Total interest-bearing liaiblities 137,896,174 4,718,651 3.42
Demand deposits 13,332,003
Other liabilities 1,013,211
Shareholders' equity 14,339,521
Total liaiblities and
shareholders' equity $166,580,909
Net interest income 7,514,242
Net interest spread 4.42%
Net interest margin (3) 4.82%
</TABLE>
(1) Average loans include non-accrual loans. Interest on loans
includes loan fees of $259,918, $238,033 and $170,665 in fiscal 1995,
1994, and 1993, respectively.
(2) Interest income on a portion of the Company's loans and
investment securities is exempt from income tax. If income from these
assets had been adjusted to a level comparable to fully taxable income
before application of income taxes, the interest income and average
rate would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
Average Average Average
Interest Rate Interest Rate Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Loans................$12,796,041 10.17% $10,672,614 9.28% $9,302,065 8.84%
Investment securities -
Tax exempt....... 1,648,986 7.72% 2,254,618 7.55% 1,046,223 7.71%
</TABLE>
The tax rate used to develop this taxable equivalent adjustment
is the federal statutory rate of 34%. The tax-equivalent adjustments
do not give effect to the disallowance for federal income tax purposes
ofinterest expense related to certain tax exempt assets, nor do they
reflect any benefit of interest being exempt from state income taxes,
the effect of which would be insignificant.
(3) Net interest margin represents net interest income divided by
total interest-earning assets.
<PAGE>
Rate/Volume Variance Analysis
The following table sets forth a summary of the changes in
interest earned and interest paid resulting from changes in volumes
and changes in interest rates for the Company for the years ended
December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/ Net
1995 Compared to 1994 Volume Rate Volume Change
(1) (2) (3)
<S> <C> <C> <C> <C>
Revenue Earned On:
Loans............. $ 998,499 $1,023,928 $100,852 $2,123,279
Investment securities
Taxable...............809,411 328,816 111,609 1,249,836
Tax-exempt............236,689 18,270 5,324 260,283
Total investment
securities... 1,046,100 347,086 116,933 1,510,119
Other interest-earning
assets...... -0- -0- (15,138) (15,138)
Federal funds sold. 89,731 88,020 45,708 223,459
Total interest-earning
assets......... 2,134,330 1,459,034 248,355 3,841,719
Interest Paid On:
Interest-bearing demand
deposits............ 92,218 ( 70,325) ( 12,645) 9,248
Savings deposits...... 98,511 69,488 10,230 178,229
Money market deposits. 19,686 15,738 1,748 37,172
Certificates of
deposit.............. 968,611 795,046 220,834 1,984,491
Federal funds purchased.. (5,291) (5,291)
Securities sold under
agreement to repurchase. 2,520 25,784 1,808 30,112
Advances from Federal
Home Loan Bank....... 138,027 2,493 3,894 144,414
Total interest-bearing
liabilities..... 1,319,573 838,224 220,578 2,378,375
Net Interest Income.$ 814,757 $ 620,810 $(27,777) $1,463,344
</TABLE>
_________________________
(1) The volume variance reflects the change in the average balance
outstanding multiplied by the average rate during the prior period.
(2) The rate variance reflects the change in the average rate
multiplied by the average balance outstanding during the prior period.
(3) The rate/volume variance reflects the change in average rate
multiplied by the change in the average balance outstanding.
Rate/Volume Variance Analysis
The following table sets forth a summary of the changes in
interest earned and interest paid resulting from changes in volumes
and changes in interest rates for the Company for the years ended
December 31, 1994 and 1993, respectively.
<PAGE>
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/ Net
1994 Compared to 1993 Volume Rate Volume Change
(1) (2) (3)
<S> <C> <C> <C> <C>
Revenue Earned On:
Loans.................. $ 868,731 $ 462,923 $ 39,067 $1,370,721
Investment securities
Taxable................. 559,290 ( 219,577) ( 58,433) 281,280
Tax-exempt.............. 154,786 ( 13,568) ( 3,677) 137,541
Total investment
securities.......... 714,076 ( 233,145) ( 62,110) 418,821
Other interest-earning
assets.............. ( 31,985) 10,129 ( 7,302) ( 29,158)
Federal funds sold...... ( 1,558) 44,761 ( 628) 42,575
Total interest-earning
assets.............. 1,549,264 284,668 ( 30,973) 1,802,959
Interest Paid On:
Interest-bearing demand
deposits..............( 17,333) 6,839 ( 959) ( 11,453)
Savings deposits........ 144,082 8,343 1,295 153,720
Money market deposits. ( 73,280) 32,879 ( 7,961) ( 48,362)
Certificates of deposit... 249,553 50,518 6,893 306,964
Federal funds purchased.. -0- -0- 5,291 5,291
Securities sold under
agreement to repurchase. 12,277 4,123 3,116 19,516
Advances from Federal
Home Loan Bank.......... -0- -0- 87,659 87,659
Total interest-bearing
liabilities......... 315,299 102,702 95,334 513,335
Net Interest Income....$ 1,233,965 $ 181,966 $(126,307) $1,289,624
</TABLE>
_________________________
(1) The volume variance reflects the change in the average balance
outstanding multiplied by the average rate during the prior period.
(2) The rate variance reflects the change in the average rate
multiplied by the average balance outstanding during the prior period.
(3) The rate/volume variance reflects the change in average rate multiplied
by the change in the average balance outstanding.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/ Net
1993 Compared to 1992 Volume Rate Volume Change
(1) (2) (3)
<S> <C> <C> <C> <C>
Revenue Earned On:
Loans ....................$1,360,854 $( 636,510) $( 94,880) $ 629,464
Investment securities
Taxable..................... 346,763 ( 160,933) ( 27,431) 158,399
Tax-exempt.................. 120,953 ( 19,157) ( 3,652) 98,144
Total investment
securities............. 467,716 ( 180,090) ( 31,083) 256,543
Other interest-earning
deposits...............( 53,420) ( 11,372) 5,848 ( 58,944)
Federal funds sold........( 35,904) ( 31,059) 5,855 ( 61,108)
Total interest-earning
assets................1,739,246 ( 859,031) ( 114,260) 765,955
Interest Paid On:
Interest-bearing demand
deposits................... 102,344 ( 203,310) ( 33,708) ( 134,674)
Savings deposits............ 204,374 ( 190,221) ( 50,254) ( 36,101)
Money market deposits..... ( 52,213) ( 125,861) 13,425 ( 164,649)
Certificates of deposit......486,968 ( 669,046) ( 95,583) ( 277,661)
Securities sold under
agreement to repurchase...... 0 0 16,532 16,532
Total interest-bearing
liabilities.............. 741,473 (1,188,438) ( 149,588) ( 596,553)
Net Interest Income........$ 997,773 $ 329,407 $ 35,328 $1,362,508
</TABLE>
(1) The volume variance reflects the change in the average balance
outstanding multiplied by the average rate during the prior period.
(2) The rate variance reflects the change in the average rate
multiplied by the average balance outstanding during the prior period.
(3) The rate/volume variance reflects the change in average rate
multiplied by the change in the average balance outstanding.
Investment Portfolio
<PAGE>
The following table summarizes the carrying values of the
Company's investment securities portfolio at the dates indicated.
Investment securities held to maturity are stated at cost, adjusted on
a straight-line basis for amortization of premiums and accretion of
discounts. Investment securities available for sale are carried at
estimated market value.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
Held to Available Held to Available Held to
Maturity for Sale Maturity for Sale Maturity
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
corporation and
agencies........$15,992,787 32,380,800 $20,698,476 $17,050,000 $17,315,510
State and political
subdivision
obligations......21,674,732 1,070,000 20,166,690 -0- 14,526,836
Federal Home Loan
Bank Stock....... -0- 636,300 -0- 579,100 482,600
Mortgage-backed
securities........6,738,922 4,113,800 7,937,564 4,651,700 17,809,432
Total securities..$44,406,441 $38,200,900 $48,802,730 $22,280,800 $50,134,378
</TABLE>
At December 31, 1995 the estimated market value of the held
to maturity portfolio was more than the amortized cost by $1,216,059.
At December 31, 1995, the estimated market value of available for sale
securities was more than the amortized cost by $515,112.
The following table presents the book value of all
investment securities of a single issuer, excluding securities of the
United States Government and its agencies, whose aggregate carrying
value at December 31, 1995 exceeded ten percent (10%) of consolidated
shareholders' equity:
Estimated
Carrying Market
Value Value
Federal Home Loan Mortgage Corp. CMO $5,125,365 $5,125,628
Federal Home Loan Bank 2,488,193 2,445,938
Federal National Mortgage Association 9,398,928 9,399,186
At December 31, 1995, the estimated market value of the
investment portfolio was more than the amortized cost by $1,216,059
for the held to maturity category, and by $515,112 for the available
for sale category.
The accounts and maturities of debt securities held to maturity
and available for sale at December 31, 1995 and the weighted average
yields of such securities are shown below:
Held to Maturity:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
December 31, 1995 1 year years years 10 years Total
<S> <C> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Government
corporations and
agencies
Carrying value..$5,213,190 $9,775,364 $1,004,233 0 $15,992,787
Average tax
equivalent
yield(1)........ 5.92% 6.99% 7.41% 0.00% 6.67%
State and
political
subdivisions
Carrying value.. 4,470,641 8,835,762 7,749,171 619,158 21,674,732
Average tax
equivalent
yield(1)........ 6.86% 7.37% 7.99% 9.42% 7.55%
Total carrying
value excluding
mortgage-backed
securities...... $9,683,831 $18,611,126 $8,753,404 $619,158 $37,667,519
Average tax
equivalent
yield excluding
mortgage-backed
securities...... 6.35% 7.17% 7.92% 9.42% 6.76%
Mortgage-backed
securities....... $ 9,319 $ 2,508,823 $2,546,543 $1,674,237 $6,738,922
Carrying Value
Average tax
equivalent
yield........... 8.68% 6.02% 6.85% 6.49% 6.45%
Total carrying
value........... $9,693,150 $21,119,949 $11,299,947 $2,293,395 $44,406,441
Average
tax equivalent
yield............ 6.36% 7.03% 7.68% 7.28% 7.06%
(1) Rates of tax-exempt securities are shown assuming a 34% federal
statutory tax rate. The actual average yield on tax-exempt securities was
4.95%.
Available for Sale:
Under 1-5 5-10 Over
December 31, 1995 1 year years years 10 years Total
U.S. Treasury
securities and
obligations of
U.S. Government
corporations and
agencies
Carrying value.. $5,486,290 $25,795,966 $1,098,544 $ 0 $32,380,800
Average tax
equivalent
yield(1)........ 6.18% 6.28% 7.20% 0.00% 6.29%
State and
political
subdivisions
Carrying value.. 557,910 512,090 0 0 1,070,000
Average tax
equivalent
yield(1)........ 5.19% 7.46% 0% 0% 6.28%
Total carrying
value excluding
mortgage-backed
securities and
FHLB stock...... $6,044,200 $26,308,056 $1,098,544 $ 0 $33,450,800
Average tax
equivalent
yield excluding
mortgage-backed
securities and
FHLB stock...... 6.09% 6.30% 7.20% 0% 6.28%
Mortgage-backed
securities....... $ 0 $ 1,517,744 $1,541,856 $ 1,007,900 $4,067,500
Carrying Value
Average tax
equivalent
yield............ 0% 6.04% 6.86% 6.42% 6.44%
Total carrying
value........... $6,044,200 $27,825,800 $2,640,400 $1,007,900 $37,518,300
Average
tax equivalent
yield............ 6.18% 6.29% 7.00% 6.42% 6.31%
</TABLE>
(1) Rates of tax-exempt securities are shown assuming a 34% federal
statutory tax rate. The actual average yield on tax-exempt securities
was 4.14%
<PAGE>
Loan Portfolio
The following table sets forth the composition of the
Company's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Agricultural loans...$ 25,168,552 $ 22,091,563 $ 17,141,043 $ 14,534,670 $ 11,403,348
Commercial and
industrial loans... 23,317,057 19,670,283 16,303,801 14,241,549 13,944,567
Real estate loans:
Secured by 1 to 4
family residential
properties....... 41,120,730 40,353,744 41,299,434 37,234,082 29,810,944
Other.............. 33,917,880 27,971,189 24,631,305 22,301,728 18,199,478
Consumer loans....... 9,954,869 11,280,962 13,393,064 12,827,632 11,834,792
Total loans........ 133,479,088 $121,367,741 $112,768,647 $101,139,661 $ 85,193,129
</TABLE>
Potential Problem Loans
Potential problem loans consist of loans which are
generally secured and not currently considered nonperforming, but
where information about possible credit problems has caused management
to have doubts as to the ability of such borrowers to comply with
present repayment terms. As of December 31, 1995, the Company
considers $2,003,000 to be potentially problem assets. Historically,
however, only a very small portion of those loans have resulted in
actual losses for the Company.
Non-performing Loans
The following table summarizes the Company's non-
performing loans at the dates indicated.
<TABLE>
<CAPTION>
December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Non-accruing loans........ $450,500 $254,800 $125,700 $213,704 $ 86,439
Accruing loans past due 90 days or more.
291,200 215,600 480,800 333,749 222,521
Renegotiated loans......................-0- -0- -0- -0- -0-
</TABLE>
For each period shown the gross interest income that would
have been recorded in such period if the loans had been current in
accordance with their original terms, and the amount of interest
income on those loans that was included in such period's net income,
was negligible.
Interest on loans is accrued from the date an advance is
made. The performance of loans other than real estate and installment
loans is evaluated primarily on the basis of a review of each
customer's financial position and relationship over a period of time
and the judgment of senior lending officers as to the ability of
borrowers to conduct a financially healthy business and to meet the
repayment terms of the loan. If there is reasonable doubt as to the
repayment of a loan in accordance with the agreed upon terms, even
though the financial condition of the borrower or the collateral may
be sufficient ultimately to reduce or satisfy the obligation, the loan
may be placed on a non-accrual basis pending the sale of any of the
collateral or the determination that other sources of repayment exist.
When a loan is placed on a non-accrual basis all previously accrued
but unpaid interest is reversed and charged against current income.
Interest income is thereafter recognized only when payments are
received.
Loans, including impaired loans, are placed on non-accrual
status in accordance with policies established by management. Loans,
other than consumer loans, are generally transferred to non-accrual
status when principal or interest payment become ninety days past due.
Any accrued but uncollected interest previously recorded on such loans
is reversed in the current period and interest income is subsequently
recognized only when actually collected. Past due consumer loans are
generally fully reserved or charged-off when they reach a 90-day
delinquency status. Loans are returned to accrual status when
management determines that the circumstances have improved to the
extent that both principal and interest are deemed collectible and
there has been a sustained period of repayment performance. The
Company may continue to accrue interest on loans past due ninety days
or more which are well secured and in the
process of collection.
Loans, principally residential real estate loans, are
periodically sold without recourse and servicing is generally
retained. Gains and losses on sales of loans are recognized at the
time of settlement and are determined by the difference between net
sales proceeds and the carrying value of the loans sold. Fees related
to the servicing of loans for benefit of others are determined on the
basis of loans serviced and are recorded as income when payments are
received.
At December 31, the average balance of impaired loans during
1995 was approximately $309,000. At December 31, 1995, the balance of
impaired loans and related reserve against that balance was $741,700
and $195,000, respectively. Interest income recognized on impaired
loans and interest income recognized on a cash basis was not
significant.
Residential mortgage loans are placed on non-accrual status
when they become 90 days past due, and the collection efforts of the
Bank continue in accordance with the Bank's collection policies and
procedures.
Lending officers are responsible for the ongoing review and
administration of each particular loan. As such, they make the
initial identification of loans which may present some difficulty in
collection, or where circumstances indicate that the probability of
loss exists. The responsibilities of the lending officers include the
initial collection effort on a delinquent loan. Unless other
arrangements are made with the lending officer and approved by the
Board of Directors of the Bank, any loan deficiencies more than 90
days past due are generally charged-off. Senior management is informed
of the status of delinquent and problem loans weekly. The Board of
Directors and senior management reviews the current allowance for
possible loan losses monthly, and senior management makes the final
determination as to loan charge-offs.
Summary of Loan Loss Experience
The provision for possible loan losses represents
management's determination as to the amount necessary to be
transferred to the allowance for possible loan losses to bring it to a
level which is considered adequate in relationship to the risk of
future losses inherent in the loan portfolio. While it is the
Company's policy to charge-off in the current period those loans in
which a loss is considered probable, there also exists the risk of
future losses which cannot be quantified precisely or attributed to
particular loans or classes of loans. Because this risk is
continually changing in response to factors beyond the control of the
Company, such as the state of the economy, management's judgment as to
the adequacy of the provision is necessarily approximate and
imprecise.
In assessing adequacy, management relies on its ongoing
review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged-off and to
assess the risk characteristics of the portfolio in the aggregate.
This review takes into consideration management's evaluation of
individual loans, past loan loss experience, the assessment of
prevailing and anticipated economic conditions, the estimated value of
collateral and other relevant factors. It is management's ongoing
policy to maintain a conservative approach as to the establishment of
an adequate allowance for possible loan losses.
In evaluating the allowance, management also considers the
Bank's loan loss experience, the amount of past due, non-performing
and impaired loans current and anticipated economic conditions, lender
requirements and other appropriate information.
The allowance for possible loan losses is maintained as a general
reserve without any internal allocation to the specific loan classes of the
loan portfolio. Based on a historical four-year average of gross charge-
offs, however, the allowance for possible loan losses would be allocated by
management to specific loan classes as follows:
December 31, 1995
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 37,930 2.21% 18.9%
Commercial and
industrial loans...... 357,334 20.82 17.5
Real Estate mortgages. 44,408 2.59 56.2
Consumer loans........ 1,276,628 74.38 7.4
Totals $1,716,300 100.0% 100.0%
December 31, 1994
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 44,738 2.90% 18.2%
Commercial and
industrial loans...... 301,104 19.70 16.2
Real Estate mortgages. 38,023 2.50 56.3
Consumer loans........ 1,143,035 74.90 9.3
Totals $1,526,900 100.0% 100.0%
December 31, 1993
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 56,762 3.90% 15.2%
Commercial and
industrial loans...... 310,596 21.40 14.5
Real Estate mortgages. 34,276 2.40 58.4
Consumer loans........ 1,046,366 72.30 11.9
Totals $1,448,000 100.0% 100.0%
December 31, 1992
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 53,876 4.30% 14.4%
Commercial and
industrial loans...... 309,367 24.40 14.1
Real Estate mortgages. 34,783 2.70 58.8
Consumer loans........ 867,919 68.60 12.7
Totals $1,265,945 100.0% 100.0%
December 31, 1991
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 66,530 6.00% 13.39%
Commercial and
industrial loans...... 302,104 27.50 16.36
Real Estate mortgages. 31,958 2.90 56.35
Consumer loans........ 700,049 63.60 13.90
Totals $1,100,641 100.0% 100.0%
(1) The Company had no foreign loans
The following table sets forth certain information with
respect to the Company's loans and the allowance for possible loan
losses.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...$1,526,900 $1,448,000 $1,265,945 $1,100,641 942,905
Charge-offs:
Agricultural loans.............( 1,573) ( 2,534) ( 13,789) 12,000 10,341
Commercial and industrial loans( 69,607) ( 47,816) ( 39,657) 20,832 65,638
Real estate mortgages.......... 0 0 0 0 0
Consumer loans.................( 145,435) ( 238,642) ( 190,850) 130,065 100,735
( 216,615) ( 288,992) ( 244,296) 162,897 176,714
Recoveries:
Agricultural loans............. 1,404 3,815 8,140 1,746 5,315
Commercial and industrial loans. 8,035 6,069 6,189 18,053 11,421
Real estate mortgages........... 0 0 0 0 0
Consumer loans.................. 72,213 45,283 50,573 21,005 24,950
81,652 55,167 64,902 40,804 41,769
Net charge-offs...................(134,963) ( 233,825) ( 179,394) (122,093) (134,945)
Additions charged to operations... 324,363 312,725) 361,449 287,397 292,681
Balance at end of period......... 1,716,300 $1,526,900 $1,448,000$1,265,945 $1,100,641
Ratio of net charge-offs during
the period to average loans
outstanding during the period.. 0.11% 0.20% 0.17% 0.13% 0.17%
</TABLE>
Net loans charged-off in 1995 totaled $134,963, or 0.11% of
average loans. The reserve for possible loan losses equalled 1.29% of
the total loan portfolio at December 31, 1995, compared to 1.26% at
December 31, 1994. Management believes that the allowance for
possible loan losses of $1,716,300 at December 31, 1995 was adequate
to absorb anticipated risk in the portfolio based upon the
Company's historical experience.
All segments of the Company's loan portfolio are subject to
continuous quality evaluation. In the opinion of the management of
the Company, there are no credit risks relating to the loan portfolio,
other than what is already disclosed in this document, and the
allowance for possible loan losses is adequate to absorb anticipated
loan losses in the present loan portfolio of the Company. It must be
emphasized, however, that the determination of allowance for possible
loan losses using the Company's procedures and methods rests upon
various judgments and assumptions about future economic conditions and
other factors affecting loans. In addition, management reviews
overall portfolio quality through an analysis of current levels and
trends and charge-offs, delinquency and non-accruing loan data and
reviews the overall banking environment. These reviews are of
necessity dependent upon estimates, appraisals and judgments, which
may change quickly because of changing economic conditions and the
Company's perception as to how these factors may affect the financial
condition of debtors. As a result, no assurance can be given that the
Company will not in any particular period sustain loan losses which
are sizeable in relationship to the amount reserved or that
subsequent evaluations of the loan portfolio, in light of
conditions and factors then prevailing, will not require
significant changes in the allowance for possible loan losses.
Rate Sensitivity of Loans
Presented below is a table which sets forth the maturity of
the Company's loans as of December 31, 1995.
<TABLE>
<CAPTION>
Maturities at December 31, 1995
One Year
One Year Through After
or Less 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Agricultural loans....$15,979,006 $ 2,865,693 $ 6,323,853 $25,168,552
Commercial and
industrial loans....18,935,317 2,729,976 1,651,764 23,317,057
Real estate loans:
Secured by 1 to 4
family residential
properties............ 939,273 832,942 39,348,515 41,120,730
Other...............11,072,644 1,339,134 21,506,102 33,917,880
Consumer loans......... 4,337,071 5,006,361 611,437 9,954,869
Total loans.........$51,263,311 $12,774,106 $69,441,671 $133,479,088
</TABLE>
The following table sets forth the various maturity dates of
the above-mentioned loans with pre-determined interest rates and
floating or adjustable interest rates.
Maturities at December 31, 1995
One Year
Through After
5 Years 5 Years
Loans with pre-determined
interest rates......... $ 8,750,778 $18,114,596
Loans with floating or
adjustable interest rates 4,023,328 51,327,075
Totals................... $12,774,106 $69,441,671
The Company ensures safety of depositor funds and
relative balances between interest rate sensitive assets and
liabilities through its Asset/Liability Committee, which activity
monitors the maturity and repricing characteristics of interest rate
sensitive assets and liabilities on an ongoing basis.
Deposits
The following tables set forth the average amount of, and the
average rates paid on, major deposit categories for the years ended
December 31, 1995, 1994, and 1993, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterestbearing
demand deposits. $ 21,568,931 --- $ 21,469,381 --- $ 13,332,003 ---
Interest-bearing demand
deposits.......... 26,285,775 1.82% 21,976,525 2.14% $ 22,798,000 2.11%
Savings deposits... 36,658,584 2.97 33,089,354 2.76 $ 27,811,625 2.73
Money market
deposits......... 11,990,156 2.77 11,241,650 2.63 14,295,000 2.40
Certificates of
deposit...........100,009,723 5.41 77,945,692 4.39 72,169,006 4.3
Total Deposits..$196,513,169 $165,722,602 $150,405,634
Securities sold under
agreement to
repurchase.......$ 1,164,094 5.68% $ 1,087,949 3.31% $ 624,658 2.65%
Total..........$197,677,263 $166,810,551 $151,030,292
</TABLE>
The following table sets forth the amount of time
certificates of deposit of $100,000 or more of the Bank as of December
31, 1995 for various dates of maturity.
December 31, 1995 - Time Certificates of Deposit $100,000 or More
Three months or less...................... $12,264,705
Three months through six months........... 3,875,947
Six months through twelve months.......... 3,269,121
Over twelve months........................ 4,127,933
Totals............................... $23,537,706
Return on Equity and Assets
The following table sets forth selected financial ratios
of the Company on a consolidated basis for the periods indicated.
For the Year Ended December 31,
1995 1994 1993
Return on average assets...... 1.19% 1.19% 1.16%
Return on average equity...... 12.36 11.61 13.45
Dividends declared to net income 18.23 19.08 15.54
Loans to deposits............. 65.41 64.74 73.17
Loans to deposits and securities
sold under agreement to
repurchase.................. 64.84 64.43 72.70
Non-performing loans to total
loans....................... .56 .39 .54
Net charge-offs to average
total loans................. .11 .20 .17
Allowance for possible loan
losses to loans at year-end. 1.29 1.26 1.28
Average shareholders' equity
to average total assets..... 9.59% 10.24% 8.61%
Short-Term Borrowings
Not applicable.
Item 2 - Properties
The following table sets forth the location of the Bank's offices,
as well as certain information related to these offices, as of
December 31, 1995:
Location of Office Owned or Leased
50 North Main Street
Castile, New York......... Owned
263 East Main Street
Avon, New York............ Owned
1 Main Street
Gainesville, New York..... Owned
102 North Center Street
Perry, New York........... Owned
2727 Genesee Street
Retsof, New York.......... Leased
445 North Main Street
Warsaw, New York.......... Owned
129 North Center Street
Perry, New York........... Owned
29 Main Street
LeRoy, New York........... Owned
604 West Main Street
Arcade, New York.......... Owned
408 East Main Street
Batavia, New York......... Owned
3155 State Street
Caledonia, New York....... Owned
Each of the foregoing properties is in generally good
condition and is appropriate for its intended uses.
All owned offices are in the name of the Bank. Prior to
March 10, 1995, two (2) offices were owned by Southern Wyoming Realty
Corp., a wholly-owned subsidiary of the Bank. Effective March 10,
1995, Southern Wyoming Realty Corp. was dissolved and all of its
assets were transferred and conveyed to the Bank.
For information relating to the Company's investment
policies, see "Item 1- Description of Business -- Statistical
Disclosure" of this Annual Report on Form 10-KSB.
Item 3 - Legal Proceedings
The Company is not presently involved in any legal
proceedings which management or counsel to the Company believe to be
material to its financial condition or results of operations. As the
nature of the Bank's business involves the collection of loans and the
enforcement and validity of security interests, mortgages and liens,
the Bank is plaintiff or defendant in various legal proceedings which
may be considered as arising in the ordinary course of its business.
In the opinion of management of the Bank, after consultation with its
counsel handling all such litigation, there are no legal proceedings
now pending by or against the Bank the outcome of which might have a
material effect on the Bank's business, business prospects or
financial position.
In December, 1994, the Company was advised that the Bank
may be named as a defendant in a certain lawsuit entitled American
River Bank, Inc., et al v. Community Bankers Mutual Fund, Inc., et
al., a lawsuit which was commenced on or about October 21, 1994 in
United States District Court, Central District of California. In this
action, the plaintiffs alleged that they purchased certain shares in
the United States Government Money Market Fund (the "Fund"), which
were allegedly issued and sold by one of the defendants, namely,
Community Bankers Mutual Fund, Inc. In connection therewith, the
plaintiffs sued the Community Bankers Mutual Fund, Inc., Community
Asset Management, Inc., allegedly the investment advisor for the Fund,
the directors of Community Asset Management, Inc. and various
participants in the Fund that were alleged to be "affiliates" of such
directors, for alleged violations of Federal and State securities
laws, fraud, breach of fiduciary duty, negligence and an accounting.
Although the Bank was subsequently named in the action,
the lawsuit was settled on September 6, 1995. The terms of the
settlement had no material impact on the Bank or the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5 - Market for the Registrants Common Equity and Related
Stockholder Matters
During November of 1993, the Company completed a second
public offering of 200,000 shares of its common stock and 200,000
warrants to purchase additional shares of its common stock. The
offering was very successful, increasing to approximately 800 the
number of shareholders of the Company. On January 3, 1994, the
Company listed its common stock and warrants on the National
Association of Securities Dealers Quotation System (NASDAQ) Small Cap
Market. Although the market for the Company's common stock has become
more active since the listing, as with many stocks of companies such
as the Company, trading remains limited.
As of March 18, 1996, the "Bid" and "Ask" price of the
Company's common stock was $30.50 and $31.75 per share,
respectively, as reported on the National Association of Securities
Dealers Quotation System (NASDAQ) Small Cap Market. These quotations
represent inter-dealer quotations without adjustment for retail mark-
ups, mark-downs, or commissions, and may not necessarily represent
actual quotations. For a discussion of the quarterly high and low
"Bid" quotations for the years ended December 31, 1995 and 1994,
respectively, as well as a recent closing price of the warrants,
reference is made to "Market For The Common Stock" included on pages
35 of this report from the 1995 Annual Report to Shareholders.
The Company declared dividends of $.54 per share to its
shareholders during the year ended December 31, 1995. In 1994, the
Company declared annual dividends of $.48 per share. Although the
Board of Directors of the Company has declared its intention to
continue the payment of cash dividends on the Company's common stock,
no assurance can be given that any dividends will be declared or, if
declared, what the amount of the dividends will be or whether such
dividends, once declared, will continue. As a bank holding company,
the Company's ability to pay dividends is primarily a function of the
dividend payments it receives from the Bank, which are subject to
certain limitations. See Note 17 of "Notes to Consolidated Financial
Statements" included on page 57 of this report from the 1995 Annual
Report to Shareholders. In determining the amount of such dividends to
be paid by the Company, if any, the Board of Directors will consider
such factors as the earnings and financial condition of the Company,
as well as regulatory requirements and the Bank's need to retain
capital to support its growth.
Item 6 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operation" from the 1995 Annual
Report to Shareholders, and incorporated below on pages 26 - 34 of
this Annual Report on Form 10-KSB.
The purpose of this section is to focus on relevant business events
and information provided in this Annual Report. For a full under
standing of this discussion, reference should be made to the
Consolidated Financial Statements, and Notes thereto, and the
Consolidated Financial Highlights herein. The preceding Financial
Statements have neither been audited nor approved by the FDIC.
Management Discussion and Analysis
The Company is a bank holding company with one subsidiary, The Bank of
Castile (the "Bank"). The Bank is a full-service, community oriented,
commercial bank which offers a full range of commercial and consumer
banking services to municipalities, businesses and individuals. The
Bank, however, does not provide trust services.
The Bank conducts its operations through its main office located in
Castile, New York, and at its nine (9) branch offices in towns
situated in and around the areas commonly known as the Letchworth
State Park and the Genesee Valley regions of New York state.
Specifically, the Bank has branch offices in the towns of Arcade,
Avon, Batavia, Caledonia, Gainesville, LeRoy, Perry, York (Retsof),
and Warsaw. On December 2, 1994, the Bank acquired the Avon and
Caledonia offices of The Chase Manhattan Bank, N.A. ("Chase"). Chase's
Avon office was combined with the Bank's existing office in Avon which
was expanded and renovated, and the Caledonia office was opened as a
new office of The Bank of Castile.
The Company's strategic plan calls for the continued growth of its
banking franchise within the current market area and adjoining areas
through the acquisition and/or expansion of additional offices, if and
when, opportunities occur.
The Company's market area has remained reasonably healthy. As
evidenced by the following chart, the average annual unemployment rate
has remained relatively constant in each of the three counties where
the Bank does the majority of its business.
Genesee Livingston Wyoming
1995 5.1% 5.2% 6.6%
1994 5.9% 4.8% 6.7%
In addition, the efforts of local development agencies are yielding
moderate results in the Bank's market area, with several new companies
relocating or expanding in the three county area during the past year.
FINANCIAL CONDITION
1995 Compared With 1994
The total assets of the Company as of December 31, 1995 increased by
$21.8 million to $233.5 million, representing a 10.29% increase from
the $211.7 million figure as of December 31, 1994. This growth in
total assets occurred in several areas, including the Bank's
investment securities portfolio which increased by 16.21% or $11.5
million, and the loan portfolio, which increased by 9.98% or $12.1
million. The remaining increase in total assets was primarily in the
Bank's premises and equipment area which increased by $.7 million or
17.37%, primarily as a result of the expansion of the Bank's
Operations Center located in Perry, New York. The Company also
purchased four additional automatic teller machines (ATMs), and other
various equipment.
Commercial and industrial loan volume increased by $3.6 million to
$23.3 million at year end 1995, representing an increase of 18.54%
from the year ended December 31, 1994. The Company's real estate
loans, exclusive of one-to-four family residential properties,
increased by $5.9 million to $33.9 million. These loans are generally
commercial in nature and are secured by real estate. In the view of
management, the growth in these areas is at least partially due to the
business development efforts of the Company's calling officers and a
continuing change in strategic focus of larger competing institutions
away from this type of lending. This is also the primary reason for
the $3.1 million, or 13.93%, increase in our agricultural loan
portfolio, which consists primarily of loans to the larger dairy farms
and selected cash crop farms. Most dairy operations have not been
appreciably affected by the recent trend of modest decline in milk
prices.
The consumer loan portfolio decreased by $1.3 million, or 11.76%, to
$10.0 million at December 31, 1995. This was primarily the result of
decreased demand for direct and indirect consumer loans in all of our
markets, which follows a nationwide trend. The Bank does not presently
have any plans to aggressively pursue indirect lending activities.
Due to the sale of $2.8 million of mortgage loans during 1995, the
Company's real estate loans secured by one-to-four family residences,
including home equity lines of credit, increased by a modest $0.8
million, or 1.90%, to $41.1 million at December 31, 1995. The mortgage
loans that were sold were fixed rate loans; adjustable rate mortgage
loans and servicing of all loans are retained by the Bank. The volume
of home equity lines of credit grew to $9.2 million at year end 1995,
an increase of 4.32% from the prior year. These loans are priced in an
adjustable manner tied to the prime rate and repriced quarterly, and
have been subject to fierce marketplace competition.
Total deposit growth in 1995 was $16.6 million, or 8.86%, to $204.1
million at December 31, 1995. This growth was accomplished as follows:
an increase of $3.6 million in noninterest-bearing deposits; a
decrease of $2.1 million in savings deposits; a $1.0 million decrease
in NOW Accounts; an increase of $0.5 million in money market accounts;
an increase of $8.9 million in certificates of deposit under $100,000;
and an increase of $6.8 million in certificates of deposit greater
than $100,000. At year end 1995, the Bank also had $1.8 million in
securities sold under agreements to repurchase, "deposit-like"
instruments.
The growth in noninterest-bearing deposits at year end is due to the
timing of deposits in municipal accounts. Noninterest-bearing deposits
increased to $26.7 million at year end 1995, a 15.41% increase when
compared to year end 1994. There were no branch acquisitions during
1995, which means that all the growth detailed above was internally
generated. Average noninterest-bearing deposits is relatively
unchanged from $21.5 million for the year ended 1994 to $21.6 million
for the year ended 1995. Average noninterest-bearing deposits as a
percentage of total average deposits decreased from 12.75% at year end
1994 to 10.98% at year end 1995.
Certificates of deposit increased by $15.6 million during 1995 to a
total of $104.2 million at December 31, 1995. Of that total increase
in certificates of deposit, $6.8 million occurred in the category of
CDs of $100,000 or more. Much of the volume in that category is
attributable to municipal customers.
The yield on the Company's interest earning assets was 8.59% for the
year ended December 31, 1995, an increase of 64 basis points from the
yield of 7.95% for the year ended December 31, 1994. During this same
period, the rate for total interest-bearing liabilities increased 68
basis points to 4.25% from 3.57%. As a result, the net interest spread
decreased slightly to 4.34% for the year ended December 31, 1995, from
4.38% for the prior year. The net interest margin decreased slightly
to 4.93% in 1995 from 4.99% in 1994.
The Company's shareholders' equity increased to $22.8 million at year
end 1995, up 15.27% from the $19.8 million figure at year end 1994.
This increase was primarily the result of the current year's earnings.
Shareholders' equity for 1995 was also affected negatively by a net of
$27,928 due to transactions associated with the Employee Stock
Ownership Plan ("ESOP"), and affected positively by the unrealized
gain of $307,400, net of tax, on the available for sale portion of the
investment portfolio.
The Company's return on average shareholders' equity was 12.36%, which
is consistent with industry averages. This figure represents an
increase from the 11.61% figure during 1994 as the Company more
profitably employs its capital.
1994 Compared With 1993
The total assets of the Company as of December 31, 1994 increased by
$37.1 million to $211.7 million, representing a 21.23% increase from
the $174.6 million figure as of December 31, 1993. The majority of
this growth in total assets occurred in the Bank's investment
securities portfolio which increased by 41.79% or $20.9 million, and
the loan portfolio, which increased by 7.63% or $8.6 million. Other
assets increased by $1.0 million or 49.16%, which increase related
primarily to the deposit premium associated with the purchase of the
two offices from Chase. The remaining increase in total assets was
primarily in the Bank's premises and equipment area, resulting from
the purchase of the Batavia and Caledonia offices, as well as the
renovation of the Avon office.
Commercial and industrial loan volume increased by $3.4 million to
$19.7 million at year end 1994, representing an increase of 20.65%
from the year ended December 31, 1993. The Company's real estate
loans, exclusive of one-to-four family residential properties,
increased by $3.3 million to $28.0 million. The agricultural loan
portfolio increased by $5.0 million, or 28.88% to $22.1 million.
The consumer loan portfolio decreased by $2.1 million, or 15.77%, to
$11.3 million at December 31, 1994. This was primarily the result of
decreased demand for direct and indirect consumer loans in all of our
markets, following a nationwide trend. Some of this decrease was off-
set by the increased home equity lines of credit, which were heavily
promoted in 1993.
Due to increasing mortgage rates and the sale of $6.3 million of
mortgage loans during 1994, the Company's real estate loans secured by
one-to-four family residences, including home equity lines of credit,
decreased by $0.9 million, or 2.29%, to $40.4 million at December 31,
1994. The volume of home equity lines of credit grew to $8.9 million
at year end 1994, an increase of 18.51% from the prior year.
Total deposit growth in 1994 was $33.3 million, or 21.63%, to $187.5
million at December 31, 1994. This growth was accomplished as follows:
an increase of $4.3 million in noninterest-bearing deposits; an
increase of $9.8 million in savings deposits; a $5.4 million increase
in NOW Accounts; a decrease of $0.4 million in money market accounts;
an increase of $6.6 million in certificates of deposit under $100,000;
and an increase of $7.6 million in certificates of deposit greater
than $100,000. Approximately $20 million in total deposits were
acquired in connection with the Bank's acquisition of the two offices
from Chase. At year end 1994, the Bank also had $0.9 million in
securities sold under agreements to repurchase, a "deposit-like"
instrument.
The growth in noninterest-bearing deposits at year end reflects the
Bank's continuing focus on commercial lending. Noninterest-bearing
deposits increased to $23.1 million at year end 1994, a 22.52%
increase when compared to year end 1993. The Chase acquisition
accounted for $2.6 million of the increase. Average noninterest-
bearing deposits increased from $13.3 million for the year ended 1993
to $21.5 million for the year ended 1994. Average noninterest-bearing
deposits as a percentage of total average deposits increased from
8.86% at year end 1993 to 12.75% at year end 1994.
The combination of savings accounts and money market accounts
increased by $9.4 million, or 23.78%, from the $40.0 million at year
end 1993. Of that increase, however, $9.2 million was part of the
Chase acquisition. IRA accounts increased to $15.3 million at December
31, 1994, up 20.25% from December 31, 1993.
The yield on the Company's interest earning assets was 7.95% for the
year ended December 31, 1994, an increase of 11 basis points from the
yield of 7.84% for the year ended December 31, 1993. During this same
period, the rate for total interest-bearing liabilities increased 14
basis points to 3.57% from 3.43%. As a result, the net interest spread
decreased slightly to 4.38% for the year ended December 31, 1994, from
4.41% for the prior year. Nevertheless, the net interest margin
increased to 4.99% in 1994 from 4.82% in 1993. The increase was due
primarily to the growth of the Company's assets and careful management
of the Company's pricing structure.
The Company's shareholders' equity increased to $19.8 million at year
end 1994, up 8.11% from the $18.3 million figure at year end 1993.
This increase was primarily the result of 1994 earnings. Shareholders'
equity for 1994 was also affected by the $109,000 payment made on the
loan associated with the ESOP, and accounting for the unrealized loss
of $389,976, net of tax, on the available for sale portion of the
investment portfolio. The Company's return on average shareholders'
equity was 11.64%, which is consistent with industry averages.
Although this figure represents a decrease from the 13.45% figure
during 1993, this decrease relates to the Company's higher capital
levels for all of 1994 following the successful common stock offering
during the last quarter of 1993.
The Company is well capitalized. As shown in the chart below, capital
ratios for the past two year periods far exceed the regulatory
minimums:
Regulatory
1995 1994 Minimum
Tier 1 Risk Based Capital Ratio 15.97% 13.58% 4.00%
Total Risk Based Capital Ratio 17.22% 14.69% 8.00%
Tier 1 Leverage Ratio 19.40% 19.37% 4.00%
RESULTS FROM OPERATIONS
Income before taxes increased by 19.35% to $3.95 million in 1995 from
$3.31 million in 1994. Net income for the year ended December 31, 1995
was $2.66 million compared to $2.26 million for the prior year, a
17.80% increase. The Company's other operating income for the year
ended December 31, 1995 increased by $105,797 or 10.55% from the prior
year. This increase resulted primarily from increased service charges
and an increase in the number of transaction accounts which more than
offset a decrease of $17,750 in income from the prior year which
resulted from gains on sales of loans and investments. Sale of loans
reflects an ongoing effort to achieve the Company's goal of removing
certain fixed rate loans from the Company's balance sheet.
During the fourth quarter of 1995 banks were permitted to shift
investment securities amongst the various categories on a one time
basis. The Bank took advantage of this opportunity to shift
approximately $16.5 million of securities from the "held to maturity"
category to the "available for sale" category. Management felt that
this would give the Company increased flexibility to deal with future
asset/liability and liquidity management issues even though shifts in
the value of these securities now have to be reflected in the
shareholders' equity.
The Company's other operating expenses increased to $7.1 million in
1995, up 14.83% from $6.2 million for the prior year. This reflects a
significant increase in salaries and benefits expense of $567,468, due
to a full year's salary for the newly acquired employees of Chase
Manhattan, as well as normal salary increases, increased benefit costs
and additional expenses for year end performance bonuses. The FDIC
assessment for the year 1995 decreased by $119,387 due to the decrease
at mid year of the FDIC premiums on the Bank Insurance Fund. However,
the decrease does not effect the premium on Savings Insurance Fund
deposits. For The Bank of Castile, the deposits purchased in 1992 from
Anchor Savings Bank in LeRoy remain insured by the Savings Insurance
Fund. It is also anticipated that although less than 10% of the total
Bank deposits are involved, the insurance rate of $.23 per hundred and
a one time fee will be assessed sometime during 1996. The increase in
other operating expenses reflect increases in premium amortization
associated with the acquisitions and normal expenses for the newly
purchased offices.
The Company's net income was $2,657,451 for 1995, or $2.84 per common
and common equivalent share outstanding. This represents an increase
of 17.83% in net income and a 14.06% increase in earnings per share
when compared to the prior year's figures. Charges to expense for the
provision for income taxes amounted to $1,288,150 for 1995, up from
$1,050,000 in 1994. The increase results from higher pre-tax income,
as the Company's effective income tax rate remained relatively
constant at 32.60% in 1995, compared to 31.80% in 1994.
RATE SENSITIVITY AND FUNDS LIQUIDITY MANAGEMENT
The Company maintains adequate liquidity and ensures safety of
depositor funds and a relative balance between interest rate sensitive
assets and liabilities through its asset/liability committee. As set
forth above, the Company's net interest margin decreased by six basis
points to 4.93% in 1995 from 4.99% in 1994. The net interest margin
remains strong compared to peer organizations. Management believes
that the Company is presently well balanced in terms of the repricing
of its assets and liabilities.
Liquidity is provided by the Company's investment portfolio, including
the federal funds position which averaged 37.47% and 33.09% of average
total assets in 1995 and 1994, respectively. The investment portfolio
has a weighted average maturity of 38 months, with $15.7 million of
the investment portfolio maturing in one year or less. The size of the
investment portfolio increased modestly during 1995 particularly when
compared to the significant growth experienced during the prior year
due to the Chase acquisition.
Daily liquidity is provided by the purchase or sale of federal funds
with various institutions. During 1995, the Bank was a seller of
federal funds with average daily sales of $6.6 million. Though
employed for only six days during 1995, the Bank has the ability to
borrow from the Federal Reserve Bank of New York, a correspondent
bank, or the Federal Home Loan Bank. Membership allows the Bank to
borrow periodically on a short-term or long-term basis at preferred
rates. The Bank has borrowings of $365,678 and $3,141,342 on a long-
term basis from the Federal Home Loan Bank to fund the ESOP and to
purchase investments for the purpose of neutralizing our slightly
asset sensitive position. The overall liquidity of the Company is
supplemented by its core deposits which, as previously noted, have
grown both in volume and in percentage of total deposits.
The Bank also sold $2.8 million in various commercial, agricultural or
residential mortgage loans on the secondary market during 1995.
Management expects to continue such sales from time to time.
GAP Analysis
Certain assumptions are necessary in establishing a meaningful GAP
analysis. These key assumptions are discussed in this section.
Floating rate securities and loans are categorized according to their
repricing frequency. For other investment securities that have ongoing
principal reduction, modified duration is used in identifying the
repricing opportunities. Contractual payment schedules are used for
fixed rate commercial loans. For consumer installment loans, an
assumed maturity of 36 months is used, and the dollars are pooled over
this time period.
In recognition that cash and due from bank accounts are reflected
entirely in the zero to three month category, a like amount of
noninterest bearing demand deposits are shown in the same category.
The remainder of those deposits are spread out up to the three year
time period. Savings accounts are slotted in the categories up to and
including two years, with 80% of the dollars repricing in the one to
two year category. NOW accounts and MMDA accounts are treated as
variable rate instruments, and are therefore shown in the zero to
three month category. All other categories of interest-earning assets
and interest-bearing liabilities not discussed separately are
classified according to their contractual agreements.
The Company's balance sheet was well matched at year end 1995. The
continued upturn of rates is not expected to significantly impact
earnings. The Company is not involved in any off balance sheet
derivative products and its holding in mortgage backed securities is
very stable.
The following GAP table as of December 31, 1995 includes all major
categories of interest-earning assets and interest-bearing
liabilities:
0-3 3-12 1-5 Over
MonthS Months Years 5 Years Total
ASSETS: (In millions)
Investment securities $10,792 $23,602 $37,793 $10,420 $82,607
Federal funds sold 2,050 2,050
LoanS 78,665 22,997 16,853 14,964 133,479
Allowance for possible loan losses (1,716) (1,716)
Net loans 78,665 22,997 16,853 13,248 131,763
Total interest-earning assets
91,507 46,599 54,646 23,668 216,420
Other assets 7,752 9,322 17,074
Total assets $99,259 $46,599 $54,646 $32,990 $233,494
LIABILITIES AND SHAREHOLDERS' EQUITY:
NOW accounts $25,827 $25,827
Money market deposit accounts
11,771 11,771
Savings accounts 1,777 $ 5,332 $28,436 35,545
Certificates of deposit 39,046 40,488 24,599 $ 94 104,227
Total interest-bearing deposits
78,421 45,820 53,035 94 177,370
Repurchase agreements 1,264 421 83 1,768
Long-term debt 79 352 1,506 1,570 3,507
Total interest-bearing liabilities
79,764 46,593 54,624 1,664 182,645
Noninterest-bearing deposits
7,752 8,502 10,451 26,705
Other liabilities 1,318 1,318
Total liabilities 87,516 55,095 65,075 2,982 210,668
Shareholders' equity 22,826 22,826
Total liabilities and shareholders' equity
$87,516 $55,095 $65,075 $25,808 $233,494
GAP $11,743 $(8,496)$(10,429)$ 7,182
CUMULATIVE GAP $11,743 $(3,247)$ (7,182)
MEASURES OF PERFORMANCE
Various measures of performance are available to analyze any bank's
safety, soundness, and financial health. The Consolidated Financial
Highlights section of this Annual Report details common measures such
as return on assets, return of equity and earnings per share. Other
indicators are as follows:
1. Banks usually strive to cover a portion of other operating expenses
with noninterest or fee income. In 1995, 1994, and 1993, the Bank
covered 15.60%, 16.21%, and 18.20%, respectively, of such other
operating expenses with noninterest income or fees.
2. The capital ratio measures the ending capital of a bank as a
percentage of its ending assets. This ratio reflects a bank's ability
to support deposit growth and provide a reserve for any potential
future deterioration in asset quality. At year end 1995, the capital
ratio of the Bank was 9.78%, up from 9.35% at year end 1994. This
change is a result of 1995 net earnings and gains in the available for
sale section of the investment portfolio.
3. The loan to deposit ratio is a secondary measure of liquidity. The
Bank's loan to deposit ratio increased to 65.41% at year end 1995 from
64.74% in 1994. Although the current ratio is somewhat below the 70-
75% range set forth in the Company's strategic plan, it is not unusual
for a full service community bank, and indicates that the Bank
maintains adequate liquidity and is actively serving the credit needs
of its community. The ratio was clearly affected by the increase in
deposits that accompanied the acquisition of the two offices from
Chase during the fourth quarter of 1994.
4. Asset quality is a critical measure of any bank's potential for
continued performance. The net loan charge-offs of the Bank were
$134,963, $233,825, and $179,394, for the years ended December 31,
1995, 1994, and 1993, respectively. During 1995, 1994 and 1993, the
ratio of net charge-offs to average loans outstanding was 0.11%,
0.20%, and 0.17%, respectively, which are very low percentages when
compared with our peer group. Commercial and industrial, agricultural,
and mortgage loan losses were negligible during 1995, with most of the
charge-offs coming primarily from the consumer lending area. The
Company has recently added a full time consumer loan collector and the
results have been excellent.
5. The allowance for possible loan losses as a percentage of total
loans outstanding increased slightly from 1.26% at year end 1994 to
1.29% at year end 1995. As a result of the growth of the loan
portfolio and charge-offs during 1995 and 1994, $324,363 and $312,725,
respectively, were charged to the provision for loan losses.
With the category of non-performing loans defined as non-accruing
loans plus accruing loans past due 90 days or more, the Company had
$741,700 in non-performing loans at year end 1995, or 0.56% of total
loans, and $470,400 in non-performing loans at year end 1994, or 0.39%
of total loans. This compares very favorably with peer group banks.
BANK FACILITIES AND SERVICES
During 1995, the Company purchased and obtained an option on land
adjacent to its existing Operations Center in Perry, New York. A 7,800
square foot addition was made to the existing 3,700 square foot
facility to house various internal departments for the Bank's
operations. In November, 1995, the mortgage and consumer loan
departments were combined into the consumer loan administration
department and relocated to the center. The commercial loan
administration department, and the training area also relocated to the
facility, joining the central data processing department which
remained there. The new training facility represents a major
commitment to what we believe to be a most important future effort.
On December 2, 1994, the Bank acquired Chase's historic office in
Caledonia. The facility has a drive-in teller and an ATM. The building
is in need of renovation which is anticipated during 1996.
During 1995, a major study of the various data processing options took
place and a decision was reached to continue with the current vendor,
upgrading both our central processing software and hardware. While the
cost is modest when compared with past technological upgrades, a great
deal of training will be necessary. The Bank is presently reviewing
technological advances such as imaging and home banking options, which
would significantly reduce our internal processing costs and serve our
customers better.
MARKET FOR THE COMMON STOCK
As of January 2, 1994, the market price for the Company's common stock
is reflected daily on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) Small Cap Market under the symbol
LEBC. The Company's warrants also trade on the NASDAQ Small Cap Market
under the symbol LEBCW. First Albany Corporation, Ryan, Beck &
Company, McConnell, Budd and Downes, and Tucker Anthony, Inc. all make
a market in the Company's common stock and warrants. However, trading
in the Company's stock is limited and therefore, no assurance can be
given that an active or liquid market for the common stock or warrants
will exist. Presently, there are approximately 800 holders of the
Company's securities. All shareholders who own their stock in their
individual names are eligible to participate in the Company's Dividend
Reinvestment Plan.
On February 6, 1996, the closing Bid/Asked price for the Company's
common stock and the warrants, as quoted on the NASDAQ Small Cap
Market, was $30.00/31.00 per share and $7.00/8.13 per warrant,
respectively.
During 1995, the Company declared four quarterly dividends totaling
$.54 per share of common stock. This represents an increase of $.06
per share, or 12.50%, over the amount declared in 1994. In November,
1991, the Company implemented a Dividend Reinvestment Plan (the
"Plan"). The shareholders commenced participation under the Plan with
the first dividend of 1992. Presently, over one-third of the eligible
shareholders participate in the Plan. The Company's only source of
income is from the Bank. As explained in Note 17 of the Consolidated
Financial Statements, the Bank's ability to declare dividends is
restricted by law and related restrictions as to the amount of funds
which can be transferred to its parent company.
Item 7 - Financial Statements
The Consolidated Financial Statements of the Company,
together with the report thereon of Price Waterhouse LLP, dated
January 19, 1996, included below on pages 37 through 60 of the 1995
Annual Report to Shareholders, are incorporated by reference in this
Annual Report on Form 10-KSB.
Report of Independent Accountants
Price Waterhouse LLP
To the Board of Directors and Shareholders of
Letchworth Independent Bancshares Corporation
In our opinion, the accompanying consolidated statement of condition and
the related consolidated statements of income, changes in shareholders'
equity and cash flows present fairly, in all material respects, the
financial position of Letchworth Independent Bancshares Corporation and its
subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," in 1994 and SFAS No. 109, "Accounting for Income Taxes,"
in 1993.
PRICE WATERHOUSE LLP
Buffalo, New York
January 19, 1996
Consolidated Statement of Condition
December 31,
1995 1994
ASSETS:
Cash and due from banks $ 7,752,080 $ 6,264,350
Federal funds sold 2,050,000 5,600,000
Investment securities:
Available for sale (cost of $37,685,788
and 22,938,239, respectively) 38,200,900 22,280,800
Held to maturity (market value of
$45,622,500 and $47,806,100,
respectively) 44,406,441 48,802,730
Total investment securities 82,607,341 71,083,530
Loans 133,479,088 121,367,741
Less - Allowance for possible loan losses
(1,716,300) (1,526,900)
Net loans 131,762,788 119,840,841
Other assets 2,373,972 2,955,312
Accrued interest receivable 1,949,266 1,711,571
Premises and equipment, net 4,998,697 4,259,030
$ 233,494,144 $ 211,714,634
Liabilities and Shareholders' Equity:
Deposits:
Noninterest-bearing $ 26,704,826 $ 23,138,166
Interest-bearing 177,370,635 164,319,775
Total deposits 204,075,461 187,457,941
Securities sold under agreements to repurchase
1,767,984 900,000
Accrued interest payable 747,351 419,953
Accrued taxes and other liabilities 570,448 197,702
Advances from Federal Home Loan Bank 3,507,020 2,936,368
Total liabilities 210,668,264 191,911,964
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $1.00 par value, 1,500,000
shares authorized, 899,970 and 896,720
shares issued, respectively 899,970 896,720
Capital surplus 10,206,024 10,087,067
Retained earnings 11,778,164 9,605,255
Unearned employee stock ownership plan share
s (365,678) (337,750)
Unrealized gain (loss) on investments, net 307,400 (389,976)
Minimum pension liability adjustment (58,646)
Total shareholders' equity 22,825,880 19,802,670
$ 233,494,144 $ 211,714,634
The accompanying notes are an integral part of these financial statements.
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C> <C> <C>
1995 1994 1993
INTEREST INCOME:
Interest and fees on loans $12,788,697 $10,665,418 $9,294,697
Interest and dividends on investment securities -
Taxable 3,603,440 2,368,742 ,116,620
Exempt from federal income taxes 1,088,331 828,048 690,507
Interest on federal funds sold 397,103 173,644 131,069
Total interest income 17,877,571 14,035,852 12,232,893
Interest expense on deposits & advances
7,610,361 5,231,986 4,718,651
Net interest income 10,267,210 8,803,866 7,514,242
Provision for possible loan losses 324,363 312,725 361,449
Net interest income after provision for possible loan losses
9,942,847 8,491,141 7,152,793
OTHER OPERATING INCOME:
Service charges on deposit accounts 888,363 777,402 719,855
Other charges and fees 83,228 70,005 94,455
Other operating income 116,681 117,318 70,421
Net gain on sales of loans and investment securities
20,325 38,075 99,162
Total other operating income 1,108,597 1,002,800 983,893
OTHER OPERATING EXPENSE:
Salaries and employee benefits 3,752,036 3,184,568 2,733,511
Occupancy expense 449,478 370,600 362,235
Printing and supplies 323,182 319,195 258,443
Equipment expense 550,829 500,945 439,753
FDIC assessment 239,097 358,484 326,490
Other operating expenses 1,791,221 1,454,317 1,285,902
Total other operating expens 7,105,843 6,188,109 5,406,334
Income before income taxes and cumulative effect
of a change in accounting principle 3,945,601 3,305,832 2,730,352
Provision for income taxes 1,288,150 1,050,000 864,000
Income before cumulative effect of a change in
accounting principle 2,657,451 2,255,832 1,866,352
Cumulative effect of a change in accounting principle 62,000
Net income $ 2,657,451 $ 2,255,832 $ 1,928,352
EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle $ 2.84 $ 2.49 $ 2.61
Cumulative effect of a change in accounting principle .09
Net income $ 2.84 $ 2.49 $ 2.70
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Unearned
employee Minimum
stock Unrealized pension
Common Capital Retained ownership gain(loss) liability
Stock Surplus Earnings plan shares investment adjustment
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31,1992 $696,720 $6,455,435 $6,151,229 $(221,500)
Net income 1,928,352
Net proceeds from sale
of common stoc 200,000 3,631,632
Payment of ESOP debt 75,750
Additional shares purchased by ESOP (301,000)
Cash dividends declared
($.43 per share) (299,732)
BALANCE AT
DECEMBER 31, 1993 896,720 10,087,067 7,779,849 (446,750)
Net income 2,255,832
Payment of ESOP debt 109,000
Net unrealized depreciation
of securities available for sale (389,976)
Minimum pension liability adjustment (58,646)
Cash dividends declared
($.48 per share) 430,426
BALANCE AT
DECEMBER 31, 1994 896,720 10,087,067 9,605,255 (337,750) (389,976) (58,646)
Net income 2,657,451
Exercise of stock warrants
3,250 71,500
Payment of ESOP debt 112,583
Additional shares purchased by ESOP (140,511)
Excess of fair value over cost of ESOP
shares released 47,457
Net unrealized appreciation
of securities available for sale 697,376
Minimum pension liability adjustment 58,646
Cash dividends declared
($.54 per share) (484,542)
BALANCE AT
DECEMBER 31,1995 $899,970 $10,206,024 11,778,164 $(365,678) $307,400 $-0 -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
INTEREST RECEIVED $17,881,690 $13,813,697 $12,483,654
Service charges, fees and other income received
1,088,272 964,725 881,246
Interest paid (7,282,963) (5,387,319) (4,722,769)
Cash paid to suppliers and employees (6,009,766) (6,134,082) (4,928,314)
Income taxes paid (1,375,000) (1,118,150) (998,000)
Net cash provided by operating activities
4,302,233 2,138,871 2,715,817
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment secu 5,026,718 2,203,750
Proceeds from calls and maturities of investment securities -
Held to maturity 8,804,540 7,666,031 13,903,678
Available for sale 2,708,815 1,021,436
Proceeds from sales of loans 2,806,959 6,262,318 1,970,229
Purchases of investment securities - held to maturity
(21,062,965) (29,541,871) (20,317,406)
Purchases of investment securities - available for sale
(1,043,450) (6,157,550)
Net increase in loans (15,032,944) (15,036,503) (13,746,575)
Expenditures for capital assets (1,193,167) (1,558,884) (741,962)
Net cash used in investing activities
(24,012,212) (32,318,305) (16,728,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits,
NOW accounts and money market accoounts
3,122,589 (632,758) 4,157,839
Net increase in time deposits 13,494,931 14,090,814 2,977,825
Assumption of deposits of acquired branch 19,876,751
Net increase (decrease) in securities sold
under agreements to repurchase 867,984 (100,000) 1,000,000
Proceeds from sale of common stock 3,831,632
Proceeds from current borrowings 892,511 2,667,900 99,000
Repayment of borrowings (320,514) (277,282)
Exercise of warrants 74,750
Cash dividends paid (484, 542) (430,426) (299,732)
Net cash provided by financing activitie
17,647,709 35,194,999 11,766,564
Net (decrease) increase in cash and cash equivalents
(2,062,270) 5,015,565 (2,245,905)
Cash and cash equivalents, beginning of year
11,864,350 6,848,785 9,094,690
Cash and cash equivalents, end of year
$ 9,802,080 $11,864,350 $6,848,785
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,657,451 $ 2,255,832 $1,928,352
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 629,877 535,534 481,403
Provision for possible loan losses 324,363 312,725 361,449
Loss (gain) on sales of investments 20,685 (67,128)
Gain on sales of loans (20,325) (58,760) (32,034)
(Increase) decrease in interest receivable
(237,695) (483,614) 94,542
Amortization of bond premium 313,745 326,437 192,328
Accretion of bond discount (71,931) (64,978) (14,594)
Increase in other assets (166,024) (627,549) (253,497)
Increase in interest payable 327,398 155,333 4,118
Increase (decrease) in accrued taxes and other liabilities
545,374 (232,774) 20,878
Net cash provided by operating activities
$ 4,302,233 $ 2,138,871 $ 2,715,817
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of operations
Letchworth Independent Bancshares Corporation is a bank
holding company headquartered in Castile, New York.
Through its subsidiary, The Bank of Castile, it is
engaged primarily in the business of commercial and
retail banking in the Genesee Valley region of western
New York.
Basis of presentation
The consolidated financial statements include the
accounts of Letchworth Independent Bancshares
Corporation and its subsidiary, The Bank of Castile
(collectively, "the Company"). All significant
intercompany accounts and transactions have been
eliminated.
The accounting policies of the Company conform with
generally accepted accounting principles and prevailing
practices within the banking industry. 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 at the date of the
financial statements and the reported amounts of
revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Certain prior year balances have been reclassified to
conform with current year presentation.
Investment securities
On January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." As required, the provisions of SFAS 115
were not applied to any prior periods.
Investments in debt securities are classified as held
to maturity and stated at amortized cost when
management has the positive intent and ability to hold
such securities to maturity. Investments in other debt
securities and equity securities having readily
determinable fair values are classified as available
for sale and stated at estimated fair value. Unrealized
gains or losses related to investment securities
available for sale are reflected in a separate
component of shareholders' equity, net of applicable
income taxes.
During 1995, the Financial Accounting Standards Board
issued a Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investment in
Debt and Equity Securities." As permitted by this
report, management reassessed the appropriateness of
the classification of investment securities between
available for sale and held to maturity. Based upon
this reassessment, investment securities with an
amortized cost basis of $16,510,200 were reclassified
from held to maturity to available for sale. Other than
this transaction, no investment securities have been
transferred between the available for sale and held to
maturity categories or sold from the held to maturity
category.
Prior to January 1, 1994, debt securities were carried
at amortized cost when management had both the ability
and intent to hold such securities to maturity.
Periodic sales of these securities occurred principally
as a result of measures taken by management in reaction
to a changing business environment.
Amortization of premiums and accretion of discounts for
investment securities available for sale and held to
maturity are included in interest income. Gains and
losses on the sale of investment securities available
for sale are determined using the specific
identification method.
The Company does not utilize off-balance sheet
derivative financial instruments.
Loans
Loans are stated at their principal amount outstanding,
net of deferred loan origination and commitment fees
and certain direct costs, which are recognized over the
contractual life of the loan as an adjustment of the
loan's yield. Interest income on loans is accrued on a
level yield method.
Loans, principally residential real estate loans, are
periodically sold without recourse and servicing is
generally retained. Gains and losses on sales of loans
are recognized at the time of settlement and are
determined by the difference between net sales proceeds
and the carrying value of the loans sold.
Allowance for possible loan losses
During the first quarter of 1995, the Company adopted
the provisions of SFAS 114, "Accounting by Creditors
for Impairment of a Loan" and SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income
Recognition." Under these Standards, a loan is
considered impaired, based on current information and
events, when it is probable that the Company will not
be able to collect the scheduled payments of principal
or interest when due according to the contractual terms
of the loan agreement (generally within 90 days).
Impaired loans include loans on nonaccrual status. The
measurement of impaired loans is generally based on the
present value of expected future cash flows discounted
at the historical effective interest rate, except that
all collateral dependent loans are measured for
impairment based on the fair value of the collateral.
Loans are generally evaluated individually. Loans with
similar risk characteristics, such as consumer
installment loans, credit card loans or residential
real estate mortgage loans, are assessed in aggregate
based upon historical statistics. The effect of this
implementation was not material.
The allowance for possible loan losses is maintained at
a level which, in the opinion of management, is
considered adequate to absorb potential losses in the
loan portfolio. The level of the allowance is based on
management's evaluation of individual loans, past loan
loss experience, the assessment of prevailing and
anticipated economic conditions, the estimated value of
collateral and other relevant factors.
The allowance for possible loan losses is established
through charges to earnings in the form of a provision
for loan loss. Increases and decreases in the allowance
due to changes in the measurement of the impaired loans
are included in the provision for loan loss. Loans
continue to be classified as impaired unless they are
brought fully current and the collection of scheduled
interest and principal is considered probable.
When a loan or portion of a loan is determined to be
uncollectible, the portion deemed uncollectible is
charged against the allowance and subsequent
recoveries, if any, are credited to the allowance.
Income recognition on impaired and nonaccrual loans
Loans, including impaired loans, are placed on a
nonaccrual status in accordance with policies
established by management. Loans, other than consumer
loans, are generally transferred to nonaccrual status
when principal or interest payments become 90 days past
due. Any accrued but uncollected interest previously
recorded on such loans is reversed in the current
period. Past due consumer loans are generally fully
reserved or charged-off when they reach a 90 day
delinquency status. Loans are returned to accrual
status when management determines that the
circumstances have improved to the extent that both
principal and interest are collectible and there has
been a sustained period of repayment performance in
accordance with the contractual terms of interest and
principal.
While a loan is classified as nonaccrual and the future
collectibility of the recorded loan balance is
doubtful, collections of interest and principal are
generally applied as a reduction to principal
outstanding. When the future collectibility of the
recorded loan balance is expected, interest income may
be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off,
recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded
loan balance at the contractual interest rate. Cash
interest receipts in excess of that amount are recorded
as recoveries to the allowance for loan losses until
prior charge-offs have been fully recovered.
Premises and equipment
Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
is computed on the straight-line basis over the
estimated useful lives of the related assets, generally
ranging from three to 40 years. Amortization of
leasehold improvements is computed on a straight-line
basis over the term of the lease. Maintenance, repairs
and minor improvements are charged to operating expense
as incurred. Major improvements are capitalized.
Income taxes
The Company and its subsidiary file a consolidated
federal income tax return. The provision for income
taxes is based on income as recorded in the
consolidated financial statements. This provision
differs from amounts currently payable because of
temporary differences in the recognition of certain
income and expense items for financial and tax
purposes.
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," was adopted by the
Company as of January 1, 1993. SFAS 109 requires that a
deferred tax liability or asset be adjusted in the
period of enactment for the effect of changes in tax
laws or rates. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes. The
adoption of SFAS 109 resulted in a $62,000 favorable
impact on 1993 earnings.
Earnings per share
Earnings per share are based upon the weighted average
number of common shares and, when applicable, common
equivalent shares outstanding during the year less ESOP
shares not committed to be released. The weighted
average number of common and common equivalent shares
outstanding was 942,386 in 1995, 906,435 in 1994, and
713,327 in 1993.
Statement of Cash Flows
For purposes of preparing the statement of cash flows,
the Company defines cash and cash equivalents as cash
and due from banks and federal funds sold.
New accounting pronouncements
Statement of Financial Accounting Standards (SFAS) No.
122, "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65," was issued in May,
1995 and requires adoption in years beginning after
December 15, 1995. SFAS 122 requires entities to
recognize as separate assets rights to service mortgage
loans for others, however those rights are acquired.
SFAS 122 also requires that capitalized mortgage
servicing rights be assessed for impairment based on
the fair value of those rights. Management does not
anticipate that adoption of this Statement will have a
significant impact on the Company's financial position
or results of operations.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS:
The Federal Reserve Board requires banks to maintain
certain minimum cash balances consisting of vault cash
and deposits in the Federal Reserve Bank. The amount of
such reserves is based on percentages of certain deposit
types and totaled $1,414,000 and $1,407,000 at December
31, 1995 and 1994, respectively.
NOTE 3 - INVESTMENT SECURITIES:
<TABLE>
<CAPTION>
The amortized cost and estimated market value of
investment securities held to maturity are as follows:
December 31, 1995
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $15,992,787 $502,574 $(11,461) $16,483,900
State and political subdivision obligations
21,674,732 760,214 (38,846) 22,396,100
Mortgage-backed securities 6,738,922 31,312 (27,734) 6,742,500
Totals $44,406,441 $1,294,100 $(78,041) $45,622,500
December 31, 1994
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $20,698,476 $ 554 $(514,330 )$20,184,700
State and political subdivision obligations
20,166,690 71,049 (266,239) 19,971,500
Mortgage-backed securities 7,937,564 20,963 (308,627) 7,649,900
Totals $48,802,730 $ 92,566$(1,089,196) $47,806,100
The amortized cost and estimated market value of investment
securities available for sale are as follows:
December 31, 1995
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gaines Losses Value
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $31,907,710 $580,506 $(107,416) $32,380,800
State and political subdivision obligations
1,054,794 15,206 1,070,000
Mortgage-backed securities 4,086,984 29,149 (2,333) 4,113,800
Federal Home Loan Bank 636,300 636,300
Totals $37,685,788 $624,861 $(109,749) $38,200,900
December 31, 1994
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $17,449,363 $ 7,503 $(406,866) $17,050,000
Mortgage-backed securities 4,909,776 134 (258,210) 4,651,700
Federal Home Loan Bank stock 579,100 579,100
Totals $22,938,239 $ 7,637 $(665,076) $22,280,800
</TABLE>
The market values of securities are estimated utilizing
independent pricing services and are based on available
market data. The market values of state and political
subdivision obligations that are not actively traded are
determined by independent pricing services based on market
transactions in comparable securities and various
relationships between securities.
The amortized cost and estimated market value of debt
securities at December 31, 1995, by contractual maturity,
are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right
to call or prepay obligations.
<TABLE>
<CAPTION>
Available for sale Held to maturity
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within one year $6,031,584 $6,044,200 $9,693,150 $9,710,900
Due after one year through five years
27,426,914 27,825,800 21,119,949 21,725,700
Due after five years through ten years
2,540,429 2,640,400 11,299,947 11,824,900
Due after ten years 1,004,260 1,007,900 2,293,395 2,361,000
$37,003,187 $37,518,300 $44,406,441 $45,622,500
The total amortized cost of investment securities pledged to
secure public deposits, as required by law, was $42,025,000
and $35,668,000 at December 31, 1995 and 1994, respectively.
NOTE 4 - LOANS:
Loans consisted of the following:
December 31,
1995 1994
Real estate loans:
Secured by one to four family residential
properties $41,120,730 $40,353,744
Other 33,917,880 27,971,189
75,038,610 68,324,933
Agricultural loans 25,168,552 22,091,563
Commercial and industrial loans
23,317,057 19,670,283
Consumer loans 9,954,869 11,280,962
$133,479,088 $121,367,741
Loans serviced for others, principally residential real
estate loans, amounting to $11,590,700 and $12,449,700
at December 31, 1995 and 1994, respectively, are not
included in the consolidated financial statements. At
December 31, 1995, the balance of impaired loans and related
reserve against that balance was $741,700 and $195,000,
respectively. The average balance of impaired loans during
1995 was approximately $309,000. Interest income recognized
on impaired loans and interest income recognized on a cash
basis was not significant.
NOTE 5 - ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An analysis of changes in the allowance for possible
loan losses is as follows:
Year ended December 31,
1995 1994 1993
Balance, beginning of year $1,526,900 $1,448,000 1,265,945
Provision expense 324,363 312,725 361,449
Charge-offs (216,615) (288,992) (244,296)
Recoveries 81,652 55,167 64,902
Balance, end of year $1,716,300 $1,526,900 1,448,000
A summary of nonaccrual and past due loans is as follows:
December 31,
1995 1994
Nonaccrual loans $450,500 $254,800
Accruing loans past due 90 days or more $291,200 $215,600
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment, net of accumulated depreciation and
amortization, consisted of the following:
December 31,
1995 1994
Land and improvements $ 320,976 $ 204,876
Premises 4,000,757 2,457,630
Furniture, fixtures and equipment 2,681,308 2,752,904
Leasehold improvements 176,070 176,070
7,179,111 6,591,480
Less - Accumulated depreciation and amortization
(2,180,414)(2,332,450)
$4,998,697 $4,259,030
NOTE 7 - DEPOSITS:
Deposits consisted of the following:
December 31,
1995 1994
Noninterest-bearing deposits 26,704,826 $23,138,166
Negotiable order of withdrawal deposits
25,827,144 26,777,592
Savings deposits 35,545,073 37,692,445
Money market deposits 11,770,921 11,264,544
Certificates of deposit less than $100,000
80,689,791 71,835,119
Certificates of deposit $100,000 or greater
23,537,706 16,750,075
$204,075,461 $187,457,941
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK:
At December 31, 1995, the Company has advances from the
Federal Home Loan Bank of New York of $3,507,020. These
borrowings mature at various dates through 2005 and carry a
weighted average interest rate of 7.10%. Principal
repayments required in 1996, 1997, 1998, 1999 and 2000 are
as follows: $350,300, $368,300, $321,900, $342,700 and
$365,100, respectively.
At December 31, 1995, the Company has an available line of
credit with the Federal Home Loan Bank of New York of
$22,787,500. There are no commitment fees associated with
this line. There were no borrowings against this line at
December 31, 1995. Maximum borrowings against this line
during the year ended December 31, 1995 were $3,547,500.
NOTE 9 - SHAREHOLDERS' EQUITY:
During November 1993, the Company sold 200,000 shares of
its common stock with attached warrants to purchase an
additional 200,000 shares. The warrants are exercisable at
$23.00 per share and expire on December 31, 1997. Gross
proceeds from the sale of stock totalled $4,000,000. Direct
expenses associated with the offering approximated $168,000
and were charged against capital surplus. During 1995,
warrants for 3,250 shares of common stock were exercised.
The Company has 100,000 shares reserved for issuance under
its stock option plan. The options may be granted at prices
not less than the fair market value at the date of grant
and expire no later than ten years after the date of grant.
Options to purchase 81,258 shares were granted in 1990 to
selected employees at a price of $15.00 per share. For two
employees, the options are exercisable at a rate of 20% at
the end of years one and eight and 10% at the end of years
two through seven. For all other employees, the options are
exercisable at the rate of 10% at the end of years one
through eight and 20% at the end of year nine. There were
no stock options issued in 1995, 1994 or 1993. At December
31, 1995, options for 54,631 shares of common stock were
exercisable.
NOTE 10 - INCOME TAXES:
The components of the provision for income taxes are as
follows:
Year ended December 31,
1995 1994 1993
Current:
Federal $1,210,150 $605,000 $731,000
State 371,000 198,000 228,000
1,581,150 803,000 959,000
Deferred:
Federal (223,000) 185,000 (72,000)
State (70,000) 62,000 (23,000)
(293,000) 247,000 (95,000)
$1,288,150 $1,050,000 $864,000
The components of deferred taxes are as follows:
December 31,
1995 1994
Deferred tax assets:
Allowance for possible loan losses $505,600 $448,500
Deferred compensation 79,200 69,400
Deferred loan origination fees and costs
58,100 79,200
Unrealized gains recognized for tax purposes
39,000
Minimum pension liability 40,200
Unrealized investment losses 267,500
681,900 904,800
Deferred tax liabilities:
Depreciation 137,700 119,600
Pension 21,000 35,900
Unrealized investment gains 208,000
Unrealized losses recognized for tax purposes 130,600
Insurance accruals 80,800
366,700 366,900
Net deferred tax asset $315,200 $537,900
The provision for income taxes is different from that which
would be obtained by applying the statutory federal income tax
rate to income before taxes. The items causing this difference
are as follows:
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
<S> <C> <C> <C> <C> <C> <C>
Expected tax at federal
statutory rates $1,342,000 34.00% $1,124,000 34.00% $928,300 34.00%
Increases (decreases) resulting from:
Tax exempt interest on investments
in state and political subdivision
securities (320,000)(8.10) (251,000)(7.60) (208,900)(7.70)
State franchise taxes, less federal
income tax benefit 199,000 5.00 171,600 5.20 135,300 5.00
Other, net 67,150 1.70 5,400 .20 9,300 .30
Provision for income taxes$1,288,150 32.60% $1,050,000 31.80% $864,000 31.60%
</TABLE>
NOTE 11 - EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined benefit pension
plan covering substantially all employees. Benefits are
based on 1% of career average annual compensation
multiplied by the number of years of service, up to 40
years. The Company's funding policy is to contribute
annually an amount, based on actuarial computations, which
would satisfy the Internal Revenue Service's funding
standards.
Net pension expense (benefit) includes the following
components:
Year ended December 31,
1995 1994 1993
Service cost - benefits earned during the period
$62,704 $88,666 $60,021
Interest cost on projected benefit obligation
76,282 76,646 45,828
Actual return on plan assets
(168,603) 49,001) (111,468)
Net amortization and deferral
71,494 (137,755) 11,865
Net pension expense $41,877 $76,558 $6,246
The funded status of the plan was as follows:
December 31,
1995 1994
Actuarial present value of benefit obligations:
Vested benefit obligation $931,924 $1,145,206
Accumulated benefit obligation $1,027,518 $1,232,342
Projected benefit obligation for services rendered to date
$1,212,983 $1,428,163
Plan assets at fair value 1,305,276 1,170,237
Excess (deficiency) of plan assets at fair value
over projected benefit obligation 92,293 (257,926)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions
26,538 405,839
Unrecognized prior service cost (378) (406)
Unrecognized net transition asset (48,095) (55,168)
Prepaid pension cost excluding minimum pension liability
70,358 92,339
Minimum pension liability (154,444)
Combined minimum pension liability and prepaid pension cost
$ 70,358 $ (62,105)
The projected benefit obligation at December 31, 1995 and 1994
was determined using a discount rate of 7.00% and 7.25%,
respectively, and an assumed average rate of increase in
future compensation levels of 5.50%. The expected long-term
rate of return on plan assets was 7.75%.
The plan assets consist primarily of fixed income
securities. The unrecognized net transition asset as of
January 1, 1989 is being amortized over the remaining
service lives of the participants which approximates 14
years.
In accordance with Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," the
Company recorded an additional minimum pension liability of
$154,444 at December 31, 1994, representing the excess of
unfunded accumulated benefit obligation over previously
recorded pension assets. A corresponding amount was
recognized as an intangible asset except to the extent that
this additional liability exceeded the related unrecognized
prior service cost and net transition obligation, in which
case the increase in the liability was charged directly to
shareholders' equity. At December 31, 1994, $98,870 of the
excess minimum pension liability was charged to
shareholders' equity, net of income taxes of $40,224.
The Company also has an executive supplemental income plan
which provides for specified deferred compensation benefits
payable to certain officers in the event of death,
disability or retirement. The liability relating to this
plan was approximately $196,000 and $171,000 at December 31,
1995 and 1994, respectively, and was determined using a
discount rate of 8% and an assumed rate of increase in
future compensation of 3%. There were charges to income
related to this plan in 1995 and 1994 of approximately
$36,800 and $8,000, respectively. The Company is both owner
and beneficiary of a life insurance policy on the life of
each participant, the proceeds from which can be used to
fund the after-tax cost of the promised benefits. The cash
surrender value of such life insurance policies was
approximately $536,000 and $511,000 as of December 31, 1995
and 1994, respectively.
The Company sponsors a leveraged employee stock ownership
plan (ESOP) that covers all employees with one year of
service, who work at least 1,000 hours per year and who have
attained the age of 21. The Company purchased 61,200 shares
of common stock in 1986 for $685,500, 15,050 shares in 1993
for $301,000 and 5,500 shares in 1995 for $140,500. The
Company has financed the purchase of ESOP shares with
borrowings from the Federal Home Loan Bank of New York. The
Company makes annual contributions to the ESOP equal to the
ESOP's debt service. As the debt is repaid, shares are
released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year.
The Company accounts for its ESOP in accordance with
Statement of Position 93-6. Accordingly, the debt of the
ESOP is recorded as debt and the shares pledged as
collateral are reported as unearned ESOP shares in the
consolidated statement of condition. As shares purchased by
the ESOP prior to December 31, 1992 were released from
collateral, the Company recognized compensation expense
based on actual cash payments, which approximated or
exceeded expense required to be recognized using the share
allocated method. At December 31, 1994, there were
approximately 2,500 shares that will be accounted for using
this method when released in 1995. As shares purchased by
the ESOP subsequent to December 31, 1992 are released from
collateral, the Company recognizes compensation expense
equal to the current market price of the shares, and the
shares become outstanding for earnings per share
computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are available for debt service. ESOP
compensation expense was $168,700, $122,800 and $69,000 for
the years ended December 31, 1995, 1994 and 1993,
respectively. The ESOP shares are as follows:
December 31,
1995 1994
Allocated shares 55,579 49,844
Allocated shares withdrawn from plan
10,130 8,865
Unreleased shares 16,041 17,541
Total ESOP shares 81,750 76,250
Fair value of unreleased shares
$ 477,200 $ 330,800
NOTE 12 - RELATED PARTY TRANSACTIONS:
Certain executive officers, directors, principal
shareholders, and companies in which such individuals have
10% or more ownership, engage in transactions with the
Company in the ordinary course of business. It is the
Company's policy that all related party transactions are
conducted at "arms-length" and all loans and commitments
included in such transactions are made on substantially the
same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions
with other customers.
During 1994, the Company completed an "arms-length" purchase
of a building from a director at a total cost of
approximately $435,000. The building is being utilized as a
branch office.
A summary of the changes in outstanding loans to officers
and directors during the year ended December 31, 1995 is as
follows:
Balance of loans outstanding at December 31,1994
$4,683,400
New loans and increases in existing loans 12,727,717
Principal repayments of loans 12,094,617
Balance of loans outstanding at December 31, 1995
$5,316,500
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates one branch office under a
noncancellable lease agreement which expires in 1997. Two
other branch offices are located on land which is being
leased through 1999 and 2090, respectively. These lease
agreements contain various renewal and purchase options at
maturity.
Future minimum rentals under these leases are: 1996 -
$23,600; 1997 - $17,600; 1998 - $16,400; and 1999 - $11,300.
Total rental expense was approximately $21,000 in 1995,
1994, and 1993.
The Savings Administration Insurance Fund (SAIF) has
proposed a one-time assessment of institutions with SAIF
insured deposits in order to recapitalize its insurance
fund. While the majority of the Company's deposits are
insured by the Bank Insurance Fund (BIF), certain deposits
are insured by SAIF. If the proposal is approved in its
current form, the Company expects its assessment to
approximate $150,000 to $200,000.
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
CONCENTRATIONS OF CREDIT RISK:
The Company is party to financial instruments with off-
balance sheet risk in the normal course of business in order
to meet the financing needs of its customers. These
financial instruments include commitments to extend credit
and standby letters of credit which involve, to varying
degrees, elements of credit, interest rate or liquidity risk
in excess of the amount recognized in the consolidated
statement of condition. The Company's exposure to credit
loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit
and standby letters of credit is represented by the
contractual amounts of those instruments. The Company has
experienced minimal credit losses to date on its financial
instruments with off-balance sheet risk.
The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-
balance sheet instruments. The Company controls the credit
risk of off-balance sheet instruments through credit
approvals, limits and monitoring procedures, and management
evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained is based on
management's credit evaluation of the customer.
Commitments to extend credit, which generally have fixed
expiration dates or other termination clauses, are legally
binding agreements to lend to a customer (as long as there
is no violation of any condition established in the
contract). At December 31, 1995, the Company's total
commitments to extend credit approximated $2,118,000. Since
a portion of the commitments is expected to expire without
being drawn upon, the total commitment amounts do not
necessarily represent future liquidity requirements.
The Company has identified certain credit risk
concentrations in relation to its on- and off-balance sheet
financial instruments. Credit risk is defined as the
possibility that a loss may occur from the failure of
another party to perform according to the terms of the
contract. A credit risk concentration results when the
Company has a significant credit exposure to an individual
or a group engaged in similar activities or affected
similarly by economic conditions.
The Company's customers are located primarily in the
counties of Genesee, Wyoming and Livingston in New York
state. As Note 4 to the consolidated financial statements
indicates, approximately 19% of the Company's outstanding
loans are to customers who are directly involved in the
agriculture industry, primarily dairy farmers. In addition,
there are other commercial and industrial loans, real estate
loans and consumer loans outstanding to customers who are
indirectly related to the agriculture industry.
NOTE 15 - ACQUISITION OF BRANCHES:
On December 2, 1994, the Company acquired the Avon and
Caledonia branches of Chase Manhattan Bank, N.A. Under the
terms of the agreement, the Company was paid cash of $17.6
million and assumed approximately $19.9 million in deposit
liabilities, and acquired approximately $1.5 million in
loans, real estate anad other assets. The acquisition was
accounted for as a purchase.
NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
Cash and short-term investments
For those short-term instruments, the carrying amount
represents an estimate of fair value.
Loan receivables
For certain homogeneous categories of loans, such as some
residential mortgages and credit card receivables, fair
value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences
in loan characteristics. The fair value of other types of
loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same
remaining maturities.
Deposit liabilities
The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-
maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining
maturities.
Long-term debt
Rates currently available to the bank for debt with similar
terms and remaining maturities are used to estimate fair
value of existing debt.
Commitments to extend credit
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
present credit worthiness of the counterparties. For fixed-
rate loan commitments, fair value also considers the
difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements. The
fair value of these instruments was approximately $13,650
and $50,000 at December 31, 1995 and 1994, respectively.
The estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December31, 1994
Carrying Carrying
amount Fair value amount Fair value
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from bank $7,752,080 $7,752,080 $6,264,350 $6,264,350
Federal funds sold 2,050,000 2,050,000 5,600,000 5,600,000
Investment securities 82,607,341 83,823,400 71,083,530 70,086,900
Loans, net of allowance for possible loan losses
131,762,788 136,105,000 119,840,841 119,092,000
Financial liabilities:
Deposits 204,075,461 206,481,000 187,457,941 187,132,000
Securities sold under agreements to repurchase
1,767,984 1,767,984 900,000 900,000
Advances from the Federal Home Loan Bank
3,507,020 3,507,020 2,936,368 2,398,000
</TABLE>
NOTE 17 - CONDENSED FINANCIAL INFORMATION:
The Company's principal asset is its investment in The Bank
of Castile (the Bank). The Bank is restricted by law and
related regulations as to the amount of funds which can be
transferred to the Company. Under such restrictions,
approval from regulatory agencies is required for the
declaration of dividends in any year which exceed the total
of net income of the subsidiary in the current year, plus
retained net income for the preceding two years. At December
31, 1995, the Bank could declare dividends of approximately
$6,253,000 without prior approval from regulatory agencies.
Condensed financial information of the Company follows:
Statement of Condition
December 31,
1995 1994
ASSETS
Cash and due from banks - The Bank of Castile $428,519 $ 50,900
Investment in The Bank of Castile 22,460,114 20,555,581
$22,888,633 $20,606,481
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses $ 4,475 $ 17,439
Employee stock ownership plan loan payable 365,678 337,750
Total liabilities 370,153 355,189
Common stock - par value $1 per share, 1,500,000 shares
authorized 899,970 896,720
Capital surplus 10,206,024 10,087,067
Retained earnings 11,778,164 9,605,255
Unearned employee stock ownership plan shares
(365,678) (337,750)
Total shareholders' equity 22,518,480 20,251,292
$22,888,633$20,606,481
NOTE 17 - CONDENSED FINANCIAL INFORMATION (continued):
<TABLE>
<CAPTION>
Statement of Income
Year ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Dividends received-The Bank of Castile $909,902 $520,470 $317,447
Total income 909,902 520,470 317,447
Operating expenses 109,527
Loss on investment securities (25,000) (25,000)
Income before equity in undistributed income
of subsidiary 800,375 495,470 292,447
Equity in undistributed income of subsidiary -
The Bank of Castile 1,857,076 1,760,362 1,635,905
Net income $2,657,451 $2,255,832$1,928,352
Statement of Cash Flows
Year ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash paid to subsidiary $(56,751) $(64,044)
Cash paid to suppliers and employee (65,740)
Net cash used in operating activities
(122,491) (64,044)
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received - The Bank of Castile
909,902 520,470 $317,447
Capital contribution to The Bank of Castile
( 3,831,632)
Net cash provided by (used in) investing activities
909,902 520,470 (3,514,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (484,542) (430,426) (299,732)
Proceeds from current borrowing 99,000
Payment of current borrowings (99,000)
Proceeds from sale of common stock 3,831,632
Proceeds from exercise of warrants 74,750
Net cash (used in) provided by financing activities
(409,792) (529,426) 3,630,900
Net increase(decrease) in cash and cash equivalents
377,619 (73,000) 116,715
Cash and cash equivalents, beginning of year
50,900 123,900 7,185
Cash and cash equivalents, end of year
$428,519 $50,900 $123,900
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income $2,657,451 $2,255,832 $1,928,352
Loss on investment securities 25,000 25,000
Adjustments to reconcile net income to
net cash used in operating activities -
Equity in income of subsidiaries
(2,766,978) (2,357,940)(1,953,352)
(Decrease) increase in accrued expenses
(12,964) 13,064 0
Net cash used in operating activities
$(122,491) $(64,044) $- 0 -
</TABLE>
Item 8 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 9 - Directors, Executive Officers and Control
Persons of the Registrant
In accordance with the Bylaws of the Company, three (3)
classes of directors are elected in three (3) staggered
three-year terms. Each director so elected serves for a
term of three (3) years and until his successor is duly
elected and qualified.
Executive officers serve until the next annual meeting
of directors and until their successors are appointed and
qualified.
Set forth below is certain information regarding the
executive officers and directors of the Company as of March
24, 1996.
Positions
Held With
Name Age the Company Address
James H. Van Arsdale, III 75 Chairman of 71 Park Road East
the Board of Castile, NY 14427
Directors
James W. Fulmer 44 President, Chief 38 Wolcott Street
Executive Officer, LeRoy,NY 14482
and Director
Charles L. Van Arsdale 72 Director 5136 Park Road West
Castile, NY 14427
Stanley J. Harmon 75 Secretary and 4845 Luther Road
Director Silver Springs, NY
14550
Gunther K. Buerman 52 Director 1186 Lake Road
Webster, NY 14580
Steven C. Lockwood 36 Treasurer 34 N. Lyon Street
Batavia, NY 14020
___________________________________
James W. Fulmer and Charles L. Van Arsdale also serve as
directors of the Bank. The principal occupation or
employment of each director and each executive officer of
the Company and the year in which each such director became
a director of the Company and/or the Bank is set forth
below.
Mr. James H. Van Arsdale, III, a director of the Company
since 1981, was named Chairman of the Board of Directors of
the Company in 1981. Prior to that time, Mr. Van Arsdale
performed various managerial functions for the Bank and held
various executive offices of the Bank. He was the Chairman
of the Board of Directors of the Bank until 1992 when he
retired. Mr. Van Arsdale had also been a director of the
Bank since 1948. Mr. Van Arsdale is the brother of Mr.
Charles L. Van Arsdale.
Mr. James W. Fulmer has served as the President and
Chief Executive Officer of the Company since January 1,
1991, and as the Chief Executive Officer of the Bank since
January, 1996. Before joining the Company as the Executive
Vice President in December, 1988, Mr. Fulmer held various
executive positions with Fleet Bank of New York (formerly
known as Security New York State Corporation and Norstar
Bank) for approximately twelve (12) years and with the
Genesee Valley Penny Saver for approximately one year. Mr.
Fulmer has served as a director of the Bank since 1988 and
as Vice Chairman of the Board of Directors of the Bank since
1991. Effective May 1, 1992, he assumed the position of
Chairman of the Board of Directors of the Bank, and he
currently serves as a member of the Board of Directors of
the Cherry Valley Cooperative Insurance Company, St.
Jerome's Hospital, the Genesee County Industrial Development
Agency, and is Treasurer of the Independent Bankers
Association of New York State. He is also the past Chairman
of the Executive Committee for Retail Banking for the New
York State Bankers Association and is a past member of the
Board of Directors of the New York State Bankers
Association.
Mr. Charles L. Van Arsdale was the President of the
Company from the date of its incorporation in 1981 until
December 31, 1990. In addition, Mr. Van Arsdale has been a
director of the Bank since 1949. Prior to 1981, Mr. Van
Arsdale performed several managerial functions for the Bank
and held various executive offices of the Bank. Mr. Van
Arsdale is the brother of Mr. James H. Van Arsdale, III.
Mr. Stanley J. Harmon, the Secretary of the Company
since 1981, is a retired funeral director. Mr. Harmon also
served as a director of the Bank from 1960 until April 30,
1993.
Mr. Gunther K. Buerman has been a director of the
Company since January 25, 1990. Mr. Buerman has been a
partner in the law firm of Harris Beach & Wilcox located in
Rochester, New York, since 1982 and has been the Managing
Partner of the firm since March, 1984.
Mr. Steven C. Lockwood, Treasurer of the Company since
1992, is also the Chief Financial Officer for the Company
and the Bank. Mr. Lockwood graduated from St. Bonaventure
University in 1981, and joined the Bank in 1982 as Internal
Auditor. Mr. Lockwood graduated from the Bank
Administration Institute School of Banking located in
Madison, Wisconsin in 1995.
The following table sets forth the names and ages of the
principal officers and directors of the Bank and their
current
positions with the Bank.
Name* Age Position
James W. Fulmer 44 Chief Executive Officer,
Chairman ofthe Board of
Directors, and Director
Charles L. Van Arsdale 72 Vice Chairman of the Board
of Directors and Director
Robert L. Brass 58 Director
Joseph G. Bucci 52 Director
Brenda L. Copeland 44 President and Director
Thomas E. Cushing 45 Director
Gary D. Gates 59 Director
Benjamin C. Mancuso, Jr. 62 Director
John McClurg 34 Director
Craig Yunker 44 Director
___________________________________
*Effective December 31, 1995, Dr. Carol C. Harter resigned
as a member of the Board of Directors of the Bank.
James W. Fulmer and Charles L. Van Arsdale also serve as
directors of the Company. The principal occupation or
employment of all other directors and principal officers of
the Bank and the year in which each such director and
principal officer of the Bank became a director or principal
officer of the Bank, as the case may be, is set forth below.
Mr. Robert L. Brass, a director of the Bank since 1992,
is President of L.R. Brass, Inc., a retail food market.
Mr. Joseph G. Bucci, a director of the Bank since 1986,
is a self-employed real estate agent.
Ms. Brenda L. Copeland became the President of the Bank
on January 1, 1991. In addition, she has served as a
director of the Bank since 1988, and has been employed by
the Bank since 1971.
Mr. Thomas E. Cushing, a director since 1989, is the
Vice President, Secretary and Treasurer of J.O. Cook, Inc.
Mr. Gary D. Gates, a director since 1986, is the
President of Gary's TV, Inc.
Mr. Benjamin C. Mancuso, Jr., a director since 1992, is
President of Charles Mancuso and Son, Inc., a family-owned
holding company.
Mr. Craig Yunker, a director of the Bank since 1991, is
a partner in CY Farms.
John McClurg, 34, a director since 1995, is President
and owner of McClurg Chrysler-Plymouth, Inc. and McClurg
Chevrolet-Pontiac-Oldsmobile, Inc., two automobile
dealerships located in Perry, New York.
Item 10 - Executive Compensation
The following tables show, for the years ended December
31, 1995, 1994, and 1993, the total cash compensation paid
by the Company and the Bank to executive officers who
received total annual salary and bonus in excess of $100,000
and to the Chief Executive Officer of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and All Other
Principal
Compensation2
Position Year Salary($)1 Bonus($) ($)
James W. Fulmer 1995 $119,111 $17,500 $8,345
President, CEO 1994 $105,122 $15,000 $8,345
& Director of 1993 $101,344 $10,000 $8,345
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland 1995 $ 98,775 $13,000 None
President of 1994 $ 90,863 $10,000 None
the Bank 1993 $ 85,756 $ 7,500 $6,499
Long Term Compensation
Awards
Long Term
Name and Restricted Options Incentive All Other
Principal Stock Award(s) SARs Payout Compensatio
Position Year
($) (#) ($) ($)
James W. Fulmer 1995 None None None $10,454
President, CEO 1994 None None None 6,555
& Director of 1993 None None None 5,868
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland 1995 None None None $8,648
President of 1994 None None None 5,599
the Bank 1993 None None None 5,739
1) Includes matching contributions under the Company's
401(k) plan in an amount equal to $3,050.32, $2,553.88, and
$2,642.38, respectively, for James W. Fulmer, and $2,624.96,
$2,394.80, and $2,313.24, respectively, for Ms. Brenda L.
Copeland, for the years ended December 31, 1995, 1994, and
1993, respectively, as well as director's fees and certain
fringe benefits such as automobiles and group term life
insurance.
(2) The amounts disclosed represent the Company's
contribution pursuant to the Executive Supplemental Income
Agreements executed by and between the Company and each of
Mr. Fulmer and Ms. Copeland. See "Executive Compensation -
Benefits --Executive Supplemental Income Agreements."
(3) The amounts disclosed represent the Company's
contribution to the Employee Stock Ownership Plan ("ESOP").
During 1995, all directors of the Company received an
amount equal to $3,000 per year. During 1995, the Board of
Directors of the Company met five (5) times, and all of the
directors attended 75% or more of the meetings.
During 1995, the directors of the Bank each received an
annual retainer of $6,650 in lieu of meeting attendance
fees. During 1995, the Board of Directors of the Bank met
thirteen (13) times. Two (2) of the members of the Board of
Directors of the Bank entered into a certain Deferred
Compensation Agreement relating to all amounts received from
the Bank during the period from 1986 until 1990. Under
these agreements, all fees earned as a director during that
period are deferred until such director's death or
retirement from the Board of Directors of the Bank.
Payments of the fees so deferred, as well as all earnings on
such deferred amounts, are then paid to such director or his
beneficiary, as the case may be, in one hundred twenty (120)
equal monthly installments. The Bank does not currently
intend to offer such agreements to other members of its
Board of Directors.
In addition, during 1995, one designated director of the
Board of Directors of the Bank received a weekly fee of $100
for his services in connection with the Bank's Loan
Committee. Members of the Examining Committee also receive
a quarterly fee of $100 in lieu of meeting attendance fees.
Employment Contracts
On January 1, 1991, James W. Fulmer began to serve as
the President and Chief Executive Officer of the Company in
accordance with his employment agreement dated September 12,
1989, as amended, effective January 1, 1991. Subsequently,
on May 1, 1992, Mr. Fulmer became the Chairman of the Board
of Directors of the Bank. Pursuant to the terms of the
agreement, as amended, each year the term of Mr. Fulmer's
employment agreement is automatically extended for an
additional year so that the term of the employment agreement
is always three (3) years. In the event that the Company
terminates the employment agreement without cause, the
Company is required to pay Mr. Fulmer, as severance pay, his
annual compensation plus all fringe benefits for a period of
three (3) years from the date of such termination. In
addition, in the event of such termination without cause or
the sale, merger, or substantial reorganization of the
Company or the Bank, all of Mr. Fulmer's options to purchase
common stock shall become immediately exercisable. See
"Executive Compensation - Benefits -- Stock Option Plan."
Effective January 1, 1991, the Company entered into an
amended employment agreement with Ms. Brenda L. Copeland
whereby Ms. Copeland agreed to serve as the President of the
Bank or in any other capacity that the Board of Directors of
the Company or the Bank may reasonably request. Each year
the term of Ms. Copeland's employment agreement is
automatically extended for an additional year so that the
term of the employment agreement is always three (3) years.
In the event that the Company terminates the employment
agreement without cause, the Company is required to pay Ms.
Copeland, as severance pay, her annual compensation plus all
fringe benefits for a period of eighteen (18) months from
the date of such termination. In addition, in the event
that the Company terminates the employment agreement as a
result of a change of "control" of the Company, the Company
is required to pay Ms. Copeland, as severance pay, her
annual compensation plus all fringe benefits for a period of
three (3) years from the date of such termination. For
purposes of the employment agreement, the term "control" is
defined as the possession of the power to elect a majority
of the members of the Board of Directors of the Company
through the ownership of voting securities in the Company.
Benefits
Employee Stock Ownership Plan. In 1986, the Board of
Directors of the Company adopted the Employee Stock
Ownership Plan ("ESOP"), effective as of January 1, 1986.
Employees eligible to participate in the ESOP are all
employees who have met the eligibility requirements on the
effective date of adoption of the ESOP, and any employees
hired subsequent to that date who have completed one year of
service, work at least 1,000 hours per year, and have
attained the age of 21 years. Contributions to the ESOP
are discretionary, as determined by the Board of Directors
of the Bank. All funds contributed are received, held,
invested and reinvested by the ESOP trustee. Although the
trustee may invest the funds contributed to the ESOP in such
prudent investments as the trustee deems desirable,
substantially all the trust funds are invested in the common
stock of the Company.
Each participant is entitled to direct the trustee as to
the exercise of any voting rights attributable to the shares
of common stock allocated to such participant and if the
trustee receives no voting instructions, the shares of
common stock are not voted. All common stock of the ESOP
not allocated to the plan participants is voted by the
trustee in its sole discretion. The ESOP also contains
provisions permitting the ESOP to borrow funds to purchase
common stock and on June 16, 1986, the ESOP borrowed
$500,000 pursuant to a certain loan and pledge agreement
with two (2) unaffiliated banks. The proceeds of the loan
were used to purchase approximately 48,000 newly issued
shares of common stock, after giving effect to a 6-for-1
stock split of the Company, with such shares pledged as
security for the payment of principal and interest as
provided in the above-mentioned agreement. All amounts
due and owing under this loan have been satisfied.
In November of 1990, the Company borrowed $185,500 on
behalf of the ESOP pursuant to a loan and pledge agreement
with an unaffiliated bank. The loan proceeds were used to
purchase 14,000 shares of the Company's outstanding stock,
with such shares pledged as security for the payment of
principal and interest as provided in said agreement. In
November of 1993, the Company borrowed $301,000 on behalf of
the ESOP to purchase 15,050 shares of the Company's common
stock and 15,050 warrants to purchase additional shares of
common stock as part of the public offering. All amounts
due and owing under these loans were subsequently refinanced
with the Bank (with appropriate collateral granted to the
Bank), which in turn, borrowed the funds from the Federal
Home Loan Bank under an existing accommodation. In 1995,
the Company borrowed $140,511 on behalf of the ESOP to
purchase 5,500 shares of common stock.
Upon an ESOP participant's retirement, disability or
death, as those terms are defined in the ESOP, the
participant shall be fully vested in all amounts allocated
to such participant under the ESOP, as well as such
participant's share in the allocation of all contributions
made by the Company during the "Plan Year" (as that term is
defined in the ESOP) in which such retirement, disability or
death occurs. In the event a participant's service
terminates for any reason other than retirement, disability
or death, such participant's account becomes vested
based upon the number of years of "Credited Service" of such
participant (as that term is defined in the ESOP) in
accordance with the following schedule, as amended so as to
comply with the requirements of the Tax Reform Act of 1986,
as amended (the "1986 Act"):
Credited Service Vested Percentage
Less than three years 0%
Three years 30%
Four years 40%
Five years 100%
Contributions to the ESOP amounted to $169,000,
$123,000, $69,000, and for the years ended December 31,
1995, 1994, and 1993, respectively.
Defined Benefit Pension Plan. The Company maintains a
defined benefit pension plan for the benefit of all
employees covered under the Company's prior pension plan and
any other employees with at least six (6) months of service
who work at least 1,000 hours per year and have attained the
age of 21 years. Amounts contributed to the pension plan
for each covered employee by the Company are determined on
an actuarial basis. The discount rate used in determining
the actuarial present value of accumulated benefits was
seven percent and seven and one-quarter percent at
December 31, 1995 and December 31, 1994, respectively.
Under the plan, a participant is eligible for the
"Normal Retirement Pension Benefits" upon attainment of age
65 years. Vested employees who terminate before attaining
age 65 may elect optional early retirement benefits (at
reduced levels).
The following table sets forth the current regular
vesting schedule for participants under the plan, as amended
so as to comply with the requirements of the 1986 Act:
Years of Service Vested Percentage
Less than three years 0%
Three years 20%
Four years 40%
Five years 60%
Six years 80%
Seven years 100%
An employee's "Normal Retirement Pension" benefit under
the plan is an amount (payable monthly in the form of a life
only annuity) equal to the product of 1% of such employee's
"Average Compensation" and such employee's years of "Benefit
Accrual Service" (not to exceed forty (40) years), as those
terms are defined in the plan. The following table sets
forth the annual Normal Retirement Pension benefit at age 65
to an employee covered by the plan for each of the following
Average Compensation amounts and periods of Benefit Accrual
Service with the Company.
Normal Retirement Pension Benefit
for Years of Benefit Accrual Service
Average
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
$15,000 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 5,250 $ 6,000
$30,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000 $10,500 $12,000
$45,000 $ 6,750 $ 9,000 $11,250 $13,500 $15,750 $18,000
$60,000 $ 9,000 $12,000 $15,000 $18,000 $21,000 $24,000
$75,000 $11,250 $15,000 $18,750 $22,500 $26,250 $30,000
The pension plan also provides for certain disability
retirement benefits and death benefits as well as optional
forms of payment of benefits which a covered employee may
elect. The benefits provided for under the plan are in
addition to and separate from the benefits available to the
participants under the Social Security Act.
The pension plan was adopted in 1986, to be effective as
of January 1, 1986, the date in which the Company terminated
its former defined benefit pension plan. There were no
contributions made in 1995. Contributions were
approximately $50,000 in both 1994 and 1993.
401(k) Plan. The Bank maintains a qualified 401(k) plan,
entitled "The Bank of Castile Salary Savings Plan", to
encourage the accumulation of savings for retirement or
other purposes. Employees of the Bank who have attained the
age of 20-1/2 years are eligible to join the plan following
the completion of three (3) months of service.
Under the terms of the plan, participants may elect to
contribute from 1% to 6% of their eligible salary and the
Bank contributes an amount equal to 50% of this participant
contribution for employees. Employees may elect to
contribute up to an additional 9% of eligible salary without
any matching Bank contribution.
All amounts contributed into the plan are invested with
the Principal Mutual Life Insurance Company (formerly known
as Bankers Life Company), with its principal office located
at 711 High Street, Des Moines, Iowa. Pursuant to the plan,
contributions by and for employees are held in trust by the
Bank.
Participants are immediately fully vested in all
contributions to the plan. Withdrawals of contributions are
subject to limitations and generally not permitted, except
in the event of hardship, until termination of employment,
or the participant's attainment of "Normal Retirement Age",
as that term is defined in the plan. During 1995, the
Company contributed a total of $3,050.32 as a matching
contribution for James W. Fulmer, and $2,624.96 for Brenda
L. Copeland, which amounts are included in the Summary
Compensation Table set forth on page 62 of this Form 10-KSB.
Executive Supplemental Income Agreements. The Bank has
also entered into certain executive supplemental income
agreements which provide for specified deferred compensation
benefits payable to certain highly compensated officers and
members of a select management group of the Bank in the
event of death, disability or retirement. The Board of
Directors, in its sole discretion, determines who is
eligible to participate in this arrangement. Although the
Bank is not under any obligation whatsoever to fund
its obligations under the above-mentioned agreements, the
Bank is both the owner and beneficiary of a life insurance
policy on the life of each participant, the proceeds from
which can be used to fund the after-tax cost of the promised
benefits. Charges to income related to these agreements
were approximately $37,000, $8,000, and 52,000 for the years
ended December 31, 1995, 1994, and 1993, respectively.
Under these agreements, a participant who has reached
"Normal Retirement Age," as that term is defined in the
agreements, and has attained twenty (20) continuous years of
service with the Bank (including periods of disability and
authorized leaves of absence) receives an annual amount
equal to the difference between (i) 75% of such officer's
average "Annual Compensation," as that term is defined in
the agreements, during his final five (5) calendar years of
employment with the Bank, and (ii) the sum of all
social security benefits paid to such officer and any
amounts paid to such officer under the Company's defined
benefit pension plan. Participants may retire after age 55
with the approval of the Board of Directors and in the event
that there has been a buy-out, merger, or substantial change
in ownership of the Bank, an officer may retire at any time
after attaining the age of 55 years without approval of the
Board of Directors. In either case, the benefits available
on early retirement are equal to the benefits available
at "Normal Retirement Age," actuarially reduced. The
agreements also contain certain provisions for the payment
of pre-"Normal Retirement Age" death benefits.
Stock Option Plan. At the Annual Meeting of
Shareholders of the Company on April 26, 1990, the
shareholders approved the Letchworth Independent Bancshares
Corporation Stock Option Plan of 1990 (the "Option Plan").
The purpose of the Option Plan is to increase the incentive
and to encourage the continued employment and services of
key employees of the Company and the Bank by facilitating
their purchase of a stock interest in the Company.
Management believes that the implementation of the Option
Plan is in the best interests of the Company and its
shareholders since it will enhance the Company's ability to
continue to attract and retain qualified directors, officers
and other key employees.
Under the Option Plan, the Board of Directors may
grant incentive stock options as well as options that do not
qualify as incentive stock options ("non-statutory stock
options"). The Board of Directors determines the
individuals to receive grants and the number of shares to be
awarded, subject to certain federal tax regulations in the
case of incentive stock options granted under the Option
Plan. The Option Plan provides that the exercise price
under each incentive stock option shall be no less than 100%
of the "Fair Market Value" (as defined in the Option Plan)
of the common stock on the date the option is granted. The
exercise price for each non-statutory stock option granted
under the Option Plan is the price established by the Board
of Directors of the Company, which normally is expected to
be no less than 100% of the "Fair Market Value" (as defined
in the Option Plan) on the date the option is granted.
On May 3, 1990, the Company issued options to acquire
81,258 shares of its common stock at a purchase price of
$15.00 per share. No options have been granted under the
Option Plan since that date. The following table shows the
aggregate number of options outstanding as of March 24, 1996
for each of James W. Fulmer and Brenda L. Copeland, and for
all executive officers as a group.
Number of Options Average Per
Outstanding Share Price*
James W. Fulmer 33,576 $15.00
Brenda L. Copeland 25,182 $15.00
All Executive Officers
as a Group 58,758 $15.00
* This price represents the "Fair Market Value," as that
term is defined in the Option Plan, of the common stock of
the Company on the date that the options were granted.
As of December 31, 1995, no stock options have been
exercised under the Option Plan. The following table shows
the breakdown between options granted to James W. Fulmer and
Brenda L. Copeland that were exercisable and unexercisable
as of the end of the fiscal year, and the potential value of
"in-the-money" options, both exercisable and unexercisable,
as of the end of the fiscal year. "In-the-money" options
are those options where the fair market value of the
Company's common stock as of the close of the fiscal year
was in excess of the exercise price established on the grant
date. This value is only realized by the executive when the
option is exercised and will fluctuate with changes in the
price for the Company's common stock after the close of the
fiscal year.
No. of Unexercised Value of "In-the-Money"
Options at Unexercised Options at
December 31, 1995 December 31, 1995
Name (Exercisable/Unexercisable) (Exercisable/Unexercisable)*
James W. Fulmer 23,504/10,072 $346,684/$148,562
Brenda L. Copeland 17,627/ 7,555 $259,998/$111,436
* Assumes that the "Bid" price of $29.75 at December 31,
1995 represents a reasonable valuation of the Company's
common stock.
No assurances can be given relating to the dilative effect
that the Option Plan or options granted thereunder may have
on the outstanding common stock.
Item 12 - Security Ownership of Certain Beneficial Owners
and Management
Based upon information made available to the Company,
the following table sets forth certain information as of
December 31,1995, with respect to the beneficial ownership
of common stock by the only persons or entities known to the
Company to be the beneficial owner of more than 5% of the
Company's outstanding common stock, each director of the
Company, and as to all executive officers and directors as a
group:
Amount and
Nature of Percent of
Beneficial Common Stock
Name and Address Ownership(1) Outstanding (2)
Charles L. Van Arsdale 75,246 (3) 7.82%
5136 Park Road West
Castile, NY 14427
James H. Van Arsdale, III 44,140 (4) 5.09%
71 Park Road East
Castile, NY 14427
James W. Fulmer 27,506 (5) 2.83%
38 Wolcott Street
LeRoy, New York 14482
Stanley J. Harmon 9,594 1.00%
Luther Road
Silver Springs, New York 14550
Brenda L. Copeland 25,520 (6) 2.65%
130 South Main Street
Gainesville, New York 14066
Gunther K. Buerman 4,200 (7) .44%
1186 Lake Road
Webster, New York 14580
Steven C. Lockwood 1,403 (8) .15%
34 North Lyon Street
Batavia, New York 14020
Letchworth Independent Bancshares
Corporation Employee Stock
Ownership Plan 92,344 (9) 9.59%
50 North Main Street
Castile, New York 14427
Executive officers and
directors, as a group
(7 persons) 192,460 (10) 19.99%
___________________________________
(1) Except for the shares of common stock beneficially owned
by the Letchworth Independent Bancshares Corporation
Employee Stock Ownership Plan (the "ESOP"), all such shares
are owned with sole investment and voting power.
(2) These percentages have been calculated based upon
962,700 shares of the Company's common stock outstanding,
which amount includes the shares of common stock that Mr.
Fulmer and Ms. Copeland have the right to acquire pursuant
to the exercise of certain options granted under the Option
Plan that are exercisable within sixty (60) days of the date
of this Annual Report on Form 10-KSB, as well as the shares
of common stock that Ms. Copeland, Mr. Buerman, Mr.
Lockwood, and the ESOP have the right to acquire by the
exercise of certain warrants.
(3) Includes 3,528 shares of common stock owned by Mr. Van
Arsdale's wife.
(4) Includes 4,851 shares of common stock owned by Mr. Van
Arsdale's wife.
(5) Includes 23,503 shares of common stock that Mr. Fulmer
has the right to acquire by the exercise of certain stock
options granted under the Option Plan that are exercisable
within sixty (60) days of the date of this Annual Report on
Form 10-KSB, as well as 2,608 shares of common stock
allocated to Mr. Fulmer under the ESOP.
(6) Includes 17,627 shares of common stock that Ms. Copeland
has the right to acquire by the exercise of certain stock
options granted under the Option Plan that are exercisable
within sixty (60) days of the date of this Annual Report on
Form 10-KSB, as well as 546 shares of common stock that
Ms. Copeland has or would have voting control as custodian
under the New York Uniform Gift to Minors Act, 3,041 shares
of common stock allocated to Ms. Copeland under the ESOP,
and 400 shares of common stock that Ms. Copeland has the
right to acquire by the exercise of certain warrants.
(7) Includes 600 shares of common stock that Mr. Buerman has
the right to acquire by the exercise of certain warrants.
(8) Includes 1,296 shares of common stock allocated to Mr.
Lockwood under the ESOP, as well as 50 shares of common
stock that Mr. Lockwood has the right to acquire by the
exercise of certain warrants.
(9) Includes the shares of common stock allocated to Mr.
Fulmer, Ms. Copeland and Mr. Lockwood in accordance with
footnotes (3), (4), and (6) above, as well as 15,050 shares
of common stock that the ESOP has the right to acquire by
the exercise of certain warrants. The participants in the
ESOP have the sole power to vote shares and dispositive
powers for shares which have been allocated to participant
accounts. Only 15,050 shares of common stock in the ESOP
have not been allocated to participant accounts. See
"Item 11 - Executive Compensation -- Benefits --- Employee
Stock Ownership Plan."
(10) Includes all of the shares of common stock
referenced in footnotes (3),(4), (5), (6), (7) and (8)
above.
Item 13 - Certain Relationships and Related Transactions
Certain of the directors and officers of the Company and
the Bank, members of their families and companies or firms
with which they are associated, were customers of and had
banking transactions with the Bank in the ordinary course of
business during 1995. All loans and commitments to loan
included in such transactions were made on substantially the
same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions
with other persons and, in the opinion of management, did
not involve more than a normal risk of collectibility or
present other unfavorable features. None of such loans
outstanding to directors or officers of the Company, members
of their families or companies or firms with which directors
or officers of the Company are associated were non-
performing as of December 31, 1995. Total loans outstanding
to all directors and executive officers of the Company and
the Bank amounted to $5,316,500 at December 31, 1995.
In addition, other than those sales made pursuant to the
Company's initial public offering or the offering in
November, 1993, there have been no sales of common stock to
the officers, directors, promoters or other affiliated
persons of the Company during the past five (5) years. All
such transactions were specifically approved in writing by
the Board of Directors and were made on terms no less
favorable to the Company than similar transactions made to
other persons unaffiliated with the Company.
PART IV
Item 14 - Exhibits, Financial Statements, Schedules and
Reports on Form 8-K
(a)(1) Financial Statements and Report of Independent
Accountants:
The following financial statements and
accountant's report are incorporated from the 1995 Annual
Report to Shareholders into this report on the following
pages:
Page of 1995
10KSB
Report of Independent Accountants......... 36
Consolidated Statement of Condition
as of December 31, 1995 and 1994.......... 37
Consolidated Statement of Income for
the Years Ended December 31, 1995, 1994
and 1993.................................. 38
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993........ 39
Consolidated Statement of Cash Flows
for the Years Ended December 31, 1995 and
1994 and 1993............................. 40
Notes to Consolidated Financial
Statements................................ 42-58
(2) Financial Statement Schedules:
All financial statement schedules have been
omitted as they are not applicable, not required, or the
information is included in the Consolidated Financial
Statements or notes thereto.
(3) Exhibits:
3(a) Certificate of Incorporation of
Registrant filed by the New York
Department of State on July 17, 1981,
incorporated by reference to
the Registrant's Registration Statement
on Form S-18 (Reg. No. 33-31149-NY),
filed with the Commission on September
2, 1989, and wherein such Exhibit is
designated Exhibit 3(a).
3(b) Certificate of Amendment to Certificate
of Incorporation of Registrant filed by
the New York Department of State on July
26, 1989, incorporated by reference to
the Registrant's Registration Statement
on Form S-18 (Reg. No.33-31149-NY),
filed with the Commission on September
2, 1989, and wherein such Exhibit is
designated Exhibit 3(b).
3(c) Certificate of Amendment to Certificate
of Incorporation of Registrant filed by
the New York Department of State on May
2, 1990, incorporated by reference to
the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30,
1990 and filed with the Commission on
August 9, 1990, and wherein such
Exhibit is designated Exhibit (4)-b.
3(d) Bylaws of Registrant, as amended by the
stockholders of the Registrant at a
special meeting of stockholders on July
11, 1989,incorporated by reference to
the Registrant's Registration Statement
on Form S-18 (Reg. No. 33-31149-NY),
filed with the Commission on September
2, 1989, and wherein such Exhibit is
designated Exhibit 3(c).
4(a) Form of Common Stock Certificate of
Registrant, incorporated by reference to
the Registrant's Amendment No. 1 to Form
S-18 Registration Statement (Reg. No.
33-31149-NY), filed with the Commission
on October 31, 1989, and wherein such
Exhibit is designate Exhibit 4.
4(b) Letchworth Independent Bancshares
Corporation Stock Option Plan of 1990
and form of Stock Option Agreement,
incorporated by reference to the
Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990
and filed with the Commission on August
9, 1990, and wherein such Exhibit is
designated Exhibit 19.
4(c) Form of Warrant of Registrant, and
Warrant Agreement, dated as of September
27, 1993, by and between Registrant and
Mellon Securities Trust Company,
incorporated by reference the
Registrant's Annual Report on From 10-KSB
for the year ended December 31,
1994, filed with the Commission on
March 31, 1995, and wherein such
Exhibit is designated Exhibit 4(c).
10(a) Employment Agreement, dated September
12, 1989, by and between Registrant and
James W. Fulmer, incorporated by
reference to the Registrant's Amendment
No. 1 to Form S-18 Registration
Statement (Reg. No. 33-31149-NY), filed
with the Commission on October 31, 1989,
and wherein such Exhibit is designated
Exhibit 10(a).
10(b) Employment Agreement, dated as of
January 1,1991, by and between
Registrant and Brenda L.Copeland,
incorporated by reference to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991,
filed with the Commission on March 30,
1992, and wherein such Exhibit is
designated Exhibit 10(b).
10(c) Employee Stock Ownership Plan of
Registrant, incorporated by reference to
the Registrant's Registration Statement
on Form S-18 (Reg. No. 33-31149-NY),
filed with the Commission on September
2, 1989, and wherein such Exhibit is
designated Exhibit 10(c).
10(d) Defined Benefit Pension Plan of
Registrant, incorporated by reference to
the Registrant's Registration Statement
on Form S-18 (Reg. No.33-31149-NY),
filed with the Commission on September
2, 1989, and wherein such Exhibit is
designated Exhibit 10(d).
10(e) Form of Executive Supplemental Income
Agreement, as amended, incorporated by
reference to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1991 and filed with the
Commission on March 30, 1992, and
wherein such Exhibit is designated
Exhibit 19.
10(f) Form of Director Deferred Compensation
Agreement, incorporated by reference to
the Registrant's Registration Statement
on Form S-18 (Reg. No. 33-31149-NY),
filed with the Commission on September
2, 1989, and wherein such Exhibit is
designated Exhibit 10(f).
10(g) Loan and Pledge Agreement, dated June
16, 1986, by and between Employee Stock
Ownership Trust of Registrant and
Salamanca Trust Company, incorporated by
reference to the Registrant's
Registration Statement on Form S-18
(Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and
wherein such Exhibit is designated
Exhibit 10(g).
10(h) Loan and Pledge Agreement, dated June
16, 1986, by and between Employee Stock
Ownership Trust of Registrant and
Community National Bank, incorporated by
reference to the Registrant's
Registration Statement on Form S-18
(Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and
wherein such Exhibit is designated
Exhibit 10(h).
10(i) Lease Agreement, dated March 1, 1982, by
and between Registrant and Herald Ford,
Inc., incorporated by reference to the
Registrant's Registration Statement on
Form S-18 (Reg. No. 33-31149-NY), filed
with the Commission on September 2,
1989, and wherein such Exhibit is
designated Exhibit 10(i).
10(j) Lease Agreement, dated April 12, 1982,
and an Addendum thereto, dated January
25, 1973, by and between Registrant and
15 South Center Street, Inc.,
incorporated by reference to the
Registrant's Registration Statement on
Form S-18 (Reg. No. 33-31149-NY), filed
with the Commission on September 2,
1989, and wherein such Exhibit is
designated Exhibit 10(j).
10(k) Lease Agreement, dated August 1, 1974,
by and between The Citizen Bank, Attica
and Fred Glickstein, which Lease
Agreement was assumed by Registrant on
December 7, 1984,incorporated by
reference to the Registrant's
Registration Statement on Form S-18
(Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and
wherein such Exhibit is designated
Exhibit 10(k).
10(l) Salary Savings Plan (401(k) Plan) of
Registrant, incorporated by reference to
the Registrant's Amendment No. 1 to Form
S-18 Registration Statement (Reg. No.
33-31149-NY), filed with the Commission
on October 31, 1989, and wherein such
Exhibit is designated Exhibit 10(l).
10(m) Loan Agreement, dated November 6, 1990,
by and between Registrant and Alden
State Bank, incorporated by reference to
the Registrant's Annual Report on Form
10-K for the year-ended December 31,
1990 and filed with the Commission on
April 1, 1991, and wherein such
Exhibit is designated Exhibit 10(m).
10(n) Sales Contract, dated September 10,
1991, by and between John Piraino, Jr.
("Piraino") and the Bank, incorporated
by reference to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1992 and filed with the
Commission on March 30, 1992, and
wherein such Exhibit is designated
Exhibit 10(n).
10(o) Indenture of Lease, dated September 10,
1991,by and between Piraino and the
Bank, incorporated by reference to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 and
filed with the Commission on March 30,
1992, and wherein such Exhibit is
designated Exhibit 10(o).
10(p) Purchase and Assumption Agreement, dated
as of January 10, 1991, by and between
the Registrant, The Bank of Castile, and
Anchor Savings Bank FSB, incorporated by
reference to the Registrant's Report on
Form 8 amending the Registrant's Current
Report on Form 8-K dated January 31,
1992, and which Form 8 was filed
with the Commission on April 3, 1992,
and wherein such Exhibit is designated
Exhibit 10(a).
10(q) Sales Contract, dated as of January 10,
1991,by and between The Bank of Castile
and Anchor Savings Bank FSB,
incorporated by referenced to the
Registrant's Report on Form 8 amending
the Registrant's Current Report on Form
8-K dated January 31, 1992, and which
Form 8 was filed with the Commission on
April 3, 1992, and wherein such Exhibit
is designated Exhibit 10(b).
10(r) Purchase and Assumption Agreement, dated
as of May 11, 1994, by and between The
Bank of Castile and The Chase Manhattan
Bank (National Association),
incorporated by reference to the
Registrant's Report on Form 8-K, dated
December 12, 1994, and which Form 8-K
was filed with the Commission on
December 19, 1994, and wherein such
Exhibit is designated Exhibit 2.1.
10(s) Sales Contract, dated as of May 11,
1994, by and between The Bank of Castile
and The Chase Manhattan Bank (National
Association), incorporated by reference
to the Registrant's Report on Form 8-K,
dated December 12, 1994, and which Form
8-K was filed with the Commission on
December 19, 1994, and wherein such
Exhibit is designated Exhibit 2.2.
11 Computation of Earnings Per Share for
the year ended December 31, 1995.
13 Annual Report to Shareholders of
Registrant for the year ended December
31, 1995, incorporated by reference.
21 Subsidiaries of Registrant.
23 Consent of Price Waterhouse LLP for the
Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995.
24 Power of Attorney, included with the
Signature Page of this Annual Report on
Form 10-KSB.
(b) Reports on Form 8-K. The Company did not file any
Current Reports on Form 8-K during the fiscal year ended
December 31, 1995.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this Annual Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1996 LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
By: /s/ James W. Fulmer
James W. Fulmer, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each
individual whose signature appears below constitutes and
appoints JAMES W. FULMER his true and lawful attorney-in-
fact and agent with full power of substitution and re-
substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue thereof.
In accordance with the Securities Exchange Act of
1934, this Annual Report on Form 10-KSB has been signed
below on March 28, 1996 by the following persons on behalf
of the Registrant and in the capacities indicated.
Signatures Title
/s/ James W. Fulmer President, Chief Executive
James W. Fulmer Officer and Director
/s/ Charles L. Van Arsdale Director
Charles L. Van Arsdale
/s/ James H. Van Arsdale, III Chairman of the Board
James H. Van Arsdale, III of Directors
/s/ Stanley J. Harmon Secretary and Director
Stanley J. Harmon
/s/ Steven C. Lockwood Treasurer and Chief
Steven C. Lockwood Financial Officer
/s/ Gunther K. Buerman Director
Gunther K. Buerman
<PAGE>
EXHIBIT 11
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
DECEMBER 31, 1995
Net Income $2,657,451
Add: Adjustment due to assumed interest
savings on debt reduction 17,282
Adjusted Net Income $2,674,733
Weighted average shares outstanding 897,533
Add: Common stock equivalent shares due
to assumed exercise of options and warrants 61,428
Less: ESOP shares accounted for in
accordance with SOP 93-6 not committed
to be released (16,574)
Adjusted common and common equivalent shares 942,387
Net Income per common and common equivalent share $ 2.84
Notes
There was a dilative effect on earnings per share relating
to stock options as the year end market price of the common
stock exceeded the exercise price of the stock options.
However, fully diluted earnings per share is immaterially
different than primary earnings per share.
<PAGE>
EXHIBIT 21
The following is a list of all subsidiaries of Letchworth
Independent Bancshares Corporation (the "Company") as of
December 31, 1995:
1. The Bank of Castile (the "Bank"). Prior to March
10, 1995, the Bank had a wholly-owned subsidiary called
Southern Wyoming County Realty Corp. Effective March 10,
1995, Southern Wyoming County Realty Corp. was dissolved.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 of Letchworth Independent
Bancshares Corporation, which was filed with the Securities
and Exchange Commission on February 28, 1996, of our report
dated January 19, 1996, appearing on page 36 of Form 10-KSB.
PRICE WATERHOUSE LLP
Rochester, New York
March 26, 1996
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