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, 1996
[ ] 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 ]
<PAGE>
State Registrant's revenues for its most recent fiscal year:
$19,309,196.
The aggregate market value of the shares of Registrant's voting
stock held by non-affiliates of Registrant as of December 31, 1996 was
$21,442,498, 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 17, 1997 was 943,172.
Documents Incorporated by Reference
None
<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. The Bank has
applied to the appropriate regulatory authorities to alter its charter to
allow the bank to offer trust and investment services.
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 twenty percent (20%) 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, 1996, the Company and its subsidiaries had
100 full-time employees and 47 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, 1996, 1995, and 1994,
respectively.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
Assets
Average Average
Interest-earning assets Balance Interest Yield
<S> <C> <C> <C>
Loans
Loans (1) $135,755,218 $13,203,737 9.73%
Less allowance for
possible loan losses ( 1,753,720)
Net Loans 134,001,498
Investment securities
Taxable 55,895,608 3,530,028 6.32
Tax-exempt 22,296,911 1,116,078 5.01
Total investment
securities 78,192,519 4,646,106 5.94
Other interest-earning assets 792,892 50,552 6.38
Federal funds sold 4,467,158 239,712 5.37
Total interest-
earning assets (2) 217,454,067 18,140,107 8.34
Cash and due from banks 7,814,223
Premises and equipment, net 5,168,999
Accrued interest receivable 1,793,965
Other assets 2,445,885
Total assets $234,677,139
Liabilities and
Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demad depositS $ 29,025,668 $ 378,156 1.30%
Savings deposits 36,536,619 931,735 2.55
Money market deposits 11,545,345 289,357 2.51
Certificates of deposit 102,699,682 5,507,889 5.36
Total interest-bearing deposits 179,807,314 7,107,137 3.95
Federal funds purchased 107,514 6,131
Securities sold under agreement
to repurchase 1,942,414 101,920 5.25
Advances from Federal Home Loan
Bank and Other 3,306,449 228,209 6.90
Total interest-bearing liablitieS185,163,691 7,443,397 4.02
Demand deposits 23,213,560
Other liabilities 2,090,407
Shareholders' equity 24,209,481
Total liaiblities and
shareholders' equity $234,677,139
Net interest income 10,696,710
Net interest spread 4.32%
Net interest margin (3) 4.92%
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Assets
Average Average
Interest-earning assets Balance Interest Yield
Loans
<S> <C> <C> <C>
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 55,320,716 3,555,755 6.43
Tax-exempt 21,352,540 1,088,331 5.10
Total investment
securities 76,673,256 4,644,086 6.06
Other interest-earning assets 627,367 47,685 7.60
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 liablities179,319,249 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>
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Assets
Average Average
Interest-earning assets Balance Interest Yield
<S> <C>
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 41,160,550 2,313,375 5.62
Tax-exempt 16,609,272 828,048 4.99
Total investment
securities 57,769,822 3,141,423 5.44
Other interest-earning assets 853,030 55,367 6.49
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 liablities146,934,477 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>
</TABLE>
(1) Average loans include non-accrual loans. Interest on loans includes
loan fees of $231,243, $259,918, and $238,033 in fiscal 1996, 1995, and
1994, 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:
Year Ended December 31,
1996 1995 1994
Average Average Average
Interest Rate Interest Rate Interest Rate
Loans................$13,213,553 9.73% $12,796,041 10.17% $10,672,614 9.28%
Investment securities -
Tax exempt....... 1,691,027 7.48% 1,648,986 7.72% 1,254,618 7.55%
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 of
interest 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, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/ Net
1996 Compared to 1995 Volume Rate Volume Change
(1) (2) (3)
Revenue Earned On:
<S> <C> <C> <C> <C>
Loans............. $ 1,009,479 $ (541,023) $(53,416) $415,040
Investment securities
Taxable............... 36,966 (60,853) (1,840) (25,727)
Tax-exempt............ 48,163 (19,217) (1,199) 27,747
Total investment
securities... 85,129 (80,070) (3,039) 2,020
Other interest-earning
assets...... 12,580 (7,654) (2,059) 2,867
Federal funds sold. (129,897)_ (40,500) 13,006 (157,391)
Total interest-earning
assets......... 977,291 (669,247) (45,508) 262,536
Interest Paid On:
Interest-bearing demand
deposits............ 49,866 (136,686) (14,614) (101,434)
Savings deposits...... (3,622) (153,966) ( 705) (158,293)
Money market deposits. (12,321) ( 31,174) 342 (43,153)
Certificates of
deposit.............. 145,527 ( 50,005) 2,367 97,889
Federal funds purchased.. 6,131 6,131
Securities sold under
agreement to repurchase.44,209 ( 5,006) (3,443) 35,760
Advances from Federal
Home Loan Bank....... 31,037 ( 30,915) (3,986) (3,864)
Total interest-bearing
liabilities..... 254,696 (407,752) (13,908) (166,964)
Net Interest Income.$ 722,595 $(261,495) $(31,600) $ 429,500
</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.
<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)
Revenue Earned On:
<S> <C> <C> <C> <C>
Loans............. $ 998,499 $1,023,928 $100,852 $2,123,279
Investment securities
Taxable...............795,801 333,400 113,179 1,242,380
Tax-exempt............236,689 18,270 5,324 260,283
Total investment
securities... 1,032,490 351,670 118,503 1,502,663
Other interest-earning
assets...... (14,646) 9,469 (2,505) (7,682)
Federal funds sold. 89,731 88,020 45,708 223,459
Total interest-earning
assets......... 2,106,074 1,473,087 262,558 3,841,719
Interest Paid On:
Interest-bearing demand
deposits............ 92,218 ( 70,325) ( 12,645) 9,248
Savings deposits...... 98,511 69,488 10,230 178,229
Money market deposits. 19,686 15,738 1,748 37,172
Certificates of
deposit.............. 968,611 795,046 220,834 1,984,491
Federal funds purchased.. (5,291) (5,291)
Securities sold under
agreement to repurchase. 2,520 25,784 1,808 30,112
Advances from Federal
Home Loan Bank....... -0- 90,206 54,208 144,414
Total interest-bearing
liabilities..... 1,181,546 925,937 270,892 2,378,375
Net Interest Income.$ 924,528 $ 547,150 $ (8,334) $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.<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, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/ Net
1994 Compared to 1993 Volume Rate Volume Change
(1) (2) (3)
Revenue Earned On:
<S> <C> <C> <C> <C>
Loans.................. $ 868,731 $ 462,923 $ 39,067 $1,370,721
Investment securities
Taxable................. 546,771 ( 224,218) ( 59,987) 262,566
Tax-exempt.............. 154,786 ( 13,568) ( 3,677) 137,541
Total investment
securities.......... 701,557 ( 237,786) ( 63,664) 400,107
Other interest-earning
assets.............. ( 32,527) 43,695 ( 21,612) ( 10,444)
Federal funds sold...... ( 1,558) 44,761 ( 628) 42,575
Total interest-earning
assets.............. 1,536,203 313,593 ( 46,837) 1,802,959
Interest Paid On:
Interest-bearing demand
deposits..............( 17,333) 6,839 ( 959) ( 11,453)
Savings deposits........ 144,082 8,343 1,295 153,720
Money market deposits. ( 73,280) 32,879 ( 7,961) ( 48,362)
Certificates of deposit... 249,553 50,518 6,893 306,964
Federal funds purchased.. -0- -0- 5,291 5,291
Securities sold under
agreement to repurchase. 12,277 4,123 3,116 19,516
Advances from Federal
Home Loan Bank.......... -0- -0- 87,659 87,659
Total interest-bearing
liabilities......... 315,299 102,702 95,334 513,335
Net Interest Income....$ 1,220,904 $ 210,891 $(142,171) $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.
<PAGE>
Investment Portfolio
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>
December 31,
1996 1995 1994
Held to Available Held to Available Held to Available
Maturity for Sale Maturity for Sale Maturity for Sale
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
corporation and
agencies........$12,203,294 26,923,000 $15,992,787 $32,380,800 $20,698,476 $17,050,000State and political
subdivision
obligations......24,413,840 505,200 21,674,732 1,070,000 20,166,690 -0-
Mortgage-backed
securities........5,454,735 8,723,300 6,738,922 4,113,800 7,937,564 4,651,700
Total securities..$42,071,869 $36,151,500 $44,406,441 $37,564,600 $48,802,730 $21,701,700
</TABLE>
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, 1996 exceeded ten percent (10%) of consolidated
shareholders' equity:
Estimated
Carrying Market
Value Value
Federal Home Loan Mortgage Corp. CMO $4,503,506 $4,509,597
Federal Home Loan Bank 3,439,998 3,441,185
Federal National Mortgage Association 11,120,509 11,140,770
At December 31, 1996, the estimated market value of the
investment portfolio was more than the amortized cost by $896,831 for the
held to maturity category, and by $271,801 for the available for sale
category.
<PAGE>
The accounts and maturities of debt securities held to maturity and
available for sale at December 31, 1996 and the weighted average yields
of such securities are shown below:
Held to Maturity:
<TABLE>
Under 1-5 5-10 Over
December 31, 1996 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.. $ -0- $11,260,553 $ 942,741 -0- $12,203,294
Average tax
equivalent
yield(1)........ 0.00% 6.94% 6.80% 0.00% 6.40%
State and
political
subdivisions
Carrying value.. 2,962,545 8,409,270 12,544,044 497,982 24,413,840
Average tax
equivalent
yield(1)........ 5.87% 7.30% 7.51% 8.21% 7.25%
Total carrying
value excluding
mortgage-backed
securities..... $2,912,496 $19,719,872 $13,487,784 $496,982 $36,617,134
Average tax
equivalent
yield excluding
mortgage-backed
securities...... 5.87% 7.09% 7.46% 8.21% 6.97%
Mortgage-backed
securities....... $ 859 $ 3,437,278 $ 616,354 $1,400,244 $5,454,735
Carrying Value
Average tax
equivalent
yield.......... 9.75% 6.03% 7.75% 5.58% 6.11%
Total carrying
value.......... $2,963,404 $23,107,100 $14,103,139 $1,898,226 $42,071,869
Average
tax equivalent
yield.......... 5.87% 6.94% 7.47% 6.27% 7.01%
</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 4.86%.
<PAGE>
Available for Sale:
<TABLE>
Under 1-5 5-10 Over
December 31, 1996 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.. $11,825,070 $15,097,930 $ 0 $ 0 $26,923,000
Average tax
equivalent
yield(1)....... 5.82% 6.46% 0.00% 0.00% 6.18%
State and
political
subdivisions
Carrying value.. 505,200 0 0 0 505,200
Average tax
equivalent
yield(1)........ 7.46% 0.00% 0.00% 0.00% 7.46%
Total carrying
value excluding
mortgage-backed
securities and
FHLB stock...... $12,330,270 $15,097,930 $ 0 $ 0 $27,428,200
Average tax
equivalent
yield excluding
mortgage-backed
securities and
FHLB stock...... 5.89% 6.46% 0.00% 0% 6.20%
Mortgage-backed
securities....... $ 863,574 $ 1,144,604 $1,530,945 $ 5,195,884 $8,723,300
Carrying Value
Average tax
equivalent
yield............ 6.03% 5.91% 6.92% 6.11% 6.22%
Total carrying
value........... $13,193,824 $16,230,847 $1,530,945 $5,195,884 $36,151,500
Average
tax equivalent
yield........... 5.90% 6.42% 6.92% 6.11% 6.21%
</TABLE>
(1) Rates of tax-exempt securities are shown assuming a 34% federal
statutory tax rate. The actual average yield on tax-exempt securities
was 5.00%
<PAGE>
Loan Portfolio
The following table sets forth the composition of the Company's
loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Agricultural loans...$ 29,025,726 $ 25,168,552 $ 22,091,563 $ 17,141,043 $ 14,534,670
Commercial and
industrial loans... 28,118,416 23,317,057 19,670,283 16,303,801 14,241,549
Residential Real Estate
loans.............. 45,656,220 41,120,730 40,353,744 41,299,434 37,234,082
Commercial Real Estate
loans.............. 33,852,371 33,917,880 27,971,189 24,631,305 22,301,728
Consumer loans....... 9,643,508 9,954,869 11,280,962 13,393,064 12,827,632
Total loans........$146,296,241 $133,479,088 $121,367,741 $112,768,647 $101,139,661
</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, 1996, the Company considers $1,359,000 to be potentially
problem loans. 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.
December 31,
1996 1995 1994 1993 1992
Non-accruing loans.......... $492,000 $450,500 $254,800 $125,700 $213,704
Accruing loans past due
90 days or more.......... 371,800 291,200 215,600 480,800 333,749
Renegotiated loans........... -0- -0- -0- -0- -0-
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.
The average balance of impaired loans during 1996 was
approximately $409,900. At December 31, 1996, the balance of impaired
loans and related reserve against that balance was $406,000 and $120,700,
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:
<PAGE>
December 31, 1996
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 10,127 .55% 19.84%
Commercial and
industrial loans...... 549,782 29.86 19.22
Residential & Commercial
Real Estate loans.... 66,836 3.63 54.35
Consumer loans......... 1,214,455 65.96 6.59
Totals $1,841,200 100.00% 100.00%
December 31, 1995
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 37,930 2.21% 18.9%
Commercial and
industrial loans...... 357,334 20.82 17.5
Residential & Commercial
Real Estate loans.... 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
Residential & Commercial
Real Estate loans..... 38,023 2.50 56.3
Consumer loans..........1,143,035 74.90 9.3
Totals $1,526,900 100.0% 100.0%
<PAGE>
December 31, 1993
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
Domestic Loans (1)
Agricultural loans.....$ 56,762 3.90% 15.2%
Commercial and
industrial loans...... 310,596 21.40 14.5
Residential & Commercial
Real Estate loans.... 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
Residential & Commercial
Real Estate loans.... 34,783 2.70 58.8
Consumer loans........ . 867,919 68.60 12.7
Totals $1,265,945 100.0% 100.0%
(1) The Company had no foreign loans
<PAGE>
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,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....$1,716,300 $1,526,900 $1,448,000 $1,265,945 $1,100,641
Charge-offs:
Agricultural loans.............. 0 ( 1,573) ( 2,534) ( 13,789) 12,000
Commercial and industrial loans.( 77,378)( 69,607) ( 47,816) ( 39,657) 20,832
Real estate mortgages...........( 25,621) 0 0 0 0
Consumer loans..................( 82,600)( 145,435) ( 238,642) (190,850) 130,065
( 185,599)( 216,615) ( 288,992) (244,296) 162,897
Recoveries:
Agricultural loans.............. 654 1,404 3,815 8,140 1,746
Commercial and industrial loans. 3,435 8,035 6,069 6,189 18,053
Real estate mortgages........... 0 0 0 0 0
Consumer loans.................. 23,900 72,213 45,283 50,573 21,005
27,989 81,652 55,167 64,902 40,804
Net charge-offs................... (157,610) (134,963) ( 233,825) (179,394) (122,093)
Additions charged to operations... 282,510 324,363 312,725) 361,449 287,397
Balance at end of period......... $1,841,200 $1,716,300 $1,526,900 $1,448,000 $1,265,945
Ratio of net charge-offs during
the period to average loans
outstanding during the period... 0.12% 0.11% 0.20% 0.17% 0.13%
</TABLE>
Net loans charged-off in 1996 totaled $157,610, or 0.12% of
average loans. The reserve for possible loan losses equalled 1.26% of
the total loan portfolio at December 31, 1996, compared to 1.29% at
December 31, 1995. Management believes that the allowance for possible
loan losses of $1,841,200 at December 31, 1996 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.
<PAGE>
Rate Sensitivity of Loans
Presented below is a table which sets forth the maturity of the
Company's loans as of December 31, 1996.
Maturities at December 31, 1996
One Year
One Year Through After
or Less 5 Years 5 Years Total
Agricultural loans....$21,675,532 $ 6,263,671 $ 1,086,523 $ 29,025,726
Commercial and
industrial loans....18,635,166 3,428,753 6,054,497 28,118,416
Residential Real Estate
loans............... 867,781 1,271,181 43,517,258 45,656,220
Commercial Real Estate
loans............... 8,775,247 1,325,944 23,751,179 33,852,370
Consumer loans......... 1,867,241 6,918,639 857,628 9,642,508
Total loans........$51,820,967 $19,208,188 $75,267,086 $146,296,241
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, 1996
One Year
Through After
5 Years 5 Years
Loans with pre-determined
interest rates......... $11,518,647 $27,083,336
Loans with floating or
adjustable interest rates 7,689,541 48,183,750
Totals................... $19,208,188 $75,267,086
The Company ensures safety of depositor funds and
relative balances between interest rate sensitive assets and
liabilities through its Asset/Liability Committee, which actively
monitors the maturity and repricing characteristics of interest rate
sensitive assets and liabilities on an ongoing basis.
<PAGE>
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,
1996, 1995, and 1994, respectively.
Year Ended December 31,
1996 1995 1994
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Noninterest bearing
demand deposits. $23,213,560 --- $ 21,568,931 --- $ 21,469,381 ---
Interest beariing
demand deposits...29,025,668 1.30% 26,285,775 1.82% 21,976,525 2.14%
Savings deposits...36,536,619 2.55 36,658,584 2.97 33,089,354 2.76
Money market
deposits.........11,545,345 2.51 11,990,156 2.77 11,241,650 2.63
Certificates of
deposit..........102,699,682 5.36 100,009,723 5.41 77,945,692 4.39
Total Deposits.$210,020,874 $196,513,169 $165,722,602
Securities sold under
agreement to
repurchase......$ 1,942,414 5.25 $ 1,164,094 5.68% $ 1,087,949 3.31%
Total............$211,963,288 $197,677,263 $166,810,551
The following table sets forth the amount of time certificates of
deposit of $100,000 or more of the Bank as of December 31, 1996 for
various dates of maturity.
December 31, 1996 - Time Certificates of Deposit $100,000 or More
Three months or less...................... $14,971,167
Three months through six months........... 5,147,743
Six months through twelve months.......... 2,025,339
Over twelve months........................ 2,091,988
Totals............................... $24,236,237
<PAGE>
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,
1996 1995 1994
Return on average assets...... 1.22% 1.19% 1.19%
Return on average equity...... 11.86 12.36 11.61
Dividends declared to net income 20.98 18.23 19.08
Loans to deposits............. 70.51 65.41 64.74
Loans to deposits and securities
sold under agreement to
repurchase.................. 69.93 64.84 64.43
Non-performing loans to total
loans....................... .59 .56 .39
Net charge-offs to average
total loans................. .12 .11 .20
Allowance for possible loan
losses to loans at year-end. 1.26 1.29 1.26
Average shareholders' equity
to average total assets..... 10.32% 9.59% 10.24%
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,
1996:
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.
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 initial
listing, as with many stocks of companies such as the Company, trading
remains limited.
As of March 17, 1997, the "Bid" and "Ask" price of the
Company's common stock and warrants was $34.50 and $35.75 per share,
respectively, and $11.00 and $12.25, respectively, as reported on the
National Association of Securities Dealers Quotation System (NASDAQ)
Small Cap Market. 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. All shareholders who own their
stock in their individual names are eligible to participate in the
Company's Dividend Reinvestment Plan which was introduced in November
1991 and 37% of those eligible participate. These quotations represent
inter-dealer quotations without adjustment for retail mark-ups, mark-
downs, or commissions, and may not necessarily represent actual
quotations. The following table sets forth the quarterly high and low
"Bid" quotations for the years ended December 31, 1996 and 1995,
respectively:
Quarterly Data 1996 1995
Bid Price 4th 3rd 2nd 1st 4th 3th 2nd 1st
High $31.25 $30.50 $31.25 $31.75 $29.75 $28.00 $26.75 $21.00
Low $29.25 $29.00 $29.75 $30.00 $27.75 $26.50 $20.75 $19.50
The Company declared dividends of $.66 per share to its
shareholders during the year ended December 31, 1996. In 1995, the
Company declared annual dividends of $.54 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 16 of
"Notes to Consolidated Financial Statements" included on this Annual
Report on Form 10-KSB on pages 54 and 55 . 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.
<PAGE>
Item 6 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The purpose of this section is to focus on relevant business events and
information provided in this Annual Report. For a full understanding 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.
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. During
1996, however, the Bank did 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.
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
1996 5.1% 5.3% 6.4%
1995 5.1% 5.2% 6.6%
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
1996 Compared With 1995
The total assets of the Company as of December 31, 1996 increased by
$11.6 million to $245.1 million, representing a 4.95% increase from the
$233.5 million figure as of December 31, 1995. This growth in total
assets occurred in several areas, including the Bank's loan portfolio,
which increased by 9.60% or $12.8 million and the Bank's premises and
equipment area, which increased by $.7 million or 13.02%, primarily as a
result of the purchase of a state of the art image processing system
which is located in the Bank's Operations Center in Perry, New York.
The Company's commercial real estate loans remained virtually unchanged
at $33.9 million. Commercial and industrial loan volume increased by $4.8
million to $28.1 million at year end 1996, representing an increase of
20.59% from the year ended December 31, 1995. In the view of management,
the growth in commercial and industrial loans 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
$3.9 million, or 15.33%, increase in our agricultural loan portfolio,
which consists primarily of loans to the larger dairy farms and selected
cash crop farms. Deregulation in the dairy industry has and will continue
to produce volatile milk prices. The portfolio has shown no appreciable
depreciation in producer success due to this volatility. In fact, during
1996, the returns on our large scale dairy operations show that prices
have been favorable overall.
The consumer loan portfolio decreased modestly by $.3 million, or 3.13%,
to $9.6 million at December 31, 1996. The continued decline in the
consumer loan area seems to have been reversed in 1996 by an upward trend
in the second half of the year due to an increased focus on this type of
loan.
The Company's residential real estate loans, including home equity lines
of credit, increased by $4.5 million, or 11.03%, to $45.7 million at
December 31, 1996. This increase resulted, in part, from the retention in
our portfolio of many of the fifteen year, fixed rate mortgage
originations. Last year, the majority of those originations were sold
into the secondary market. The volume of home equity lines of credit grew
to $9.5 million at year end 1996, an increase of 3.06% from the prior
year. These loans are priced in an adjustable manner tied to the New York
Prime rate and reprice quarterly, and have been subject to fierce
marketplace competition.
Total deposit growth in 1996 was $3.4 million, or 1.68%, to $207.5
million at December 31, 1996. Changes during the year, by category, were
as follows: an increase of $.6 million in noninterest-bearing deposits; a
decrease of $1.3 million in savings deposits; a $6.0 million increase in
NOW accounts; a decrease of $0.4 million in money market accounts; a
decrease of $2.2 million in certificates of deposit under $100,000; and
an increase of $.7 million in certificates of deposit greater than
$100,000. At year end 1996, the Bank also had $1.7 million in securities
sold under agreements to repurchase, "deposit-like" instruments.
Noninterest-bearing deposits increased to $27.3 million at year end 1996,
a 2.40% increase when compared to year end 1995. There were no branch
acquisitions during 1996, which means that all the growth detailed above
was internally generated. Average noninterest-bearing deposits increased
from $21.6 million for the year ended 1995 to $23.2 million for the year
ended 1996. Average noninterest-bearing deposits as a percentage of total
average deposits increased from 10.98% at year end 1995 to 11.43% at year
end 1996.
The yield on the Company's interest-earning assets was 8.34% for the year
ended December 31, 1996, a decrease of 25 basis points from the yield of
8.59% for the year ended December 31, 1995. During this same period, the
rate for total interest-bearing liabilities decreased 23 basis points to
4.02% from 4.25%. As a result, the net interest spread decreased slightly
to 4.32% for the year ended December 31, 1996, from 4.34% for the prior
year. The net interest margin decreased slightly to 4.92% in 1996 from
4.93% in 1995.
The Company's shareholders' equity increased to $25.8 million at year end
1996, up 13.05% from the $22.8 million figure at year end 1995. This
increase was primarily the result of the retention of 79.02% of the
current year's earnings. Additionally, warrants and options exercised
during 1996 boosted the equity total.
The Company's return on average shareholders' equity was 11.86%, which is
consistent with industry averages. Although this figure represents a
decrease from the 12.36% figure during 1995, much of this decrease is
attributable to the increase in capital during the year from the exercise
of warrants and options.
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%.
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 commercial real estate loans
increased by $5.9 million to $33.9 million. Loans to the larger dairy
farms and selected cash crop farms during 1995 resulted in the $3.1
million, or 13.93%, increase in our agricultural loan portfolio.
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.
Due to the sale of $2.8 million of mortgage loans during 1995, the
Company's residential real estate loans, 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.
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.
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.
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.
The Company's return on average shareholders' equity was 12.36%, which is
consistent with industry averages.
RESULTS FROM OPERATIONS
Income before taxes increased by 6.99% to $4.22 million in 1996 from
$3.95 million in 1995. Net income for the year ended December 31, 1996
was a record $2.87 million, surpassing the previous record of $2.66
million for the prior year, an 8.01% increase. The Company's other
operating income for the year ended December 31, 1996 increased by
$60,492 or 5.46% from the prior year. This increase resulted primarily
from increased service charges and an increase in the number of
transaction accounts.
The Company's other operating expenses increased to $7.4 million in 1996,
up 3.60% from $7.1 million for the prior year. This reflects a modest
increase in salaries and benefits expense of $308,798, due to normal
salary increases, increased benefit costs and several additional
employees. The FDIC assessment for the year 1996 decreased by $49,020 due
to the decrease of the FDIC premiums on the Bank Insurance Fund. The
total assessment to the Bank for 1996 was $50,000. The remaining $140,000
expense was a one time fee paid to the FDIC to recapitalize the Savings
Association Insurance Fund ("SAIF"). The deposits purchased in 1992 from
Anchor Savings Bank in LeRoy remain insured by SAIF. The increase in
total other operating expenses reflect increased occupancy and equipment
expense categories. The increase in occupancy expense can be attributed
to a full year of depreciation of the newly expanded Operations Center in
Perry, New York. The increase in equipment expense resulted from the
depreciation of the core processing system and the image processing
system purchased in 1996.
The Company's net income was $2,870,341 for 1996, or $2.91 per common and
common equivalent share outstanding. This represents an increase of 8.01%
in net income and a 2.46% increase in earnings per share when compared to
the prior year's figures. Charges to expense for the provision for income
taxes amounted to $1,351,000 for 1996, up from $1,288,150 in 1995. The
increase results from higher pre-tax income, as the Company's effective
income tax rate remained relatively constant at 32.00% in 1996, compared
to 32.60% in 1995.
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 one basis point to 4.92%
in 1996 from 4.93% in 1995. The net interest margin remains strong
compared to peer organizations. Management believes the Company is 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 35.56% and 37.47% of average
total assets in 1996 and 1995, respectively. The investment portfolio had
a weighted average maturity of 30 months in 1996 versus a 38 month
average maturity in 1995, with $16.2 million of the investment portfolio
maturing in one year or less. The size of the investment portfolio
decreased modestly during 1996, as more of the Company's funding was
allocated to the loan portfolio.
Daily liquidity is provided by the purchase or sale of federal funds with
various institutions. During 1996, the Bank was a seller of federal funds
with average daily sales of $4.5 million. Although employed for only 23
days during 1996, the Bank also 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 $8,144,797 on a long-term basis from the Federal Home Loan Bank to
fund the ESOP and for other purposes. Included in the total borrowing is
$5 million borrowed in December 1996 with variable interest rate terms.
The proceeds from these advances have been invested in longer term, tax-
exempt municipal bonds to help lower the Bank's asset sensitivity
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 had secondary market sales and loan participations with
other institutions totaling $2.3 million in various commercial, agricul
tural or residential mortgage loans during 1996. Management expects to
continue such sales from time to time.
GAP Analysis
GAP analysis is one tool used by the Bank to assess the sensitivity of
the earnings and overall capital to changes in market interest rates. The
chart below identifies the number of assets and liabilities which may
reprice within the time periods shown. The asset/liability committee of
the Bank meets periodically to assess interest sensitivity and to
formulate management strategies based on what is discussed. 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. Cash
and due from bank accounts are reflected entirely in the zero to three
month category. Other non-rate sensitive assets are shown in the over
five years category. Deposits with no fixed maturity date are categorized
according to the way they have behaved historically, as well as how often
rate changes have been made. Money market deposit accounts are slotted in
the 90 day time band. The other categories, NOW accounts, savings
accounts, and noninterest-bearing accounts, are categorized with 30% in
the 3-5 year time band and 5% in the 5-10 year time band. 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 slightly asset sensitive at year end
1996. 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.
<PAGE>
The following GAP table as of December 31, 1996 includes all major
categories of interest-earning assets and interest-bearing liabilities:
0-3 3-12 1-5 Over
Month Months Years 5 Years Total
ASSETS: (In millions)
Securities and
Federal Home Loan Bank stock
$ 21,765 $ 11,785 $ 32,675 $ 13,103 $ 79,328
Federal funds sold 450 450
Loans 89,281 21,425 17,986 17,604 146,296
Allowance for possible loan losses (1,841) (1,841)
Net loans 89,281 21,425 17,986 15,763 144,455
Total interest-earning assets
111,496 33,210 50,661 28,866 224,233
Other assets 11,116 9,704 20,820
Total assets $122,612 $ 33,210 $ 50,661 $ 38,570 $245,053
LIABILITIES AND SHAREHOLDERS' EQUITY:
NOW accounts $ 0 $ 3,183 $ 12,730 $ 15,914 $ 31,827
Money market deposit accounts 11,323 11,323
Savings accounts 0 3,428 13,713 17,141 34,282
Certificates of deposit 41,056 49,598 12,064 0 102,718
Total interest-bearing deposits
41,056 67,532 38,507 33,055 180,150
Repurchase agreements 1,273 430 1,703
Long-term debt 5,322 316 1,087 1,420 8,145
Total interest-bearing liabilities
47,651 68,278 39,594 34,475 189,998
Noninterest-bearing deposits 0 2,805 11,222 13,318 27,345
Other liabilities 1,904 1,904
Total liabilities 47,651 71,083 50,816 49,697 219,247
Shareholders' equity 25,806 25,806
Total liabilities and shareholders' equity
$ 47,651 $ 71,083 $ 50,816 $ 75,503 $245,053
GAP $ 74,961 $(37,873) $ (155) $ (36,933)
CUMULATIVE GAP $ 74,961 $ 37,088 $ 36,933)
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 on equity and earnings per share. Other
indicators are as follows:
1. Banks measure how they covered other operating expenses with
noninterest or fee income. In 1996, 1995, and 1994, the Bank covered
15.88%, 15.60%, and 16.21%, 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 1996, the capital ratio of
the Bank was 10.53%, up from 9.78% at year end 1995. This change was
primarily a result of the retention of 79.02% of 1996 net earnings.
3. The loan to deposit ratio is a secondary measure of liquidity. The
Bank's loan to deposit ratio increased to 70.51% at year end 1996 from
65.41% in 1995. This ratio is within the 70-75% range set forth in the
Company's strategic plan 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 larger increase in the loan volume,
compared to the increase in deposits during 1996.
4. Asset quality is a critical measure of any bank's potential for
continued performance. The net loan charge-offs of the Bank
were $157,610, $134,963, and $233,825, for the years ended December 31,
1996, 1995, and 1994, respectively. During 1996, 1995 and 1994, the ratio
of net charge-offs to average loans outstanding was 0.12%, 0.11%, and
0.20%, respectively, which are very low percentages when compared with
our peer group. In 1996, net loan losses were spread among the commercial
and industrial, real estate, and consumer loan categories, with no losses
in the agricultural category.
5. The allowance for possible loan losses as a percentage of total loans
outstanding decreased slightly from 1.29% at year end 1995 to 1.26% at
year end 1996. As a result of the growth of the loan portfolio and charge-
offs during 1996 and 1995, $282,510 and $324,363, 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 $863,800 in
non-performing loans at year end 1996, or 0.59% of total loans, and
$741,700 in non-performing loans at year end 1995, or 0.56% of total
loans. This compares very favorably with peer group banks.
BANK FACILITIES AND SERVICES
The Company made significant investments in its core processing system in
1996. Additionally, the Company was pleased to implement some innovative
new item processing equipment in 1996. This new technology will allow the
Company to produce customer statements with images of cancelled checks.
More efficient customer service and better statement readability will
result from this process. The cost of this system was approximately
$540,000 which should be recovered in three years through savings in
postage expense and more efficient use of labor. The Company was one of
the first financial institutions in the area to implement this imaging
technology.
<PAGE>
Item 7 - Financial Statements
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, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1996, 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.
PRICE WATERHOUSE LLP
Buffalo, New York
January 16, 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION
December 31,
1996 1995
<S> <C> <C>
ASSETS:
Cash and due from banks $11,115,746 $7,752,080
Federal funds sold 450,000 2,050,000
Securities available for sale 36,151,500 37,564,600
Securities held to maturity (market value of
$42,968,700 and $45,622,500, respectively) 42,071,869 44,406,441
Loans, net of allowance for loan losses of
$1,841,200 and $1,716,300, respectively 144,455,041 131,762,788
Accrued interest receivable 1,716,241 1,949,266
Federal Home Loan Bank stock 1,105,000 636,300
Premises and equipment, net 5,649,294 4,998,697
Other assets 2,338,019 2,373,972
Total assets $245,052,710 $233,494,144
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing $ 27,344,602 $26,704,826
Interest-bearing 180,149,695 177,370,635
Total deposits 207,494,297 204,075,461
Securities sold under agreements to repurchase 1,702,729 1,767,984
Accrued interest payable 708,380 747,351
Accrued taxes and other liabilities 1,196,913 570,448
Advances from Federal Home Loan Bank 8,144,797 3,507,020
Total liabilities 219,247,116 210,668,264
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $1.00 par value, 1,500,000
shares authorized,939,386 and 899,970
shares issued, respectively 939,386 899,970
Capital surplus 10,910,120 10,206,024
Retained earnings 14,046,314 11,778,164
Unearned employee stock ownership plan shares (253,095) (365,678)
Unrealized gain on investments, net 162,869 307,400
Total shareholders' equity 25,805,594 22,825,880
$245,052,710 $233,494,144
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 13,203,737 $ 12,788,697 $ 10,665,418
Interest and dividends on investment securities -
Taxable 3,580,580 3,603,440 2,368,742
Exempt from federal income taxes 1,116,078 1,088,331 828,048
Interest on federal funds sold 239,712 397,103 173,644
Total interest income 18,140,107 17,877,571 14,035,852
Interest expense on deposits and advances
7,443,397 7,610,361 5,231,986
Net interest income 10,696,710 10,267,210 8,803,866
Provision for possible loan losses 282,510 324,363 312,725
Net interest income after provision for possible loan losses
10,414,200 9,942,847 8,491,141
OTHER OPERATING INCOME:
Service charges on deposit accounts 913,667 888,363 777,402
Other charges and fees 90,925 83,228 70,005
Other operating income 137,730 116,681 117,318
Net gain on sales of loans and investment securities
26,767 20,325 38,075
Total other operating income
1,169,089 1,108,597 1,002,800
OTHER OPERATING EXPENSE:
Salaries and employee benefits 4,060,834 3,752,036 3,184,568
Occupancy expense 505,532 449,478 370,600
Printing and supplies 252,491 323,182 319,195
Equipment expense 621,224 550,829 500,945
FDIC assessment 190,077 239,097 358,484
Other operating expenses 1,731,790 1,791,221 1,454,317
Total other operating expense
7,361,948 7,105,843 6,188,109
Income before income taxes 4,221,341 3,945,601 3,305,832
Provision for income taxes 1,351,000 1,288,150 1,050,000
Net income $ 2,870,341 $ 2,657,451 $ 2,255,832
Earnings per common and common equivalent share
$ 2.91 $ 2.84 $ 2.49
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
Unearned
employee Minimum
stock Unrealized pension
Common Capital Retained ownership gain (loss) on liability
stock Surplus earnings plan shares investments adjustment
<S> <C> <C> <C> <C> <C> <C>
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 debt incurred 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
($.54 per share) (484,542)
BALANCE AT DECEMBER 31, 1995
899,970 10,206,024 11,778,164 (365,678) 307,400 - 0 -
Net income 2,870,341
Exercise of stock options and warrants
39,416 667,024
Payment of ESOP debt 112,583
Excess of fair value over cost of ESOP
shares released 37,072
Net unrealized depreciation
of securities available for sale (144,531)
Cash dividends declared
($.66 per share) (602,191)
BALANCE AT DECEMBER 31, 1996
$939,386 $10,910,120 $14,046,314 $(253,095) $ 162,869) $ - 0-
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,870,341 $ 2,657,451 $2,255,832
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 890,391 871,691 796,993
Provision for possible loan loss 282,510 324,363 312,725
ESOP compensation expense 149,655 168,720 122,788
(Gain) loss on sales of investments (12,924) 20,685
(Gain) on sales of loans (13,843) (20,325) (58,760)
Decrease (increase) in interest receivable
233,025 (237,695) (483,614)
Increase in other assets (40,940) (162,116) (627,549)
(Decrease) increase in interest payable
(38,971) 327,398) 155,333)
Increase (decrease) in accrued taxes and other liabilities
626,465 372,746 (355,562)
Net cash provided by operating activities4,945,709 4,302,233 2,138,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale
4,519,219 5,026,718
Proceeds from calls and maturities of securities -
Held to maturity 10,038,268 8,804,540 7,666,031
Available for sale 3,491,312 2,708,815 1,021,436
Proceeds from sales of loans 1,281,775 2,806,959 6,262,318
Purchase of securities held to maturity
(10,440,504) (21,062,965)(29,541,871)
Purchase of securities avail. for sale(4,726,907) (1,043,450) (6,157,550)
Net increase in loans (14,242,695) (15,032,944)(15,036,503)
Expenditures for capital assets (1,198,118) (1,193,167) (1,558,884)
Net cash used in investing activities (11,277,650) (24,012,212)(32,318,305)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings, NOW,
money market and noninterest-bearing deposits
4,928,493 975,217 (632,758)
Net (decrease) increase in time deposits
(1,509,657) 15,642,303 14,090,814
Assumption of deposits of acquired branch
19,876,751
Net (decrease) increase in securities sold
under agreements to repurchase (65,255) 867,984 (100,000)
Proceeds from current borrowings 5,000,000 892,511 2,667,900
Repayment of borrowings (362,223) (320,514) (277,282)
Exercise of options and warrants 706,440 74,750
Cash dividends paid (602,191) (484,542) (430,426)
Net cash provided by financing activities 8,095,607 17,647,709 35,194,999
Net increase (decrease) in cash and cash equivalents
1,763,666 (2,062,270) 5,015,565
Cash and cash equivalents, beginning of year
9,802,080 11,864,350 6,848,785
Cash and cash equivalents, end of year$11,565,746 $ 9,802,080 $11,864,350)
Interest paid $ 7,482,368 $ 7,282,963 $ 5,387,319
Income taxes paid $ 1,617,000 $ 1,375,000 $ 1,118,150
</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" or "LIBC"). 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.
Securities held to maturity
Debt securities for which the Company has the positive intent and
ability to hold to maturity are reported at cost, adjusted for
premiums and discounts that are recognized in interest income
using the interest method over the period to maturity.
Securities available for sale
Securities available for sale consist of debt and certain equity
securities not classified as securities held to maturity.
Unrealized holding gains and losses on available for sale
securities are reported as a net amount in a separate component of
shareholders' equity, net of tax, until realized. Premiums and
discounts are recognized in interest income using the interest
method over the period to maturity. Gains and losses on the sale
of securities available for sale are determined using the specific-
identification method.
During 1995, securities with an amortized cost basis of
$16,510,200 were reclassified from held to maturity to available
for sale as permitted by the Financial Accounting Standards Board.
Other than this transaction, no securities have been transferred
between the available for sale and held to maturity categories or
sold from the held to maturity category.
Loans
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal adjusted for any charge-
offs, the allowance for loan losses, and any deferred fees or
costs on originated loans. Loan origination fees and certain
direct origination costs are capitalized and recognized as an
adjustment of the yield of the related loan.
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 the loan.
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.
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on
the Company's past loan experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
In 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures,"
collectively referred to as SFAS 114. Under SFAS 114, a loan is
considered impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan. SFAS
114 applies to all loans except large groups of smaller-balance
homogenous loans, which are collectively evaluated. SFAS 114 does
not address the overall adequacy of the allowance for credit
losses. When a loan is identified as impaired, accrual of interest
ceases and any amounts that are recorded as receivable are
reversed out of interest income. Adoption of these statements did
not have a material impact on the financial statements.
The Company measures its impaired loans by using the fair value of
the collateral if the loan is collateral-dependent and the present
value of the expected future cash flows, discounted at the loan's
effective interest rate, if the loan is not collateral-dependent.
The difference between the recorded value of the impaired loan and
the fair value of the loan is defined as the impairment allowance.
Impairment allowances are considered by the Corporation in
determining the overall adequacy of the allowance for credit
losses.
Premises and equipment
Land is carried at cost. 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.
Stock-based compensation
The Company accounts for stock-based compensation using the
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," which require
compensation cost to be recognized based on the difference, if
any, between the quoted market price of the stock on the grant
date and the amount an employee must pay to acquire the stock.
Income taxes
The Company accounts for income taxes using the asset and
liability approach which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax
basis of such assets and liabilities. This method utilizes enacted
statutory tax rates in effect for the year in which the temporary
differences are expected to reverse and gives immediate effect to
changes in income tax rates upon enactment. Deferred tax assets
are recognized, net of any valuation allowances, for deductible
temporary differences and net operating loss and tax credit
carryforwards.
Earnings per share
Earnings per share are based upon the weighted average number of
common shares outstanding during the year plus the incremental
number of shares from the assumed exercise of dilutive stock
options and warrants less ESOP shares not committed to be
released. The weighted average number of common and common
equivalent shares outstanding was 987,269 in 1996, 942,386 in
1995, and 906,435 in 1994.
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
SFAS 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued in June
1996 and is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
31, 1996. In accordance with SFAS 125, an entity recognizes
financial and servicing assets it controls and liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.
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 $2,356,000 and
$1,414,000 at December 31, 1996 and 1995, respectively.
NOTE 3 - INVESTMENT SECURITIES:
The amortized cost and estimated market value of securities
available for sale are as follows:
<TABLE>
Amortized Gross Gross Estimated
cost unrealized unrealized market value
gains losses
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury securities and obligations of
U.S. government corporations and agencies
$ 26,662,060 $ 289,841 $ (28,901) $ 26,923,000
State and political subdivision obligations
501,030 4,170 505,200
Mortgage-backed securities
8,716,609 20,605 (13,914) 8,723,300
Totals $ 35,879,699 $ 314,616 $ (42,815) $ 36,151,500
December 31, 1995
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
Totals$ 37,049,488 $ 624,861 $ (109,749) $37,564,600
<PAGE>
The amortized cost and estimated market value of securities held
to maturity are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized market value
gains losses
December 31, 1996
U.S. Treasury securities and obligations of
U.S. government corporations and agencies
$ 12,203,294 $ 277,063 $ (14,557) $ 12,465,800
State and political subdivision obligations
24,413,840 659,466 (34,006) 25,039,300
Mortgage-backed securities
5,454,735 28,603 (19,738) 5,463,600
Totals$ 42,071,869 $ 965,132 $ (68,301) $ 42,968,700
December 31, 1995
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
Total $ 44,406,441 $ 1,294,100 $ (78,041) $ 45,622,500
</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, 1996, by contractual maturity, are shown below.
Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations.
Available for sale Held to maturity
Amortized Estimated Amortized Estimated
cost market value cost market value
Due within one year $13,166,302 $13,193,824 $ 2,963,404 $ 2,976,169
Due after one year - five years
15,990,810 16,230,847 23,107,100 23,539,078
Due after five years - ten years
1,514,257 1,530,945 14,103,139 14,546,242
Due after ten years 5,208,330 5,195,884 1,898,226 1,907,211
$35,879,699 $36,151,500 $42,071,869 $42,968,700
The total amortized cost and market value of securities pledged to
secure public deposits, as required by law, was $41,125,000 and
$42,076,000, respectively, at December 31, 1996.
<PAGE>
NOTE 4 - LOANS:
Loans consisted of the following:
December 31,
1996 1995
Residential real estate $ 45,656,220 $ 41,120,730
Commercial real estate 33,852,371 33,917,880
Agricultural loans 29,025,726 25,168,552
Commercial and industrial loans 28,118,416 23,317,057
Consumer loans 9,643,508 9,954,869
$146,296,241 $133,479,088
Less - Allowance for loan losses (1,841,200) (1,716,300)
$144,455,041 $131,762,788
Loans serviced for others, principally residential real estate
loans,amounting to $11,476,300 and $11,590,700
at December 31, 1996 and 1995, respectively, are not included in
the consolidated financial statements.
Impaired loans totalled $406,000 and $420,000 at December 31, 1996
and 1995, respectively. The average recorded investment in
impaired loans during 1996 and 1995 was $409,000 and $162,500,
respectively. The total allowance for loan losses related to these
loans was $120,700 and $171,900 at December 31 of 1996 and 1995,
respectively. Interest income on impaired loans was not
significant. Nonaccrual loans totalled $492,000 and $450,500 at
December 31, 1996 and 1995, respectively. Accruing loans past due
90 days or more totalled $371,800 and $291,200 at December 31,
1996 and 1995, respectively.
An analysis of changes in the allowance for possible loan losses
is as follows:
Year ended December 31,
1996 1995 1994
Balance, beginning of year $1,716,300 $1,526,900 $1,448,000
Provision expense 282,510 324,363 312,725
Charge-offs (185,599) (216,615) (288,992)
Recoveries 27,989 81,652 55,167
Balance, end of year $1,841,200 $1,716,300 $1,526,900
NOTE 5 - PREMISES AND EQUIPMENT:
Premises and equipment, net of accumulated depreciation and
amortization, consisted of the following:
December 31,
1996 1995
Land and improvements $ 320,976 $ 320,976
Premises 4,128,631 4,000,757
Furniture, fixtures and equipment 3,714,634 2,681,308
Leasehold improvements 176,070 176,070
8,340,311 7,179,111
Less - Accumulated depreciation and amortization
(2,691,017) (2,180,414)
$5,649,294 $4,998,697
Depreciation expense was approximately $547,500 in 1996, $453,500
in 1995 and $425,500 in 1994.
<PAGE>
NOTE 6 - DEPOSITS:
Deposits consisted of the following:
December 31,
1996 1995
Noninterest-bearing deposits $ 27,344,602 $ 26,704,826
Negotiable order of withdrawal deposits 31,826,528 25,827,144
Savings deposits 34,282,225 35,545,073
Money market deposits 11,323,102 11,770,921
Certificates of deposit less than $100,000 78,481,603 80,689,791
Certificates of deposit $100,000 or greater 24,236,237 23,537,706
$207,494,297 $204,075,461
At December 31, 1996, the scheduled maturities of certificates of
deposit in 1997, 1998, 1999, 2000, 2001 and thereafter are as
follows: $84,113,252, $13,896,880, $2,160,041, $1,997,928,
$520,006 and $29,733, respectively. Securities sold under
agreements to repurchase averaged approximately $1,942,000 during
1996, and the maximum amount outstanding at any month-end during
1996 was $2,192,000.
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK:
At December 31, 1996, the Company has advances, secured by
residential mortgage loans, from the Federal Home Loan Bank of New
York of $8,144,797. These borrowings have fixed and variable rates
of interest ranging from 5.19% to 7.97%, with a weighted average
interest rate of 6.24%, and mature at various dates through 2005.
Principal repayments required in 1997,
1998, 1999, 2000 and 2001 are as follows: $5,368,400, $345,400,
$366,200, $318,400 and $342,500, respectively. At December 31,
1996, the Company has an available line of credit with the Federal
Home Loan Bank of New York of $23,266,700. There are no
significant commitment fees associated with this line, and there
were no borrowings against this line during 1996.
NOTE 8 - SHAREHOLDERS' EQUITY:
The Company has 100,000 shares reserved for issuance under its
fixed stock option plan. The options may be granted at prices not
less than the fair market value at the date of grant, vest over
periods up to nine years, and expire no later than 10 years after
the date of the grant. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option
pricing model and the following assumptions: a risk-free interest
rate of 6.49%; an expected life of seven years; expected
volatility of 14.89%; and an expected dividend yield of 2.62%. The
Company did not recognize any compensation cost associated with
the granting of options during 1996. Had the Company recognized
compensation cost associated with these options, net income and
earnings per share would have been $2,866,950 and $2.91,
respectively.
A summary of the status of the Company's stock option plan as of
December 31, 1996, 1995 and 1994 and changes during the years
ending on those dates is as follows:
1996 1995 1994
Weighted Weighted Weighted
average average average
Shares exercise price Shares exercise price Shares exercise price
Outstanding at beginning of year
81,258 $15 81,258 $15 81,258 $15
Granted 17,000 29
Exercised (25,016) 15
Forfeited (1,750) 15
Outstanding at end of year
71,492 $18 81,258 $15 81,258 $15
Options exercisable at year end
35,991 $15 54,631 $15 46,505 $15
Fair value of options granted during the year $7.99
At December 31, 1996, there are 54,492 options outstanding with an
exercise price of $15 and a remaining contractual life of three
years, and 17,000 options outstanding with an exercise price of
$29 and a remaining contractual life of ten years.
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. Warrants for 14,400 shares and
3,250 shares were exercised during 1996 and 1995, respectively.
Warrants for 182,350 shares are outstanding as of December 31,
1996.
NOTE 9 - INCOME TAXES:
The components of the provision for income taxes are as follows:
Year ended December 31,
1996 1995 1994
Current:
Federal $1,021,500 $1,210,150 $ 605,000
State 322,300 371,000 198,000
1,343,800 1,581,150 803,000
Deferred:
Federal 6,000 (223,000) 185,000
State 1,200 (70,000) 62,000
7,200 (293,000) 247,000
$1,351,000 $1,288,150 $1,050,000
<PAGE>
The components of deferred taxes are as follows:
December 31,
1996 1995
Deferred tax assets:
Allowance for possible loan losses $568,000 $505,600
Deferred compensation 85,700 79,200
Deferred loan origination fees and costs 47,200 58,100
Unrealized gains recognized for tax purposes 39,000
Other 10,400
711,300 681,900
Deferred tax liabilities:
Depreciation 172,200 137,700
Pension 3,700 21,000
Unrealized investment gains 109,000 208,000
Unrealized losses recognized for tax purpose 20,900
305,800 366,700
Net deferred tax asset $405,500 $315,200
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>
Year ended December 31,
1996 1995 1994
% of pretax % of pretax % of pretax
Amount income Amount income Amount income
<S> <C> <C> <C> <C> <C> <C>
Expected tax at federal statutory rates
$1,435,000 34.00% $1,342,000 34.00% $1,124,000 34.00%
Increases (decreases) resulting from:
Tax exempt interest (331,000)(7.80) (320,000)(8.10) (251,000) (7.60)
State income taxes, net of federal benefit
214,000 5.00 199,000 5.00 171,600 5.20
Other, net 33,000 .80 67,150 1.70 5,400 .20
Provision for income taxes
$1,351,000 32.00% $1,288,150 32.60% $1,050,000 31.80%
</TABLE>
NOTE 10 - 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 includes the following components:
Year ended December 31,
1996 1995 1994
Service cost - benefits earned during the period
$ 83,041 $ 62,704 $ 88,666
Interest cost on projected benefit obligation
86,718 76,282 76,646
Actual return on plan assets (194,835) (168,603) 49,001
Net amortization and deferral 87,739 71,494 (137,755)
Net pension expense $ 62,663 $ 41,877 $ 76,558
<PAGE>
The funded status of the plan was as follows:
December 31,
1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $1,037,994 $ 931,924
Accumulated benefit obligation $1,137,158 $1,027,518
Projected benefit obligation for services rendered to date
$1,381,795 $1,212,983
Plan assets at fair value 1,454,079 1,305,276
Excess of plan assets at fair value over
projected benefit obligation 72,284 92,293
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes in assumptions
(23,217) 26,538
Unrecognized prior service cost (350) (378)
Unrecognized net transition asset (41,022) (48,095)
Prepaid pension cost $ 7,695 $ 70,358
The projected benefit obligation at December 31, 1996 and 1995 was
determined using a discount rate of 7.00% 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.
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 $214,000 and
$196,000 at December 31, 1996 and 1995, 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 1996 and 1995 of approximately
$42,500 and $36,800, 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 $559,000 and
$536,000 as of December 31, 1996 and 1995, 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 Bank of Castile, which in
turn borrows the amount 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, "Employers' Accounting for Employee Stock Ownership
Plans." 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 are released from
collateral, the Company recognizes 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 were
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 $149,700, $168,700 and
$122,800 for the years ended December 31, 1996, 1995 and 1994,
respectively. The ESOP shares are as follows:
December 31,
1996 1995
Allocated shares 56,665 55,579
Allocated shares withdrawn from plan 13,988 10,130
Unreleased shares 11,097 16,041
Total ESOP shares 81,750 81,750
Fair value of unreleased shares $341,200 $477,200
NOTE 11 - RELATED PARTY TRANSACTIONS:
The Company has entered into transactions with its executive
officers, directors, principal shareholders, and companies in
which such individuals have 10% or more ownership (related
parties). It is the Company's policy that all related party
transactions are conducted at "arm's-length" and all loans and
commitments included in such transactions are made on substan
tially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with
other customers.
The aggregate amount of loans to such related parties at December
31, 1996 was $5,647,900. During 1996, new loans and increases in
existing loans to such related parties amounted to $11,099,300 and
principal repayments amounted to $10,767,900. At December 31,
1996, there were approximately $1,388,800 in deposits from such
related parties.
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates one branch office under a noncancellable
lease agreement which expires in 2002. 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: 1997 - $24,600;
1998 - $24,800; 1999 - $18,400 and 2000 and 2001 - $9,600. Total
rental expense was approximately $23,000 in 1996 and 1995 and
$21,000 in 1994.
NOTE 13 - 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,
1996, the Company's total commitments to extend credit
approximated $28,858,000. 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 20%
of the Company's outstanding loans are commercial loans 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 14 - 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 instruments
For those short-term instruments, the carrying amount represents
an estimate of fair value.
Loan receivables
The fair value of loans is determined by utilizing a discounted
cash flow model which considers scheduled maturities, repricing
characteristics, prepayment assumptions and interest cash flows.
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 determined by utilizing a discounted cash flow model
which considers scheduled maturities, repricing characteristics
and interest cash flows.
Borrowings
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
Fees charged for commitments to extend credit and stand-by letters
of credit are not significant and are offset by associated credit
risk with respect to certain amounts expected to be funded.
Accordingly, the fair value of the financial instruments is
immaterial.
The estimated fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Carrying
amount Fair value amount Fair value
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 11,115,746 $ 11,115,746 $ 7,752,080 $ 7,752,080
Federal funds sold 450,000 450,000 2,050,000 2,050,000
Investment securities 78,223,369 79,120,200 81,971,041 83,187,100
Loans, net of allowance
for possible loan losses
144,455,041 143,592,000 131,762,788 136,105,000
Federal Home Loan Bank stock
1,105,000 1,105,000 636,300 636,300
Financial liabilities:
Deposits 207,494,297 209,191,000 204,075,461 206,481,000
Securities sold under agreements
to repurchase 1,702,729 1,702,729 1,767,984 1,767,984
Advances from the Federal
Home Loan Bank 8,144,797 8,144,797 3,507,020 3,507,020
</TABLE>
The reported fair values of financial instruments are based on a
variety of factors. Accordingly, the fair values may not represent
actual values of the financial instruments that could have been
realized as of year-end or that will be realized in the future.
NOTE 15 - REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory (and
possibly additional discretionary) actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting
practices. The Company's capital amounts and classification are
subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1996, that the
Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Company as
well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the
Company must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. The
Company's actual capital amounts and ratios are also presented in
the table. There are no conditions or events since that
notification that management believes have changed the
institution's category.
To be well capitalized
For capital under prompt corrective
Actual adequacy purposes: action provisions:
Amount Ratio > Amount > Ratio > Amount > Ratio
As of December 31, 1996
Total Capital (to risk-weighted assets):
LIBC $26,830,000 17.96% $11,948,600 8.0% N/A
The Bank of Castile
25,931,000 17.63% 11,767,200 8.0% $15,305,700 10.0%
Tier 1 Capital (to risk-weighted assets):
LIBC 24,989,000 16.73% 5,974,300 4.0% N/A
The Bank of Castile
24,090,000 16.38% 5,883,000 4.0% 9,183,400 6.0%
<PAGE>
Tier 1 Capital (to average assets):
LIBC 24,989,000 10.55% 7,103,800 3.0% N/A
The Bank of Castile
24,090,000 10.19% 7,093,700 3.0% 11,822,800 5.0%
As of December 31, 1995
Total Capital (to risk-weighted assets):
LIBC $23,486,000 17.19% $10,927,000 8.0% N/A
The Bank of Castile
23,375,000 17.24% 10,846,600 8.0% $13,917,900 10.0%
Tier 1 Capital (to risk-weighted assets):
LIBC 21,782,000 15.95% 5,463,500 4.0% N/A
The Bank of Castile
21,659,000 15.97% 5,423,300 4.0% 8,350,700 6.0%
Tier 1 Capital (to average assets):
LIBC 21,782,000 9.41% 6,946,900 3.0% N/A
The Bank of Castile
21,659,000 9.72% 6,687,400 3.0% 11,145,600 5.0%
NOTE 16 - 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 $7,154,000 without prior approval from regulatory
agencies.
Condensed financial information of the Company follows:
Statement of Condition
December 31,
1996 1995
ASSETS
Cash and due from banks - The Bank of Castile $ 865,099 $ 428,519
Investment in The Bank of Castile 25,022,418 22,460,114
Other assets 12,778
$25,900,295 $22,888,633
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses $ 4,475 $ 4,475
Employee stock ownership plan loan payable 253,095 365,678
Total liabilities 257,570 370,153
Common stock 939,386 899,970
Capital surplus 10,910,120 10,206,024
Retained earnings 14,046,314 11,778,164
Unearned employee stock ownership plan shares (253,095) (365,678)
Total shareholders' equity 25,642,725 22,518,480
$25,900,295 $22,888,633
<PAGE>
Statement of Income
Year ended December 31,
1996 1995 1994
Dividends received - The Bank of Castile $ 602,192 $ 909,902 $ 520,470
Total income 602,192 909,902 520,470
Operating expenses 294,155 109,527
Loss on investment securities 25,000
Income before equity in undistributed income of subsidiary
308,037 800,375 495,470
Equity in undistributed income of subsidiary - The Bank of Castile
2,562,304 1,857,076 1,760,362
Net income $2,870,341 $2,657,451 $2,255,832
Statement of Cash Flows
Year ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,870,341 $2,657,451 $2,255,832
Adjustments to reconcile net income to net cash
provided by operating activities -
ESOP compensation expense 149,655
Loss on investment securities 25,000
Equity in income of subsidiaries (3,164,496) (2,766,978) (2,357,940)
Increase in other assets (12,778)
(Decrease) increase in accrued expenses (12,964) 13,064
Net cash used in operating activities
$ (157,278) $ (122,491) $ (64,044)
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received - The Bank of Castile
602,192 909,902 520,470
Net cash provided by investing activities
602,192 909,902 520,470
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (602,191) (484,542) (430,426)
Payment of current borrowings (112,583) (99,000)
Proceeds from exercise of options and warrants
706,440 74,750
Net cash used in financing activities (8,334) (409,792) (529,426)
Net increase (decrease) in cash and due from banks
436,580 377,619 (73,000)
Cash and due from banks, beginning of year
428,519 50,900 123,900
Cash and due from banks, end of year $865,099 $428,519 $ 50,900
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 17, 1997.
Positions
Held With
Name Age the Company Address
James H. Van Arsdale, III 76 Chairman of 71 Park Road East
the Board of Castile, NY 14427
Directors
James W. Fulmer 45 President, Chief 38 Wolcott Street
Executive Officer, LeRoy, NY 14482
and Director
Charles L. Van Arsdale 73 Director 5136 Park Road West
Castile, NY 14427
Stanley J. Harmon 76 Secretary and 4845 Luther Road
Director Silver Springs, NY
14550
Gunther K. Buerman 53 Director 1186 Lake Road
Webster, NY 14580
Steven C. Lockwood 37 Treasurer 34 N. Lyon Street
Batavia, NY 14020
__________________________________
James W. Fulmer also serves as a director 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, Mercy Health System of WNY,
St. Jerome's Hospital, the Genesee County Industrial Development Agency,
and is secretary of the Independent Bankers Association of New York
State. He is also a 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 was a director of the Bank from 1949
until his retirement in 1996. 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, LLP 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 45 Chief Executive Officer,
Chairman of the Board of
Directors, and Director
Robert L. Brass 59 Director
Joseph G. Bucci 53 Director
Brenda L. Copeland 45 President and Director
Thomas E. Cushing 46 Director
Gary D. Gates 60 Director
Benjamin C. Mancuso, Jr. 63 Director
John McClurg 35 Director
Craig Yunker 45 Director
James W. Fulmer also serves as a director 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, 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.
<PAGE>
Item 10 - Executive Compensation
The following tables show, for the years ended December
31, 1996, 1995, and 1994, the total cash compensation paid by the Company
and the Bank to executive officers who received total annual salary and
bonus in excess of $100,000 and to the Chief Executive Officer of the
Company.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other Annual
Principal Compensation(2)
Position Year Salary($)1) Bonus($) ($)
James W. Fulmer 1996 $128,015 $17,500 $8,345
President, CEO 1995 $119,111 $17,500 $8,345
& Director of 1994 $105,122 $15,000 $8,345
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland 1996 $105,601 $13,000 None
President of 1995 $ 98,775 $13,000 None
the Bank 1994 $ 90,863 $10,000 $6,499
Long Term Compensation
Awards
Long Term
Name and Restricted Options Incentive All Other
Principal Stock Award(s) SARs Payout Compensation(3)
Position Year ($) (#) ($) ($)
James W. Fulmer 1996 None None None $ 7,349
President, CEO 1995 None None None 10,454
& Director of 1994 None None None 6,555
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland 1996 None None None $ 6,042
President of 1995 None None None 8,648
the Bank 1994 None None None 5,599
1) Includes matching contributions under the Company's 401(k) plan in an
amount equal to $3,290.30, $3,050.32, and $2,553.88, respectively, for
James W. Fulmer, and $2,790.00, $2,624.96, and $2,394.80, respectively,
for Ms. Brenda L. Copeland, for the years ended December 31, 1996, 1995,
and 1994, 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 portion of Company's
contribution to the Employee Stock Ownership Plan ("ESOP") allocated to
Mr. Fulmer and Ms. Copeland, respectively.
During 1996, all directors of the Company received an
amount equal to $3,000 per year. During 1996, the Board of
Directors of the Company met seven (7) times, and all of the
directors attended 75% or more of the meetings.
During 1996, the directors of the Bank each received an
annual retainer of $7,300 in lieu of meeting attendance fees. During
1996, 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 1996, 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 $150,000, $169,000, and
$123,000, for the years ended December 31, 1996, 1995, and 1994,
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 percent
at December 31, 1996 and December 31, 1995, 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 1996
or 1995, and a contribution of approximately $50,000 was made in
1994.
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 1996, the Company contributed a total of $3,290.30 as a
matching contribution for James W. Fulmer, and $2,790.00 as a matching
contribution 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 $42,500,
$37,000, and $8,000 for the years ended December 31, 1996, 1995, and
1994, 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. On July 16, 1996, the Company granted options to acquire 17,000
shares of its common stock at a purchase price of $29.00 per share.
As of December 31, 1996, 25,016 stock options have been exercised
under the Option Plan. All such options were exercised during 1996, and
James W. Fulmer and Brenda L. Copeland exercised 10,000 options and 8,400
options, respectively. The following table shows the aggregate number of
options outstanding as of March 17,1997 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 23,576 $15.00
Brenda L. Copeland 16,782 $15.00
All Other Executive
Officers as a Group 42,858 $15.82**
* 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.
** This price represents a weighted average of the exercised price of all
options currently outstanding to all executive officers of the Company.
The following table shows the number of options exercised, and the value
of the "in-the-money" options exercised, by each of James W. Fulmer and
Brenda L. Copeland during 1996, as well as the breakdown between options
granted to Mr. Fulmer and Ms. Copeland that were exercisable and
unexercisable as of December 31, 1996, and the potential value of "in-the-
money" options, both exercisable and unexercisable, as of December 31, 1996.
"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.
<PAGE>
Shares No. of Unexercised Value of "In-the-Money"
Acquired Value Options at Unexercised Options at
on Exercise Realized* December 31, 1996 December31, 1996
Name (Exercisable/ (Exercisable/
Unexercisable) Unexercisable)**
James W. Fulmer 10,000 $157,500 13,503/10,073 $415,217/$309,745
Brenda L. Copeland 8,400 132,300 9,227/ 7,555 $283,730/$232,316
* Represents the value of "in-the money" options exercised by Mr. Fulmer
and Ms. Copeland during 1996.
** Assumes that the "Bid" price of $30.75 at December 31, 1996 represents
a reasonable valuation of the Company's common stock.
No assurances can be given relating to the dilutive effect
that the Option Plan or options granted thereunder may have on the
outstanding common stock.
<PAGE>
Item 11 - 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 March 21, 1997, 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 76,620 (3) 7.66%
5136 Park Road West
Castile, NY 14427
James H. Van Arsdale, III 46,283 (4) 4.63%
71 Park Road East
Castile, NY 14427
James W. Fulmer 37,941 (5) 3.80%
38 Wolcott Street
LeRoy, New York 14482
Stanley J. Harmon 9,594 1.00%
Luther Road
Silver Springs, New York 14550
Brenda L. Copeland 34,069 (6) 3.41%
130 South Main Street
Gainesville, New York 14066
Gunther K. Buerman 4,200 (7) .42%
1186 Lake Road
Webster, New York 14580
Steven C. Lockwood 1,533(8) .15%
34 North Lyon Street
Batavia, New York 14020
Letchworth Independent Bancshares
Corporation Employee Stock
Ownership Plan 87,949 (9) 8.80%
50 North Main Street
Castile, New York 14427
Executive officers and
directors, as a group
(7 persons) 210,240 (10) 21.03%
___________________________________
(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 999,630 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 18,668 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 23,576 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 2,847 shares of common
stock allocated to Mr. Fulmer under the ESOP and 202 shares of common
stock owned by Mr. Fulmer's wife.
(6) Includes 16,782 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 554 shares of common
stock that Ms. Copeland has or would have voting control as custodian
under the New York Uniform Gift to Minors Act, 3,237shares of common
stock allocated to Ms. Copeland under the ESOP, 400 shares of common
stock that Ms. Copeland has the right to acquire by the exercise of
certain warrants, and 222 shares of common stock owned by Ms. Copeland's
husband.
(7) Includes 600 shares of common stock that Mr. Buerman has the right to
acquire by the exercise of certain warrants.
(8) Includes 1,374shares 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 11,113
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.
<PAGE>
Item 12 - 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 1996. 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, 1996. Total loans outstanding to all directors and executive
officers of the Company and the Bank amounted to $5,647,800 at December
31, 1996.
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.
<PAGE>
Item 13 - 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
included in this Annual Report 10KSB on the following pages:
Page
Report of Independent Accountants......... 36
Consolidated Statement of Condition
as of December 31, 1996 and 1995.......... 37
Consolidated Statement of Income for
the Years Ended December 31, 1996, 1995
and 1994.................................. 38
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994........ 39
Consolidated Statement of Cash Flows
for the Years Ended December 31, 1996 and
1995 and 1994............................. 40
Notes to Consolidated Financial
Statements................................ 41-56
(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 ofRegistrant,
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, 1996.
13 Annual Report to Shareholders of
Registrant for the year ended December 31,
1996, 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, 1996.
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, 1996.
<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 26, 1997 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 26, 1997 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, 1996
Net Income $2,870,341
Add: Adjustment due to assumed interest
savings on debt reduction 7,360
Adjusted Net Income $2,877,701
Weighted average shares outstanding 912,805
Add: Common stock equivalent shares due
to assumed exercise of options and warrants 87,843
Less: ESOP shares accounted for in
accordance with SOP 93-6 not committed
to be released (13,379)
Adjusted common and common equivalent shares 987,269
Net Income per common and common equivalent share $ 2.91
Notes
There was a dilutive 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>
LIST OF SUBSIDIARIES EXHIBIT 21
As of December 31, 1996, the only subsidiary of Letchworth
Independent Bancshares Corporation (the "Company") was The Bank of
Castile (the "Bank").
<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 (Reg. No. 333-01263), of our report dated January
16, 1997, appearing on page 36 of this Annual Report on Form 10-KSB.
PRICE WATERHOUSE LLP
Buffalo, New York
March 26, 1997
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<FED-FUNDS-SOLD> 450
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<INVESTMENTS-HELD-FOR-SALE> 36151
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<ALLOWANCE> 1841
<TOTAL-ASSETS> 245053
<DEPOSITS> 207494
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<LIABILITIES-OTHER> 3608
<LONG-TERM> 8145
0
0
<COMMON> 939
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<EXPENSE-OTHER> 7362
<INCOME-PRETAX> 4221
<INCOME-PRE-EXTRAORDINARY> 4221
<EXTRAORDINARY> 0
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<NET-INCOME> 2870
<EPS-PRIMARY> 2.91
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<LOANS-NON> 492
<LOANS-PAST> 185
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<LOANS-PROBLEM> 1359
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<CHARGE-OFFS> 186
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