FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to
_____________
Commission file number 0-13423
FNB Rochester Corp.
(Exact name of registrant as specified in its charter)
New York 16-1231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 State St., Rochester, New York 14614
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 546-3300
Indicate by check mark whether the registrant (1) has 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 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 31, 1996
_____________________________ ______________________________
Common stock, $1.00 par value 3,570,563
<PAGE>
INDEX
Page No.
Part I Financial Information
Condensed consolidated statements of
financial condition - September 30,
1996 and December 31, 1995 3-4
Condensed consolidated statements of
operations for the three months and
nine months ended September 30, 1996
and 1995 5
Condensed consolidated statements of
cash flows for the nine months ended
September 30, 1996 and 1995 6-7
Notes to condensed consolidated
financial statements 8-11
Management's discussion and analysis of
financial condition and results of
operations 12-16
Part II Other information 17-18
Index of Exhibits 20
<PAGE>
PART I - FINANCIAL INFORMATION
FNB ROCHESTER CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial
Condition (unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995
------ -------------- -------------
<S> <C> <C>
Cash and due from banks $ 23,155 $ 18,662
Interst-bearing deposits with other banks 1,101 1,061
Federal funds sold - 5,200
Securities available-for-sale, at fair
value 66,331 73,527
Securities held-to-maturity (fair value
of $30,135 in 1996 and $31,952 in 1995) 30,589 31,780
Loans:
Commercial 185,847 165,645
Mortgage 68,977 49,889
Home Equity 21,162 18,773
Consumer 24,211 19,711
_______ _______
Total loans 300,197 254,018
Net deferred loan fees 197 (15)
Allowance for loan losses (5,960) (5,776)
_______ _______
Net loans 294,434 248,227
Premises and equipment, net 9,128 7,255
Accrued interest receivable 3,600 3,579
FHLB and FRB stock 1,516 1,299
Other assets 1,286 730
_______ _______
Total assets $ 431,140 $ 391,320
========= =========
Liabilities and shareholders' equity
Deposits:
Demand:
Non-interest bearing $ 55,801 $ 46,061
Interest bearing - NOW 63,483 67,639
Savings and money market 81,867 76,687
Certificates of deposit:
Under $100,000 138,168 105,929
$100,000 and over 58,054 61,559
_______ ______
Total deposits 397,373 357,875
Securities sold under agreement to
repurchase and short-term borrowing 3,000 4,986
Accrued interest payable and other
liabilities 2,519 2,613
Long-term debt 210 -
______ ______
Total liabilities 403,102 365,474
======== =======
Shareholders' equity:
Common stock, $1 par value;
authorized 5,000,000 shares;
issued and outstanding 3,570,563
in 1996 and 3,568,963 in 1995 3,571 3,569
Additional paid in capital 13,032 13,024
Undivided profits 11,289 8,403
Unrealized net holding gain on
securities available-for-sale,
net of taxes 146 850
______ ______
Total shareholders' equity 28,038 25,846
______ ______
Total liabilities and
shareholders' equity $ 431,140 $ 391,320
======== ========
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(unaudited), continued
(in thousands except per share data)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans:
Commercial $ 12,603 $11,081 $ 4,493 $ 3,967
Mortgage 3,306 2,108 1,222 805
Home equity 1,403 1,509 478 496
Consumer 1,422 1,186 516 436
_____ _____ ____ _____
Total interest and fees 18,734 15,884 6,609 5,704
on loans
Federal funds sold and time 180 478 83 128
deposits
Securities 4,926 5,139 1,624 1,720
_____ _____ _____ _____
Total interest income 23,840 21,501 8,316 7,552
______ ______ _____ _____
Interest expense:
Savings, NOW and money 2,317 2,564 806 858
market accounts
Certificates of deposit 7,474 6,101 2,651 2,221
Short-term borrowing 104 305 22 123
and other _____ _____ ___ ___
Total interest expense 9,895 8,970 3,479 3,202
_____ _____ _____ _____
Net interest income 13,945 12,531 4,837 4,350
Provision for loan losses - - - -
___ ___ ___ ___
Net interest income
after provision for 13,945 12,531 4,837 4,350
loan losses ______ ______ _____ _____
Non-interest income:
Service charges on deposit 1,130 896 411 307
accounts
Credit card fees 547 477 198 166
Gain on sale of securities - 53 - -
available-for-sale
Loan servicing fees 203 218 66 70
Other operating income 490 319 195 128
___ ___ ___ ___
Total non-interest 2,370 1,963 870 671
income _____ _____ ___ ___
Non-interest expense:
Salaries and employee 6,849 6,047 2,336 2,065
benefits
Occupancy 2,524 1,946 858 668
Marketing and public 367 442 100 144
relations
Office supplies, printing 453 406 139 124
and postage
Processing fees 746 726 253 250
F.D.I.C. assessments 2 317 1 (14)
Legal 186 235 60 77
Other 1,153 1,311 385 539
_____ _____ ___ ___
Total non-interest 12,280 11,430 4,132 3,853
expenses ______ ______ _____ _____
Income before income 4,035 3,064 1,575 1,168
taxes
Income tax expense 1,149 955 460 352
_____ ___ ___ ___
Net income $ 2,886 $ 2,109 $ 1,115 $ 816
====== ===== _____ ===
Weighted average shares 3,570,014 3,568,713 3,570,563 3,568,713
outstanding-primary ========= ========= ========= =========
Net income per common $ .81 $ .59 $ .31 $ .23
share - primary === === === ===
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operation activities:
Net income $ 2,886 $ 2,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,060 818
Amortization of goodwill 79 178
Gain on sales of securities available-
for-sale - (53)
Increase in mortgage loans held-for-sale (1,234) (416)
Increase in accrued interest receivable (21) (275)
(Increase) decrease in other assets (208) 179
Increase (decrease) in accrued interest
payable and other liabilities (42) 793
------ -----
Net cash provided by operating activities 2,520 3,333
===== =====
Cash flows from investing activities:
Decrease in interest bearing deposits - 39
Securities available-for-sale:
Purchase of securities (13,493) (11,201)
Proceeds from maturities 15,485 8,541
Proceeds from sales 4,021 7,033
Securities held-to-maturity:
Purchase of securities (2,816) (6,599)
Proceeds from maturities 4,007 1,797
Loan origination and principal collection, net (44,973) (42,530)
Capital expenditures, net (2,933) (2,461)
Increase in other assets - investing (217) (958)
_____ ______
Net cash used by investing activities (40,919) (46,339)
______ ______
Cash flows from financing activities:
Net increase (decrease) in demand, savings,
NOW and and money market accounts 10,764 (90)
Certificates of deposit accepted and repaid, net 28,734 46,046
Decrease in short-term borrowings and securities
sold under agreement to repurchase (1,986) (1,075)
Increase in long-term debt 210 -
Exercise of options to purchase common stock 10 -
_____ ____
Net cash provided by financing activities 37,732 44,881
====== ======
Increase (decrease) in cash and
cash equivalents (667) 1,875
Cash and cash equivalents at beginning of year 23,923 19,281
______ ______
Cash and cash equivalents at end of period $ 23,256 $ 21,156
======== =======
Supplemental disclosure of non-cash investing and
financing activities
Transfer of loan from in-substance foreclosure to
commercial loans - 1,160
The Company paid cash during the nine months ended September 30, 1996 and 1995
as follows:
Cash paid for interest $ 9,778 $ 8,743
Cash paid for taxes 860 650
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
FNB Rochester Corp. (the Company) operates as a bank holding
company. Its only subsidiary is First National Bank of
Rochester (the Bank). The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiary, the Bank. All material intercompany accounts
and transactions have been eliminated in the consolidation.
The financial information is prepared in conformity with
generally accepted accounting principles and such principles
are applied on a basis consistent with those reflected in
the December 31, 1995 Form 10-K Report of the Company filed
with the Securities and Exchange Commission. The financial
information included herein has been prepared by management
without audit by independent certified public accountants.
The information furnished includes all adjustments and
accruals, solely of a normal recurring nature, that are in
the opinion of management necessary for a fair presentation
of results for the interim period ended September 30, 1996.
Amounts in prior periods' financial statements are
reclassified whenever necessary to conform with current
presentation.
(2) Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
SFAS Statement No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES (Statement) was issued in June 1996 and is
applicable to all entities, both public and non-public.
This Statement provides accounting and reporting standards
for transfers and servicing of financial assets and
extinguishments of liabilities based on a consistent
application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets
that are sales from transfers that are secured borrowing.
Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred
and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The financial-
components approach focuses on the assets and liabilities
that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a
secured borrowing with pledge of collateral.
The Statement is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
Management has determined that the adoption of this
Statement will not have a material impact on the Company s
operating results.
(3) Allowance for Loan Losses
The Financial Accounting Standards Board issued Statement
114 ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as
amended by Statement 118, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN - INCOME AND DISCLOSURE. These
statements prescribe recognition criteria for loan
impairment, generally related to commercial type loans, and
measurement methods for certain impaired loans and all loans
whose terms are modified in troubled debt restructuring
subsequent to the adoption of these statements. A loan is
considered impaired when it is probable that the borrower
will be unable to repay the loan according to the original
contractual terms of the loan agreement.
As of January 1, 1995, the Company has adopted the
provisions of SFAS No. 114 and SFAS 118 and has provided the
required disclosures. The effect of adoption was not
material to the consolidated financial statements. As of
January 1, 1995, all of the Company s in substance
foreclosed assets were reclassified into impaired loan
status as required by SFAS No. 114. For all prior periods
presented, all amounts related to in substance foreclosures
have also been reclassified. These reclassifications did
not impact the Company's consolidated financial condition or
results of operations.
As a result of the adoption of SFAS No. 114, the allowance
for loan losses related to impaired loans that are
identified for evaluation in accordance with SFAS No. 114 is
based on the present value of expected cash flows discounted
at the loan's initial effective interest rate, except that
as a practical expedient, impairment may be measured at the
loan's observable market price, or the fair value of the
collateral for certain loans where repayment of the loan is
expected to be provided solely by the underlying collateral
(collateral dependent loans). The Company's impaired loans
are generally collateral dependent.
The Company considers estimated costs to sell, on a
discounted basis, when determining the fair value of
collateral in the measurement of impairment if those costs
are expected to reduce the cash flows available to repay or
otherwise satisfy the loans. Prior to the adoption of SFAS
No. 114 and 118, the allowance for possible loan losses
related to these loans was based on estimated undiscounted
cash flows or the fair value of the collateral, less
estimated costs to sell for collateral dependent loans.
Other real estate owned included both formally foreclosed
and in-substance foreclosed real properties. In accordance
with SFAS No. 114, a loan is classified as an in-substance
foreclosure when the Company has taken possession of the
collateral regardless of whether formal foreclosure
proceedings have taken place. Prior to the adoption of SFAS
No. 114 and SFAS No. 118, in-substance foreclosed properties
included those properties where the borrower has little or
no remaining equity in the property considering its fair
value, where repayment was only expected to come from the
operation or sale of the property; and where the borrower
had effectively abandoned control of the property or it was
doubtful that the borrower would be able to rebuild equity
in the property.
Changes in the allowance for loan losses for the nine months
ended September 30, 1996 and 1995 are as follows:
1996 1995
____ ____
Balance at beginning of $5,776 $6,452
period
Provisions (recovery) for - -
loan losses
Loans charged off (142) (512)
Recoveries on loans 326 185
previously charged-off ___ ___
Balance at end of period $5,960 $6,125
===== =====
At September 30, 1996, the recorded investment in loans that
are considered to be impaired under SFAS No. 114 totaled
$3,035,000. $2,538,000 of the amount considered impaired is
for a relationship that is highly collateralized and no loss
of principal or interest is expected. The average recorded
investments in impaired loans during the nine months ended
September 30, 1996 was approximately $243,000.
Impaired loans are generally included in non-performing
loans and generally as non-accrual loans. Commercial type
loans past due greater than 90 days and still accruing are
generally not considered to be impaired as the Company
expects to collect all amounts due, including interest
accrued at the contractual interest rate for the delinquent
period. An exception would be the $2,538,000 loan
relationship previously mentioned. The Company expects to
collect all amounts due and interest payments are up to date
however the principal payments have been extended creating a
delay. An other than insignificant delay requires the
application of SAFS No. 114.
When a loan is impaired and the future repayment of the
recorded balance is doubtful, interest payments received are
applied to principal and no interest income is recognized.
If the recorded loan balance is expected to be paid,
interest income is generally recognized on a cash basis.
For the nine months ended September 30, 1996, the Company
recognized no interest income on the impaired loans during
the period in which they were considered impaired.
(4) Income per Common Share
Per share data is based upon the weighted average number of
common shares outstanding during the year. Common share
equivalents (stock options) were not used in the income per
share calculation for the period ended September 30, 1996 or
1995 as they dilute earnings per share by less than 3
percent. Fully diluted per share data is not applicable.
Because common share equivalents (stock options) were used
in the calculation of first quarter 1996 earnings, the total
of the first, second and third quarter earnings per share do
not equal the year-to-date earnings per share.
(5) Stock Option Plans
The Company has incentive stock option plans under which
options to acquire 325,000 shares of its common stock were
available to grant to key employees and options to acquire
25,000 shares of its common stock were available to grant
to directors. At September 30, 1996, options to purchase
301,600 shares were held by grantees under the plan. The
range of exercise prices of the options is $5.63 to $9.75
per share with an average exercise price of $7.04 per share.
At September 30, 1996, options to acquire 206,100 shares
were exercisable. The remaining options become exercisable
at various times through August 1998. As of September 30,
1996 options to acquire 1,850 shares have been exercised.
(6) Dividends
At the March 1992 Board of Director's meeting, the Board
approved the suspension of the dividend on common stock as
part of its plan to preserve capital. No dividends have
been paid since 1991.
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed consolidated financial statements.
Management's discussion and analysis supplements management's
discussion and analysis for the year ended December 31, 1995
contained in the Company's Form 10-K for the period then ended
and includes certain known trends, events and uncertainties that
are reasonably expected to have a material effect on the
Company's Financial position or operating results.
Overview
As in the first half of 1996, both loans and deposits have
continued to grow. At September 30, 1996 loans totaled $300.4
million, an increase of $46 million, or 18.2% from year end 1995.
Increases in loans were primarily in commercial loans and
residential mortgages. Deposits were $397.4 million which is an
increase of $39.5 million from year end. All deposit categories,
with the exception of NOW accounts, have shown increases year to
date. The decline in NOW accounts was primarily caused by a large
account moving to trust assets. Also with the lower interest
rates on NOW accounts over the last year more depositors are
using no interest checking and placing their excess cash in money
market accounts or certificates of deposit. $28.7 million of the
increase has been in certificates of deposit and of that amount
certificates of $100,000 or more have declined $3.5 million and
retail certificates have increased $32.2 million. Various
certificate of deposit promotions over the last six months as
well as growth in the Bank s new branches has caused the retail
certificate increase. The Bank has funded a portion of its loan
growth, on a temporary basis, with short term public fund
certificates of deposit in amounts of $100,000 or more as an
alternative to higher rate repurchase agreements or other
borrowings. The increase in retail certificates of deposit in the
quarter ended September 30, 1996 has lessened the need for that
type of funding and as a result certificates of deposit greater
than $100,000 declined $8.1 million, or 12.3%, from $66.2 million
at June 30, 1996. Non-performing assets have increased $717,000
to $2.4 million and .81% of total loans and real estate acquired
by foreclosure, from .67% at year end 1995. Non-performing assets
were also up slightly from .73% at the end of the June 1996
quarter. The increase in non-performing assets is in loans past
due 90 days or more and still accruing.
Net income for the nine months ended September 30, 1996
increased $777,000, or 36.8%, to $2,886,000 from $2,109,000 for
the same period in 1995. Income per share increased to $.81, up
$.22 in comparison to $.59 for the nine months ended September
30, 1995. For the three-month period income was $1,115,000, for
an increase of $299,000, or 36.6%. The increase in income for
both the three-month and nine-month periods was primarily due to
an increase in net interest income. For the nine-month period
ended September 30, 1996, non-interest income increased $407,000,
or 20.7%, and non-interest expense increased $850,000, or 7.4%.
1996 non-interest expense showed increases in salaries and
employee benefits and occupancy and was partially offset by a
decrease in Federal Deposit Insurance assessment.
Net Interest Income
Net interest income for the nine-month period increased
$1,414,000, or 11.3%, as compared to the period ended September
30, 1995. Increased small business and residential mortgage
lending activity funded primarily with deposit growth continues
to be the Bank's main focus. The increase in net interest income
is primarily the result of increased commercial loan and
residential mortgage loan volumes with offsetting interest
expense from increased certificate of deposit volumes. The net
interest margin has remained stable through the first nine
months of 1996. During this period the net interest margin has
been at a high of 4.85% and a low of 4.83%. While management is
attempting to maintain interest margins, anticipated increases in
interest costs of certificates of deposit and other borrowed
funds may make it increasingly difficult to do so. Interest
margins may decline in the future months as much of the Bank s
recent funding growth has been in higher-yielding certificates
of deposit and other borrowed funds as the Bank increased its
funding to offset the outflow of deposits from the anticipated
sale of the Odessa Banking Office (see Sale of Odessa Banking
Office).
Increased loan volume caused interest and fees on loans to
increase $905,000, or 15.9%, for the three-month period ended
September 30, 1996 and $2,850,000, or 17.9%, for the nine-month
period as compared to the same period in 1995.
Average commercial loans increased $30.3 million, or 20.7%, from
the period ended September 30, 1995 to the period ended
September 30, 1996. The increased volume contributed $2,164,000
to income, which was partially offset by rate declines that
reduced income by $642,000. Average mortgage loans increased
$29.6 million, or 80.7%. The increase in the mortgage portfolio
was primarily made up of 15 year fixed rate mortgages and the
rates for those mortgages being placed in the portfolio in 1996
have declined from 1995. Increased mortgage volumes caused an
increase in interest income of $1,476,000 while lower rates
caused a $278,000 decline for a net increase of $1,198,000.
Average home equity loans declined $306,000 and income has
declined $106,000. Average consumer loans increased $3.2
million, or 17%, and the result for the period was an increase in
interest income of $206,000 from volume and $30,000 from higher
rates.
Interest expense increased $925,000, or 10.3%, for the nine-month
period ended September 30, 1996 as compared to the period ended
September 30, 1995. The savings, NOW, and money market
categories of deposits have shown only modest growth and the
$247,000 decline in interest expense is primarily attributable to
lower rates. Average balances for certificates of deposit
increased $7 million for the three-month period and $33.1 million
for the nine-month period ended September 30, 1996 from December
31, 1995. The Bank s deposit growth in certificates of deposit
resulted in $813,000 additional interest expense due to increased
balances and $130,000 because of increased rates. Average total
certificates of deposit have increased $39.7 million from
September 30, 1995 to September 30, 1996.
Provision for Loan Losses
The Bank provides for loan losses by a charge to current
operations. The provision is based upon discretionary adjustments
which, in the opinion of management, are necessary to bring the
allowance to an appropriate level considering the character of
the loan portfolio, current economic conditions, analyses of
specific loans, and historical loss experience.
The Bank had net recoveries of $184,000 for the nine-month period
ended September 30, 1996 as compared to net charge-offs of
$327,000 for the same period in 1995. Net charge-offs
(recoveries) (annualized) as a percent of average loans were
(.09)% and .20% for the nine months ended September 30, 1996 and
1995. The ratios of the allowance for possible loan losses as a
percent of period end loans for the comparable period were 1.98%
and 2.50% respectively. Non performing assets declined 10.2% to
$2.4 million at September 30, 1996 from $2.7 million at
September 30, 1995. Management undertakes a quarterly analysis
to assess the adequacy of the allowance for possible loan losses
taking into account non-performing and delinquent loans,
internally criticized loans, historical trends, economic factors,
and overall credit administration. Based on this analysis, the
allowance is considered adequate at September 30, 1996 to absorb
anticipated losses. It is anticipated that further additions to
the allowance will not be necessary in 1996 unless there are
significant changes in the local economy or higher than
anticipated loan growth.
Non-Interest Income and Non-Interest Expense
Non-interest income of $2,370,000 for the first nine months of
1996 represents an increase of $407,000, or 20.7%, from
$1,963,000 for the comparable period in 1995. The increase was
primarily caused by increases in service charges on deposit
accounts. Non-interest income for the three-month period ended
September 30, 1996 increased $199,000, or 29.7%, over the same
period in 1995.
Non-interest expense was $12,280,000 for the first nine months of
1996 as compared to $11,430,000 for the comparable period in
1995, an increase of $850,000, or 7.4%. The largest components of
non-interest expense for the nine-month period ended September
30, 1996 were salaries and employee benefits of $6,849,000 which
increased $802,000, or 13.3%, from $6,047,000 for the same period
in 1995 and occupancy which increased $578,000, or 29.7%. Both
increases were caused primarily by expenses associated with new
banking offices as well as the addition of personnel to both
trust and commercial lending. The Bank opened three new banking
offices in 1995 and a fourth in 1996 as well as moving an
existing office to a new facility in January of 1996. The Town of
Greece, NY banking office was recently demolished and a new
facility constructed on the site has opened for business.
Occupancy expense has also increased because of technological
improvements. Offsetting the increases was a reduction in Federal
Deposit Insurance assessment of $315,000. With continued growth
and facility upgrades, as well as technological improvements, the
Bank's operating expenses are expected to continue to increase.
While operating expenses have continued to increase, the
Company's operating expense as a percent of average assets is
declining. The ratio has declined, from 5.18% and 4.28% for the
years ended December 31, 1994 and 1995 respectively, to 4.02% for
the nine-month period ended September 30, 1996. The ratio for the
three-month period ended September 30, 1996 was 3.89%.
Provision for Income Taxes
The provision for income tax was $1,149,000 for the period ended
September 30, 1996 as compared to $955,000 at September 30, 1995.
The Company s effective tax rates for the periods were 28.5% and
31.2% for 1996 and 1995 respectively. The decreased effective
rate for 1996 was caused by the Company's ability to recognize
deductible temporary differences in 1996 for which a valuation
allowance had previously been established.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The realization of deductible temporary differences depends on
the Company having sufficient taxable income within the carry
back period permitted by the tax law to allow for utilization of
deductible amounts. A valuation allowance has been established
for the portion of the Company's net deductible temporary
differences which are not expected to be realized.
Capital Adequacy
Total shareholders' equity was $28,038,000 at September 30, 1996,
which represents an increase of $2,192,000, or 8.5% from
$25,846,000 at December 31, 1995. Capital increased primarily
because of $2,886,000 from earnings and was offset by a decline
of $704,000 from a decrease in the market value of the available-
for-sale securities portfolio.
At September 30, 1996, the Company and its banking subsidiary
exceeded the minimum guidelines for Tier 1 and Total Risk-Based
Capital of 4% and 8%, respectively. The Company's ratios were
9.79% and 11.05% respectively, at September 30, 1996. Banking
organizations must also maintain a minimum Tier 1 Leverage Ratio
of 3% of assets. Banking organizations that are not top-rated
according to regulators' "Camel" ratings, however must meet
leverage ratios of at least 100 basis points above the 3%
standard. The Company's Tier 1 Leverage Ratio at September 30,
1996 was 6.47%.
Liquidity
Liquidity measures the ability to meet maturing obligations and
existing commitments, to withstand fluctuations in deposit
levels, to fund operations, and to provide for customers' credit
needs. Management carefully monitors its liquidity position and
seeks to maintain adequate liquidity to meet its needs. The
fundamental source of liquidity will continue to be deposits.
Available sources of asset liquidity include short-term
investments, loan repayments, and securities held in the
available-for-sale portfolio. Additionally, the Bank has the
ability to pledge securities to secure short-term borrowing. The
Bank is a member of the Federal Home Loan Bank which provides an
additional source of funding.
The vast majority of the assets of the Company are held by the
Bank. Dividends and cash advances to the Company from the Bank
are subject to standard bank regulatory constraints. An analysis
of projected expenses and cash flows indicates that the Company
has sufficient cash to meet its anticipated cash obligations
through 1996.
Sale of Odessa Banking Office
The Bank signed an agreement on July 10, 1996, with Tompkins
County Trust Company to sell its Odessa N.Y. Banking Office. The
office has customer deposits totaling approximately $10 million
and the transaction is expected to close in November of 1996. The
Bank anticipates a premium of approximately $500,000 as well as
realizing a gain of approximately $100,000 on the sale of the
land, building, certain loans and other assets. The Odessa
Office is the only remaining office not located in any of the
Bank's primary market areas and the sale will allow the Bank to
refocus its resources.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit Incorporation by
Reference or page in
sequential numbering
where exhibit may be
found:
(3.1) Certificate of Exhibits 4.2-4.5 to
Incorporation as Registration Statement
amended, of the Registrant No. 33-7244, filed July
22, 1986
(3.2) Amendment to Exhibit 3 to Form 10-Q
Certificate of for period ended
Incorporation of Registrant June 30, 1992
dated August 6, 1992
(3.3) By-laws of the Exhibit 3.3 to Annual
Registrant, as Report on Form 10-K
amended for the year ended
December 31, 1992
(27) Financial Data Exhibit 27
Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FNB ROCHESTER CORP.
Date November 8, 1996 s\s Stacy C. Campbell
_____________________
Stacy C. Campbell
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
<PAGE>
INDEX OF EXHIBITS
Exhibit Incorporation by
Reference or page in
sequential numbering
where exhibit may be
found:
(3.1) Certificate of Exhibits 4.2-4.5 to
Incorporation as amended, of Registration Statement
the Registrant. No. 33-7244, filed July
22, 1986
(3.2) Amendment to Exhibit 3 to Form 10-Q
Certificate of Incorporation for period ended June 30,
of Registrant dated August 1992
6, 1992
(3.3) By-laws of the Exhibit 3.3 to Annual
Registrant, as amended. Report on Form 10-K for
the year ended December
31, 1992
(27) Financial Data Schedule Exhibit 27
<PAGE>
Financial Data Schedules were filed electronically with the
Securities and Exchange Commission.
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,155
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0
0
<COMMON> 3,571
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<INCOME-PRE-EXTRAORDINARY> 2,886
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<EPS-PRIMARY> 0.81
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<LOANS-NON> 1,634
<LOANS-PAST> 793
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