FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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 Street, Rochester, New York 14614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(716) 546-3300
Securities registered pursuant to Section 12 (b) of the Act:
None None
(Title of Each Class) (Name of Each Exchange on
Which Registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value Per Share
(Title of Each Class)
The aggregate market value of the 2,782,305 shares of Common
Stock-Voting held by non-affiliates of the registrant at March
14, 1996 (based on the average of high and low prices on March
14, 1996) was $26,779,686. Solely for the purposes of this
calculation, all persons who are directors and executive officers
of the Registrant and all persons who are believed by the
Registrant to be beneficial owners of more than 5% of its
outstanding common stock have been deemed to be affiliates.
Number of shares of Common Stock outstanding as of the close of
business on March 14, 1996 was 3,568,963.
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy of information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _______
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 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 _____
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
in the following parts of this report; Parts I and II - - the
Registrant's 1995 Annual Report to Shareholders; Part III -- the
Registrant's definitive proxy statement as filed or to be filed
with the Securities and Exchange Commission and as used in
connection with the solicitation of proxies for the Registrant's
annual meeting of shareholders to be held on May 28, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
FNB Rochester Corp. (the "Company") is a bank holding company.
First National Bank of Rochester ("First National" or the "Bank")
is its only subsidiary. The Company was organized under the New
York Business Corporation Law and commenced operations on
September 10, 1984. At December 31, 1995, the Company had
consolidated assets and deposits of $391.3 million and $357.9
million, respectively. The Bank is a member of the Federal
Reserve System, and its deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"). Until April 1, 1994, the
Company also owned Atlanta National Bank ("Atlanta") in Atlanta,
NY. Atlanta was sold to Bath National Bank.
The Bank was established in 1965, in Rochester, New York as a
national bank. It provides a full range of commercial banking,
trust, and consumer banking services to businesses and
individuals.
MARKET AREA
The Company's business is conducted from its corporate
headquarters located in the Powers Building at the corner of
State and Main Streets in downtown Rochester, New York. The
Bank's sixteen banking offices are located in Monroe, Chemung,
Erie, Onondaga and Schuyler counties in New York State. The Bank
sold its Shop City office in Onondaga County in 1994, but still
provides services in Onondaga County through its Downtown
Syracuse office. The Bank expanded into the metropolitan Buffalo
area in 1993 with the addition of a loan production office to
serve business and professional customers in a suburban section
of Erie County. In August 1994, the Buffalo office became a full
service branch. Both the Buffalo and Downtown Syracuse banking
offices focus their sales and service efforts on business and
professional customers.
The Bank considers its primary service and market area to be the
City of Rochester and surrounding towns, which have a total
population of approximately 1 million. Rochester, located in the
western part of New York State on the south shore of Lake
Ontario, is the third largest city in New York State. Greater
Rochester has a diversified manufacturing base. Four national
firms with significant manufacturing facilities and other major
business operations in the Greater Rochester area are Eastman
Kodak Company, Xerox Corporation, Bausch & Lomb Inc. and General
Motors Corporation. Rochester is the home of the corporate
headquarters of both Eastman Kodak and Bausch & Lomb. Other
institutions that add stability to the area's employment include
the University of Rochester, Rochester Institute of Technology,
eight other institutions of higher education, and seven large
hospitals. Although primarily agricultural and residential in
nature, the surrounding communities served by the Company also
have office, commercial, educational, retail, and light
industrial facilities. Businesses in these communities
constitute an important part of the Bank's customer base.
BANKING SERVICES
First National's services are provided through fourteen full-
service community banking offices, twelve of which have drive-up
facilities, plus the Buffalo and Syracuse offices. Automated
teller machines (ATM's) are located at the eleven Monroe County
banking offices, and customers may use ATM's throughout the
United States and abroad through ATM networks. The Bank opened
its newest banking office in Monroe County (Town of Perinton) in
March 1996. Three new Monroe County banking offices were opened
in 1995.
The Bank is engaged in general commercial banking, providing a
wide range of loan and deposit services. As of December 31,
1995, the Bank had approximately 37,000 deposit accounts and
9,300 loans outstanding. The Bank offers a wide range of retail
services, including installment loans, credit cards, checking
accounts, savings accounts, money market accounts, and various
types of time-deposit instruments. Mortgage lending activities
include commercial, industrial, and residential loans secured by
real estate. Commercial lending activities include originating
secured and unsecured loans and lines of credit and providing
cash management and accounts receivable services to a variety of
businesses. The Bank also operates a merchant credit card
program. The Bank's installment loan department makes direct
auto, home equity, home improvement, and personal loans to
individuals. The Bank offers safe deposit box services at
thirteen of the banking offices.
The Trust & Investment Division of First National was expanded
and improved in 1993. The Trust & Investment Division at First
National Bank acts as executor and/or trustee and provides
administration, record-keeping, and professional portfolio
management for individuals, corporations, institutions, and not-
for-profits. Assets under management increased 141% during 1995
through product offerings such as 401(k) plans, investment
management, corporate and cash management services, mutual funds,
annuities, and traditional trust and record-keeping services.
The Trust & Investment Division has established various strategic
alliances with service partners to reduce costs, provide better
and more efficient services, obtain access to other markets and
enhance its capabilities and product offerings. As with any
major business expansion, this is a long-term commitment on the
part of the Bank.
EMPLOYEES
At December 31, 1995, the Company had 233 employees of whom 36
worked on a part-time basis. None of the employees are covered
by a collective bargaining agreement. The Company considers its
relations with its employees to be good.
COMPETITION
The Bank is one of approximately fifteen commercial and savings
institutions competing for deposits and loans in Monroe County.
Approximately eight commercial and savings institutions compete
in Schuyler and Chemung counties. The Bank considers its
business to be highly competitive in its service areas. Many of
the competitors are larger than First National in terms of number
of offices, assets, and resources, and many have higher lending
limits than First National.
The primary competition for the Trust & Investment Division comes
from investment advisory and brokerage firms, as well as other
bank trust departments in the Bank's primary market area.
In recent years, non-bank financial institutions such as credit
unions, money market funds, stock brokerage firms, insurance
companies, and mortgage banking firms have been an increased
source of competition. Non-bank financial institutions continue
to be subject to less regulation than commercial banks in certain
areas.
SUPERVISION AND REGULATION
As a bank holding company, the Company is subject to the Bank
Holding Company Act of 1956, as amended (the "Act"), and is
required to file annual reports and such additional information
as may be required by the Federal Reserve Board (the "FRB")
pursuant to the Act. The FRB has the authority to examine the
Company and its subsidiaries.
The Act and regulations thereunder limit, with certain
exceptions, the business which a bank holding company may engage
in, directly or indirectly through subsidiaries, to banking,
managing or controlling banks, furnishing or performing services
for banks controlled by the Company, and services incident
thereto. In addition, the Act and regulations thereunder require
the prior approval of the FRB for the acquisition of a bank or
bank holding company if thereafter the bank holding company will,
directly or indirectly, control more than 5% of the voting stock
of such bank or bank holding company, or substantially all the
assets of such bank or bank holding company.
Among the activities permitted to bank holding companies is the
ownership of shares of any company which engages in activities
that the FRB determines to be so closely related to banking,
managing, or controlling banks as to be a proper incident
thereto. The FRB has determined a number of activities to be
closely related to banking, and has proposed others for
consideration. Such activities include leasing real or personal
property under certain conditions; operating as a mortgage
financing or factoring company; servicing loans and other
extensions of credit; acting as a fiduciary; acting as an
investment or financial advisor under certain conditions; acting
as an insurance agent or broker principally in connection with
the extension of credit by the bank holding company or any
subsidiary; acting as underwriter for credit life insurance and
credit accident and health insurance that is directly related to
extension of credit by the bank holding company or any
subsidiary; providing bookkeeping or data processing services for
the bank holding company, its affiliates, other financial
institutions and others, with certain limitations; making certain
equity and debt investments in community rehabilitation and
development corporations; and providing certain kinds of
management consulting advice to unaffiliated banks.
The Federal Reserve Act imposes restrictions on extensions of
credit by subsidiary banks of a bank holding company to the bank
holding company or any of its subsidiaries, or investments in the
stock or other securities of the holding company, and on the use
of such stock or securities as collateral for loans to any
borrower. Further, under the FRB's regulations, a bank holding
company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of
credit, lease or sale of property, or furnishing of services.
From time to time the FRB may adopt further regulations pursuant
to the Act. The Company cannot predict whether any further
regulations will be adopted or how such regulations will affect
the consolidated operating results or business of the Company.
The primary supervisory authority of the Bank is the Office of
the Comptroller of the Currency (the "OCC"), which regularly
examines such areas as capital adequacy, reserves, loans,
investments, management practices, and other aspects of the
Bank's' operations. These examinations are designed for the
protection of the Bank's depositors and not its shareholders. In
addition to these regular examinations, the Bank must furnish
quarterly and annual reports to the OCC. The OCC has the
authority to issue cease-and-desist orders to prevent a bank from
engaging in an unsafe or an unsound practice or violating the law
in conducting its business.
The Bank is also a member of the Federal Reserve System, and as
such, is subject to certain laws and regulations administered by
the FRB. As a member of the Federal Reserve System, the Bank is
required to maintain non-interest bearing reserves against
certain accounts. The amount of reserves required to be
maintained is established by regulations of the FRB and is
subject to adjustment from time to time.
The Bank's deposits are insured by the Bank Insurance Fund (BIF)
of the FDIC up to a maximum of $100,000 per insured deposit
account, subject to the rules and regulations of the FDIC. For
this protection, the Banks pay a semi-annual statutory
assessment. The supervision and regulation by the FDIC is also
intended primarily for the protection of depositors.
The policies of regulatory authorities have had a significant
effect on the operating results of commercial banks in the past,
and are expected to do so in the future. An important function
of the Federal Reserve System is to regulate aggregate national
credit and money supply through such means as open market
dealings in securities, establishment of the discount rate on
bank borrowing, changes in reserve requirements against bank
deposits, and limitations on the deposits on which a bank may pay
interest. Policies of these agencies may be influenced by many
factors including inflation, unemployment, short-term and long-
term changes in the international trade balance, and fiscal
policies of the United States Government. Supervision,
regulation, or examination of the Company by regulatory agencies
is not intended for the protection of the Company's shareholders.
Loans made by the Bank are also subject to numerous other federal
and state laws and regulations, including the Truth in Lending
Act, the Community Reinvestment Act, the Equal Credit Opportunity
Act, the Real Estate Settlement Procedures Act, and the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989.
The United States Congress has periodically considered and
adopted legislation that has resulted in further deregulation of
both banks and financial institutions. Congress has adopted
further legislation to modify or eliminate geographic
restrictions on banks and bank holding companies, and could
modify or eliminate current prohibitions against banks engaging
in one or more non-banking activities. Such legislative changes
could place the Bank in more direct competition with other
financial institutions including mutual funds, securities
brokerage firms, insurance companies, and investment banking
firms. The effect of any such legislation on the business of the
Bank cannot be predicted.
Effective September 29, 1995, the Bank Holding Company Act
authorizes the FRB to approve the acquisition of a bank located
in New York by an out-of-state bank holding company.
Statistical data required to be disclosed by bank holding
companies is included under the caption Management's Discussion
and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report to Shareholders for the
year ended December 31, 1995.
ITEM 2. PROPERTIES
The Bank operates sixteen banking offices. Nine of the banking
offices are owned (five are on leased land), six are leased, and
one is rented on a month to month basis. The Bank also owns the
building at 35 State Street, Rochester, New York and leases
additional office space in the adjacent Powers Building. The
leases are long-term and non-cancelable and expire at various
dates from 2000 through 2016 with optional renewal terms of five
to ten years and rent escalation clauses. Some of the leases
also provide for contingency rent to be paid annually based upon
increases in deposits or the cost of living. The properties are
as follows:
<PAGE>
<TABLE>
<CAPTION>
Owned (O)
Leased (L) Lease
Location Principal Use Leased Land(LL) Exp Date
________ _____________ _______________ ________
<S> <C> <C> <C>
35 State St.
Rochester, NY Bank Office Space O
Powers Building Main Banking Office L 12/31/04
Rochester, NY Bank Office Space
1 E. Main St. Subleased L 08/31/01
Rochester, NY
3140 Monroe Ave. Pittsford Branch O
Rochester, NY Banking Office
2147 W. Ridge Rd. Greece Branch O
Rochester, NY Banking Office
Hard & Ridge Rd. Webster Branch O
Webster, NY Banking Office
1000 E. Ridge Rd. Irondequoit Branch LL 11/30/02
Rochester, NY Banking Office
28 N. Main St. Honeoye Falls Branch L 01/31/11
Honeoye Falls, NY Banking Office
3333 W. Henrietta Rd. Henrietta Branch L 01/07/16
Rochester, NY Banking Office
Warren & Washington Sts. Syracuse Branch L 05/31/01
Syracuse, NY Banking Office
Miracle Mile Horseheads Branch LL 06/30/03
Elmira, NY Banking Office
Broadway & Pennsylvania Southport Branch L 02/28/00
Ave., Elmira, NY Banking Office
Main St. Odessa Branch O
Odessa, NY Banking Office
Snyder Square Buffalo Branch L Monthly
Amherst, NY Banking Office
214 W. Commercial St. E. Rochester Branch L 02/28/03
E. Rochester, NY Banking Office
3175 Chili Ave. Chili Branch LL 09/09/15
Rochester, NY Banking Office
Penfield Rd. & Rt. 250 Penfield Branch LL 12/24/15
Rochester, NY Banking Office
Pittsford/Palmyra Rd. Perinton Branch LL 03/31/16
& Rt. 250 Banking Office
Rochester, NY
</TABLE>
The Branch Banking Offices in the above table range in size from
approximately 2,000 square feet to 4,500 square feet.
The Bank took occupancy of 36,000 square feet in the Powers
Building during 1994 and vacated two floors (approximately 9,800
square feet) in the Wilder Building at 1 E. Main Street,
consolidating all operations including the branch banking office
into the Powers Building and the adjacent 35 State Street
Building. These consolidated facilities have increased
efficiency and are strategically located in Downtown Rochester.
The vacant space in the Wilder Building that the Bank continues
to lease is approximately 4,700 square feet and in 1995 the Bank
subleased that space.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matter was submitted to a
vote of Company's shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
DIVIDENDS PAID AND MARKET PRICES OF REGISTRANT'S STOCK
The following table displays the range of bid price quotations
for the Company's common stock for the years ended December 31,
1995 and December 31, 1994. No dividends were paid on common
stock in 1995 or 1994. The Company's common stock trades on the
over-the-counter market and is quoted on the NASDAQ National
Market System under the symbol FNBR.
Price Quotations:
<TABLE>
<CAPTION>
Price Quotations
Bid Price (low-high)
____________________
1995
____
<S> <C>
First quarter $ 5.25 - 6.25
Second quarter 5.75 - 7.88
Third quarter 7.38 - 9.50
Fourth quarter 7.88 - 9.75
____ ____
$ 5.25 - 9.75
==== ====
1994
____
First quarter $ 5.00 - 6.25
Second quarter 5.38 - 6.75
Third quarter 6.50 - 7.00
Fourth quarter 5.25 - 7.00
____ ____
$ 5.00 - 7.00
==== ====
</TABLE>
The above prices were furnished by NASDAQ, and such quotations
reflect inter-dealer prices, without retail mark-up, mark-down,
or commissions. The prices may not reflect actual transactions.
At the close of business on March 14, 1996, the Company had
approximately 848 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The financial information included under the caption "Five-year
Summary of Selected Financial Information" in the Company's
Annual Report to Shareholders for the year ended December 31,
1995, submitted herewith as an exhibit, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Annual Report to
Shareholders for the year ended December 31, 1995, submitted
herewith as an exhibit, is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statements of financial condition of FNB
Rochester Corp. and Subsidiaries as of December 31, 1995 and 1994
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995 together with the
related notes and the report of KPMG Peat Marwick LLP,
independent auditors, dated February 2, 1996, and the information
under the caption "Quarterly Financial Information" (unaudited),
all contained in the Company's 1995 Annual Report to
Shareholders, submitted herewith as an exhibit, are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information in response to this item is incorporated herein
by reference to the information under the caption "Nominees for
Election as Directors" and "Executive Officers" presented in the
Company's definitive proxy statement filed or to be filed
pursuant to Regulation 14A and used in connection with the
Company's 1996 annual meeting of shareholders to be held on or
about May 28,1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information in response to this item is incorporated herein
by reference to the information under the caption "Executive
Compensation" presented in the Company's definitive proxy
statement filed or to be filed pursuant to Regulation 14A in
connection with the Company's 1996 annual meeting of shareholders
to be held on or about May 28, 1996, provided, however, that
information appearing under the captions "Compensation Committee
Report on Executive Compensation" and "Share Performance Graph"
is not incorporated herein and should not be deemed included in
this document for any purpose.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information in response to this item is incorporated herein
by reference to the information under the caption "Beneficial
Ownership of the Company's Stock by Certain Persons and
Management" presented in the Company's definitive proxy statement
filed or to be filed pursuant to Regulation 14A and used in
connection with the Company's 1996 annual meeting of shareholders
to be held on or about May 28, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in response to this item is incorporated herein
by reference to the information under the captions "Certain
Relationships and Related Party Transactions" and "Compensation
Committee Interlocks and Insider Participation" presented in the
Company's definitive proxy statement filed or to be filed
pursuant to Regulation 14A and used in connection with the
Company's 1996 annual meeting of shareholders to be held on or
about May 28, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this
report:
(1.0) Consolidated Financial Statements are contained in
the Company's 1995 Annual Report to Shareholders which, as
indicated below, is included as Exhibit 13 of this report.
Page
- Independent Auditors' Report . . . . . . . . . . . . 86
- Consolidated Statements of Financial Condition as of
December 31, 1995 and 1994 . . . . . . . . . . . 87
- Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994, and 1993 . . . . . 88
- Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . 90
- Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994, and 1993 . . . . 91
- Notes to Consolidated Financial Statements . . . . 93
(2.0) Schedules
Schedules are omitted because of the absence of conditions
under which they are required or because the required
information is provided in the consolidated financial
statements or notes thereto.
(3.0) 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 No. 33-7244, filed July
Registrant 22, 1986
(3.2) Amendment to Exhibit 3 to Form 10-Q
Certificate of for period ended
Incorporation of June 30, 1992
Registrant 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
(10.1) 1992 Stock Option Exhibit 4.1 to Form S-8
Plan (as amended June Registration Statement
1993)* No. 33-65194, filed June
28, 1993
(10.2) Employment Exhibit 1 to Form 8-K
Agreement dated June filed June 23, 1992
8, 1992 between the
Registrant and R.
Carlos Carballada*
(10.3) Extension of Exhibit 10.13 to Annual
Employment Agreement Report on Form
between the Registrant 10-K for year ended
and R. Carlos Carballada* December 31, 1993
(10.4) Change of Control Page 19
Employment Agreement
among the Registrant,
First National and R.
Carlos Carballada*
(10.5) Form of Change of Page 39
Control Employment
Agreement between First
National and each
Executive Officer other
than R. Carlos
Carballada*
(10.6) Form of Stock Exhibit 4.2 to Form S-8
Option Agreement pursuant Registration Statement
to 1992 Stock Option Plan No. 33-65194, filed June
between the Registrant 28, 1993
and each Executive
Officer*
(10.7) Loan agreements Exhibits 10.14 and 10.15
between First National to Form 8 filed April 22,
and Executive Square 1992
Associates, related to
Estate of Fred B. Kravetz
(10.8) Loan agreement Exhibit 10.17 to Form 8
between First National filed April 22, 1992
and Pioneer Daycare
company, related to
Michael J. Falcone
(10.9) Loan agreements Exhibit 10.19 to Form 8
between First National filed April 22, 1992
and Carl R. Reynolds
(10.10) Line of Credit Exhibit 10.17 to Annual
agreements between First Report on Form
National and JML Optical 10-K for year ended
Industries, Inc., December 31, 1993
related to Joseph M.
Lobozzo II
(10.11) Loan agreements Exhibit 10.13 to Annual
between First National Report on Form 10-K for
and Joseph M. Lobozzo II year ended December 31,
1994
(10.12) Loan modification Exhibit 10.15 to Annual
agreements between First Report on Form 10-K for
National and Executive year ended December 31,
Square Associates, 1994
related to Estate of Fred
B. Kravetz
(10.13) Loan Exhibit 10.16 to Annual
modification agreements Report on Form 10-K for
between First National year ended December 31,
and Pioneer Daycare 1994
Company, related to
Michael J. Falcone
(10.14) Residential Exhibit 10.1 to Form 10-Q
Mortgage Loan Agreement for period ended June 30,
between Stacy C. Campbell 1995
and First National
(10.15) Lease Agreement Exhibit 10.2 to Form 10-Q
between Southtown Plaza for period ended June 30,
Associates, related to 1995
William Levine, and First
National
(10.16) Residential Exhibit 10.1 to Form 10-Q
Mortgage Loan Agreements for period ended
between Russell Family September 30, 1995
Associates, related to H.
Bruce Russell, and First
National
(10.17) Commercial Loan Exhibit 10.2 to Form 10-Q
Agreements between Estate for period ended
of Fred B. Kravetz and September 30, 1995
First National
(10.18) Commercial Line Exhibit 10.3 to Form 10-Q
of Credit Agreement for period ended
between GLC Outsourcing September 30, 1995
Services, Inc., related
to James D. Ryan, and
First National
(11) Statement of Page 58
Computation of
Earnings per share
(13) Annual Report to Page 59
Shareholders for
the year ended December
31, 1995
(21) Subsidiaries Page 116
(23) Consent of KPMG Page 117
Peat Marwick LLP
(27) Financial Data Page 118
Schedule
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Report pursuant
to Item 14 (c).
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and 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.
March 26, 1996 By: s/ R. Carlos Carballada
R. Carlos Carballada,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
_________ _____ ____
<S> <C> <C>
(i) Principal Executive Officer: President and Chief March 26, 1996
Executive Officer
s/ R. Carlos Carballada
(R. Carlos Carballada)
(ii) Principal Accounting and Senior Vice President March 26, 1996
Financial Officer: and Chief Financial
Officer
s/ Stacy C. Campbell
(Stacy C. Campbell)
(iii) Directors:
s/ R. Carlos Carballada Director March 26, 1996
(R. Carlos Carballada)
s/Michael J. Falcone Director March 26, 1996
(Michael J. Falcone)
s/ Joseph M. Lobozzo II Director March 26, 1996
(Joseph M. Lobozzo II)
s/ Francis T. Lombardi Director March 26, 1996
(Francis T. Lombardi)
s/ Carl R. Reynolds Director March 26, 1996
(Carl R. Reynolds)
s/ James D. Ryan Director March 26, 1996
(James D. Ryan)
s/H. Bruce Russell Director March 26, 1996
(H. Bruce Russell)
s/Linda Cornell Weinstein Director March 26, 1996
(Linda Cornell Weinstein)
</TABLE>
<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 No.
the Registrant. 33-7244, filed July 22, 1986
(3.2) Amendment to Exhibit 3 to Form 10-Q for
Certificate of Incorporation period ended June 30, 1992
of Registrant dated August 6,
1992
(3.3) By-laws of the Exhibit 3.3 to Annual Report
Registrant, as amended. on Form 10-K for the year
ended December 31, 1992
(10.1) 1992 Stock Option Exhibit 4.1 to Form S-8
Plan (as amended June 1993) Registration Statement No.
33-65194 filed, June 28,
1993
(10.2) Employment Agreement Exhibit 1 to Form 8-K filed
dated June 8, 1992 between June 23, 1992
the Registrant and R. Carlos
Carballada
(10.3) Extension of Exhibit 10.13 to Annual
Employment Agreement between Report on Form 10-K for year
the Registrant and R. Carlos ended December 31, 1993
Carballada
(10.4) Change of Control Page 19
Employment Agreement among
the Registrant, First
National and R. Carlos
Carballada
(10.5) Form of Change of Page 39
Control Employment Agreement
between First National and
each Executive Officer other
than R. Carlos Carballada
(10.6) Form of Stock Option Exhibit 4.2 to Form S-8
Agreement pursuant to 1992 Registration Statement No.
Stock Option Plan between the 33-65194, filed June 28,
Registrant and each Executive 1993
Officer
(10.7) Loan agreements Exhibits 10.14 and 10.15 to
between First National and Form 8 filed April 22, 1992
Executive Square Associates,
related to Estate of Fred B.
Kravetz
(10.8) Loan agreements Exhibit 10.17 to Form 8
between First National and filed April 22, 1992
Pioneer Daycare Company,
related to Michael J. Falcone
(10.9) Loan agreements Exhibit 10.19 to Form 8
between First National and filed April 22, 1992
Carl R. Reynolds
(10.10) Line of Credit Exhibit 10.17 to Annual
agreements between First Report on Form 10-K for year
National and JML Optical ended December 31, 1993
Industries, Inc., related to
Joseph M. Lobozzo II
(10.11) Loan agreements Exhibit 10.13 to Annual
between First National and Report on Form 10-K for year
Joseph M. Lobozzo II ended December 31, 1994
(10.12) Loan modification Exhibit 10.15 to Annual
agreements between First Report on Form 10-K for year
National and Executive Square ended December 31, 1994
Associates, related to Estate
of Fred B. Kravetz
(10.13) Loan modification Exhibit 10.16 to Annual
agreements between First Report on Form 10-K for year
National and Pioneer Daycare ended December 31, 1994
Company, related to Michael
J. Falcone
(10.14) Residential Mortgage Exhibit 10.1 to Form 10-Q
Loan Agreement between Stacy for period ended June 30,
C. Campbell and First 1995
National
(10.15) Lease Agreement Exhibit 10.2 to Form 10-Q
between Southtown Plaza for period ended June 30,
Associates, related to 1995
William Levine, and First
National
(10.16) Residential Mortgage Exhibit 10.1 to Form 10-Q
Loan Agreements between for period ended September
Russell Family Associates, 30, 1995
related to H. Bruce Russell,
and First National
(10.17) Commercial Loan Exhibit 10.2 to Form 10-Q
Agreements between Estate of for period ended September
Fred B. Kravetz and First 30, 1995
National
(10.18) Commercial Line of Exhibit 10.3 to Form 10-Q
Credit Agreement between GLC for period ended September
Outsourcing Services, Inc., 30, 1995
related to James D. Ryan, and
First National
(11) Statement of Page 58
Computation of Earnings per
share
(13) Annual Report to Page 59
Shareholders for the year
ended December 31, 1995
(21) Subsidiaries Page 116
(23) Consent of KPMG Peat Page 117
Marwick LLP
(27) Financial Data Schedule Page 118
<PAGE>
EXHIBIT 10.4
Change of Control Employment Agreement among the
Registrant, First National and R. Carlos Carballada
<PAGE>
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and among FIRST NATIONAL BANK OF
ROCHESTER, a National Banking Association (the "Company"), FNB
ROCHESTER CORP., a New York corporation ("FNB Rochester") and R.
Carlos Carballada (the "Executive"), dated as of the 1st day of
February, 1996.
Introductory Statement. The Executive has made and is
expected to make a major contribution to the profitability,
growth and financial strength of the Company and its parent, FNB
Rochester. FNB Rochester and the Company consider the continued
availability of the Executive's services, managerial skills and
business experience to be in the best interests of the Company,
FNB Rochester and FNB Rochester's shareholders and desire to
assure the continued services of the Executive on behalf of the
Company and FNB Rochester.
The Board of Directors of FNB Rochester (the "Board")
and the Company have determined that it is in the best interests
of the Company, FNB Rochester and FNB Rochester's shareholders to
assure that they will have the continued dedication of the
Executive, notwithstanding the possibility, threat or occurrence
of a Change of Control (as defined below) of FNB Rochester or the
Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a
change of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in
order to accomplish these objectives, the Board has caused FNB
Rochester and the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and of
the covenants and agreements provided in this Agreement, the
parties agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with
FNB Rochester or the Company is terminated or the Executive
ceases to be an officer of FNB Rochester or the Company prior to
the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at the
request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose
in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination
of employment or cessation of status as an officer.
(b) The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the same day
of the month 24 months after such date; provided, however, that
commencing on the same day of the month six months after the date
hereof, and on each such day at the end of each successive six
month period thereafter (such date and each such day at the end
of each successive six month period thereafter shall be
hereinafter referred to as the "Renewal Date"), the Change of
Control Period shall be automatically extended so as to terminate
on the same day of the month 24 months after such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control
Period shall not be so extended.
(c) The "Existing Employment Agreement" shall mean the
agreement between FNB Rochester and the Executive, dated June 8,
1992, as extended by an agreement between FNB Rochester and the
Executive, dated February 22, 1994.
2. Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 35% or more of
either (i) the then outstanding shares of common stock of FNB
Rochester (the "Outstanding FNB Rochester Common Stock") or (ii)
the combined voting power of the then outstanding voting
securities of FNB Rochester entitled to vote generally in the
election of directors (the "Outstanding FNB Rochester Voting
Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (i) any such
acquisition directly from FNB Rochester (excluding an acquisition
by virtue of the exercise of a conversion privilege), (ii) any
acquisition by FNB Rochester, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by FNB Rochester or any corporation controlled by FNB Rochester
or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger, or consolidation, the conditions
described in clauses (i), (ii) and (iii) of subsection (c) of
this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by FNB
Rochester's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board; or
(c) Approval by the shareholders of FNB Rochester of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 65% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding FNB Rochester Common Stock and
Outstanding FNB Rochester Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding FNB
Rochester Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding FNB Rochester, any
employee benefit plan (or related trust) of FNB Rochester, or
such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 35% or more of the Outstanding FNB Rochester
Common Stock or Outstanding FNB Rochester Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 35%
or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation, and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of FNB Rochester of
(i) a complete liquidation or dissolution of FNB Rochester or
(ii) the sale or other disposition of all or substantially all of
the assets of FNB Rochester, other than to a corporation, with
respect to which following such sale or other disposition, (A)
more than 65% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding FNB Rochester
Common Stock and Outstanding FNB Rochester Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding FNB
Rochester Common Stock and Outstanding FNB Rochester Voting
Securities, as the case may be, (B) no Person (excluding FNB
Rochester and any employee benefit plan (or related trust) of FNB
Rochester, or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition,
directly or indirectly, 35% or more of the Outstanding FNB
Rochester Common Stock or Outstanding FNB Rochester Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 35% or more of, respectively, of the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of FNB Rochester; or
(e) the issuance or transfer of sufficient shares of
stock, or a merger, reorganization or consolidation, which
results in (i) more than 50% of the then outstanding shares of
common stock of the Company, or (ii) securities having more than
50% of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors, being owned by other than FNB Rochester or
persons who owned securities having more than 65% of the combined
voting power of the outstanding voting securities of FNB
Rochester entitled to vote generally in the election of directors
of FNB Rochester prior to the transaction.
3. Employment Period. FNB Rochester and the Company
hereby agree to continue the Executive in their employ, and the
Executive hereby agrees to remain in the employ of FNB Rochester
and the Company, in accordance with the terms and provisions of
this Agreement, for the period commencing on the Effective Date
and ending on the same day of the month 24 months after such date
(the "Employment Period"). On the Effective Date, this Agreement
shall supersede and replace the Existing Employment Agreement in
all respects and shall govern all terms and conditions of the
Executive's employment by FNB Rochester and the Company.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements) authority, duties and responsibilities shall be at
least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding
the Effective Date or any office which is the headquarters of FNB
Rochester and is less than 25 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of
FNB Rochester and the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees to the same extent such service
was permissible under the Company's policies immediately prior to
the Change of Control, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of FNB Rochester and the Company
in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to FNB
Rochester and the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid on a monthly basis, at the least
equal to twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed
at least annually and shall be increased at any time and from
time to time as shall be substantially consistent with increases
in base salary generally awarded in the ordinary course of
business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated
companies" shall include FNB Rochester and any other company
controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year
ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the average annualized (for any
fiscal year consisting of less than twelve full months or with
respect to which the Executive has been employed by the Company
for less than twelve full months) bonus paid or payable,
including by reason of any deferral, to the Executive by the
Company and its affiliated companies in respect of the three
fiscal years immediately preceding the fiscal year in which the
Effective Date occurs (the "Recent Average Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, but
in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs
as are in effect at any time during the 90-day period immediately
preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of
the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect for the Executive
at any time during the 90-day period immediately preceding the
Effective Date, or if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect
for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office
or offices of a size and with furnishings and other appointments,
and to exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period,
the Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer incentives of the Company and its
affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during
the Employment Period. If the Board of Directors of FNB
Rochester and the Company, or the Executive or the Executive's
legal representatives, reasonably determines in good faith that
the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability set
forth below), the respective party may give to other party
written notice in accordance with Section 12(b) of this Agreement
of its intention to terminate the Executive's employment. In
such event, the Executive's employment shall terminate effective
on the earlier of receipt of such notice by the other party or
the last date within the Employment Period that is also within
the 180 period that is the basis for the determination of the
Executive's Disability (the "Disability Effective Date"). For
purposes of this Agreement, "Disability" shall mean the inability
of the Executive to substantially perform for 30 hours or more a
week the duties and responsibilities provided for in this
Agreement 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by either party
and acceptable to the other party (such agreement as to
acceptability not to be withheld unreasonably), whether or not
such 180 day period extends beyond the end of the Employment
Period.
(b) Cause. FNB Rochester and the Company may
terminate the Executive's employment during the Employment Period
for Cause. For purposes of this Agreement, "Cause" shall mean
(i) repeated violations by the Executive of the Executive's
obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are
demonstrably willful and deliberate on the Executive's part,
which are committed in bad faith or without reasonable belief
that such violations are in the best interests of FNB Rochester
and the Company and which are not remedied in a reasonable period
of time after receipt of written notice from FNB Rochester and
the Company specifying such violations or (ii) the conviction of
the Executive of a felony involving moral turpitude.
(c) Good Reason; Window Period. The Executive's
employment may be terminated (i) during the Employment Period by
the Executive for Good Reason or (ii) during the Window Period by
the Executive without any reason. For purposes of this
Agreement, the "Window Period" shall mean the 30-day period
immediately following the first anniversary of the Effective
Date. For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of
this Agreement, or any other action by the Company or
its affiliated companies which results in a diminution
in such position, authority, duties or
responsibilities, excluding for this purpose (A) an
isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company
or its affiliated companies promptly after receipt of
notice thereof given by the Executive and (B) any such
diminution resulting from a reduction in the
Executive's duties and responsibilities initiated by
the Company based on the Executive's physical
disability for more than 30 consecutive business days
but less than 180 consecutive business days, provided
that if the Executive's physician (who shall be
reasonably acceptable to the Company) determines that
such diminution is not necessary for the Executive's
health, such diminution shall not be excluded;
(ii) any failure by the Company or its affiliated
companies to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company or its
affiliated companies promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's or its affiliated companies
requiring the Executive to be based at any office or
location other than that described in Section
4(a)(i)(B) hereof;
(iv) any purported termination by the Company or
its affiliated companies of the Executive's employment
otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company or its affiliated
companies to comply with and satisfy Section 11(c) of
this Agreement, provided that such successor has
received at least ten days prior written notice from
the Company or its affiliated companies or the
Executive of the requirements of Section 11(c) of the
Agreement.
For purposes of this Section 5(c), any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by FNB
Rochester or the Company for Cause, or by the Executive without
any reason during the Window Period or for Good Reason, shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen days after the giving
of such notice). The failure by the Executive or FNB Rochester
and the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing or Good
Reason or Cause shall not waive any right of the Executive or FNB
Rochester and the Company hereunder or preclude the Executive or
FNB Rochester and the Company from asserting such fact or
circumstance in enforcing the Executive's or FNB Rochester's and
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by FNB Rochester
and the Company for Cause, or by the Executive during the Window
Period or for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may
be (ii) if the Executive's employment is terminated by FNB
Rochester and the Company other than for Cause or Disability, the
Date of Termination shall be the date on which FNB Rochester and
the Company notify the Executive of such termination and (iii) if
the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may
be.
6. Obligations of the Company Upon Termination.
(a) Termination Other Than for Cause or for Good
Reason. If, during the Employment Period, FNB Rochester and the
Company shall terminate the Executive's Employment other than for
Cause or the Executive shall terminate his or her employment for
Good Reason:
(i) FNB Rochester and the Company shall pay to the
Executive in a lump sum in cash within 30 days after the
Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the Recent
Average Bonus times (y) a fraction, the numerator of
which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of
which is 365 days and (3) any compensation previously
deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2)
and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal to the
product of (1) 1.667 times (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Executive's
Recent Average Bonus; and
C. a separate lump-sum supplemental retirement
benefit equal to the difference between (1) the
actuarial equivalent (utilizing for this purpose the
actuarial assumptions utilized with respect to the
First National Bank of Rochester Retirement Plan
(Prototype Plan of the New York State Bankers
Retirement System) (or any successor plan thereto) (the
"Retirement Plan") during the 90-day period immediately
preceding the Effective Date) of the benefit payable
under the Retirement Plan and any supplemental and/or
excess retirement plan of the Company and its
affiliated companies providing benefits for the
Executive (the "SERP") which the Executive would
receive if the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and
4(b)(ii) of this Agreement for the remainder of the
Employment Period, assuming for this purpose that all
accrued benefits are fully vested and that benefit
accrual formulas are no less advantageous to the
Executive than those in effect during the 90-day period
immediately proceeding the Effective Date, and (2) the
actuarial equivalent (utilizing for this purpose the
actuarial assumptions utilized with respect to the
Retirement Plan during the 90-day period immediately
preceding the Effective Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement
Plan and the SERP (the amount of such benefit shall be
hereinafter referred to as the "Supplemental Retirement
Amount"); and
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or policy
may provide, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance
with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and
applicable generally to other peer executives and their
families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable
period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation").
For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have
remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive
and/or the Executive's family any other amounts or benefits
required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive
pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company
and its affiliated companies as in effect and applicable
generally to other peer executives and their families during
the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect
generally thereafter with respect to other peer executives
of the Company and its affiliated Companies and their
families (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is
terminated by reason of the Executive's death during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations
(which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare
Benefit Continuation and Other Benefits (excluding, in each case,
Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination of an amount
equal to the greater of (A) the sum of the Severance Amount and
the Supplemental Retirement Amount and (B) the present value
(determined as provided in Section 280G(d)(4) of the Internal
Revenue Code of 1986, as amended (the "Code")) of any cash amount
to be received by the Executive or the Executive's family as a
death benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not
including any proceeds of life insurance covering the Executive
to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit)
(the benefits included in this clause (B) shall be hereinafter
referred to as the "Death Benefits").
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for (i) payment of
Accrued Obligations (which shall be paid to the Executive in a
lump sum in cash within 30 days of the date of the Termination)
and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case,
Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the present value (determined
as provided in Section 280(d)(4) of the Code) of any cash amount
that the Executive is ineligible to receive but that the
Executive would have been eligible to receive as a disability
benefit pursuant to the terms of any plan, policy or arrangement
of the Company and its affiliated companies if the Executive were
to continue indefinitely as an employee of FNB Rochester and the
Company (the benefits included in this clause shall be
hereinafter referred to as the "Disability Benefits").
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive Annual Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the
Executive terminates employment during the Employment Period,
excluding a termination either for Good Reason or without any
reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(e) Termination by the Executive during the Window
Period. If the Executive shall terminate his or her employment
without any reason during the Window Period, the Company shall
pay to the Executive in a lump sum in cash within 30 days after
the Date of Termination the aggregate of the following amounts:
(i) the Accrued Obligations; (ii) the amount equal to the sum of
(A) the Executive's Annual Base Salary, (B) the Executive's
Recent Average Bonus, and (C) the Supplemental Retirement Amount.
7. Non-exclusivity of Rights. Except as provided in
Sections 3, 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in
this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and
for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.
8. Full Settlement; Resolution of Disputes.
(a) The obligation of the Company and its affiliated
companies to make the payments provided for in this Agreement and
otherwise to perform their obligations hereunder shall not be
affected by any set-off counterclaim, recoupment, defense or
other claim, right or action which they may have against the
Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided
in Section 6(a)(ii) of this Agreement, such amounts shall not be
reduced whether or not the Executive obtains other employment.
The Company and FNB Rochester agree to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur, plus in each case
interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code, in the event
of any dispute or contest between or among the Company, the
Executive, or others concerning the validity or enforceability
of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant
to this Agreement), provided, however, that if (i) the Executive
is not successful in establishing, privately or otherwise, that
the Executive's position is substantially correct, or that the
Company's position is substantially wrong or unreasonable, or
(ii) in the event that the disagreement is not resolved by
settlement, then the Company shall not be required to pay such
legal fees, expenses and interest and the Executive shall
reimburse the Company for any such legal fees, expenses and
interest previously paid or advanced by the Company.
(b) If there shall be any dispute between the Company
and its affiliated companies and the Executive (i) in the event
of any termination of the Executive's employment, whether such
termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason
existed, then, unless and until there is a final nonappealable
judgment by a court of competent jurisdiction declaring that such
termination was for Cause or that the determination by the
Executive of the existence of Good Reason was not made in good
faith, the Company and its affiliated companies shall pay all
amounts, and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be,
that the Company would be required to pay or provide pursuant to
Section 6(a) hereof as though such termination were by FNB
Rochester and the Company without Cause or by the Executive with
Good Reason; provided, however, that the Company shall not be
required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the
Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
9. Certain Reduction of Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company or its affiliated
companies to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, but determined without regard to any
reduction required under this Section 9 (a "Payment")) would be
nondeductible by the Company for federal income tax purposes
because of Section 280G of the Code, then the aggregate present
value of all Payments shall be reduced (but not below zero) such
that such aggregate present value of Payments equals the Reduced
Amount. The "Reduced Amount" shall be an amount expressed in
present value which maximizes the aggregate present value of
Payments without causing any Payment to be nondeductible by the
Company because of Section 280G. For purposes of this Section 9,
present value shall be determined in accordance with Section
280G(d)(4) of the Code.
(b) All determinations required to be made under this
Section 9 shall be made by KPMG Peat Marwick LLP (the "Accounting
Firm" which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the
Date of Termination. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or
group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). Any such
determination by the Accounting Firm shall be binding upon the
Company and the Executive. All fees and expenses of the
Accounting Firm shall be borne by the Company and its affiliated
companies. The Executive shall determine which and how much of
the Payment shall be eliminated or reduced consistent with the
requirements of this Section 9, provided that, if the Executive
does not make such determination within ten business days of the
receipt of the calculations made by the Accounting Firm, the
Company and its affiliated companies shall elect which and how
much of the Payments shall be eliminated or reduced consistent
with the requirements of this Section 9 and shall notify the
Executive promptly of such election. Within five business days
thereafter, the Company and its affiliated companies shall pay to
or distribute to or for the benefit of the Executive such
Payments as are then due to the Executive and shall promptly pay
to or distribute to or for the benefit of the Executive such
Payment as become due to the Executive.
(c) As a result of the uncertainty in the application
of Section 280G of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible
that Payment will have been made by the Company and its
affiliated companies which should not have been made
("Overpayment") or that additional Payments will not have been
made by the Company and its affiliated companies which should
have been made ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event
that the accounting Firm determines that an Overpayment has been
made, any such Overpayment shall be treated for all purposes as a
loan to the Executive which the Executive shall repay to the
Company and its affiliated companies together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no amount shall be payable by
the Executive to the Company or its affiliated companies (or if
paid by the Executive to the Company or its affiliated companies
shall be returned to the Executive) if and to the extent such
payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that the Accounting
Firm determines that an Underpayment has occurred, any such
underpayment shall be promptly paid by the Company and its
affiliated companies to or for the benefit of the Executive
together with interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Code.
(d) The parties understand and agree that at the time
any Payment might be paid or made available, depending on the
facts and circumstances existing at such time, satisfaction of
such obligation by the Company and its affiliated companies may
be deemed by a regulatory authority to be illegal, an unsafe an
unsound practice, or for some other reason not properly due or
payable by the Company or its affiliated companies. The Company
and FNB Rochester agree that to the extent reasonably feasible,
when appropriate they will in good faith seek to determine the
position of the appropriate regulatory authority in advance of
each Payment due under this Agreement, including the approval or
acquiescence of the appropriate regulatory authorities, if
required. The parties understand, acknowledge and agree that,
notwithstanding any other provision of this Agreement, the
Company and its affiliated companies shall not be obligated to
make any Payment or provide any benefit under this Agreement
where (i) an appropriate regulatory authority does not approve or
acquiesce as required or (ii) the Company and its affiliated
companies have been informed either orally or in writing by a
representative of the appropriate regulatory authority that it is
the position of such regulatory authority that making such
Payment or providing such benefit would constitute an unsafe and
unsound practice, violate a written agreement with the regulatory
authority, violate an applicable rule or regulation, or would
cause the representative of the regulatory authority to recommend
enforcement action against the Company and its affiliated
companies; provided, however, that consistent with such
regulatory compliance, the Company and its affiliated companies
will nevertheless use their best efforts to make each Payment to
maximum extent permitted.
10. Confidential Information. The Executive shall
hold in a fiduciary capacity for the benefit of the Company and
its affiliated companies all secret or confidential information,
knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis
for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of FNB Rochester the Company
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon FNB Rochester, the Company and their successors
and assigns.
(c) FNB Rochester and the Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of their
respective businesses and/or assets to assume expressly and agree
to perform this Agreement in the same manner and to the same
extent that each of them would respectively be required to
perform it if no such succession had taken place. As used in
this Agreement, "Company" and "FNB Rochester" shall mean each of
them as hereinbefore defined and any successor to their
respective businesses and/or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
___________________
___________________
___________________
If to FNB Rochester
or the Company :
FNB Rochester Corp.
35 State Street
Rochester, NY 14614
Attention: Chairman of the Board
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) FNB Rochester and the Company may withhold from
any amounts payable under this Agreement such Federal, state or
local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) The Executive's, FNB Rochester's or the Company's
failure to insist upon strict compliance with any provision
hereof or any other provision of this Agreement or the failure to
assert any right the Executive, FNB Rochester or the Company may
have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be
a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and FNB Rochester and the Company
acknowledge that, if prior to the Effective Date, (i) the
Executive's employment with FNB Rochester and the Company
terminates or (ii) the Executive ceases to be an officer of FNB
Rochester and the Company, then the Executive shall have no
further rights under this Agreement.
IN WITNESS WHEREOF, the Executive and, pursuant to the
authorization by their respective Boards of Directors, the
Company and FNB Rochester have signed this Agreement, all as of
the day and year first above written.
s/R. Carlos Carballada
R. Carlos Carballada
FNB ROCHESTER CORP.
By s/Stacy C. Campbell
Name: Stacy C. Campbell
Title: Senior Vice President &
Chief Financial Officer
FIRST NATIONAL BANK OF ROCHESTER
By s/Richard J. Long
Name: Richard J. Long
Title: Vice President
<PAGE>
Exhibit 10.5
Form of Change of Control Employment Agreement
between First National and each Executive Officer
other than R. Carlos Carballada
<PAGE>
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between FIRST NATIONAL BANK OF
ROCHESTER, a National Banking Association (the "Company") and
_________________________________ (the "Executive"), dated as of
the 1st day of February, 1996.
Introductory Statement. The Executive has made and is
expected to make a major contribution to the profitability,
growth and financial strength of the Company and of its parent,
FNB Rochester Corp., a New York corporation ("FNB Rochester").
FNB Rochester and the Company consider the continued availability
of the Executive's services, managerial skills and business
experience to be in the best interests of the Company, FNB
Rochester and the shareholders of FNB Rochester and desire to
assure the continued services of the Executive on behalf of the
Company and FNB Rochester.
The Board of Directors of FNB Rochester (the "Board")
and the Company have determined that it is in the best interests
of the Company, FNB Rochester and FNB Rochester's shareholders to
assure that the Company will have the continued dedication of the
Executive, notwithstanding the possibility, threat or occurrence
of a Change of Control (as defined below) of the Company. The
Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a
change of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in
order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and of
the covenants and agreements provided in this Agreement, the
parties agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with
the Company is terminated or the Executive ceases to be an
officer of the Company prior to the date on which the Change of
Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment or cessation of
status as an officer (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of
this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment
or cessation of status as an officer.
(b) The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the same day
of the month 18 months after such date; provided, however, that
commencing on the same day of the month six months after the date
hereof, and on each such day at the end of each successive six
month period thereafter (such date and each such day at the end
of each successive six month period thereafter shall be
hereinafter referred to as the "Renewal Date"), the Change of
Control Period shall be automatically extended so as to terminate
on the same day of the month 18 months after such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control
Period shall not be so extended.
2. Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 35% or more of
either (i) the then outstanding shares of common stock of FNB
Rochester (the "Outstanding FNB Rochester Common Stock") or (ii)
the combined voting power of the then outstanding voting
securities of FNB Rochester entitled to vote generally in the
election of directors (the "Outstanding FNB Rochester Voting
Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (i) any such
acquisition directly from FNB Rochester (excluding an acquisition
by virtue of the exercise of a conversion privilege), (ii) any
acquisition by FNB Rochester, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by FNB Rochester or any corporation controlled by FNB Rochester
or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger, or consolidation, the conditions
described in clauses (i), (ii) and (iii) of subsection (c) of
this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by FNB
Rochester's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board; or
(c) Approval by the shareholders of FNB Rochester of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 65% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding FNB Rochester Common Stock and
Outstanding FNB Rochester Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding FNB
Rochester Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding FNB Rochester, any
employee benefit plan (or related trust) of FNB Rochester, or
such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 35% or more of the Outstanding FNB Rochester
Common Stock or Outstanding FNB Rochester Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 35%
or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation, and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of FNB Rochester of
(i) a complete liquidation or dissolution of FNB Rochester or
(ii) the sale or other disposition of all or substantially all of
the assets of FNB Rochester, other than to a corporation, with
respect to which following such sale or other disposition, (A)
more than 65% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding FNB Rochester
Common Stock and Outstanding FNB Rochester Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding FNB
Rochester Common Stock and Outstanding FNB Rochester Voting
Securities, as the case may be, (B) no Person (excluding FNB
Rochester and any employee benefit plan (or related trust) of FNB
Rochester, or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition,
directly or indirectly, 35% or more of the Outstanding FNB
Rochester Common Stock or Outstanding FNB Rochester Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 35% or more of, respectively, of the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of FNB Rochester; or
(e) the issuance or transfer of sufficient shares of
stock, or a merger, reorganization or consolidation, which
results in (i) more than 50% of the then outstanding shares of
common stock of the Company, or (ii) securities having more than
50% of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors, being owned by other than FNB Rochester or
persons who owned securities having more than 65% of the combined
voting power of the outstanding voting securities of FNB
Rochester entitled to vote generally in the election of directors
of FNB Rochester prior to the transaction.
3. Employment Period. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company, in accordance with
the terms and provisions of this Agreement, for the period
commencing on the Effective Date and ending on the same day of
the month 18 months after such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements) authority, duties and responsibilities shall be at
least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding
the Effective Date or any office which is the headquarters of the
Company and is less than 25 miles from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or
committees to the same extent such service was permissible under
the Company's policies immediately prior to the Change of
Control, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid on a monthly basis, at the least
equal to twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed
at least annually and shall be increased at any time and from
time to time as shall be substantially consistent with increases
in base salary generally awarded in the ordinary course of
business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year
ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the average annualized (for any
fiscal year consisting of less than twelve full months or with
respect to which the Executive has been employed by the Company
for less than twelve full months) bonus paid or payable,
including by reason of any deferral, to the Executive by the
Company and its affiliated companies in respect of the three
fiscal years immediately preceding the fiscal year in which the
Effective Date occurs (the "Recent Average Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, but
in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs
as are in effect at any time during the 90-day period immediately
preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of
the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect for the Executive
at any time during the 90-day period immediately preceding the
Effective Date, or if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect
for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office
or offices of a size and with furnishings and other appointments,
and to exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any
time during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period,
the Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer incentives of the Company and its
affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during
the Employment Period. If the Board of Directors of the Company,
or the Executive or the Executive's legal representatives,
reasonably determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to
the definition of Disability set forth below), the respective
party may give to the other party written notice in accordance
with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective
on the earlier of the receipt of such notice by the other party
or the last date within the Employment Period that is also within
the 180 day period that is the basis for the determination of the
Executive's Disability (the "Disability Effective Date"). For
purposes of this Agreement, "Disability" shall mean the inability
of the Executive to substantially perform for 30 hours or more a
week the duties and responsibilities provided for in this
Agreement for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by either party
and acceptable to the other party (such agreement as to
acceptability not to be withheld unreasonably), whether or not
such 180 day period extends beyond the end of the Employment
Period.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes
of this Agreement, "Cause" shall mean (i) repeated violations by
the Executive of the Executive's obligations under Section 4(a)
of this Agreement (other than as a result of incapacity due to
physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad
faith or without reasonable belief that such violations are in
the best interests of the Company and which are not remedied in a
reasonable period of time after receipt of written notice from
the Company specifying such violations or (ii) the conviction of
the Executive of a felony involving moral turpitude.
(c) Good Reason; Window Period. The Executive's
employment may be terminated (i) during the Employment Period by
the Executive for Good Reason or (ii) during the Window Period by
the Executive without any reason. For purposes of this
Agreement, the "Window Period" shall mean the 30-day period
immediately following the first anniversary of the Effective
Date. For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of
this Agreement, or any other action by the Company
which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose (A) an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of
notice thereof given by the Executive and (B) any such
diminution resulting from a reduction in the
Executive's duties and responsibilities initiated by
the Company based on the Executive's physical
disability for more than 30 consecutive business days
but less than 180 days, provided that if the
Executive's physician (who shall be reasonably
acceptable to the Company) determines that such
diminution is not necessary for the Executive's health,
such diminution shall not be excluded;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of this
Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that
described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement, provided that
such successor has received at least ten days prior
written notice from the Company or the Executive of the
requirements of Section 11(c) of the Agreement.
For purposes of this Section 5(c), any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive without any reason during
the Window Period or for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall
be not more than fifteen days after the giving of such notice).
The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes
to a showing or Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive
or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by the Company
for Cause, or by the Executive during the Window Period or for
Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be (ii) if the
Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination and (iii) if the Executive's employment is terminated
by reason of death or Disability, the Date of Termination shall
be the date of death of the Executive or the Disability Effective
Date, as the case may be.
6. Obligations of the Company Upon Termination.
(a) Termination Other Than for Cause or for Good
Reason. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or if
the Executive shall terminate his or her employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the Recent
Average Bonus times (y) a fraction, the numerator of
which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of
which is 365 days and (3) any compensation previously
deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2)
and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal to the
sum of (1) the Executive's Annual Base Salary and (2)
the Executive's Recent Average Bonus; and
C. a separate lump-sum supplemental retirement
benefit equal to the difference between (1) the
actuarial equivalent (utilizing for this purpose the
actuarial assumptions utilized with respect to the
First National Bank of Rochester Retirement Plan
(Prototype Plan of the New York State Bankers
Retirement System) (or any successor plan thereto) (the
"Retirement Plan") during the 90-day period immediately
preceding the Effective Date) of the benefit payable
under the Retirement Plan and any supplemental and/or
excess retirement plan of the Company and its
affiliated companies providing benefits for the
Executive (the "SERP") which the Executive would
receive if the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and
4(b)(ii) of this Agreement for the remainder of the
Employment Period, assuming for this purpose that all
accrued benefits are fully vested and that benefit
accrual formulas are no less advantageous to the
Executive than those in effect during the 90-day period
immediately proceeding the Effective Date, and (2) the
actuarial equivalent (utilizing for this purpose the
actuarial assumptions utilized with respect to the
Retirement Plan during the 90-day period immediately
preceding the Effective Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement
Plan and the SERP (the amount of such benefit shall be
hereinafter referred to as the "Supplemental Retirement
Amount"); and
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or policy
may provide, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance
with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and
applicable generally to other peer executives and their
families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable
period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation").
For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have
remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive
and/or the Executive's family any other amounts or benefits
required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive
pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company
and its affiliated companies as in effect and applicable
generally to other peer executives and their families during
the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect
generally thereafter with respect to other peer executives
of the Company and its affiliated Companies and their
families (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is
terminated by reason of the Executive's death during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations
(which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare
Benefit Continuation and Other Benefits (excluding, in each case,
Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination of an amount
equal to the greater of (A) the sum of the Severance Amount and
the Supplemental Retirement Amount and (B) the present value
(determined as provided in Section 280G(d)(4) of the Internal
Revenue Code of 1986, as amended (the "Code")) of any cash amount
to be received by the Executive or the Executive's family as a
death benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not
including any proceeds of life insurance covering the Executive
to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit)
(the benefits included in this clause (B) shall be hereinafter
referred to as the "Death Benefits").
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for (i) payment of
Accrued Obligations (which shall be paid to the Executive in a
lump sum in cash within 30 days of the date of the Termination)
and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case,
Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the present value (determined
as provided in Section 280(d)(4) of the Code) of any cash amount
that the Executive is ineligible to receive but that the
Executive would have been eligible to receive as a disability
benefit pursuant to the terms of any plan, policy or arrangement
of the Company and its affiliated companies if the Executive were
to continue indefinitely as an Employee of the Company(the
benefits included in this clause shall be hereinafter referred to
as the "Disability Benefits").
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive Annual Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the
Executive terminates employment during the Employment Period,
excluding a termination either for Good Reason or without any
reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(e) Termination by the Executive during the Window
Period. If the Executive shall terminate his or her employment
without any reason during the Window Period, the Company shall
pay to the Executive in a lump sum in cash within 30 days after
the Date of Termination the aggregate of the following amounts:
(i) the Accrued Obligations; (ii) the amount equal to one-half
(1/2) of the sum of (A) the Executive's Annual Base Salary, (B)
the Executive's Recent Average Bonus, and (C) the Supplemental
Retirement Amount.
7. Non-exclusivity of Rights. Except as provided in
Sections 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in
this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and
for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.
8. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and, except as provided in Section 6(a)(ii) of
this Agreement, such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to
pay promptly as incurred, to the full extent permitted by law,
all legal fees and expenses which the Executive may reasonably
incur, plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code, in the event of any dispute or contest between or among
the Company, the Executive, or others concerning the validity or
enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), provided, however, that if
(i) the Executive is not successful in establishing, privately or
otherwise, that the Executive's position is substantially
correct, or that the Company's position is substantially wrong or
unreasonable, or (ii) in the event that the disagreement is not
resolved by settlement, then the Company shall not be required to
pay such legal fees, expenses and interest and the Executive
shall reimburse the Company for any such legal fees, expenses and
interest previously paid or advanced by the Company.
(b) If there shall be any dispute between the Company
and the Executive (i) in the event of any termination of the
Executive's employment by the Company, whether such termination
was for Cause, or (ii) in the event of any termination of
employment by the Executive, whether Good Reason existed, then,
unless and until there is a final nonappealable judgment by a
court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company
shall pay all amounts, and provide all benefits, to the Executive
and/or the Executive's family or other beneficiaries, as the case
may be, that the Company would be required to pay or provide
pursuant to Section 6(a) hereof as though such termination were
by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required
to pay any disputed amounts pursuant to this section except upon
receipt of an undertaking by or on behalf of the Executive to
repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
9. Certain Reduction of Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of
the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any reduction
required under this Section 9 (a "Payment")) would be
nondeductible by the Company for federal income tax purposes
because of Section 280G of the Code, then the aggregate present
value of all Payments shall be reduced (but not below zero) such
that such aggregate present value of Payments equals the Reduced
Amount. The "Reduced Amount" shall be an amount expressed in
present value which maximizes the aggregate present value of
Payments without causing any Payment to be nondeductible by the
Company because of Section 280G. For purposes of this Section 9,
present value shall be determined in accordance with Section
280G(d)(4) of the Code.
(b) All determinations required to be made under this
Section 9 shall be made by KPMG Peat Marwick LLP (the "Accounting
Firm" which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the
Date of Termination. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or
group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). Any such
determination by the Accounting Firm shall be binding upon the
Company and the Executive. All fees and expenses of the
Accounting Firm shall be borne by the Company. The Executive
shall determine which and how much of the Payment shall be
eliminated or reduced consistent with the requirements of this
Section 9, provided that, if the Executive does not make such
determination within ten business days of the receipt of the
calculations made by the Accounting Firm, the Company shall elect
which and how much of the Payments shall be eliminated or reduced
consistent with the requirements of this Section 9 and shall
notify the Executive promptly of such election. Within five
business days thereafter, the Company shall pay to or distribute
to or for the benefit of the Executive such Payments as are then
due to the Executive and shall promptly pay to or distribute to
or for the benefit of the Executive such Payment as become due to
the Executive.
(c) As a result of the uncertainty in the application
of Section 280G of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible
that Payment will have been made by the Company which should not
have been made ("Overpayment") or that additional Payments will
have not been made by the Company which should have been made
("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the accounting
Firm determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the
Executive which the Executive shall repay to the Company together
with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Executive to the Company (or if paid by
the Executive to the Company shall be returned to the Executive)
if and to the extent such payment would not reduce the amount
which is subject to taxation under Section 4999 of the Code. In
the event that the Accounting Firm determines that an
Underpayment has occurred, any such underpayment shall be
promptly paid by the Company to or for the benefit of the
Executive together with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code.
(d) The parties understand and agree that at the time
any Payment might be paid or made available, depending on the
facts and circumstances existing at such time, satisfaction of
such obligation by the Company may be deemed by a regulatory
authority to be illegal, an unsafe an unsound practice, or for
some other reason not properly due or payable by the Company.
The Company agrees that to the extent reasonably feasible, when
appropriate it will in good faith seek to determine the position
of the appropriate regulatory authority in advance of each
Payment due under this Agreement, including the approval or
acquiescence of the appropriate regulatory authorities, if
required. The parties understand, acknowledge and agree that,
notwithstanding any other provision of this Agreement, the
Company shall not be obligated to make any Payment or provide any
benefit under this Agreement where (i) an appropriate regulatory
authority does not approve or acquiesce as required or (ii) the
Company has been informed either orally or in writing by a
representative of the appropriate regulatory authority that it is
the position of such regulatory authority that making such
Payment or providing such benefit would constitute an unsafe and
unsound practice, violate a written agreement with the regulatory
authority, violate an applicable rule or regulation, or would
cause the representative of the regulatory authority to recommend
enforcement action against the Company; provided, however, that
consistent with such regulatory compliance, the Company will
nevertheless use its best efforts to make each Payment to maximum
extent permitted.
10. Confidential Information. The Executive shall
hold in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any
of its affiliated companies and which shall not be or become
public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
___________________________________
___________________________________
___________________________________
If to the Company:
First National Bank of Rochester
35 State Street
Rochester, NY 14614
Attention: President
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other
provision of this Agreement or the failure to assert any right
the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of
this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written
agreement between the Executive and the Company, the employment
of the Executive by the Company is "at will" and, prior to the
Effective Data, may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date,
(i) the Executive's employment with the Company terminates or
(ii) the Executive ceases to be an officer of the Company, then
the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive and, pursuant to the
authorization by its Board of Directors, the Company have signed
this Agreement, all as of the day and year first above written.
_____________________________
[Executive]
FIRST NATIONAL BANK OF ROCHESTER
By___________________________
<PAGE>
EXHIBIT 11
FNB ROCHESTER CORP.
Computations of Earnings Per Common Share
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
____ ____ ____
(in thousands except
per share amounts)
<S> <C> <C> <C>
Net income $2,854 $1,937 $565
Net income applicable to common $2,854 $1,937 $565
stock
Weighted average common shares
and equivalents outstanding
Primary 3,569 3,311 2,003
Net income per common share
Primary $0.80 $0.58 $0.28
_____ _____ _____
</TABLE>
<PAGE>
EXHIBIT 13
FNB ROCHESTER CORP. AND SUBSIDIARIES
THE 1995 ANNUAL REPORT
<PAGE>
CONTENTS OF THE 1995 ANNUAL REPORT
Company Profile . . . . . . . . . . . . . . . . . . . . . 61
Financial Highlights . . . . . . . . . . . . . . . . . . 62
Five-Year Summary of Selected Financial Information . . . 63
Quarterly Financial Information (unaudited) . . . . . . . 64
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 66
Independent Auditors' Report . . . . . . . . . . . . . . 86
Consolidated Financial Statements . . . . . . . . . . . . 87
Notes to Consolidated Financial Statements . . . . . . . 93
Corporate Directory . . . . . . . . . . . . . . . . . . . 114
<PAGE>
THE COMPANY
FNB Rochester Corp. (the "Company") is a bank holding company.
First National Bank of Rochester ("First National" or the "Bank")
is its only subsidiary. The Company was organized under the New
York Business Corporation Law and commenced operations on
September 10, 1984. The Bank was established in 1965, in
Rochester, New York as a national bank. The Bank comprises the
most significant portion of the Company at year-end 1995. Until
April 1, 1994, the Company also owned Atlanta National Bank
("Atlanta") in Atlanta, NY. Atlanta was sold to Bath National
Bank.
The Company's principal sources of income are dividends from the
Bank and interest from deposits. The Bank is a full-service,
community oriented, commercial bank offering a wide range of
commercial and consumer loans, deposit and other banking services
to individuals, businesses, and municipalities. In 1993, the
Bank expanded and improved its Trust & Investment Division. The
Trust & Investment Division's product offerings include 401(k)
plans, investment management, corporate and cash management
services, mutual funds, annuities, and traditional trust and
record-keeping services.
The Company's business is conducted from its corporate
headquarters located in the Powers Building at the corner of
State and Main Streets in downtown Rochester, New York. The
Bank's sixteen banking offices are located in Monroe, Chemung,
Erie, Onondaga, and Schuyler counties in New York State. The
Bank considers its primary service and marketing area to be the
City of Rochester and surrounding towns which have a total
population of approximately 1 million. Rochester, located in the
western part of New York State on the south shore of Lake
Ontario, is the third largest city in New York State and is a
significant operating location for a number of major
corporations, including Eastman Kodak Company, Bausch & Lomb
Inc., General Motors Corporation, and Xerox Corporation.
First National's services are provided through fourteen full-
service banking offices, twelve of which have drive-up
facilities, plus the Buffalo and Syracuse offices which primarily
provide services to business and professional customers.
Automated teller machines (ATM's) are located at the eleven
Monroe County banking offices and customers may use ATM's
throughout the United States and abroad through ATM networks.
The Bank is the only locally owned and managed commercial bank
operating in Monroe County. It is subject to intense competition
from international and super-regional commercial banks, savings
institutions, credit unions, and other financial institutions
(including brokerage and investment advisory firms) for all types
of deposits, loans, investment, and trust accounts.
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994
____ ____
(in thousands, except share data and ratios)
<S> <C> <C>
For the Year
Net interest income $16,985 $15,062
Provision for loan losses (recovery) - (43)
Other income 2,640 2,785
Operating expenses 15,577 16,236
Income tax expense (benefit) 1,194 (283)
Net income 2,854 1,937
Net income per common share $0.80 $0.58
At year end
Total assets $391,320 $329,262
Total loans, net of deferred loan costs 254,003 202,437
(fees)
Allowance for loan losses 5,776 6,452
Securities held-to-maturity 31,780 52,997
Securities available-for-sale 73,527 48,942
Total deposits 357,875 295,381
Total shareholders' equity $25,846 $21,360
Operating ratios
Net income as a percent of:
Average total assets 0.78 0.62
Average common shareholders' equity 12.17 10.15
Net interest margin (as a percent) 4.92 5.10
Allowance for loan losses as a percent
of year-end loans 2.27 3.19
Net (charge-offs) recoveries as a percent
of average loans outstanding during the 0.29 (0.19)
year
</TABLE>
<PAGE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION
This table represents a summary of selected components of the
Company's consolidated balance sheets and consolidated statements
of operations for each of the years in the five-year period ended
December 31, 1995. All information concerning the Company should
be read in conjunction with consolidated financial statements and
related notes included elsewhere herein.
<TABLE>
(In thousands, except share data and ratios)
<CAPTION>
1995 1994 1993 1992 1991
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Income statement information
Interest income $29,235 $23,012 $21,278 $22,770 $28,229
Interest expense 12,250 7,950 8,326 10,252 16,616
______ _____ _____ ______ ______
Net interest income 16,985 15,062 12,952 12,518 11,613
Provision for loan - (43) 74 3,244 5,130
losses (recovery)
Other income 2,640 2,785 3,313 3,101 2,553
Operating expenses 15,577 16,236 15,296 13,738 11,245
______ ______ ______ ______ ______
Income (loss) before 4,048 1,654 895 (1,363) (2,209)
income taxes
Income tax 1,194 (283) 330 1,311 (271)
expense (benefit) _____ _____
Net income (loss) $2,854 $1,937 $565 $(2,674) $(1,938)
===== ===== === ======= =======
Period end balance sheet
information
Securities held-to- $31,780 $52,997 $53,691 $68,265 $64,315
maturity
Securities available- 73,527 48,942 50,427 18,165 -
for-sale
Total loans, net of deferred
loan costs (fees) 254,003 202,437 170,513 161,915 199,645
Allowance for loan 5,776 6,452 6,823 6,560 6,412
losses
Total assets 391,320 329,262 306,480 295,661 319,186
Deposits:
Non-interest bearing 46,061 37,887 35,269 34,493 36,746
demand
Savings, NOW, and 144,326 146,464 162,925 170,305 170,650
money market
Certificates of 167,488 111,030 85,100 68,736 85,615
deposit
Total deposits 357,875 295,381 283,294 273,534 293,011
Short-term borrowing 4,986 9,875 - 1,148 1,487
Long-term debt - - 7,185 7,150 8,212
Total shareholders' 25,846 21,360 13,678 12,390 15,064
equity
Per common share data (1)
Net income (loss):
Primary $0.80 $0.58 $0.28 $ (1.34) $(0.97)
Fully diluted 0.80 0.58 0.28 (1.34) (0.97)
Cash dividends - - - - 0.22
Book value 7.24 5.99 6.83 6.19 7.52
Weighted average shares
outstanding:
Primary 3,568,759 3,311,234 2,002,507 2,002,507 2,000,022
Fully diluted 3,568,759 3,311,234 2,002,507 2,002,507 2,000,022
Operating ratios: 1995 1994 1993 1992 1991
Net income (loss) as a percent of:
Average total assets 0.78% .62% .19% (.89)% (.60)%
Average common shareholders' 12.17 10.15 4.36 (18.48) (11.65)
equity
Net interest margin 4.92 5.10 4.57 4.53 3.93
Net interest spread 4.34 4.69 4.23 4.13 3.47
Non-performing assets ratio .67 1.77 5.60 9.23 6.15
(2)
Allowance for loan losses as a
percent of period-end loans
2.27 3.19 4.00 4.05 3.21
Net (charge-offs) recoveries as a
percent of average loans
(0.29) (0.19) .11 (1.65) (.71)
Total equity as a percent of total
assets at a period end
6.60 6.49 4.46 4.19 4.72
Common dividend payout ratio - - - NM*
-
</TABLE>
* NM = Not Meaningful
Notes:
(1) Per common share data and weighted average shares
outstanding have been computed giving retroactive effect to
the Company's 3% stock dividends in 1991.
(2) Non-performing assets (non-accrual loans, loans past due
90 days or more, and real estate acquired by foreclosure)
divided by total loans and real estate acquired by
foreclosure.
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands, except share data)
Provision
Net (Recovery) Income Income per
Interest Interest for Loan Before Net Common
Income Income Losses Income Taxes Income Share
______ ______ ______ ____________ ______ ______
<S> <C> <C> <C> <C> <C> <C>
1995
____
First quarter $6,684 $4,014 - $ 800 $501 $0.14
Second quarter 7,265 4,167 - 1,096 792 0.22
Third quarter 7,552 4,350 - 1,168 816 0.23
Fourth quarter $7,734 $4,454 - $ 984 $745 $0.21
1994
____
First quarter $5,187 $3,307 $(43) $ 163 $101 $0.04
Second quarter 5,545 3,736 - 549 359 0.11
Third quarter 5,895 3,901 - 622 433 0.13
Fourth quarter $6,385 $4,118 - $ 320 $1,044 $0.30
</TABLE>
Included in the fourth quarter of 1994 is a gain of $189,000 from
the sale of the Shop City Office, a write-off of $448,000 of
abandoned leased property, and recognition of an income tax
benefit of $724,000.
During December 1994 First National sold the Shop City Office
with deposits of $16,433,000. The Company recognized a gain of
$189,000 as a result.
In December 1994 the Company abandoned leased property and
accordingly, accrued for the costs of future lease payments,
amounting to $448,000 representing the total of future lease
payments due.
During the fourth quarter of 1994 the Company, through a series
of transactions, disposed of approximately $1,407,000 in loans
and $1,159,000 in Other Real Estate Owned and in-substance
foreclosure, resulting in a charge to the allowance for loan loss
of approximately $1,000,000 and a charge to operating expenses of
$200,000.
As a result of these transactions and the reversal of other
temporary differences during the quarter, the Company recognized
an income tax benefit of $724,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company continued to grow and expand in 1995. Three new
banking offices were opened in Monroe County and a fourth opened
in March 1996. Emphasis continues to be on a high level of
customer service, establishing total financial service
relationships with customers, and providing convenience through
extended hours and location. The new banking offices are being
opened with advanced technology, on- line teller automation, as
well as new automated teller machines. Automated teller machines
have also been replaced at the existing banking offices and the
on-line teller systems are being installed in those offices as
well. With the use of new technology and more efficient systems,
the Company has been able to expand with only a minimal increase
in the number of employees.
Net income increased $917,000, or 47.3%, in 1995. While the net
interest margin declined somewhat in 1995 it still compares
favorably with the Company's peer group. Net income was also
enhanced by a reduction in Federal Deposit Insurance expense and
a decline in costs associated with nonperforming assets. The
Company funded its increased loan demand primarily through its
deposit base. This was accomplished by the Company increasing its
market share of deposits in Monroe County.
Growth objectives are expected to be achieved in 1996 by
continuing to increase the Company's deposit base, continuing
to make high-quality loans, and using the available-for-sale
securities portfolio and short term borrowings to provide
liquidity or improve margins. In order to accomplish its growth
objectives, the Company must increase its market share. The
addition of the three new Monroe County banking offices and the
fourth in 1996 should help the Company attain its goals. Now,
potential Monroe County customers are generally no more than 20
minutes from a First National banking office. A large portion of
the deposit growth in 1995 has been in public fund deposits as
the result of a municipal calling program and relationships
established in the new branches. Additional growth is expected
in 1996 as the program is continued, although not at the rapid
rate of 1995. Much of the growth in deposits is expected to come
in higher-yielding certificates of deposit. If interest rates
continue to decline and with much of the increases in deposits in
the higher yielding deposits, management does not believe the
current interest margins will be maintained. With a lower rate
environment depositors are even more likely to place their funds
in certificates of deposit or other investments rather than
leaving them in interest bearing demand or money market accounts.
Increases in net income are expected to come through increased
loan volume and by controlling overhead expenses.
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
___________________
The following table reflects the net interest margin and interest
rate spread for the years shown. Average amounts are based upon
average daily balances. No tax equivalent adjustments have been
made because they are not considered material.
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST MARGIN
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands)
1995 1994 1993
Assets:
Amount Amount Amount
Paid or Aver- Paid or Aver- Paid or Aver-
Average Earned age Average Earned age Average Earned age
Amount (1) Rate Amount (1) Rate Amount (1) Rate
_______ _______ ______ _______ ______ ____ _______ ______ ____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due $14,511 - -% $14,407 - -% $15,667 - - %
from
Interest-bearing 1,086 60 5.52 1,075 43 4.00 1,011 30 2.97
deposits
with other
financial
institutions
Federal funds
sold 8,820 515 5.84 10,942 478 4.37 25,137 745 2.96
Securities:
Taxable 103,753 6,752 6.51 95,362 5,835 6.12 87,712 5,674 6.47
Tax Exempt 2,104 99 4.71 1,653 98 5.93 2,408 156 6.48
Net loans (1) 229,331 21,810 9.51 186,229 16,558 8.89 167,234 14,673 8.77
Premises and
equipment
Net 5,680 - -- 4,416 - - 3,607 - -
Other assets 5,150 6,197 - - 633 - -
----- _____ ___ _ _
Total assets 364,086 313,155 303,409
======= ======= =======
Total earning $345,09 $29,235 8.47% $295,26 $23,012 7.79% $283,50 $21,278 7.51%
assets ====== ====== ===== ====== ====== ===== ====== ====== =====
Liabilities and
Shareholders'
Equity:
Demand deposits $40,647 - -- $36,094 - -% $34,665 $ - - %
-
Savings, NOW,
and money market
deposits 142,807 3,379 2.37 151,664 3,216 2.12 168,949 4,065 2.41
Certificates of
deposit 147,401 8,473 5.75 101,441 4,531 4.47 77,671 3,530 4.54
Long-term debt - - - 1,192 123 10.00 7,250 725 10.00
Other interest
bearing
liabilities 6,476 398 6.15 1,735 80 4.61 210 6 2.86
Other
liabilities 3,299 - - 1,937 - - 1,709 - -
Shareholders'
equity 23,456 19,092 - - 12,955
------ _______ _______
Total
liabilities and
Shareholders'
equity 364,086 313,155 303,409
_______ _______ _______
Total interest
bearing
liabilities 296,684 12,250 4.13% 256,032 7,950 3.10% 254,080 8,326 3.28%
======= ====== ===== ======= ===== ===== ======= ===== =====
Interest rate
spread 4.34% 4.69% 4.23%
===== ===== =====
Net interest
margin $345,094 $16,985 4.92% $295,26 $15,062 5.10% 283,502 $12,952 4.57%
======== ======= ===== ======= ======= ===== ======= ====== =====
</TABLE>
Notes: (1) Non-accrual loans have been included in the average
balances.
Net interest income, the difference between interest income and
interest expense increased $1,923,000, or 12.8%, from 1994
which had an increase of $2,110,000, or 16.3%, over 1993's net
interest income. Average earning assets increased $49,883,000
from 1994 to 1995, or 16.9%, and increased $11,759,000 from 1993
to 1994, or 4.1%.
Loans represent the majority of the Company's interest-earning
assets. The significant increases in interest income noted in
both 1995 and 1994 were primarily due to loan volume increases,
particularly in commercial real estate, conventional commercial
loans, and residential mortgage loans as well as some increase
from interest rate increases. Average net loan balances
increased $43,102,000 from 1994 to 1995, while they increased
$18,995,000 from 1993 to 1994. The loan volume increases in 1994
and 1995 are related to increased sales efforts and a renewed
emphasis on making new loans. The average rate earned on loans
in 1995 was 9.51% compared to 8.89% in 1994 and 8.77% in 1993.
Average Federal Funds Sold decreased $2,122,000 from 1994 to
1995. These funds were used to fund higher-yielding loans and
securities. Average securities increased $8,842,000, or 9.1%.
The majority of the increase has been in sequential pay principal
and interest securities issued by the FHLMC and FNMA, secured by
adjustable rate mortgages on single family residential
properties, and notes issued by U.S. Government Agencies.
Average securities increased $6,895,000 in 1994 while Federal
Funds Sold declined $14,195,000.
Interest expense is a function of the volume of, and rates paid
for, interest-bearing liabilities. Interest expense increased in
1995 because of an increase in average interest bearing
liabilities as well as an increase in average rates paid.
Customer movement from lower cost savings and NOW categories into
certificates of deposit also had an impact on the increase in
rates. Most of the increase in deposits in 1995 was attributable
to sales promotions for certificates of deposit, and active
pursuit of public funds.
The interest spread is the difference between average rates
earned on assets and paid on interest-bearing sources of funds.
Interest spread declined in 1995 to 4.34% from 4.69% in 1994 and
increased from 4.23% in 1993. The interest margin, which is the
difference between interest income and interest expense divided
by average interest-earning assets was 4.92% in 1995, 5.10% in
1994, and 4.57% in 1993. The decline in both the spread and the
margin from 1994 is primarily due to the deposit mix with its
greater emphasis on higher interest rate certificates of deposit.
Loan volume is expected to continue to increase, with funding
provided by an increase in deposits, short term borrowings, and
run-off of the securities portfolio. However, in order to
attract the additional deposits to fund loan activity in a highly
competitive environment, it is anticipated that, as in 1995, the
increase in deposits will come primarily from higher interest-
bearing accounts. This may cause further declines in both the
net interest spread and margin.
The following table sets forth the dollar volume of increase
(decrease) in interest income and interest expense resulting from
changes in the volume of earning assets and interest-bearing
liabilities, and from changes in rates. Volume changes are
computed by multiplying the volume difference by the prior year's
rate. Rate changes are computed by multiplying the rate
difference by the prior year's balance. The change in interest
due to both rate and volume has been allocated to rate and volume
changes in proportion to the dollar amounts of the change in
each.
VOLUME AND RATE VARIANCES
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
_____________________ _____________________
Increase/Decrease Increase/Decrease
Due to Change In Due to Change In
Total Total
Average Average Increase Average Average Increase
Balance Rate (Decrease) Balance Rate (Decrease)
_______ ____ __________ _______ ____ __________
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal fund $(58) $112 $54 $(1,768) $1,514 $(254)
sold and
interest-bearing
deposits
Taxable 532 384 916 424 (263) 161
securities
Tax-exempt 4 (3) 1 (46) (12) (58)
securities
Loans, net 4,037 1,215 5,252 1,687 198 1,885
Interest income 4,515 1,708 6,223 297 1,437 1,734
Savings, NOW, (166) 329 163 (393) (456) (849)
and money market
Certificates of 2,414 1,528 3,942 1,061 (60) 1,001
deposit
Other interest- 283 35 318 68 6 74
bearing
liabilities
Long-term debt (61) (62) (123) (602) - (602)
Interest 2,470 1,830 4,300 134 (510) (376)
expense _____ _____ _____ ___ _____ _____
Net interest $2,045 $(122) $1,923 $163 $1,947 $2,110
income ===== ===== ===== === ===== ======
</TABLE>
<PAGE>
Non-interest Income
Non-interest income is comprised of service charges, trust fees,
credit card fees, loan servicing fees, and gains on sales of
securities, mortgages, and other assets. The following table
sets forth certain information on non-interest income for the
years indicated:
NON-INTEREST INCOME
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Service charges on deposit $1,209 $1,219 $1,310
accounts
Credit card fees 648 532 467
Gain on sale of 40 11 375
mortgages
Gain on sale of securities 33 - 355
available-for-sale
Loan servicing fees 283 319 350
Gains on sale of subsidiary & - 380 54
banking offices
Other operating 427 324 402
income
Total operating $2,640 $2,785 $3,313
income
</TABLE>
Non-interest income decreased 5.2% from 1995 to 1994, while 1994
non-interest income decreased 15.9% from 1993. 1994 non-interest
income included $380,000 in gains on the sale of the Shop City
Community Banking Office and Atlanta. Without those gains 1995
would have reflected an increase of $235,000 in non-interest
income. Credit card fees increased 21.8% in 1995 and 13.9% in
1994 due to larger volume in merchant accounts. A large portion
of fifteen year mortgages originated in both 1995 and 1994 were
retained in portfolio, resulting in less gains on sale and also
declining loan servicing fees as loans in the servicing portfolio
were prepaid and not replaced with new loans. The $103,000, or
31.8%, increase in other operating income was primarily the
result of an increase in trust commissions and fees and letter of
credit fees.
The continuing decline in service charges is attributable to a
number of factors. Two of these factors are the movement of
funds into certificates of deposit which do not carry service
charges, and a higher earnings credit on business demand deposit
accounts, offsetting service charges.
Non-interest income returned to more normal levels in 1995 after
the non-recurring events during the past two years.
Non-interest Expense
Non-interest expense, or overhead, consists of salaries and
benefits, occupancy, insurance, and other operating costs. The
following table sets forth certain information on operating
expenses for the years indicated:
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
____ ____ ____
(in thousands)
<S> <C> <C> <C>
Salaries and employee $8,238 $7,975 $6,912
benefits
Occupancy 2,812 2,871 2,442
Marketing and public 624 776 718
relations
Office supplies, postage 576 542 576
and printing
Processing fees 979 902 1,032
FDIC assessments 350 657 772
Net cost of operation of (14) 311 8
other real estate
Legal 267 397 601
Other 1,745 1,805 2,235
_____ _____ _____
Total operating (non- $15,577 $16,236 $15,296
interest) expense ====== ====== ======
</TABLE>
Due in part to the Company's cost containment efforts and a
decrease in FDIC assessments, non-interest expense for 1995
decreased $659,000, or 4.1%, from 1994 when it increased
$940,000, or 6.1%, over 1993. The decrease in non-interest
expense in 1995 resulted primarily from decreases in net cost of
operation of other real estate, FDIC assessments, marketing and
public relations expenses, and legal costs. This is contrasted
to 1994 when increases were primarily caused by salaries and
benefits, occupancy, and net cost of operation of other real
estate. Most of the changes in 1994 overhead expenses were
related to achieving growth objectives and resolving regulatory
issues. The ratio of overhead expense to asset base is expected
to decline as the asset base increases.
Salaries and benefits are the largest component of non-interest
expense. The Bank operates in a metropolitan market unlike most
community banks of similar size, and its cost for personnel tends
to exceed that of typical community banks. Salaries and benefits
increased $263,000, or 3.3%, from 1994, and $1,063,000, or 15.4%,
from 1993 to 1994. The increase in 1995 was in both salaries and
benefits. The Company opened three new offices in 1995 and
staffed those offices by redeploying personnel. The costs
associated with extended banking hours is expected to continue to
impact the salary and benefit expense, as is the opening of the
additional branch in March 1996. Contributing to the 1994
increase over 1993 was expense associated with repositioning
personnel for future growth, the addition of 13 full-time
equivalent positions to staff banking offices during extended
hours, and an increase in retirement expense.
Occupancy expense, the other significant non-interest expense,
declined $59,000, or 2.1%, from 1994, which increased $429,000,
or 17.6%, from 1993. 1994 occupancy expense included a $448,000
write-off of future lease expense attributable to vacating
office space at 1 East Main Street, Rochester. Management sublet
the space in 1995 to recover some portion of this expense. The
1994 move was made to improve administrative functions and
provide better customer service. The Bank combined all of its
administrative functions into 33,000 sq. ft. of renovated space
in the Powers Building and renovated its adjacent 35 State Street
facilities to accommodate the Community Banking Division. The
Four Corners Community Banking Office was also moved into the
Powers Building.
Occupancy expense is expected to continue to increase as the Bank
expands its service delivery network with new community banking
offices and additional technology to increase productivity and
customer service. An eight-year building lease for the new
Community Banking Office in East Rochester was signed in March
1995 and 20-year ground leases for the new Chili and Penfield
offices were signed in 1995. The Perinton office, which opened
in March 1996, has a ground lease of 20 years. In addition, a 20
year building lease was signed for a replacement location for the
Henrietta Community Banking Office. This office was opened at
the new location in January of 1996. The total annual lease cost
for all of these locations is approximately $313,000. Building
and equipment depreciation expense will increase due to these new
offices. The Chili and Penfield offices were not opened until
the latter part of 1995 and the Perinton office was opened in
early 1996, so the full effect of the expense of these offices
will not be realized until 1996 and beyond.
Technological improvements continued in 1995. New offices are
being opened with, and existing offices are being upgraded to,
new teller automation. In 1994, a local area network was
installed and the computer system was upgraded. These
improvements were made primarily to provide more efficient
operational and administrative support in order to focus
personnel on serving customers.
Marketing expense declined $152,000, 19.6%, from 1994 to 1995,
compared to an increase of 8.1%, or $58,000, from 1993 to 1994.
The Bank continued radio, television, and newspaper advertising
in 1995. Marketing efforts were focused on image enhancement
and customer awareness of the Bank as well as extended business
hours. Also, as part of its sales efforts, the Company has
continued with its interdivisional sales teams which conduct
sales "blitzes" throughout the year.
Federal Deposit Insurance Corporation (FDIC) assessment fees
dropped significantly in 1995 resulting in a decline of $307,000,
or 46.7%, from 1994 and it is anticipated that assessment fees
will also be lower in 1996. FDIC assessment fees decreased due
to a decline in the assessment rate. These fees are a function
of the insurance rate and the deposit base.
Included in 1994 net cost of operation of other real estate is a
specific provision for a loan classified as in-substance
foreclosure. With the adoption of SFAS 114, Accounting by
Creditors for Impairment of Loans, in 1995, the specific reserve
was reclassified to the Allowance for Loan Losses.
Income Taxes
The Company and the Bank file a consolidated tax return. The
provision for 1995 income taxes was $1,194,000, compared to a
benefit of $283,000 in 1994 and a provision of $330,000 in 1993.
The Company's effective tax rates were 29%, (17)% and 37% for
1995, 1994 and 1993 respectively. The 1994 benefit was primarily
the result of the tax effect of the disposition of certain
nonperforming loans and other real estate.
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 carryback
period permitted by the tax law to allow for utilization of the
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 within a twelve
month carryforward period. Income tax expense was affected in
1995 and 1994 by reductions in the valuation allowance of
$412,000 and $991,000 respectively.
At December 31, 1995, the Company had a net deferred tax
liability of $52,000 as compared to a net deferred tax asset of
$825,000 at December 31, 1994. The 1994 deferred tax asset is
attributable principally to the difference between book and tax
allowance for loan losses.
ANALYSIS OF FINANCIAL CONDITION
Securities Portfolio
The primary purposes of the securities portfolio are to produce
interest income and provide liquidity. Investments in securities
are made to maintain liquidity through structured maturities, to
provide collateral to secure local municipal deposits, to manage
risk by diversifying credit risk and positioning the balance
sheet for interest rate sensitivity, to support local
communities, and to meet tax planning strategies. The total
securities portfolio increased $3,368,000 in 1995 from 1994, when
it decreased $2,179,000 from 1993. However, adjusting for the
effects of the sale of Atlanta, the remaining securities
portfolio increased $2,328,000 in 1994.
On November 15, 1995, the Financial Accounting Standards Board
published a special report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities. This guidance included a provision that
allowed institutions a one-time opportunity to reclassify (at
fair value) held-to-maturity securities without calling into
question their intent to hold other debt securities to maturity
in the future. Under this provision the Bank transferred
securities with an amortized cost of $34,539,000 from held-to-
maturity to available-for-sale. This will allow the Bank to
better respond to changes in market interest rates and manage
interest rate risk or provide liquidity for increases in loan
demand or deposit withdrawals. The available-for-sale portfolio
includes short-term Treasuries, equities, and other mortgage-
backed securities not classified as held-to-maturity.
Unrealized gains on available-for-sale securities reported in
equity at December 31, 1995 amounted to $850,000, net of taxes,
as compared to unrealized losses of $781,000 at December 31,
1994.
At December 31, 1995, 66.3% of the Bank's securities had
maturities of five years or less, while 63.4% had maturities of
five years or less at the end of 1994. The majority of the
securities portfolio consists of U.S. Treasury Notes and
sequential pay adjustable rate mortgage-backed securities issued
by U.S. government agencies.
The following tables summarize the Company's carrying value of
securities available-for-sale and the carrying value of
securities held-to-maturity, and their maturities and weighted
average yields at December 31, 1995, 1994, and 1993.
CARRYING VALUE OF SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
December 31,
____________
1995 1994 1993
____ ____ ____
(in thousands)
<S> <C> <C> <C>
U.S. Treasury $44,123 $31,852 $36,864
U.S. Government 5,698 2,889 -
agency
Mortgage-backed 23,706 14,151 13,513
securities
Other - 50 50
securities __ __ __
Total $73,527 $48,942 $50,427
======= ======= =======
</TABLE>
Notes:
(1) The above totals include SFAS 115 fair value adjustments.
At December 31, 1995, the available-for-sale portfolio had
unrealized gains of $1,426,000, at December 31, 1994, a net
unrealized losses of $781,000, and at December 31, 1993, a
netfair value mark up of $1,226,000. Totals exclude Federal
Reserve Bank stock and Federal Home Loan Bank stock of
$1,299,000, $342,000 and $304,000 at December 31, 1995, 1994 and
1993, respectively.
<PAGE>
CARRYING VALUE OF SECURITIES HELD-TO-MATURITY
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
U.S. Treasury $7,145 $23,895 $24,156
U.S. Government agency 6,359 6,996 5,907
Mortgage-backed 15,509 20,047 21,211
securities
Obligations of 2,417 1,734 2,092
state and
municipal
subdivisions
Other 350 325 325
___ ___ ___
Total $31,780 $52,997 $53,691
====== ====== ======
</TABLE>
MATURITIES AND WEIGHTED YIELD OF SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
After One Year After Five
Years
Within But Within But Within After
One Year Five Years Ten Years Ten Years
________ __________ _________
Amount Yield Amount Yield Amount Yield Amount Yield Total
______ _____ ______ _____ ______ _____ ______ _____ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $13,648 7.55% $30,475 7.22% - -% - -% $44,123
U.S.
Government
agency - - 3,768 6.89 1,007 7.00 923 6.75 5,698
Mortgage-
backed
securities (1) - - 714 6.98 688 7.00 22,304 7.10 23,706
Other
securities (2) - - - - - - - - -
______ _____ ______ ____ ______ _____ ______ _____ _____
Total $13,648 7.55% $34,957 7.18% $1,695 7.00% $23,227 7.09% $73,527
======= ===== ======= ===== ====== ===== ====== ===== =======
Notes:
======
(1) Mortgage-backed securities are reported at final maturity notwithstanding the fact
that amortization is received regularly on some securities substantially reducing the
effective maturities.
(2) The above totals exclude $1,299,000 Federal Reserve Bank and Federal Home Loan
Bank Stock.
</TABLE>
MATURITIES AND WEIGHTED YIELD OF SECURITIES HELD-TO-MATURITY
<TABLE>
<CAPTION>
After One Year After Five Years
Within But Within But Within After
One Year Five Years Ten Years Ten Years
________ __________ _________ _________
Amount Yield Amount Yield Amount Yield Amount Yield Total
______ _____ ______ _____ ______ _____ ______ _____ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.Treasury $ -% $7,145 6.12% $ - -% $ -% $7,145
-
U.S. Government
agency 7 8.11 3,000 5.42 2,999 6.24 353 6.88 6,359
Mortgage-backed
securities (1) - - 8,792 6.47 2,494 5.93 4,223 7.89 15,509
Obligations of
state 1,357 4.32 613 5.37 113 4.84 334 5.71 2,417
and municipal
subdivisions
Other - - 300 8.33 50 7.43 - - 350
_ _ ___ ____ __ ____ ___ ___ ___
Total $1,364 4.34% $19,850 6.18% $5,656 6.09% $4,910 7.67% $31,780
===== ===== ====== ===== ===== ===== ====== ===== =======
Notes:
(1) See note (1) above.
</TABLE>
Loan Portfolio
The loan portfolio increased $51,566,000, or 25.5%, from 1994 to
1995. This compares to an increase from 1993 to 1994 of
$31,924,000, or 18.7%. The growth in both 1995 and 1994 was the
result of a planned business development program soliciting small
businesses and professionals. Of the total 1995 year-end loan
portfolio, $179,008,000, or 70.5%, is secured by real estate.
The majority of the Company's loans continues to be commercial.
These loans increased $31,116,000, or 23.1%, from 1994. The
largest portion of the increase is in commercial real estate
loans. At year-end 1995, 51.8% of commercial loans were secured
by commercial real estate. Of the commercial real estate securing
those loans, 62.1% was owner occupied. Through expanded sales
efforts, the Bank expects to continue to grow commercial loans,
although at a somewhat slower rate. Growth will continue in
commercial real estate loans, most of which will have 5-year
maturities with 20-year amortization. It is anticipated that
there will be less demand for conventional working capital
loans. Furthermore, competition for high quality loans is
intense. The Bank is establishing itself in the small to medium-
size business and professional markets which appear to be under
served. While its primary market is Monroe County, the Business
and Professional Banking Division has established a presence in
the Syracuse and Buffalo markets with offices in Downtown
Syracuse and in Snyder, outside of Buffalo. Furthermore, the
Bank has access to the Elmira area through its three community
banking offices.
Residential mortgage loans increased $18,809,000, or 60.5%, from
1994 to 1995. This increase is primarily attributable to the
Bank's decision to hold 15-year mortgages in its portfolio,
rather than sell them to the Federal Home Loan Mortgage Corp
(FHLMC). With interest rates declining the Bank is experiencing
increased refinancing activity and much of that is directed into
15-year fixed rate mortgages. It is expected that this trend will
continue and if it does the Bank may sell more of the mortgages
to FHLMC and hold fewer in portfolio.
Consumer loans increased 19.9% from $16,443,000 in 1994 to
$19,711,000 in 1995. Much of the growth in consumer loans is
attributable to a "money sale" which was held late in the first
quarter and early second quarter. Consumer loans increased
$5,748,000 from 1993 to 1994 as the result of a "money sale".
Home equity loans declined from 1994 to 1995 by $1,813,000
following a decline of $973,000 from 1993 to 1994. However,
after adjusting for the removal of $2,150,000 of home equity
loans due to the sale of Atlanta, home equity loans for the Bank
increased during the 1994 period by $1,177,000. While home
equity loans are attractive to borrowers who have equity in their
homes, demand for them is influenced by the refinance market. In
the lower rate environment, many homeowners are choosing to
refinance their mortgages causing the repayment of home equity
lines.
TYPES OF LOANS
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $165,645 $134,529 $111,444 $102,533 $123,946
Residential 49,889 31,080 26,769 23,770 32,725
mortgage
Home equity 18,773 20,586 21,559 23,743 25,393
Other consumer 19,711 16,443 10,695 11,893 17,619
Total 254,018 202,638 170,467 161,939 199,683
Net deferred loan (15) (201) 46 (24) (38)
costs (fees)
Allowance for loan (5,776) (6,452) (6,823) (6,560) (6,412)
losses
Loans, net $248,227 $195,985 $163,690 $155,355 $193,233
</TABLE>
MATURITY DISTRIBUTION OF LOANS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Maturity
One Year One to Five Years
or LessFive Years or more Total
(in thousands)
<S> <C> <C> <C> <C>
Commercial $33,375 $72,502 $59,768 $165,645
Residential 4,175 17,452 28,262 49,889
mortgage
Home equity 150 9,411 9,212 18,773
Consumer, 5,703 12,085 1,923 19,711
net
Total loans $43,403 $111,450 $99,165 $254,018
====== ====== ====== ======
Floating/adjustable
Interest 71,859 54,311
rate
Fixed or predetermined
Interest 39,591 44,854
rates ______ ______
$111,450 $99,165
======= =======
</TABLE>
It is the policy of the Bank to place loans, except consumer and
residential mortgage loans, on non-accrual status when payment of
principal or interest becomes 90 days delinquent or when, in
management's judgment, the collection of principal or interest
appears uncertain. Any interest income accrued during the
reporting period, but not received at the time the loan is placed
on non-accrual status, is reversed in the reporting period to the
extent considered uncollectible. Interest accrued in prior
years, the collection of which appears uncertain, is charged off.
Interest on loans categorized as non-accrual may be recognized as
income when the payments are received or applied as a reduction
to principal.
Installment loans are not ordinarily placed on non-accrual
status. Installment loans past due 120 days are generally
charged off. At that time, all previously accrued or
uncollected interest is reversed and charged against current
earnings. Residential mortgage loans are placed on non-accrual
status when they become 180 days past-due.
The following table summarizes the Company's non-performing
assets at the dates indicated:
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans in non-accrual $1,665 $3,290 $7,929 $11,753 $8,720
status
Loans past due 90 days or more
and still accruing 45 196 1,295 848 1,419
Total non-performing 1,710 3,486 9,224 12,601 10,139
loans
Real estate acquired by - 100 345 2,576 2,283
foreclosure
Total non-performing $1,710 $3,586 $9,569 $15,177 $12,422
assets ====== ====== ====== ======= ======
Non-performing assets as a % of
total
loans and real estate
acquired
by foreclosure 0.67% 1.77% 5.60% 9.23% 6.15%
===== ===== ====== ===== =====
</TABLE>
Total non-performing assets have been decreasing since their peak
in September 1992. This is the result of management's efforts
to reduce these assets. Non-performing assets decreased
$1,876,000, or 52.3%, from 1994 to 1995 . Of the $6.0 million
decrease from 1993 to 1994, $2.5 million was the result of the
sale and liquidation of non-performing assets during the fourth
quarter of 1994.
Loans in non-accrual status decreased $1,625,000 from 1994 to
1995, and $4,639,000 from 1993 to 1994. These are declines of
49.4% and 58.5%, respectively. Of the $1,665,000 in non-accrual
loans, $1,421,000 are secured by real estate. Non-performing
assets represent .67% of total loans and real estate acquired by
foreclosure at the end of 1995 compared to 1.77% in 1994 and
5.60% in 1993.
Provision and Allowance for Loan Losses
The allowance for loan loss is available to absorb charge-offs
from any loan category and is restored by charges to income or
recoveries of loans previously charged off. Management
undertakes a quarterly analysis to assess the adequacy of the
allowance 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 December 31,
1995 to absorb anticipated losses. Furthermore, additions to the
allowance in 1996 are not expected even though the loan portfolio
is expected to increase. Management believes that the inherent
risk in the current portfolio has already been provided for and,
because of credit standards that First National has implemented,
new loans are expected to be of high quality. However, should
the market or the economy change significantly, some provisions
could be required in 1996.
The following table summarizes the changes in the allowance for
loan losses for 1991 through 1995:
SUMMARY OF LOAN LOSS ALLOWANCE
<TABLE>
<CAPTION>
December 31
1995 1994 1993 1992 1991
____ ____ ____ ____ ____
(in thousands)
<S> <C> <C> <C> <C> <C>
Total Loans $254,003 $202,437 $168,619 $161,846 $199,046
outstanding at year- ======= ======= ======= ======= =======
end, net of costs
(fees) and unearned
discounts
Daily average amount 229,331 186,229 167,234 187,501 214,090
of net loans ======= ======= ======= ======= =======
outstanding
Balance at beginning 6,452 6,823 6,560 6,412 2,799
of year
Provisions charged to - (43) 74 3,244 5,130
operating expense
(recovery
Reclassification of - 210
impairment reserves
Allowance of - (177) - - -
subsidiary sold
6,452 6,813 6,634 9,656 7,929
_____ _____ _____ _____ _____
Loans charged off:
Commercial, financial (840) (990) (346) (3,024) (901)
and agricultural
Real estate mortgage (46) (124) (40) (188) (277)
Installment (147) (244) (309) (451) (964)
Total charged off (1,033) (1,358) (695) (3,663) (2,142)
======= ______ _____ _______ ______
Recoveries of loans previously
charged off:
Commercial, financial 267 867 610 356 485
and agricultural
Real estate mortgage - - 85 - 31
Installment 90 130 189 211 109
357 997 884 567 625
Net (charge-offs) (676) (361) 189 (3,096) (1,517)
recoveries
Balance at end of $5,776 $6,452 $6,823 $6,560 $6,412
year ===== ===== ===== ===== =====
Net (charge-offs) (0.29)% (0.19)% .11% (1.65)% (.71)%
recoveries as a
percent of average
loans outstanding
during the year
Allowance for loan 2.27% 3.19% 4.05% 4.05% 3.22%
losses as a percent
of year-end loans
</TABLE>
The lack of provision in 1995 and the decrease in provision in
1994 and 1993 is the result of reductions in the level of
criticized and non-performing loans, and increased collection
efforts resulting in significant recoveries. The recovery of
provision recorded in 1994 was the result of reversing an excess
allowance at Atlanta just prior to the time of its sale.
At December 31, 1995, the Bank's internally criticized loans were
$19,055,000 as compared to $17,022,000 at December 31, 1994 and
$24,929,000 at December 31, 1993. While internally criticized
loans have increased somewhat over 1994, as a percent of total
loans there has been a decline. Internally criticized loans as a
percent of total loans were 7.5%, 8.4%, and 14.8% for the years
ended 1995, 1994 and 1993, respectively.
On January 1, 1995, the Company adopted SFAS 114 as modified by
SFAS 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures. SFAS 114 requires that
impaired loans be evaluated based on the present value of
expected future cashflows discounted at the loan's effective
interest rate. If the loan is collateral dependent, the loan may
be recorded at the fair value of the collateral securing it. The
adoption of SFAS 114 did not have a material effect on the
Company's allowance for loan loss or results of operation.
Below is an allocation of the allowance for loan losses and the
percentage of loans in each category to total loans. In addition
to an allocation for specific problem loans, each category
includes a portion of the unallocated allowance for loan losses
based on loans outstanding, credit risks, and historical charge-
offs. Notwithstanding the following allocation, the entire
allowance for loan losses is available to absorb charge-offs in
any category of loans.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
Allowance % (1) Allowance %(1) Allowance % (1)
_________ _____ _________ ____ _________ _____
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, $4,275 65.2% $5,384 66.4% $5,957 65.4
financial &
agricultural
Real estate, 706 19.6 294 15.3 153 15.7
residential
mortgage
Home equity 208 7.4 220 10.2 180 12.6
Installment, 587 7.8 554 8.1 533 6.3
net
Total $5,776 100.0% $6,452 100.0% $6,823 100.0%
===== ====== ===== ===== ===== =====
1992 1991
____ ____
Allowance % (1) Allowance % (1)
_________ _____ ________ _____
(in thousands)
Commercial, financial $5,616 63.3% $5,581 62.1%
& agricultural
Real Estate, residential 162 14.7 44 16.4
mortgage
Home equity 219 14.7 27 12.7
Installment, net 563 7.3 760 8.8
Total $6,560 100.0% $6,412 100.0%
===== ===== ====== ======
</TABLE>
Notes:
(1) Percentage of loans in each category to total loans
Deposits
The fundamental source of funds to support lending activities
continues to be the Company's deposit base, which consists of
demand deposits, certificates of deposit, savings, and money
market accounts. The ability of management to attract and retain
depositors is key to sustaining the Company's growth. The
emphasis continues to be on a high level of customer service and
cross-selling of products and services. Total deposits
increased $62,494,000, or 21.2%, from 1994, while average
deposits per banking office have increased from $20,892,000 at
December 31, 1993 to $22,879,000 at December 31, 1994 and to
$23,609,000 at December 31, 1995. The December 31, 1995 average
includes the three new Banking Offices that were opened in 1995.
Total deposits increased 4.3% from 1993 to 1994 despite the sale
of a banking office and a subsidiary bank. These increases
occurred in spite of a generally declining deposit base in the
Monroe County area.
Most of the deposit growth occurred in certificates of deposit,
which increased $56,458,000 from $111,030,000 in 1994 to
$167,488,000 in 1995. Certificates of deposit over $100,000
increased $39,203,000, or 175.4%, while certificates under
$100,000 increased $17,255,000, or 19.5%, from 1994 to 1995. A
larger percentage of the Company's deposits are held in public
funds than in prior years. Public funds certificates of deposit
represent 10.1% of total deposits at December 31, 1995. The
growth in public fund deposits was the result of a municipal
calling program and relationships established in the new
branches. Additional growth is expected in 1996 as the program
is continued, although not at the rate of 1995.
The Bank has experienced increases in non-interest bearing demand
deposits due in large part to accounts established with new loan
relationships, accounts associated with the new banking offices,
and increased public fund relationships. Average non-interest
bearing accounts increased $4.5 million over 1994 and for the
period ended December 31, 1995 the increase was $8.2 million, or
21.6%, over 1994.
The Company is taking several steps to better position itself to
compete in a market which is experiencing disintermediation and
movement from low-interest bearing accounts into certificates of
deposit. The addition of the three new community banking offices
in 1995 and the fourth in 1996 will significantly improve the
Company's retail outlets and extend services to areas that it
previously could not service effectively. Furthermore, strategic
plans call for extending automation to the banking office network
to improve service delivery.
The following tables summarize the daily average deposits of the
Company for the years 1995, 1994, and 1993, categories in which
those deposits were held in 1995 and 1994, and the maturity
distribution of certificates of deposit and public funds of
$100,000 or more for the year-end December 31, 1995.
DAILY AVERAGE DEPOSITS
<TABLE>
<CAPTION>
For Years
1995 1994 1993
____ ____ ____
Amount Rate Amount Rate Amount Rate
______ ____ ______ ____ ______ ____
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing $40,647 $36,094 $34,665
demand
Interest-bearing 69,810 1.39% 69,810 1.67% 73,299 1.92%
demand
Savings, and money 72,997 3.30% 81,854 2.51% 95,650 2.78%
market
Certificates of 147,401 5.75% 101,441 4.47% 77,671 4.54%
deposit
Total deposits $330,855 3.58% $289,199 2.68% $281,285 2.70%
======= ===== ======== ===== ======= =====
</TABLE>
<PAGE>
PERIOD END DEPOSITS
<TABLE>
<CAPTION>
For Years
1995 1994
____ ____
(in thousands)
Deposit category:
<S> <C> <C>
Non-interest-bearing demand $46,061 $37,887
Interest-bearing demand 67,639 70,690
Savings 38,929 37,166
Money market 37,758 38,608
CDS less than $100,000 105,392 88,254
CDS greater than $100,000 26,105 16,844
Public funds less than $100,000 537 420
Public funds greater than $100,000 35,454 5,512
Total $357,875 $295,381
======= ========
</TABLE>
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSITS
AND PUBLIC FUNDS GREATER THAN 100,000
<TABLE>
December 31, 1995
Maturity range (in thousands)
<S> <C>
less than 3 months $38,041
3 to 6 months 6,327
6 to 12 months 14,836
12 months or more 2,355
Total $61,559
======
</TABLE>
Short-Term Borrowings
The following table describes the Company's short-term borrowings
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Securities sold under agreements $4,538 $9,075 $ -
to repurchase
Other short-term borrowing 448 800 -
Total $4,986 $9,875 $ -
====== ====== ======
</TABLE>
The Bank had securities sold under agreements to repurchase at a
rate of 5.85% in the amount of $4,538,000 at December 31, 1995.
The maturity date was January 29, 1996. The maximum amount
outstanding at any one month-end and average amount for
securities sold under agreements to repurchase were $9,075,000
and $5,817,000, respectively for 1995 and $9,075,000 and
$1,169,000, respectively for 1994. Interest expense averaged
6.17% for 1995 and 4.79% for 1994. There were no securities sold
under agreements to repurchase in 1993.
The other short-term borrowing represents the Bank's Note Option
as a Treasury, Tax, and Loan Depository for Federal Tax Deposits.
Securities amounting to $1,970,000 are held under the control of
the Federal Reserve Bank of New York to secure Federal Tax
Deposits in amounts in excess of FDIC insurance limits.
Capital Resources
Total shareholders' equity increased $4,486,000 from 1994. This
increase is primarily due to the net income for 1995 of
$2,854,000. The increase was also due to an increase in the
market value of securities available-for-sale of $1,632,000.
Under SFAS 115, which was adopted in 1993, the net unrealized
gain or loss on securities held in the available-for-sale
portfolio is recorded in equity, net of taxes. In 1994, this
resulted in a decrease in shareholder's equity of $781,000. The
unrealized loss of $781,000 at December 31, 1994 was not net of
taxes since, under SFAS 109, there is a 100% valuation allowance
established against the tax deferred asset associated with the
SFAS 115 adjustment. The SFAS 115 adjustment is not considered
in computing regulatory capital.
Both the Federal Reserve Board and the Office of the Comptroller
of the Currency have issued risk-based capital guidelines which
went into full effect December 31, 1992. The Company presently
is deemed well-capitalized under these guidelines.
The numerator of risk-based capital ratios for bank holding
companies includes Tier I capital, consisting of common
shareholders' equity and qualifying cumulative and noncumulative
preferred stock; and Tier II capital, consisting of a menu of
internationally accepted items, including preferred stock,
reserve for loan losses, and certain subordinated and term-debt
capital. The denominator, or asset portion, of the risk-based
ratio aggregates generic classes of balance sheet and off-balance
sheet exposures, each weighted by one of four factors ranging
from 0% to 100%, based on relative risk of the exposure class.
This ratio assesses both the capital adequacy of the Company and
the risk profiles of the Bank.
The prompt corrective action regulations of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA)
established specific capital categories based on an institution's
capital ratios. To be considered "adequately capitalized" a bank
must generally have a Leverage Ratio of at least 4%, a Tier I
Risk-Based Capital Ratio of at least 4%, and a total Risk-Based
Capital Ratio of 8%. At December 31, 1995, the Leverage, Tier-I
Risk-Based Capital, and Total Risk-Based Capital Ratios of the
Company and the Bank were as follows:
CAPITAL RATIOS
<TABLE>
<CAPTION>
Tier-I Total
Leverage Risk- Risk-Based
Based
Capital Capital Capital
Ratio Ratio Ratio
_______ ______ ______
<S> <C> <C> <C>
FNB Rochester Corp. 6.53% 9.85% 11.11%
First National Bank of 6.39% 9.64% 10.90%
Rochester
Regulatory guidelines:
Well capitalized 5.00% 6.00% 10.00%
Adequately capitalized 4.00% 4.00% 8.00%
</TABLE>
Maintaining adequate capital ratios is a clearly defined
objective of management. A number of steps have been taken by
management to monitor capital adequacy. This becomes
particularly important in light of the growth expectations for
the Bank. An early warning system is part of the Company's
business planning process. In addition to carefully monitoring
performance and its impact on capital ratios, management
reforecasts the Company's balance sheet, income statement, and
measures of capital adequacy at least quarterly. Furthermore,
each year the entire business plan is revised to reflect actual
results and project another year into the future. These measures
serve to alert management to potential capital adequacy problems
so that appropriate action could be formulated and addressed in
advance.
Dividends were not paid to shareholders in 1994 and 1995. It is
not anticipated that dividends will be paid in 1996. The
Company's Board of Directors believes that until capital is
sufficient to sustain the anticipated growth, earnings should be
retained in the Company to support that growth.
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. All
internal liquidity measures exceed minimum levels established by
the Bank. The fundamental source of liquidity will continue to
be core deposits. Available sources of asset liquidity include
short-term investments, loan repayments, and securities held in
the available-for-sale portfolio. Additionally, the Company has
the ability to pledge securities to secure short-term borrowings.
In the first quarter of 1995, it became a member of the Federal
Home Loan Bank which provides additional source of funding if
needed. At December 31, 1995, the Bank had an available line of
$8.5 million secured by residential mortgages.
The Bank entered into agreements in 1994 through which it could
obtain funds for short-term liquidity needs by selling securities
under agreements to repurchase. This has allowed the bank to
keep a smaller portion of its assets in Federal Funds Sold and
provide a higher return without the necessity of selling
securities from the available-for-sale portfolio in times of
liquidity need. In December 1995, the Bank sold securities under
an agreement to repurchase in the amount of $4,538,000 as an
alternative funding source which provided the ability to protect
against rising interest rates. The repurchase agreement matured
on January 29, 1996 and was renewed.
The majority of the Company's assets are held by the Bank.
Dividends and cash advances to the Company from the Bank are
subject to standard regulatory constraints. An analysis of
projected expenses and cashflows indicates that the Company has
sufficient cash to meet its anticipated cash obligations.
Asset Liability Management
An objective of the Company's asset/liability management policy
is to maximize current and future net interest income within
acceptable levels of interest rate risk while satisfying
liquidity and capital requirements. The Asset/Liability
Management Committee is responsible for managing interest rate
risks.
The Company uses a variety of methods to manage its interest rate
risk and does not rely solely on one method. One such method
used to manage interest rate risk involves the measurement of
interest rate gap. Interest rate gap is the amount by which a
bank's rate sensitive assets differ from its rate sensitive
liabilities. A positive gap exists when rate sensitive assets
exceed rate sensitive liabilities, indicating that a greater
volume of assets than liabilities will reprice during a given
period. Theoretically, this mismatch will enhance earnings in a
rising rate environment and inhibit earnings when rates decline.
Conversely, when rate sensitive liabilities exceed rate sensitive
assets, the gap is negative, indicating that a greater volume of
liabilities than assets will reprice during the period.
Theoretically, in this case, a rising rate environment will
inhibit earnings and declining rates will enhance earnings. The
Rate Sensitivity Schedule that follows illustrates the
measurement of interest rate gap at December 31, 1995.
<PAGE>
RATE SENSITIVITY SCHEDULE
<TABLE>
<CAPTION>
Over
Three Over Six
One Day Months to Months Over one Over
to Three Six to One Year to Five
Months Months Year Five Year Total
_______ _________ _______ _______ ____ _____
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans:
Commercial $118,510 $2,646 $4,708 $31,104 $8,684 $165,652
Residen- 1,730 1,330 1,943 17,427 29,939 52,369
tial
mortgage
Home 18,733 - - - 204 18,937
equity
Consumer 1,567 1,549 2,824 10,974 131 17,045
Total 140,540 5,525 9,475 59,505 38,958 254,003
loans
Investment 14,008 9,150 18,132 53,766 10,123 105,179
securities
Interest 6,261 - - - - 6,261
bearing
deposits
in Banks
and
federal
funds sold
Total $160,809 $14,675 $27,607 $113,271 $49,081 $365,443
interest-
earning
assets
Interest-bearing liabilities:
Savings $144,326 $ - $ - $ - $ - $144,326
deposits
Time 38,041 6,327 14,836 2,355 - 61,559
deposits
$100M &
over
Other time 26,031 21,838 38,178 19,623 259 105,929
deposits
Short term 4,986 - - - - 4,986
borrowings
Total interest-bearing
Liabili- $213,384 $28,165 $53,014 $21,978 $259 $316,800
ties
Net $(52,575) $(13,490) $(25,407) $91,273 $48,822 $48,643
interest
rate
sensitiv-
ity gap
Cumulative $(52,575) $(66,065) $(91,472) $(179) $48,643
gap
Cumulative 0.75 0.73 0.69 1.00 1.15
gap ratio
(1)
Cumulative (13.44)% (16.88)% (23.38)% (0.05)% 12.43%
gap as a %
of
Total
assets
</TABLE>
Notes:
(1) Cumulative total interest-earning assets divided by
cumulative total interest-bearing liabilities.
As measured by the cumulative sensitivity gap at December 31,
1995, the maturity and repricing of the Company's interest
earning assets and interest bearing liabilities showed a negative
gap in the one year period. Management considers the gap ratios
and interest sensitivity to be within acceptable ranges; however,
while this static evaluation is useful, it is not indicative of
the impact of fluctuating interest rates on net interest income.
On a quarterly basis, interest rate sensitivity is measured and
managed based on information provided by a simulation model that
is used to evaluate the effect of prospective upward and downward
changes in interest rates on net interest income and net income.
By performing this simulation and comparing it to established
policy limits management has an opportunity to plan for changes
in the asset/liability mix, or to take other steps that may be
necessary to lessen the interest sensitivity risk.
Impact of Inflation
The consolidated financial statements and related consolidated
financial data presented herein have been prepared in accordance
with generally accepted accounting principles, consistently
applied. These principles require the measurement of financial
position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of
money over time due to inflation. The primary impact of
inflation on operations is reflected in increased operating
costs. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effect
of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude
as the price of goods and services. Management believes that it
needs to manage the rates, liquidity, and interest sensitivity of
the assets and liabilities to help generate an acceptable return.
New Accounting Pronouncements
The Company maintains a compensation plan which provides for
grants of stock options to key employees. As described in note
11 to the consolidated financial statements, the Company
currently follows Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees in accounting for
its plan. In October 1995, the FASB issued Statement No. 123
entitled Accounting for Stock-Based Compensation which
encourages, but does not require, companies to use a fair value
based method of accounting for stock-based compensation plans.
Under this method, compensation cost is measured as of the date
stock awards are granted based on the fair value rather than the
intrinsic value of the award, and such cost is recognized over
the grantee's service period, which is usually the vesting
period. If a company elects to continue using the intrinsic
value based method under APB Opinion No. 25, pro forma
disclosures of net income and net income per share are required,
as if the fair value based method had been applied. Under the
intrinsic method presently used by the Company, compensation cost
is the excess, if any, of the quoted market price of the stock as
of the grant date over the amount employees must pay to acquire
it. Under the company's current compensation policy, there is no
such excess on the dates of the grants. The Company will
implement the provisions of Statement No. 123 in 1996; however,
implementation is not expected to impact the consolidated
financial statements, as the Company intends to continue
accounting for its current stock-based compensation plan under
APB Opinion No. 25.
In May 1995, the FASB issued Statement No. 122 entitled
Accounting for Mortgage Servicing Rights. The statement, to be
implemented prospectively, requires that the cost of originating
mortgage loans originated or purchased with a definite plan to
sell the loans and retain the servicing rights, be allocated
between the loans and servicing rights based on their estimated
fair values at the time of the purchase or origination. The
statement also requires that capitalized loan servicing rights be
stratified based on predominant risk characteristics of the
underlying loans for the purpose of evaluating impairment. An
allowance is established in the event the recorded value of an
individual stratum exceeds the fair value of the right. Based
upon management's analysis of the Company's historical salable,
mortgage loan origination volume, the impact of implementation of
Statement No. 122 in 1996 is not expected to be material to the
consolidated financial statements.
In March 1995, the FASB issued Statement No. 121 entitled
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of. The statement requires that
long-lived assets and certain identifiable intangibles to be held
and used by a company be reviewed for impairment whenever events
or changes in circumstances indicate the carrying amount of the
asset may not be recoverable. In performing the review for
recoverability, companies are required to estimate the future
cash flows expected to result from the use of the asset and its
eventual disposition. Under Statement 121, an impairment loss is
recognized if the sum of the undiscounted future cash flows is
less than the carrying amount of the asset. The statement also
establishes standards for recording an impairment loss for
certain assets that are subject to disposal. Excluded from the
scope of the statement are financial instruments, mortgage and
other loan servicing rights, deposit intangibles and deferred tax
assets. The impact to the Company in 1996 upon adoption of the
statement is not expected to be material.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
FNB Rochester Corp.:
We have audited the consolidated statements of financial
condition of FNB Rochester Corp. and Subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of FNB Rochester Corp. and Subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted
accounting principles.
s/KPMG Peat Markwich LLP
February 2, 1996
Rochester, New York
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1995 and 1994
(in thousands, except share data)
1995 1994
____ ____
<S> <C> <C>
Assets:
Cash and due from banks $18,662 $17,281
Interest bearing deposits with other 1,061 1,077
banks
Federal funds sold 5,200 2,000
Securities available-for-sale, at fair 73,527 48,942
value
Securities held-to-maturity (fair value 31,780 52,997
of $31,952 in 1995 and $50,227 in 1994)
Loans, net of allowance of $5,776 in 248,227 195,985
1995 and $6,452 in 1994
Premises and equipment 7,255 4,918
Accrued interest receivable 3,579 3,159
FHLB and FRB stock 1,299 342
Other assets 730 2,561
Total assets $391,320 $329,262
======= =======
Liabilities and shareholders' equity
Deposits:
Demand:
Non interest bearing $46,061 $37,887
Interest bearing-NOW 67,639 70,690
Savings and money market 76,687 75,774
Certificates of deposit 167,488 111,030
_______ _______
Total deposits 357,875 295,381
Securities sold under agreement to 4,538 9,075
repurchase
Other short-term borrowing 448 800
Accrued interest payable and other 2,613 2,646
liabilities _____ _____
Total liabilities 365,474 307,902
_______ _______
Shareholders' equity:
Common Stock, $1 par value; authorized 3,569 3,569
5,000,000 shares; issued and outstanding
3,568,963 in 1995 and 3,568,713 in 1994.
Additional paid in capital 13,024 13,023
Undivided profits 8,403 5,549
Net unrealized gain (loss) on securities 850 (781)
available-for-sale, net of taxes in 1995 ___ _____
25,846 21,360
______ ______
Total liabilities and $391,320 $329,262
shareholders' equity ======= =======
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1995, 1994, 1993
(in thousands, except per share data)
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $21,810 $16,558 $14,673
Securities:
Taxable 6,751 5,835 5,674
Tax-exempt 99 98 156
__ __ ___
6,850 5,933 5,830
Interest on federal funds sold
and deposits with banks 575 521 775
Total interest income 29,235 23,012 21,278
______ ______ ______
Interest expense:
Savings, NOW and money market
accounts 3,379 3,216 4,065
Certificates of deposit 8,473 4,531 3,530
Short-term borrowings 398 80 6
Long-term debt - 123 725
Total interest expense 12,250 7,950 8,326
_____ _____ _____
Net interest income 16,985 15,062 12,952
Provision for loan losses
(recovery) - (43) 74
Net interest income after
provision for loan losses 16,985 15,105 12,878
Non-interest income:
Service charges on deposit
accounts 1,209 1,219 1,310
Credit card fees 648 532 467
Gain on sale of mortgages 40 11 375
Gain on sale of securities
available-for-sale 33 - 355
Loan servicing fees 283 319 350
Gains on sale of subsidiary &
banking offices - 380 54
Other operating income 427 324 402
Total non-interest income $2,640 $2,785 $3,313
______ ______ ______
Non-interest expense:
Salaries and employee benefits $8,238 $7,975 $6,912
Occupancy 2,812 2,871 2,442
Marketing and public relations 624 776 718
Office supplies, printing and
postage 576 542 576
Processing fees 979 902 1,032
F.D.I.C. assessments 350 657 772
Net cost of operation of other
real estate (14) 311 8
Legal 267 397 601
Other 1,745 1,805 2,235
15,577 16,236 15,296 Total non-interest expense
______ ______ ______
Income before income taxes 4,048 1,654 895
Income tax expense (benefit) 1,194 (283) 330
_____ ____ ___
Net income $2,854 $1,937 $565
===== ===== ===
Net income per common share
- primary $0.80 $0.58 $0.28
==== ==== ====
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 1995, 1994 and 1993
(in thousands except per share data)
Net
Unrealized
Gain
(Loss)
Additional Securities
Common Paid in Undivided Available-
Stock Capital Profits For-Sale Total
_____ _______ _______ _________ _____
<S>
<C> <C> <C> <C> <C>
Balance at 2,003 7,340 3,047 - 12,390
December 31, 1992
Net income - - 565 - 565
Change in fair
value of
securities
available-for-
sale, net of taxes
- - - 723 723 of $503
_ _ _ ___ ___
Balance at
December 31, 1993 $2,003 $7,340 $3,612 $723$13,678
Net income - - 1,937 - 1,937
Subordinated
capital notes
converted to
common stock 1,566 5,683 - - 7,249
Change in fair
value of
securities
available-for-
sale, net of taxes - - - (1,504)(1,504)
of $503 _ _ _ ______ ______
Balance at
December 31, 1994 $3,569 $13,023 $5,549 $(781) $21,360
Net income - - $2,854 - $2,854
Option shares
- 1 - - 1 issued
Change in fair
value of
securities
available-for-
sale, net of taxes - - - 1,631 1,631
of $576 _ _ _ _____ ____
Balance at $3569 $13,024 $8,403 $850$25,846
December 31, 1995 ===== ======= ====== ===========
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Cash flows from operating activities:
net income $2,854 $1,937 $565
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses - (43) 74
(recovery)
Depreciation and amortization 1,208 1,004 1,173
Amortization of goodwill 238 248 291
Deferred income taxes 301 (637) (188)
Gain on sales of securities
available-for-sale (33) - (355)
Gain on sale of subsidiary and
banking offices - (380) (54)
(Increase) decrease in mortgage
loans held for sale, net (880) 3,127 4,403
Increase in accrued interest
receivable (420) (488) (102)
Decrease in other assets 127 1,760 1,305
Increase in accrued interest
payable and other liabilities 555 300 401
___ ___ ___
Net cash provided by operating
activities 3,950 6,828 7,513
_____ _____ _____
Cash flow from investing activities:
(Increase) decrease in interest-
bearing deposits 77 (2) (75)
Securities available-for-sale:
Purchase of securities (17,272) (15,464) (21,856)
Proceeds from maturities 17,483 8,668 342
Proceeds from sales 11,027 5,815 7,822
Securities held-to-maturity:
Purchase of securities (15,545) (10,854) (25,565)
Proceeds from maturities 2,223 7,839 23,149
Loan origination and principal
(51,362) (45,252) (11,203) collection, net
Payment made for sale of subsidiary
and banking offices - (16,774) (7,794)
Capital expenditures, net (3,545) (2,238) (1,569)
Decrease in other assets - (360) (136)
_ ____ ____
Net cash used by investing
activities $(56,914) $(68,622) $(36,885)
Cash flows from financing
activities:
Net increase (decrease) in demand,
savings NOW, and money market
accounts $6,036 $814 $(1,289)
Certificates of deposit accepted
and repaid, net 56,458 41,803 19,208
Increase (decrease) in short-term
borrowings (4,889) 9,875 (1,148)
Exercise of option to purchase
common stock 1 - -
Net cash provided by financing
activities 57,606 52,492 16,771
______ ______ ______
Increase (decrease) in cash and cash
equivalents 4,642 (9,302) (12,601)
Cash and cash equivalents at
beginning of year 19,281 28,583 41,184
Cash and cash equivalents at end of
year $23,923 $19,281 $28,583
====== ====== ======
Supplemental disclosure of non-cash
investing and financing activities:
Additions to other real estate
acquired through foreclosure, or
deed in lieu of foreclosure, net of
loans to facilitate sale and
writedowns - - 264
Transfer of securities from held-to-
maturity to securities available-
for-sale $34,539 - 38,587
Conversion of subordinated notes to
common stock - 7,249 -
</TABLE>
The Company paid cash during 1995, 1994, and 1993 for income
taxes and interest as follows:
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Interest $11,949,000 $8,035,827 $8,388,723
Income 910,000 555,000 384,570
taxes
See accompanying notes to Consolidated Financial Statements
</TABLE>
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
FNB Rochester Corp. (the Company) provides a full range of
banking and trust services to individual and corporate customers.
The Company generates interest income by accepting deposits and
investing those deposits, together with funds from borrowings and
ongoing operations in a variety of loans and investment
securities. The most significant source of revenue for the
Company is net interest income - the difference between interest
income earned on loans and investments and interest expense
incurred on deposits and borrowings. The Company, operating
primarily in western New York, is headquartered in Rochester, New
York, the third largest city in the state. The Company is subject
to competition from other financial institutions. The Company is
subject to the regulations of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.
BASIS OF PRESENTATION
The Company operates as a bank holding company. In 1995 its only
subsidiary was First National Bank of Rochester (First National).
Prior to its sale on April 1, 1994, the Company also owned
Atlanta National Bank (Atlanta). The consolidated financial
statements include the accounts of the Company and its wholly-
owned subsidiaries, First National and Atlanta (through its sale
date), (the Banks). All material intercompany accounts and
transactions have been eliminated. The financial statements have
been prepared in conformity with generally accepted accounting
principles and conform with predominate practices within the
banking industry. In preparing these financial statements,
management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
SECURITIES
Securities are classified into three categories: held-to-
maturity, trading and available-for-sale. The Company classifies
its debt securities as either available-for-sale or held-to-
maturity as the Company does not hold any securities considered
to be trading. Held-to-maturity securities are those that the
Company has the ability and intent to hold until maturity. All
other securities are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-
to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses, net of related taxes, on
available-for-sale securities are excluded from earnings and are
reported as a separate component of shareholders' equity.
Transfers of securities between categories are recorded at fair
value at the date of transfer.
A decline in the market value of any security below cost that is
deemed other than temporary is charged to earnings resulting in
the establishment of a new basis for the security.
Dividend and interest income are recognized when earned.
Realized gains and losses for securities sold are determined
using the specific identification method.
The Company's investments in Federal Home Loan Bank (FHLB) and
Federal Reserve Bank (FRB) are required by law and are carried at
cost in the consolidated statement of condition. The Company's
disposition of these securities is restricted by agreements with
the FHLB and FRB.
LOANS
Loans are stated at the principal amount outstanding, net of
deferred loan origination fees and costs which are accrued to
income based on the interest method. Mortgage loans held for sale
are valued at the lower of aggregate cost or market value as
determined by outstanding commitments from investors or, in the
absence of such commitments, the current investor yield
requirements calculated on an aggregate basis.
The accrual of interest on commercial loans is discontinued and
previously accrued interest is reversed when the loans become 90
days delinquent or earlier if, in management's judgment, the
collection of principal and interest is uncertain. Recognition of
interest income on non-accrual loans does not resume until
management considers principal and interest collectible.
Installment loans are generally charged-off upon becoming 120
days past due. Residential mortgage loans are reduced to the
fair value of the underlying collateral, as applicable, upon
becoming 180 days past due. Fair value is the amount that would
reasonably be anticipated in a current sale in which the buyer
and seller are each acting prudently, knowledgeably, and under no
necessity to buy or sell.
The Company services residential mortgage loans for the Federal
Home Loan Mortgage Corporation (Freddie Mac), and earns servicing
fees, which are recognized when payments are received, based upon
the outstanding principal balance of the loans. The cost of
originating these loans is attributed to the loans and is
considered in the calculation of the gain or loss on sale of the
loans. The right to service the loans is assigned no financial
statement value.
ALLOWANCE FOR LOAN LOSSES
The Company provides for loan losses by a charge to current
operations to bring the allowance to an appropriate level
considering the character of the loan portfolio, economic
conditions, analysis of specific loans, and historical loss
experience. While management uses available information to
recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's
allowance for losses on loans. Such agencies may require the
Company to recognize additions to the allowance based on their
judgments about information available to them at the time of
their examination.
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 adopted by the Company
on January 1, 1995, 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 a 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 a result of the adoption of SFAS No. 114, the allowance for
possible 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 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.
Impaired loans are included in non-accrual loans. Commercial
type loans past due 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.
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
recognized on a cash basis.
Impairment losses are included in the allowance for loan losses
through a charge to operations. In considering loans for
evaluation of impairment, management generally excludes smaller
balance, homogeneous loans - residential mortgage loans, home
equity loans and all consumer loans. These loans are
collectively evaluated for impairment as discussed above.
Impaired loans are charged-off when, following reasonable and
prudent collection efforts, management determines the ultimate
success of the loan's collectibility is doubtful.
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
materially impact the Company's consolidated financial condition
or results of operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the
straight-line method over the estimated useful lives of the
assets. Amortization of leasehold improvements is provided over
the lesser of the term of the lease or the estimated useful lives
of the improvements.
The estimated useful lives of the Company's premises and
equipment are as follows:
Buildings and improvements 5 - 40 years
Furniture, fixtures, and equipment 3 - 7 years
Leasehold improvements 3 - 30 years
Vehicles 2 - 3 years
OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure or deed in lieu of
foreclosure is carried at the lower of the cost or fair value
less estimated costs to dispose. Fair value is determined on an
asset by asset basis, primarily through independent third party
appraisals. Adjustments to the carrying values of such
properties resulting from subsequent declines in fair value are
charged to operations in the period in which the declines occur.
These adjustments, the net expense of operating other real estate
owned and gains and losses on disposition of other real estate
owned are included in net cost of operation of other real estate
expense. Other real estate owned is included in other assets on
the accompanying consolidated statements of financial condition.
INCOME TAXES
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.
PENSION PLAN
First National sponsors a non-contributory defined benefit
pension plan covering substantially all of its employees.
Benefits are based upon years of service and the employee's
average compensation. Average compensation is determined by the
average of the highest five consecutive years of service. The
cost of this plan is being funded currently.
First National's policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in
the Employee Retirement Income Security Act of 1974, plus such
additional amounts, subject to IRS limitations, as the Bank may
determine to be appropriate from time to time.
TRUST DEPARTMENT INCOME
Assets held in a fiduciary or agency capacity for customers are
not included in the accompanying consolidated statements of
financial condition, since such assets are not assets of the
Company. Fee income is recognized on the accrual method.
PER SHARE DATA
Per share data is based upon the weighted average number of
common shares and equivalents (stock options) outstanding during
each year. Fully diluted per share data is not presented as
potentially dilutive securities dilute earnings per share by less
than 3 percent or are antidilutive. The weighted average number
of shares and equivalents outstanding during 1995, 1994 and 1993
amounted to 3,568,759; 3,311,234 and 2,002,507, respectively.
CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand, unrestricted amounts due from
banks, and federal funds sold.
(2) SECURITIES
On November 15, 1995, the Financial Accounting Standards Board
(FASB) published a special report A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities. This guidance included a provision that
allowed institutions a one-time opportunity to reclassify (at
fair value) held-to-maturity securities without calling into
question their intent to hold other debt securities to maturity
in the future. Under this provision the Company transferred
securities with an amortized cost of $34,539,000 (fair value
$35,312,000) from held-to-maturity to available-for-sale.
The aggregate amortized cost and fair value of securities
available-for-sale and securities held-to-maturity at December
31, 1995 and 1994 follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
____ ____
Amortized Fair Amortized Fair
Cost Value Cost Value
____ _____ ____ _____
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $43,199 $44,123 $32,232 $31,852
U.S. Government agency 5,690 5,698 3,000 2,889
Mortgage-backed 23,212 23,706 14,441 14,151
securities
Other securities - - 50 50
_ _ __ __
Total 72,101 73,527 49,723 48,942
====== ====== ====== ======
Securities held-to-maturity:
U.S. Treasury 7,145 7,234 23,895 23,050
U.S. Government agency 6,359 6,343 6,996 6,346
Mortgage-backed
securities 15,509 15,591 20,047 18,822
Obligations of state
and municipal
subdivisions 2,417 2,434 1,734 1,684
Other securities 350 350 325 325
___ ___ ___ ___
Total $31,780 $31,952 $52,997 $50,227
====== ===== ====== ======
</TABLE>
Securities with an amortized cost of $77,991,000 and $26,608,000
at December 31, 1995 and 1994, respectively were pledged as
collateral for municipal deposits.
Gross unrealized gains and losses on securities available-for-
sale and securities held-to-maturity at December 31, 1995 and
1994 follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
_____ ______ _____ ______
<S> <C> <C> <C> <C>
Securities available-
for-sale:
U.S. Treasury $933 $9 $74 $454
U.S. Government 28 19 - 111
agency
Mortgage-backed
securities an other 498 5 - 290
___ _ _ ___
Total $1,459 $33 $74 $855
== == ===
Securities held-to-maturity:
U.S. Treasury $89 $ - $ - $845
U.S. Government agency 19 35 - 650
obligations
Mortgage-backed 144 62 32 1,257
securities
Obligations of state
and Municipal
subdivisions 24 7 9 59
__ _ _ __
Total $276 $104 $41 $2,811
=== === == =====
</TABLE>
The amortized cost of securities by contractual years to maturity
as of December 31, 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
10 Years
Under 1 1 to 5 5 to 10 and
Year Years Years Over Total
____ _____ _____ ____ _____
<S> <C> <C> <C> <C> <C>
Securities available-
for-sale:
U.S. Treasury $13,526 $29,673 $ - $ - $43,199
U.S. Government
agency - 3,770 1,000 920 5,690
Mortgage-backed
securities - 710 687 21,815 23,212
_ ___ ___ ______ ______
Total $13,526 $34,153 $1,687 $22,735 $72,101
======= ======= ====== ======= =======
Securities held-to-
maturity
U.S. Treasury $ - $7,145 $ - $ - $7,145
U.S. Government
agency 7 3,000 2,999 353 6,359
Mortgage backed
securities - 8,792 2,494 4,223 15,509
Obligations of state
and municipal
subdivisions 1,357 613 113 334 2,417
Other securities - 300 50 - 350
____ ___ __ _ ___
Total $1,364 $19,850 $5,656 $4,910 $31,780
===== ====== ===== ===== ======
</TABLE>
The fair value of securities by contractual years to maturity as
of December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Under 1 1 to 5 5 to 10 10 Years
Year Years Years and Over Total
____ _____ _____ ________ _____
<S> <C> <C> <C> <C> <C>
Securities available-
for-sale
U.S. Treasury $13,648 $30,475 $ - $ - $44,123
U.S. Government
agency obligations - 3,768 1,007 923 5,698
Mortgage-backed
securities - 714 688 22,304 23,706
_ ___ ___ ______ ______
Total $13,648 $34,957 $1,695 $23,227 $73,527
====== ====== ===== ====== ======
Securities held-to-
maturity
U.S. Treasury $ - $7,234 $ - - $7,234
U.S. Government
agency 7 2,983 3,003 350 6,343
Mortgage backed
securities - 8,828 2,444 4,319 15,591
Obligations of state
and municipal
subdivisions 1,355 622 114 343 2,434
Other securities - 300 50 - 350
___ ___ __ _ ___
Total $1,362 $19,967 $5,611 $5,012 $31,952
===== ====== ===== ===== ======
</TABLE>
The following table presents the total proceeds from sales of
securities available-for-sale for 1995, 1994 and 1993 and the
gross realized gains and losses (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ _____
<S> <C> <C> <C>
Proceeds from sales $11,027 $5,815 $7,822
Gains 72 5 355
Losses (39) (5) -
____ ___ _
Net $33 $ - $355
== = ===
</TABLE>
(3) LOANS
The major classifications of loans at December 31, 1995 and 1994
follow (in thousands):
<TABLE>
<CAPTION>
1995 1994
____ ____
<S> <C> <C>
Commercial $165,645 $134,529
Residential 49,009 31,080
mortgage
Residential mortgage loans
held for sale 880 -
Home equity 18,773 20,586
Other consumer 19,711 16,443
Total 254,018 202,638
_______ _______
Net deferred loan costs (fees) (15) (201)
Allowance for loan losses (5,776) (6,452)
Loans, net $248,227 $195,985
======= =======
Interest and fees on loans follow (in thousands):
Years Ended December 31,
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Commercial $15,200 $11,391 $9,556
Residential 3,009 2,275 2,131
mortgage
Home equity 1,976 1,667 1,710
Other consumer 1,325 1,225 1,276
$21,810 $16,558 $14,673
______ ______ ______
</TABLE>
The Company considers its primary service and marketing area to
be the New York State city of Rochester and its surrounding
towns. The Company also has three full service banking offices
in the Elmira area and offices, in both Syracuse and Buffalo,
which provide services primarily to professional and business
customers. Substantially all of the Company's outstanding loans
are with borrowers living or doing business within these areas.
The Company's concentrations of credit risk are disclosed in the
above loan classifications. Other than general economic risks,
management is not aware of any material concentrations of credit
risk to any industry or individual borrower.
Loans serviced for others amounting to $107,642,000 and
$115,673,000 at December 31, 1995 and 1994, respectively are not
included in the consolidated financial statements. Custodial
accounts held by First National for these loans amounted to
$2,309,000 and $2,784,000 at December 31, 1995 and 1994,
respectively.
The Company has an available line of credit with the FHLB of New
York, which at December 31, 1995 amounted to approximately
$8,500,000. The amount available under the line varies according
to a formula which considers the amount of FHLB stock held by the
Company, the Company's FHLB borrowings outstanding, the Company's
total assets, and the net worth of the FHLB of New York. At
December 31, 1995, the Company pledged residential mortgages with
a carrying value of $38,175,000 as collateral for this line of
credit.
(4) ALLOWANCE FOR LOAN LOSSES
For the twelve months ended December 31, 1995, the Company
recognized $35,000 interest income on the impaired loans.
A summary of the changes in the allowance for loan losses follows
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
________________________
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Balance at beginning of year $6,452 $6,823 $6,560
Provision (recovery) charged - (43) 74
to operating expense
Reclassification of impairment - 210 -
reserves
Allowance of subsidiary sold - (177) -
_ ____ _
6,452 6,813 6,634
Loans charged off
Commercial (840) (990) (346)
Residential mortgage (46) (124) (40)
Home equity - (31) (51)
Other consumer (147) (213) (258)
Total loans charged off (1,033) (1,358) (695)
Recoveries of loans
charged off
Commercial 267 867 610
Residential mortgage - - 85
Home equity 6 7 13
Other consumer 84 123 176
Total recoveries of 357 997 884
loans charged off
Balance at end
of year $5,776 $6,452 $6,823
===== ===== =====
</TABLE>
The principal balance of loans not accruing interest totaled
$1,665,000 and $3,290,000 at December 31, 1995 and 1994
respectively. The effect of non-accrual loans on interest income
for the years ended December 31, 1995, 1994, and 1993 was
$67,000, $88,000 and $403,000 respectively. There was no other
real estate owned at December 31, 1995. Other real estate owned
amounted to $100,000 at December 31, 1994.
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled $245,000.
There is no impairment allowance associated with these loans.
The average recorded investments in impaired loans during the
twelve months ended December 31, 1995 was approximately
$1,150,000.
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
<TABLE>
<CAPTION>
December 31,
____________
1995 1994
____ ____
<S> <C> <C>
Land $378 $378
Building and improvements 1,659 1,354
Furniture, fixtures, equipment
and vehicles 7,242 6,010
Leasehold
improvements 4,490 2,507
_____ _____
13,769 10,249
Less accumulated depreciation
and amortization 6,514 5,331
Premises and equipment, net $7,255 $4,918
===== =====
</TABLE>
Depreciation and amortization expense for the years ended
December 31, 1995, 1994 and 1993 was $1,208,000, $982,000 and
$1,107,000, respectively.
(6) CERTIFICATES OF DEPOSIT
Certificates of deposit of $100,000 or more amounted to
$61,559,000 at December 31, 1995 and $22,356,000 at December 31,
1994. Interest expense on certificates of deposit of $100,000 or
more was $2,457,000 in 1995, $719,000 in 1994 and $256,000 in
1993.
(7) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company had short term borrowings of $4,986,000 at December
31, 1995, including $4,538,000 of securities sold under agreement
to repurchase, with a maturity date of January 29, 1996 and a
rate of 5.85%. The maximum amount outstanding at any one month-
end and average amount for securities sold under agreements to
repurchase were $9,075,000 and $5,817,000 respectively for 1995
and $9,075,000 and $1,169,000 respectively for 1994. Interest
expense averaged 6.17% for 1995 and 4.79% for 1994. There were no
securities sold under agreement to repurchase in 1993.
Securities with a carrying value of $4,649,000 at December 31,
1995, securing the repurchase agreement, were held by a third
party trustee.
(8) SUBORDINATED CAPITAL NOTES
On March 2, 1994, the 10% subordinated capital notes were
converted to common stock of the Company, increasing the
Company's common shares outstanding by 1,566,325 and equity by
$7,249,000.
Interest expense on the subordinated capital notes amounted to
$123,000 for 1994 and $725,000 for 1993.
(9) INCOME TAXES
Total income taxes for the years ended December 31, 1995, 1994
and 1993 were allocated as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Income from continuing
operations $1,194 $(283) $330
Stockholders' equity, for
unrealized gain (loss) on
securities available-for-sale 576 (503) 503
$1,770 $(786) $833
===== ===== ===
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, income tax
expense (benefit) attributable to income from operations consists
of (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Current:
Federal $892 $353 $517
State 1 1 1
_ _ _
893 354 518
___ ___ ___
Deferred:
Federal 301 (637) (157)
State - - (31)
_ _ ___
301 (637) (188)
___ ____ ____
$1,194 $(283) $330
===== ===== ===
</TABLE>
The reconciliation of the statutory federal income tax rate with
the actual effective tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Increases (decreases)
attributable to:
Change in beginning of
the year valuation
allowance for deferred
tax assets allocated to
income tax expense (10.0) (59.0) 6.0
Tax exempt interest
income (1.0) (1.0) (5.9)
State taxes, net of
federal benefit 1.0 1.0 (2.2)
Other items, net 5.0 8.0 5.1
___ ___ ___
29.0% (17.0)% 37.0%
===== ======= =====
</TABLE>
The significant components of deferred tax expense (benefit)
attributable to income from continuing operations at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Deferred tax expense
(benefit) $713 $354 $(239)
Increase (decrease) in
valuation allowance for
deferred tax assets (412) (991) 51
Net deferred tax expense
(benefit) $301 $(637) $(188)
=== ===== ====
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995, and 1994 are presented below
(in thousands):
<TABLE>
<CAPTION>
1995 1994
____ ____
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses -
financial statements $2,333 $2,539
Interest on non accrual loans 109 160
Premises and equipment
- principally due to
depreciation 141 149
Capitalized ORE costs 3 100
Mortgage recording tax credit
carry forwards 257 352
Net deferred loan origination
costs 6 82
Reserve for abandoned
lease 151 182
Accrued salaries and
benefits 119 104
Net unrealized loss on
securities
available- for- sale - 318
Other 142 114
___ ___
Gross deferred assets 3,261 4,100
Less valuation (1,905) (2,635)
allowance ______ ______
Net deferred tax
assets 1,356 1,465
_____ _____
Deferred tax liabilities:
Allowance for loan
losses - tax (750) (613)
Net unrealized gain on
securities available-
for-sale (576) -
Bond
discount (82) (27)
____ ____
Total gross deferred
liabilities (1,408) (640)
______ ____
Net deferred tax
asset (liability) $(52) $825
==== ===
</TABLE>
The net change in the total valuation allowance for the years
ended December 31, 1995 and 1994 were decreases of $730,000 and
$673,000 respectively. The net change for the year ended
December 31, 1993 was an increase of $51,000.
Realization of deferred tax assets is dependent upon the
generation of future taxable income or the existence of
sufficient taxable income within the carryback period. A
valuation allowance is provided when it is more likely than not
that some portion of the deferred tax assets will not be
realized. In assessing the need for a valuation allowance,
management considers the scheduled reversal of the deferred tax
liabilities, the level of historical taxable income, and
projected future taxable income over the periods in which the
temporary differences comprising the deferred tax assets will be
deductible. Based upon the level of historical taxable income
and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of
these deductible differences, net of the existing valuation
allowance of $1,905,000 at December 31, 1995.
(10) SHAREHOLDERS' EQUITY
No dividends were declared or paid in 1995, 1994 or 1993 by the
Company. Payment of dividends by First National to the Company
is limited or restricted in certain circumstances. According to
federal banking law, the approval of the Office of the
Comptroller of the Currency (OCC) is required for the declaration
of dividends by a bank in any year in which the dividend declared
will exceed the total of net income for that year plus any
retained income for the preceding two years. Dividends in the
amount of $5,773,000 are available from First National at
December 31, 1995 without the approval of the OCC.
(11) STOCK OPTION PLAN
The Company has a stock option plan under which a total of
225,000 shares of its common stock have been granted. Under
terms of the plan, 225,000 shares of the Company's common stock
were reserved for possible issuance to key employees of the
Company or its subsidiaries. All shares available for grant were
granted as of December 31, 1995. In 1995, 1,650 shares became
available for regrant and options for 250 shares were exercised.
The option price established at the time of grant may not be less
than the fair market value of the stock on the date of grant. No
compensation expense is recorded by the Company when options are
granted or exercised. At exercise, proceeds are credited to the
capital stock account. A summary of changes in stock options
outstanding during the three most recent years follows:
<TABLE>
<CAPTION>
Year ended December 31
______________________
1995 1994 1993
Option Option Option
Number of Price Per Number of Price Per Number of Price Per
Options Share Options Share Options Share
_________ _________ _________ _________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
Beginning 225,000 $5.63-7.75 172,000 $5.63-7.75 105,000 $5.63-7.75
Exercised (250) 5.69 - -
Canceled (1,650) 5.69-6.25 - -
Granted - - 53,000 5.69 67,000 6.25-6.50
_______ _________ ________ _________ _______ _________
Ending balance 223,100 $5.63-7.75 225,000 $5.63-7.75 172,000 $5.63-7.75
======= ========== ======= ========== ======= ==========
</TABLE>
Options outstanding at December 31, 1995 are exercisable over
time as follows:
Cumulative
Date of Number
Exercisability Exercisable
______________ ___________
At December 31,
1995 167,500
1996 208,100
1997 223,100
(12) LEASES
The Company leases certain buildings and office space under
operating lease arrangements. Rent expense under these
arrangements amounted to $776,000 in 1995, $1,051,000 in 1994 and
$492,000 in 1993. Included in rent expense for 1994 is an
accrual for abandoned lease property amounting to $448,000. Real
estate taxes, insurance, maintenance, and other operating
expenses associated with the buildings and office space are
generally paid by the Company. A summary of non-cancelable long-
term operating lease commitments as of December 31, 1995 follows
(in thousands):
Year Ending December 31,
________________________
Year Amount
____ ______
1996 $969
1997 989
1998 989
1999 1,031
2000 1,042
After 2000 7,657
_____
Total $12,677
=======
(13) COMMITMENTS AND CONTINGENCIES
In the normal course of business there are various outstanding
commitments to extend credit which are not reflected in the
accompanying consolidated financial statements. Because many
commitments and almost all letters of credit expire without being
funded in whole or in part, the contract amounts are not
estimates of actual future cash flows. Loan commitments have
off-balance sheet credit risk, because only origination fees are
recognized in the balance sheet, until the commitments are
fulfilled or expire. The credit risk amounts are equal to the
contractual amounts, assuming that the amounts are fully advanced
and collateral or other security is of no value. The Company's
policy generally requires customers to provide collateral,
usually in the form of customers' operating assets or property,
prior to the disbursement of approved loans. The contract
amounts of these commitments at December 31, 1995 and 1994 are
set forth in the table below (in thousands):
<TABLE>
<CAPTION>
1995 1994
____ ____
Fixed Variable Fixed Variable
Rate Rate Rate Rate
____ ____ ____ ____
<S> <C> <C> <C> <C>
Commercial letters
of credit - 2,503 - 3,946
Commercial lines
of credit 789 38,168 545 24,070
Other loan
commitments 8,226 27,484 5,776 17,337
</TABLE>
For most of the commercial lines of credit, First National
evaluates each customer's creditworthiness and determines
collateral requirements on a case-by-case basis prior to
approving a distribution of funds. Since many of the line of
credit commitments are never drawn upon, the total commitment
amounts do not necessarily represent future cash flows. Other
loan commitments include lines of credit for home equity loans,
overdraft protection, and credit cards as well as commitments to
extend new loans.
First National is required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of such
reserve balances for the year ended December 31, 1995 and 1994
was approximately $81,000 and $149,000. Interest bearing deposits
with other banks are substantially restricted by balance
agreements.
Because the Bank's business involves the deposit, collection, and
transfer of checks and similar negotiable instruments and the
collection of loans and enforcement of security interests,
mortgages, and other liens, the Bank is plaintiff or defendant in
various legal proceedings which may be considered as arising in
the ordinary course of business. In the opinion of management,
after consultation with counsel handling all such litigation,
there are no legal proceedings now pending by or against the Bank
or the Company, the outcome of which are expected to have a
material effect on their businesses, business properties, or
financial condition.
(14) EMPLOYEE BENEFIT PLANS
The following table sets forth (in thousands) the defined benefit
plan's actuarially determined funded status and amounts
recognized in the Company's consolidated financial statements:
December 31
___________
1995 1994
____ ____
Actuarial present value of accumulated
benefit obligation including vested
benefits of $262 and $117 $376 $171
==== ====
Actuarial present value of projected
benefit obligation for service rendered
to date 726 296
Less plan assets at fair value -
primarily listed common stock, U.S.
Government and agency securities, and
collective funds 475 245
___ ---
Projected benefit obligation in excess
of plan assets 251 51
Unrecognized net gain (loss) from past
experience different from that assumed
and effects of changes in assumptions (120) 69
Unrecognized prior service cost 5 5
_ _
Accrued pension cost included in other
liabilities $136 $125
=== ===
Net pension cost included the following components (in
thousands):
Years Ended
December 31
1995 1994 1993
____ ____ ____
Service cost-benefits earned $250 $311 $76
during the period
Interest cost on projected 24 8 -
benefit obligation
Actual return on plan assets (9) 19 -
Net amortization and deferral (20) (24) -
____ ____ _
Net periodic pension cost $245 $314 $76
=== === ==
Assumptions used in determining pension data for 1995, 1994, and
1993 are as follows:
1995 1994 1993
____ ____ ____
Discount rate for benefit
obligations 7.50% 8.00% 7.25%
Rate of increase in
compensation levels 5.00% 4.00% 5.00%
Expected long-term rate of
return on assets 8.50% 8.50% 8.50%
First National sponsors a 401(k) plan covering substantially all
employees. First National matched eligible employee
contributions to the 401(k) plan up to a maximum 1.5 percent of
eligible compensation. Expense for the 401(k) amounted to
$54,000 in 1995, $52,000 in 1994, and $29,000 in 1993.
(15) LOANS TO DIRECTORS, OFFICERS AND SHAREHOLDERS OWNING MORE
THAN 5% OF VOTING STOCK
A summary of the changes in outstanding loans to members of the
Board of Directors, officers of the Company and shareholders
owning more than 5% of voting stock, or their interests, follows
(in thousands):
Years ended
December 31,
1995 1994
____ ____
Balance of loans outstanding
at beginning of year $3,354 $2,576
New loans and increases in
existing loans 2,401 2,934
Loan principal repayments
(164) (2,156)
_____ ______
Balance at end of year $5,591 $3,354
===== =====
Loans to directors, officers and shareholders owning more than 5%
of voting stock are believed to have been made on substantially
the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with unrelated
parties.
(16) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The following presents the financial condition of the Parent
Company (FNB Rochester Corp.) as of December 31, 1995 and 1994
and the results of its operations and its cash flows for the
years ended December 31, 1995, 1994, and 1993:
CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands)
<TABLE>
<CAPTION>
Assets 1995 1994
____ ____
<S> <C> <C>
Cash and cash equivalents $494 $550
Investment (at equity) in 25,388 20,841
subsidiaries
Other assets 3 4
_ _
Total assets $25,885 $21,395
====== ======
Liabilities and shareholders' equity
Accrued interest payable and $39 $35
other liabilities
Total liabilities 39 35
Shareholders' equity 25,846 21,360
______ ______
Total liabilities and shareholders' $25,885 $21,395
equity ====== ======
</TABLE>
STATEMENT OF OPERATIONS (in thousands)
<TABLE>
<CAPTION>
Years ended December 31
1995 1994 1993
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ - $ - $ 538
Gain on sale of subsidiary - 191 -
Interest and other 20 16 22
Total income 20 207 560
Expense:
Interest on long-term debt - 123 725
Other 122 181 294
Total expense 122 304 1,019
Loss before taxes and equity in
undistributed income of
subsidiaries (102) (97) (459)
Income tax benefit (40) (95) (326)
Loss before undistributed
income of subsidiaries (62) (2) (133)
Equity in undistributed income
of subsidiaries 2,916 1,939 698
Net income $2,854 $1,937 $565
===== ===== ===
</TABLE>
STATEMENT OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
Years ended December 31
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 2,854 $ 1,937 $ 565
Adjustment to reconcile net
income to cash (used)
provided by operating
activities:
Equity in undistributed
income of subsidiaries (2,916) (1,939) (698)
Depreciation and amortization - 27 102
Gain on sale of subsidiary - (191) -
(Increase) decrease in other
assets 1 (4) 266
Increase (decrease) in
accrued interest payable
and other liabilities 4 (207) (63)
Net cash (used) provided
by operating activities (57) (377) 172
Cash flows from investing
activities;
Capital contributed to
subsidiary - (1,400) -
Proceeds from sale of
subsidiary - 1,772 -
Net cash provided by
investing activities - 372 -
Cash flows from financing
activities:
Exercise of option to
purchase common stock 1 - -
Net cash provided by
financing activities 1 - -
Increase (decrease) in cash
and cash equivalents (56) (5) 172
Cash and cash equivalents at
beginning of year 550 555 383
Cash and cash equivalents at $494 $550 $555
end of year === ==== ===
</TABLE>
The Parent Company paid cash during 1995, 1994, and 1993 for
income taxes and interest as follows:
1995 1994 1993
____ ____ ____
Interest - 304,096 725,000
Income taxes 910,000 555,000 384,570
(17) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF
1991 (FDICIA)
First National is subject to capital adequacy requirements of the
Federal Deposit Insurance Corporation. The FDICIA established
capital levels for which insured institutions will be categorized
as (in declining order) well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically
undercapitalized. Under the FDICIA, a well capitalized
institution must generally have a risk-based capital ratio of at
least 10 percent, a Tier 1 risk-based ratio of at least 6 percent
and a Tier 1 leverage ratio of at least 5 percent. As of
December 31, 1995 First National is a well capitalized
institution under the definitions.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
A financial instrument is cash, evidence of an ownership interest
in an entity, or a contract that both:
(a) Imposes on one entity a contractual obligation (1) to
deliver cash or another financial instrument to a second entity
or (2) to exchange other financial instruments on potentially
unfavorable terms with the second entity; and
(b) conveys to that second entity a contractual right (1) to
receive cash or another financial instrument from the first
entity or (2) to exchange other financial instruments on
potentially favorable terms with the first entity.
Fair value is the amount at which an asset could be exchanged in
a current transaction between willing parties, other than in a
forced or liquidation sale.
Fair value estimates, methods, and assumptions are set forth
below for the Company's financial instruments:
INTEREST BEARING DEPOSITS WITH BANKS AND FEDERAL FUNDS SOLD
For these short-term instruments that generally mature in less
than 90 days or reprice on a daily basis, the carrying value
approximates fair value.
SECURITIES
Fair values for securities are based on quoted market prices or
dealer quotes, where available. Variable rate securities that
reprice frequently and have no significant credit risk have fair
values based on carrying values.
LOANS
The fair values of loans are generally estimated using discounted
cash flow analyses applying interest rates currently being
offered for loans with similar terms and credit quality and
employing prepayment assumptions based on available industry
information sources.
Delinquent and non-accrual loans are valued using the discounted
cash flow methods described above. Credit risk is a component of
the discount rate used to value the loans. Delinquent and non-
accrual loans are presumed to possess additional risk.
Therefore, the discount rates used to value these non-performing
loans reflect this additional risk.
DEPOSITS
The fair values disclosed for demand deposits, savings accounts,
and money market accounts are equal to their carrying values
since these are liabilities that are payable on demand. The fair
value of fixed rate certificates of deposit is calculated using a
discounted cash flow analysis applying rates currently being
offered on certificates to a schedule of weighted average
expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS
Variable rate instruments reprice daily and therefore the
carrying value approximates fair value. Fixed rate obligations
are valued using a discounted cash flow approach employing a
discount rate currently offered for similar instruments.
OFF-BALANCE SHEET
The fair value of commitments to extend credit approximates the
fees charged to make these commitments since rates and fees of
the contracts approximate those currently charged to originate
similar commitments. These commitments are included under loans
and loan commitments.
<TABLE>
<CAPTION>
1995 1994
(in thousands)
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
Financial Assets: _____ ________ _____ ________
<S> <C> <C> <C> <C>
Cash $18,662 $18,662 $17,281 $17,281
Interest bearing
deposits with banks 1,061 1,061 1,077 1,077
Federal funds sold 5,200 5,200 2,000 2,000
Securities, including
FHLB and FRB 106,606 106,778 102,281 99,512
Loans and loan commitments:
Commercial loans and
mortgages 165,645 169,215 134,529 131,109
Residential
mortgages held for
resale 880 880 - -
Residential
mortgages held for
investment 49,009 48,199 31,080 27,724
Home equity lines of
credit 18,773 18,872 20,586 20,553
Other consumer 18,571 18,104 15,203 14,699
Credit card loans 1,140 1,114 1,240 1,230
_____ _____ _____ _____
Total loans 254,018 256,384 202,638 194,365
Less: allowance
for loan losses (5,776) N/A (6,452) N/A
Deferred loan (fees)
costs (15) (15) (201) (201)
____ ____ _____ _____
Net loans 248,227 256,369 195,985 194,164
Financial Liabilities:
Deposits:
Demand, savings, NOW
& money market
accounts 190,387 190,387 184,351 184,351
Time certificates of
Deposit 167,488 168,251 111,030 110,418
_______ _______ _______ _______
Total deposits 357,875 358,638 295,381 294,769
Short-term 4,986 4,986 9,875 9,875
borrowings
</TABLE>
(1) Fair value estimates are made at a specific
point in time, based on relevant market
information and information about the
financial instrument. These estimates are
subjective in nature and involve
uncertainties and matters of significant
judgment and, therefore, cannot be determined
with precision. Changes in assumptions could
significantly affect the estimates.
(19) DISPOSITIONS
Under the terms of the purchase agreement with Bath National Bank
and its parent holding company, Bath National Corporation, the
Company, on April 1, 1994, sold all of the outstanding shares of
Atlanta (for its book value, plus a premium of $550,000). The
Company realized $1,772,000 cash from the sale and a gain of
$191,000. On December 31, 1993, Atlanta had $8,911,000 in loans,
$13,833,000 of deposits and $15,017,000 in total assets. Net
income for the year ended December 31, 1993 amounted to $222,000.
On December 1, 1994 First National sold its Shop City Office with
deposits of $16,433,000. First National recognized a gain of
$189,000 as a result.
<PAGE>
The impact to the Company in 1996 upon adoption of the statement
is not expected to be material.
CORPORATE DIRECTORY
Directors of FNB Rochester Senior Officers of First
Corp. and First National Bank National Bank of Rochester
of Rochester
R. Carlos Carballada R. Carlos Carballada
President and Chief Executive President and Chief Executive
Officer Officer
Michael J. Falcone, Chairman Donald R. Aldred
Real Estate Developer, Pioneer Sr. Vice President, Business &
Group Professional Banking
Joseph M. Lobozzo II Robert B. Bantle
President & Chief Executive Sr. Vice President, Community
Officer Banking
JML Optical Industries, Inc.
Francis T. Lombardi Stacy C. Campbell
Vice President, Syracuse Tank Sr. Vice President and Chief
& Mfg. Co. Financial Officer
Carl R. Reynolds Barbara W. Fuge
Attorney Vice President, Risk
Management
H. Bruce Russell Robert E. Gilbert
Vice President, Financial & Sr. Vice President, Operations
Administrative Division
Eastman Kodak Company
James D. Ryan Timothy P. Johnson
President and Owner RYCO Vice President and Counsel
Management, Inc.
Property Management and
Development
Linda Cornell Weinstein Richard J. Long
Executive Director, Vice President, Human
Cornell/Weinstein Resources
Family Foundation
Theresa B. Mazzullo
Sr. Vice President, Trust &
Investment
Officers of FNB Rochester Corp.
R. Carlos Carballada
President and Chief Executive
Officer
Stacy C. Campbell
Sr. Vice President and Chief
Financial Officer
Mariann Joyal
Corporate Secretary
Vice Presidents of First National Bank of Rochester
Bruce G. Austin William C. Lyons
Vice President, Treasury & Vice President, Business &
Planning Professional Lending - Buffalo
Jeffrey W. Barker Carl J. Martel
Vice President, Vice President, Henrietta
Business & Professional Office Manager
Banking Services
Dorian C. Chapman Richard F. Medyn
Vice President, Business & Vice President, Special Assets
Professional
Real Estate Lending
Roger L. Cormier Robert S. Moore
Vice President, Community Vice President, Business &
Banking Professional Lending
Anthony M. Costanza Thomas M. Pauly
Vice President, Business & Vice President, Loan Review
Professional Lending
Gary L. Gayton David T. Reaske
Vice President, Chili Office Vice President, Business &
Manager Professional Lending -
Syracuse
John C. Glerum Richard A. Szabat
Vice President, Controller- Vice President, Business &
Finance Professional Lending
Dennis A. Heuser Robert Varrenti
Vice President, Vice President, Information
Business & Professional Services
Banking
James F. Lynd Judith L. Willis
Vice President, Penfield Vice President, Perinton
Office Manager Office Manager
Robert J. Lynough II
Vice President, Southport
Office Manager
<PAGE>
FNB ROCHESTER CORP.
Subsidiaries of the Registrant
The Registrant has one wholly owned subsidiary:
First National Bank of Rochester
First National Bank of Rochester was formed in 1965 under the
National Bank Act.
<PAGE>
EXHIBIT 23
Consent of KPMG Peat Marwick LLP
PEAT MARWICK LLP
600 Clinton Square
Rochester, NY 14604
Independent Auditors' Consent
The Board of Directors
FNB Rochester Corp.:
We consent to incorporation by reference in the registration
statement No. 33-65194 on Form S-8 of FNB Rochester Corp. of our
report dated February 2, 1996, relating to the consolidated
statements of financial condition of FNB Rochester Corp. and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report has been
incorporated by reference in the December 31, 1995 annual report
on Form 10-K of FNB Rochester Corp.
s/KPMG Peat Marwick LLP
__________________________
Rochester, New York
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 18,662
<INT-BEARING-DEPOSITS> 1,061
<FED-FUNDS-SOLD> 5,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,527
<INVESTMENTS-CARRYING> 31,780
<INVESTMENTS-MARKET> 31,952
<LOANS> 254,003
<ALLOWANCE> 5,776
<TOTAL-ASSETS> 391,320
<DEPOSITS> 357,875
<SHORT-TERM> 4,986
<LIABILITIES-OTHER> 2,613
<LONG-TERM> 0
0
0
<COMMON> 3,569
<OTHER-SE> 22,277
<TOTAL-LIABILITIES-AND-EQUITY> 391,320
<INTEREST-LOAN> 21,810
<INTEREST-INVEST> 6,850
<INTEREST-OTHER> 575
<INTEREST-TOTAL> 29,235
<INTEREST-DEPOSIT> 11,852
<INTEREST-EXPENSE> 12,250
<INTEREST-INCOME-NET> 16,985
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 33
<EXPENSE-OTHER> 15,577
<INCOME-PRETAX> 4,048
<INCOME-PRE-EXTRAORDINARY> 2,854
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,854
<EPS-PRIMARY> 80
<EPS-DILUTED> 80
<YIELD-ACTUAL> 4.92
<LOANS-NON> 1,665
<LOANS-PAST> 45
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,452
<CHARGE-OFFS> 1,033
<RECOVERIES> 357
<ALLOWANCE-CLOSE> 5,776
<ALLOWANCE-DOMESTIC> 5,776
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
