FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to
_____________
Commission file number 0-13423
FNB Rochester Corp.
(Exact name of registrant as specified in its charter)
New York 16-1231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 State St., Rochester, New York 14614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 546-3300
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ______.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at July 31, 1996
Common stock, $1.00 par value 3,570,563
<PAGE>
INDEX
Page No.
Part I Financial Information
Condensed consolidated statements of financial
condition - June 30, 1996 and December
31, 1995 3-4
Condensed consolidated statements of
operations for the three months and six
months ended June 30, 1996 and 1995 5
Condensed consolidated statements of cash
flows for the six months ended June 30,
1996 and 1995 6-7
Notes to condensed consolidated financial
statements 8-11
Management's discussion and analysis of
financial condition and results of operations 12-16
Part II Other information 17-18
Index of Exhibits 20
<PAGE>
PART I - FINANCIAL INFORMATION
FNB ROCHESTER CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(unaudited)
(In thousands, except per share data)
June December
30, 31,
1996 1995
____ ____
Assets
Cash and due from banks $18,207 $18,662
Interest-bearing deposits with other banks 1,038 1,061
Federal funds sold - 5,200
Securities available-for-sale, at fair
value 69,640 73,527
Securities held-to-maturity (fair value of
$30,581 in 1996 and $31,952 in 1995) 31,068 31,780
Loans:
Commercial 180,956 165,645
Mortgage 64,855 49,889
Home Equity 20,710 18,773
Consumer 23,396 19,711
______ ______
Total loans 289,917 254,018
Net deferred loan fees 124 (15)
Allowance for loan losses (5,902) (5,776)
_______ _______
Net loans 284,139 248,227
Premises and equipment, net 8,444 7,255
Accrued interest receivable 3,640 3,579
FHLB and FRB stock 1,516 1,299
Other assets 1,301 730
_____ ___
Total assets $418,993 $391,320
======= =======
Liabilities and shareholders' equity
Deposits:
Demand:
Non-interest bearing $52,375 $46,061
Interest bearing - NOW 64,762 67,639
Savings and money market 83,817 76,687
Certificates of deposit:
Under $100,000 114,141 105,929
$100,000 and over 66,247 61,559
______ ______
Total deposits 381,342 357,875
Securities sold under agreement to
repurchase and short-term borrowing 5,800 4,986
Accrued interest payable and other
liabilities 4,739 2,613
Long-term debt 210 -
___ _
Total liabilities 392,091 365,474
_______ _______
Shareholders' equity:
Common stock, $1 par value; authorized
5,000,000 shares; issued and outstanding
3,570,563 in 1996 and 3,568,963 in 1995 3,571 3,569
Additional paid in capital 13,032 13,024
Undivided profits 10,175 8,403
Unrealized net holding gain on securities
available-for-sale, net of taxes 124 850
___ ___
Total shareholders' equity 26,902 25,846
______ ______
Total liabilities and $418,993 $391,320
shareholders' equity ======= =======
See accompanying notes to condensed consolidated financial
statements
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except for share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
Interest income: ____ ____ ____ ____
<S> <C> <C> <C> <C>
Interest and fees on
loans:
Commercial $ 8,210 $ 7,114 $4,196 $3,700
Mortgage 2,084 1,303 1,138 690
Home equity 925 1,013 468 509
Consumer 906 750 482 407
___ ___ ___ ___
Total interest and
fees on loans 12,125 10,180 6,284 5,306
Federal funds sold and
time deposits 97 350 33 178
Securities 3,302 3,419 1,620 1,781
_____ _____ _____ _____
Total interest income 15,524 13,949 7,937 7,265
______ ______ _____ _____
Interest expense:
Savings, NOW and money
market accounts 1,511 1,706 771 871
Certificates of deposit 4,823 3,880 2,480 2,135
Short-term borrowing and
other 82 182 29 92
__ ___ __ __
Total interest expense 6,416 5,768 3,280 3,098
_____ _____ _____ _____
Net interest income 9,108 8,181 4,657 4,167
Provision for loan losses - - - -
_ _ _ _
Net interest income
after provision for
loan losses 9,108 8,181 4,657 4,167
_____ _____ _____ _____
Non-interest income:
Service charges on
deposit accounts 719 589 375 302
Credit card fees 349 311 197 165
Loan servicing fees 137 148 67 72
Other operating income 295 244 137 146
___ ___ ___ ___
Total non-interest
income 1,500 1,292 776 685
____ _____ ___ ___
Non-interest expense:
Salaries and employee
benefits 4,513 3,982 2,234 1,972
Occupancy 1,666 1,278 844 614
Marketing and public
relations 267 298 117 144
Office supplies,
printing and postage 314 282 164 153
Processing fees 493 476 229 249
F.D.I.C. assessments 1 331 - 166
Legal 126 158 63 77
Other 768 772 389 381
___ ___ ___ ___
Total non-interest
expenses 8,148 7,577 4,040 3,756
_____ _____ _____ _____
Income before income
taxes 2,460 1,896 1,393 1,096
Income tax expense 689 603 390 304
___ ___ ___ ___
Net income $1,771 $1,293 $1,003 $792
===== ===== ===== ===
Weighted average
shares outstanding
-primary 3,569,737 3,568,713 3,570,510 3,568,713
========= ========= _________ _________
Net income per
common share -
primary $ .50 $ .36 $ .28 $ .22
=== === == ==
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six months ended
June 30,
1996 1995
____ ____
Cash flows from operating activities:
Net income $ 1,771 $ 1,293
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 690 545
Amortization of goodwill 79 119
Gain on sales of securities available - (53)
for-sale
Increase in mortgage loans
held-for-sale (405) (185)
Increase in accrued interest
receivable (61) (293)
(Increase) decrease in other assets (209) 156
Increase in accrued interest payable
and other liabilities 2,179 358
_____ ___
Net cash provided by operating
activities 4,044 1,940
_____ _____
Cash flows from investing activities:
Decrease in interest bearing deposits - 77
Securities available-for-sale:
Purchase of securities (11,613) (11,201)
Proceeds from maturities 10,259 3,065
Proceeds from sales 4,022 7,033
Securities held-to-maturity:
Purchase of securities (2,503) (5,243)
Proceeds from maturities 3,215 784
Loan origination and principal
collection, net (35,507) (29,798)
Capital expenditures, net (1,879) (772)
Increase in other assets - investing (217) (958)
___ ___
Net cash used by investing
activities (34,223) (37,013)
______ ______
Cash flows from financing activities:
Net decrease in demand, savings, NOW
and money market accounts 10,567 9,766
Certificates of deposit accepted and
repaid, net 12,900 35,698
Increase (decrease) in short-term
borrowings and securities
sold under agreement to repurchase 814 (1,075)
Increase in long-term debt 210 -
Exercise of options to purchase
common stock 10 -
__ _
Net cash provided by financing
activities 24,501 44,389
______ ______
Increase (decrease) in cash and cash
equivalents (5,678) 9,316
Cash and cash equivalents at
beginning of year 23,923 19,281
______ ______
Cash and cash equivalents at
end of period $18,245 $28,597
====== ======
Supplemental disclosure of non-cash
investing and financing activities
Transfer of loan from in-substance
foreclosure to commercial loans - 1,160
The Company paid cash during the six months
ended June 30, 1996 and 1995 as follows:
Cash paid for interest $ 6,305 $ 5,624
Cash paid for taxes 535 350
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
FNB Rochester Corp. (the Company) operates as a bank holding
company. Its only subsidiary is First National Bank of
Rochester (the Bank). The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiary, the Bank. All material intercompany accounts
and transactions have been eliminated in the consolidation.
The financial information is prepared in conformity with
generally accepted accounting principles and such principles
are applied on a basis consistent with those reflected in
the December 31, 1995 Form 10-K Report of the Company filed
with the Securities and Exchange Commission. The financial
information included herein has been prepared by management
without audit by independent certified public accountants.
The information furnished includes all adjustments and
accruals, solely of a normal recurring nature, that are in
the opinion of management necessary for a fair presentation
of results for the interim period ended June 30, 1996.
Amounts in prior periods' financial statements are
reclassified whenever necessary to conform with current
presentation.
(2) Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
SFAS Statement No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities (Statement) was issued in June 1996 and is
applicable to all entities, both public and non-public.
This Statement provides accounting and reporting standards
for transfers and servicing of financial assets and
extinguishments of liabilities based on a consistent
application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets
that are sales from transfers that are secured borrowing.
Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred
and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The financial-
components approach focuses on the assets and liabilities
that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a
secured borrowing with pledge of collateral.
The Statement is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
Management has determined that the adoption of this
Statement will not have a material impact on the Company's
operating results.
(3) Allowance for Loan Losses
The Financial Accounting Standards Board issued Statement
114 Accounting by Creditors for Impairment of a Loan as
amended by Statement 118, Accounting by Creditors for
Impairment of a Loan - Income and Disclosure. These
statements prescribe recognition criteria for loan
impairment, generally related to commercial type loans, and
measurement methods for certain impaired loans and all loans
whose terms are modified in troubled debt restructuring
subsequent to the adoption of these statements. A loan is
considered impaired when it is probable that the borrower
will be unable to repay the loan according to the original
contractual terms of the loan agreement.
As of January 1, 1995, the Company has adopted the
provisions of SFAS No. 114 and SFAS 118 and has provided the
required disclosures. The effect of adoption was not
material to the consolidated financial statements. As of
January 1, 1995, all of the Company's in substance
foreclosed assets were reclassified into impaired loan
status as required by SFAS No. 114. For all prior periods
presented, all amounts related to in substance foreclosures
have also been reclassified. These reclassifications did
not impact the Company's consolidated financial condition or
results of operations.
As a result of the adoption of SFAS No. 114, the allowance
for loan losses related to impaired loans that are
identified for evaluation in accordance with SFAS No. 114 is
based on the present value of expected cash flows discounted
at the loan's initial effective interest rate, except that
as a practical expedient, impairment may be measured at the
loan's observable market price, or the fair value of the
collateral for certain loans where repayment of the loan is
expected to be provided solely by the underlying collateral
(collateral dependent loans). The Company's impaired loans
are generally collateral dependent.
The Company considers estimated costs to sell, on a
discounted basis, when determining the fair value of
collateral in the measurement of impairment if those costs
are expected to reduce the cash flows available to repay or
otherwise satisfy the loans. Prior to the adoption of SFAS
No. 114 and 118, the allowance for possible loan losses
related to these loans was based on estimated undiscounted
cash flows or the fair value of the collateral, less
estimated costs to sell for collateral dependent loans.
Other real estate owned included both formally foreclosed
and in-substance foreclosed real properties. In accordance
with SFAS No. 114, a loan is classified as an in-substance
foreclosure when the Company has taken possession of the
collateral regardless of whether formal foreclosure
proceedings have taken place. Prior to the adoption of SFAS
No. 114 and SFAS No. 118, in-substance foreclosed properties
included those properties where the borrower has little or
no remaining equity in the property considering its fair
value, where repayment was only expected to come from the
operation or sale of the property; and where the borrower
had effectively abandoned control of the property or it was
doubtful that the borrower would be able to rebuild equity
in the property.
Changes in the allowance for loan losses for the six months
ended June 30, 1996 and 1995 are as follows:
1996 1995
____ ____
Balance at beginning of
period $5,776 $6,452
Provisions (recovery) for
possible loan losses - -
Loans charged off (63) (140)
Recoveries on loans
previously charged-off 189 146
___ ___
Balance at end of period $5,902 $6,458
===== ====
At June 30, 1996, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled
$253,000. The average recorded investments in impaired
loans during the six months ended June 30, 1996 was
approximately $245,000.
Impaired loans are included in non-performing loans,
generally as non-accrual loans. Commercial type loans past
due greater than 90 days and still accruing are generally
not considered to be impaired as the Company expects to
collect all amounts due, including interest accrued at the
contractual interest rate for the delinquent period.
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.
For the six months ended June 30, 1996, the Company
recognized no interest income on the impaired loans.
(4) Income per Common Share
Per share data is based upon the weighted average number of
common shares outstanding during the year. Common share
equivalents (stock options) were not used in the income per
share calculation for the period ended June 31, 1996 or 1995
as they dilute earnings per share by less than 3 percent.
Fully diluted per share data is not applicable. Because
common share equivalents (stock options) were used in the
calculation of first quarter 1996 earnings, the total of the
first and second quarter earnings per share do not equal the
year-to-date earnings per share.
(5) Stock Option Plans
The Company has incentive stock option plans under which
options to acquire 325,000 shares of its common stock were
available to grant to key employees and options to acquire
25,000 shares of its common stock were available to grant
to directors. At June 30, 1996, options to purchase 299,100
shares were held by grantees under the plan. The range of
exercise prices of the options is $5.63 to $8.32 per share
with an average exercise price of $7.02 per share. At June
30, 1996, options to acquire 206,100 shares were
exercisable. The remaining options become exercisable at
various times through December 1997. As of June 30, 1996
options to acquire 1,850 shares have been exercised.
(6) Dividends
At the March 1992 Board of Director's meeting, the Board
approved the suspension of the dividend on common stock as
part of its plan to preserve capital. No dividends have
been paid since 1991.
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed consolidated financial statements.
Management's discussion and analysis supplements management's
discussion and analysis for the year ended December 31, 1995
contained in Company's Form 10-K for the period then ended and
includes certain known trends, events and uncertainties that are
reasonably expected to have a material effect on the Company's
Financial position or operating results.
Overview
As in the first quarter of 1996, both loans and deposits have
continued to grow. At June 30, 1996 loans totaled $290 million,
an increase of $36 million, or 14.1% from year end 1995.
Increases in loans were primarily in commercial loans and
residential mortgages. Deposits were $381.3 million which is an
increase of $23.5 million from year end. All deposit categories,
with the exception of NOW accounts, have shown increases year to
date and all deposit categories have shown increases in the
second quarter. NOW accounts declined in the quarter ended
March 31, 1996 primarily because of a large account moving to
trust assets. $12.9 million of the increase has been in
certificates of deposit and of that amount $4.7 million is in
certificates of $100,000 or more. Although $100,000 certificates
have increased since December 31, 1995 they have declined $2.8
million since March 31, 1996. Increases in the number of public
fund banking relationships in the Company's banking offices
contributed to the increase in large certificates of deposit.
Management has made the decision, on a temporary basis, to fund a
portion of its loan originations with public fund certificates of
deposit as a lower interest cost alternative to securities sold
under agreement to repurchase or other long or short term
borrowing. Short term borrowing is being used only to fund very
short term liquidity needs. Other liabilities have increased
from the period ended December 31, 1995 because of a Government
National Mortgage Association security which was purchased in
June 1996 for settlement on July 24, 1996. Non-performing assets
are up slightly at June 30, 1996 to $2.1 million and .73% of
total loans and real estate acquired by foreclosure, from .67% at
year end 1995.
Net income for the six months ended June 30, 1996 increased
$478,000, or 37%, to $1,771,000 from $1,293,000 for the same
period in 1995. Income per share increased to $.50, up $.14 in
comparison to $.36 for the six months ended June 30, 1995. For
the three-month period income was $1,003,000, for an increase of
$211,000, or 26.6%. The increase in income for both the three-
month and six-month periods was primarily due to an increase in
net interest income. For the six-month period ended June 30,
1996, non-interest income increased $208,000, or 16.1%, and non-
interest expense increased $571,000, or 7.5%. 1996 non-interest
expense showed increases in salaries and employee benefits and
occupancy and was partially offset by a decrease in Federal
Deposit Insurance assessment.
Net Interest Income
Net interest income for the six-month period increased $927,000,
or 11.3%, as compared to the period ended June 30, 1995.
Increased small business and residential mortgage lending
activity funded primarily with deposit growth continues to be the
Bank's main focus. The increase in net interest income is
primarily the result of increased commercial loan and residential
mortgage loan volumes with offsetting interest expense from
increased certificate of deposit volumes. The net interest
margin has remained relatively stable through 1995 and the first
six months of 1996. During this period the net interest margin
has been at a high of 4.97% and a low of 4.83%. While management
is attempting to maintain interest margins, anticipated increases
in interest costs of certificates of deposit and other borrowed
funds may make it increasingly difficult to do so. Interest
margins may decline in the future months as much of the Bank=s
funding growth is expected to be in higher-yielding certificates
of deposit or other borrowed funds, and as the Bank may need
funding to offset the outflow of deposits from the anticipated
sale of the Odessa Banking Office (see Sale of Odessa Banking
Office).
Increased loan volume caused interest and fees on loans to
increase $978,000, or 18.4%, for the three-month period ended
June 30, 1996 and $1,945,000, or 19.1%, for the six-month period
as compared to the same period in 1995.
Average commercial loans increased $33 million, or 23.3%, from
the period ended June 30, 1995 to the period ended June 30, 1996.
The increased volume contributed $1,553,000 to income, which was
partially offset by rate declines that reduced income by
$457,000. Average mortgage loans increased $21.7 million, or
63.8%. The increase in the mortgage portfolio was primarily made
up of 15 year fixed rate mortgages. The rates for mortgages
being placed in the portfolio in 1996 show little change from
1995 and the $781,000 increase in interest income was primarily
caused by the increase in volume. Average home equity loans
declined $923,000 and income has declined $88,000. Average
consumer loans increased $2.4 million, or 13.2%, and the result
for the period was an increase in interest income of $106,000
from volume and $50,000 from higher rates.
Interest expense increased $648,000, or 11.2%, for the six-month
period ended June 30, 1996 as compared to the period ended June
30, 1995. The savings, NOW, and money market categories of
deposits have shown a decrease in interest expense of $13,000
from declining deposit volumes and a decrease of $182,000 from
decreased rates. Together, average savings, NOW and money market
accounts have showed no growth year to date but have increased a
net total of $4.5 million from the period ended March 31, 1996.
Certificates of deposit increased $12.1 million for the three-
month period and $20.7 million for the six-month period ended
June 30, 1996 from December 31, 1995. The Bank's deposit growth
in certificates of deposit resulted in $813,000 additional
interest expense due to increased balances and $130,000 because
of increased rates. Average total certificates of deposit have
increased $38.9 million from June 30, 1995 to June 30, 1996.
During the remainder of this year, much of the Bank's deposit
growth may be in certificates of deposit.
Provision for Loan Losses
The Bank provides for loan losses by a charge to current
operations. The provision is based upon discretionary
adjustments which, in the opinion of management, are necessary to
bring the allowance to an appropriate level considering the
character of the loan portfolio, current economic conditions,
analyses of specific loans, and historical loss experience.
The Bank had net recoveries of $126,000 for the six-month period
ended June 30, 1996 as compared to net recoveries of $6,000 for
the same period in 1995. Net recoveries (annualized) as a
percent of average loans were .09% and .01% for the six months
ended June 30, 1996 and 1995. The ratios of the allowance for
possible loan losses as a percent of period end loans for the
comparable period were 2.03% and 2.49% respectively. Non
performing assets declined 38.2% to $2.1 million at June 30, 1996
from $3.4 million at June 30, 1995. Management undertakes a
quarterly analysis to assess the adequacy of the allowance for
possible loan losses taking into account non-performing and
delinquent loans, internally criticized loans, historical trends,
economic factors, and overall credit administration. Based on
this analysis, the allowance is considered adequate at June 30,
1996 to absorb anticipated losses. It is anticipated that
further additions to the allowance will not be necessary in 1996
unless there are significant changes in the local economy or
higher than anticipated loan growth.
Non-Interest Income and Non-Interest Expense
Non-interest income of $1,500,000 for the first six months of
1996 represents an increase of $208,000, or 16.1%, from
$1,292,000 for the comparable period in 1995. The increase was
primarily caused by increases in service charges on deposit
accounts. Non-interest income for the three-month period ended
June 30, 1996 increased $91,000, or 13.3%, over the same period
in 1995.
Non-interest expense was $8,148,000 for the first six months of
1996 as compared to $7,577,000 for the comparable period in 1995,
an increase of $571,000, or 7.5%. The largest components of non-
interest expense for the six-month period ended June 30, 1996
were salaries and employee benefits of $4,513,000 which increased
$531,000, or 13.3%, from $3,982,000 for the same period in 1995
and occupancy which increased $388,000, or 30.4%. Both increases
were caused primarily by expenses associated with new banking
offices as well as the addition of personnel to both trust and
commercial lending. The Bank opened three new banking offices in
1995 and a fourth in 1996 as well as moving an existing office to
a new facility in January of 1996. The Town of Greece, NY
banking office has recently been demolished and a new facility is
under construction on the site. Occupancy expense has also
increased because of technological improvements. Offsetting the
increases was a reduction in Federal Deposit Insurance assessment
of $330,000. With continued growth and facility upgrades, as
well as technological improvements, the Bank's operating expenses
are expected to continue to increase.
Provision for Income Taxes
The provision for income tax was $689,000 for the period ended
June 30, 1996 as compared to $603,000 at June 30, 1995. The
Company's effective tax rates for the periods were 28% and 31.8%
for 1996 and 1995 respectively. The decreased effective rate for
1996 was caused by the Company's ability to recognize deductible
temporary differences in 1996 for which a valuation allowance had
previously been established.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The realization of deductible temporary differences depends on
the Company having sufficient taxable income within the carry
back period permitted by the tax law to allow for utilization of
deductible amounts. A valuation allowance has been established
for the portion of the Company's net deductible temporary
differences which are not expected to be realized.
Capital Adequacy
Total shareholders' equity was $26,902,000 at June 30, 1996,
which represents an increase of $1,056,000, or 4.1% from
$25,846,000 at December 31, 1995. Capital increased primarily
because of $1,771,000 from earnings and was offset by a decline
of $726,000 from a decrease in the market value of the available-
for-sale securities portfolio.
At June 30, 1996, the Company and its banking subsidiary exceeded
the minimum guidelines for Tier 1 and Total Risk-Based Capital of
4% and 8%, respectively. The Company's ratios were 9.68% and
10.94% respectively, at June 30, 1996. Banking organizations
must also maintain a minimum Tier 1 Leverage Ratio of 3% of
assets. Banking organizations that are not top-rated according
to regulators' "Camel" ratings, however must meet leverage ratios
of at least 100 basis points above the 3% standard. The
Company's Tier 1 Leverage Ratio at June 30, 1996 was 6.43%.
Liquidity
Liquidity measures the ability to meet maturing obligations and
existing commitments, to withstand fluctuations in deposit
levels, to fund operations, and to provide for customers' credit
needs. Management carefully monitors its liquidity position and
seeks to maintain adequate liquidity to meet its needs. The
fundamental source of liquidity will continue to be deposits.
Available sources of asset liquidity include short-term
investments, loan repayments, and securities held in the
available-for-sale portfolio. Additionally, the Bank has the
ability to pledge securities to secure short-term borrowing. The
Bank is a member of the Federal Home Loan Bank which provides an
additional source of funding.
The vast majority of the assets of the Company are held by the
Bank. Dividends and cash advances to the Company from the Bank
are subject to standard bank regulatory constraints. An analysis
of projected expenses and cash flows indicates that the Company
has sufficient cash to meet its anticipated cash obligations
through 1996.
Sale of Odessa Banking Office
The Bank signed an agreement on July 10, 1996, with Tompkins
County Trust Company to sell its Odessa N.Y. Banking Office. The
office has customer deposits totaling approximately $10 million
and the transaction, which is pending regulatory approval, is
expected to close no later than the fourth quarter of 1996. The
Bank anticipates a premium of approximately $500,000 as well as
realizing a gain of approximately $100,000 on the sale of the
land, building, certain loans and other assets. The Odessa
Office is the only remaining office not located in any of the
Bank's primary market areas and the sale will allow the Bank to
refocus its resources.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
a) An Annual Meeting of Shareholders of FNB Rochester
Corp. was held May 28, 1996 for the following purpose:
1) Eight directors were elected for the ensuing year
and votes were cast as follows:
<TABLE>
<CAPTION>
Broker Other
Votes Non- Non-
Name For Withheld Abstain Against Vote Vote
____ _____ ________ _______ _______ _____ _____
<S> <C> <C> <C> <C> <C> <C>
R. Carlos Carballada 2,984,909 12,663 0 0 0 0
Michael J. Falcone 2,982,520 15,052 0 0 0 0
Joseph M. Lobozzo II 2,984,194 13,378 0 0 0 0
Francis T. Lombardi 2,979,711 17,861 0 0 0 0
Carl R. Reynolds 2,984,161 13,411 0 0 0 0
H. Bruce Russell 2,980,639 16,933 0 0 0 0
James D. Ryan 2,979,710 17,862 0 0 0 0
Linda Cornell
Weinstein 2,983,194 14,378 0 0 0 0
</TABLE>
2) Approval of amendment to 1992 Stock Option Plan and of
Option Grants thereunder
Votes Broker Other
For Against Abstain Non-Vote Non-Vote
_____ _______ _______ ________ ________
2,809,678 151,514 15,917 20,463 0
3) Approval of 1995 Non-Employee Director Stock Option
Plan and of Option Grants thereunder
Votes Broker Other
For Against Abstain Non-Vote Non-Vote
_____ _______ _______ _________ ________
2,857,111 97,627 22,371 20,463 0
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit Incorporation by
Reference or page in
sequential numbering
where exhibit may be
found:
(3.1) Certificate of Exhibits 4.2-4.5 to
Incorporation as Registration Statement
amended, of the 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) Extension of Page 22
Employment Agreement
between the Registrant
and R. Carlos Carballada
(10.2) 1992 Stock Option Appendix A to Proxy
Plan (as amended May 28, Statement dated April 24,
1996) 1996 for Annual Meeting
of Shareholders held
May 28, 1996
(10.3) 1995 Non-employee Appendix B to Proxy
Director Stock Option Statement dated April 24,
Plan 1996 for Annual Meeting
of Shareholders held
May 28, 1996
(27) Financial Data Page 21
Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FNB ROCHESTER CORP.
Date August 12, 1996 s\s Stacy C. Campbell
Stacy C. Campbell
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
<PAGE>
INDEX OF EXHIBITS
Exhibit Incorporation by
Reference or page in
sequential numbering
where exhibit may be
found:
(3.1) Certificate of Exhibits 4.2-4.5 to
Incorporation as amended, Registration Statement
of the Registrant. No. 33-7244, filed July
22, 1986
(3.2) Amendment to Exhibit 3 to Form 10-Q
Certificate of Incorporation for period ended June 30,
of Registrant dated 1992
August 6, 1992
(3.3) By-laws of the Exhibit 3.3 to Annual
Registrant, as amended. Report on Form 10-K for
the year ended December
31, 1992
(10.1) Extension of Page 22
Employment Agreement between
the Registrant and R. Carlos
Carballada
(10.2) 1992 Stock Option Appendix A to Proxy
Plan (as amended May 28, Statement dated April 24,
1996) 1996 for Annual Meeting
of Shareholders held
May 28, 1996
(10.3) 1995 Non-employee Appendix B to Proxy
Director Stock Option Plan Statement dated April 24,
1996 for Annual Meeting
of Shareholders held
May 28, 1996
(27) Financial Data Schedule Page 21
June 25, 1996
Mr. R. Carlos Carballada
c/o First National Bank of Rochester
35 State Street
Rochester, NY 14614
Re: Employment Agreement
Dear Carl:
The Board of Directors of FNB Rochester Corp. (the "Company") is
pleased to offer you an extension of your employment agreement
with the Company (the "Agreement") covering your services as
President and Chief Executive Officer of the Company and of First
National Bank of Rochester. The term of the Agreement, which was
originally entered into on June 8, 1992, was previously extended
to June 30, 1997 by letter agreement dated February 22, 1994.
Subject to the terms of this letter and the modifications to the
Agreement stated herein, the Agreement, which would have expired
on June 30, 1997, will continue to govern your employment with
the Company through June 30, 1998 and, as set forth below, shall
be automatically extended for successive additional one year
periods to new Agreement expiration dates of June 30, 1999 and
June 30, 2000, unless either (1) the Board gives you written
notice of its decision not to so extend the Agreement at least
one year prior to any applicable Agreement expiration date or (2)
you give the Board the same written notice of your decision not
to extend the Agreement.
Effective with the 1996 calendar year, you shall be entitled to
six weeks of vacation per year instead of five weeks of vacation
per year and Section 6 of the Agreement is modified accordingly.
All provisions of the Agreement are intended to be consistent
with and to comply with all applicable laws or regulations
enacted or promulgated both before and after the execution date
of this letter, and to the extent that any provision of the
Agreement is inconsistent or not in compliance with applicable
laws or regulations, that part which is inconsistent or not in
compliance shall be deemed void.
Except as expressly modified by the terms of this letter, the
Agreement shall otherwise remain in full force and effect and may
not be further modified or amended except in a writing executed
by you and the Company. Upon your acceptance of this
modification to the Agreement, the letter agreement of February
22, 1994 shall be deemed to be superseded and replaced. For
purposes of the Change of Control Employment Agreement among you,
the Company and First National Bank of Rochester dated as of
February 1, 1996, the term "Existing Employment Agreement" shall
hereafter mean the Agreement as extended and modified by this
letter agreement.
If you wish to accept this extension and modification of the
Agreement, please indicate your acceptance and agreement in the
space indicated below and return an executed copy of this letter
to the undersigned.
Very truly yours,
FNB ROCHESTER CORP.
By s/Joseph M. Lobozzo II 6-25-96
----------------------------------------
Joseph M. Lobozzo II, Director and
Chairman - Nominating and Compensation Committee
The foregoing extension of the June 8, 1992 employment agreement
as previously extended by letter agreement dated February 22,
1994 is accepted and agreed to this 27th day of June 1996.
s/ R. Carlos Carballada
--------------------------
R. Carlos Carballada
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,207
<INT-BEARING-DEPOSITS> 1,038
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,640
<INVESTMENTS-CARRYING> 31,068
<INVESTMENTS-MARKET> 30,581
<LOANS> 290,041
<ALLOWANCE> 5,902
<TOTAL-ASSETS> 418,993
<DEPOSITS> 381,342
<SHORT-TERM> 5,800
<LIABILITIES-OTHER> 4,739
<LONG-TERM> 210
0
0
<COMMON> 3,571
<OTHER-SE> 23,331
<TOTAL-LIABILITIES-AND-EQUITY> 418,993
<INTEREST-LOAN> 12,125
<INTEREST-INVEST> 3,302
<INTEREST-OTHER> 97
<INTEREST-TOTAL> 15,524
<INTEREST-DEPOSIT> 6,334
<INTEREST-EXPENSE> 6,416
<INTEREST-INCOME-NET> 9,108
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,148
<INCOME-PRETAX> 2,460
<INCOME-PRE-EXTRAORDINARY> 1,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,771
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 4.85
<LOANS-NON> 1,865
<LOANS-PAST> 246
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,776
<CHARGE-OFFS> 63
<RECOVERIES> 189
<ALLOWANCE-CLOSE> 5,902
<ALLOWANCE-DOMESTIC> 5,902
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
