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, 1997
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 Registrant's
Registrant's
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)
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
--- ---
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 ___.
<PAGE>
The aggregate market value of the 2,245,076 shares of Common Stock-Voting held
by non-affiliates of the registrant at March 13, 1998 (based on the average of
high and low prices on March 13, 1998) was $44,340,251. 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 13, 1998 was 3,603,732.
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 1997 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 19, 1998.
<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, 1997, the Company had
consolidated assets and deposits of $522.4 million and $469.8 million,
respectively. The Bank is a member of the Federal Reserve System and its
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC").
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 fifteen banking offices are located in Monroe,
Chemung, Erie, and Onondaga Counties in New York State. The Bank sold its Odessa
office in Schuyler County in 1996 and 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 in a suburban section of Erie
County. In August 1994, the Buffalo office became a full service branch.
A new loan production office was opened in the suburban Buffalo community of
Orchard Park in 1997. The Buffalo and Downtown Syracuse 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 thirteen 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, 1997, the Bank had approximately
48,087 deposit accounts and 12,841 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 accounts receivable financing services to a variety of businesses. The Bank
also provides cash management services to businesses and professionals and
operates a merchant credit card program. The Bank's consumer loan department
makes direct auto, home equity, home improvement, and personal loans to
individuals. The Bank offers safe deposit box services at twelve of the banking
offices.
The Trust & Investment Division of First National was expanded 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. The
market value of assets under management increased $5.4 million, or 8.4%, from
$64.6 million at year end 1996 to $70 million at year end 1997, 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, 1997, the Company had 243 employees of whom 46 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 twelve commercial and savings institutions
competing for deposits and loans in Monroe County. Approximately eight
commercial and savings institutions compete in Chemung County. 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 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 risk areas as
capital adequacy, reserves, loans, investments, management practices, and other
aspects of the Bank's' operations. 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 quarterly
statutory assessment.
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 bank 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 deregulation of both banks and other 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.
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, 1997
Item 2. Properties
The Bank operates fifteen banking offices and one loan production office. Eight
of the offices are owned (five are on leased land), six are leased, one is
rented on a month to month basis, and the loan production office is leased for
one year. 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 Bank
has also entered into land leases for new offices to be built in the Town of
Victor (Ontario County) and Village of Brockport and a new office to be built on
Monroe Avenue to replace the existing Pittsford Banking Office. The three new
facilities will be opened and the leases will commence in the second half of
1998. Additionally the Bank has leased space to open an office in a Rochester
supermarket. The opening date is expected to be in the second quarter of 1998.
The growth of the Bank and the anticipated growth from the new offices requires
additional space for operations. To fulfill that need, the Bank has leased
additional office space in the Powers Building. 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, Rochester, NY Four Corners Banking Office L 12/31/09
Bank Office Space
1 E. Main St., Rochester, NY Subleased L 08/31/01
3140 Monroe Ave., Rochester, NY Pittsford Banking Office O
2147 W. Ridge Rd., Rochester, NY Greece Banking Office O
Hard & Ridge Rd., Webster, NY Webster Banking Office O
1000 E. Ridge Rd., Rochester, NY Irondequoit Banking Office LL 11/30/02
28 N. Main St., Honeoye Falls, NY Honeoye Falls Banking Office L 01/31/11
3333 W. Henrietta Rd., Rochester, NY Henrietta Banking Office L 01/07/16
Warren & Washington Sts., Syracuse, NY Syracuse Banking Office L 05/31/05
Miracle Mile, Elmira, NY Horseheads Banking Office LL 06/30/03
Broadway & Pennsylvania Ave., Elmira, NY Southport Banking Office L 02/28/00
Snyder Square, Amherst, NY Buffalo Banking Office L Monthly
6435 W. Quaker St, Orchard Park, NY Buffalo Loan Office L 03/15/99
214 W. Commercial St., E. Rochester, NY E. Rochester Banking Office L 02/28/03
3175 Chili Ave., Rochester, NY Chili Banking Office LL 09/09/15
Penfield Rd. & Rt. 250, Rochester, NY Penfield Banking Office LL 12/24/15
Pittsford/Palmyra Rd. & Rt. 250 Perinton Banking Office LL 03/31/16
Rochester, NY
3349 Monroe Ave., Rochester, NY Pittsford Banking Office (new) LL * 2018
6660 Fourth Section Rd., Brockport, NY Brockport Banking Office LL ** 2018
Rt 96, Victor-Pittsford Rd., Victor, NY Victor Banking Office LL ** 2018
289 Upper Falls Blvd., Rochester, NY Upper Falls Banking Office L *** 2003
</TABLE>
* Moving an existing office. Construction of building not yet started.
** OCC domestic branch approval obtained. Construction of building not yet
started.
***OCC domestic branch approval obtained. In store office is under
construction and expected to open April 1, 1998.
The 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 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. With new leases signed in the first quarter of 1998 the
Powers Building space has increased to approximately 44,000 square feet. The
space in the Wilder Building that the Bank continues to lease is approximately
4,700 square feet and all of that space is subleased.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1997, 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 and dividends
declared for the Company's common stock for the years ended December 31, 1997
and December 31, 1996. The dividends were declared during the last month of the
applicable fiscal quarters indicated and were paid to shareholders of record
during the calendar month following such quarter. 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 Dividends
Bid Price (low-high) Declared
--------- ---------- ---------
1997
First quarter ..................... $ 12.00 - 15.75
Second quarter .................... 12.25 - 15.13 $ .07
Third quarter ...................... 14.00 - 17.50
Fourth quarter ..................... 16.00 - 20.25 $ .10
-------- --------
$ 12.00 - 20.25
-------- --------
1996
First quarter ...................... $ 9.38 - 10.00
Second quarter ..................... 9.00 - 10.25
Third quarter ...................... 8.63 - 10.38
Fourth quarter ..................... 10.13 - 13.13 $ .05
-------- --------
$ 8.63 - 13.13
-------- --------
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 13, 1998, the Company had approximately 748
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, 1997, 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, 1997, submitted
herewith as an exhibit, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information under the caption "Quantitative and Qualitative Disclosures
About Market Risk" included in the Company's Annual Report to Shareholders for
the year ended December 31, 1997, 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
Subsidiary as of December 31, 1997 and 1996 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, 1997 together with
the related notes and the report of KPMG Peat Marwick LLP, independent auditors,
dated January 20, 1998, and the information under the caption "Quarterly
Financial Information" (unaudited), all contained in the Company's 1997 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 1998 annual meeting of shareholders to be held on or about May 19,
1998.
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 1998 annual meeting of shareholders to be
held on or about May 19, 1998, 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 1998 annual meeting of shareholders to be held on or about
May 19, 1998.
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 1998 annual
meeting of shareholders to be held on or about May 19, 1998.
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 1997
Annual Report to Shareholders which, as indicated below, is included as
Exhibit 13 of this report.
Page
- Independent Auditors' Report..........................................74
- Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996...........................................75
- Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996,
and 1995.............................................................76
- Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1997, 1996, and 1995...............78
- Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ....................................79
- Notes to Consolidated Financial Statements...........................81
(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
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference or page in
sequential numbering where exhibit may be
found:
<S> <C>
(3.1) Certificate of Incorporation, of the Exhibits 4.2-4.5 to Registration Statement
Registrant, as amended No. 33-7244, filed July 22, 1986
(3.2) Amendment to Certificate of Exhibit 3 to Form 10-Q for period ended
Incorporation of Registrant dated August 6, June 30, 1992
1992
(3.3) By-laws of the Registrant, as Exhibit 3.3 to Annual Report on Form 10-K
amended for the year ended December 31, 1992
(10.1) 1992 Stock Option Plan (as amended Page 19
May 28, 1996)*
(10.2) 1995 Non-employee Director Stock Page 25
Option Plan *
(10.3) Employment Agreement dated June Exhibit 1 to Form 8-K filed June 23, 1992
8, 1992 between the Registrant and R.
Carlos Carballada*
(10.4) Extension of Employment Agreement Exhibit 10.1 to Form 10-Q for period ended
between the Registrant and R. Carlos June 30, 1996
Carballada*
(10.5) Change of Control Employment Exhibit 10.4 to Annual Report on
Agreement among the Registrant, First Form 10-K for the year ended December 31, 1995
National and R. Carlos Carballada*
(10.6) Form of Change of Control Exhibit 10.5 to Annual Report on Form 10-K
Employment Agreement between First for the year ended December 31, 1995
National and each Executive Officer other
than R. Carlos Carballada*
(10.7) Form of Stock Option Agreement Exhibit 4.2 to Form S-8 Registration Statement
pursuant to 1992 Stock Option Plan between No. 333-15325, filed November 1, 1996
the Registrant and each Executive Officer*
(10.8) Form of Stock Option Agreement Exhibit 4.4 to Form S-8 Registration
pursuant to 1995 Non-employee Director Statement No. 333-15325, filed November 1,
Stock Option Plan between the Registrant 1996
and each outside Director of the Registrant*
(10.9) 401(k) Stock Purchase Plan * Exhibit 4.5 to Form S-8 Registration Statement
No. 333-15325, filed November 1, 1996
(10.10) Employee Stock Purchase Plan * Exhibit 4.6 to Form S-8 Registration Statement
No. 333-15325, filed November 1, 1996
(10.11) Loan agreements between First Exhibits 10.14 and 10.15 to Form 8 filed
National and Executive Square Associates, April 22, 1992
related to Estate of Fred B. Kravetz
(10.12) Loan agreement between First Exhibit 10.17 to Form 8 filed April 22, 1992
National and Pioneer Daycare Company,
related to Michael J. Falcone
(10.13) Loan agreements between First Exhibit 10.19 to Form 8 filed April 22, 1992
National and Carl R. Reynolds
(10.14) Line of Credit agreements between Exhibit 10.17 to Annual Report on
First National and JML Optical Industries, Form 10-K for the year ended
Inc., related to Joseph M. Lobozzo II December 31, 1993
(10.15) Loan agreements between First Exhibit 10.13 to Annual Report on Form
National and Joseph M. Lobozzo II 10-K for the year ended December 31, 1994
(10.16) Loan modification agreements Exhibit 10.15 to Annual Report on Form 10-K
between First National and Executive Square for year ended December 31, 1994
Associates, related to Estate of Fred B.
Kravetz
(10.17) Loan modification agreements Exhibit 10.16 to Annual Report on Form 10-K
between First National and Pioneer Daycare for year ended December 31, 1994
Company, related to Michael J. Falcone
(10.18) Residential Mortgage Loan Exhibit 10.1 to Form 10-Q for period ended
Agreement between Stacy C. Campbell and June 30, 1997
First National
(10.19) Lease Agreement between Exhibit 10.2 to Form 10-Q for the period ended
Southtown Plaza Associates, related to June 30, 1995
William Levine, and First National
(10.20) Residential Mortgage Loan Exhibit 10.1 to Form 10-Q for period ended
Agreements between Russell Family September 30, 1995
Associates, related to H. Bruce Russell, and
First National
(10.21) Commercial Loan Agreements Page 30
between V & K Associates, related to Estate
of Fred B. Kravetz, and First National
(10.22) Commercial Line of Credit Exhibit 10.3 to Form 10-Q for period ended
Agreement between GLC Outsourcing September 30, 1995
Services, Inc., related to James D. Ryan, and
First National
(10.23) Commercial Loan Agreements Exhibit 10.23 to Annual Report on Form 10-K
between Estate of Fred B. Kravetz and First for year ended December 31, 1996
National
(10.24) Commercial Loan Agreements Exhibit 10.24 to Annual Report on Form 10-K
between Deal Road Associates, L.P., related for year ended December 31, 1996
to Estate of Fred B. Kravetz, and First
National
(10.25) Commercial Line of Credit Exhibit 10.25 to Annual Report on Form 10-K
Agreements between Laurie Kuskin and for year ended December 31, 1996
First National
(10.26) Commercial Loan Agreements Exhibit 10.26 to Annual Report on Form 10-K
between Fred Kravetz and William Levine for year ended December 31, 1996
Partners, related to the Estate of Fred B.
Kravetz and to William Levine, and First
National
(13) Annual Report to Shareholders for Page 47
the year ended December 31, 1997
(21) Subsidiaries Page 107
(23) Consent of KPMG Peat Marwick LLP Page 108
(27) Financial Data Schedule Page 109
</TABLE>
* 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 17, 1998 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.
Signature Title Date
(i) Principal Executive Officer: President and Chief March 17, 1998
Executive Officer
s/ R. Carlos Carballada
---------------------------
(R. Carlos Carballada)
(ii) Principal Accounting and Senior Vice President and March 17, 1998
Financial Officer: Chief Financial Officer
s/ Stacy C. Campbell
---------------------------
(Stacy C. Campbell)
(iii) Directors:
s/ R. Carlos Carballada Director March 17, 1998
---------------------------
(R. Carlos Carballada)
s/ Michael J. Falcone
__________________________ Director March 20, 1998
(Michael J. Falcone)
s/ Gayle C. Johnston Director March 17, 1998
-------------------------
(Gayle C. Johnston)
s/ Joseph M. Lobozzo II Director March 17, 1998
--------------------------
(Joseph M. Lobozzo II)
s/ Francis T. Lombardi Director March 17, 1998
--------------------------
(Francis T. Lombardi)
s/ Carl R. Reynolds Director March 13, 1998
--------------------------
(Carl R. Reynolds)
s/ James D. Ryan Director March 17, 1998
--------------------------
(James D. Ryan)
Director March __, 1998
--------------------------
(H. Bruce Russell)
s/ Linda Cornell Weinstein Director March 20, 1998
-------------------------
(Linda Cornell Weinstein)
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Incorporation by
Reference or page in
sequential numbering
where exhibit may be
found:
<S> <C>
(3.1) Certificate of Incorporation, of the Registrant, Exhibits 4.2-4.5 to Registration Statement No.
as amended 33-7244, filed July 22, 1986
(3.2) Amendment to Certificate of Incorporation Exhibit 3 to Form 10-Q for period ended
of Registrant dated August 6, 1992 June 30, 1992
(3.3) By-laws of the Registrant, as amended Exhibit 3.3 to Annual Report on Form 10-k
for the year ended December 31, 1992
(10.1) 1992 Stock Option Plan (as amended May Page 19
28, 1996)
(10. 2) 1995 Non-employee Director Stock Option Page 25
Plan
(10.3) Employment Agreement dated June 8, 1992 Exhibit 1 to Form 8-K filed June 23, 1992
between the Registrant and R. Carlos Carballada
(10.4) Extension of Employment Agreement Exhibit 10.1 to Form 10-Q for period ended
between the Registrant and R. Carlos Carballada June 30, 1996
(10.5) Change of Control Employment Agreement Exhibit 10.4 to Annual Report on Form 10-K
among the Registrant, First National and R. Carlos for the year ended December 31, 1995
Carballada
(10.6) Form of Change of Control Employment Exhibit 10.5 to Annual Report on form 10-K
Agreement between First National and each for the year ended December 31, 1995
Executive Officer other than R. Carlos Carballada
(10.7) Form of Stock Option Agreement pursuant Exhibit 4.2 to Form S-8 Registration
to 1992 Stock Option Plan between the Registrant Statement No. 333-15325, filed November 1,
and each Executive Officer 1996
(10.8) Form of Stock Option Agreement pursuant Exhibit 4.4 to Form S-8 Registration
to 1995 Non-employee Director Stock Option Statement No. 333-15325, filed November
Plan between the Registrant and each outside 1, 1996
(10.9) 401(k) Stock Purchase Plan Exhibit 4.5 to Form S-8 Registration
Statement No. 333-15325, filed November 1,
1996
(10.10) Employee Stock Purchase Plan Exhibit 4.6 to Form S-8 Registration
Statement No. 333-15325, filed November 1,
1996
(10.11) Loan agreements between First National Exhibits 10.14 and 10.15 to Form 8
and Executive Square Associates, related to Estate filed April 22, 1992
of Fred B. Kravetz
(10.12) Loan agreements between First National Exhibit 10.17 to Form 8 filed April 22, 1992
and Pioneer Daycare Company, related to Michael
J. Falcone
(10.13) Loan agreements between First National Exhibit 10.19 to Form 8 filed April 22, 1992
and Carl R. Reynolds
(10.14) Line of Credit agreements between First Exhibit 10.17 to Annual Report on Form
National and JML Optical Industries, Inc., related 10-K for year ended December 31, 1993
to Joseph M. Lobozzo II
(10.15) Loan agreements between First National Exhibit 10.13 to Annual Report on Form 10-K
and Joseph M. Lobozzo II for year ended December 31, 1994
(10.16) Loan modification agreements between Exhibit 10.15 to Annual Report on Form 10-K
First National and Executive Square Associates, for year ended December 31, 1994
related to Estate of Fred B. Kravetz
(10.17) Loan modification agreements between Exhibit 10.16 to Annual Report on Form 10-K
First National and Pioneer Daycare Company, for year ended December 31, 1994
related to Michael J. Falcone
(10.18) Residential Mortgage Loan Agreement Exhibit 10.1 to Form 10-Q for period ended
between Stacy C. Campbell and First National June 30, 1997
(10.19) Lease Agreement between Southtown Exhibit 10.2 to Form 10-Q for period
Plaza Associates, related to William Levine, and ended June 30, 1995
First National
(10.20) Residential Mortgage Loan Agreements Exhibit 10.1 to Form 10-Q for period ended
between Russell Family Associates, related to H. September 30, 1995
Bruce Russell, and First National
(10.21) Commercial Loan Agreements between V Page 30
& K Associates, related to Estate of Fred B.
Kravetz, and First National
(10.22) Commercial Line of Credit Agreement Exhibit 10.3 to Form 10-Q for period ended
between GLC Outsourcing Services, Inc., related to September 30, 1995
James D. Ryan, and First National
(10.23) Commercial Loan Agreements between Exhibit 10.23 to Annual Report on Form 10-K
Estate of Fred B. Kravetz and First National for year ended December 31, 1996
(10.24) Commercial Loan Agreements between Exhibit 10.24 to Annual Report on Form 10-K
Deal Road Associates, L.P., related to Estate of Fred for year ended December 31, 1996
B. Kravetz, and First National
(10.25) Commercial Line of Credit Agreements Exhibit 10.25 to Annual Report on Form 10-K
between Laurie Kuskin and First National for year ended December 31,
1996
(10.26) Commercial Loan Agreements between Exhibit 10.26 to Annual Report on Form 10-K
Fred Kravetz and William Levine Partners, related for year ended December 31, 1996
to the Estate of Fred B. Kravetz and to William
Levine, and First National
(13) Annual Report to Shareholders for the year Page 47
ended December 31, 1997
(21) Subsidiaries Page 107
(23) Consent of KPMG Peat Marwick LLP Page 108
(27) Financial Data Schedule Page 109
</TABLE>
<PAGE>
FNB ROCHESTER CORP. 1992 STOCK OPTION PLAN
(As Amended)
1. PURPOSES OF THE PLAN The purpose of the FNB Rochester Corp. 1992 Stock Option
Plan ("Plan") is to provide a method by which those employees of FNB Rochester
Corp. and its wholly owned subsidiaries ("the Corporation") who are largely
responsible for the management, growth and protection of the Corporation's
business, and who are making and can continue to make substantial contributions
to the success of such business, may be encouraged to acquire a larger stock
ownership in the Corporation, thus increasing their proprietary interest in such
business, providing them with greater incentive for their continued employment,
and promoting the interests of the Corporation and all its stockholders.
Accordingly, the Corporation will from time to time during the term of the Plan
grant to such employees as may be selected in the manner provided in the Plan
options to purchase shares of Common Stock of the Corporation, subject to the
conditions provided in the Plan.
2. DEFINITIONS Unless the context clearly indicates otherwise, the following
terms have the meanings set forth below.
"Board of Directors" or "Board" means the Board of
Directors of the Corporation.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means the Common Stock of the Corporation,
$1 par value.
"Corporation" means FNB Rochester Corp. and its wholly owned
subsidiaries.
"Grant Date" as used with respect to a particular option, means the
date as of which such option is granted by the Committee pursuant to
the Plan.
"Grantee" means an individual to whom an Incentive Stock Option or
Nonqualified Stock Option is granted by the Committee pursuant to the
Plan.
"Option" means an option, granted by the Committee pursuant to Section
5 of the Plan, to purchase shares of Common Stock and which shall be
designated as either an "Incentive Stock Option" or a "Nonqualified
Stock Option."
"Incentive Stock Option" means an option that qualified as an Incentive
Stock Option as described in Section 422 of the Code.
"Nonqualified Stock Option" means any option granted under the Plan,
other than an Incentive Stock Option.
"Plan" means this Stock Option Plan as set forth herein and as may be
amended from time to time.
"Total and Permanent Disability" as applied to a Grantee, means that
the Grantee; (i) has established to the satisfaction of the Corporation
that the Grantee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12
months (all within the meaning of Section 22(e)(3) of the Code); and
(ii) has satisfied any requirement imposed by the Committee.
3. ADMINISTRATION OF THE PLAN The Plan shall be administered by a Committee (the
"Committee") composed of three or more members who are appointed by the Board of
Directors. The Committee shall select one of the Committee's members as
Chairman. The Committee shall hold meetings at such times and places as it may
determine, subject to such rules as to procedures to the extent not inconsistent
with the provisions of the Plan as are prescribed by the Board or by the
Committee. A majority of the authorized number of members of the Committee shall
constitute a quorum for the transaction of business. Acts reduced to or approved
in writing by a majority of the members of the Committee then serving shall be
the valid acts of the Committee. No member of the Committee shall be eligible to
be granted options under the Plan while a member of the Committee.
The Committee shall be vested with full authority to make such rules and
regulations as it deems necessary or desirable to administer the Plan and to
interpret the provisions of the Plan. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive and binding
upon all optionees and any person claiming under or through an optionee unless
otherwise determined by the Board.
Any determination, decision or action of the Committee provided for in the Plan
may be made or taken by action of the Board if it so determines, with the same
force and effect as if such determination, decision or action had been made or
taken by the Committee. No member of the Committee or of the Board shall be
liable for any determination, decision or action made in good faith with respect
to the Plan or any option granted under the Plan. The fact that a member of the
Board shall at the time be, or shall theretofore have been or thereafter may be,
a person who has received or is eligible to receive an option shall not
disqualify him or her from taking part in and voting at any time as a member of
the Board in favor of or against any amendment or repeal of the Plan.
4. STOCK SUBJECT TO THE PLAN
(a). The stock to be issued upon exercise of options granted under the
Plan shall be the Corporation's Common Stock, which shall be made
available, at the discretion of the Board, either from authorized but
unissued Common Stock or from Common Stock reacquired by the
Corporation, including shares purchased in the open market. The
aggregate number of shares of Common Stock which may be issued under
options granted under the Plan (as adjusted in a manner equivalent to
the adjustments made under Section 15 of the Plan) shall not exceed
325,000 shares. The limitation established by the preceding sentence
shall be subject to adjustment as provided in Section 15 of the Plan.
(b). In the event that any outstanding option under the Plan for any
reason expires or is terminated, the shares of Common Stock allocable
to the unexercised portion of such option may again be made subject to
another option granted under the Plan.
5. GRANT OF OPTIONS The Committee may from time to time, subject to the
provisions of the Plan, grant options to key employees of the Corporation to
purchase shares of Common Stock allotted in accordance with Section 4. The
Committee may designate any option granted as either an Incentive Stock Option
or a Nonqualified Stock Option, or the Committee may designate a portion of the
option as an "Incentive Stock Option" and the remaining portion as a
"Nonqualified Stock Option." Any portion of an option that is not designated as
an "Incentive Stock Option" shall be a "Nonqualified Stock Option."
6. OPTION PRICE The purchase price per share shall be 100 percent of the fair
market value of one share of Common Stock as reported for trading on the
national securities exchange on which the Common Stock may be principally traded
on the date the option is granted, except that the purchase price per share
shall be 110 percent of such fair market value (or the fair market value as
determined below) in the case of an Incentive Stock Option granted to an
individual described in Section 7(b) of this Plan. The fair market value of a
Share on any day shall be: (i) if the Shares are traded in the over-the-counter
market, the mean between the bid and the asked prices of the Shares in the
over-the-counter market as reported on the National Association of Security
Dealers Automatic Quotation System (NASDAQ); (ii) if the Shares are traded in
the over-the-counter market and are designated as National Market System
securities, the reported last sale price of the Shares, or (iii) if the Shares
are traded on one or more securities exchanges, the average of the closing
prices on all such exchanges on such day; or in the event that there are no
reports for such day, the preceding day for which there is such a report. The
purchase price shall be subject to adjustment only as provided in Section 15 of
the Plan.
7. ELIGIBILITY OF OPTIONEES
(a). Options shall be granted only to persons who are key full time
salaried employees of the Corporation, as determined by the Committee.
The term "key employees" shall include officers as well as other
employees of the Corporation, but shall not include members of the
Committee.
(b). Any other provision of the Plan notwithstanding, an individual who
owns more than 10 percent of the total combined voting power of all
classes of outstanding stock of the Corporation, shall not be eligible
for the grant of an Incentive Stock Option unless the special
requirements set forth in Sections 6 and 9(a) of the Plan are
satisfied. For purposes of this subsection (b), in determining stock
ownership, an individual shall be considered as owning the stock owned,
directly or indirectly, by or for his or her brothers and sisters,
spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall
be considered as being owned proportionately by or for its
shareholders, partners or beneficiaries. Stock with respect to which
such individual holds an option shall not be counted. "Outstanding
stock" shall include all stock actually issued and outstanding
immediately after the grant of the option. "Outstanding stock" shall
not include shares authorized for issue under outstanding options held
by the optionee or by any other person.
(c). Subject to the terms, provisions and conditions of the Plan and
subject to review by the Board, the Committee shall have exclusive
jurisdiction (i) to select the employees to be granted options (it
being understood that more than one option may be granted to the same
person); (ii) to determine the number of shares subject to each option;
(iii) to determine the date or dates when the options will be granted;
(iv) to determine the purchase price of the shares subject to each
option in accordance with Section 6 of the Plan; (v) to determine the
date or dates when each option may be exercised within the term of the
option specified pursuant to Section 9 of the Plan; (vi) to determine
whether or not an option constitutes an Incentive Stock Option; and
(vii) to prescribe the form, which shall be consistent with the Plan,
of the documents evidencing any options granted under the Plan.
(d). Neither anything contained in the Plan or in any document under
the Plan nor the grant of any option under the Plan shall confer upon
any optionee any right to continue in the employ of the Corporation or
limit in any respect the right of the Corporation to terminate the
optionee's employment at any time and for any reason.
8. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan shall be
assignable or transferable by the optionee other than by will or the laws of
descent and distribution, and during the lifetime of an optionee the option
shall be exercisable only by such optionee.
9. TERM AND EXERCISE OF OPTIONS
(a). Each option granted under the Plan shall terminate on the date
determined by the Committee and specified in the option agreement;
provided that each Incentive Stock Option granted to an individual
described in Section 7(b) of the Plan shall terminate not later than
five years after the date of grant, and each other option shall
terminate not later than 10 years after the date of grant. The
Committee at its discretion may provide further limitations on the
exercisability of options granted under the Plan. An option may be
exercised only during the continuance of the optionee's employment,
except as provided in Sections 10 and 11 of the Plan.
(b). A person electing to exercise an option shall give written notice
to the Corporation of such election and of the number of shares he or
she has elected to purchase, in such forms as the Committee shall have
prescribed or approved, and shall at the time of exercise tender the
full purchase price of the shares he or she has elected to purchase.
The purchase price shall be paid in full in cash upon the exercise of
the option; provided, however, that in lieu of cash, with the approval
of the Committee at or prior to exercise, an optionee may exercise his
or her option by tendering to the Corporation shares of Common Stock
owned by him or her and having a fair market value equal to the cash
exercise price applicable to his or her option, with the fair market
value of such stock to be determined in the manner provided in Section
6 of the Plan (with respect to the determination of the fair market
value of Common Stock on the date an option is granted).
(c). An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any shares covered by his or her option
until the date the stock certificate is issued evidencing ownership of
the shares. No adjustments shall be made for dividends (ordinary or
extraordinary), whether in cash, securities or other property, or
distributions or other rights, for which the record date is prior to
the date such stock certificate is issued, except as provided in
Section 15 hereof.
(d). A person may, in accordance with the other provisions of the Plan,
elect to exercise options in any order, notwithstanding the fact that
options granted to him or her prior to the grant of the options
selected for exercise are unexpired.
(e). The aggregate fair market value (determined on the date the option
is granted) of the stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual grantee during any
calendar year shall not exceed $100,000.
10. TERMINATION OF EMPLOYMENT If an optionee's employment with the Corporation
is terminated for any reason other than death, any option granted to him or her
under the Plan shall terminate, and all rights under the option shall cease, in
accordance with rules adopted by the Committee. In any event:
(a). In the case of an Incentive Stock Option held by an optionee who
is not permanently and totally disabled (within the meaning of Section
22(e)(3) of the Code), such Incentive Stock Option shall terminate no
more than three months after the termination of employment.
(b). In the case of an Incentive Stock Option held by an optionee who
is permanently and totally disabled (within the meaning of Section
22(e)(3) of the Code), such Incentive Stock Option shall terminate 12
months after the termination of employment.
(c). In the case of a Nonqualified Option, if the Committee has not
adopted an applicable rule concerning such termination, such Option
shall terminate no later than three months after termination of
employment.
(d). The foregoing notwithstanding, no option shall be
exercisable after its expiration date.
Whether an authorized leave of absence or an absence for military or
governmental service shall constitute termination of employment, for the
purposes of the Plan, shall be determined by the Committee, which determination
shall be final, conclusive and binding upon the affected optionee and any person
claiming under or through such optionee.
11. DEATH OF OPTIONEE If an optionee dies while in the employ of the Corporation
or after cessation of such employment but within the period during which he or
she could have exercised the option under Section 10 of the Plan, then the
option may be exercised by the executors or administrators of the optionee's
estate or by any person or persons who have acquired the option directly from
the optionee by bequest or inheritance, within 12 months after the termination
of the optionee's employment for Incentive Stock Options and within a period
prescribed by the Committee for Nonqualified Options; provided, however, that no
option shall be exercisable after its expiration date.
12. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS Subject to the terms and
conditions and within the limitations of the Plan, the Committee may modify,
extend or renew outstanding options granted under the Plan or accept the
surrender of outstanding options (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefor. Without limiting
the generality of the foregoing, the Committee may grant to an optionee, if he
or she is otherwise eligible and consents thereto, a new or modified option in
lieu of an outstanding option for a number of shares, at an exercise price and
for a term which are greater or lesser than under the earlier option, or may do
so by cancellation and regrant, amendment, substitution or otherwise, subject
only to the general limitations and conditions of the Plan. The foregoing
notwithstanding, no modification of an option shall, without the consent of the
optionee, alter or impair any rights or obligations under any option theretofore
granted under the Plan.
13. PERIOD IN WHICH OPTIONS MAY BE GRANTED Options may be granted pursuant to
the Plan at any time on or before the tenth anniversary of the Effective Date of
the Plan, as defined in Section 17 herein.
14. AMENDMENT OR TERMINATION OF THE PLAN The Board may at any time terminate,
amend, modify or suspend the Plan provided that, without the approval of the
stockholders of the Corporation, no amendment or modification shall be made by
the Board which:
(a). Increases the maximum number of shares as to which
options may be granted under the Plan;
(b). Alters the method by which the option price is
determined;
(c). Extends any option for a period longer than 10 years
after the date of grant;
(d). Materially modifies the requirements as to eligibility
for participation in the Plan; or
(e). Alters this Section 14 so as to defeat its purpose.
Further, no amendment, modification, suspension or termination of the Plan shall
in any manner affect any option theretofore granted under the Plan without the
consent of the optionee or any person validly claiming under or through the
optionee.
15. CHANGES IN CAPITALIZATION
(a). In the event that the shares of the Corporation, as presently
constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Corporation or of
another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares or
otherwise) or if the number of such shares of stock shall be increased
through the payment of a stock dividend, then subject to the provisions
of subsection (c) below, there shall be substituted for or added to
each share of stock of the Corporation which was theretofore
appropriated, or which thereafter may become subject to an option under
the Plan, the number and kind of shares of stock or other securities
into which each outstanding share of stock of the Corporation shall be
so changed or for which each such share shall be exchanged or to which
each such share shall be entitled, as the case may be. Outstanding
options shall also be appropriately amended as to price and other
terms, as may be necessary to reflect the foregoing events.
(b). If there shall be any other change in the number of kind of the
outstanding shares of the stock of the Corporation, or of any stock or
other securities into which such stock shall have been changed, or for
which it shall have been exchanged, and if the Board or the Committee
(as the case may be), shall in its sole discretion, determine that such
change equitably requires an adjustment in any option which was
theretofore granted or which may thereafter be granted under the Plan,
then such adjustment shall be made in accordance with such
determination.
(c). A dissolution or liquidation of the Corporation, or a merger or
consolidation in which the Corporation is not the surviving
corporation, shall cause each outstanding option to terminate, except
to the extent that another corporation may and does in the transaction
assume and continue the option or substitute its own options. In either
event, the Board or the Committee (as the case may be) shall have the
right to accelerate the time within which the option may be exercised.
(d). Fractional shares resulting from any adjustment in options
pursuant to this Section 15 may be settled as the Board or the
Committee (as the case may be) shall determine.
(e). To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding
and conclusive. Notice of any adjustment shall be given by the
Corporation to each holder of an option which shall have been so
adjusted.
(f). The grant of an option pursuant to the Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge, to consolidate, to dissolve, to liquidate
or to sell or transfer all or any part of its business or assets.
16. TRANSFER OF OPTION SHARES Shares acquired by persons subject to Section
16(b) of the Securities Exchange Act of 1934, as amended, pursuant to the
exercise of an option or portion thereof, shall not be sold or transferred for
at least six months after the date of grant.
17. PLAN EFFECTIVE DATE The "Effective Date" of the Plan is the date on which it
was first approved by the Corporation's shareholders, namely August 5, 1992.
Unless sooner terminated by the Board, the Plan will terminate 10 years from its
Effective Date and no options may be granted under the Plan after such
termination date.
FNB ROCHESTER CORP.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1.0 PURPOSE
The purpose of the FNB Rochester Corp. 1995 Non-Employee Director Stock Option
Plan (the "Plan") is to attract and retain in the service of FNB Rochester Corp.
(the "Company") Outside Directors (as defined below) who are considered
essential to the long-range success of the Company by providing them an
opportunity to become owners of stock of the Company through options, and to
solidify the common interests of directors and stockholders in enhancing the
value of the Company's common stock so as to benefit directly from the Company's
growth, development and financial success.
Stock options granted under this Plan (the "Options") are not intended to
qualify as incentive stock options under section 422A of the Internal Revenue
Code of 1986 (the "Code").
2.0 ADMINISTRATION OF THE PLAN
2.01 The Plan shall be administered by a committee consisting of the
Company's Chief Executive Officer, Chief Financial Officer and Counsel (the
"Committee"), which shall have full authority to construe and interpret the
Plan, to establish, amend and rescind rules and regulations relating to the
Plan, and to take all such actions and make all such determinations in
connection with the Plan as it may deem necessary or desirable. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all Plan Participants and their legal representatives and
beneficiaries.
2.02 Administrative costs in connection with the Plan shall be paid by
the Company.
2.03 The provisions of the Plan shall not apply to or affect any option
hereafter granted under any other stock option plan of the Company, and all such
options shall be governed by and subject to the applicable provisions of the
stock option plan pursuant to which they were granted.
3.0 SHARES SUBJECT TO THE PLAN
3.01 Options may be granted by the Company from time to time under the Plan
to purchase up to an aggregate of 25,000 of the Company's common shares, par
value $1.00 per share ("Shares"). Shares may consist either in whole or in part
of either shares of the Company's authorized but unissued common shares or
shares of the Company's authorized and issued common shares reacquired by the
Company and held by its treasury, as may from time to time be determined by the
Committee. If an Option granted under the Plan for any reason ceases to be
exercisable in whole or in part, the Shares which were subject to any such
Option but as to which the Option so ceases to be exercisable shall be available
for further Options to be granted under the Plan. Any Shares subject to an
Option granted under the plan which for any reason expires or is terminated
unexercised as to such Shares shall not be charged against such number and shall
again be available for issuance under the Plan.
3.02 If there is any change in the shares of the Company as a result of
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or such shares, the Committee may make such adjustments, if
any, proportionate to such change, in the number and kind of Shares authorized
by the Plan and in the number and kind of Shares under outstanding awards as it
shall deem appropriate to preserve the relative value of awards to be granted
and shall make such adjustments and changes in the price of Shares under
outstanding awards to preserve the relative value of outstanding awards under
the Plan. The determination of the Committee as to whether any adjustments are
required under the terms of this Section 3.03 and the determination of the
Committee as to the extent and nature of any such adjustment shall be final and
binding upon all persons.
4.0 DIRECTORS ELIGIBLE FOR OPTIONS
Awards may be granted by the Company from time to time only to Outside
Directors of the Company. An Outside Director is any Director who is not then a
full-time employee (as defined in section 3401(c) of the Code) of the Company or
a subsidiary.
5.0 GRANTING OF OPTIONS
5.01 PERSONS TO WHOM OPTIONS SHALL BE GRANTED. Subject to Section 3.01,
Options shall be granted to each person who (a) is an Outside Director on the
fifth business day following the public release of the Company's quarterly
financial results for the period ended September 30, 1995 (the "Commencement
Date"), or (b) first becomes an Outside Director after the Commencement Date.
5.02 WHEN OPTIONS SHALL BE GRANTED. Each person who is an Outside Director
on the Commencement Date shall be granted, as of the Commencement Date, an
Option to purchase 2,500 Shares. Subject to the limitations on the maximum
number of Shares available for purchase under the Plan, each person who is
elected to serve as an Outside Director after the Commencement Date, shall
receive, as of the date of his or her election and qualification as a director,
an Option to purchase 2,500 Shares.
6.0 OPTION TERMS AND CONDITIONS
All Options granted under this Plan shall be on the following terms and
conditions:
6.01 PRICE. The Option Price per Share shall be determined by the Committee
from time to time, subject to the limitations set forth in this Section. The
Option price shall not be less than the fair market value of the Shares on the
date the Option is granted. In no event shall the purchase price for Shares
purchased under an Option be less than the par value thereof.
6.02 FAIR MARKET VALUE. The fair market value of a Share on any day shall
be: (i) if the Shares are traded in the over-the- counter market, the mean
between the bid and asked prices of Shares in the over-the-counter market as
reported on the National Association of Security Dealers Automatic Quotation
System (NASDAQ); (ii) if the Shares are traded in the over-the-counter market
and are designated as National Market System securities, the reported last sale
price of Shares, or (iii) if the Shares are traded on one or more securities
exchanges, the average of the closing prices on all such exchanges on such day;
or, in the event that there are no such reports for such day, the fair market
value shall be such price based on the first preceding day for which there is
such a report.
6.03 PERIOD OF OPTION. Each Option shall expire at such time as the
Committee may determine when such Option is granted, and no Option shall have a
term which shall extend more than 10 years from the date such Option is granted.
Subject to the preceding sentence, terms established by the Committee for
exercise of an Option may be modified or waived by the Committee in his sole
discretion. Each Option shall be subject to earlier termination as provided
elsewhere in the Plan. The instrument evidencing the Option shall be signed by
an officer of the Company. The Commencement Date or respective anniversary
thereof on which Options are issued shall be the date on which the Option is
considered granted.
6.04 RESTRICTIONS ON EXERCISE OF OPTION. The Committee may at its
discretion establish the time or times within the Option period when the Options
may be exercised in whole or in part. In addition, the Committee may require the
satisfaction of such other conditions, as the Committee may stipulate in the
Option, prior to the exercise of the Option in whole or in part. Notwithstanding
any other provision of this Plan, no Option shall be exercisable in a manner
that would disqualify the Plan from satisfying the requirements of Rule 16b-3 of
the Securities and Exchange Commission, and, to the extent necessary, no Option
shall be exercisable for at least six months after the date the Option is
granted, and no Share may be sold until at least six months after it is
purchased by the Optionee (or such other periods as may be specified from time
to time by such Rule).
6.05 EXERCISE OF OPTION. After the satisfaction of all conditions which may
be prescribed by, or in accordance with, the Plan, the Option may be exercised
during the balance of the Option period according to its terms. Receipt by the
Company of written notice from the Grantee specifying the number of Shares to be
purchased, accompanied by payment in full of the purchase price for such Shares,
shall constitute exercise of the Option as to such Shares.
The Committee, in its discretion, may determine that payment upon the
exercise of an Option may be made with Shares of the Company owned by the Option
holder having a fair market value on the exercise date equivalent to the amount
which would otherwise be payable, or any combination of cash and such Shares
equivalent to such amount. Until Shares are purchased and issued upon exercise
of an Option, the Option holder shall not have any rights of a shareholder with
respect thereto.
6.06 TERMINATION OF SERVICE.
(a) If the service of the Grantee with the Company as a
Director shall have terminated for any reason (other than death,
disability, or termination for cause), the Grantee or his or her legal
representative may exercise the Option to the extent it was exercisable
on the date when the Grantee's service terminated, at any time prior to
the expiration date of the Option or within six months of the date of
termination of service, whichever is earlier. For all purposes of this
Plan, termination of service shall be the effective time at which a
person serving as a Director ceases to be a member of the Board for any
reason.
(b) If the service of the Grantee with the Company shall have
terminated due to disability, the Grantee or his or her legal
representative may exercise the Option to the extent it was exercisable
on the date when the Grantee's service terminated, at any time prior to
the expiration date of the Option or within one year of the date of
termination of service, whichever is earlier.
(c) If the service of the Grantee with the Company shall have
terminated for cause, the Option shall terminate upon receipt by the
Grantee of notice of such termination or the effective date of the
termination, whichever is earlier. The Committee shall have the right
to determine whether the Grantee has been terminated for cause for
purposes of the Plan and the date of such termination.
(d) No Option shall be exercised after the effective date of
any merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of
substantially all the Company's assets or the liquidation or
dissolution of the Company.
6.07 DEATH OF GRANTEE. If the Grantee dies while in the service of the
Company, the person or persons to whom the Grantee's rights under the Option
shall pass by will or by the applicable laws of descent and distribution may
exercise the Option, in whole or in part at any time, prior to the expiration
date of the Option or within one year of the date of death of the Grantee,
whichever is earlier.
6.08 OTHER PROVISIONS. The Option may contain such other terms, provisions
and conditions not inconsistent with the Plan as shall be determined by the
Committee.
7.0 MISCELLANEOUS PROVISIONS
7.01 A Grantee shall not have any rights as a shareholder with respect to
any Shares of the Company covered by an Option until the Shares are purchased
and the stock certificates therefor are transferred to the Grantee.
7.02 Nothing in this Plan or in any Option granted under it shall confer
any right upon the Grantee to continue in the service of the Company or
interfere in any way with the right of the Company to terminate the service of
the Grantee pursuant to law and the By-laws of the Company.
7.03 In no event shall a Grantee be entitled to fractional Shares, whether
upon exercise of an Option or otherwise. The Committee in its sole discretion
may elect to round to the nearest whole Share or to settle fractional Shares in
cash.
7.04 No Option or any rights or interest therein of the Grantee thereof
shall be assignable or transferrable by such recipient except by will or the
laws of descent and distribution. During the lifetime of the Grantee, the Option
shall be exercised only by him or her by his or her legal representative, and
any rights and privileges pertaining thereto shall not be transferred, assigned,
pledged or hypothecated by the Grantee in any way, whether by operation of law
or otherwise, and shall not be subject to execution, attachment or similar
process.
7.05 No Shares shall be issued or transferred upon the exercise of any
Option granted hereunder unless and until (a) all legal requirements applicable
to the issuance or transfer of such Shares have been complied with, and (b) all
requirements of any national securities exchange or association upon which or by
which the Company's shares of common stock are listed, traded or quoted have
been met, in each case to the satisfaction of the Committee and free of any
conditions not acceptable to the Committee. The Committee shall have the right
to condition any issuance of any Shares made to any person hereunder on such
persons undertaking in writing to comply with such restrictions on his or her
subsequent disposition of such Shares as the Committee shall deem necessary or
advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such Shares may be
legended to reflect any such restriction.
7.06 The Company shall have the right to deduct from all awards or any
other compensation paid to the Grantee from the Company and Federal, state or
local taxes required by law to be withheld with respect to the granting or
exercise of any awards under this Plan.
7.07 Except as specifically provided in this Plan, no person shall have any
claim or right to be granted any award under this Plan.
7.08 This Plan and the awards issued pursuant thereto shall be governed by
and construed in accordance with the laws of the State of New York.
8.0 AMENDMENT, SUSPENSION OR DISCONTINUANCE OF PLAN
8.01 The Committee may amend, suspend or discontinue the Plan, in whole or
in part, at any time and from time to time. In no event, however, shall any
amendment, without the approval of the shareholders of the Company:
(a) increase the number of Shares as to which awards
may be granted as nonqualified stock options under the Plan;
(b) change the minimum Option exercise price;
(c) increase the maximum period during which Options
may be exercised;
(d) extend the effective period of the Plan;
(e) otherwise materially increase the benefits
accruing to participants under the Plan;
(f) materially modify the requirements as to
eligibility for participation in the Plan;
(g) result in a material increase in the cost of the
Plan to the Company; and
(h) no amendment, modification or termination of the Plan
shall in any manner adversely affect any Option then outstanding under
the Plan without the consent of the holder of such Option.
8.02 Articles 4.0 and 5.0 of this Plan shall not be amended more than once
every six months other than to comport with the Code and the rules thereunder.
8.03 With the consent of the affected Grantee, the Committee may amend any
outstanding Option so as to incorporate in respect of the same any terms that
could have been incorporated in such award at the time of the original grant.
9.0 EFFECTIVE DATE AND DURATION OF THE PLAN
9.01 The Plan shall become effective upon approval by a majority of all
directors and approval by a majority of the Directors of the Company who are not
eligible for the grant of options under the Plan, provided, however, that,
notwithstanding anything to the contrary provided in the Plan, no options
granted under the Plan shall become exercisable until after the Plan has been
approved and ratified at a meeting of shareholders of the Company by the vote of
the holders of a majority of all outstanding shares entitled to vote thereon.
9.02 Unless the Plan is discontinued earlier pursuant to Article 8.0, the
Plan shall expire at the close of business on October 3, 2005. No grants shall
be made under this Plan after the close of business on October 3, 2005. However,
Options granted under the Plan at any time on or prior to October 3, 2005 shall
remain in effect until they have been fully exercised, are surrendered, or by
their terms expire.
FNB ROCHESTER CORP.
By s/ R. Carlos Carballada
---------------------------------
R. Carlos Carballada, President &
Chief Executive Officer
MORTGAGE NOTE
Rochester, New York $375,000.00
June 30, 1997
FOR VALUE RECEIVED, the undersigned, V & K ASSOCIATES, 277 Alexander
Street, Suite 708, Rochester, New York 14607 (the "Borrower" or "Mortgagor"),
promises to pay to the order of FIRST NATIONAL BANK OF ROCHESTER (the "Bank" or
"Mortgagee"), a national banking association with its principal office at 35
State Street, Rochester, New York 14614 in lawful money of the United States and
in immediately available funds, the sum of Three Hundred Seventy Five Thousand
Dollars ($375,000.00) (the "Principal Sum") and interest on the unpaid portion
of the Principal Sum as provided below (collectively the "Loan").
DEFINITIONS
As used in this Note, the following capitalized terms shall have the
meanings set forth below:
"Holder" means the Holder of this Note.
"Loan Documents" mean this Note and the Mortgage secured thereby, and
all documentation collateral thereto.
"Maturity Date" means June 30, 2007.
"Mortgage" means the Mortgage of even date herewith securing
this Note.
"Person" means any individual, partnership, corporation, trust or
unincorporated organization, and any government agency or political
subdivision or branch thereof.
"Premises" means certain real property owned by Mortgagor located at
8-16 East Main Street, Town and Village of Victor, Ontario County, New
York.
"Taxes" mean all real estate and similar taxes and assessments
(including assessments for local or municipal improvements and payments
in lieu of taxes), personal property taxes and assessments, sales, use
and occupancy taxes, water and sewer rates, rents and charges, water
pollution control charges, charges for public utilities, fees for
governmental approvals, and all other governmental charges and fees, of
any kind and nature whatsoever, which may at any time during the term
of the Loan be assessed or levied against or imposed upon or be payable
with respect to or become a lien on the Premises or any part thereof.
PAYMENT TERMS
(a) During the first five (5) years of the term of the Loan, interest
shall accrue on the Principal Sum or so much thereof as is outstanding from time
to time at the rate of 9.00% per annum. On the 1st day of August, 1997 and on
the 1st day of each and every month thereafter to and including July 1, 2002,
Mortgagor shall make a constant monthly payment of principal and interest in the
amount of Three Thousand Eight Hundred Three and 50/100 Dollars ($3,803.50), an
amount which would result in the Principal Sum and interest being amortized in a
fifteen (15) year period commencing on the date hereof.
(b) On the fifth anniversary of the date hereof the interest rate shall
be modified to a rate two and three-quarters percent (2.75%) per annum higher
than the weekly average yield on United States Treasury Securities adjusted to a
constant maturity of five years (5), as made available by the Federal Reserve
Board for the week immediately prior to said fifth anniversary, or if such yield
is not so published, a similar rate based on a comparable index chosen by the
Bank in its sole discretion; the interest rate shall be so fixed at and accrue
on the Principal Sum or so much thereof as is outstanding from time to time at
such modified rate until the Maturity Date.
(c) During the final five (5) year period of the term of the Loan
described in paragraph (b) preceding, the Borrower shall pay the Principal Sum
and interest owing pursuant to this Note in monthly installments of principal
and interest, due on the first day of each month, through and including June 1,
2007. Each of such installments shall be in the amount that would result in the
outstanding Principal Sum and interest at the then applicable rate being
amortized in the fifteen (15) year period commencing on the date hereof, with
the principal and interest payment being readjusted as of the first day of the
second month following the above interest rate adjustment in order to fully
amortize the loan over the months remaining in the term.
(d) There shall be no negative amortization. Interest shall be computed
for the actual number of days elapsed on the basis of a year consisting of 360
days.
(e) Notwithstanding anything else herein, if not sooner paid, the
entire unpaid Principal Sum and accrued and unpaid interest shall be all due and
payable on the Maturity Date.
PREPAYMENT
The Mortgagor shall have the option of paying the Loan to the Holder in
advance in full or in part at any time and from time to time with any regular
payment upon written notice received by the Holder at least 30 days prior to
making such payment; provided, however, that upon making any such payment in
full, the Mortgagor shall pay to the Holder all interest and all other amounts
owing pursuant to this Note and remaining unpaid, and together with any such
payment in full the Mortgagor shall pay to the Holder (a) a premium equal to 5%
of the amount prepaid if paid on or after the date hereof and before June 30,
1998, (b) a premium equal to 4% of the amount prepaid if paid on or after June
30, 1998, and before June 30, 1999, (c) a premium equal to 3% of the amount
prepaid if paid on or after June 30, 1999, and before June 30, 2000, (d) a
premium equal to 2% of the amount prepaid if paid on or after June 30, 2000, and
before June 30, 2001, and (e) a premium equal to 1% of the amount prepaid if
paid on or after June 30, 2001, and before the Maturity Date. In the event the
Maturity Date of this Note is accelerated following a default by the Mortgagor,
any tender of payment of the amount necessary to satisfy the entire indebtedness
made after such default shall be expressly deemed a voluntary payment. In such a
case, to the extent permitted by law, the Holder shall be entitled to the amount
necessary to satisfy the entire indebtedness plus the appropriate prepayment
premium in accordance with the terms of this Note. Regardless of when paid, any
such payment in part shall be applied to principal included in the installments
provided for herein in the inverse order of such installments becoming due.
TAX ESCROW
In order to more fully protect the security of this Mortgage, the
Mortgagor shall deposit with the Mortgagee concurrently with payments of
interest and principal and in addition thereto on each monthly due date as set
forth above after the date hereof until this Note is fully paid, a sum equal to
the Taxes due on the premises (all as estimated annually by the Mortgagee) less
all sums already deposited therefor divided by the number of months to elapse
before one month prior to the date when such Taxes will become due, such sums to
be held by the Mortgagee to pay said items, without payment of interest to
Mortgagor on such sums held by Bank. All payments calculated as aforesaid in the
preceding portion of this paragraph and all payments of principal and interest
shall be added together and the aggregate amount thereof shall be paid by the
Mortgagor each month in a single payment to be applied by the Mortgagor to the
following items in the order set forth: (a) Taxes, (b) late payment charges, (c)
interest; (d) principal. Any deficiency in the amount of such aggregate monthly
payment shall, unless paid prior to the due date of the next such payment,
constitute a default under this mortgage, whereupon at the option of the
Mortgagee the whole of the principal sum and any other sums of money secured by
this Mortgage shall forthwith or thereafter become due and payable.
PLACE OF PAYMENT
All payments of principal and interest required to be made hereunder,
and all other sums due hereunder, shall be payable to Mortgagee at 35 State
Street, Rochester, New York 14614 or at such other office or place as Mortgagee
may designate in writing.
LATE PAYMENT CHARGE
If the Borrower defaults in the making of any payment owing pursuant to
this Note for more than ten (10) days after due, the Borrower shall immediately
pay to the Holder of this Note a late charge equal to Fifty Dollars ($50.00), or
6% of the total of such payment due, whichever is greater.
EVENT OF DEFAULT
The payment of this Note is secured by the Mortgage. Upon or at any
time or from time to time after the occurrence or existence of any event or
condition specified in this Note or the Mortgage as an Event of Default and the
passage of any applicable grace period in connection therewith, all amounts
owing pursuant to this Note shall, at the sole option of the Holder and without
any notice, demand, presentment or protest of any kind (each of which is waived
by the Borrower), become immediately due. Without limitation thereto by the
specification thereof, either of the following shall be deemed events of
default:(i) any transfer of any legal or equitable interest in the Borrower or
the Premises or any portion thereof without the Bank's prior written consent,
which may be withheld in its sole and absolute discretion; or (ii) the placement
of any other mortgage, security interest, or other lien or encumbrance on the
Premises or any portion thereof without the Bank's prior written consent, which
may be withheld in its sole and absolute discretion. Acceptance of payments by
the Mortgagee subsequent to any such conveyance, transfer, or encumbering shall
not be deemed a waiver of any of the Mortgagee's rights.
DEBT SERVICE COVERAGE RATIO
At all times, the net operating income from all leases of the Premises
must be sufficient so that the Debt Service Coverage Ratio (net operating income
defined below, divided by annual principal and interest payments on the Loan)
shall be at least 1.2:1. If the Debt Service Coverage Ration falls below 1.2 at
any time, the Bank shall have the option to demand payment of the entire
Principal Sum and all accrued interest in full, or at the Bank's option, to
allow Borrower to pay down principal (without penalty) to a level acceptable to
Bank. Net Operating Income is defined as annual rental income available after
payment of annual real estate taxes, utilities, management fees, repairs,
maintenance, property insurance, reasonable salaries, reasonable administrative
expenses, and other normal operating expenses, exclusive of depreciation,
amortization, and interest expense.
POST-MATURITY DATE AND DEFAULT RATE
On each day subsequent to the Maturity Date or an event of default,
whether by acceleration or otherwise, the Borrower shall pay interest on the
outstanding Principal Sum at a rate per year equal to 3% above the rate
otherwise applicable during the term of the loan immediately prior to said
Maturity Date or event of default, provided, however, that (i) in no event shall
such interest be payable at a rate in excess of the maximum rate permitted by
applicable law and (ii) solely to the extent necessary to result in such
interest not being payable at a rate in excess of such maximum rate, any amount
that would be treated as part of such interest under a final judicial
interpretation of applicable law shall be deemed to have been a mistake and
automatically cancelled, and, if received by the Bank, shall be refunded to the
Borrower, it being the intention of the Bank and of the Borrower that such
interest not be payable at a rate in excess of such maximum rate.
MORTGAGOR TO PAY EXPENSES
The Borrower shall pay to the Holder on demand each cost and expense
(including, but not limited to, the reasonable fees and disbursements of counsel
to the Holder, whether retained for advice, for litigation or for any other
purpose) incurred by the Holder, in endeavoring to (1) collect any amount owing
pursuant to this Note, (2) enforce, or realize upon, any guaranty, endorsement
or other assurance, any collateral or other security or any subordination,
directly or indirectly securing, or otherwise directly or indirectly applicable
to, any such amount or (3) preserve or exercise any right or remedy of the
Holder pursuant to this Note.
WAIVERS AND CONSENTS
To the extent permitted by law, Mortgagor (a) waives and renounces any
and all exemption rights and the benefit of all valuation and appraisal
privileges as against the indebtedness secured by the Mortgage or any renewal or
extension thereof, (b) waives presentment or payment, demand, protest, notice of
protest and notice of dishonor and any and all lack of diligence or delays in
the collection or enforcement of said indebtedness, (c) waives the right to
assert in any Foreclosure Action any defense based upon or relating to the
failure by Mortgagee to produce and/or introduce into evidence in such action
any of the notes, bonds or other obligations which are secured by the Mortgage
other than this Note and (d) consents to any extension of time, release of any
collateral securing this Note, acceptance of other collateral therefor, or any
other indulgence or forbearance whatsoever. Any such extension, release,
acceptance, indulgence or forbearance may be made, to the extent permitted by
law, without notice to Mortgagor.
COMPLIANCE WITH USURY REQUIREMENTS
This Note is subject to the express condition that at no time shall
Mortgagor be obligated or required to pay interest on the principal amount of
the Loan at a rate which could subject Mortgagee to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Mortgagor is permitted by law to contract or agree to pay. If by the terms of
this Note Mortgagor would at any time be required or obligated to pay interest
at a rate in excess of such maximum rate, the rate of interest under this Note
shall be deemed to be immediately reduced to such maximum rate and the interest
payable thereafter shall be computed at a rate not to exceed such maximum rate
and all previous payments in excess of such maximum rate shall be deemed to have
been payments in reduction of the principal balance of the Loan instead of
payments of interest thereon.
MODIFICATIONS AND AMENDMENTS
No change, amendment, modification, cancellation or discharge of this
Note, or of any part hereof, shall be valid unless Mortgagee shall have
consented thereto in writing.
SUCCESSORS AND ASSIGNS
The covenants and obligations of this Note shall be binding upon
Mortgagor, its successors and assigns and shall inure to the benefit of
Mortgagee, its successors and assigns and all subsequent holders of the
Mortgage.
FINANCIAL STATEMENTS
Mortgagor shall provide the Bank with annual financial statements
satisfactory to the Bank of "Review" quality and prepared by an independent
Certified Public Accountant, to be submitted annually to the Bank within 120
days after the end of each fiscal year of Mortgagor.
GOVERNING LAW
This Note shall be governed by and construed in accordance with the
laws of the State of New York.
WAIVER OF TRIAL BY JURY
TO THE EXTENT PERMITTED BY LAW, MORTGAGOR WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY FORECLOSURE ACTION.
IN WITNESS WHEREOF, Mortgagor has caused this Note to be duly executed
as of the day and year first above written.
V & K ASSOCIATES
BY: S/ Kenneth R. Vasile
-----------------------------------
KENNETH R. VASILE, General Partner
<PAGE>
CONTINUING UNLIMITED GUARANTY
In consideration of any extension of credit by FIRST NATIONAL
BANK OF ROCHESTER, (hereinafter called "Bank") to V & K Associates (hereinafter
called "Customer"), either alone or with one or more persons or any extension or
renewal of any or all of the indebtedness hereinafter mentioned, or forbearance
of demand or suit or agreement for such forbearance or cancellation of any
existing guaranty or other valuable consideration, the undersigned (referred to
hereinafter as such or as "Guarantors") do hereby guarantee, jointly and
severally, the full and prompt payment to Bank, when due, whether accelerated or
not, of any and all indebtedness, liabilities and obligations of every nature
and kind, whether heretofore or hereafter arising of Customer to Bank,
including, but not limited to, the indebtedness represented by the Note of
Customer to Bank in the amount of Three Hundred Seventy Five Thousand Dollars
($375,000.00) dated June 30, 1997, all of which is referred to herein as the
"Indebtedness".
1. The undersigned further agree to pay all costs, expenses
and attorney's fees at any time paid or incurred by the Bank in endeavoring to
collect the Indebtedness or any part thereof and in and about the enforcement of
this instrument;
2. This instrument is and is intended to be a continuing
guaranty for the Indebtedness (irrespective of the aggregate amount thereof, or
changes in the same from time to time, and whether or not the same exceeds the
amount of this guaranty), independent of and in addition to any other guaranty,
endorsement or security held by Bank therefor, and without right of subrogation
on the part of the undersigned until the Indebtedness is paid in full. The
undersigned acknowledge that this guaranty does not modify or terminate any
previous guaranties executed and delivered to Bank by the undersigned or any of
them, which guaranties, if any, remain in full force and effect. This guaranty
shall remain in full force and effect until (i) the Bank or its successors or
assigns shall actually receive signed, written notice of its discontinuance or
notice of the death of the undersigned, and (ii) all of the Indebtedness
contracted for or created before the receiving of such notice, and any
extensions or renewals thereof whether made before or after the receipt of such
notice, together with interest accrued thereon, shall be paid in full. In the
event of the discontinuance of this guaranty as to any of the undersigned
because of receipt by the Bank of notice of death or notice of discontinuance,
this guaranty shall, notwithstanding, still continue and remain in full force
against the other signatories until discontinued as to them in the same manner.
In the event all of the Indebtedness shall at any time, or from time to time, be
satisfied, this guaranty shall, nevertheless, continue in full force and effect
as to any such Indebtedness contracted for or incurred thereafter, from time to
time, before receipt by Bank of written notice of discontinuance or written
notice of death of the undersigned.
3. If any default shall be made in the payment of any or all
of the Indebtedness, the undersigned hereby agree to pay the same without
requiring protest or notice of non-payment or notice of default to the
undersigned, to the Customer, or to any other person, without proof of demand
and without requiring the Bank to resort first to the Customer or to any other
guaranty, security or collateral which it may have or hold. The undersigned
hereby waive demands of protest and notice of non-payment and protest to the
undersigned, to the Customer, or to any other person; notice of acceptance
hereof or assent hereto by Bank; and notice that any Indebtedness has been
incurred by the Customer to Bank; and notice of any change whatsoever in any
terms of any of the Indebtedness, whether of payment or otherwise, including but
not limited to a change in the interest rate or maturity on any or all of the
Indebtedness.
4. Upon default being made in the payment of any of the
Indebtedness, the undersigned authorize and empower the Bank, in addition to its
other remedies, to charge any account of the undersigned, and if the undersigned
be more than one person, any account of any or all of the undersigned, with the
full amount then due on this guaranty and to sell, at any broker's board or at a
public or private sale (with such notice, if any, required under the Uniform
Commercial Code) any property of the undersigned in the possession or custody of
the Bank and to apply the proceeds thereof to any balance due on this guaranty.
Upon any such sale the Bank may itself purchase the whole or any part of any
property sold free from any right of redemption, which is expressly waived and
released.
5. The undersigned also further agree that the Bank shall have
the irrevocable right, in its sole discretion, with or without notice to the
undersigned in its sole discretion, either before or after the institution of
bankruptcy or other legal proceedings by or against the undersigned or any of
them, or before or after receipt of written notice of the death of the
undersigned or any of them, or written notice from any of the undersigned of
discontinuance of liability of any of the undersigned hereunder, to extend the
time given for the payment of the Indebtedness or any part thereof. Bank may
accept one or more renewal notes for the Indebtedness which shall be considered
not as new obligations but as extensions of the obligation renewed, and no such
extensions shall discharge or in any manner affect the liability of the
undersigned, or the liability of the estate or estates of any of the undersigned
under this guaranty.
6. The liability of the undersigned hereunder shall not be
affected or impaired by any acceptance by the Bank of security for payment of
the Indebtedness, or any part thereof, or by any disposition of, or failure,
neglect or omission on the part of the Bank to realize upon any such security or
any security at any time held by or left with the Bank for any or all of the
Indebtedness, or upon which a lien may exist therefor, which security may be
exchanged, withdrawn or surrendered from time to time or otherwise dealt with by
the Bank without notice to or assent from the undersigned, to the same extent as
though this guaranty had not been given. Bank shall have the exclusive right to
determine how, when and what application of payments and credits, if any, shall
be made on the Indebtedness, or any part thereof, and may apply the same upon
principal or interest or fees or expenses as it sees fit. The undersigned hereby
agree and consent that the Bank shall have the right to make any agreement with
the Customer or with any party to or anyone liable for the payment of all or any
of the Indebtedness or interest thereon, for the compounding, compromise,
payment, settlement, refinance, renewal, extension, discharge or release
thereof, in whole or in part, for any modification or alteration of any of the
terms thereof, including but not limited to, a change in interest rate, or of
any contract between the Bank and the Customer or any other party without notice
to or assent from the undersigned. The Bank shall also have the right to
discharge or release without notice one or more of the undersigned from any
obligation hereunder, in whole or in part, without in any way releasing,
impairing or affecting its rights against the other or others of the
undersigned.
7. This guaranty is absolute and unconditional and shall not
be affected by any act or thing whatsoever, except payment in full of the
Indebtedness hereby secured. This is a guaranty of payment and not collection.
The failure of any other person to sign this guaranty shall not release or
affect the liability of any signer hereof. This guaranty has been
unconditionally delivered to Bank by each of the persons who have signed it.
8. If a claim is made upon Bank at any time for repayment or
recovery of any amount of the Indebtedness, or other value received by Bank from
any source, in payment of or on account of any of the Indebtedness, and Bank
repays or otherwise becomes liable for all or any part of such claim by reason
of (a) any judgment, decree, or order of any court or administrative body, or
(b) any settlement or compromise of such claim or claims, the undersigned shall
remain liable to Bank hereunder for the amount so repaid or for which Bank is
otherwise liable, to the same extent as if any such amounts had not been
received by Bank, notwithstanding any return or destruction of the original of
this guaranty, or termination hereof or cancellation of any note, bond or other
obligation which evidences all or a portion of the Indebtedness.
9. The undersigned unconditionally agree that they will not
assert, and do hereby waive any right they may have against Customer for
indemnity, subrogation, reimbursement and contribution, until the Indebtedness
is paid in full.
10. This document is the final expression of this guaranty of
the undersigned in favor of Bank, and is the complete and exclusive statement of
the terms of this guaranty. No course of prior dealings between the undersigned
and Bank, nor any usage of trade, nor any parol or extrinsic evidence of any
nature or kind, shall be used or be relevant to supplement, explain or modify
this guaranty.
11. All payments of principal or interest made on the
Indebtedness by the Customer to the Bank shall be deemed to have been made as
agent for the undersigned for the purpose of tolling or renewing the Statute of
Limitations.
12. This guaranty and every part hereof shall be binding upon
the undersigned and the heirs, legal representatives, successors and assigns of
the undersigned, and shall inure to the benefit of the Bank, its successors and
assigns.
13. The undersigned shall provide Bank with signed annual
personal financial statements for each in form satisfactory to the Bank on or
before April 15th of each year, accompanied by a signed complete copy of a
Federal Income Tax Return for each inclusive of all schedules.
14. This instrument cannot be changed or modified or
discharged in whole or in part, orally, and shall be governed by New York law.
Any litigation involving this guaranty shall, at Bank's option, be tried only in
a court of competent jurisdiction located in Monroe County, New York.
IN WITNESS WHEREOF the undersigned have signed and sealed this
instrument on the respective dates set forth below.
S/ Kenneth R. Vasile
----------------------------
KENNETH R. VASILE
S/ Laurie Kuskin
-----------------------------
LAURIE KUSKIN
<PAGE>
MORTGAGE
THIS MORTGAGE, made the 30th day of June, 1997, between V & K
ASSOCIATES, 277 Alexander Street, Suite 708, Rochester, New York 14607 (herein
called the "Mortgagor"), and FIRST NATIONAL BANK OF ROCHESTER, a national
banking association with its principal office at 35 State Street, City of
Rochester, Monroe County, New York, (herein called the "Mortgagee").
WITNESSETH, to secure the payment of an indebtedness in the sum of
Three Hundred Seventy Five Thousand Dollars ($375,000.00) lawful money of the
United States to be paid with interest thereon to be computed from the date
hereof, to be paid according to a certain Mortgage Note, bearing even date
herewith ("Note"), and all renewals, modifications, replacements, extensions and
refinancings thereof, the Mortgagor hereby mortgages to the Mortgagee the
premises described in Schedule "A" attached hereto and made a part hereof
(herein called the "Mortgaged Premises" or "Premises").
TOGETHER with all the right, title and interest of the Mortgagor in and
to any and all unearned premiums accrued, accruing or to accrue under any and
all insurance policies now or hereafter obtained by the Mortgagor on the
Mortgaged Premises,
TOGETHER with the appurtenances and all the estate and
rights of the Mortgagor in and to said Premises,
TOGETHER with all and singular the tenements, hereditaments, and
appurtenances belonging or in anyway appertaining to said Premises, and the
reversions, remainder and remainders, rents, issues and profits thereof,
TOGETHER with and including any and all strips and gores of
land adjoining or abutting said Premises,
TOGETHER with all right, title, and interest of the Mortgagor in and to
the land lying in the bed of any street, road, avenue or alley open or proposed,
in front of, running through or adjoining said Premises,
TOGETHER with all buildings, structures, and improvements now or at any
time hereafter erected, constructed or situated upon the Premises, and
apparatus, fixtures, chattels, and articles of personal property now or
hereafter attached to or used in connection with said Premises, including but
not limited to furnaces, boilers, oil boilers, radiators and piping, coal
stokers, plumbing and bathroom fixtures, refrigeration, air conditioning and
sprinkler systems, wash-tubs, sinks, gas and electric fixtures, stoves, ranges,
awnings, screens, window shades, elevators, motors, dynamos, refrigerators,
kitchen cabinets, incinerators, plants and shrubbery and all other business
assets, equipment and machinery, appliances, personal property, fittings and
fixtures of every kind in or used in the operation of the buildings standing on
said Premises, together with any and all replacements thereof and additions
thereto,
TOGETHER with all awards heretofore and hereafter made to the Mortgagor
for taking by eminent domain the whole or any part of said Premises or any
easement therein, including any awards for changes of grade of streets, which
said awards are hereby assigned to the Mortgagee, who is hereby authorized to
collect and receive the proceeds of such awards and to give proper receipts and
acquittances therefor, and to apply the same toward the payment of the mortgage
debt, notwithstanding the fact that the amount owing thereof may not then be due
and payable; and the said Mortgagor hereby agrees, upon request, to make,
execute and deliver any and all assignments and other instruments sufficient for
the purpose of assigning said awards to the Mortgagee, free, clear, and
discharged of any encumbrances of any kind or nature whatsoever.
The Mortgagor covenants with the Mortgagee that:
PAY INDEBTEDNESS. The Mortgagor will pay the indebtedness secured
hereby with interest thereon as herein provided and according to the Note, and
if default shall be made in the payment of part thereof, the Mortgagee shall
have power to sell the Mortgaged Premises according to law.
INSURANCE. The Mortgagor will keep the buildings on the Premises and
the fixtures and articles of personal property covered by the Mortgage insured
against loss by fire and other hazards, casualties and contingencies, including
flood insurance if required by law, regulation or Mortgagee, for the benefit of
the Mortgagee in an amount not less than the unpaid principal balance due
hereunder. The fire insurance policy as required hereby shall contain the usual
extended coverage endorsement and shall provide for twenty (20) days written
notice to Mortgagee prior to cancellation. In addition thereto the Mortgagor
within thirty (30) days after notice and demand will keep the Premises insured
against war risk and any other hazard that may reasonably be required by law,
regulation or Mortgagee. The Mortgagor will assign and deliver said policies to
the Mortgagee and the Mortgagor will reimburse the Mortgagee for any premiums
paid for the insurance procured by the Mortgagee on the Mortgagor's default in
so insuring the buildings or in so assigning and delivering the policies. All
the provisions of this paragraph or of any other provisions of the Mortgage
pertaining to fire insurance or any other additional insurance which may be
required hereunder shall be construed in accordance with Section 254,
Subdivision 4 of the New York Real Property Law, but, said section to the
contrary notwithstanding, the Mortgagor consents that the Mortgagee may without
qualification or limitation by virtue of said section, retain and apply the
proceeds of any such insurance in satisfaction or reduction of the Mortgage, or
it may at its election pay the same, either in whole or in part, to the
Mortgagor or his heirs or assigns for the repair or replacement of the buildings
or of the insured articles of personal property or for any other purpose or
object satisfactory to the holder of the Mortgage, and if the Mortgagee shall
receive and retain such insurance money, the lien of the Mortgage shall be
affected only by a reduction of the amount of such lien by the amount of such
insurance money received and retained by the Mortgagee.
ALTERATIONS, DEMOLITION OR REMOVAL. No building, fixtures or personal
property covered by the Mortgage shall be removed, demolished, or substantially
altered without the prior written consent of the Mortgagee.
WASTE, MAINTENANCE AND REPAIRS. The Mortgagor will not commit any waste
on the Premises or make any change in the use of the Premises which will in any
way increase any ordinary fire or other hazard insurance premiums on the
Premises. The Mortgagor will keep and maintain or cause to be kept and
maintained all buildings and other improvements now or at any time hereafter
erected upon or constituting any portion of the Mortgaged Premises, and the
sidewalks and curbs abutting the same, in good order and condition and in a
rentable and tenantable state or repair, and will make or cause to be made, as
and when the same shall become necessary, all structural and non-structural
exterior and interior, ordinary and extraordinary, foreseen and unforeseen
repairs, renewals, and replacements necessary to that end. In the event that the
Mortgaged Premises shall be damaged or destroyed in whole or in part, by fire or
any other casualty, or in the event of a taking of a portion of the Mortgaged
Premises as a result of any exercise of the power of eminent domain, the
Mortgagor shall promptly restore, replace, rebuild or alter the same as nearly
as possible to the condition they were in immediately prior to such fire, other
casualty or taking. Although damage to or destruction of the Mortgaged Premises,
or any portion thereof, shall not of itself constitute a default hereunder, the
failure of the Mortgagor to restore, replace, rebuild, or alter the same, as
hereinabove provided, shall constitute a default hereunder. The Mortgagor
covenants that it will give to the Mortgagee prompt written notice of any damage
or injury to the Mortgaged Premises and will give like notice to the Mortgagee
of the commencement of any condemnation proceeding affecting the whole or any
portion of Mortgaged Premises. The Mortgagor shall have the right, at any time
and from time to time, to remove and dispose of building service equipment which
may have become obsolete or unfit for use or which is no longer useful in the
operation of the building now or hereafter constituting a portion of the
Mortgaged Premises. The Mortgagor agrees promptly to replace with other building
service equipment, free of superior title, liens or claims, not necessarily of
the same character but of at least equal usefulness and quality, any such
building service equipment so removed or disposed of, except that, if by reason
of technological or other developments in the operation and maintenance of
buildings of the general character of the building constituting a portion of the
Mortgaged Premises, no replacement of the building service equipment so removed
or disposed of is necessary or desirable in the proper operation or maintenance
of said building, the Mortgagor shall not be required to replace the same.
TAXES, ASSESSMENTS, ETC. The Mortgagor will pay all taxes, assessments,
insurance premiums, sewer rents, or water rates through the escrow established
hereunder, and in default thereof, the Mortgagee may pay the same. Any sums so
advanced by the Mortgagee shall bear interest at the maximum legal rate of
interest at the time of such advance or at the highest rate of interest set
forth herein or in the Note, whichever is greater, and any such sum and the
interest thereon shall be a lien on said Premises, prior to any right, or title
to, interest in or claim upon said Premises, or accruing subsequent to the lien
of the Mortgage and shall be deemed secured hereby. Upon written request from
Mortgagee, Mortgagor shall deliver to Mortgagee receipted tax bills showing
payment of all taxes on the Premises within the applicable grace period.
ESTOPPEL STATEMENT. The Mortgagor within five (5) days upon request in
person or within ten (10) days upon request by mail will furnish a written
statement duly acknowledged of the amount due on the Mortgage and whether any
offsets or defenses exist against the Note and Mortgage.
MORTGAGEE MAY CURE MORTGAGOR'S DEFAULTS. The Mortgagor covenants and
agrees with the Mortgagee that the holder of the Mortgage may cure any default
of Mortgagor on the Mortgage or any prior or subsequent mortgage, including
payment of any installments of principal and interest or part thereof, and that
all costs and expenses, including reasonable attorneys' fees together with
interest thereon at the highest legal rate of interest at the time of such
default or at the highest rate of interest set forth herein or in the Note
secured by the Mortgage, whichever is the greater, paid by the Mortgagee in so
curing said default, shall be repaid by the Mortgagor to the Mortgagee on demand
and the same shall be deemed to be secured by the Mortgage and to be collectible
in like manner as the principal sum.
WARRANTY OF TITLE. The Mortgagor warrants the title to the
Premises and will execute any further assurance of the title to
the Premises as Mortgagee may require.
LIEN LAW COVENANT. The Mortgagor will, in compliance with Section 13 of
the New York Lien Law, receive the advances secured hereby and will hold the
right to receive such advances as a trust fund to be applied first for the
purpose of paying the cost of improvement and will apply the same first to the
payment of the cost of the improvements before using any part of the total of
the same for any other purpose.
ESCROW FOR TAXES. In addition to the monthly payments of principal and
interest, the Mortgagor will pay monthly to the Mortgagee on or before the first
day of each and every calendar month, until the Note is fully paid, a sum equal
to one-twelfth (1/12) of the known or estimated yearly taxes, assessments, liens
and charges levied or to be levied against the Mortgaged Premises. The Mortgagee
shall hold such payments in trust without obligation to pay interest thereon,
except such interest as may be made mandatory by law or regulation, to pay such
taxes, assessments, liens, charges and insurance premiums within a reasonable
time after they become due. If the total of payments made by the Mortgagor for
taxes, assessments, liens, charges and insurance premiums shall exceed the
amount of payments actually made by the Mortgagee, such excess shall be credited
by the Mortgagee on subsequent payments to be made by the Mortgagor. If the
total of payments made by the Mortgagor for taxes, assessments, liens, charges
and insurance premiums shall not be sufficient to pay therefor, then the
Mortgagor shall pay to the Mortgagee any amount necessary to make up the
deficiency on or before the date when such amounts shall be due.
LATE CHARGES. If any payment required to be made under the Mortgage or
the Note or the obligations secured by the Mortgage shall be overdue in excess
of ten (10) days, a late charge equal to $.06 of each $1.00 so overdue, or Fifty
Dollars ($50.00), whichever is greater will be paid by the Mortgagor for the
purpose of defraying the expenses incident to handling such delinquent payments.
LEASES. Pursuant to the provisions of Section 291-f of the New York
Real Property Law, the Mortgagor shall not accept prepayment of rent or
installments of rent for more than one month in advance, without the written
consent of the Mortgagee and in the event of any default under the terms of this
paragraph the whole of said principal sum shall become due immediately upon the
happening thereof at the option of the Mortgagee.
In addition thereto, the Mortgagor shall furnish to the Mortgagee,
within thirty (30) days after a request by the Mortgagee to do so, a written
statement containing the names of all lessees of the Premises, the terms of
their respective leases, the space occupied and the rentals payable thereunder.
ACCELERATION OF PRINCIPAL ON TRANSFER, ETC. Without the Mortgagee's
prior written consent, which Mortgagee may withhold in its sole and absolute
discretion, the principal sum with interest thereon shall become immediately due
and payable in full, upon the legal or equitable, voluntary or involuntary
conveyance or transfer by operation of law or otherwise of all or any part of
the Mortgaged Premises, or Mortgagor, or any interest or estate therein,
including testate or intestate succession and conveyance by land contract.
Acceptance of payments by the Mortgagee subsequent to any such conveyance,
transfer, or encumbering shall not be deemed a waiver of any of the Mortgagee's
rights.
ACCELERATION OF PRINCIPAL ON DEFAULT, ETC. The whole of the principal
sum and interest shall immediately become due and payable in full at the option
of the Mortgagee, after (a) default in the payment of any installment of
principal or of interest for thirty (30) days; or, (b) default in the payment of
any tax, water rate, assessment, insurance premiums, or sewer rent for thirty
(30) days after notice and demand or default after notice and demand either in
assigning and delivering the policies insuring the buildings against any
casualty or in reimbursing the Mortgagee for premiums paid on such insurance, as
herein provided; or (c) default upon request in furnishing a statement of the
amount due and whether any offsets or defenses exist against the mortgage debt,
as herein provided; (d) failure to exhibit to the Mortgagee, within ten (10)
days after demand, receipts showing payment of all taxes, water rates, sewer
rents and assessments; or (e) the actual or threatened alteration, demolition or
removal of any building on the Premises without the written consent of the
Mortgagee; or (f) the assignment of the rents of the Premises or any part
thereof without the written consent of the Mortgagee; or (g) the buildings on
said Premises are not maintained in reasonably good repair; or (h) failure to
comply with any requirement or order or notice of violation of law or ordinance
issued by any governmental department claiming jurisdiction over the Premises
within two (2) months from the issuance thereof; or (i) refusal of two or more
fire insurance companies lawfully doing business in the State of New York to
issue policies insuring the buildings on the Premises; or (j) the removal,
demolition or destruction in whole or in part of any of the fixtures, chattels
or articles of personal property covered hereby, unless the same are promptly
replaced by similar fixtures, chattels and articles of personal property at
least equal in quality and condition to those replaced, free from security
interests or other encumbrances thereon and free from any reservation of title
thereof; or (k) thirty (30) days notice to the Mortgagor, in the event of the
passage of any law deducting from the value of land for the purposes of taxation
any lien thereon, or changing in any way the laws for the taxation of mortgages
or debts secured thereby for state or local purposes; (1) the Mortgagor fails to
keep, observe, and perform any of the other covenants, conditions or agreements
contained in the Mortgage; or (m) use of said Premises for any unlawful purpose
or public or private nuisance; or (n) the Mortgagor commits or permits waste; or
(o) any default under any mortgage or other lien on the Premises or any default
under any other note, loan agreement or other instrument evidencing Mortgagor's
indebtedness to Mortgagee; or (p) the Mortgagor is no longer personally liable
for repayment of the indebtedness secured hereby; or (q) any other mortgage,
lien or other encumbrance is placed on the Premises without Mortgagee's prior
written consent, which consent may be withheld by Mortgagee in its sole and
absolute discretion.
DEBT SERVICE COVERAGE RATIO. At all times, the net operating income
from all leases of the Premises must be sufficient so that the Debt Service
Coverage Ratio (net operating income defined below, divided by annual principal
and interest payments on the Loan) shall be at least 1.2:1. If the Debt Service
Coverage Ratio falls below 1.2 at any time, the Mortgagee shall have the option
to demand payment of the entire Principal Sum and all accrued interest in full,
or at the Mortgagee's option, to allow Mortgagor to pay down principal (without
penalty) to a level acceptable to Mortgagee. Net Operating Income is defined as
annual rental income available after payment of annual real estate taxes,
utilities, management fees, repairs, maintenance, property insurance, reasonable
salaries, reasonable administrative expenses, and other normal operating
expenses, exclusive of depreciation, amortization and interest expense.
NOTICES. Notice and demand to or request upon the Mortgagor
may be oral or in writing and, if in writing, may be served in
person or by mail.
APPOINTMENT OF RECEIVER. The Mortgagee, in any action to foreclose the
Mortgage, shall be entitled, without notice or demand and without regard to the
adequacy of any security for the indebtedness hereby or the solvency or
insolvency of any person liable for the payment thereof, to the appointment of a
receiver of the rents, issues and profits of the Mortgaged Premises.
SALE IN ONE PARCEL. In case of a foreclosure sale, said Premises, or so
much thereof as may be affected by the Mortgage, may be sold in one parcel, any
provision of law to the contrary notwithstanding.
ASSIGNMENT OF RENTS. The Mortgagor hereby assigns to the Mortgagee the
rents, issues, and profits of the Premises as further security for the payment
of said indebtedness, and the Mortgagor grants to the Mortgagee the right to
enter upon and to take possession of the Premises for the purpose of collecting
the same and to let the Premises or any part thereof, and to apply the rents,
issues and profits, after payment of all necessary charges and expenses, on
account of said indebtedness. This assignment and grant shall continue in effect
until the Mortgage is paid. The Mortgagee hereby waives the right to enter upon
and to take possession of said Premises for the purpose of collecting said
rents, issues, and profits, and the Mortgagor shall be entitled to collect and
receive said rents, issues and profits until default under any of the covenants,
conditions, or agreements contained in the Mortgage, and Mortgagor agrees to use
such rents, issues and profits in payment of principal and interest and in
payment of taxes, assessments, sewer rents, water rates, and carrying charges
against said Premises, but such right of the Mortgagor may be revoked by the
Mortgagee upon any default, on five (5) days written notice. The Mortgagor will
not, without the written consent of the Mortgagee, receive or collect rent from
any tenant of said Premises or any part thereof for a period of more than one
month in advance, and in the event of any default under the Mortgage will pay
monthly in advance to the Mortgagee, or to any receiver appointed to collect
said rents, issues and profits, the fair and reasonable rental value for the use
and occupation of said Premises or of such part thereof as may be in the
possession of the Mortgagor, and upon default in any such payment will vacate
and surrender the possession of said Premises to the Mortgagee or to such
receiver, and in default thereof may be evicted by summary proceedings.
SECURITY AGREEMENT. The Mortgage constitutes a security agreement under
the Uniform Commercial Code and creates a security interest in all that property
(and the proceeds thereof) included in the Premises which might otherwise be
deemed "personal property". Mortgagor shall execute, deliver, file and refile
any financing statement, continuation statements, or other security agreements
Mortgagee may require from time to time to confirm the lien for the Mortgage
with respect to such property. Without limiting the foregoing, Mortgagor hereby
irrevocably appoints Mortgagee and its successors in interest as
attorney-in-fact for Mortgagor to execute, deliver and file such instruments,
for and on behalf of Mortgagor.
ANTI-MARSHALLING. The Mortgagee may resort for the payment of any
indebtedness, liability, or obligation secured hereby to its several securities
therefor, in such order and action to foreclose the Mortgage notwithstanding the
pendency of any action to recover any part of the indebtedness secured hereby,
or the recovery of any judgment in such action, nor shall the Mortgagee be
required during the pendency of any action to foreclose the Mortgage, to obtain
leave of any court in order to commence or maintain any other action to recover
any part of the indebtedness secured hereby.
The Mortgagee shall also have the right in the event of default under
the Mortgage or the obligation secured hereby to proceed against any or all
interests of the Mortgagor and the Mortgagor agrees that the Mortgagee shall
have the right to elect in writing not to cut off any interest that any
Mortgagor might have and in the event that Mortgagee shall so elect, Mortgagor
agrees that all of its duties and obligations as to such interest shall
continue.
COMPLIANCE WITH LAWS, ETC. The Mortgagor will comply with, or cause
compliance with, all present and future laws, ordinances, rules, regulations,
zoning and other requirements of all governmental authorities whatsoever having
jurisdiction of or with respect to the Mortgaged Premises or any portion thereof
or the use or occupation thereof; provided, however, that the Mortgagor may
postpone such compliance if and so long as the validity or legality of any such
governmental requirement shall be contested by the Mortgagor, with diligence and
in good faith, by appropriate legal proceedings.
COMPLIANCE WITH ZONING, ETC. The Mortgagor covenants: (a) that the
buildings and improvements now on the Mortgaged Premises are in full compliance
with all applicable zoning codes, ordinances and regulations and deed
restrictions, if any; and (b) that such compliance is based solely upon
Mortgagor's ownership of such Premises, and not upon title to or interest in any
other Premises; and (c) buildings or improvements hereafter constructed on such
Premises shall be in compliance as in (a) and (b) above, shall lie wholly within
the boundaries of such Premises, and shall be independent and self-contained
operating units.
LEGAL EXPENSES. If any action or proceeding be commenced (except an
action to foreclose the Mortgage or to collect the debt secured thereby), to
which action or proceeding the Mortgagee is made a party, or in which it becomes
necessary to defend or uphold the lien of the Mortgage, all sums paid by the
Mortgagee for the expense of any litigation to prosecute or defend the rights
and lien created by the Mortgage (including counsel fees), shall be paid by the
Mortgagor, together with interest thereon at the legal rate of interest at the
time of said payment or at the highest rate of interest set forth herein or in
the Note secured by the Mortgage, whichever is greater, and any such sum and
interest thereon shall be a lien on said Premises, prior to any right, or title
to, interest in or claim upon said Premises attaching or accruing subsequent to
the lien of the Mortgage, and shall be deemed to be secured by the Mortgage.
If the Mortgage is referred to attorneys for collection or foreclosure,
the Mortgagor shall pay all sums, including attorneys' fees, incurred by the
Mortgagee, together with all statutory costs, disbursements, and allowances,
with or without the institution of an action or proceeding. All such sums with
interest thereon at the rate set forth herein shall be deemed to be secured by
Mortgage and collectible out of the Mortgaged Premises.
INTEREST ON CONDEMNATION AWARD. In the event of condemnation, or taking
by eminent domain, the Mortgagee shall not be limited to the interest paid on
the award by the condemning authority but shall be entitled to receive out of
the award interest on the entire unpaid principal sum at the rate herein
provided; the Mortgagor does hereby assign to the Mortgagee so much of the
balance of the award payable by the condemning authority as is required to pay
such total interest.
INTEREST IN THE EVENT OF DEFAULT. If default be made in the payment of
the said indebtedness when due, pursuant to the terms hereof, the Mortgagee
shall be entitled to receive interest on the entire unpaid principal sum at the
legal rate of interest at the time of such default or at the highest rate of
interest set forth herein or in the Note secured by the Mortgage, whichever is
the greater, to be computed from the due date and until the actual receipt and
collection of the entire indebtedness. This charge shall be added to and shall
be deemed secured by the Mortgage. The within clause, however, shall not be
construed as an agreement or privilege to extend the Mortgage, nor as a waiver
of any other right or remedy accruing to the Mortgagee by reason of any such
default.
NO SECONDARY FINANCING. The Mortgagor will not, without the Mortgagee's
prior written consent, which consent may be withheld by Mortgagee in its sole
and absolute discretion, mortgage (including the so-called "wrap-around
mortgage"), pledge, assign, grant a security interest in, cause any lien or
encumbrance to attach to or any levy to be made on the Mortgaged Premises except
for (a) taxes and assessments not yet delinquent and (b) any mortgage, pledge,
security interest, assignment or other encumbrance to the Mortgagee.
BANKRUPTCY. Upon the making of an assignment for the benefit of
creditors by, or upon the filing of a petition in bankruptcy by or against the
Mortgagor, or any person or corporation who is the guarantor hereof or whose
indebtedness is secured hereby, or upon the application for the appointment of a
receiver of the property of the Mortgagor or any such person or corporation, or
of the property of any person or corporation which may become and be owner of
the Mortgaged Premises, or upon any act of insolvency or bankruptcy of the
Mortgagor or any such person or corporation or of any such subsequent owner, or
upon the legal incapacity of the Mortgagor or any such person or corporation or
owner, or any of them, the whole of said indebtedness of every kind or nature
held by the Mortgagee and now or hereafter secured hereby shall immediately
become due and payable with interest thereon, and Mortgagor and any guarantor(s)
hereby waiver presentment, demand of payment, protest, notice of non-payment,
and/or protest of any instrument on which the Mortgagor or such guarantors are
or may become liable now or hereafter secured hereby, and the Mortgagor
expressly agrees that the Mortgagee may release or extend the time of any party
liable on any such obligation without notice and without affecting his
obligation thereon or under this instrument. Notwithstanding the foregoing
provisions of this paragraph, no such event as pertains to any person or
corporation who is the guarantor hereof shall result in or constitute any
default with respect to the indebtedness or acceleration thereof, provided that
the Mortgagor continues to comply with and maintain on a current basis all
payment and other obligations to Mortgagee.
LIENS. The Premises shall be kept free and clear from any liens and/or
encumbrances of any type and description, except as provided herein. Upon the
recording of any lien or encumbrance, and the same not having been cleared or
bonded of record within thirty (30) days after filing thereof, the entire debt
secured hereby shall immediately become due and payable.
RIGHT TO INSPECT. The Mortgagee and any persons authorized by Mortgagee
shall have the right to enter and inspect the Mortgaged Premises at all
reasonable times during usual business hours.
WAIVER. No waiver by the Mortgagee of the breach of any of the
covenants contained in the Note, the Mortgage, or other loan document, or
failure of the Mortgagee to exercise any option given to it, shall be deemed to
be a waiver of any other breach of the same or any other covenant, or of its
rights thereafter to exercise any such option.
MODIFICATION. No change, amendment, modification, cancellation or
discharge hereof, or any part hereof, shall be valid unless in writing and
signed by the parties hereto or their respective successors and assigns.
COVENANTS SHALL RUN WITH THE LAND, ETC. The covenants contained in the
Mortgage shall run with the land and bind the Mortgagor, the heirs, personal
representatives, successors and assigns of the Mortgagor and all subsequent
owners, encumbrances, tenants and subtenants of the Premises , and shall enure
to the benefit of the Mortgagee, the personal representatives, successors and
assigns of the Mortgagee and all subsequent holders of the Mortgage.
ENVIRONMENTAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
1. Mortgagor makes the following representations and warranties, which
shall survive the closing of this loan:
A. Mortgagor is in compliance in all respects with all applicable
federal, state and local laws, including, without limitation, those relating to
toxic and hazardous substances and other environmental matters.
B. No portion of the Premises is being used or has been used at any
previous time, for the disposal, storage, treatment, processing or other
handling of any hazardous or toxic substances.
2. Mortgagor agrees that Mortgagee or its agents or representatives
may, at any reasonable time and at Mortgagor's expense inspect Mortgagor's books
and records and inspect and conduct any tests on the property including taking
soil samples in order to determine whether Mortgagor is in continuing compliance
with all environmental laws and regulations.
3. If any environmental contamination is found on the property for
which any removal or remedial action is required pursuant to law, ordinance,
order, rule, regulation or governmental action, Mortgagor agrees that it will at
its sole cost and expense remove or take such remedial action promptly and to
Mortgagee's satisfaction.
4. Mortgagor agrees to defend, indemnify and hold harmless Mortgagee,
its employees, agents, officers and directors from and against any claims,
actions, demands, penalties, fines, liabilities, settlements, damages, costs or
expenses (including, without limitation, attorney and consultant fees,
investigation and laboratory fees, court costs and litigation expenses) of
whatever kind or nature known or unknown, contingent or otherwise arising out of
or in any way related to:
A. The past or present disposal, release or threatened
release of any hazardous or toxic substances on the Premises;
B. Any personal injury (including wrongful death or
property damage, real or personal) arising out of or related to
such hazardous or toxic substances;
C. Any lawsuit brought or threatened, settlement reached or
governmental order given relating to such hazardous or toxic
substances; and/or
D. Any violation of any law, order, regulation, requirement, or demand
of any government authority or any policies or requirements of Mortgagee, which
are based upon or in any way related to such hazardous or toxic substances.
5. Mortgagor knows of no on-site or off-site locations where hazardous
or toxic substances from the operation of the facility on the Premises have been
stored, treated, recycled or disposed of.
6. Mortgagor agrees that it will conduct no excavations at the Premises
unless it gives Mortgagee ten (10) days' notice of its intention to do so.
Mortgagor further agrees that it will not commence such excavation until
Mortgagee has had the opportunity to sample and test at the excavation location
if Mortgagee so desires. Should the testing results disclose the presence of
hazardous or toxic substances which require removal and/or remedy under any
environmental laws or regulations, the suspension of excavation activity at such
location shall continue until the hazardous or toxic substances are removed
and/or remedy conducted pursuant to this paragraph.
7. Unless waived in writing by Mortgagee, the breach of any of the
covenants and warranties contained in this section shall be an event of default
under the Mortgage.
8. For purposes of this section, "hazardous and toxic substances"
includes, without limit, any flammable explosives, radioactive materials,
hazardous materials, hazardous wastes, hazardous or toxic substances or related
materials defined in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the New York State Environmental Conservation Law, the Resource
Conservation and Recovery Act, as amended, and in the regulations adopted and
publications promulgated pursuant thereto. The provisions of this section shall
be in addition to any other obligations and liabilities Mortgagor may have to
Mortgagee at common law, and shall survive the transactions contemplated herein.
Mortgagee may, at its option, require Mortgagor to carry adequate insurance to
fulfill Mortgagor's obligations under this paragraph. Mortgagor's failure to
obtain insurance within thirty (30) days after being requested to do so by
Mortgagee, shall constitute an event or default hereunder.
9. When the terms and provisions contained in the foregoing Paragraphs
1-8 in any way conflict with the terms and provisions contained in a certain
Environmental Compliance and Indemnification Agreement of even date herewith
("Indemnification Agreement"), the terms and provisions of Indemnification
Agreement contained shall prevail, and, in the event of any overlapping terms,
covenants and conditions, insofar as possible, the terms, covenants and
conditions contained herein and in the Indemnification Agreement shall both be
applicable.
TAX ON NOTE. In the event that hereafter it is claimed by any
governmental agency that any tax or other governmental charge or imposition is
due, unpaid and payable by the Mortgagor or the Mortgagee upon the Note (other
than a tax on the interest receivable by the Mortgagee thereunder), the
Mortgagor will upon sixty (60) days prior written notice either(a) pay such tax
and within a reasonable time thereafter deliver to the Mortgagee satisfactory
proof of payment thereof or (b) deposit with the Mortgagee the amount of such
claimed tax, together with interest and penalties thereon, pending an
application for a review of the claim for such tax, and with a reasonable time,
deliver to the Mortgagee either (i) evidence satisfactory to the Mortgagee that
such claim of taxability has been withdrawn or defeated in which event any such
deposit shall be returned to the Mortgagor or (ii) a direction from the
Mortgagor to the Mortgagee to pay the same out of the deposit above mentioned,
any excess due over the amount of said deposit to be paid by the Mortgagor
directly to the taxing authority and any excess of such deposit over such
payment by the Mortgagee to be returned to the Mortgagor. Upon the failure of
the Mortgagor to comply with the provisions of this Article, the whole of said
principal sum and interest secured by the Mortgage shall at the option of the
Mortgagee become due and payable. If liability for such tax is asserted against
the Mortgagee, the Mortgagee will give to the Mortgagor prompt notice of such
claim, and the Mortgagor, upon complying with the provisions of this Article,
shall have full right and authority to consent such claim of taxability.
COMPLIANCE WITH ARTICLE 31-B OF NEW YORK STATE TAX LAW. The Mortgagor
will keep true and complete records pertaining to its acquisition of title to
the Premises, all subsequent transfers of any interests in the Premises or any
part thereof and all changes in the controlling interest (by way of changes in
stock ownership, capital, profits, beneficial interest or otherwise) in the
Mortgagor or any related entity which may hereafter own the Premises, including,
but not limited to, a copy of the contract of sale, title report, deed, closing
statement, transferor's affidavit, questionnaire or return, statement of
tentative assessment and any other notices or determinations of tax received
from the New York State Department of Taxation and all "capital improvements"
made to the Premises or any part thereof and evidence of the payment of any real
property transfer gains tax imposed by reason of Article 31-B of the New York
State Tax Law and the filing of all reports and any other information or
documentation required by the New York State Department of Taxation and Finance
by reason of said Article or any regulations promulgated thereunder. All such
records shall be made available to Mortgagee for inspection from time to time
upon its request.
If any real property transfer gains tax shall be due and payable upon
the conveyance of the Premises pursuant to a judicial sale in any action suit or
proceeding brought to foreclose the Mortgage or by deed in lieu of foreclosure,
the Mortgagor will, at Mortgagee's request, (a) provide Mortgagee with a copy of
all such records and will prepare, execute, deliver and file any affidavits,
records, questionnaires, returns or supplemental returns required of the
Mortgagor, as transferor, including, but not limited to, a statement in
affidavit form as to the "original purchase price" of the Premises and the cost
of all "capital improvements" made to the Premises or any part thereof by the
Mortgagor or any related entity and the date or dates on which such improvements
were made and (b) pay or cause to be paid any real property transfer gains tax,
together with interest and penalties thereon, which may be due and payable by
reason of such conveyance. The Mortgagor hereby irrevocably appoints Mortgagee
its agent and attorney-in-fact (which appointment shall be deemed to be an
agency coupled with an interest), with full power of substitution in the
Premises, to prepare, execute, deliver and file on its behalf any and all
affidavits, questionnaires, returns and supplemental returns which the
Mortgagor, as transferor, has failed or refused to execute and deliver to
Mortgagee within ten (10) days after notice and request therefor by Mortgagee.
In the event that the Mortgagor fails to pay any such tax, interest and
penalties within twenty (20) days after notice and demand for payment is given
by Mortgagee, Mortgagee is hereby authorized to pay the same, and the amount
thereof so paid by Mortgagee, together with all costs and expenses incurred by
Mortgagee in connection with such payment, including, but not limited to,
reasonable attorneys' fees and disbursements and interest on all such amounts,
costs and expenses at the rate of one percent (1%) in excess of the rate
specified in the Note, but in no event in excess of the maximum interest rate
permitted by law, shall be paid by the Mortgagor to Mortgagee on demand. Until
paid by the Mortgagor, all such amounts, costs and expenses, together with
interest thereon, shall be secured by the Mortgage and may be added to the
judgment in any suit brought by Mortgagee against the Mortgagor hereon.
CONSTRUCTION. The word "Mortgagor" shall be construed as if it read
"Mortgagors" and the word "Mortgagee" shall be construed as if it read
"Mortgagees" whenever the sense of the Mortgage so requires. This Mortgage shall
be governed by and construed in accordance with the laws of the State of New
York.
CONFLICT WITH OTHER LOAN AGREEMENTS. Mortgagor represents and warrants
to Mortgagee that the execution and delivery of this Mortgage and all related
documents and the performance of any term, covenant, or condition herein
provided in any agreement or instrument executed in connection therewith, are
not in conflict with, or result in any reach of, or constitute a default under
or violate:
A. Any of the terms, conditions, or provisions of any
agreement, lease or other instrument to which Mortgagor is a
party or subject to; or,
B. Any Law, regulation, order, writ, injunction or decree of which
Mortgagor is subject or any rules of regulations of any administrative agency
having jurisdiction over Mortgagor or over any property of Mortgagor that would
have a material adverse affect on Mortgagor's business or financial condition.
SEVERABILITY. In the event any one or more of the provisions of the
Mortgage or the Note shall for any reason be invalid, illegal or unenforceable
in whole or in part, then only such provision or provisions shall be deemed to
be null and void and of no force or effect, but shall not affect any other
provision of the Mortgage or the Note.
MARGINAL NOTES OR CAPTIONS. The marginal notes or captions herein are
inserted only as a matter of convenience and for reference and are not and shall
not be deemed to be any part of the Mortgage.
IN WITNESS WHEREOF, the Mortgage has been duly executed by the
Mortgagor, the day and year first above written.
V & K ASSOCIATES
BY: S/ Kenneth R. Vasile
----------------------------
KENNETH R. VASILE
General Partner
<PAGE>
- ---------------------------------------------------------------------------
Schedule A
The description of the mortgaged premises is omitted from this
Exhibit
FNB Rochester Corp. and Subsidiaries
The 1997 Annual Report
(Exhibit 13)
<PAGE>
Contents of the 1997 Annual Report
Company Profile.......................................................... 49
Financial Highlights..................................................... 50
Five-Year Summary of Selected Financial Information...................... 51
Quarterly Financial Information (unaudited).............................. 52
Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 53
Independent Auditors' Report............................................. 74
Consolidated Financial Statements........................................ 75
Notes to Consolidated Financial Statements............................... 81
Corporate Directory...................................................... 105
<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 1997.
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 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 fifteen banking offices are located in Monroe,
Chemung, Erie, and Onondaga counties in New York State. The Bank also operates a
loan production office in Erie County. 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 one 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 thirteen full-service community
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 SUBSIDIARY
Financial Highlights
<TABLE>
<CAPTION>
1997 1996
(in thousands, except share data and ratios)
<S> <C> <C>
For the year
Net interest income $20,785 $18,686
Provision for loan losses 55 -
Non-interest income 3,409 3,807
Non- interest expenses 17,494 16,650
Income tax expense 2,126 1,710
Net income $ 4,519 $ 4,133
Net income per common share - basic $ 1.26 $ 1.16
Net income per common share - diluted $ 1.21 $ 1.13
At year end
Total assets $522,353 $437,898
Total loans, net of deferred loan
costs (fees) 331,520 303,660
Allowance for loan losses 5,580 5,696
Securities held-to-maturity 28,278 29,532
Securities available-for-sale, at
fair value 120,819 72,318
Total deposits 469,821 404,771
Total shareholders' equity $34,020 $29,231
Operating ratios Net income as a percent of:
Average total assets 0.93 1.00
Average common shareholders' equity 14.36 15.21
Net interest margin (as a percent) 4.53 4.79
Allowance for loan losses as a percent
of year-end loans 1.68 1.88
Net charge-offs as a percent
of average loans outstanding
during the year 0.05 0.03
</TABLE>
<PAGE>
Five-Year Summary of Selected Financial Information
This table represents a summary of selected components of the Company's
consolidated statements of financial condition and consolidated statements of
operations for each of the years in the five-year period ended December 31,
1997. All information concerning the Company should be read in conjunction with
consolidated financial statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
(In thousands, except share data and ratios)
1997 1996 1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations information
Interest income $ 37,506 $ 32,245 $ 29,235 $ 23,012 $ 21,278
Interest expense 16,721 13,559 12,250 7,950 8,326
------ ----- ------ ------ ------
Net interest income 20,785 18,686 16,985 15,062 12,952
Provision for loan losses (recovery) 55 -- -- (43) 74
Non- interest income 3,409 3,807 2,640 2,785 3,313
Non-interest expenses 17,494 16,650 15,577 16,236 15,296
------ ----- ------ ------ ------
Income before income taxes 6,645 5,843 4,048 1,654 895
Income tax expense (benefit) 2,126 1,710 1,194 (283) 330
------ ----- ------ ------ ------
Net income $ 4,519 $ 4,133 $ 2,854 $ 1,937 $ 565
------ ===== ===== ===== ======
Period end balance sheet information
Securities held-to-maturity $ 28,278 $ 29,532 $ 31,780 $ 52,997 $ 53,691
Securities available-for-sale at fair value 120,819 72,318 73,527 48,942 50,427
Total loans, net of deferred
loan costs (fees) 331,520 303,660 254,003 202,437 170,513
Allowance for loan losses 5,580 5,696 5,776 6,452 6,823
Total assets 522,353 437,898 391,320 329,262 306,480
Deposits:
Non-interest bearing demand 70,831 56,111 46,061 37,887 35,269
Savings, interest checking, and
money market 157,076 144,720 144,326 146,464 162,925
Certificates of deposit 241,914 203,940 167,488 111,030 85,100
Total deposits 469,821 404,771 357,875 295,381 283,294
Short-term borrowing 14,236 786 4,986 9,875 -
Long-term debt 210 210 - - 7,185
Total shareholders' equity 34,020 29,231 25,846 21,360 13,678
Per common share data * Net income:
Basic $ 1.26 $ 1.16 $ 0.80 $ 0.58 $ 0.28
Diluted 1.21 1.13 0.79 0.58 0.28
Cash dividends 0.17 0.05 - - -
Book value 9.48 8.19 7.24 5.99 6.83
</TABLE>
*Earnings per share data has been restated to reflect the adoption of Statement
of Financial Accounting Standards No.
128, Earnings Per Share, in 1997. (see Note 15 to Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
Operating ratios: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net income as a percent of:
Average total assets 0.93% 1.00% 0.78% .62% .19%
Average common shareholders' equity 14.36 15.21 12.17 10.15 4.36
Net interest margin 4.53 4.79 4.92 5.10 4.57
Interest rate spread 3.85 4.19 4.34 4.69 4.23
Non-performing assets ratio (1) .81 .69 .67 1.77 5.60
Allowance for loan losses as a percent
of period-end loans 1.68 1.88 2.27 3.19 4.00
Net (charge-offs) recoveries as a percent
of average loans (0.05) (0.03) (0.29) (0.19) .11
Total equity as a percent of total assets
at period end 6.51 6.68 6.60 6.49 4.46
Cash dividend on common stock payout
ratio .17 .05 -- -- --
</TABLE>
Notes:
(1) 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)
Diluted
Net Provision Income Earnings Per
Interest Interest for Loan Before Net Common
Income Income Losses Income Taxes Income Share
<S> <C> <C> <C> <C> <C> <C>
1997
First quarter $ 8,556 $ 4,801 $- $1,326 $ 902 $0.24
Second quarter 9,279 5,114 - 1,590 1,075 0.29
Third quarter 9,730 5,381 - 1,814 1,225 0.33
Fourth quarter $ 9,941 $ 5,489 $55 $1,915 $ 1,317 $0.35
1996
First quarter $ 7,587 $ 4,451 - $1,067 $ 768 $0.21
Second quarter 7,937 4,657 - 1,393 1,003 0.27
Third quarter 8,316 4,837 - 1,575 1,115 0.31
Fourth quarter $ 8,405 $ 4,741 - $1,808 $ 1,247 $0.34
</TABLE>
Included in the fourth quarter of 1996 is a pretax gain of $621,000 from the
sale of the Odessa Office.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this document that do not
relate to present or historical conditions are "forward looking statements"
within the meaning of that term in Section 27A of the Securities Act of 1933, as
amended, and of Section 21F of the Securities Exchange Act of 1934, as amended.
Additional oral or written forward looking statements may be made by the Company
from time to time, and such statements may be included in documents that are
filed with the Securities Exchange Commission. Such forward looking statements
involve risks and uncertainties which could cause results or outcomes to differ
materially from those expressed in such forward looking statements. Among the
important factors on which such statements are based are assumptions concerning
the business environment in those counties in New York State where the Bank
operates, changes in interest rates, changes in the banking industry in general
and particularly in the competitive environment in which the Bank operates, and
changes in inflation.
Overview
The Company has continued its growth in 1997, and much of the growth is the
result of the four new banking offices that were opened in Monroe County in 1995
and 1996. Two existing facilities were also replaced with new "customer
friendly" facilities. The Company continues to emphasize a high level of
customer service, establishing total financial service relationships with
customers, and providing convenience through location and extended hours. The
new banking offices were opened with modern technology, on-line teller
automation, as well as new automated teller machines. Online teller systems were
installed in all other banking offices during 1996 as well. With the use of new
technology and more efficient systems, the Company has been able to continue to
expand with only a minimal increase in the number of employees. Three additional
new offices are planned for 1998 as well as a new core banking system. The new
banking system is expected to significantly improve management information
systems and operational efficiency, and the new offices should help the Company
sustain its growth rate.
Net income increased $386,000, or 9.3%, in 1997. The Company's deposits
increased $65 million, or 16.1%, from December 31, 1996 to December 31, 1997 and
a new sweep product added $13.4 million in securities sold under agreement to
repurchase to the Company's short-term borrowings. Loans have continued to grow,
although demand has been less than in 1996 and 1995, and with lower interest
rates more businesses and consumers are asking for fixed rate rather than
variable rate loans. At December 31, 1997, total loans were up $27.9 million, or
9.2%, as compared to an increase of $49.7 million from 1995 to 1996. $14 million
of the 1997 increase was in commercial loans and $11.9 was in residential
mortgages with the balance in home equity line of credit outstandings ("home
equity") and consumer loans. Because of the reduced rate of growth in demand for
loans as compared to deposit growth, the Company increased investments in
securities available-for-sale by $48.5 million, or 67.1% from year end 1996 to
year end 1997.
Growth objectives are expected to be achieved in 1998 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 continue to increase its market share. The addition of the four new
banking offices in 1995 and 1996 has helped the Company attain its goals. The
Company expects to open three new offices in 1998 and to move an existing office
to a new location. As anticipated, much of the growth in deposits in 1997 has
been in certificates of deposit. Demand deposits have also continued to
experience significant growth in 1997, while savings, interest checking and
money market accounts have only experienced minor growth. With a lower rate
environment depositors are placing their funds in certificates of deposit or
other investments rather than leaving them in interest bearing demand or money
market accounts, which is making it increasingly difficult to maintain net
interest margins. Increases in net income are expected to come through increased
loan and investment volumes. Overhead expenses will be expected to increase as
the Company adds new offices and a new core banking system.
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.
<TABLE>
CAPTION>
Average Balance Sheet and Analysis of Net Interest Margin
Years Ended December 31,
(in thousands)
1997 1996 1995
Amount Amount Amount
Average Paid or Average Average Paid or Average Average Paid or Average
Balance Earned Rate Balance Earned Rate Balance Earned Rate
------- ------- ------- ------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits
with other financial
institutions $ 1,138 $ 59 5.18% $ 1,090 $ 59 5.41% $ 1,086 $ 60 5.52%
Federal funds sold 8,072 446 5.53 4,773 254 5.32 8,820 515 5.84
Securities: (2)
Taxable 129,414 8,678 6.71 97,835 6,420 6.56 103,753 6,751 6.51
Tax Exempt 2,302 104 4.52 2,730 122 4.47 2,104 99 4.71
Net loans (1) 318,254 28,219 8.87 283,958 25,390 8.94 229,331 21,810 9.51
Non-interest earning
assets 25,554 23,930 18,992
------ ------ ------
Total assets 484,734 414,316 364,086
Total earning-assets $ 459,180 $ 37,506 8.17% $ 390,386 $ 32,245 8.26% $ 345,094 $ 29,235 8.47%
======= ====== ==== ======= ====== ===== ======= ====== =====
Liabilities and shareholders' equity:
Interest bearing liabilities
Savings, interest checking and
money market deposits $ 146,660 $ 3,231 2.20% $ 143,890 $ 3,093 2.15% $ 142,807 $ 3,379 2.37%
Certificates of deposit 234,782 13,169 5.61 187,426 10,348 5.52 147,401 8,473 5.75
Short-term borrowings 5,901 301 5.10 1,790 99 5.53 6,476 398 6.15
Long-term debt 210 20 10.00 193 19 10.00 - - -
Non-interest bearing
liabilities and
shareholders' equity 97,181 81,017 67,402
Total liabilities and
shareholders' equity 484,734 414,316 364,086
Total interest bearing
liabilities $ 387,553 $ 16,721 4.31% $333,299 $ 13,559 4.07% $ 296,684 $ 12,250 4.13%
Interest rate spread 3.85% 4.19% 4.34%
Total earning-assets/
Net interest margin $ 459,180 $ 20,785 4.53% $ 390,386 $ 18,686 4.79% $ 345,094 $ 16,985 4.92%
</TABLE>
Notes:(1) Non-accrual loans have been included in the average balances. (2)
Securities available-for-sale are included at fair value.
Net interest income, the difference between interest income and interest expense
increased $2,099,000, or 11.2%, from 1996 which had an increase of $1,701,000,
or 10%, over 1995's net interest income. Average earning assets increased
$68,794,000, or 17.6%, from 1996 to 1997 and increased $45,292,000, or 13.1%,
from 1995 to 1996. The growth in assets was funded by growth in deposits and
retained earnings.
Loans represent the majority of the Company's interest-earning assets. The
significant increases in interest income noted in 1997 were primarily due to
both loan volume increases and investment securities volume increases. Loan
increases were primarily in commercial real estate, conventional commercial
loans and residential mortgage loans and the securities increases were in
available-for-sale securities. Average net loan balances increased $34,296,000
from 1996 to 1997, while they increased $54,627,000 from 1995 to 1996. The loan
volume increases in 1996 and 1997 are related to sales efforts and emphasis on
making new loans. The average rate earned on loans in 1997 was 8.87% compared to
8.94% in 1996 and 9.51% in 1995. Average investment securities volumes increased
$31,151,000 from 1996 to 1997 and declined $5,292,000 from 1995 to 1996. The
average rate earned on taxable securities, which makes up most of the portfolio,
increased from 6.56% in 1996 to 6.71% in 1997.
Average Federal Funds Sold increased $3,299,000 primarily as a result of the
moderation of loan growth. The increase in Federal Funds Sold, as well as the
increased dependency on investment securities rather than loans, has contributed
to the decline in net interest margin.
Interest expense is a function of the volume of, and rates paid for,
interest-bearing liabilities. Interest expense increased in 1997 primarily
because of an increase in average interest bearing liabilities. Rates have
increased slightly since 1996, however the deposit increases have been primarily
in certificates of deposit.
The interest spread is the difference between average rates earned on assets and
paid on interest-bearing sources of funds. Interest spread declined in 1997 to
3.85% from 4.19% in 1996 and 4.34% in 1995. The interest margin, which is the
difference between interest income and interest expense divided by average
interest-earning assets was 4.53% in 1997, 4.79% in 1996, and 4.92% in 1995. The
decline in both the spread and the margin from 1996 is primarily due to the
deposit mix with its greater emphasis on higher interest rate certificates of
deposit and the earning asset mix with its change from loans to investment
securities.
Should the loan demand not be sufficient to offset the increase in deposits from
new and existing offices, it is expected the investment portfolio will continue
to increase in volume. This may cause further declines in both the net interest
spread and margin.
<PAGE>
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.
<TABLE>
<CAPTION>
Volume and Rate Variances
1997 Compared to 1996 1996 Compared to 1995
--------------------- ---------------------
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 funds sold and
interest-bearing deposits $184 $8 $192 $(219) $(43) $(262)
Taxable securities 2,108 150 2,258 (383) 52 (331)
Tax-exempt securities (19) 1 (18) 28 (5) 23
Loans, net 3,025 (196) 2,829 4,783 (1,203) 3,580
----- ---- ----- ----- ------ -----
Interest income 5,298 (37) 5,261 4,209 (1,199) 3,010
----- --- ----- ----- ------ -----
Savings, interest checking
and money market 63 75 138 26 (312) (286)
Certificates of deposit 2,650 171 2,821 2,199 (324) 1,875
Other interest-bearing
liabilities and
long-term debt 390 (187) 203 (115) (165) (280)
--- ---- ---- ---- ---- ----
Interest expense 3,103 (59) 3162 2,110 (801) 1,309
----- --- ---- ---- ---- ------
Net interest income $2,195 $(96) $2,099 $2,099 $(398) $1,701
====== ===== ====== ====== ====== ======
</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:
<TABLE>
<CAPTION>
Non-Interest Income
December 31,
--------------
1997 1996 1995
---- ---- -----
(in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $ 1,720 $ 1,547 $ 1,209
Credit card fees 715 740 648
Gain on sale of mortgages 73 65 40
Gain (loss) on sale of securities available-for-sale (8) (45) 33
Loan servicing fees 262 263 283
Gain on sale of banking office - 621 -
Other operating income 647 616 427
--- --- ---
Total non-interest income $ 3,409 $ 3,807 $ 2,640
===== ===== =====
</TABLE>
Non-interest income declined $398,000, or 10.5%, from 1996 to 1997, while 1996
non-interest income increased $1,167,000, or 44.2%, from 1995. 1996 non-interest
income included a $621,000 gain on the sale of the Odessa banking office.
Without the 1996 gain, 1997 would have reflected an increase of $223,000, or
7.0%, in non-interest income. Service charges on deposit accounts showed
improvement in 1997 with an increase of $173,000, or 11.2%, over 1996 resulting
primarily from increased volumes. Loan servicing fees have declined slightly as
a large portion of fifteen year mortgages originated since 1994 have been
retained in the Bank's portfolio, resulting in a decline in loan servicing fees
as loans in the Bank's servicing portfolio were prepaid and not replaced with
new loans. The increase in other operating income was the result of an increase
in trust commissions and fees.
The Company continues to explore new ways to increase non-interest income and to
monitor fees and service charges.
<PAGE>
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:
<TABLE>
<CAPTION>
Non-Interest Expense
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- -----
(in thousands)
<S> <C> <C> <C>
Salaries and employee benefits $9,618 $9,227 $8,238
Occupancy 3,561 3,448 2,812
Marketing and public relations 610 489 624
Office supplies, postage and printing 624 637 576
Processing fees 1,075 1,018 979
FDIC assessments 52 2 350
Net cost of operation of other real estate 16 2 (14)
Legal 192 190 267
Other 1,746 1,637 1,745
----- ----- -----
Total non-interest expense $17,494 $16,650 $15,577
====== ====== ======
</TABLE>
Non-interest expense for 1997 increased $844,000, or 5.1%, from 1996 when it
increased $1,073,000, or 6.9%, from 1995. The increases in 1996 and 1997 are
primarily due to the growth of the Company. Much of the increase in both years
has been attributable to the salaries, benefit and occupancy expenses associated
with the new banking offices. Increased marketing expense contributed to the
1997 increase. Federal Deposit Insurance Corporation (FDIC) rates have declined
significantly since 1996.
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 $391,000, or 4.2%, from 1996, and $989,000, or
12%, from 1995 to 1996. The increase in 1997 was in salaries while the 1996
increase was in both salaries and benefits. The 1997 increase was primarily
caused by normal raises, promotions and the addition of marketing staff. The
Company has grown to the size where management feels it warrants a full time
marketing department to handle product development, advertising and promotion.
The 1996 increase resulted primarily from the addition of personnel in both the
trust and lending divisions, staff required for the new banking office opened in
March 1996 and normal salary increases and promotions. 1996 benefits increased
primarily because of additional pension, profit sharing and education costs.
Occupancy expense, the other significant non-interest expense, increased
$113,000, or 3.3%, in 1997 as compared to $636,000, or 22.6%, from 1995 to 1996,
when the Company began to realize the full expense effect of the new offices.
Occupancy expense is expected to continue to increase with the addition of
additional leased space at its headquarters and as the Bank expands its service
delivery network with three new community banking offices, a new facility to
replace an existing office as well as a new core banking system. The four new
facilities and the new core banking system are all expected to be up and running
in 1998. The full annual expense effect of these new offices and systems will
not be realized until 1999 and beyond.
Marketing expense increased $121,000, or 24.7%, from 1996 to 1997. The Bank
continued radio, television, and newspaper advertising in 1997. Marketing
efforts were focused on the annual "Money Sale", home equity loans, 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.
FDIC assessment fees increased slightly in 1997 after a significant decrease in
1996. FDIC assessment fees changed due to changes in the assessment rate. These
fees are a function of the insurance rate and the deposit base.
Income Taxes
The Company and the Bank file a consolidated tax return. The provision for 1997
income taxes was $2,126,000, compared to $1,710,000 and $1,194,000 in 1996 and
1995, respectively. The Company's effective tax rates were 32%, 29% and 29% for
1997, 1996 and 1995, respectively.
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.
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the carry
back 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
$776,000 at December 31, 1997. Income tax expense was affected in 1997 and 1996
by reductions in the valuation allowance of $469,000 and $660,000 respectively
due to the generation of sufficient taxable income to provide for the deduction
of temporary differences.
At December 31, 1997, the Company had a net deferred tax asset of $554,000 as
compared to a net deferred tax asset of $423,000 at December 31, 1996. The 1997
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 through structured maturities. Investments in securities
are also made 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 $47,247,000, or
46.4%, from December 31, 1996 to December 31, 1997 and decreased $3,457,000, or
3.3% from December 31, 1995 to December 31, 1996.
The available-for-sale portfolio includes short-term Treasuries, U.S. Government
Agency Notes and mortgage-backed securities not classified as held-to-maturity.
During 1997, the Bank continued to classify most of its purchases of securities
as available-for-sale.
Unrealized gains on available-for-sale securities reported in equity at December
31, 1997 amounted to $896,000, net of taxes, as compared to unrealized gains of
$268,000, net of taxes, at December 31, 1996.
At December 31, 1997, 38.7% of the Bank's securities had maturities of five
years or less, while 50.6% had maturities of five years or less at the end of
1996, and 66.3% had maturities of five years or less at the end of 1995. The
decline in maturities of five years or less was caused by the Bank increasing
its mortgage backed securities and SBA pools by approximately $29.3 million. The
average life of the Bank's amortizing securities such as mortgage pools and SBA
pools at December 31, 1997 is less than five years. The majority of the
securities portfolio consists of U.S. Treasury Notes, U.S. Government Agency
Notes, SBA pools and sequential pay mortgage-backed securities issued by U.S.
government agencies. Since 1994 the Company has been decreasing its
available-for-sale holdings of short-term treasuries and replacing them with
medium term U.S. government agencies and longer-term variable and fixed rate
mortgage-backed securities. Management believes that while this shift has helped
the Bank to maintain its interest rate margins, a comparison of the interest
rate sensitivity of all of its assets and liabilities suggests that the Bank's
interest rate risks continue to be at appropriate levels. See "Management of
Interest Rate Risk," below.
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, 1997, 1996, and
1995.
Carrying Value of Securities Available-for-Sale
December 31,
1997 1996 1995
(in thousands)
U.S. Treasury $ 25,403 $ 23,576 $ 44,123
U.S. Government agency 34,346 9,967 5,698
Mortgage-backed securities 61,070 38,775 23,706
Total $ 120,819 $ 72,318 $ 73,527
Notes:
(1) The above figures are stated at fair value. The available-for-sale
portfolio had net unrealized gains of $1,491,000, $447,000, and
$1,426,000 at December 31, 1997, 1996 and 1995, respectively. Totals
exclude Federal Reserve Bank stock and Federal Home Loan Bank stock of
$1,655,000, $1,516,000 and $1,299,000 at December 31, 1997, 1996 and
1995, respectively.
CARRYING VALUE OF SECURITIES HELD-TO-MATURITY
December 31,
1997 1996 1995
---- ---- ----
(in thousands)
U.S. Treasury $8,079 $8,108 $7,145
U.S. Government agency 5,252 5,293 6,359
Mortgage-backed securities 10,721 12,909 15,509
Obligations of state and
municipal
subdivisions 3,876 2,872 2,417
Other 350 350 350
--- ---- -----
Total $28,278 $29,532 $31,780
====== ====== ======
<TABLE>
<CAPTION>
MATURITIES AND WEIGHTED YIELD OF SECURITY AVAILABLE-FOR-SALE
(in thousands)
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 $9,082 7.12% $16,321 6.41% - -% - -% $25,403
U.S. Government agency - - 3,592 6.93 16,924 7.18 13,830 6.87 34,346
Mortgage-backed
securities (1) - - 3,817 6.61 7,293 6.71 49,960 6.60 61,070
- - ----- ---- ----- ---- ------ ---- ------
Total $9,082 7.12% $23,730 6.52% $24,217 7.04% $63,790 6.66% $120,819
===== ===== ====== ===== ====== ===== ====== ===== =======
</TABLE>
Notes:
(1) Mortgage-backed securities and SBA pools are
reported at final maturity notwithstanding the
fact that amortization is received regularly on
some securities substantially reducing the
effective maturities.
<TABLE>
<CAPTION>
MATURITIES AND WEIGHTED YIELD OF SECURITIES HELD-TO-MATURITY
(in thousands)
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 $ - -% $8,079 5.80% $ - -% $ - -% $ 8,079
- - -
U.S. Government agency 3,000 5.42 2,000 5.95 - - 252 6.63 5,252
Mortgage-backed
securities (1) - - 7,950 6.28 1,606 7.89 1,165 7.36 10,721
Obligations of state and
municipal subdivisions 2,399 4.03 843 4.83 454 5.95 180 5.80 3,876
Other 250 8.50 50 7.50 50 7.93 - - 350
--- ---
Total $5,649 4.97% $18,922 5.98% $2,110 7.47% $1,597 7.07% $28,278
===== ===== ====== ===== ===== ===== ===== ===== ======
</TABLE>
Notes:
(1) See note (1) above.
Loan Portfolio
The loan portfolio increased $27,860,000, or 9.2%, from 1996 to 1997. This
compares to an increase from 1995 to 1996 of $49,657,000, or 19.5%. Loans
totaling $1.1 million were sold with the Odessa Banking Office in November 1996.
The growth of the loan portfolio in both 1997 and 1996 was the result of a
planned business development program soliciting small businesses and
professionals and increases in residential mortgages with terms of 15 years or
less. Of the total 1997 year-end loan portfolio, $238,688,000, or 67.9%, is
secured by either commercial or residential real estate.
The majority of the Company's loans continue to be commercial. Commercial loans
increased $14,001,000, or 7.5%, from 1996, as compared to an increase of
$22,076,000, or 13.3%, from 1995 to 1996. The slowing of the increase in
commercial loans during 1997 was primarily attributable to decreased loan
demand. The largest portion of the increase in commercial loans in 1997 was in
commercial real estate loans. At year-end 1997, 57.5% of commercial loans were
secured by commercial real estate. Of the commercial real estate securing those
loans, 53.5% was owner occupied. Through expanded sales efforts, the Bank
expects to continue to grow commercial loans, although at a somewhat slower
rate. Competition for high quality loans is intense. The Bank is establishing
itself in the small to medium-size business and professional markets. 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 metropolitan Buffalo. Furthermore, the Bank has access
to the Elmira area through its two community banking offices.
Residential mortgage loans increased $11,850,000, or 16.6%, from 1996 to 1997,
as compared to an increase of $21,374,000, or 42.8%, from 1995 to 1996. The
difference between the increases in residential loans in 1996 and 1997 is
primarily attributable to the Bank's decision to hold a portion of mortgages of
15-years or less in its portfolio, rather than to sell them to the Federal Home
Loan Mortgage Corp (FHLMC). With lower interest rates in the early part of 1996
and in the latter portion of 1997, the Bank experienced increased refinancing
activity, and much of that was directed into 15-year or less fixed rate
mortgages. A greater portion of these mortgages were held in portfolio in 1996
than in 1997. It is expected that the Bank may continue to hold a major portion
of its 15-year originations in portfolio rather than selling them. When
commercial and consumer loan demand is not sufficient to offset deposit
increases management looks to the shorter term maturity and variable rate
residential mortgages to fill that need.
As a result of marketing promotions, home equity loans increased by $2,219,000
from 1996 to 1997. The 1995 to 1996 increase was $2,524,000. While home equity
loans are attractive to borrowers who have equity in their homes, demand for
them is influenced by the residential mortgage refinance market. In the lower
rate environment, many homeowners are choosing to refinance their mortgages
resulting in the early repayment of home equity loans.
Consumer loans declined in 1997 by $267,000 after increasing 17.5% from
$19,711,000 in 1995 to $23,153,000 in 1996. Much of the 1996 growth in consumer
loans is attributable to an annual "money sale" which was held late in the first
quarter and early second quarter. A similar program was held in 1997, however,
increased payoffs in 1997 have caused a decline in the portfolio.
<PAGE>
<TABLE>
<CAPTION>
TYPES OF LOANS
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $201,722 $187,721 $165,645 $134,529 $111,444
Residential mortgage 83,113 71,263 49,889 31,080 26,769
Home equity 23,516 21,297 18,773 20,586 21,559
Other consumer 22,886 23,153 19,711 16,443 10,695
Total 331,237 303,434 254,018 202,638 170,467
Net deferred loan costs (fees) 283 226 (15) (201) 46
Allowance for loan losses (5,580) (5,696) (5,776) (6,452) (6,823)
Loans, net $325,940 $297,964 $248,227 $195,985 $163,690
======= ======= ======= ======= =======
</TABLE>
MATURITY DISTRIBUTION OF LOANS AT DECEMBER 31, 1997
Maturity
One Year One to Five Years
or Less Five Years or more Total
-------- ---------- ---------- -------
(in thousands)
Commercial $25,251 $72,369 $103,969 $201,589
Residential mortgage 2,331 15,382 65,368 83,081
Home equity 945 3,253 19,220 23,418
Consumer, net 1,437 17,413 4,582 23,432
------
Total loans $29,964 $108,417 $193,139 $331,520
====== ======= ======= =======
Floating/adjustable
Interest rate 57,742 101,307
Fixed or predetermined
Interest rates 50,675 91,832
------
$108,417 $193,139
======= =======
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 and home equity loans are placed on non-accrual
status when they become 180 days past- due.
<PAGE>
The following table summarizes the Company's non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans in non-accrual status $2,100 $1,419 $1,665 $3,290 $7,929
Loans past due 90 days or more
and still accruing 540 645 45 196 1,295
--- ----- ----- ----- -----
Total non-performing loans 2,640 2,064 1,710 3,486 9,224
Real estate acquired by foreclosure 38 45 - 100 345
----- ----- ----- ----- -----
Total non-performing assets $2,678 $2,109 $1,710 $3,586 $9,569
===== ===== ===== ===== =====
Non-performing assets as a % of total
loans and real estate acquired
by foreclosure 0.81% 0.69% 0.67% 1.77% 5.60%
===== ==== ===== ===== =====
</TABLE>
Total non-performing assets increased $569,000, or 27%, in 1997 from 1996 and
total non-performing assets increased $399,000, or 23.3% in 1996 from 1995,
after decreasing each year since their peak in September 1992. The 1997 increase
is primarily in commercial mortgages secured by real estate.
Loans in non-accrual status increased $681,000 from 1996 to 1997 and decreased
$246,000 from 1995 to 1996. Of the $2,100,000 in non-accrual loans, $1,687,000
are secured by real estate. Non-performing assets represent .81% of total loans
and real estate acquired by foreclosure at the end of 1997 compared to .69% in
1996 and .67% in 1995.
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, 1997 to absorb anticipated losses, however some
additional provisions to the allowance are expected to be made in 1998 as the
portfolios increase.
<PAGE>
The following table summarizes the changes in the allowance for loan losses for
1993 through 1997:
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS ALLOWANCE
December 31
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Total Loans outstanding at year-end,
net of costs (fees) and unearned discounts $331,520 $303,660 $254,003 $202,437 $168,619
======= ======= ======= ======= =======
Daily average amount of net
loans outstanding 318,254 283,958 229,331 186,229 167,234
======= ======= ======= ======= =======
Balance at beginning of year 5,696 5,776 6,452 6,823 6,560
Provisions charged to operating expense (recovery) 55 - - (43) 74
Reclassification of impairment reserves - - - 210 -
Allowance of subsidiary sold - - - (177) -
- - - ----- -
5,751 5,776 6,452 6,813 6,634
----- ----- ----- ----- -----
Loans charged off:
Commercial, financial and agricultural (179) (407) (840) (990) (346)
Real estate mortgage (72) (14) (46) (124) (40)
Installment (158) (137) (147) (244) (309)
----- ----- ----- ----- -----
Total charge-offs (409) (558) (1,033) (1,358) (695)
----- ----- ----- ------ ----
Recoveries of loans previously charged off:
Commercial, financial and agricultural 166 407 267 867 610
Real estate mortgage 12 - - - 85
Installment 60 71 90 130 189
----- ----- ------ --- ---
238 478 357 997 884
--- ----- ------ --- ---
Net (charge-offs) recoveries (171) (80) (676) (361) 189
----- ----- ------ ---- ---
Balance at end of year $5,580 $5,696 $5,776 $6,452 $6,823
===== ===== ===== ===== =====
Net (charge-offs) recoveries as a percent of
average loans outstanding during the year (0.05)% (0.03)% (0.29)% (0.19)% .11%
Allowance for loan losses as a percent of
year-end loans 1.68% 1.88% 2.27% 3.19% 4.05%
</TABLE>
The increases in the loan portfolios and nonperforming loans, primarily
residential mortgage loans, required that some provision be made in 1997. Most
of the nonperforming residential mortgage loans are secured by residences in low
to moderate income neighborhoods and were originated by the Bank during the last
two years under special underwriting guidelines that permitted loan to value
ratios in excess of those usually used by the Bank. The lack of provision in
1996 and 1995 as well as the decrease in provision in 1994 and 1993 was 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 National Bank just prior to the time of its sale.
At December 31, 1997, the Bank's internally criticized loans were $15,194,000 as
compared to $14,084,000 at December 31, 1996 and $19,055,000 at December 31,
1995. Internally criticized loans increased $1,110,000, or 7.9%, from 1996 to
1997 and declined $4,971,000, or 26.1% from 1995 to 1996. As a percent of total
loans internally criticized loans remained unchanged. Internally criticized
loans as a percent of total loans were 4.6%, 4.6%, and 7.5% for the years ended
1997, 1996 and 1995, respectively.
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.
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
1997 1996 1995
---- ---- ----
Allowance % (1) Allowance %(1) Allowance % (1)
--------- ----- --------- ----- --------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
& agricultural $3,650 60.9% $3,925 61.9% $4,275 65.2%
Real estate, residential
mortgage 1,418 25.1 998 23.5 706 19.6
Home equity 88 7.1 79 7.0 208 7.4
Installment, net 424 6.9 694 7.6 587 7.8
--- ----- ---- ----- --- -----
Total $5,580 100.0% $5,696 100.0% $5,776 100.0
===== ====== ===== ====== ===== =====
%
</TABLE>
<TABLE>
<CAPTION>
1994 1993
Allowance % (1) Allowance % (1)
--------- ----- --------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial, financial
& agricultural $5,384 66.4% $5,957 65.4
Real estate, residential
mortgage 294 15.3 153 15.7
Home equity 220 10.2 180 12.6
Installment, net 554 8.1 533 6.3
--- --- ---- ------
Total $6,452 100.0% $6,823 100.0%
===== ====== ===== =====
Notes:
</TABLE>
(1) Percentage of loans in each category to total loans
Deposits
The fundamental source of funds to support lending activities continues to be
the Bank'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 in 1997 increased $65,050,000, or
16.1%, from 1996, while average deposits per banking office have increased from
$23,609,000 for the month of December 1995 to $26,574,000 for December 1996 and
to $30,033,000 for December 1997. The December 1996 and 1997 monthly averages
include the four new Banking Offices that were opened in 1995 and 1996. Total
deposits increased $46,896,000, or 13.1%, from 1995 to 1996. These increases
occurred in spite of a generally declining deposit base in the Monroe County
area. The Odessa Banking Office which was sold in November 1996 had a deposit
base of $9.6 million at time of sale.
Most of the deposit growth continues to occur in certificates of deposit, which
increased $37,974,000 from $203,940,000 in 1996 to $241,914,000 in 1997. From
1996 to 1997, certificates of deposit over $100,000 increased $30,041,000, or
48.1%, as compared to an increase of $877,000, or 1.4%, from 1995 to 1996. From
1996 to 1997, certificates under $100,000 increased $7,933,000, or 5.6%, as
compared to an increase of $35,575,000, or 33.6% from 1995 to 1996. In 1997
management sought to increase certificates of deposit over $100,000 as a
short-term leverage strategy to increase interest income. $14 million of the
increase in certificates over $100,000 was the result of an increase in one
municipal relationship. 1996 showed greater increases in certificates of deposit
under $100,000, than in 1997, primarily as a result of deposit promotions and
the new banking offices.
In both 1996 and 1997, 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. In 1997 non-interest bearing accounts increased $14.7
million, or 26.2%, over 1996 and for the period ended December 31, 1996 the
increase was $10.1 million, or 21.8%, over 1995.
The Company has been taking a number of 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 and
replacement of two existing offices has significantly improved the Company's
retail outlets and has extended services to areas that it previously could not
service effectively. The Company will continue to expand its retail outlets in
1998 with the addition of three new offices and the replacement of an existing
office. Furthermore, the replacement of the Company's core banking system in
1998 will help to improve service delivery and management information systems.
The sale of the Odessa banking office in 1996 has helped the Company to better
allocate its resources in its primary marketing areas.
The following tables summarize the daily average deposits of the Company for the
years 1997, 1996, and 1995, categories in which those deposits were held in 1997
and 1996, and the maturity distribution of certificates of deposit and public
funds of $100,000 or more for the year-end December 31, 1997.
<TABLE>
<CAPTION>
DAILY AVERAGE DEPOSITS
For Years
1997 1996 1995
---- ---- ----
Amount Rate Amount Rate Amount Rate
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $61,411 - % $50,114 - % $40,647 - %
Interest-bearing demand 62,894 1.08 62,820 1.14 64,452 1.50
Savings, and money market 83,766 3.05 81,070 2.93 78,863 3.06
Certificates of deposit 234,782 5.61 187,426 5.52 147,401 5.75
------- ------- ----
Total deposits $442,853 3.70% $381,430 3.52% $330,855 3.58%
======= ===== ======= ===== ======= =====
</TABLE>
PERIOD END DEPOSITS
For Years
1997 1996
---- ----
(in thousands)
Deposit category:
Non-interest-bearing demand $70,831 $56,111
Interest-bearing demand 67,852 63,702
Savings 42,266 37,900
Money market 46,958 43,118
CDs less than $100,000 148,613 140,105
CDs greater than $100,000 40,836 33,152
Public funds less than $100,000 824 1,399
Public funds greater than $100,000 51,641 29,284
------- -------
Total $469,821 $404,771
======= =======
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSITS
AND PUBLIC FUNDS GREATER THAN $100,000
December 31, 1997
Maturity range (in thousands)
less than 3 months $46,649
3 to 6 months 14,561
6 to 12 months 26,856
12 months or more 4,411
------
Total $92,477
=======
Securities with an amortized cost of $105,341,000 at December 31, 1997 were
pledged as collateral for municipal deposits and short-term borrowing.
Short-Term Borrowings
The following table describes the Company's short-term borrowings at the dates
indicated:
December 31,
1997 1996 1995
---- ---- ----
(In thousands)
Securities sold under agreements to repurchase $13,436 - $4,538
Other short-term borrowing 800 786 448
--- --- -----
Total $14,236 $786 $4,986
====== === =====
The Bank had no securities sold under agreements to repurchase at December 31,
1996. The maximum amount outstanding at any one month-end and average amount for
securities sold under agreements to repurchase were $13,436,000 and $5,173,000,
respectively for 1997 and $4,348,000 and $704,000, respectively for 1996 and
$9,075,000 and $5,817,000, respectively for 1995. The increase in 1997 was
primarily the result of the introduction of a sweep account for business
customers. Interest expense averaged 5.08% for 1997, 5.82% for 1996 and 6.17%
for 1995.
The other short-term borrowing represents the Bank's Note Option as a Treasury,
Tax, and Loan Depository for Federal Tax Deposits. Securities with a carrying
value of $1,970,000 at December 31, 1997 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 $4,789,000 from 1996. This increase is
primarily due to the net income for 1997 of $4,519,000 and an increase in the
fair value of securities available-for-sale of $628,000 less dividends paid on
common stock of $610,000. 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 1996, this resulted in a decrease in
shareholder's equity of $582,000 from the period ended December 31, 1995. 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, 1997, the Leverage, Tier-I Risk-Based
Capital, and Total Risk-Based Capital Ratios of the Company and the Bank were as
follows:
CAPITAL RATIOS
Tier-I Total
Leverage Risk-Based Risk-Based
Capital Ratio Capital Ratio Capital Ratio
FNB Rochester Corp. 6.5% 10.3% 11.5%
First National Bank of Rochester 6.3% 10.1% 11.4%
Regulatory guidelines:
Well capitalized 5.0% 6.0% 10.0%
Adequately capitalized 4.0% 4.0% 8.0%
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 effort 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 re-forecasts 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.
After a four year suspension, the Company declared a common stock cash dividend
in December 1996. The suspension was based on the belief of the Company's Board
of Directors that until capital was sufficient to sustain the anticipated
growth, earnings should be retained in the Company to support that growth.
Common stock cash dividends were also declared in June and December of 1997.
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, 1997, the Bank
had an available line of $43.1 million secured by residential mortgages.
The Bank has agreements under which it may obtain funds for short-term
liquidity needs by selling securities under agreements to repurchase.
Additionally the Bank began selling securities under agreements to repurchase to
business customers in 1997 under a cash management sweep account arrangement.
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. Based on an analysis of projected expenses and cash flows,
management believes that the Company has sufficient cash to meet its anticipated
cash obligations.
Management of Interest Rate Risk
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, 1997.
<PAGE>
<TABLE>
<CAPTION>
RATE SENSITIVITY SCHEDULE
One Day Over Three Over Six Over One Over
to Three Months to Months to Year to Five
Months Six Months One Year Five Years Total
-------- ---------- --------- ------- ----- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans:
Commercial $107,500 $2,665 $5,139 $59,140 $27,419 $201,863
Residential mortgage 2,513 3,603 4,335 26,284 50,642 87,377
Home equity 23,781 - - - - 23,781
Consumer 1,971 1,847 3,302 11,120 260 18,500
----- ----- ----- ------ ----- -------
Total loans 135,765 8,115 12,776 96,544 78,321 331,521
------- ----- ------ ------ ------ -------
Investment securities 29,738 9,462 34,978 57,939 18,635 150,752
Interest bearing deposits in
banks and federal funds sold 13,284 - - 50 - 13,334
------ ------ ------ ------- ------ -------
Total interest-earning assets $178,787 $17,577 $47,754 $154,533 $96,956 $495,607
======= ====== ====== ======= ====== =======
Interest-bearing liabilities:
Savings deposits $157,077 $ $ $ $ $157,077
- - - -
Time deposits $100M & over 45,619 13,609 25,492 2,694 - 87,414
Other time deposits 20,999 21,006 78,560 33,833 101 154,499
Short-term borrowings
and long-term debt 14,236 - - 210 - 14,446
------ ------ ----- ------ ----- -------
Total interest-bearing
liabilities $237,931 $34,615 $104,052 $36,737 $101 $413,436
======= ====== ======= ====== === =======
Net interest rate sensitivity gap $(59,144) $(17,038) $(56,298) $117,796 $96,855 $82,171
======== ======== ======== ======= ====== ======
Cumulative gap $(59,144) $(76,182) $(132,480) $(14,684) $82,171
======== ======== ========= ======= ======
Cumulative gap ratio (1) 0.75 0.72 0.65 0.96 1.20
==== ======== ========= ======== =====
Cumulative gap as a % of
Total assets (11.32)% (14.58)% (25.36)% (2.81)% 15.73%
======== ======= ======== ======= ======
</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, 1997, the
maturity and repricing of the Company's interest earning assets and interest
bearing liabilities showed a negative gap in the one year period. Interest
checking, savings and money market deposits are assigned to one day to three
months repricing and while these deposits can be repriced in that time period
they may react very differently to various interest rate scenarios. Management
does not believe this rate sensitivity schedule accurately reflects the true
interest rate risk of the Company because changes in interest rates do not
affect all categories of assets and liabilities equally as implied by this
schedule.
Quantitative and Qualitative Disclosures About Market Risk
On a quarterly basis, sensitivity to changes in interest rates is also measured
using a simulation model. The model estimates changes in net interest income and
net income under a variety of possible interest rate scenarios. By performing
these simulations and comparing them 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 interest rate risk. Based on
management's assumptions built into the simulation model and the current mix of
the Company's assets and liabilities, management's assessment is that its
negative gap position will not have a material adverse effect on its operating
results or liquidity in the event of reasonably foreseeable changes in interest
rates during 1998. These simulations are based on numerous assumptions regarding
the timing and extent of repricing characteristics. Actual results may differ
significantly.
The following table shows the Company's estimated earnings sensitivity profile
as of December 31, 1997.
Changes in Interest Rates Percentage Change in Net Income
(basis points)
------------------------- -------------------------------
12 Months 24 Months
--------- ---------
+ 200 over one year 1.0 .1
+100 over one year .8 .2
- - 100 over one year -1.4 -1.2
- - 200 over one year -2.5 -2.2
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.
Year 2000
The Company is aware that many existing computer programs use only two digits
to identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
The Company has been aware of the complexity and magnitude of the Year 2000
(Y2K) issue and since October 1996 has been developing its strategy to address
the data processing and business impacts that are expected to be encountered.
Based on the results of an inventory process, First National has prioritized its
list of applications and systems to be addressed in the Y2K project. To date,
First National believes that 95% of all possible Year 2000 situations have been
identified.
First National does not write programs or create its own software, therefore,
it must rely on vendors and software suppliers to provide appropriate
enhancements in a timely manner. As First National continues to monitor the
progress of vendors, it has also begun the process of creating contingency plans
for all applications that do not meet First National's deadline for compliance.
The validation phase is the most labor intensive and critical phase and
requires a written test plan for each system that will be in use at the turn of
the century. First National has opted not to rely on vendor or third party
certification as acceptable validation. As vendors provide upgraded software or
enhancements, the Bank will conduct tests to determine if the software or
enhancements meet First National's requirements for Y2K readiness. Testing has
begun, as has the process of writing Y2K test plans. This validation phase is
targeted for completion by December 31, 1998.
Prior to January 1, 2000, First National expects to have tested each mission
critical application. In addition, First National will have contingency plans in
place for any application that does not meet Y2K compliance. The contingency
plans will address key dates such as 12/31/1999, 1/01/2000 and 2/29/2000.
Throughout the year 2000, First National will be conducting a quality review to
insure that its systems are functioning properly.
Expenditures in 1997 for the Year 2000 Project have not been material.
Management has not yet fully quantified the expenses of resolving Year 2000
problems, including problems relating to its own systems and those relating to
third party customers and vendors, or the materiality of the effect of such
expenses on its results of operations, capital resources or liquidity.
New Accounting Pronouncements
In June 1997, FASB issued Statement No. 130 entitled Reporting Comprehensive
Income. Comprehensive Income is defined as "the change in equity (net assets) of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners". The Statement is effective for fiscal years beginning after December
15, 1997 and requires that items that meet the definition of components of
comprehensive income be reported in a financial statement that is displayed as
prominently as other financial statements. While this Statement will increase
the Company's financial disclosures, it will have no impact on operating
results.
FASB Statement No. 131 entitled Disclosures about Segments of an Enterprise and
Related Information was also issued in June 1997. This Statement is effective
for fiscal years beginning after December 15, 1997. This Statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products, services geographic areas, and major
customers. This Statement may increase the Company's financial disclosures but
will have no impact on operating results.
<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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
s\ KPMG Peat Marwick LLP
January 20, 1998
Rochester, New York
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
(in thousands, except share data)
1997 1996
Assets:
Cash and due from banks $17,968 $20,060
Interest bearing deposits with other banks 1,134 1,121
Federal funds sold 12,200 1,500
Securities available-for-sale, at fair value 120,819 72,318
Securities held-to-maturity (fair value
of $28,323 in 1997 and
$29,305 in 1996) 28,278 29,532
Loans, net of allowance of $5,580 in 1997 and
$5,696 in 1996 325,940 297,964
Premises and equipment 8,813 9,152
Accrued interest receivable 3,761 3,242
FHLB and FRB stock 1,655 1,516
Other assets 1,785 1,493
Total assets $522,353 $437,898
Liabilities and shareholders' equity
Deposits:
Demand:
Non interest bearing $70,831 $56,111
Interest bearing 67,852 63,702
Savings and money market 89,224 81,018
Certificates of deposit 241,914 203,940
Total deposits 469,821 404,771
Securities sold under agreement to repurchase 13,436 -
Other short-term borrowing 800 786
Accrued interest payable and other
liabilities 4,066 2,900
Long-term debt 210 210
Total liabilities 488,333 408,667
Shareholders' equity:
Common Stock, $1 par value; authorized
5,000,000 shares; issued and outstanding
3,589,253 in 1997 and 3,571,063 in 1996. 3,589 3,571
Additional paid in capital 13,269 13,035
Undivided profits 16,266 12,357
Net unrealized gain on securities
available-for-sale, net of taxes 896 268
34,020 29,231
Total liabilities and
shareholders' equity $522,353 $437,898
See accompanying notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996, 1995
(in thousands, except per share data)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $28,219 $25,390 $21,810
Securities:
Taxable 8,678 6,420 6,751
Tax-exempt 104 122 99
----- ----- -----
8,782 6,542 6,850
Interest on federal funds sold
and deposits with banks 505 313 575
----- ----- -----
Total interest income 37,506 32,245 29,235
------ ------ ------
Interest expense:
Savings, interest checking and money market accounts 3,231 3,093 3,379
Certificates of deposit 13,169 10,348 8,473
Short-term borrowings 301 99 398
Long-term debt 20 19 -
-- -- --
Total interest expense 16,721 13,559 12,250
------ ------ ------
Net interest income 20,785 18,686 16,985
------ ------ ------
Provision for loan losses 55 - -
-- - -
Net interest income after provision for
loan losses 20,730 18,686 16,985
------ ------ ------
Non-interest income:
Service charges on deposit accounts 1,720 1,547 1,209
Credit card fees 715 740 648
Gain on sale of mortgages 73 65 40
Gain (loss) on sale of securities available-for-sale (8) (45) 33
Loan servicing fees 262 263 283
Gain on sale of banking office - 621 -
Other operating income 647 616 427
--- --- ---
Total non-interest income $3,409 $3,807 $2,640
----- ----- -----
Non-interest expense:
Salaries and employee benefits $9,618 $9,227 $8,238
Occupancy 3,561 3,448 2,812
Marketing and public relations 610 489 624
Office supplies, printing and postage 624 637 576
Processing fees 1,075 1,018 979
F.D.I.C. assessments 52 2 350
Net cost of operation of other real estate 16 2 (14)
Legal 192 190 267
Other 1,746 1,637 1,745
------ ----- -----
Total non-interest expense 17,494 16,650 15,577
------ ------ ------
Income before income taxes 6,645 5,843 4,048
Income tax expense 2,126 1,710 1,194
----- ----- -----
Net income $4,519 $4,133 $2,854
===== ===== =====
Net income per common share - basic $ 1.26 $ 1.16 $ .80
===== ==== =====
Net income per common share - diluted $ 1.21 $ 1.13 $ .79
===== ==== =====
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, 1997, 1996 and 1995
(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 December 31, 1994 $3,569 $13,023 $5,549 $(781) $21,360
Net income - - 2,854 - $2,854
Option shares issued - 1 - - 1
Change in fair value of securities
available-for-sale, net of taxes of $576 - - - 1,631 1,631
Balance at December 31, 1995 $3,569 $13,024 $8,403 $850 $25,846
Net income - - 4,133 - 4,133
Common stock cash dividend -
$.05 per share - - (179) - (179)
Option shares issued 2 11 - - 13
Change in fair value of securities
available-for-sale, net of taxes of $397 - - - (582) (582)
Balance at December 31, 1996 $3,571 $13,035 $12,357 $268 $29,231
Net income - - 4,519 - 4,519
Common stock cash dividend -
$.17 per share - - (610) - (610)
Option and employee purchase shares issued 18 234 - - 252
Change in fair value of securities
available-for-sale, net of taxes of $417 - - - 628 628
Balance at December 31, 1997 $3,589 $13,269 $16,266 $896 $34,020
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $4,519 $4,133 $2,854
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 55 - -
Depreciation and amortization 1,464 1,449 1,208
Amortization of goodwill - 79 238
Deferred income taxes (548) (78) 301
(Gain) loss on sales of securities
available-for-sale 8 45 (33)
Gain on sale of subsidiary and banking offices - (621) -
(Increase) decrease in mortgage loans
held for sale, net (2,700) 550 (880)
(Increase) decrease in accrued interest receivable (519) 331 (420)
(Increase) decrease in other assets (199) (465) 127
Increase in accrued interest
payable and other liabilities 986 175 555
--- --- ----
Net cash provided by operating activities 3,066 5,598 3,950
----- ----- ------
Cash flow from investing activities:
Decrease in interest bearing deposits - - 77
Securities available-for-sale:
Purchase of securities (71,502) (29,987) (17,272)
Proceeds from maturities 23,275 19,857 17,483
Proceeds from sales 762 10,097 11,027
Securities held-to-maturity:
Purchase of securities (3,249) (2,891) (15,545)
Proceeds from maturities 4,503 5,139 2,223
Loan origination and principal collection, net (25,293) (51,375) (51,362)
Payment made for sale of banking office - (7,855) -
Capital expenditures, net (1,125) (3,377) (3,545)
Increase in other assets (139) - -
--- - -
Net cash used by investing activities $(72,768) $(60,392) $(56,914)
------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows,
continued Years ended December 31, 1997,
1996 and 1995
(in thousands)
1997 1996 1995
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase in demand, savings, interest
checking, and money market accounts $27,076 $16,125 $6,036
Certificates of deposit accepted and repaid, net 37,974 40,404 56,458
Increase (decrease) in short-term
borrowings 13,450 (4,200) (4,889)
Increase in long-term debt - 210 -
Employee common stock purchase and exercise
of options to purchase common stock 252 13 1
Dividends paid - common stock (429) - -
Net cash provided by financing
activities 78,323 52,552 57,606
Increase (decrease) in cash and cash
equivalents 8,621 (2,242) 4,642
Cash and cash equivalents at beginning of
year 21,681 23,923 19,281
Cash and cash equivalents at end of year $30,302 $21,681 $23,923
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 $38 $45 -
Transfer of securities from held-to-
maturity to securities available-for-sale - - $34,539
The Company paid cash during 1997, 1996, and 1995
for income taxes and interest
as follows (in thousands):
1997 1996 1995
Interest $16,399 $13,553 $11,949
Income taxes 2,637 1,335 910
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
FNB Rochester Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(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 1997 its only subsidiary was
First National Bank of Rochester (First National). The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
First National. 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
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.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost. 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 until
realized. Transfers of securities between categories are recorded at fair value
at the date of transfer.
A decline in the fair 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.
Premiums and discounts are amortized or accredited over the life of the related
held-to-maturity security as an adjustment to yield using the interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses from securities sold are determined using the specific identification
method.
The Company's investments in the 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. The Company originates some residential mortgage loans with the intent
to sell. These loans are carried at the lower of aggregate cost or fair 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. Due to their immateriality, 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.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Management considers a loan to be
impaired if, based on current information, it is probable that the Company will
be unable to collect all scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price of the fair value of collateral if the loan is collateral dependent.
Management excludes large groups of smaller balance homogeneous loans such as
residential mortgages and consumer loans which are collectively evaluated.
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.
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 - 20 years
Vehicles 2 - 5 years
Other Real Estate Owned
Real estate acquired through foreclosure or deed in lieu of foreclosure is
carried at the lower of the investment in the loan 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.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of an option's grant
only if the current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of the
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
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 cash
method. At December 31, 1997 the market value of the assets under management was
$69,995,000.
Per Share Data
Basic earnings per share data is based upon the weighted average number of
common shares outstanding during each year. Diluted earnings per share data is
based upon the weighted average number of common shares and equivalents (stock
options) outstanding during each year. Earnings per share data has been restated
to reflect the adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share, in 1997. (see Note 15 to Financial Statements)
Cash Equivalents
For the purpose of reporting cash flows, cash equivalents include due from
banks, unrestricted interest bearing deposits with banks, and federal funds
sold.
<PAGE>
(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
in December 1995.
The aggregate amortized cost and fair value of securities available-for-sale
and securities held-to-maturity at December 31, 1997 and 1996 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- ------
Securities available-for-sale:
<S> <C> <C> <C> <C>
U.S. Treasury $25,152 $25,403 $23,286 $23,576
U.S. Government agency 34,213 34,346 10,003 9,967
Mortgage-backed securities 59,963 61,070 38,582 38,775
------- ------ ------ ------
Total 119,328 120,819 71,871 72,318
======= ======= ====== ======
Securities held-to-maturity:
U.S. Treasury 8,079 8,091 8,108 8,024
U.S. Government agency 5,252 5,229 5,293 5,222
Mortgage-backed securities 10,721 10,769 12,909 12,834
Obligations of state and
municipal subdivisions 3,876 3,884 2,872 2,875
Other securities 350 350 350 350
---- ----- ---- -----
Total $28,278 $28,323 $29,532 $29,305
====== ====== ====== ======
</TABLE>
Securities with an amortized cost of $105,341,000 and $52,427,000 at December
31, 1997 and 1996, respectively were pledged as collateral for municipal
deposits and to secure short term borrowings.
<PAGE>
Gross unrealized gains and losses on securities available-for-sale and
securities held-to-maturity at December 31, 1997 and 1996 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ---------- ---------- ---------
Securities available-for-sale:
<S> <C> <C> <C> <C>
U.S. Treasury $251 - $290 $ -
U.S. Government agency 172 39 53 89
Mortgage-backed securities 1,157 50 426 233
Total $1,580 $89 $769 $322
Securities held-to-maturity:
U.S. Treasury $39 $27 $31 $115
U.S. Government agency - 23 - 71
Mortgage-backed securities 77 29 76 151
Obligations of state and municipal
subdivisions 18 10 11 8
Total $134 $89 $118 $345
</TABLE>
The amortized cost of securities by contractual years to maturity as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Under 1 Year 1 to 5 Years 5 to 10 Years 10 Years and Total
Over
Securities available-for-sale
<S> <C> <C> <C> <C> <C>
U.S. Treasury $9,018 $16,134 $ - $ - $ 25,152
U.S. Government agency - 3,598 16,825 13,790 34,213
Mortgage-backed securities - 3,824 7,031 49,108 59,963
Total $9,018 $23,556 $ 23,856 $ 62,898 $119,328
Securities held-to-maturity
U.S. Treasury $ - $ 8,079 $ - $ - $ 8,079
U.S. Government agency 3,000 2,000 - 252 5,252
Mortgage backed securities - 7,950 1,606 1,165 10,721
Obligations of state and municipal
subdivisions 2,399 843 454 180 3,876
Other securities 250 50 50 - 350
Total $5,649 $18,922 $ 2,110 $ 1,597 $ 28,278
</TABLE>
<PAGE>
The fair value of securities by contractual years to maturity as of December
31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Under 1 Year 1 to 5 Years 5 to 10 Years 10 Years and Total
Over
Securities available-for-sale
<S> <C> <C> <C> <C> <C>
U.S. Treasury $9,082 $16,321 $ - $ - $25,403
U.S. Government agency - 3,592 16,924 13,830 34,346
Mortgage-backed securities - 3,817 7,293 49,960 61,070
- ----- ----- ------ ------
Total $9,082 $23,730 $24,217 $63,790 $120,819
===== ===== ===== ===== ======
Securities held-to-maturity
U.S. Treasury $ - $8,091 $ - $ - $8,091
U.S. Government agency 2,989 1,987 - 253 5,229
Mortgage backed securities - 7,939 1,637 1,193 10,769
Obligations of state and municipal
subdivisions 2,398 844 454 188 3,884
Other securities 250 50 50 - 350
----- --- -- - ---
Total $5,637 $18,911 $2,141 $1,634 $28,323
===== ===== ===== ===== ======
</TABLE>
The following table presents the total proceeds from sales of securities
available-for-sale for 1997, 1996 and 1995 and the gross realized gains and
losses (in thousands):
1997 1996 1995
Proceeds from sales $762 $10,097 $11,027
--- ------ ------
Gains - 2 72
Losses (8) (47) (39)
--- ----- ----
Net $(8) $(45) $33
=== === ===
<PAGE>
(3) Loans
The major classifications of loans at December 31, 1997 and 1996 follow (in
thousands):
1997 1996
Commercial $201,722 $187,721
Residential mortgage 80,083 70,933
Residential mortgage loans held for sale 3,030 330
Home equity 23,516 21,297
Other consumer 22,886 23,153
------- ------
Total 331,237 303,434
Net deferred loan costs 283 226
Allowance for loan losses (5,580) (5,696)
------- ------
Loans, net $325,940 $297,964
======= =======
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 two 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 $102,757,000 and $104,494,000 at
December 31, 1997 and 1996, respectively are not included in the consolidated
financial statements. Custodial accounts held by First National for these loans
amounted to $2,193,000 and $2,182,000 at December 31, 1997 and 1996,
respectively.
The Company has an available line of credit with the FHLB of New York, which at
December 31, 1997 amounted to approximately $43,107,000. 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, 1997, the Company pledged residential mortgages with a carrying value of
$64,695,000 as collateral for this line of credit.
<PAGE>
(4) Allowance for Loan Losses
A summary of the changes in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $5,696 $5,776 $6,452
Provision charged to operating expense 55 - -
5,751 5,776 6,452
Loans charged off
Commercial (179) (407) (840)
Residential mortgage (72) (14) (46)
Home equity (13) (5) -
Other consumer (145) (132) (147)
Total loans charged off (409) (558) (1,033)
Recoveries of loans charged off
Commercial 166 407 267
Residential mortgage 12 - -
Home equity - 3 6
Other consumer 60 68 84
Total recoveries of loans charged off 238 478 357
Balance at end of year $5,580 $5,696 $5,776
</TABLE>
The principal balance of loans not accruing interest totaled $2,100,000 and
$1,419,000 at December 31, 1997 and 1996 respectively. The effect of non-accrual
loans on interest income for the years ended December 31, 1997, 1996, and 1995
was $22,000, $48,000 and $67,000 respectively. Other real estate owned amounted
to $38,000 and $45,000 at December 31, 1997 and 1996 respectively.
At December 31, 1997, and 1996, the recorded investment in loans that are
considered to be impaired totaled $1,160,000, and $2,337,000, respectively, and
the impairment allowance associated with these loans is $125,000 for 1997 and
$38,000 for 1996. There was no impairment allowance associated with the 1995
recorded investment. The average recorded investments in impaired loans during
the twelve months ended December 31, 1997, 1996 and 1995 was approximately
$2,882,000, $913,000 and $1,150,000, respectively.
For the twelve months ended December 31, 1997, 1996 and 1995 the Company
recognized interest income on impaired loans of $234,000, $77,000 and $35,000,
respectively.
(5) Premises and Equipment
A summary of premises and equipment follows (in thousands):
December 31,
1997 1996
---- ----
Land $710 $587
Building and improvements 2,091 2,098
Furniture, fixtures, equipment and vehicles 9,472 8,739
Leasehold improvements 5,444 5,199
------ -----
17,717 16,623
Less accumulated depreciation and
amortization 8,904 7,471
----- -----
Premises and equipment, net $8,813 $9,152
===== =====
(6) Certificates of Deposit
Certificates of deposit of $100,000 or more amounted to $92,477,000 at December
31, 1997 and $62,436,000 at December 31, 1996. Interest expense on certificates
of deposit of $100,000 or more was $4,629,000 in 1997, $3,225,000 in 1996 and
$2,457,000 in 1995.
At December 31, 1997, the scheduled maturities of all certificates of deposits
are as follows (in thousands):
Year Amount
1998 $192,574
1999 35,965
2000 8,115
2001 3,189
2002 and thereafter 2,071
-------
Total $241,914
=======
(7) Securities Sold Under Agreements to Repurchase
The Company had short term borrowings of $14,236,000 and $786,000 at December
31, 1997 and 1996 respectively. The December 31, 1997 balance included
$13,436,000 of securities sold under agreement to repurchase, with a maturity
date of January 2, 1998 and an average rate of 4.92%. There were no securities
sold under agreement to repurchase at December 31, 1996. The maximum amount
outstanding at any one month-end and average amount for securities sold under
agreements to repurchase were $13,436,000 and $5,173,000 respectively for 1997
and $4,348,000 and $704,000 respectively for 1996. Interest expense averaged
5.08% for 1997, 5.82% for 1996 and 6.17% for 1995.
(8) Income Taxes
Total income taxes for the years ended December 31, 1997, 1996 and 1995 were
allocated as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income from operations $2,126 $1,710 $1,194
Shareholders' equity, change in unrealized gain (loss)
on securities available-for-sale 417 (397) 576
----- ----- -----
$2,543 $1,313 $1,770
===== ===== =====
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, income tax expense
(benefit) attributable to income from operations consists of (in thousands):
1997 1996 1995
Current:
Federal $2,113 $1,648 $892
State 561 140 1
----- ----- ---
2,674 1,788 893
----- ----- ---
Deferred:
Federal (466) (335) 301
State (82) 257 -
----- ---- ---
(548) (78) 301
----- ---- ---
$2,126 $1,710 $1,194
===== ===== =====
<PAGE>
The reconciliation of the statutory federal income tax rate with the actual
effective tax rate follows:
1997 1996 1995
---- ---- ----
Statutory rate 34.0% 34.0% 34.0%
Increases (decreases)
attributable to:
Change in the beginning of the year
valuation allowance for deferred
tax assets allocated to income
tax expense (7.0)% (11.0) (10.0)
State taxes, net of federal
benefit 4.7% 5.0 1.0
Other items, net 0.3% 1.0 4.0
--- --- ---
32.0% 29.0% 29.0%
==== ==== ====
The significant components of deferred tax expense (benefit) attributable to
income from continuing operations at December 31, 1997, 1996 and 1995 are as
follows:
1997 1996 1995
---- ---- ----
Deferred tax expense (benefit) $(79) $582 $713
Increase (decrease) in valuation
allowance for deferred tax assets (469) (660) (412)
Net deferred tax expense (benefit) $(548) $(78) $301
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997,
and 1996 are presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses - financial statements $2,229 $2,284
Interest on non accrual loans 140 111
Premises and equipment - principally due to
depreciation 163 88
Reserve for abandoned lease 91 121
Accrued salaries and benefits 121 109
Other 97 44
-- --
Gross deferred assets 2,841 2,757
Less valuation allowance (776) (1,245)
----- ------
Net deferred tax assets 2,065 1,512
Deferred tax liabilities:
Allowance for loan losses - tax (650) (722)
Net unrealized gain on securities
available-for-sale (596) (179)
Bond discount (152) (97)
Net deferred loan origination costs (113) (91)
--- --
Total gross deferred liabilities (1,511) (1,089)
----- -----
Net deferred tax asset $554 $423
=== ===
</TABLE>
The net change in the total valuation allowance for the years ended December
31, 1997, 1996 and 1995 were decreases of $469,000, $660,000 and $730,000
respectively.
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the carry
back 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
$776,000 at December 31, 1997.
(9) Shareholders' Equity
On December 16, 1997, the Company declared a dividend of $.10 per share for
payment January 30, 1998 to shareholders' of record January 15, 1998. Dividends
of $.07 per share were declared in June 1997 for payment in July 1997. Dividends
of $.05 per share were declared in December 1996 for payment in January 1997. No
dividends were declared or paid in 1995 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
approximating $10,894,000 are available from First National at December 31, 1997
without the approval of the OCC.
(10) Stock Option Plans
The Company has two stock option plans. A plan adopted in 1992 (amended May 28,
1996) for employees, authorizes grants of options to purchase up to 325,000
shares of its authorized but unissued common stock. The second plan is a 1995
Non-employee Director Stock Option Plan which was approved by shareholders on
May 28, 1996 and authorizes grants of options to purchase up to 25,000 shares of
its authorized but unissued common stock. Stock options are granted with an
exercise price equal to the stock's fair market value at the date of the grant.
All stock options have ten year terms and, with the exception of a 1992 grant of
options for 75,000 shares, all stock options vest at 50% per year and become
fully vested after two years. The 1992 grant vests at 20% per year and was fully
vested after five years.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been
recognized for its stock options in the financial statements.
The fair value of each option grant is estimated on the date of grant using an
option-pricing model with the following weighted-average assumptions used for
grants in 1997: dividend yield of .87 percent, risk-free interest rate of 6.06
percent, expected volatility of 35.6 percent, and expected lives of 10 years.
For grants in 1996: dividend yield of .14 percent, risk-free interest rate of
6.1 percent, expected volatility of 40 percent, and expected lives of 8.8 years.
For accounting purposes there were no option grants in 1995 as the Company's
1995 option grants were subject to shareholder approval in 1996 and were
therefore required to be included with the 1996 option grants.
Had the Company determined compensation cost based on the fair value at the
grant date for its options under SFAS No. 123, the Company's net income and
basic earnings per share would have been reduced to the pro forma amounts
indicated below:
Year ended December 31
(net income in thousands)
1997 1996
---- ----
Net income As reported $ 4,519 $ 4,133
Pro forma 4,385 4,003
Basic earnings
Per share As reported 1.26 1.16
Pro forma $ 1.22 $ 1.12
Pro forma net income and earnings per share reflect only options granted in
1997 and 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1996 is not considered.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1997, 1996 and 1995 and changes during the years ended on those
dates is presented below
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 318,850 $ 7.28 223,100 $ 6.59 225,000 $ 6.59
Granted 7,500 16.13 98,750 8.88 - -
Exercised 3,000 7.64 2,100 6.01 250 5.69
Forfeited 1,500 11.27 900 7.15 1,650 5.96
----- ----- ----- ---- ----- ----
Outstanding at end of year 321,850 $ 7.48 318,850 $ 7.30 223,100 $ 6.59
======= ===== ======= ==== ======= ====
Options exercisable at
year end 304,475 244,350 167,150
======= ======= =======
Weighted-average fair
value of options granted
during the year $ 8.44 $ 5.11 -
======= =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted-Avg Number
Range of Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
--------------- ----------- ------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$5.63 - 8.32 294,850 5.8 $ 6.94 294,850 $ 6.94
9.75 - 12.75 19,500 8.9 12.37 9,625 12.36
16.13 7,500 9.7 16.13 - -
$5.63 - 16.13 321,850 6.1 $ 7.48 304,475 $ 7.11
</TABLE>
(11) Leases
The Company leases certain buildings and office space under operating lease
arrangements. Rent expense under these arrangements amounted to $1,122,601 in
1997, $1,110,000 in 1996 and $776,000 in 1995. 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, 1997 follows (in
thousands):
Year Ending December 31,
------------------------
Year Amount
---- ------
1998 $965
1999 1,006
2000 1,017
2001 1,047
2002 1,049
After 2002 9,484
Total $14,568
Several new leases have been signed for additional banking offices and office
space. Three 20-year ground leases were signed for new banking offices in the
Village of Brockport, Town of Victor and a new Pittsford office to replace the
existing office on Monroe Avenue. A 5-year lease has been signed for space in a
supermarket located in the City of Rochester and the Bank's Powers Building
lease has been amended to include 7,652 square feet of additional space to be
used for operations. The annual lease expense for all of the new leases is
expected to be approximately $1,142,000 for the first five years and $3,061,000
for years beyond five. The new lease amounts are excluded from the table above.
(12) 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, 1997 and 1996 are set
forth in the table below (in thousands):
<TABLE>
<CAPTION>
1997 1996
Fixed Rate Variable Rate Fixed Rate Variable Rate
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Commercial letters of credit - 2,749 - 3,189
Commercial lines of credit 2,362 59,040 12,535 64,346
Other loan commitments 17,184 18,917 7,546 9,313
</TABLE>
For substantially all commercial lines of credit, First National evaluates each
customer's creditworthiness annually. 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.
In 1997 the Company committed $1 million to fund a 10% limited partnership
investment interest in Cephas Capital Partnership, L.P. This small business
investment company was established for the purpose of providing financing to
small businesses in conjunction with programs established by the U.S. Small
Business Administration. At December 31, 1997, the Company had funded $322,000
of this commitment and carries the investment under the equity method in other
assets.
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, 1997 and 1996 was approximately $365,000 and $557,000.
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.
(13) 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:
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $792 and $416 $915 $558
Actuarial present value of projected benefit obligation for service
rendered to date 1,691 1,022
Less plan assets at fair value - primarily listed common stock,
U.S. Government and agency securities, and collective funds 1,307 757
Projected benefit obligation in excess of plan assets 384 265
Unrecognized net gain (loss) from past experience different
from that assumed and effects of changes in assumptions (142) (19)
Unrecognized prior service cost 4 5
Accrued pension cost included in other liabilities $246 $251
</TABLE>
Net pension cost included the following components (in thousands):
Years Ended December 31
1997 1996 1995
---- ---- ----
Service cost-benefits earned during the period $385 $368 $250
Interest cost on projected benefit obligation 82 54 24
Actual return on plan assets (178) (21) (9)
Net amortization and deferral 94 (16) (20)
---- --- ---
Net periodic pension cost $383 $385 $245
=== === ===
Assumptions used in determining pension data for 1997, 1996, and 1995 are as
follows:
1997 1996 1995
----- ----- -----
Discount rate for benefit obligations 7.50% 8.00% 7.50%
Rate of increase in compensation levels 5.00% 5.00% 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 $77,000 in 1997, $66,000 in 1996, and $54,000 in 1995.
(14) 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,
1997 1996
------ ------
Balance of loans outstanding at beginning of year $4,827 $5,591
New loans and increases in existing loans 1,496 80
Loan principal repayments (382) (844)
------ -----
Balance at end of year $5,941 $4,827
===== =====
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.
(15) Earnings Per Share
Calculation of Basic Earnings Per Share (Basic EPS) and Diluted Earnings Per
Share (Diluted EPS) is as follows (income in thousands):
<TABLE>
<CAPTION>
Average Per Share
Income Shares Amount
------ ------- ---------
For year ended December 31, 1997
<S> <C> <C> <C>
Basic EPS
Net income applicable to common shareholders $ 4,519 3,580,713 $ 1.26
Effect of asssumed exercise of stock options - 164,829 =====
- -------
Diluted EPS
Income available to common shareholders and
assumed exercise of stock options $ 4,519 3,745,542 $ 1.21
===== ========= ====
For year ended December 31, 1996
Basic EPS
Net income applicable to common shareholders $ 4,133 3,570,159 $ 1.16
Effect of assumed exercise of stock options - 93,117 ====
- ---------
Diluted EPS
Income available to common shareholders and
assumed exercise of stock options $ 4,133 3,663,276 $ 1.13
===== ========= ====
For year ended December 31, 1995
Basic EPS
Net income applicable to common shareholders $ 2,854 3,568,759 $ 0.80
Effect of assumed exercise of stock options - 27,114 ====
- --------
Diluted EPS
Income available to common shareholders and
assumed exercise of stock options $ 2,854 3,595,873 $ 0.79
===== ========= ====
</TABLE>
(16) Condensed Financial Information - Parent Company Only
The following presents the financial condition of the Parent Company (FNB
Rochester Corp.) as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years ended December 31, 1997, 1996, and
1995:
Condensed Statements of Financial Condition (in thousands)
Assets 1997 1996
---- ----
Cash and cash equivalents $996 $644
Investment (at equity) in subsidiary 33,411 28,802
Other assets 3 1
Total assets $34,410 $29,447
Liabilities and shareholders' equity
Accrued interest payable and other liabilities $390 $216
Total liabilities 390 216
Shareholders' equity 34,020 29,231
Total liabilities and shareholders' equity $34,410 $29,447
<PAGE>
Statement of Income (in thousands)
Years ended December 31,
1997 1996 1995
---- ---- ----
Income:
Dividends from subsidiary $600 $200 $ -
Interest and other 27 19 20
--- --- ---
Total income 627 219 20
--- --- ---
Expense:
Other 118 109 122
--- --- ---
Total expense 118 109 122
--- --- ---
(Income) loss before taxes and equity in
undistributed income of subsidiary 509 110 (102)
Income tax benefit (29) (26) (40)
--- --- ---
Income (loss) before undistributed income
of subsidiary 538 136 (62)
Equity in undistributed income
of subsidiary 3,981 3,997 2,916
----- ----- -----
Net income $4,519 $4,133 $2,854
===== ===== =====
<PAGE>
Statement of Cash Flows (in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $4,519 $4,133 $2,854
Adjustment to reconcile net income to
cash (used) provided by operating activities:
Equity in undistributed income
of subsidiary 3,981) (3,997) (2,916)
(Increase) decrease in other assets (2) 3 1
Increase (decrease) in accrued
interest payable and other
liabilities (7) (2) 4
--- --- ---
Net cash (used) provided by
operating activities 529 137 (57)
--- --- ---
Cash flows from investing activities:
- - -
Net cash provided by investing
activities - - -
Cash flows from financing activities:
Employee common stock purchase and exercise
of options to purchase common stock 252 13 1
Dividends paid - common stock (429) - -
Net cash provided by financing
activities (177) 13 1
--- --- ---
Increase (decrease) in cash and
cash equivalents 352 150 (56)
Cash and cash equivalents at beginning of year 644 494 550
--- --- ---
Cash and cash equivalents at end of year $996 $644 $494
=== === ===
</TABLE>
The Parent Company paid cash during 1997, 1996, and 1995 for income taxes and
interest as follows (in thousands) :
1997 1996 1995
---- ---- ----
Interest - - -
Income taxes 2,637 1,335 910
(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 are 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, 1997, First National is a well capitalized
institution under the definitions.
First National is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements could cause regulators to initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could have a
direct material effect on First National's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
First National must meet specific capital guidelines that involve quantitative
measures of First National's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. First National's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require First National to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December 31, 1997,
that First National meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized First National as (well capitalized) under the
regulatory framework for prompt corrective action. To be categorized as (well
capitalized) First National must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios set forth in the table. There are no
conditions or events since that notification that management believes have
changed First National's category.
First National's actual capital amounts and ratios are presented in the
following table (in thousands). There was no deduction from capital for
interest-rate risk.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) $ 36,557 11.4% $ 25,745 8.0% $ 32,181 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 32,515 10.1% $ 12,873 4.0% $ 19,309 6.0%
Tier I Capital
(to Average Assets) $ 32,515 6.3% $ 20,491 4.0% $ 25,613 5.0%
As of December 31, 1996
Total Capital
(to Risk Weighted Assets) $ 32,135 11.0% $ 23,296 8.0% $ 29,120 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 28,469 9.8% $ 11,648 4.0% $ 11,648 6.0%
Tier I Capital
(to average assets) $ 28,469 6.6% $ 17,400 4.0% $ 21,750 5.0%
</TABLE>
The Company's capital amounts and ratios as of December 31, 1997 and 1996 were
not materially different from those of First National.
(18) Fair Value of Financial Instruments
The following fair value estimates, methods, and assumptions of each class of
the Company's financial instruments were used to estimate the fair value.
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 and Long-Term Debt
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.
1997 1996
(in thousands)
Estimated Estimated
Carrying Fair Carrying Fair
Financial Assets: Amount Value(1) Amount Value(1)
- ----------------- -------- -------- ------- -------
Cash $17,968 $17,968 $20,060 $20,060
Interest bearing deposits with banks 1,134 1,134 1,121 1,121
Federal funds sold 12,200 12,200 1,500 1,500
Securities, including FHLB and FRB 149,261 150,797 103,366 103,139
Net loans and loan commitments 325,940 337,123 297,964 304,634
Financial Liabilities:
Total deposits 469,821 470,254 404,771 406,114
Short-term borrowings
and long-term debt $14,446 $14,446 $996 $996
(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
On November 18, 1996, First National sold its Odessa Office. The Office had
deposits of $9,633,000 and loans of $1,133,000, and a gain of $621,000 was
recognized as a result of the sale.
<PAGE>
CORPORATE DIRECTORY
DIRECTORS OF FNB ROCHESTER CORP.
AND FIRST NATIONAL BANK OF ROCHESTER
R. Carlos Carballada
President and Chief Executive Officer
Michael J. Falcone, Chairman
Real Estate Developer, Pioneer Group
Gayle C. Johnston
Vice President and General Manager
Sunglass Hut Business
Bausch & Lomb
Joseph M. Lobozzo II
President & Chief Executive Officer
JML Optical Industries, Inc.
Francis T. Lombardi
Vice President, Syracuse Tank & Mfg. Co.
Carl R. Reynolds
Attorney
H. Bruce Russell
Retired
James D. Ryan
President and Owner RYCO Management, Inc.
Property Management and Development
Linda Cornell Weinstein
Executive Director, Cornell/Weinstein
Family Foundation
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
Timothy P. Johnson
Assistant Corporate Secretary
SENIOR OFFICERS OF
FIRST NATIONAL BANK OF ROCHESTER
R. Carlos Carballada
President and Chief Executive Officer
Donald R. Aldred
Sr. Vice President, Business & Professional Banking
Robert B. Bantle
Sr. Vice President, Community Banking
Peter M. Biggs
Sr. Vice President, Marketing Director
Stacy C. Campbell
Sr. Vice President and Chief Financial Officer
Barbara W. Fuge
Vice President, Corporate Operations Project
Manager/Loan Servicing Manager
Robert E. Gilbert
Sr. Vice President, Operations
Timothy P. Johnson
Vice President and Counsel
Richard J. Long
Vice President, Human Resources
Theresa B. Mazzullo
Sr. Vice President, Trust & Investment
VICE PRESIDENTS OF FIRST NATIONAL BANK OF ROCHESTER
<TABLE>
<CAPTION>
<S> <C>
Richard L. Aldrich William C. Lyons
Vice President, Brockport Office Manager Vice President, Business & Professional
Lending - Buffalo
Bruce G. Austin
Vice President, Treasury & Planning Carl J. Martel
Vice President, Henrietta Office Manager
Jeffrey W. Barker
Vice President, Business & Professional Richard F. Medyn
Real Estate Lending Vice President ,Business & Professional Lending
Dorian C. Chapman Robert S. Moore
Vice President, Business & Professional Vice President, Business & Professional Lending
Investor Real Estate Lending
Thomas M. Pauly
Roger L. Cormier Vice President, Loan Review
Vice President, East Rochester Office Manager
Nancy E. Posick
Anthony M. Costanza Vice President, Victor Office Manager
Vice President, Business & Professional Lending
David T. Reaske
Michael J. Drexler Vice President, Business & Professional
Vice President, Business & Professional Lending Lending - Syracuse
Gary L. Gayton Kathleen J. Russell
Vice President, Chili Office Manager Vice President, Greece Office Manager
John C. Glerum Edward A. Slank
Vice President, Controller-Finance Vice President, Business & Professional
Lending - Syracuse
Dennis A. Heuser
Vice President, Business & Professional Richard H. Steffen
Specialized Lending Vice President, Honeoye Falls Office Manager
James F. Jackson Peter Y. Sunderland
Vice President, Vice President, Business & Professional
Consumer Lending Lending - Buffalo
Sandra A. Lancer Richard A. Szabat
Vice President, Trust & Investments Vice President, Business & Professional Lending
James F. Lynd Robert Varrenti
Vice President, Penfield Office Manager Vice President, Information Services
Robert J. Lynough II Judith L. Willis
Vice President, Southport Office Manager Vice President, Perinton Office Manager
Paul P. Ziegler
Vice President, Pittsford Office Manager
</TABLE>
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.
First National Bank of Rochester has one 99% owned subsidiary:
FNB Capital Corp.
FNB Capital Corp. was incorporated in 1998 under the law of New York.
(Exhibit 21)
Independent Auditors' Consent
The Board of Directors:
FNB Rochester Corp.:
We consent to incorporation by reference in registration statements Nos.
33-65194 and 333-15325 on Form S-8 of FNB Rochester Corp. of our report dated
January 20, 1998, relating to the consolidated statements of financial condition
of FNB Rochester Corp. and subsidiaries as of December 31, 1997 and 1996, 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, 1997, which report has been incorporated by reference in the
December 31, 1997 annual report on Form 10-K of FNB Rochester Corp.
s/ KPMG Peat Marwick LLP
Rochester, New York
March 23, 1998
(Exhibit 23)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 17,968 20,060 18,662
<INT-BEARING-DEPOSITS> 1,134 1,121 1,061
<FED-FUNDS-SOLD> 12,200 1,500 5,200
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 120,819 72,318 73,527
<INVESTMENTS-CARRYING> 28,278 29,532 31,780
<INVESTMENTS-MARKET> 28,323 29,305 31,952
<LOANS> 331,520 303,660 254,003
<ALLOWANCE> 5,580 5,696 5,776
<TOTAL-ASSETS> 522,353 437,898 391,320
<DEPOSITS> 469,821 404,771 357,875
<SHORT-TERM> 14,236 786 4,986
<LIABILITIES-OTHER> 4,066 2,900 2,613
<LONG-TERM> 210 210 0
0 0 0
0 0 0
<COMMON> 3,589 3,571 3,569
<OTHER-SE> 30,431 25,660 22,277
<TOTAL-LIABILITIES-AND-EQUITY> 522,353 437,898 391,320
<INTEREST-LOAN> 28,219 25,390 21,810
<INTEREST-INVEST> 8,782 6,542 6,850
<INTEREST-OTHER> 505 313 575
<INTEREST-TOTAL> 37,506 32,245 29,235
<INTEREST-DEPOSIT> 16,400 13,441 11,852
<INTEREST-EXPENSE> 16,721 13,559 12,250
<INTEREST-INCOME-NET> 20,785 18,686 16,985
<LOAN-LOSSES> 55 0 0
<SECURITIES-GAINS> (8) (45) 33
<EXPENSE-OTHER> 17,494 16,650 15,577
<INCOME-PRETAX> 6,645 5,843 4,048
<INCOME-PRE-EXTRAORDINARY> 4,519 4,133 2,854
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,519 4,133 2,854
<EPS-PRIMARY> 1.26 1.16 0.80
<EPS-DILUTED> 1.21 1.13 0.79
<YIELD-ACTUAL> 4.53 4.79 4.92
<LOANS-NON> 2,100 1,419 1,665
<LOANS-PAST> 540 645 45
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 5,696 5,776 6,452
<CHARGE-OFFS> 409 558 1,033
<RECOVERIES> 238 478 357
<ALLOWANCE-CLOSE> 5,580 5,696 5,776
<ALLOWANCE-DOMESTIC> 5,580 5,696 5,776
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
