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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to ____________________
Commission file number 0-13423
_______
FNB ROCHESTER CORP.
___________________
(Exact name of registrant as specified in its charter)
New York 16-1231984
________ __________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 State Street, Rochester, New York 14614
____________________________________ _____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 546-3300
______________
Securities registered pursuant to Section 12 (b) of
the Act:
None None
____ ____
(Title of Each Class) (Name of Each Exchange on
Which Registered)
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $1.00 Par Value Per Share
_______________________________________
(Title of Each Class)
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 ____ 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.______
The aggregate market value of the 2,532,244 shares of Common Stock-Voting held
by non-affiliates of the registrant at March 10, 1999 (based on the average of
high and low prices on March 10, 1999) was $79,765,686. Solely for the purposes
of this calculation, all persons who are directors and executive officers of the
Registrant and all persons who are believed by the Registrant to be beneficial
owners of more than 5% of its outstanding common stock have been deemed to be
affiliates.
Number of shares of Common Stock outstanding as of the close of business on
March 10, 1999 was 3,651,093.
Documents Incorporated By Reference
No part of the following document is incorporated by reference
<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, 1998, the Company had
consolidated assets and deposits of $587.9 million and $501.4 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.
On December 9, 1998, the Company announced that an Agreement and Plan of
Reorganization dated as of December 9, 1998 had been entered into among the
Company, M&T Bank Corporation, a New York corporation ("M&T") and Olympia
Financial Corp., a Delaware corporation and wholly-owned subsidiary of M&T
("Olympia") pursuant to which the Company will be merged with and into Olympia
pursuant to the terms of an Agreement and Plan of Merger dated as of December 9,
1998 between the Company and Olympia and joined in by M&T (the "Merger"). The
proposed merger is subject to various conditions, including the approval of the
shareholders of the Company and the receipt of all requisite regulatory
approvals. It is expected that the Merger will be completed in the second
quarter of 1999. Following the consummation of the Merger, the Bank will be
merged with and into Manufacturers and Traders Trust Company, a New York State
chartered banking subsidiary of Olympia.
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 eighteen banking offices are located in Monroe,
Ontario, 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. Three new
banking offices were opened in 1998, two in Monroe County and one in Ontario
County. In November 1998, the Bank entered into an agreement for the sale of its
Southport Community Banking Office in Chemung County to The Elmira Savings Bank,
FSB. That transaction is expected to close near the end of the first quarter of
1999.
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 sixteen full-service community
banking offices, fourteen of which have drive-up facilities, plus the Buffalo
and Syracuse offices. Automated teller machines ("ATMs") are located at thirteen
of the fourteen Monroe County banking offices, and customers may use ATMs
throughout the United States and abroad through ATM networks. The Bank opened
its three newest banking offices in the Rochester area in 1998. They are located
in the Town of Victor, the Village of Brockport and in a supermarket in the City
of Rochester.
The Bank is engaged in general commercial banking, providing a wide range of
loan and deposit services. As of December 31, 1998, the Bank had 53,415 deposit
accounts and 14,299 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. 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 fourteen 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 $43.8 million, or 62.6%, from
$70.0 million at year end 1997 to $113.8 million at year end 1998, 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, 1998, the Company had 279 employees of whom 56 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 ten 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 Bank pays 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" in Item 7 hereof.
Item 2. Properties
The Bank operates eighteen banking offices and one loan production office. Ten
of the offices are owned (seven are on leased land) and eight are leased,
including an office in a City of Rochester supermarket. 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 2018 with optional renewal terms of five to ten
years and rent escalation clauses. Some of the leases also provide for
contingency rent to be paid annually based upon increases in deposits or the
cost of living. The properties are as follows:
<TABLE>
<CAPTION>
<S> <C>
Owned (O)
Leased (L) Lease
Location Principal Use Leased Land (LL) Exp Date
________ _____________ ________________ ________
35 State St., Rochester, NY Bank Office Space O
Powers Building, Rochester, NY Four Corners Banking Office L 12/31/09
Bank Office Space L 06/30/09
1 E. Main St., Rochester, NY Sublet 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 08/31/03
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 10/24/15
Pittsford/Palmyra Rd. & Rt. 250 Perinton Banking Office LL 03/31/16
Rochester, NY
6660 Fourth Section Rd., Brockport, NY Brockport Banking Office LL 3/31/18
Rt 96, Victor-Pittsford Rd., Victor, NY Victor Banking Office LL 6/30/18
289 Upper Falls Blvd., Rochester, NY Upper Falls Banking Office L 3/31/03
</TABLE>
The Banking Offices in the above table range in size from approximately 285
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 sublet.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1998, no matter was submitted for 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, 1998
and December 31, 1997. 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
is listed on the Nasdaq National Market System under the symbol FNBR.
Price Quotations Dividends
Bid Price (low-high) Declared
____________________ _________
1998
____
First quarter $ 15.25 - 22.75 $ .08
Second quarter 19.75 - 24.50 .08
Third quarter 16.00 - 24.88 .08
Fourth quarter 16.38 - 33.00 $ .08
_____ _____
$ 15.25 - 33.00
===== =====
1997
____
First quarter $ 12.00 - 15.75 n/a
Second quarter 12.25 - 15.13 $ .07
Third quarter 14.00 - 17.50 n/a
Fourth quarter 16.00 - 20.25 $ .10
_____ _____
$ 12.00 - 20.25
===== =====
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 10, 1999, the Company had 694 shareholders of
record.
Item 6. Selected Financial Data
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,
1998. 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)
1998 1997 1996 1995 1994
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Statement of operations information
Interest income $ 41,362 $ 37,506 $ 32,245 $ 29,235 $ 23,012
Interest expense 18,640 16,721 13,559 12,250 7,950
______ ______ ______ ______ _____
Net interest income 22,722 20,785 18,686 16,985 15,062
Provision for loan losses (recovery) 150 55 - - (43)
Non- interest income 4,330 3,409 3,807 2,640 2,785
Non-interest expense 20,138 17,494 16,650 15,577 16,236
______ ______ ______ ______ ______
Income before income taxes 6,764 6,645 5,843 4,048 1,654
Income tax expense (benefit) 1,728 2,126 1,710 1,194 (283)
_____ _____ _____ _____ ___
Net income $ 5,036 $ 4,519 $ 4,133 $ 2,854 $ 1,937
===== ===== ===== ===== =====
Period end balance sheet information
Securities available-for-sale at fair value$ 132,664 $ 120,819 $ 72,318 $ 73,527 $ 48,942
Securities held-to-maturity 21,862 28,278 29,532 31,780 52,997
Total loans, net of deferred
loan costs (fees) 394,666 331,520 303,660 254,003 202,437
Allowance for loan losses 5,258 5,580 5,696 5,776 6,452
Total assets 587,900 522,353 437,898 391,320 329,262
Deposits:
Non-interest bearing demand 86,057 70,831 56,111 46,061 37,887
Savings, interest checking, and
money market 185,280 157,076 144,720 144,326 146,464
Certificates of deposit 230,024 241,914 203,940 167,488 111,030
Total deposits 501,361 469,821 404,771 357,875 295,381
Short-term borrowing 23,840 14,236 786 4,986 9,875
Long-term debt 20,210 210 210 - -
Total shareholders' equity 38,152 34,020 29,231 25,846 21,360
Per common share data Net income:
Basic $ 1.39 $ 1.26 $ 1.16 $ 0.80 $ 0.58
Diluted 1.32 1.21 1.13 0.79 0.58
Cash dividends 0.32 0.17 0.05 - -
Book value 10.51 9.48 8.19 7.24 5.99
Operating ratios:
Net income as a percent of:
Average total assets 0.90% 0.93% 1.00% 0.78% .62%
Average common shareholders' equity 13.94 14.36 15.21 12.17 10.15
Net interest margin 4.30 4.53 4.79 4.92 5.10
Interest rate spread 3.60 3.85 4.19 4.34 4.69
Non-performing assets ratio (1) 1.13 .81 .69 .67 1.77
Allowance for loan losses as a percent
of period-end loans 1.33 1.68 1.88 2.27 3.19
Net charge-offs as a percent of
average loans .13 .05 .03 .29 .19
Total equity as a percent of total assets
at year end 6.49 6.51 6.68 6.60 6.49
Cash dividend on common stock payout
ratio $ 0.32 $ 0.17 $ 0.05 $ - $ -
</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.
<PAGE>
Item 7. 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.
Proposed Merger
In December 1998 FNB Rochester Corp. entered into a definitive agreement with
M & T Bank Corporation ("M&T") for a merger of the Company into a subsidiary of
M&T (the "Merger"). The Merger is subject to the satisfaction of certain
conditions, including approval by shareholders of FNB Rochester Corp. and
various regulatory agencies. This transaction is expected to be completed in the
second quarter of 1999.
The merger will result in substantial legal, accounting, professional,
investment advisory and other expense to be incurred by FNB Rochester Corp. in
1999. This expense is estimated to be approximately $2.5 to $3 million and will
be recognized prior to the effective date of the merger. This expense would also
include costs associated with the core banking conversion as explained in more
detail under Results of Operations, Non-Interest Expense, below.
Overview
On November 30, 1998, First National announced an agreement for the sale of its
Southport Office. At December 31, 1998, the office had deposits of approximately
$14 million. The closing is expected to take place before the end of the first
quarter of 1999.
The Company has continued its growth in 1998, and much of the growth is the
result of banking office expansion in the Rochester area. Three new banking
offices were opened in 1998 and four new banking offices were opened 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. On-line teller systems were installed in all other
banking offices during 1996. 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.
Net income increased $517,000, or 11.4%, in 1998. The Company's deposits
increased $31.5 million, or 6.7%, from December 31, 1997 to December 31, 1998,
and the Bank's sweep product increased securities sold under agreement to
repurchase by $10.1 million, or 75.4%. Loan growth was strong in 1998 although
with lower interest rates more businesses and consumers opted for fixed rate
rather than variable rate loans. At December 31, 1998, total loans were up $63.1
million, or 19%, as compared to an increase of $27.9 million from 1996 to 1997.
$30 million of the 1998 increase was in commercial loans, $26.6 was in
residential mortgages, and home equity lines of credit outstanding ("home
equity") increased $7.5 million. Consumer loans showed a slight decline. The
Company's investments in securities available-for-sale increased by $11.8
million, or 9.8% from year end 1997 to year end 1998.
Growth objectives are expected to be realized in 1999 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 borrowing to provide
liquidity and improve margins. In order to accomplish its growth objectives, the
Company must continue to increase its market share. The additional new banking
offices have helped the Company attain its goals. The growth in deposits in 1998
has been in demand, savings and money market accounts. During the third and
fourth quarters of 1998 the Bank borrowed $20 million from the Federal Home Loan
Bank to help interest rate sensitivity and match fund longer term assets. This
has lessened the Bank's dependency on certificates of deposit and as a result
certificates of less than $100,000 declined $7.1 million, or 4.7%, during the
year and certificates over $100,000 declined $4.8 million, or 5.2%.
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)
1998 1997 1996
____ ____ ____
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 $ 1,155 $ 59 5.11% $ 1,138 $ 59 5.18% $ 1,090 $ 59 5.41%
Federal funds sold 8,104 445 5.49 8,072 446 5.53 4,773 254 5.32
Securities: (2)
Taxable 150,871 9,682 6.42 128,693 8,678 6.74 97,267 6,420 6.60
Tax Exempt 4,959 219 4.42 2,302 104 4.52 2,730 122 4.47
Net loans (1) 363,156 30,957 8.52 318,254 28,219 8.87 283,958 25,390 8.94
Non-interest earning
assets 30,921 26,996 25,066
______ ______ ______
Total assets 559,166 484,734 414,316
Total earning-assets $ 528,245 $ 41,362 7.83% $ 458,459 $37,506 8.18% $389,818 $ 32,245 8.27%
======= ______ ===== ======= ______ ==== ======= ====== ====
Liabilities and shareholders' equity:
Interest bearing liabilities
Savings, interest checking and
money market deposits $ 169,335 $ 3,822 2.26% $ 146,660 $ 3,231 2.20% $143,890 $ 3,093 2.15%
Certificates of deposit 247,087 13,583 5.50 234,782 13,169 5.61 187,426 10,348 5.52
Short-term borrowings 18,270 896 4.90 5,901 301 5.10 1,790 99 5.53
Long-term debt 6,155 339 5.51 210 20 10.00 193 19 10.00
Non-interest bearing
liabilities and
shareholders' equity 118,319 97,181 81,017
_______ ______ ______
Total liabilities and
shareholders' equity 559,166 484,734 414,316
_______ _______ _______
Total interest bearing
liabilities $ 440,847 $ 18,640 4.23% $ 387,553 $16,721 4.31% $333,299 $13,559 4.07%
======= ====== ==== ======= ====== ==== ======== ====== =====
Interest rate spread 3.60% 3.87% 4.20%
Total earning-assets/ ==== ==== =====
Net interest margin $ 528,245 $ 22,722 4.30% $ 458,459 $20,785 4.53% $389,818 $18,686 4.79%
======= ====== ==== ======= ====== ===== ======= ====== =====
</TABLE>
Notes:(1) Non-accrual loans have been included in the average balances.
(2) Securities available-for-sale are included at amortized cost.
Net interest income, the difference between interest income and interest
expense, increased $1,937,000, or 9.3%, from 1997, which had an increase of
$2,099,000, or 11.2%, over 1996's net interest income. Average earning assets
increased $69,786,000, or 15.2%, from 1997 to 1998 and increased $68,641,000, or
17.6%, from 1996 to 1997. The growth in assets was funded by growth in deposits,
borrowings and retained earnings.
Loans represent the majority of the Company's interest-earning assets. The
increases in interest income noted in both 1998 and 1997 were primarily due to
both loan and investment security 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 $44,902,000
from 1997 to 1998, while they increased $34,296,000 from 1996 to 1997. The loan
volume increases in 1997 and 1998 are related to sales efforts and emphasis on
making new loans. The average rate earned on loans in 1998 was 8.52% compared to
8.87% in 1997 and 8.94% in 1996. Average investment securities volumes increased
$24,835,000 from 1997 to 1998 and increased $30,998,000 from 1996 to 1997. The
average rate earned on taxable securities, which makes up most of the portfolio,
declined from 6.74% in 1997 to 6.42% in 1998.
Average Federal Funds Sold remained constant through 1997 and 1998. The decline
in net interest margin is primarily the result of lower rates for both loans and
investments.
Interest expense is a function of the volume of, and rates paid for,
interest-bearing liabilities. Interest expense increased in 1998 primarily
because of an increase in average interest bearing liabilities. Interest rates
on interest bearing liabilities declined only slightly in 1998.
The interest spread is the difference between average rates earned on assets and
average rates paid on interest-bearing sources of funds. Interest spread
declined in 1998 to 3.60% from 3.87% in 1997 and 4.20% in 1996. The interest
margin, which is the difference between interest income and interest expense
divided by average interest-earning assets, was 4.30% in 1998, 4.53% in 1997,
and 4.79% in 1996. The decline in both the spread and the margin from 1997 is
primarily due to lower earning asset rates.
<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
_________________________
1998 Compared to 1997 1997 Compared to 1996
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 $ 3 $ (4) $ (1) $ 184 $ 8 $ 192
Taxable securities 1,386 (382) 1,004 2,119 139 2,258
Tax-exempt securities 117 (2) 115 (19) 1 (18)
Loans, net 3,801 (1,063) 2,738 3,025 (196) 2,829
_____ _____ _____ _____ ___ _____
Interest income 5,307 (1,451) 3,856 5,309 (48) 5,261
_____ _____ _____ _____ __ _____
Savings, interest checking
and money market 502 89 591 63 75 138
Certificates of deposit 661 (247) 414 2,650 171 2,821
Other interest-bearing
liabilities and
long-term debt 926 (12) 914 390 (187) 203
___ __ ___ ___ ___ ___
Interest expense 2,089 (170) 1,919 3,103 59 3,162
_____ ___ _____ _____ __ _____
Net interest income $ 3,218 $(1,281) $ 1,937 $ 2,206 $(107) $ 2,099
===== ===== ===== ===== === =====
</TABLE>
<PAGE>
Non-interest Income
Non-interest income is comprised of service charges, trust fees, credit card
fees, loan servicing fees, and gains on sales of securities, mortgages, and
other assets. The following table sets forth certain information on non-interest
income for the years indicated:
Non-Interest Income
1998 1997 1996
____ ____ ____
(in thousands)
Service charges on deposit accounts $ 2,110 $ 1,720 $ 1,547
Credit card fees 690 715 740
Gain on sale of mortgages 159 73 65
Gain (loss) on sale of securities
available-for-sale 24 (8) (45)
Loan servicing fees 266 262 263
Gain on sale of banking office - - 621
Other operating income 1,081 647 616
_____ ___ ___
Total non-interest income $ 4,330 $ 3,409 $ 3,807
===== ===== =====
Non-interest income increased $921,000, or 27%, from 1997 to 1998 and declined
$398,000, or 10.5%, from 1996 to 1997. 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 1998 with an
increase of $390,000, or 22.7%, over 1997 resulting from both increased volumes
and increased pricing. Loan servicing fees have remained relatively constant
over the three-year period. $143,000 of the increase in other operating income
from 1997 to 1998 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:
Non-Interest Expense
1998 1997 1996
____ ____ ____
(in thousands)
Salaries and employee benefits $ 10,915 $ 9,618 $ 9,227
Occupancy 4,008 3,561 3,448
Marketing and public relations 721 610 489
Office supplies, postage and printing 771 624 637
Processing fees 1,184 1,075 1,018
FDIC assessments 57 52 2
Net cost of operation of other
real estate 26 16 2
Legal 240 192 190
Other 2,216 1,746 1,637
_____ _____ _____
Total non-interest expense $ 20,138 $ 17,494 $ 16,650
====== ====== ======
Non-interest expense for 1998 increased $2,644,000, or 15.1%, from 1997 when it
increased $844,000, or 5.1%, from 1996. The increases in 1997 and 1998 are
primarily due to the growth of the Company. Much of the increase in both years
is attributable to the salaries, benefits, occupancy expenses and other expenses
associated with the new banking offices and the increased volume of business
they have generated.
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 $1,297,000, or 13.5%, from 1997, and
$391,000, or 4.2%, from 1996 to 1997. The 1998 increase was primarily caused by
the addition of personnel to staff the new offices opened in 1998 and additional
operational support and lending staff needed for the increasing volume of
business. The 1997 increase was primarily caused by normal raises, promotions
and some staff additions.
Occupancy expense, the other significant non-interest expense, increased
$447,000, or 12.6%, in 1998 as compared to $113,000, or 3.3%, from 1996 to 1997.
Occupancy expense is expected to continue to increase with the addition of
additional leased space at the Bank's headquarters and as the Bank has expanded
its service delivery network with three new community banking offices opened in
1998. The full annual expense effect of these new offices will not be realized
until 1999 and beyond. A new core banking system which was to have become
operational in the fourth quarter of 1998 has been postponed due to the planned
merger of the Company. If the Merger is approved, much of the cost incurred to
date related to the new system, approximately $774,000, will need to be
recognized as expense rather than be capitalized as the new core system will not
be utilized. If the Merger does not take place, the Bank plans to continue with
its conversion to the new system.
Marketing expense increased $111,000, or 18.2%, from 1997 to 1998. The Bank
continued radio, television, and newspaper advertising in 1998. Marketing
efforts were focused on the annual "Money Sale", home equity loans, grand
openings for the new offices, 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.
Office supplies, printing and postage increased $147,000, or 23.6%, in 1998 as a
result of increased business after a small decline from 1996 to 1997. Other
operating expense increased $470,000, or 26.9%, from 1997 to 1998. Among the
largest other operating expense increases were telephone, ATM, travel and
entertainment costs, and loan filing fees.
Income Taxes
The Company and the Bank file a consolidated tax return. The provision for 1998
income taxes was $1,728,000, compared to $2,126,000 and $1,710,000 in 1997 and
1996, respectively. The Company's effective tax rates were 25.5%, 32% and 29%
for 1998, 1997 and 1996, 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 temporary 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 $54,000
at December 31, 1998. Income tax expense was affected in 1998, 1997 and 1996 by
reductions in the valuation allowance of $722,000, $469,000 and $660,000
respectively due to the generation of sufficient taxable income to support the
realization of differences.
At December 31, 1998, the Company had a net deferred tax asset of $1,356,000 as
compared to a net deferred tax asset of $554,000 at December 31, 1997. 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 $5,429,000, or
3.6% from December 31, 1997 to December 31, 1998 and increased $47,247,000, or
46.4%, from December 31, 1996 to December 31, 1997.
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 1998, the Bank continued to classify most of its purchases of securities
as available-for-sale.
Unrealized gains on available-for-sale securities included in accumulated other
comprehensive income as a component of equity at December 31, 1998 amounted to
$627,000, net of taxes, as compared to unrealized gains of $896,000, net of
taxes, at December 31, 1997.
At December 31, 1998, 28.2% of the Bank's securities had maturities of five
years or less, while 38.7% had maturities of five years or less at the end of
1997, and 50.6% had maturities of five years or less at the end of 1996. 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 from
1996 to 1997 and by an additional $5.7 million from 1997 to 1998. At December
31, 1998 the average life of the Bank's amortizing securities such as mortgage
pools and SBA pools was less than three 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, 1998, 1997, and
1996.
<PAGE>
Carrying Value of Securities Available-for-Sale
December 31,
____________
1998 1997 1996
____ ____ ____
(in thousands)
Treasury $ 16,265 $ 25,403 $ 23,576
U.S. Government agency 43,863 34,346 9,967
Mortgage-backed securities 69,653 61,070 38,775
Other 2,883 - -
_____ _ _
Total $ 132,664 $ 120,819 $ 72,318
======= ======= ======
Notes:
(1) The above figures are stated at fair value. The available-for-sale
portfolio had net unrealized gains of $1,045,000, $1,491,000, and
$447,000 at December 31, 1998, 1997 and 1996, respectively. Totals
exclude Federal Reserve Bank stock and Federal Home Loan Bank stock of
$2,188,000, $1,655,000 and $1,516,000 at December 31, 1998, 1997 and
1996, respectively.
<PAGE>
Carrying Value of Securities Held-to-Maturity
December 31,
1998 1997 1996
____ ____ ____
(in thousands)
U.S. Treasury $ 8,047 $ 8,079 $ 8,108
U.S. Government agency 127 5,252 5,293
Mortgage-backed securities 6,929 10,721 12,909
Obligations of state and municipal
subdivisions 6,409 3,876 2,872
Other 350 350 350
___ ___ ___
Total $ 21,862 $ 28,278 $ 29,532
====== ====== ======
<TABLE>
<CAPTION>
Maturities and Weighted Yield of Securities 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 $ 10,122 6.50% $ 6,143 6.27% $ - -% $ - -% $ 16,265
U.S. Government agency - - 5,045 6.73 25,900 6.42 12,918 6.09 43,863
Mortgage-backed
securities (1) - - 6,888 6.67 3,370 5.94 59,395 6.58 69,653
Other - - - - - - 2,883 6.49 2,883
_ _ _ _ _ _ _____ ____ _____
Total $ 10,122 6.50% $ 18,076 6.55% $ 29,270 6.38% $ 75,196 6.23% $ 132,664
====== ===== ====== ==== ====== ===== ====== ===== =======
</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 $ - -% $ 8,047 5.80% $ - -% $ - -% $8,047
127. Government agency - - - - - - 6.137
Mortgage-backed
securities (1) 787 7.00 4,410 6.10 1,023 7.89 709 7.37 6,929
Obligations of state and
municipal subdivisions 657 3.92 1,138 4.36 1,102 4.20 3,512 5.07 6,409
Other 50 7.13 275 6.34 25 7.60 - - 350
__ ____ ___ ____ __ ____ _ __ ___
Total $ 1,494 5.65% $ 13,870 5.79% $ 2,150 6.01% $ 4,348 5.48% $21,862
===== ==== ====== ==== ===== ==== ===== ===== ======
</TABLE>
Notes:
(1) See note (1) above.
Loan Portfolio
The loan portfolio increased $63,146,000, or 19.1%, from 1997 to 1998. This
compares to an increase from 1996 to 1997 of $27,860,000, or 9.2%. The growth of
the loan portfolio in both 1998 and 1997 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 1998
year-end loan portfolio, $291,903,000, or 74%, is secured by either commercial
or residential real estate.
The majority of the Company's loans continue to be commercial. Commercial loans
increased $29,994,000, or 14.9%, from 1997, as compared to an increase of
$14,001,000, or 7.5%, from 1996 to 1997. At year-end 1998, 57.1% of commercial
loans were secured by commercial real estate. Of the commercial real estate
securing those loans, 55.8% 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 the Rochester area, 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 $26,635,000, or 32%, from 1997 to 1998, as
compared to an increase of $11,850,000, or 16.6%, from 1996 to 1997. With lower
interest rates in 1998, the Bank experienced increased refinancing activity, and
much of that was directed into 15-year or less fixed rate mortgages. 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 $7,540,000,
or 32.1%, from 1997 to 1998 and $2,219,000, or 10.4%, from 1996 to 1997. While
home equity loans are attractive to borrowers who have equity in their homes,
demand for this product 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. Many of
these homeowners take out new home equity loans and with increased marketing the
Bank has been able to take advantage of the new home equity business this
refinancing has created.
Consumer loans declined in 1998 and 1997 by $863,000 and $267,000 respectively.
Annual "Money Sale" promotions and other initiatives for new consumer loans have
failed to generate enough business to offset the increased payoffs of existing
loans. More and more borrowers now seem to use home equity financing for their
consumer needs.
<PAGE>
<TABLE>
<CAPTION>
Types of Loans
December 31,
1998 1997 1996 1995 1994
____ ____ ____ ____ ____
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 231,716 $ 201,722 $ 187,721 $ 165,645 $ 134,529
Residential mortgage 109,748 83,113 71,263 49,889 31,080
Home equity 31,056 23,516 21,297 18,773 20,586
Other consumer 22,023 22,886 23,153 19,711 16,443
______ ______ ______ ______ ______
254,018otal 394,543 331,237 202,638
Net deferred loan costs (fees) 123 283 226 (15) (201)
Allowance for loan losses (5,258) (5,580) (5,696) (5,776) (6,452)
_____ _____ _____ _____ _____
Loans, net $ 389,408 $ 325,940 $ 297,964 $ 248,227 $ 195,985
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution of Loans at December 31, 1998
Maturity
One Year One to Five Years
or Less Five Years or more Total
_______ __________ _______ _____
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 22,116 $ 73,477 $ 135,646 $ 231,239
Residential mortgage 1,683 10,200 97,830 109,713
Home equity 1,552 1,462 28,602 31,616
Other consumer, net 1,174 16,657 4,267 22,098
_____ ______ _____ ______
Total loans $ 26,525 $ 101,796 $ 266,345 $ 394,666
====== ======= ======= =======
Floating/adjustable
Interest rate 46,705 126,019
Fixed or predetermined
Interest rates 55,091 140,326
______ _______
$ 101,796 $ 266,345
======= =======
</TABLE>
It is the policy of the Bank to place loans, except consumer and residential
mortgage loans, on non-accrual status when payment of principal or interest
becomes 90 days delinquent or when, in management's judgment, the collection of
principal or interest appears uncertain. Any interest income accrued during the
reporting period, but not received at the time the loan is placed on non-accrual
status, is reversed in the reporting period to the extent considered
uncollectible. Interest accrued in prior years, the collection of which appears
uncertain, is charged off. Interest on loans categorized as non-accrual may be
recognized as income when the payments are received or applied as a reduction to
principal.
Installment loans are not ordinarily placed on non-accrual status. Installment
loans past due 120 days are generally charged off. At that time, all previously
accrued or uncollected interest is reversed and charged against current
earnings. Residential mortgage and home equity loans are placed on non-accrual
status when they become 180 days past-due.
The following table summarizes the Company's non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
Non-Performing Assets
December 31,
1998 1997 1996 1995 1994
____ ____ ____ ____ ____
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans in non-accrual status $ 2,831 $ 2,100 $ 1,419 $ 1,665 $ 3,290
Loans past due 90 days or more
and still accruing 1,564 540 645 45 196
_____ ___ ___ __ ___
Total non-performing loans 4,395 2,640 2,064 1,710 3,486
Real estate acquired by foreclosure 85 38 45 - 100
__ __ __ _ ___
Total non-performing assets $ 4,480 $ 2,678 $ 2,109 $ 1,710 $ 3,586
===== ===== ===== ===== =====
Non-performing assets as a % of total
loans and real estate acquired
by foreclosure 1.13% 0.81% 0.69% 0.67% 1.77%
==== ==== ==== ==== ====
</TABLE>
Total non-performing assets increased $1,802,000, or 67.3%, in 1998 from 1997
and total non-performing assets increased $569,000, or 27% in 1997 from 1996.
The primary reason for the increase in loans past due 90 days or more is an
increased delinquency rate in a pool of mortgage loans. These mortgages,
totaling $8.2 million, were originated from 1995 to 1997 under special
underwriting guidelines which targeted certain City of Rochester neighborhoods.
The Bank has assigned an allocation of its reserve for loan losses to these
loans and the allocation will be periodically evaluated and adjusted based on
future delinquency rates and loss experience. The loans comprise $740,000 of the
90 days or more past due total and $203,000 of the non-accrual total.
Loans in non-accrual status increased $731,000 from 1997 to 1998 and increased
$681,000 from 1996 to 1997. Of the $2,831,000 in non-accrual loans, $1,250,000
is secured by real estate and $623,000 is guaranteed by the U.S. government.
Non-performing assets represent 1.13% of total loans and real estate acquired by
foreclosure at the end of 1998 compared to 0.81% in 1997 and 0.69% in 1996.
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, 1998 to absorb anticipated losses inherent in the
portfolio.
<PAGE>
The following table summarizes the changes in the allowance for loan losses for
1994 through 1998:
<TABLE>
<CAPTION>
Summary of Loan Loss Allowance
December 31
1998 1997 1996 1995 1994
____ ____ ____ ____ ____
(in thousands)
<S> <C> <C> <C> <C> <C>
Total Loans outstanding at year-end,
net of costs (fees) and unearned discounts $ 394,666 $ 331,520 $ 303,660 $ 254,003 $ 202,437
======= ======= ====== ======= =======
Daily average amount of net
loans outstanding 363,156 318,254 283,958 229,331 186,229
======= ======= ======= ======= =======
Balance at beginning of year 5,580 5,696 5,776 6,452 6,823
Provisions charged to operating expense (recovery) 150 55 - - (43)
Reclassification of impairment reserves - - - - 210
Allowance of subsidiary sold - - - - (177)
5,730 5,751 5,776 6,452 6,813
_____ _____ _____ _____ _____
Loans charged off:
Commercial, financial and agricultural (515) (179) (407) (840) (990)
Real estate mortgage (73) (72) (14) (46) (124)
Consumer (154) (158) (137) (147) (244)
___ ___ ___ ___ ___
Total charge-offs (742) (409) (558) (1,033) (1,358)
___ ___ ___ _____ ____
Recoveries of loans previously charged off:
Commercial, financial and agricultural 178 166 407 267 867
Real estate mortgage 21 12 - - -
Consumer 71 60 71 90 130
__ __ __ __ ___
270 238 478 357 997
___ ___ ___ ___ ___
Net (charge-offs) (472) (171) (80) (676) (361)
___ ___ __ ___ ___
Balance at end of year $ 5,258 $ 5,580 $ 5,696 $ 5,776 $ 6,452
===== ===== ===== ===== =====
Net charge-offs as a percent of average
loans outstanding during the year 0.13% 0.05% 0.03% 0.29% 0.19%
Allowance for loan losses as a percent of
year-end loans 1.33% 1.68% 1.88% 2.27% 3.19%
</TABLE>
The increases in the loan portfolios and nonperforming loans required that some
provision be made in 1998 and 1997. The lack of provision in 1996 and 1995 as
well as the decrease in provision in 1994 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, 1998, the Bank's internally criticized loans were $18,694,000 as
compared to $15,194,000 at December 31, 1997 and $14,084,000 at December 31,
1996. Internally criticized loans increased $3,500,000, or 23%, from 1997 to
1998 and increased $1,110,000, or 7.9% from 1996 to 1997. As a percent of total
loans, internally criticized loans remained almost unchanged. Internally
criticized loans as a percent of total loans were 4.7%, 4.6%, and 4.6% for the
years ended 1998, 1997 and 1996, 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,
____________
1998 1997 1996
____ ____ ____
Allowance % (1) Allowance %(1) Allowance % (1)
_________ _____ _________ ____ _________ _____
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
& agricultural $ 3,710 58.7% $ 3,650 60.9% $ 3,925 61.9%
Real estate, residential
mortgage 1,102 27.8 1,418 25.1 998 23.5
Home equity 82 7.9 88 7.1 79 7.0
Other consumer, net 364 5.6 424 6.9 694 7.6
___ ___ ___ ___ ___ ___
Total $ 5,258 100.0% $ 5,580 100.0% $ 5,696 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
1995 1994
____ ____
Allowance % (1) Allowance % (1)
_________ _____ _________ _____
(in thousands)
Commercial, financial
& agricultural $ 4,275 65.2% $ 5,384 66.4%
Real estate, residential
mortgage 706 19.6 294 15.3
Home equity 208 7.4 220 10.2
Installment, net 587 7.8 554 8.1
___ ___ ___ ___
Total $ 5,776 100.0% $ 6,452 100.0%
===== ====== ===== ======
Notes:
(1) Percentage of loans in each category to total loans
Deposits
The fundamental source of funds to support lending activities continues to be
the 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 1998 increased $31,540,000, or 6.7%,
from 1997, while average deposits per banking office have increased from
$26,574,000 for the month of December 1996 to $30,033,000 for December 1997 and
declined to $27,992,000 for December 1998. The December 1996 and 1997 monthly
averages include the four new banking offices that were opened in 1995 and 1996
and the 1998 average includes the three new banking offices opened in 1998.
Average December 1998 deposits per branch, without the three new offices opened
in 1998, were $32,189,000.
In the years 1996 through 1998 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. 1998 non-interest demand deposits grew
21.5% to $86,057,000 from $70,831,000 in 1997. 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. Interest
bearing demand deposits increased $13,879,000, or 20.5%, from December 31,1997
to December 31, 1998 and savings and money market deposits increased
$14,325,000, or 16.1%, for the same period.
In 1998, to help control interest costs, management has funded the Bank's growth
with less expensive long-term debt and savings, interest checking and money
market accounts rather than certificates of deposit. As a result, certificate of
deposit volumes declined in the second half of 1998. As compared to December 31,
1997, certificates of deposit declined $11,890,000, or 4.9%. $4,831,000 of the
decline was in certificates of deposit of $100,000 or more. From 1996 to 1997,
certificates of deposit over $100,000 increased $30,041,000, or 48.1%. In 1997
management sought to increase certificates of deposit over $100,000 as a
short-term leverage strategy to increase interest income. $14.0 million of the
increase in certificates over $100,000 was the result of an increase in one
municipal relationship.
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, a fourth in 1996 and an additional
three in 1998 as well as the 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 following tables summarize the daily average deposits of the Company for the
years 1998, 1997, and 1996, categories in which those deposits were held in 1998
and 1997, and the maturity distribution of certificates of deposit and public
funds of $100,000 or more for the year-end December 31, 1998.
<TABLE>
<CAPTION>
Daily Average Deposits
For Years
1998 1997 1996
____ ____ ____
Amount Rate Amount Rate Amount Rate
______ ____ ______ ____ ______ ____
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $ 77,065 - % $ 61,411 - % $ 50,114 - %
Interest-bearing demand 69,634 1.09 62,894 1.08 62,820 1.14
Savings, and money market 99,701 3.08 83,766 3.05 81,070 2.93
Certificates of deposit 247,087 5.50 234,782 5.61 187,426 5.52
_______ ____ _______ ____ _______ ____
Total deposits $ 493,487 3.53% $ 442,853 3.70% $ 381,430 3.52%
======= ==== ======= ==== ======= =====
</TABLE>
Period End Deposits
For Years
_________
1998 1997
____ ____
(in thousands)
Deposit category:
Non-interest-bearing demand $ 86,057 $ 70,831
Interest-bearing demand 81,731 67,852
Savings 46,601 42,266
Money market 56,948 46,958
CDS less than $100,000 141,813 148,613
CDS greater than $100,000 41,186 40,836
Public funds less than $100,000 565 824
Public funds greater than $100,000 46,460 51,641
______ ______
Total $ 501,361 $ 469,821
======= =======
Maturity Distribution of Certificates of Deposits and Public Funds Greater Than
$100,000
December 31, 1998
_________________
Maturity range (in thousands)
less than 3 months $ 38,790
3 to 6 months 15,772
6 to 12 months 23,196
12 months or more 9,888
_____
Total $ 87,646
======
Securities with an amortized cost of $132,862,000 at December 31, 1998 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,
____________
1998 1997 1996
____ ____ ____
(In thousands)
Securities sold under agreements to repurchase $ 23,566 $ 13,436 -
Other short-term borrowing 274 800 786
___ ___ ___
Total $ 23,840 $ 14,236 $ 786
====== ====== ===
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 $23,566,000 and $22,333,000,
respectively for 1998 and $13,436,000 and $5,173,000, respectively for 1997 and
$4,348,000 and $704,000, respectively for 1996. The increase in 1997 and 1998
was the result of the introduction of a sweep account for business customers.
Interest expense on securities sold under agreements to repurchase averaged
4.90% for 1998, 5.08% for 1997, and 5.82% for 1996.
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 $2,970,000 at December 31,
1998 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 $4,132,000 from 1997. This increase is due
to net income for 1998 of $5,036,000 and $522,000 for option and employee
purchase common shares issued offset by a decrease in the fair value of
securities available-for-sale of $269,000 and dividends paid on common stock of
$1,157,000. Under SFAS 115, the net unrealized gain or loss on securities held
in the available-for-sale portfolio is recorded in equity, net of taxes. In
1997, this resulted in an increase in shareholder's equity of $628,000 from the
period ended December 31, 1996. 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, 1998, 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. 6.4% 9.9% 11.2%
First National Bank of Rochester 6.0% 9.3% 10.6%
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. The
Board declared cash dividends on the Company's common stock in June and December
of 1997 and quarterly cash dividends in 1998.
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 borrowing. The Bank is
a member of the Federal Home Loan Bank which provides additional source of
funding if needed. At December 31, 1998, the Bank had available $30.8 million
out of a total line of $50.8 million. The Federal Home Loan Bank line is 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, 1998.
<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 $ 90,308 $ 8,639 $ 5,661 $ 84,564 $ 42,126 $ 231,298
Residential mortgage (1) 339 3,335 7,398 30,427 73,922 115,421
Home equity (1) 31,385 - - 233 31,618
Consumer 596 2,860 2,878 9,914 81 16,329
___ _____ _____ _____ __ ______
Total loans 122,628 14,834 15,937 124,905 116,362 394,666
_______ ______ ______ _______ _______ _______
Investment securities 36,130 13,638 29,387 55,394 22,165 156,714
Interest bearing deposits in
banks and federal funds sold 2,582 - - 50 - 2,632
_____ _ _ __ _ _____
Total interest-earning assets $ 161,340 $ 28,472 $ 45,324 $ 180,349 $ 138,527 $ 554,012
======= ====== ===== ======= ======= =======
Interest-bearing liabilities:
Savings deposits $ 185,280 - - - - $ 185,280
Time deposits $100M & over 38,790 15,772 23,196 9,888 - 87,646
Other time deposits 25,304 33,033 64,896 19,035 110 142,378
Short-term borrowing 23,840 - - - - 23,840
Long-term debt - - - 20,210 - 20,210
_ _ _ ______ _ ______
Total interest-bearing
liabilities $ 273,214 $ 48,805 $ 88,092 $ 49,133 $ 110 $ 459,354
======= ====== ====== ====== === =======
Net interest rate sensitivity gap $ (111,874) $ (20,333) $ (42,768) $ 131,216 $ 138,417 $ 94,658
======= ====== ====== ======= ======= ======
Cumulative gap $ (111,874) $ (132,207) $ (174,975) $ (43,759) $ 94,658
======= ======= ======= ====== ======
Cumulative gap ratio (2) 0.59 0.59 0.57 0.90 1.21
==== ==== ==== ==== ====
Cumulative gap as a % of
Total assets (19.03)% (22.49)% (29.76)% (7.44)% 16.10%
===== ===== ===== ==== =====
</TABLE>
Notes:
(1) Fixed rate home equity loans are included with residential mortgage
loans for rate sensitivity and with other consumer loans for financial
statement purposes. The home equity category above includes only lines
of credit.
(2) Cumulative total interest-earning assets divided by cumulative total
interest-bearing liabilities.
As measured by the cumulative sensitivity gap at December 31, 1998, 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 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 1999. These simulations are based on numerous assumptions regarding
the timing and extent of repricing characteristics. Assumptions include
prepayments of mortgage assets, cash flows from other financial instruments and
loan and deposit pricing maturities. Actual results may differ significantly.
The following table shows the Company's estimated earnings sensitivity profile
as of December 31, 1998.
Changes in Interest Rates Percentage Change in Net Interest Income
(basis points) 12 Months 24 Months
____________ _________ __________
+ 200 over one year -0.8 -2.8
+100 over one year 0.0 -0.6
- - 100 over one year -0.3 0.9
- - 200 over one year 0.0 3.0
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
For quite some time, First National has been aware of the complexity and
magnitude of the Year 2000 (Y2K) issue. As a result, First National, with the
support and direction of its Board of Directors and Senior Management, has
dedicated resources and formally adopted strategies to work towards resolving
all potential Year 2000 issues.
On December 9, 1998, the proposed Merger of First National Bank of Rochester
into M & T Bank was announced. The Merger is subject to regulatory and
shareholder approvals and is expected to be completed by June 1, 1999 at which
time all First National systems will be converted into M & T Bank systems. First
National, however, is continuing its preparations for the Year 2000 date change
in the event the Merger is not completed.
Since October 1996, First National has been developing its strategy to address
the data processing and business impacts that are expected to be encountered.
First National is also including environmental systems in its analysis. As is
the case with many other financial institutions, First National has opted to
follow the six phase format suggested by the Federal Financial Institutions
Examination Council (FFIEC). The FFIEC is a joint effort of the Comptroller of
the Currency, Federal Reserve, Office of Thrift Supervision and the Federal
Deposit Insurance Corporation, the primary regulators of financial institutions
in the United States. These phases are discussed below.
Awareness Phase - This is an ongoing phase to educate employees, customers and
the community to year 2000 issues, FNB's strategies and plans for renovation.
First National created a Y2K task force in October 1996 which consists of the
Electronic Data Processing Auditor, Senior Vice President of Operations, Vice
President of Information Services, Vice President of Risk Management and the
Year 2000 Project Coordinator. This task force is charged with developing and
implementing an overall strategy to review systems, services and conduct
continuing education. In March 1998, First National held a Year 2000 seminar for
customers of the Business & Professional Lending division. Each customer
attending was given a "Year 2000 Awareness Kit." In the last quarter of 1998,
First National updated customers and shareholders on the progress of the Year
2000 efforts in the quarterly publication, "FNB Focus".
Assessment Phase - In this phase, First National has determined the size and
complexity of the problem by identifying all hardware, software, networks, ATMs,
facilities and other devices that may be affected by the Y2K date change. An
initial inventory was taken starting in October 1996. At the same time,
preliminary correspondence was sent to vendors advising the vendors of First
National's concerns about the Y2K issue and the possible impact of Y2K on the
vendors. In July 1997, a second (updated) inventory was performed and a second
letter with an attached survey was sent to vendors as part of continuing efforts
to assess the Y2K preparedness of vendors. Based on the results of the 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
substantially all possible Year 2000 situations have been identified. First
National has started a "due diligence process" for assessing the Year 2000
customer impact. The results of that review are being used to monitor risks to
the Bank presented by customers who might be adversely affected by Year 2000
issues.
A Year 2000 uncertainty that could have a material effect on the Bank's results
of operations or financial condition is the risk associated with commercial
borrowers. A risk assessment for commercial borrowers is substantially complete
with 94% of the borrowers evaluated and rated as either high, moderate, or low
risk. For purposes of Year 2000, the Bank has defined large commercial borrowers
as those with relationships at or above $500,000. Relationships below $500,000
are considered low risk. Certain industries, such as residential construction
were also evaluated and classified as low risk for Year 2000. Surveys sent to
large commercial borrowers will be rated high risk until information is
received. Of the respondents, 14 totaling $13.1 million were rated high risk.
Management intends to follow the progress of each high and moderate risk
customer and to update risk ratings throughout 1999. New and renewed commercial
borrowers are also being assigned a risk rating and are being required to sign a
Y2K addendum where the borrower agrees to take all measures necessary to assure
information technology utilized by the borrower is Y2K compliant.
A large deposit outflow in the year 2000 could impact First National's
liquidity. A review of large depositors indicates approximately $40 million in
balances that could be at risk due to Y2K. However, First National does not
believe that the loss of any one single deposit balance could have a material
impact on liquidity. First National has borrowing lines and unencumbered
investments that could be used to offset these deposits should they leave the
Bank.
Renovation Phase - 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. First National has implemented an aggressive vendor
contact schedule and maintains all vendor correspondence to monitor vendor
progress.
Validation Phase - This 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 entirely on vendor testing or
third party certification as acceptable validation for systems processed
in-house. As vendors provide upgraded software or enhancements, testing will be
conducted to determine if the software or enhancements meet First National's
requirements for Year 2000 readiness. Test plans have been written for mission
critical systems and testing is in process. First National intends to review
proxy testing completed for service bureau arrangements and certain purchased
software and use those results to the extent proxy testing is appropriate and
reliable. Additional independent critical testing will be completed as necessary
based on proxy test results. In view of the proposed Merger, validation of
several mission critical systems has been rescheduled. In the event that the
proposed Merger is not completed by June 1, 1999, the validation of all mission
critical systems will be scheduled so that the validation can be completed by
June 30, 1999.
As a result of the proposed Merger, First National postponed the conversion of
its core processing systems and has extended its contract for use of the Jack
Henry Associates Liberty System. Jack Henry Associates advises that the Liberty
System is Year 2000 ready with the installation of the latest update release
which was installed in December, 1998. In the first quarter of 1999, First
National will review the results of proxy testing completed by various Liberty
system users and will purchase a copy of the third party review of the proxy
testing process by McGladdery and Pullen, a national accounting and consulting
firm.
Implementation Phase - By January 1, 2000, First National will have tested each
mission critical application. In addition, First National will have contingency
plans in place for any application that does not meet Year 2000 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.
Business Resumption Continuity and Planning Phase - The Bank has contracted with
a technology consulting firm to develop a business resumption plan that can be
implemented in the event the Bank experiences failures to systems or other
interruptions to services as a result of Year 2000 issues. Management has
successfully completed organizational planning guidelines and business impact
analysis concerning the Y2K business resumption contingency plan. The Bank will
have finalized the business recovery contingency plan by June 30, 1999 if the
pending Merger with M&T Bank is delayed or does not occur.
Management continues to quantify 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. For 1998, the Bank
incurred expense of approximately $147,000. In addition, management has
identified probable expenses for the years 1999 and 2000 of approximately
$395,000 and $67,000, respectively. The $67,000 expense for the year 2000 is
primarily for contingency planning. Of the total projected expense of $609,000,
testing, remediation and staff expense is projected to be $225,000, or 37%.
Software and equipment purchases are expected to be approximately $192,000, or
31.5% of the total and contingency planning is projected at $192,000, or 31.5%.
All expenses related to the year 2000 are expected to be paid out of First
National's earnings.
First National's objective is to migrate to the year 2000 with minimal impact on
its customers and to achieve compliance before the ultimate deadline of January
1, 2000.
Recently Issued Accounting Pronouncements
Effective January 1, 1998, the Company adopted the remaining provisions of SFAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which relate to the accounting for securities
lending, repurchase agreements and other secured financing activities. These
provisions, which were delayed for implementation by SFAS No. 127, did not have
a material impact on the Company.
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information in 1998. SFAS No. 131 requires publicly-held companies
to report financial and other information about key revenue producing segments
of the entity for which such information is available and is utilized by the
chief operating decision maker.
Specific information to be reported for individual segments includes profit or
loss, certain specific revenue and expense items, and total assets. The Company
did not identify any separate operating segments requiring disclosure, therefore
SFAS No. 131 did not have an impact on the Company's statement of financial
condition or statement of operations.
The Company adopted SFAS No. 132, Employers Disclosure about Pensions and Other
Postretirement Benefits in 1998. This statement revises employers' disclosures
about pension and other postretirement benefit plans. SFAS No. 132 does not
change the expense measurement or recognition of these plans. SFAS No. 132 did
not have an impact on the Company's statement of financial condition or
statement of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires the Company to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
gains and losses results from changes in fair value of the derivative instrument
depends on the intended use of the derivative and the type of risk being hedged.
The statement is effective for fiscal years beginning after June 15, 1999
although earlier adoption is permitted. Based upon current activities, the
adoption of the statement will not have an effect on the Company's financial
position or results of operation.
In October 1998, the FASB issued SFAS No. 134, Accounting for Mortgage Backed
Securities Retained after the Securitization or Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise, which amends SFAS No. 65, Accounting for Certain
Mortgage Banking Activities. This statement conforms the subsequent accounting
for securities retained after the securitization of mortgage loans by a mortgage
banking enterprise with the accounting for such securities by a non mortgage
banking enterprise. This statement is effective for the first quarter beginning
January 1, 1999 and this statement will not have any impact on the Company's
financial position or results of operation as the Company does not currently
securitize mortgage loans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See the information provided above under the caption "Quantitative and
Qualitative Disclosures About Market Risk" in Item 7 of this report.
Item 8. Consolidated Financial Statements and Supplementary Data
Consolidated Financial Statements
<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 subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998. 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 subsidiary at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/S/ KPMG LLP
January 25, 1999
Rochester, New York
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
(in thousands, except share data)
1998 1997
____ ____
<S> <C> <C>
Assets:
Cash and due from banks $ 20,031 $ 17,968
Interest bearing deposits with other banks 1,132 1,134
Federal funds sold 1,500 12,200
Securities available-for-sale, at fair value 132,664 120,819
Securities held-to-maturity (fair value of $22,106 in 1998 and
$28,323 in 1997) 21,862 28,278
Loans, net of allowance of $5,258 in 1998 and
$5,580 in 1997 389,408 325,940
Premises and equipment 11,673 8,813
Accrued interest receivable 4,069 3,761
FHLB and FRB stock 2,188 1,655
Other assets 3,373 1,785
_____ _____
Total assets $ 587,900 $ 522,353
======= =======
Liabilities and shareholders' equity Deposits:
Demand:
Non interest bearing $ 86,057 $ 70,831
Interest bearing 81,731 67,852
Savings and money market 103,549 89,224
Certificates of deposit 230,024 241,914
_______ _______
Total deposits 501,361 469,821
Securities sold under agreement to repurchase 23,566 13,436
Other short-term borrowing 274 800
Accrued interest payable and other
liabilities 4,337 4,066
Long-term debt 20,210 210
Total liabilities 549,748 488,333
_______ _______
Shareholders' equity:
Common Stock, $1 par value; authorized
5,000,000 shares; issued and outstanding 3,628,618 in
1998 and 3,589,253 in 1997. 3,629 3,589
Additional paid in capital 13,751 13,269
Undivided profits 20,145 16,266
Accumulated other comprehensive income 627 896
___ ___
38,152 34,020
______ ______
Total liabilities and
shareholders' equity $ 587,900 $ 522,353
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997, 1996
(in thousands, except per share data)
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 30,957 $ 28,219 $ 25,390
Securities:
Taxable 9,682 8,678 6,420
Tax-exempt 219 104 122
___ ___ ___
9,901 8,782 6,542
Interest on federal funds sold
and deposits with banks 504 505 313
___ ___ ___
Total interest income 41,362 37,506 32,245
______ ______ ______
Interest expense:
Savings, interest checking and money market accounts 3,822 3,231 3,093
Certificates of deposit 13,583 13,169 10,348
Short-term borrowings 896 301 99
Long-term debt 339 20 19
___ __ __
Total interest expense 18,640 16,721 13,559
______ ______ ______
Net interest income 22,722 20,785 18,686
______ ______ ______
Provision for loan losses 150 55 -
___ __ _
Net interest income after provision for
loan losses 22,572 20,730 18,686
______ ______ ______
Non-interest income:
Service charges on deposit accounts 2,110 1,720 1,547
Credit card fees 690 715 740
Gain on sale of mortgages 159 73 65
Gain (loss) on sale of securities available-for-sale 24 (8) (45)
Loan servicing fees 266 262 263
Gain on sale of banking office - - 621
Other operating income 1,081 647 616
_____ ___ ___
Total non-interest income $ 4,330 $ 3,409 $ 3,807
_____ _____ _____
Non-interest expense:
Salaries and employee benefits $ 10,915 $ 9,618 $ 9,227
Occupancy 4,008 3,561 3,448
Marketing and public relations 721 610 489
Office supplies, printing and postage 771 624 637
Processing fees 1,184 1,075 1,018
F.D.I.C. assessments 57 52 2
Net cost of operation of other real estate 26 16 2
Legal 240 192 190
Other 2,216 1,746 1,637
_____ _____ _____
Total non-interest expense 20,138 17,494 16,650
______ ______ ______
Income before income taxes 6,764 6,645 5,843
Income tax expense 1,728 2,126 1,710
Net income $ 5,036 $ 4,519 $ 4,133
===== ===== =====
Net income per common share - basic $ 1.39 $ 1.26 $ 1.16
==== ==== ====
Net income per common share - diluted $ 1.32 $ 1.21 $ 1.13
==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years Ended December 31, 1998, 1997 and 1996
(in thousands except per share data)
Accumulated
Additional Other
Common Paid in Undivided Comprehensive
Stock Capital Profits Income Total
_____ _______ _______ ______ _____
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 3,569 $ 13,024 $ 8,403 $ 850 $ 25,846
Comprehensive income:
Net income - - 4,133 - 4,133
Change in unrealized gain on
securities available-for-sale, net
of taxes of $397 (582) (582)
___
Total comprehensive income 3,551
_____
Common stock cash dividend -
$.05 per share - - (179) - (179)
Option and employee purchase shares issued 2 11 - - 13
_ __ _ _ __
Balance at December 31, 1996 $ 3,571 $ 13,035 $ 12,357 $ 268 $ 29,231
Comprehensive income:
Net income - - 4,519 - 4,519
Change in unrealized gain on
securities available-for-sale, net
of taxes of $417 - - - 628 628
___
Total comprehensive income - - - - $ 5,147
_____
Common stock cash dividend -
$.17 per share - - (610) - (610)
Option and employee purchase shares issued 18 234 - - 252
__ ___ _ _ ___
Balance at December 31, 1997 $ 3,589 $ 13,269 $ 16,266 $ 896 $ 34,020
Comprehensive income:
Net income - - 5,036.00 - 5,036
Change in unrealized gain on
securities available-for-sale, net
of taxes of $179 - - - (269) (269)
____
Total comprehensive income 4,767
_____
Common stock cash dividend -
$.32 per share - - (1,157) - (1,157)
Option and employee purchase shares issued 40 482 - - 522
___
Balance at December 31, 1998 $ 3,629 $ 13,751 $ 20,145 $ 627 $ 38,152
===== ====== ====== === ======
Disclosure of reclassification amount:
1998 1997 1996
____ ____ ____
Unrealized holding gains (losses) arising during period $(283) $ 633 $(555)
Less: reclassification adjustment for gains (losses)
Included in net income 14 (5) (27)
__ _ __
Change in unrealized gain on securities available-for-
sale, net of taxes $ (269) $ 628 $ (582)
=== === ===
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FNB ROCHESTER CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,036 $ 4,519 $ 4,133
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 150 55 -
Depreciation and amortization 1,681 1,464 1,449
Amortization of goodwill - - 79
Deferred income taxes (623) (548) (78)
(Gain) loss on sales of securities
available-for-sale (24) 8 45
Gain on sale of subsidiary and banking offices - - (621)
(Increase) decrease in mortgage loans
held for sale, net (2,210) (2,700) 550
(Increase) decrease in accrued interest receivable (308) (519) 331
Increase in other assets (872) (199) (465)
Increase in accrued interest
payable and other liabilities 340 986 175
___ ___ ___
Net cash provided by operating activities 3,170 3,066 5,598
_____ _____ _____
Cash flow from investing activities:
Securities available-for-sale:
Purchase of securities (70,154) (71,502) (29,987)
Proceeds from maturities 53,460 23,275 19,857
Proceeds from sales 4,427 762 10,097
Securities held-to-maturity:
Purchase of securities (5,370) (3,249) (2,891)
Proceeds from maturities 11,786 4,503 5,139
Loan origination and principal collection, net (61,323) (25,293) (51,375)
Payment made for sale of banking office - - (7,855)
Purchases of premises and equipment, net (4,541) (1,125) (3,377)
_____ _____ _____
Increase in FHLB and FRB stock (533) (139) -
___ ___ _
Net cash used by investing activities $ (72,248) $ (72,768) $ (60,392)
______ ______ ______
Cash flows from financing activities:
Net increase in demand, savings, interest
checking, and money market accounts $ 43,430 $ 27,076 $ 16,125
Certificates of deposit accepted and repaid, net (11,890) 37,974 40,404
Increase (decrease) in short-term
borrowings 9,604 13,450 (4,200)
Increase in long-term debt 20,000 - 210
Employee common stock purchase and exercise
of options to purchase common stock 522 252 13
Dividends paid - common stock (1,227) (429) -
_____ ___ _
Net cash provided by financing
activities 60,439 78,323 52,552
______ ______ ______
Increase (decrease) in cash and cash
equivalents (8,639) 8,621 (2,242)
Cash and cash equivalents at beginning of
year 30,302 21,681 23,923
______ ______ ______
Cash and cash equivalents at end of year $ 21,663 $ 30,302 $ 21,681
====== ====== ======
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 write downs $ 85 $ 38 $ 45
The Company paid cash during 1998, 1997, and 1996 for income taxes and
interest as follows (in thousands):
1998 1997 1996
____ ____ ____
Interest $ 18,876 $ 16,399 $ 13,553
Income taxes 872 2,637 1,335
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
FNB ROCHESTER CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(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.
On December 9, 1998 a definitive agreement was entered into for a merger
between the Company and M&T Bank Corporation, Buffalo, New York. The merger is
subject to both shareholder and regulatory approval and it is expected to take
place in the second quarter of 1999.
Basis of Presentation
The Company operates as a bank holding company. In 1998 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 accumulated other
comprehensive income in shareholders' equity until realized.
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 accreted 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 temporary 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
The Company continues to account 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. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock Based Compensation, the Company has elected to
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants as if the fair-value-based method defined in SFAS
No. 123 had been applied.
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, 1998 the market value of the assets under management
was $113,842,000.
Comprehensive Income
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This Statement establishes standards for
reporting and display of comprehensive income and its components. Accumulated
other comprehensive income consists of net income and the net unrealized
holding gains and losses on securities available-for-sale, net of the related
tax effect. Prior year financial statements have been reclassified to conform
to the requirements of the Statement.
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 outstanding and effect
of stock issued upon conversion of equivalents stock options during each year.
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.
Financial Instruments With Off-Balance Sheet Risk
The Company does not engage in the use of derivative financial instruments and
the Company's only financial instruments with off-balance risk are commercial
letters of credit and mortgage and commercial loan commitments. These
off-balance sheet items are shown in the Company's consolidated statement of
financial condition upon funding.
<PAGE>
(2) Securities
The aggregate amortized cost and fair value of securities available-for-sale
and securities held-to-maturity at December 31, 1998 and 1997 follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
____ ____
Amortized Fair Amortized Fair
Cost Value Cost Value
____ _____ ____ ______
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $ 16,045 $ 16,265 $ 25,152 $ 25,403
U.S. Government agency 43,675 43,863 34,213 34,346
Mortgage-backed securities 68,968 69,653 59,963 61,070
Other securities 2,931 2,883 - -
_____ _____ _ _
Total 131,619 132,664 119,328 120,819
======= ======= ======= =======
Securities held-to-maturity:
U.S. Treasury 8,047 8,167 8,079 8,091
U.S. Government agency 127 128 5,252 5,229
Mortgage-backed securities 6,929 6,967 10,721 10,769
Obligations of state and
municipal subdivisions 6,409 6,494 3,876 3,884
Other securities 350 350 350 350
___ ___ ___ ___
Total $ 21,862 $ 22,106 $ 28,278 $ 28,323
====== ====== ====== ======
</TABLE>
Securities with an amortized cost of $132,862,000 and $105,341,000 at December
31, 1998 and 1997, 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, 1998 and 1997 follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
____ ____
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
_____ ______ _____ ______
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $ 220 $ - $ 251 $ -
U.S. Government agency 328 140 172 39
Mortgage-backed securities 740 55 1,157 50
Other securities 26 74 - -
__ __ __ _
Total $ 1,314 $ 269 $ 1,580 $ 89
===== === ===== ==
Securities held-to-maturity:
U.S. Treasury $ 120 $ - $ 39 $ 27
U.S. Government agency 1 - - 23
Mortgage-backed securities 42 4 77 29
Obligations of state and municipal
subdivisions 87 2 18 10
__ _ __ __
Total $ 250 $ 6 $ 134 $ 89
=== = === ==
</TABLE>
The amortized cost of securities by contractual years to maturity as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Under 1 1 to 5 Years 5 to 10 10 Years Total
_______ ____________ _______ ________ _____
Year Years and
____ _____ ___
Over
____
<S> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $ 10,035 $ 6,010 $ - $ - $ 16,045
U.S. Government agency - 5,000 25,773 12,902 43,675
Mortgage-backed securities - 6,899 3,357 58,712 68,968
Other securities - - - 2,931 2,931
_ _ _ _____ _____
Total $ 10,035 $ 17,909 $ 29,130 $ 74,545 $ 131,619
====== ====== ====== ====== =======
Securities held-to-maturity:
U.S. Treasury $ - $ 8,047 $ - $ - $ 8,047
U.S. Government agency - - - 127 127
Mortgage backed securities 787 4,410 1,023 709 6,929
Obligations of state and municipal
subdivisions 657 1,138 1,102 3,512 6,409
Other securities 50 275 25 - 350
__ ___ __ _ ___
Total $ 1,494 $ 13,870 $ 2,150 $ 4,348 $ 21,862
===== ====== ===== ===== ======
</TABLE>
<PAGE>
The fair value of securities by contractual years to maturity as of December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Under 1 1 to 5 Years 5 to 10 10 Years and Total
Year _____________ Years Over _____
____ ____ ___
<S> <C> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 10,122 $ 6,143 $ - $ - $ 16,265
U.S. Government agency - 5,045 25,900 12,918 43,863
Mortgage-backed securities 6,888 3,370 59,395 69,653
Other securities - - - 2,883 2,883
_ _ _ _____ _____
Total $ 10,122 $ 18,076 $ 29,270 $ 75,196 $ 132,664
====== ====== ====== ====== =======
Securities held-to-maturity
U.S. Treasury $ - $ 8,167 $ - $ - $ 8,167
U.S. Government agency - - - 128 128
Mortgage backed securities 787 4,412 1,042 726 6,967
Obligations of state and municipal
subdivisions 657 1,159 1,115 3,563 6,494
Other securities 50 275 25 - 350
__ ___ __ _ ___
Total $ 1,494 $ 14,013 $ 2,182 $ 4,417 $ 22,106
===== ====== ===== ===== ======
</TABLE>
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations without prepayment penalties.
The following table presents the total proceeds from sales of securities
available-for-sale for 1998, 1997 and 1996 and the gross realized gains and
losses (in thousands):
1998 1997 1996
____ ____ ____
Proceeds from sales $ 4,427 $ 762 $ 10,097
_____ ___ ______
Gains 24 - 2
Losses - (8) (47)
_ _ __
Net $ 24 $ (8) $ (45)
== = ==
<PAGE>
(3) Loans
The major classifications of loans at December 31, 1998 and 1997 follow (in
thousands):
1998 1997
____ ____
Commercial $ 231,716 $ 201,722
Residential mortgage 104,508 80,083
Residential mortgage loans held for sale 5,240 3,030
Home equity 31,056 23,516
Other consumer 22,023 22,886
______ ______
Total 394,543 331,237
Net deferred loan costs 123 283
Allowance for loan losses (5,258) (5,580)
_____ _____
Loans, net $ 389,408 $ 325,940
======= =======
The Company considers its primary service and marketing area to be the city of
Rochester and its surrounding towns in New York State. 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 $92,931,000 and $102,757,000 at
December 31, 1998 and 1997, respectively are not included in the consolidated
financial statements. Custodial accounts held by First National for these
loans amounted to $2,639,000 and $2,193,000 at December 31, 1998 and 1997,
respectively.
The Company has an available line of credit with the FHLB of New York, which
at December 31, 1998 amounted to approximately $30,750,000. 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 and the Company's total assets. At December 31, 1998, the Company
pledged residential mortgages with a carrying value of $84,016,000 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,
________________________
1998 1997 1996
____ ____ _____
<S> <C> <C> <C>
Balance at beginning of year $ 5,580 $ 5,696 $ 5,776
Provision charged to operating expense 150 55 -
5,730 5,751 5,776
_____ _____ _____
Loans charged off
Commercial (515) (179) (407)
Residential mortgage (73) (72) (14)
Home equity - (13) (5)
Other consumer (154) (145) (132)
___ ___ ___
Total loans charged off (742) (409) (558)
___ ___ ___
Recoveries of loans charged off
Commercial 178 166 407
Residential mortgage 21 12 -
Home equity 16 - 3
Other consumer 55 60 68
__ __ __
Total recoveries of loans charged off 270 238 478
___ ___ ___
Balance at end of year $ 5,258 $ 5,580 $ 5,696
===== ===== =====
</TABLE>
The principal balance of loans not accruing interest totaled $2,831,000 and
$2,100,000 at December 31, 1998 and 1997 respectively. The effect of
non-accrual loans on interest income for the years ended December 31, 1998,
1997, and 1996 was $82,000, $22,000 and $48,000 respectively. Other real
estate owned amounted to $85,000, $38,000 and $45,000 at December 31, 1998,
1997 and 1996 respectively.
At December 31, 1998, 1997, and 1996, the recorded investment in loans that
are considered to be impaired totaled $1,884,000, $1,160,000, and $2,337,000,
respectively, and the impairment allowance associated with these loans is
$656,000 for 1998, $125,000 for 1997 and $38,000 for 1996. The average
recorded investments in impaired loans during the twelve months ended December
31, 1998, 1997 and 1996 was approximately $1,058,000, $2,882,000 and $913,000,
respectively.
For the twelve months ended December 31, 1998, 1997 and 1996 the Company
recognized interest income on impaired loans of $58,000, $234,000 and $77,000,
respectively.
<PAGE>
(5) Premises and Equipment
A summary of premises and equipment follows (in thousands):
December 31,
____________
1998 1997
____ ____
Land $ 710 $ 710
Building and improvements 2,144 2,091
Furniture, fixtures, equipment and vehicles 11,991 9,472
Leasehold 7,336 5,444
_____ _____
22,181 17,717
Less accumulated depreciation and amortization 10,508 8,904
______ _____
Premises and equipment, net $ 11,673 $ 8,813
====== =====
(6) Certificates of Deposit
Certificates of deposit of $100,000 or more amounted to $87,646,000 at
December 31, 1998 and $92,477,000 at December 31, 1997. Interest expense on
certificates of deposit of $100,000 or more was $4,877,000 in 1998, $4,269,000
in 1997 and $3,225,000 in 1996.
At December 31, 1998, the scheduled maturities of all certificates of deposits
are as follows (in thousands):
Year Amount
____ ______
1999 $ 200,991
2000 18,123
2001 5,175
2002 2,005
2003 and thereafter 3,730
_____
Total $ 230,024
=======
(7) Borrowings
The Company had short term borrowings of $23,840,000 and $14,236,000 at
December 31, 1998 and 1997 respectively. The December 31, 1998 balance
included $23,566,000 of securities sold under agreement to repurchase, with a
maturity date of January 4, 1999 and an average rate of 4.33%. 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%. The maximum amount outstanding at any one month-end and average amount
for securities sold under agreements to repurchase were $23,566,000 and
$22,333,000 respectively for 1998 and $13,436,000 and $5,173,000 respectively
for 1997. Interest expense averaged 4.90% for 1998, 5.08% for 1997 and 5.82%
for 1996.
Long-term borrowings consist of two Federal Home Loan Bank advances of $10
million each and a $210,000 note to an individual to purchase land for the
Bank's Greece Office. The $10 million advances mature on August 28, 2001 and
October 2, 2002 and are at interest rates of 5.57% and 4.91% respectively. The
$210,000 note matures on February 1, 2001 and has an interest rate of 9.50%.
(8) Income Taxes
Total income taxes for the years ended December 31, 1998, 1997 and 1996 were
allocated as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Income from operations $ 1,728 $ 2,126 $ 1,710
Shareholders' equity, change in unrealized gain (loss)
on securities available-for-sale (179) 417 (397)
___ ___ ___
$ 1,549 $ 2,543 $ 1,313
===== ===== =====
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, income tax expense
(benefit) attributable to income from operations consists of (in thousands):
1998 1997 1996
Current:
Federal $ 2,148 $ 2,113 $ 1,648
State 203 561 140
___ ___ ___
2,351 2,674 1,788
_____ _____ _____
Deferred:
Federal (530) (466) (335)
State (93) (82) 257
__ __ ___
(623) (548) (78)
___ ___ __
$ 1,728 $ 2,126 $ 1,710
===== ===== ======
<PAGE>
The reconciliation of the statutory federal income tax rate with the actual
effective tax rate follows:
1998 1997 1996
____ ____ ____
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 (10.7)% (7.0)%% (11.0)
State taxes, net of federal
benefit 1.1% 4.7% 5.0
Other items, net 1.1% 0.3% 1.0
___ ___ ___
25.5% 32.0% 29.0%
==== ==== ====
The significant components of deferred tax expense (benefit) attributable to
income from continuing operations at December 31, 1998, 1997 and 1996 are as
follows:
1998 1997 1996
____ ____ ____
Deferred tax expense (benefit) $ 99 $ (79) $ 582
Decrease in valuation
allowance for deferred tax assets (722) (469) (660)
___ ___ ___
Net deferred tax benefit $ (623) $ (548) $ (78)
=== === ==
<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, 1998,
and 1997 are presented below (in thousands):
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses - financial statements $ 2,100 $ 2,229
Interest on non accrual loans 59 140
Premises and equipment - principally due to
depreciation 187 163
Reserve for abandoned lease 62 91
Accrued salaries and benefits 112 121
Other 90 97
__ __
Gross deferred assets 2,610 2,841
Less valuation allowance (54) (776)
__ ___
Net deferred tax assets 2,556 2,065
===== =====
Deferred tax liabilities:
Allowance for loan losses - tax (585) (650)
Net unrealized gain on securities
available-for-sale (417) (596)
Bond discount (149) (152)
Net deferred loan origination costs (49) (113)
__ ___
Total gross deferred liabilities (1,200) (1,511)
_____ _____
Net deferred tax asset $ 1,356 $ 554
===== ===
</TABLE>
The net change in the total valuation allowance for the years ended December 31,
1998, 1997 and 1996 were decreases of $722,000, $469,000 and $660,000
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.
(9) Shareholders' Equity
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 $10,750,000 are available from First National
at December 31, 1998 without the approval of the OCC.
(10) Stock Option Plans
The Company has two stock option plans. A plan adopted in 1992 (amended May 19,
1998) for employees, authorizes grants of options to purchase up to 525,000
shares of its authorized but unissued common stock. The second plan is the 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 are exercisable over terms not exceeding ten years and at
prices equal to the fair market value of the common stock on the date of grant.
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 1998: dividend yield of 1.48 percent, risk-free interest rate of 5.65
percent, expected volatility of 35.4 percent, and expected lives of 6.5 years.
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.
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)
1998 1997 1996
____ ____ ____
Net income As reported $ 5,036 $ 4,519 $ 4,133
Pro forma 4,775 4,385 4,003
Basic earnings
Per share As reported 1.39 1.26 1.16
Pro forma $ 1.32 $ 1.22 $ 1.12
Pro forma net income and earnings per share reflect only options granted in
1998, 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.
<PAGE>
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1998, 1997 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
____ ____ ____
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 321,850 $ 7.49 318,850 $ 7.28 223,100 $ 6.59
Granted 211,050 20.28 7,500 16.13 98,750 8.88
Exercised 20,487 7.05 3,000 7.64 2,100 6.01
Forfeited 7,288 18.67 1,500 11.27 900 7.15
_____ _____ _____ _____ ___ ____
Outstanding at end of year 505,125 $ 13.13 321,850 $ 7.48 318,850 $ 7.30
======= ===== ======= ==== ======= ====
Options exercisable at
year end 405,577 304,475 244,350
======= ======= =======
Weighted-average fair
value of options granted
during the year $ 8.11 $ 8.44 $ 5.11
==== ==== ====
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
___________________ ____________________
Number Weighted-Avg Number
Range of Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg
Exercise Prices at 12/31/98 Contractual Life Exercise at 12/31/98 Exercise Price
_______________ ___________ ________________ ___________ ____________ ______________
<S> <C> <C> <C> <C> <C>
$ 5.63 - 9.75 277,350 4.8 $ 6.99 277,350 $ 6.99
12.75 - 17.38 23,200 8.3 13.98 18,750 13.43
18.00 - 21.50 204,575 9.4 21.34 109,477 21.50
_____________ _______ ___ _____ _______ _____
$ 5.63 - 21.50 505,125 6.8 $ 13.13 405,577 $ 11.21
============ ======= === ===== ======= =====
</TABLE>
<PAGE>
(11) Leases
The Company leases certain buildings and office space under operating lease
arrangements. Rent expense under these arrangements amounted to $1,247,000 in
1998, $1,123,000 in 1997 and $1,110,000 in 1996. 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, 1998 follows (in
thousands):
Year Ending December 31,
________________________
Year Amount
____ ______
1999 $ 1,224
2000 1,249
2001 1,283
2002 1,288
2003 1,239
After 2003 10,130
______
Total $ 16,413
======
Several new leases have been signed for additional banking offices and office
space. Two 20-year ground leases were signed for new banking offices in the
Village of Brockport and the Town of Victor. 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 new lease amounts are included in 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, 1998 and 1997 are set forth in the table below (in thousands):
1998 1997
____ ____
Fixed Rate Variable Rate Fixed Rate Variable Rate
__________ _____________ __________ _____________
Commercial letters of credit - 4,817 - 2,749
Commercial lines of credit 1,122 55,604 2,362 59,040
Other loan commitments 14,120 26,449 17,184 18,917
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, 1998, the Company had funded
$703,000 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, 1998 and 1997 was approximately $138,000 and $365,000.
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 Company has a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the employee's
highest average compensation during five consecutive years of employment. The
Company's funding policy is to contribute annually an actuarially determined
amount to cover current service cost plus amortization of prior service costs.
The following table sets forth (in thousands) the defined benefit pension
plan's change in benefit obligation and change in plan assets for the years
ended December 1998, 1997 and 1996 using the most recent actuarial data
measured at September 30, 1998, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
December 31
____________
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $1,691 $1,022 $726
Service cost 508 385 368
Interest cost 127 82 54
Benefits paid (8) (12) (9)
Assumption changes and other 502 214 (117)
___ ___ ___
Projected benefit obligation at end of year 2,820 1,691 1,022
_____ _____
Change in plans assets:
Fair value of plan assets at beginning of year 1,307 757 475
Actual return on plan assets 51 218 70
Employer contribution 598 388 270
Benefits paid (8) (12) (9)
Plan expenses (49) (44) (49)
__ __ __
Fair value of plan assets at end of year 1,899 1,307 757
_____ _____ ___
Funded status (deficit) (921) (384) (265)
Unrecognized net actuarial loss (gain) 778 142 19
Unrecognized prior service cost (4) (4) (5)
_ _ _
Prepaid (accrued) benefit cost $(147) $ (246) $ (251)
=== === ===
Pension costs consists of the following components (in thousands):
Years ended December 31,
________________________
1998 1997 1996
____ ____ ____
Service cost $ 508 $ 385 $ 368
Interest cost 127 82 54
Expected return on plan assets (137) (83) (40)
Amortization of net (gain) loss - - 3
Net periodic benefit cost $ 498 $ 384 $ 385
=== === ===
Weighted average discount rate 6.50% 7.50% 8.00%
Expected long term rate of return 8.50% 8.50% 8.50%
</TABLE>
The projected benefit obligation assumed a long-term rate of increase in
future compensation levels was 4.00% for 1998, 5.00% for 1997 and 1996.
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 $84,000 in 1998, $77,000 in 1997, and $66,000 in 1996.
(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,
________________________
1998 1997
____ ____
Balance of loans outstanding at beginning of year $ 5,941 $ 4,827
New loans and increases in existing loans 2,169 1,496
Loan principal repayments (1,120) (382)
_____ ___
Balance at end of year $ 6,990 $ 5,941
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>
Income Average Per Share
______ _______ _________
<S> <C> <C> <C>
For year ended December 31, 1998
Basic EPS
Net income applicable to common shareholders $ 5,036 3,611,947 $ 1.39
Effect of assumed exercise of stock options - 192,085
_______
Diluted EPS
Income available to common shareholders and
assumed exercise of stock options $ 5,036 3,804,032 $ 1.32
Net income applicable to common shareholders $ 5,036 3,611,947 $ 1.39
===== ========= ====
For year ended December 31, 1997
Basic EPS
Net income applicable to common shareholders $ 4,519 3,580,713 $ 1.26
====
Effect of assumed 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
===== ========= ====
</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, 1998 and 1997 and the results of its
operations and its cash flows for the years ended December 31, 1998, 1997, and
1996:
Condensed Statements of Financial Condition (in thousands)
Assets 1998 1997
____ ____
Cash and cash equivalents $ 2,293 $ 996
Investment (at equity) in subsidiary 35,915 33,411
Other assets 306 3
Total assets $ 38,514 $ 34,410
Liabilities and shareholders' equity
Accrued interest payable and other liabilities $ 362 $ 390
Total liabilities 362 390
___ ___
Shareholders' equity 38,152 34,020
______ ______
Total liabilities and shareholders' equity $ 38,514 $ 34,410
====== ======
<PAGE>
Statement of Income (in thousands)
Years ended December 31,
________________________
1998 1997 1996
____ ____ ____
Income:
Dividends from subsidiary $ 2,352 $ 600 $ 200
Interest and other 67 27 19
__ __ __
Total income 2,419 627 219
_____ ___ ___
Expense:
Other 191 118 109
___ ___ ___
Total expense 191 118 109
___ ___ ___
Income before taxes and equity in
undistributed income of subsidiary 2,228 509 110
Income tax benefit (36) (29) (26)
__ __ __
Income before undistributed income
of subsidiary 2,264 538 136
Equity in undistributed income
of subsidiary 2,772 3,981 3,997
_____ _____ _____
Net income $ 5,036 $ 4,519 $ 4,133
===== ===== =====
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows (in thousands)
Years ended December 31,
________________________
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,036 $ 4,519 $ 4,133
Adjustment to reconcile net income to
cash (used) provided by operating activities:
Equity in undistributed income
of subsidiary (2,772) (3,981) (3,997)
(Increase) decrease in other assets (303) (2) 3
Increase (decrease) in accrued
interest payable and other
liabilities 41 (7) (2)
__ _ _
Net cash provided by
operating activities 2,002 529 137
_____ ___ ___
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 522 252 13
Dividends paid - common stock (1,227) (429) -
Net cash provided by financing
activities (705) (177) 13
___ ___ __
Increase in cash and
cash equivalents 1,297 352 150
Cash and cash equivalents at beginning of year 996 644 494
___ ___ ___
Cash and cash equivalents at end of year $ 2,293 $ 996 $ 644
===== === ====
</TABLE>
(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, 1998, 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,
1998, that First National meets all capital adequacy requirements to which it
is subject.
As of December 31, 1998, 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>
For Capital To Be Well
Actual Adequacy Purposes Capitalized
Amount Ratio Amount Ratio Amount Ratio
______ _____ ______ _____ ______ _____
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital
(to Risk Weighted Assets) $ 40,131 10.6% $ 30,338 8.0% $ 37,922 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 35,385 9.3% $ 15,169 4.0% $ 22,753 6.0%
Tier I Capital
(to Average Assets) $ 35,385 6.0% $ 23,447 4.0% $ 29,308 5.0%
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%
</TABLE>
The Company's capital amounts and ratios as of December 31, 1998 and 1997 were
not materially different from those of First National.
<PAGE>
(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.
<PAGE>
<TABLE>
<CAPTION>
1998 1997
____ ____
(in thousands)
Estimated Estimated
Carrying Fair Carrying Fair
Financial Assets: Amount Value (1) Amount Value (1)
________________ ______ _________ ______ _________
<S> <C> <C> <C> <C>
Cash $ 20,031 $ 20,031 $ 17,968 $ 17,968
Interest bearing deposits with banks 1,132 1,132 1,134 1,134
Federal funds sold 1,500 1,500 12,200 12,200
Securities, including FHLB and FRB 156,714 156,958 149,261 150,797
Net Loans and commitments 389,408 397,660 325,940 337,123
Financial Liabilities:
_____________________
Total deposits 501,361 502,648 469,821 470,254
Short-term borrowings
and long-term debt $ 44,050 $ 43,951 $ 14,446 $ 14,446
</TABLE>
(1) Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
(19) Dispositions
On November 30, 1998, First National announced an agreement for the sale of
its Southport Office. At December 31, 1998 the Office had deposits of
approximately $14 million. The closing is expected to take place before the
end of the first quarter of 1999.
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>
Supplementary Data
<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
______ ______ ______ ____________ ______ _____
1998
____
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 9,910 $ 5,397 $ 90 $ 1,634 $ 1,132 $ 0.30
Second quarter 10,341 5,600 60 1,608 1,200 0.31
Third quarter 10,552 5,805 - 1,768 1,292 0.34
Fourth quarter 10,559 5,920 - 1,754 1,412 0.37
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
</TABLE>
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
<PAGE>
PART III
________
Item 10. Directors and Executive Officers of the Registrant
Directors
The following persons are currently directors of the Company. Directors are
elected annually at the Annual Meeting of Shareholders of the Company.
Director's Name (age) Director Since Principal Occupation
_____________________ ______________ ____________________
R. Carlos Carballada (64) 1992 President, Chief Executive Officer,
FNB Rochester Corp.
Michael J. Falcone (63) 1978 Chairman, Pioneer Group and
Pioneer Development
Joseph M. Lobozzo II (55) 1993 President & CEO,
JML Optical Industries, Inc.
Francis T. Lombardi (67) 1978 Vice President,
Syracuse Tank & Mfg. Co. Inc.
Carl R. Reynolds (51) 1977 Attorney
H. Bruce Russell (61) 1993 President, Rochester
Downtown Development Corp.
James D. Ryan (66) 1992 President and Owner,
RYCO Management, Inc.
Linda Cornell Weinstein (54) 1993 Executive Director,
Cornell/Weinstein Family Foundation
Other than Mr. Russell, each director of the Company has been engaged in his or
her principal occupation or employment as specified above for five years or
more.
Each director of the Company is also a director of First National Bank of
Rochester (the "Bank").
Mr. Carballada has been employed in the banking business since 1968. He was
President and Chief Executive Officer of Citizens Central Bank in Arcade, New
York from July 1976 until August 1981, and was President and Chief Executive
Officer of Central Trust Company in Rochester, New York, from September, 1981
until May, 1992. Mr. Carballada became the President and Chief Executive Officer
of the Company in June of 1992. Mr. Carballada also serves as President and
Chief Executive Officer of the Bank.
Mr. Falcone is the Chairman of the Pioneer Group and Pioneer Development
Company, a real estate development and management companies headquartered in
Syracuse, New York. He has held that position since 1987. Since 1992, Mr.
Falcone has served as Chairman of the Board of Directors of the Company and the
Bank.
Mr. Lobozzo has been the President, Chief Executive Officer, and principal
shareholder of JML Optical Industries, Inc., located in Rochester, New York,
since 1972. JML Optical Industries, Inc. manufactures, designs, and imports
precision optical systems.
Mr. Lombardi is Vice President of Syracuse Tank & Manufacturing Company,
Incorporated, a manufacturer of metal products in Syracuse, New York, and has
been associated with the manufacturing company since 1957.
Mr. Reynolds has been an attorney engaged in the general practice of law in
Rochester, New York since 1975. Mr. Reynolds is also President and a director of
New Sky Communications, Inc., a motion picture production company and Vice
President of the Logan Consulting Group, Inc., a Rochester, New York financial
and business consulting firm. Since 1992, Mr. Reynolds has served as Vice
Chairman of the Board Directors of the Company and the Bank.
Mr. Russell is President of Rochester Downtown Development Corp., in which he
has held various leadership positions over a period of seven years. In 1997, he
retired from the Eastman Kodak Company. He joined the Finance and Administration
Division of the Eastman Kodak Company in Rochester in 1963, and thereafter he
held a variety of positions at Kodak, each with increasing responsibility. In
1986, he became a divisional Vice President and Director, Corporate Real Estate
Office, a position he held until his retirement.
Mr. Ryan is a Rochester area real estate developer, and since 1969 has been the
principal shareholder and president of RYCO Management, Inc., a real property
development and management company.
Ms. Weinstein has served as Executive Director of the Cornell/Weinstein Family
Foundation, a private non-profit foundation located in Rochester, New York,
since 1986.
No family relationships exist among the above-named Directors or Officers of the
Company. None of the Directors of the Company holds a directorship in any other
publicly traded company, except for Carl R. Reynolds, who is a director of New
Sky Communications, Inc., a company registered under Section 15(d) of the
Securities and Exchange Act of 1934, as amended.
Executive Officers
The following current officers of the Company or the Bank ("Executive Officers")
are deemed to be "executive officers" for purposes of the federal securities
laws.
R. Carlos Carballada (64), President and Chief Executive Officer of the Company
and the Bank, commencing June 8, 1992. See the information provided under
"Directors," above, for a description of employment history and business
experience of Mr. Carballada.
Donald R. Aldred (56), Senior Vice President, Business and Professional Banking
Division of the Bank, commencing June 23, 1992. From 1987 to 1992, he was Senior
Vice President and Manager of the Commercial Banking Division at Central Trust
Company. Prior to his time with Central Trust Company, he spent 21 years with
Manufacturers and Traders Trust Company progressing through numerous
lending/credit functions to the position of Vice President and Manager of
Commercial Finance.
Robert B. Bantle (47), Senior Vice President, Community Banking Division of the
Bank, commencing July 1, 1992. He was Senior Vice President, Human Resources, at
Central Trust Company from 1989 until 1992. Prior to joining Central Trust
Company, he spent 15 years with Security Trust/Fleet Bank in various areas,
including Human Resources, Branch Administration, and Strategic Planning.
Stacy C. Campbell (62), Senior Vice President and Chief Financial Officer of the
Company and the Bank, commencing July 1, 1992. From 1976 to 1992, Mr. Campbell
was Senior Vice President and Chief Financial Officer at Central Trust Company.
Prior to joining Central Trust Company, he was employed by Marine Midland Bank
N.A. in Commercial Lending, Treasury, and Financial positions.
Robert E. Gilbert (51), Senior Vice President, Operations Division of the Bank,
commencing June 29, 1992. From 1990 to 1992, he was a Managing Agent at the
Resolution Trust Corporation. From 1975 to 1989, he worked in various capacities
with Irving Bank Corporation including Executive Vice President and General
Manager of Irving Services Corporation, Senior Vice President of Operations at
Central Trust Company, and Vice President of Operations at Citizens Central Bank
of Arcade, New York.
Theresa B. Mazzullo (46), Senior Vice President, Trust & Investment Division of
the Bank, commencing March 10, 1993. She was Vice President and Manager of the
Personal Trust and Investment Division of The Chase Manhattan Bank, N.A. in
Rochester from March 1992 until March 1993. From 1978 until 1992 she progressed
through various trust positions at Central Trust Company to the level of Vice
President and Manager of Trust Marketing Sales.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16 of the Securities and Exchange Act of 1934, as amended,
Directors, Executive Officers, and certain other persons are required to report
their ownership of equity securities of the Company, and any changes in that
ownership, to the Securities and Exchange Commission and the Company. Based
solely upon a review of reports furnished to the Company by such persons on
Forms 3, 4, or 5 for the year ended December 31, 1998 (the "Section 16(a)
Reports"), the only omission from or late filing of Section 16(a) Reports known
to the Company was one omitted filing of Form 4 by Mr. Russell with respect to
two transactions in the Company's stock. The transactions were subsequently
reported on Form 5 for 1998.
Item 11. Executive Compensation
Shown below is information concerning annual and long-term compensation to
certain Executive Officers for services to the Company for the years ended
December 31, 1998, 1997, and 1996. The table includes information on the
Company's Chief Executive Officer, Mr. Carballada, and its Chief Financial
Officer, Mr. Campbell, and also on Mr. Aldred, Mr. Bantle, and Mr. Gilbert,
three of the Bank's Senior Vice Presidents (the "Named Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term
Name and Compensation
Principal Position
Year Salary Bonus Securities Underlying All Other
Options/SARs Compensation (1)
($) ($) (#)
<S> <C> <C> <C> <C> <C>
R. Carlos Carballada, President & 1998 $226,162` $10,886 11,000 $3,380
Chief Executive Officer 1997 $210,618 $10,531 0 $3,236
1996 $203,964 $ 8,159 0 $3,139
Donald R. Aldred, Senior Vice 1998 $122,128 $ 7,878 12,500 $1,349
President, Business & Professional 1997 $113,734 $ 7,687 0 $1,327
Banking 1996 $110,141 $ 6,406 1,000 $1,096
Robert B. Bantle, Senior Vice 1998 $109,906 $ 7,290 12,500 $2,004
President, Community Banking 1997 $102,352 $ 7,118 0 $1,964
1996 $ 99,119 $ 5,965 1,000 $1,899
Stacy C. Campbell, Senior Vice 1998 $109,902 $ 7,290 12,500 $2,104
President & Chief Financial Officer 1997 $102,349 $ 7,118 0 $1,964
1996 $ 99,116 $ 5,965 1,000 $1,899
Robert E. Gilbert, Senior Vice 1998 $110,248 $ 7,306 12,500 $1,929
President, Operations 1997 $102,671 $ 7,134 0 $1,729
1996 $ 99,428 $ 5,977 1,000 $1,714
</TABLE>
(1) For 1998, the amount includes $2,519, $875, $1,575, $1,675 and $1,500
for Company contributions to the Company's 401(k) plan on behalf of Messrs.
Carballada, Aldred, Bantle, Campbell, and Gilbert, respectively, and $861,
$474, $429, $429, and $429 in group term life insurance premiums for
Messrs. Carballada, Aldred, Bantle, Campbell, and Gilbert, respectively.
<PAGE>
Option Grants and Exercises
Option Grants
The following table details the number and terms of options granted during the
last fiscal year to Named Officers. The Company's employee benefit plans do not
provide for the grant of stock appreciation rights (SARs).
<TABLE>
<CAPTION>
Option Grants in the Last Fiscal Year
Potential Realizable Value at
Individual Grants Assumed Annual Rates of Stock
Price Appreciation for Option Term
Name Number of Percent of Exercise or Expiration 5% 10%
Securities Total Options Base Price Date
Underlying Granted to
Options Employees in
Granted (1) Fiscal Year
(#) ($/Share) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
R. Carlos Carballada 11,000 5.2% $21.50 5/19/08 $148,720 $376,970
Donald R. Aldred 1,000 0.5% $18.50 1/30/08 $ 11,630 $ 29,480
11,500 5.4% $21.50 5/19/08 $155,480 $394,105
Robert B. Bantle 1,000 0.5% $18.50 1/30/08 $ 11,630 $ 29,480
11,500 5.4% $21.50 5/19/08 $155,480 $394,105
Stacy C. Campbell 1,000 0.5% $18.50 1/30/08 $ 11,630 $ 29,480
11,500 5.4% $21.50 5/19/08 $155,480 $394,105
Robert E. Gilbert 1,000 0.5% $18.50 1/30/08 $ 11,630 $ 29,480
11,500 5.4% $21.50 5/19/08 $155,480 $394,105
</TABLE>
(1) Grants with expiration dates of 1/30/08 were granted January 30, 1998 at
fair market value with one-half exercisable per year commencing January 30,
1999. Assuming 5% and 10% compounded annual appreciation of the stock price over
the term of the option, the price per share of common stock would be $30.13 and
$47.98 respectively, on January 30, 2008. Grants with expiration dates of
5/19/08 granted May 19, 1998 at fair market value with 25% becoming exercisable
when the average trading price of the stock over a 30-day period reaches $25.50,
an additional 30% becoming exercisable when the average trading price of the
stock over a 30-day period reaches $27.50 and the final 45% becoming exercisable
when the average trading price of the stock reaches $33.50. All shares are
exercisable no later than May 19, 2007 or upon a change of control of FNB
Rochester Corp. Assuming 5% and 10% compounded annual appreciation of the stock
price over the term of the option, the price per share of common stock would be
$35.02 and $55.77 respectively, on January 30, 2008.
<PAGE>
Option Exercises
The following table summarizes aggregate exercises of options by Named Officers,
and the number of and the spread on unexercised options that they held at fiscal
year end:
<TABLE>
<CAPTION>
Option Exercises and Year-End Value Table
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Number of Securities Value of
Underlying Unexercised In-
Name Shares Acquired Value Realized Unexercised Options the-Money Options
on Exercise (#) ($) at FY-End (#) at FY-End ($) (1)
Exercisable/ Exercisable/
Unexercisable Unexercisable
_____________ _____________
<S> <C> <C> <C> <C>
R. Carlos Carballada 0 0 106,050/ $2,622,645/
4,950 $56,925
Donald R. Aldred 0 0 28,325/ $651,918/
6,175 $74,013
Robert B. Bantle 0 0 28,325/ $651,918/
6,175 $74,013
Stacy C. Campbell 0 0 28,325/ $651,918/
6,175 $74,013
Robert E. Gilbert 0 0 28,325/ $651,918/
6,175 $74,013
</TABLE>
(1) Based on the difference between the option exercise prices and $33.00, the
closing price of the Company's common stock on 12/31/98 as quoted on the Nasdaq
Stock Market.
Retirement Plan
The following table shows the estimated retirement benefits payable under the
Bank's plan with the New York State Bankers Retirement System (the "Plan") to
Named Officers based upon hypothetical compensation and years of service levels:
Pension Plan Table
Annual Benefits Per Number of Years of Service (1)
Average
Compensation
5 8 10 12
$100,000 $7,500 $12,000 $15,000 $18,000
$125,000 $9,375 $15,000 $18,750 $22,500
$150,000 $11,250 $18,000 $22,500 $27,000
$175,000 $13,125 $21,000 $26,250 $31,500
(1) Annual benefits equal 1.5% of Average Compensation at time of retirement
multiplied by years of creditable service commencing on or after April 1, 1993.
For the purposes of determining benefits under the Plan, Average Annual
Compensation is the average annual compensation during the highest five
consecutive years in all of the years of creditable service including salary,
bonus, and other taxable compensation. Effective October 1, 1994, the maximum
amount of annual compensation that is taken into account in determining benefits
is $150,000. Because Mr. Carballada presently has 1.5 years of credited service
at higher compensation levels, he may be entitled to benefits at retirement
based on more than $150,000 of Average Compensation. The annual benefits are not
subject to deduction for social security or other offsets. As of March 31, 1999,
all of the Named Officers have six years of creditable service. Mr. Carballada
reached his normal retirement age as defined in the Plan on April 1, 1997, when
he had five years of vesting service and had reached age 62.
Employment Agreement
On June 8, 1992, the Company entered into a three-year employment agreement with
Mr. Carballada, which was extended by the mutual consent of the parties on
February 22, 1994 and June 27, 1996. The agreement, which contained certain
automatic extension provisions, expires on June 30, 2000. This agreement
provides for an initial annual base salary of $185,000 plus benefits, with the
base amount subject to increases by the Board of Directors based on performance,
inflation and other factors. The agreement is terminable by the Company at the
direction of the Board of Directors. Under such circumstances, Mr. Carballada
would be entitled to salary, benefits, and other compensation for the greater of
one year or the remainder of the term unless his employment has been terminated
for "cause" as defined in the agreement. If Mr. Carballada resigns for "good
reason" as defined in the agreement, he is entitled to salary, benefits, and
other compensation for the lesser of one year or the remainder of the term.
Payments after termination will cease if Mr. Carballada accepts employment with
any other financial institution directly in competition with the Company in one
or more contiguous counties. Certain change of control provisions contained in
the agreement have been superseded by a Change of Control Employment Agreement
entered into between Mr. Carballada and the Company (see "Change of Control
Employment Agreements," below).
Change of Control Employment Agreements
On February 1, 1996, the Company entered into Change of Control Employment
Agreements (the "Agreements") with Mr. Carballada and with certain other senior
officers of the Company, including each of the Executive Officers. The
Agreements provide that in the event a "Change of Control" of the Company
occurs, the Agreements will become effective and govern the terms and conditions
under which the covered officer will continue to be employed by the Company. The
Agreements provide that each such officer will then be employed by the Company
for a period of 18 months (24 months in the case of Mr. Carballada) in the same
position, with the same compensation and benefits, that applied immediately
prior to the Change of Control.
Under the Agreements, a Change of Control is generally defined as: (i) the
acquisition by any person of beneficial ownership of 35% or more of the combined
voting power of the Company's voting securities, (ii) individuals who are on the
Board of Directors, or who are nominated by the Board of Directors, ceasing to
constitute a majority of the Board, (iii) approval by the shareholders of the
Company of a reorganization, merger or consolidation unless following the
transaction more than 65% of the common stock and combined voting power of
voting stock of the surviving corporation is owned in substantially the same
proportions by persons who were stockholders of the Company immediately prior to
the transaction, or (iv) approval by the Company's stockholders of any sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company other than to a controlled entity.
Generally, the Agreements provide that, if the covered officer is actually or
constructively terminated from his or her position during the employment period,
he or she will be entitled to receive a severance payment equal to his or her
annual compensation (1.67 times annual compensation in the case of Mr.
Carballada). In addition, if the officer is still employed by the Company 12
months after the date of the Change of Control, the officer may during a 30 day
"Window Period" voluntarily terminate his or her employment and receive a
severance payment equal to one-half of annual compensation (full annual
compensation in the case of Mr. Carballada).
The Agreements are not intended to deter combinations, but to reduce the
uncertainty and stress attendant upon a potential change of control and thereby
help to retain the Company's key officers and help to assure the full and
impartial consideration of any acquisition proposal by the Company's officers.
The Window Period provision is intended to help hold together an effective
management team for a one year period during which an acquisition may be pending
but before it has been completed.
Director Compensation
For 1998, Directors received compensation of $500 for attendance at each Board
of Directors' meeting and $300 for attendance at each Board committee meeting.
No executive officer of the Company who also serves as a director receives fees
for Board or committee meetings attended. The Company's 1995 Non-Employee
Director Plan provides for a one-time grant of options to purchase 2,500 shares
of the Company's common stock to (a) each person who was serving as a
non-employee director on October 3, 1995, and (b) each person who first becomes
a non-employee director after that date. Generally, such options vest over a
two-year period, are exercisable at fair market value on the date of grant, and
have a term of ten years.
Compensation Committee Interlocks and Insider Participation
Mr. Lobozzo, Mr. Falcone, Mr. Russell and Mr. Ryan are members of the Nominating
and Compensation Committee of the Board of Directors. During 1998, each of the
Nominating and Compensation Committee members, or members of their immediate
families, borrowed or had outstanding, either directly or indirectly, loans in
excess of $60,000 from the Bank. In each instance the loans (a) were made in the
ordinary course of business, (b) were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and (c) did not involve more than
the normal risk of collectibility or present other unfavorable features.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table shows the name, address, and beneficial ownership of the
Company's common stock as of March 10, 1999 of each person known to the Company
to be a beneficial owner, directly or indirectly, of more than 5% of any class
of its outstanding securities entitled to vote:
Name and Address of Common Shares
Beneficial Owner (1) (2) Beneficially Owned Percent of Class
________________________ __________________ ________________
William Levine 313,057(3) 8.6%
c/o Alleson of Rochester
2921 Brighton-Henrietta Town Line Road
Rochester, New York 14623
The Banc Funds 326,300(4) 8.9%
208 South LaSalle Street, Suite 200
Chicago, Illinois 60604
John Hancock Advisers, Inc. 252,587(5) 6.9%
101 Huntington Avenue
Boston, Massachusetts 02199
(1) Information presented in this table has been obtained from the
respective shareholder or from filings made with the Securities and
Exchange Commission. Except as otherwise indicated, each holder has
sole voting and investment power with respect to the shares indicated.
(2) On December 9, 1998, the Company entered into a merger agreement with
M&T Bank Corporation ("M&T") and granted an option to M&T to purchase
up to 721,535 shares of the Company's common stock upon the occurrence
of certain events, none of which has occurred. The Company's Form 8-K
filed on December 17, 1998, which describes the M&T option, is
incorporated herein by reference.
(3) Includes 340 shares held by Mr. Levine's wife, 45,000 shares held by
the William and Mildred Levine Foundation and 98,343 shares held by Mr.
Levine as Trustee for the benefit of certain members of his family.
(4) The Banc Funds share ownership is as follows: 35,302 shares are held by
Banc Fund III L.P., an Illinois Limited Partnership; 108,198 shares are
held by Banc Fund III Trust, 39,030 shares are held by Banc Fund IV
L.P., an Illinois Limited Partnership, 131,270 shares are held by Banc
Fund IV Trust and 12,500 shares are held by Banc Fund V L.P., an
Illinois Limited Partnership Each of the foregoing entities has sole
voting and investment powers with respect to the shares indicated.
(5) John Hancock Advisers, Inc. has sole voting and investment powers with
respect to the shares under Advisory Agreements with the following
funds: John Hancock Regional Bank Fund (197,837 shares); John Hancock
Financial Industries Fund (34,250 shares); and Southeastern Thrift and
Bank Fund, Inc. (20,500 shares).
Security Ownership of Directors and Officers
The following table shows the name, address, and beneficial ownership of the
Company's common stock as of March 10, 1999 of each Director of the Company, of
each executive officer who is named in the Summary Compensation Table ("Named
Officer") and of all directors and executive officers of the Company as a group,
respectively:
Name and Address* Shares owned Percent of Class
________________ ____________ ________________
R. Carlos Carballada 112,889 (1) 3.0%
Michael J. Falcone 131,549 (2) 3.6%
Joseph M. Lobozzo II 17,500 (3) **
Francis T. Lombardi 8,224 (2) **
Carl R. Reynolds 18,170 (2,4) **
H. Bruce Russell 7,500 (2) **
James D. Ryan 7,998 (2,5) **
Linda Cornell Weinstein 31,852 (6) **
Donald R. Aldred 31,107 (7) **
Robert B. Bantle 31,289 (7) **
Stacy C. Campbell 30,551 (7) **
Robert E. Gilbert 30,920 (7) **
All directors and executive
officers as a group (13 persons) 484,580 (8) 12.4%
* The address of each Director and Named Officer is c/o FNB Rochester Corp., 35
State Street, Rochester, New York 14614.
** Less than 1%.
(1) Includes options to purchase 106,050 common shares that are exercisable
within 60 days.
(2) Includes options to purchase 2,500 common shares that are exercisable within
60 days.
(3) Includes 14,500 shares held by Mr. Lobozzo's spouse, with Mr. Lobozzo
sharing investment power.
(4) Held jointly with Mr. Reynolds' spouse.
(5) Includes 3,499 shares held by Mr. Ryan's spouse.
(6)Includes 14,852 shares held by the Cornell/Weinstein Family Foundation, as to
which shares Ms. Weinstein has shared voting and investment power, and 5,000
shares held by Ms. Weinstein's spouse.
(7) Includes options to purchase 28,825 common shares that are exercisable
within 60 days.
(8) Except as otherwise indicated above, members of the group have sole voting
and investment power with respect to such shares. Includes options exercisable
within 60 days to purchase 257,675 shares.
Item 13. Certain Relationships and Related Transactions
The Bank leases the Henrietta Community Banking Office (South Town Plaza), at an
annual rental of $100,667, from a partnership that includes a member of the
immediate family of William A. Levine, who beneficially owns more than 5% of the
Company's outstanding common stock. This lease terminates on January 31, 2016.
The lease is believed to be on comparable terms to agreements for similar space
similarly situated, and the space is adequate for the Company's needs.
The Bank has from time to time made and has outstanding loans to executive
officers, directors and shareholders owning in excess of 5% of the outstanding
shares of the Company, and entities related to such persons, which loans (a)
were made in the ordinary course of business, (b) were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and (c) did not involve
more than the normal risk of collectibility or present other unfavorable
features. It is anticipated that the Bank will continue to make such loans from
time to time in the future.
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, as indicated below, are filed as
a part of this report at Item 8:
- Independent Auditors' Report.......................................Page 34
- Consolidated Statements of Financial Condition as of
December 31, 1998 and 1997.........................................Page 35
- Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996..................................Page 36
- Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the Years Ended December 31, 1998, 1997, and 1996..............Page 38
- Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996 .................................Page 39
- Notes to Consolidated Financial Statements.........................Page 41
(2.0) Schedules
Schedules are omitted because of the absence of conditions under which they are
required or because the required information is provided in the consolidated
financial statements or notes thereto.
(3.0) Exhibits
Exhibit incorporation by
by Reference or page in
sequential numbering where
exhibit may be found:
(2.1) Agreement and Plan of Reorganization, Exhibit 2.1 to Form 8-K filed
dated as of December 9, 1998, among FNB December 17, 1998
Rochester Corp., M&T Bank Corporation
and Olympia Financial Corp.
(3.1) Certificate of Incorporation, of the Exhibits 4.2-4.5 to Registration
Registrant, as amended Statement No.33-7244, filed
July 22, 1986
(3.2) Amendment to Certificate of Exhibit 3 to Form 10-Q for period
Incorporation of Registrant dated ended June 30, 1992
August 6, 1992
(3.3) By-laws of the Registrant, as Exhibit 3.3 to Annual Report on
amended Form 10-K for the year ended
December 31, 1992
(10.1) 1992 Stock Option Plan (as amended Appendix to Proxy Statement dated
May 19, 1998)* April 15, 1998 for Annual Meeting
of Shareholders held May 19, 1998
(10.2) 1995 Non-employee Director Stock Exhibit 10.2 to Annual Report on
Option Plan* Form 10-K for the year ended
December 31, 1997
(10.3) Employment Agreement dated June Exhibit 1 to Form 8-K filed
8, 1992 between the Registrant and R. June 23, 1992
Carlos Carballada*
(10.4) Extension of Employment Exhibit 10.1 to Form 10-Q for
Agreement between the Registrant and R. period ended June 30, 1996
Carlos Carballada*
(10.5) Change of Control Employment Exhibit 10.4 to Annual Report on
Agreement among the Registrant, Form 10-K for the year ended
First National and R. Carlos Carballada* December 31, 1995
(10.6) Form of Change of Control Exhibit 10.5 to Annual Report on
Employment Agreement between First Form 10-K for the year ended
National and each Executive Officer December 31, 1995
other than R. Carlos Carballada*
(10.7) Forms of Stock Option Agreements Exhibit 4.2 to Form S-8
pursuant to 1992 Stock Option Plan between Registration Statement No.
the Registrant and each Executive Officer* 333-66413, filed October 30, 1998
(10.8) Form of Stock Option Agreement Exhibit 4.4 to Form S-8
pursuant to 1995 Non-employee Director Registration Statement No.
Stock Option Plan between the Registrant 333-15325, filed November 1,1996
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 agreement between First Page 83
National and Pyramid Sherlyle Co., related
to Michael J. Falcone
(10.12) Loan agreements between First Exhibit 10.19 to Form 8 filed
National and Carl R. Reynolds April 22, 1992
(10.13) Commercial Line of Credit Exhibit 10.17 to Annual Report on
Form agreements between First 10-K for year ended December 31,
National and JML Optical Industries, 1993
Inc., related to Joseph M. Lobozzo II
(10.14) Lease Agreement between Exhibit 10.2 to Form 10-Q for period
Southtown Plaza Associates, related to ended June 30, 1995
William Levine, and First National
(10.15) Commercial Line of Credit Exhibit 10.3 to Form 10-Q for
Agreement between GLC Outsourcing period ended September 30, 1995
Services, Inc., related to James D. Ryan,
and First National
(10.16) Commercial Loan Agreements Exhibit 10.26 to Annual Report
Form 10- between Fred Kravetz on Form 10-K for year ended
and William Levine Partners, December 31, 1996
related to William Levine, and First
National
(10.17) Commercial Line of Credit Exhibit 10.1 to Form 10-Q for
Agreement between First National and period ended September 30, 1998
James D. Ryan
(10.18) Commercial Loan Agreement Page 106
between First National and Powder Mill
Land Company, related to James D. Ryan
(10.19) Stock Option Agreement, dated Exhibit 10.1 to Form 8-K filed
as of December 9, 1998, between FNB December 17, 1998
Rochester 1998 Corp. and M&T Bank
Corporation
(10.20) Form of Voting Agreement, dated as Exhibit 99.1 to Form 8-K filed
of December 9, 1998, between each director December 17, 1998
of FNB Rochester Corp. and M&T Bank
Corporation
(21) Subsidiaries Page 124
(23) Consent of KPMG LLP Page 125
(27) Financial Data Schedule Page 126
* 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:
A Current Report on Form 8-K was filed on December 17, 1998 to disclose that an
Agreement and Plan of Reorganization dated as of December 9, 1998 had been
entered into among the Company, M&T Bank Corporation, a New York corporation
("M&T") and Olympia Financial Corp., a Delaware corporation and wholly-owned
subsidiary of M&T ("Olympia") pursuant to which the Company will be merged with
and into Olympia pursuant to the terms of an Agreement and Plan of Merger dated
as of December 9, 1998 between the Company and Olympia and joined in by M&T. The
proposed merger is subject to various conditions, including the approval of the
shareholders of the Company and the receipt of all requisite regulatory
approvals.
<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 23, 1999 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 23, 1999
Executive Officer
s/ R. Carlos Carballada
_______________________
R. Carlos Carballada)
(ii) Principal Accounting and Senior Vice President and March 23, 1999
Financial Officer: Chief Financial Officer
s/ Stacy C. Campbell
_____________________
(Stacy C. Campbell)
(iii) Directors:
s/ R. Carlos Carballada
_______________________ Director March 23, 1999
(R. Carlos Carballada)
____________________ Director March __, 1999
(Michael J. Falcone)
s/ Joseph M. Lobozzo II
_______________________ Director March 23, 1999
(Joseph M. Lobozzo II)
s/ Francis T. Lombardi
______________________ Director March 23, 1999
(Francis T. Lombardi)
s/ Carl R. Reynolds Director March 23, 1999
______________________
(Carl R. Reynolds)
s/ James D. Ryan
______________________ Director March 23, 1999
(James D. Ryan)
s/ H. Bruce Russell
_____________________ Director March 23, 1999
(H. Bruce Russell)
s/ Linda Cornell Weinstein
___________________________ Director March 23, 1999
(Linda Cornell Weinstein)
<PAGE>
INDEX OF EXHIBITS
Exhibit Incorporation by Reference or page
in sequential numbering where
exhibit may be found:
(2.1) Agreement and Plan of Reorganization, Exhibit 2.1 to Form 8-K filed
dated as of December 9, 1998, among FNB December 17, 1998
Rochester 1998 Corp., M&T Bank
Corporation and Olympia Financial Corp.
(3.1) Certificate of Incorporation, Exhibits 4.2-4.5 to Registration
of the Registrant, as amended Statement No. 33-7244, filed July
22, 1986
(3.2) Amendment to Certificate Exhibit 3 to Form 10-Q for period
of Incorporation of Registrant ended June 30, 1992
dated August 6, 1992
(3.3) By-laws of the Registrant, Exhibit 3.3 to Annual Report on
as amended Form 10-K for the year ended
December 31, 1992
(10.1) 1992 Stock Option Plan Appendix to Proxy Statement dated
(as amended May 19, 1998) April 15, 1998 for Annual Meeting
of Shareholders held May 19, 1998
(10.2) 1995 Non-employee Director Exhibit 10.2 to Annual Report on
Stock Option Plan Form 10-K for the year ended
December 31, 1997
(10.3) Employment Agreement dated Exhibit 1 to Form 8-K filed
June 8, 1992 between the Registrant June 23, 1992
and R. Carlos Carballada
(10.4) Extension of Employment Agreement Exhibit 10.1 to Form 10-Q for
between the Registrant and R. Carlos period ended 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
National and R. Carlos Carballada December 31, 1995
(10.6) Form of Change of Control Exhibit 10.5 to Annual Report on
Employment Agreement between First Form 10-K for the year ended
National and each Executive Officer December 31, 1995
other than R. Carlos Carballada
(10.7) Forms of Stock Option Agreements Exhibit 4.2 to Form S-8
pursuant to 1992 Stock Option Plan between Registration Statement No.
the Registrant and each Executive Officer 333-66413, filed October 30, 1998
(10.8) Form of Stock Option Agreement Exhibit 4.4 to Form S-8
pursuant to 1995 Non-employee Director Registration Statement No.
Stock Option Plan between the Registrant 333-15325, filed November 1, 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 Page 83
National and Pyramid Sherlyle Co.,
related to Michael J.Falcone
(10.12) Loan agreements between Exhibit 10.19 to Form 8 filed
First National and Carl R. Reynolds April 22, 1992
(10.13) Line of Credit agreements Exhibit 10.17 to Annual Report on
between First National and JML Form 10-K for year ended December
Optical Industries, Inc., 31, 1993
related to Joseph M. Lobozzo II
(10.14) Lease Agreement between Exhibit 10.2 to Form 10-Q for
Southtown Plaza Associates, period ended June 30, 1995
related to William Levine, and First
National
(10.15) Commercial Line of Credit Exhibit 10.3 to Form 10-Q for
Agreement between GLC Outsourcing period ended September 30, 1995
Services, Inc., related to James D.
Ryan, and First National
(10.16) Commercial Loan Agreements Exhibit 10.26 to Annual Report on
between Fred Kravetz and William Form 10-K for year ended
Levine Partners, related December 31, 1996
to William Levine, and First National
(10.17) Commercial Line of Credit Exhibit 10.1 to Form 10-Q for
Agreement between First National period ended September 30, 1998
and James D. Ryan
(10.18) Commercial Loan Agreement between Page 106
First National and Powder Mill Land
Company, related to James D. Ryan
(10.19) Stock Option Agreement, Exhibit 10.1 to Form 8-K filed
dated as of December 9, 1998, December 17, 1998
Between FNB Rochester Corp.
and M&T Bank Corporation
(10.20) Form of Voting Agreement, Exhibit 99.1 to Form 8-K filed
dated as of December 9, 1998, between December 17, 1998
each director of FNB Rochester Corp.
and M&T Bank Corporation
(21) Subsidiaries Page 124
(23) Consent of KPMG LLP Page 125
(27) Financial Data Schedule Page 126
AMENDED AND RESTATED PROMISSORY NOTE
Principal Amount: $875,000.00 Syracuse, New York
September 16, 1998
BORROWER: PYRAMID SHERLYLE COMPANY
1010 James Street
Syracuse, New York 13203
BANK: FIRST NATIONAL BANK OF ROCHESTER
BANK'S ADDRESS: 35 State Street, Rochester, New York 14614
INTEREST RATE: The interest rate per annum for the initial sixty (60) months
shall be equal to seven and one half percent (7.50%). The interest rate per
annum for the next sixty (60) months shall be equal to the weekly average of
United States Treasury securities adjusted to a constant maturity of five (5)
years plus two hundred (200) basis points as published by the United States
Federal Reserve Board for the week immediately prior to the fifth (5th)
anniversary of the date of this Note. The Principal Amount is being amortized
over a twenty (20) year period beginning on October 1, 1998.
PAYMENT SCHEDULE: This Note shall be due and payable in one hundred twenty (120)
monthly installments of principal and interest combined, the initial sixty (60)
payments to be equal monthly installments of principal and interest of Seven
Thousand Forty Eight and 94/100 Dollars ($7,048.94), the next fifty nine (59)
installments to be in an amount to be determined in accordance with the
foregoing paragraph and a final installment of all remaining principal plus all
accrued and unpaid interest, commencing on November 1, 1998 and continuing on
the same day of each successive month until payment in full. There shall be a
payment of interest only on October 1, 1998 for the period from the date of this
Note through and including September 30, 1998. This Note may be prepaid, in
whole or in part at any time, but each prepayment must be accompanied by
prepayment charges computed as follows: if prepayment is made prior to the first
anniversary of the date of this Note, Borrower shall pay Bank a prepayment
charge equal to five percent (5.0%) of the principal amount prepaid. If
prepayment is made after the first, but before the second, anniversary date of
this Note, Borrower shall pay Bank a prepayment charge equal to four percent
(4.0%) of the principal amount prepaid. If prepayment is made after the second,
but before the third, anniversary date of this Note, Borrower shall pay Bank a
prepayment charge equal to three percent (3.0%) of the principal amount prepaid.
If prepayment is made after the third, but before the fourth, anniversary date
of this Note, Borrower shall pay Bank a prepayment charge equal to two percent
(2.0%) of the principal amount prepaid. If prepayment is made after the fourth
anniversary date of this Note and before July 1, 2008, Borrower shall pay Bank a
prepayment charge equal to one percent (1.0%) of the principal amount prepaid.
NONRECOURSE OBLIGATION: Borrower shall not be liable for the payment of amounts
payable under this Note. The sole recourse of the holder of this Note for the
collection of such amounts shall be against the property covered by the Mortgage
securing this Note and against any other collateral held by the holder as
security for this Note; provided, however, that nothing herein contained shall
be construed to release or impair the indebtedness evidenced by this Note or the
lien of the Mortgage securing this Note. Notwithstanding the foregoing, Borrower
shall be liable to Bank for any loss or damage incurred by Bank resulting from
(i) Borrower's misappropriating any insurance condemnation proceeds or awards;
(ii) Borrower's failing to turn over rents collected by Borrower following an
event of default and an acceleration of the indebtedness evidenced by this Note
to a receiver of rents appointed by a court on behalf of the Bank; (iii)
Borrower's failing to comply with the provisions of the Mortgage or other loan
documents relating to hazardous or toxic substances; (iv) there being any fraud
or material misrepresentations by Borrower made in connection with the Bank's
loan to Borrower; or (v) Borrower's failing, following an event of default and
an acceleration of the indebtedness under the Note, to deliver to the Bank or a
court appointed receiver of rents, on demand, all security deposits relating to
the property covered by the Mortgage securing this Note.
1. Promise to Pay. FOR VALUE RECEIVED, the Borrower (jointly and severally if
more than one) promises to pay to the order of the Bank, the Principal Amount;
together with interest in accordance with the Payment Schedule and at the
Interest Rate on the unpaid principal balance hereof from time to time
outstanding. Notwithstanding the foregoing, from and after maturity (including
any accelerated maturity), all principal and other amounts outstanding and
payable under this Note shall bear interest at the rate of three percent (3.0%)
per annum above the rate in effect at the time of acceleration or maturity. All
interest payable hereunder shall be computed on the basis of the actual number
of days elapsed using a three hundred sixty (360) day year.
2. Payment Provisions. All sums payable hereunder are payable in lawful money of
the United States of America and in immediately available funds at the Bank's
Address or at such place or places as the Bank, its successors or assigns
(collectively, the "Holder"), may designate in writing. If this Note or any
payment hereunder becomes due on a Saturday, Sunday or other holiday on which
the Bank is authorized to close, the due date of this Note or payment shall be
extended to the next succeeding business day, but any interest or fees shall be
calculated based on the actual time of payment.
3. Incorporation of Mortgage. This Note is the Note referred to in, and is
entitled to the benefits of, the Mortgage Modification and Extension Agreement
("Mortgage") by and between the parties of even date herewith which, among other
things, contains provisions (i) for the acceleration of the maturity hereof upon
the happening of certain stated events (individually and collectively in the
Mortgage and in this Note, an "Event of Default"), and also (iii) for prepayment
on account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.
4. Late Fees. If the entire amount of any principal and/or interest is not paid
in full within ten (10) days after the same is due, the Borrower shall pay to
the Bank a late fee equal to six percent (6.0%) of the required payment or Fifty
and 00/100 Dollars ($50.00), whichever is greater.
5. Fees and Expenses. The Borrower will pay all expenses incurred by the Holder
in connection with the enforcement of the rights of the Holder in connection
with this Note and the Mortgage, including, but not limited to, the reasonable
fees of its counsel, plus the disbursements of said counsel.
6. Waiver. The Borrower expressly waives presentment, notice of dishonor,
protest and notice of non-payment.
7. Joint and Several Obligations. If this Note is signed by more than one
Borrower, all obligations of the Borrower are their joint and several
obligations.
8. Choice of Law. This Note shall be construed in accordance with and governed
by the local laws (excluding the conflict of laws rules, so-called) of the State
of New York.
PYRAMID SHERLYLE COMPANY
By: Sherlyle Properties Company
By: S/ Sherwood Finn
________________
Sherwood Finn, Partner
<PAGE>
MORTGAGE MODIFICATION
AND EXTENSION AGREEMENT
THIS MORTGAGE AGREEMENT ("Mortgage") is made September 16, 1998, by and between
PYRAMID SHERLYLE COMPANY, a New York partnership with a place of business at
1010 James Street, Syracuse, New York 13202 ("Mortgagor"), and FIRST NATIONAL
BANK OF ROCHESTER, a national banking association organized under the laws of
the United States of America with offices at 35 State Street, Rochester, New
York 14614 ("Mortgagee").
WITNESSETH:
WHEREAS, Pyramid Sherlyle Company is the owner of premises located in
the County of Onondaga and State of New York, as more particularly described in
attached Exhibit "A" (the "Premises"); and
WHEREAS, the Premises are encumbered by the lien of a certain Mortgage
(hereinafter referred to as the "Existing Mortgage"), as more particularly set
forth in attached Exhibit "B"; and
WHEREAS, the Existing Mortgage has been assigned to the Mortgagee; and
WHEREAS, the parties hereto agree that there is due and owing on the
promissory note secured by the Existing Mortgage an aggregate principal balance
of Nine Hundred Forty Thousand Four Hundred Fifty Two and 53/100 Dollars
($940,452.53) (the "Existing Note") with interest from the date hereof as
hereinafter provided without offset or defense; and
WHEREAS, the Mortgagor and the Mortgagee each desire to modify and
extend the terms of the Existing Mortgage in accordance with the terms,
covenants and conditions contained in this Mortgage in order to secure repayment
of the indebtedness evidenced by that certain promissory note of even date
herewith in the principal sum of Eight Hundred Seventy Five Thousand and 00/100
Dollars ($875,000.00), a true copy of which is attached hereto as Exhibit "C"
(which note, together with any and all modifications, amendments, replacements,
substitutions, extensions, renewals, consolidations and refundings thereof, is
collectively referred to herein as the "Amended and Restated Note").
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and intending to be legally bound hereby, the parties agree as follows:
1. MODIFICATION
1.1 Amount Due. There is due and owing on the date hereof, without
offset or defense, an aggregate unpaid principal balance of Nine Hundred Forty
Thousand Four Hundred Fifty Two and 53/100 Dollars ($940,452.53). Subsequent to
modification of the Existing Note, there will be due and owing on the date
hereof, without offset or defense, an aggregate unpaid principal balance of
Eight Hundred Seventy Five Thousand and 00/100 Dollars ($875,000.00) pursuant to
the Amended and Restated Note.
1.2 Granting Clause. This Mortgage shall constitute a lien on all of
the following described premises (collectively hereinafter referred to as the
"Mortgaged Premises"), whether now owned or held or hereafter acquired:
(a) all that certain plot, piece or parcel of land, with the buildings
and improvements thereon erected, situate, lying and being in the County of
Onondaga, and State of New York being more particularly described on Exhibit "A"
annexed (the "Premises").
(b) all of the Mortgagor's right, title and interest in any and all
buildings and improvements now or hereafter erected on the Premises
(collectively, the "Improvements"), and all machinery, apparatus, equipment,
appliances, floor coverings, furniture, furnishings, supplies, materials,
fittings and fixtures of every kind and nature whatsoever, now or hereafter
located in or upon, affixed to or intended for use in or upon the Premises
(whether stored thereon or elsewhere), or any part thereof, now owned or
hereafter acquired by Mortgagor, and used or usable in connection with any
present or future operation or maintenance of the Premises, and all replacements
thereof, including, but without limiting the generality of the foregoing, all
heating, lighting, ventilating and power equipment, pipes, ducts, pumps, tanks,
compressors, engines, motors, conduits, plumbing and cleaning equipment,
fire-extinguishing systems, refrigerating and ventilating apparatus, air-cooling
and air conditioning apparatus, gas, water and electrical equipment, elevators,
escalators, attached cabinets, shelving, partitions, carpeting, communications
equipment and all of the right, title and interest of the Mortgagor in and to
any equipment which may be subject to any title retention or security agreement
superior in lien to the lien of this Security Agreement (collectively, the
"Equipment");
(c) all right and title of the Mortgagor in and to strips and gores of
lands adjacent to or adjoining the Premises;
(d) all appurtenant rights and easements, rights of way, and other
rights used in connection with the Premises and/or the buildings and
improvements erected thereon or to provide a means of access thereto or to
provide utility service thereto, privileges, franchises, development, air and
other rights and appendages now or in the future belonging to or in any way
appertaining to the Premises, including without limitation, streets, alleys,
water rights, mineral rights and all tenements, servitudes, hereditaments and
appurtenances thereof and thereto pertaining or belonging, and all underground
and overhead passageways and licenses in connection therewith;
(e) all right, title and interest of the Mortgagor in and to the land
lying in the streets and roads in front of and adjoining the Premises;
(f) all insurance and condemnation proceeds, and the right to receive
the same, and any and all awards or payments, including interest thereon, and
the right to receive the same, which may be made with respect to the Mortgaged
Premises as a result of (i) the alteration of the grade of any street, or (ii)
any other injury to or decrease in the value of the Mortgaged Premises;
(g) all present and future leases, income, rents, issues, profits and
revenues of the Mortgaged Premises from time to time accruing (including without
limitation, all payments under leases or tenancies) and all right, title and
interest of the Mortgagor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether such cash or securities are to be held until the
expiration of the terms of such leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of such
terms, including, further, the right upon the happening of an Event of Default
(as hereinafter defined), to receive and collect the rents thereunder;
(h) the right, title and interest of Mortgagor in, to and under all
agreements, if any, including the proceeds from time to time payable thereunder,
now or hereafter entered into for the sale and purchase of the Premises;
(i) any deposits or other sums at any time credited by or due from the
Mortgagee to the Mortgagor, and any securities or property of the Mortgagor
which at any time are in the possession of Mortgagee may at all times be held
and treated as security for the payment of the Indebtedness hereunder. The
Mortgagee may apply or set off such deposits, sums, securities or property
against the Indebtedness after the occurrence of an Event of Default;
(j) to the extent assignable, any and all plans, specifications,
drawings, renderings and schematics, from time to time prepared for use in
connection with the construction of the Premises;
(k) to the extent assignable, all contracts and agreements now or
hereafter entered into, relating to or involving the performance of any work,
rendering of any services, the supply of any materials or the conduct of
operations in the management of Premises including, without limitation,
construction contracts, architect agreements, management agreements, options and
other agreements, affecting the Premises;
(l) to the extent assignable, any and all permits, licenses,
certificates, approvals, and authorizations, for theoperation and use of the
Premises, including, without limitation, building permits, environmental
certificates, certificates of operation, warranties and guarantees; and
(m) all other title, estates, interests or rights of the Mortgagor in
the Premises, whether now existing or hereafter acquired, and the Mortgagor
expressly covenants and agrees that the lien of this Mortgage will attach,
extend to, cover and be a lien on any leasehold, fee simple or other estate,
however acquired in connection with the Premises or the Improvements.
TO HAVE AND TO HOLD unto the Mortgagee, its successors and assigns
forever.
PROVIDED ALWAYS, that if Mortgagor shall pay in full the Indebtedness
according to the conditions and agreements of the Amended and Restated Note and
of this Mortgage and abide by and comply with each and every covenant and
agreement set forth herein, then this Mortgage and the estate hereby granted
shall cease, terminate, and become void.
1.3 Modification and Extension. The terms, provisions, covenants and
conditions set forth in the Existing Mortgage, are hereby modified and amended
so that the terms, provisions, covenants and conditions set forth in this
Mortgage and the Amended and Restated Note shall in all respects supersede the
terms, provisions, covenants and conditions of the Existing Mortgage, and the
obligations secured thereby.
2. REPRESENTATIONS OF THE MORTGAGOR
The Mortgagor represents and warrants to the Mortgagee as follows:
2.1 Title Warranties. The Mortgagor has good and marketable title to an
indefeasible fee estate in the Mortgaged Premises, subject to the exceptions to
title set forth in the title insurance policy insuring the lien of this
Mortgage. This Mortgage is and shall remain a valid and enforceable first lien
on the Mortgaged Premises. The Mortgagor will preserve such title, and will
forever warrant and defend the validity and priority of the lien hereof against
the claims of all persons and parties whomsoever. The Mortgagor will not
initiate, join in or consent to any change in any covenant, zoning ordinance,
easement, or other restriction, limiting or defining the uses which may be made
of the Mortgaged Premises, or any part thereof, without the Mortgagee's prior
written consent.
2.2 Power and Authority of Mortgagor. The Mortgagor has full power and
lawful authority to subject the Mortgaged Premises to the lien of this Mortgage
in the manner and form herein done or intended hereafter to be done. No consent
of any other person or entity and no consent, license, approval or authorization
of, exemption or registration or declaration is required by Mortgagor in
connection with the execution, delivery or performance of this Mortgage or any
portion thereof.
2.3 Permits for Operation of the Premises. The Mortgagor has all
necessary certificates, licenses, authorizations, registrations, permits and/or
approvals necessary for the use and operation of the Mortgaged Premises or any
part thereof or the commencement or continuance of construction thereon, as the
case may be, and the present and/or contemplated use and/or occupancy of the
Premises does not conflict with or violate any such certificate, license,
authorization, registration, permit and/or approval. The Premises are in full
compliance with all standards and requirements specified under or required by
Title III of the Americans With Disabilities Act of 1990 (the "ADA"), 42 U.S.C.
12101, et seq., including, but not limited to all applicable Accessibility
Guidelines and any other regulations promulgated thereunder.
3. COVENANTS OF THE MORTGAGOR
3.1 Payment of Indebtedness. Subject to the non-recourse provisions of
the Amended and Restated Note and this Mortgage, the Mortgagor will punctually
pay the Amended and Restated Note according to the terms thereof and will pay
all other sums now or hereafter secured hereby at the time and in the manner
provided under the Amended and Restated Note, this Mortgage, and any instrument
evidencing and/or securing the Indebtedness, and Mortgagor will otherwise
perform, comply with and abide by each and every of the stipulations,
agreements, conditions and covenants contained in the Amended and Restated Note
and this Mortgage.
3.2 Payment of Realty Taxes and Assessments. The Mortgagor, from time
to time when the same shall become due and payable, will pay and discharge all
taxes of every kind and nature, all general and special assessments, levies,
permits, inspection and license fees, all water and sewer rents and charges, and
all other public charges whether of a like or different nature, imposed upon or
assessed against the Mortgaged Premises or any part thereof or upon the
revenues, rents, issues, income and profits of the Mortgaged Premises or arising
in respect of the occupancy, use or possession thereof. The Mortgagor will, upon
the request of the Mortgagee, deliver to the Mortgagee, receipts evidencing the
payment of all such taxes, assessments, levies, fees, rents and other public
charges imposed upon or assessed against the Mortgaged Premises or the revenues,
rents, issues, income or profits thereof.
3.3 Mechanics Liens. The Mortgagor will pay, from time to time when the
same shall become due, all lawful claims and demands of mechanics, materialmen,
laborers and others which, if unpaid, might result in, or permit the creation
of, a lien on the Mortgaged Premises or any part thereof, or on the revenues,
rents, issues, income and profits arising therefrom and in general will do or
cause to be done, everything necessary so that the lien hereof shall be fully
preserved, at the cost of the Mortgagor, without expense to the Mortgagee.
3.4 Intentionally Omitted.
3.5 Insurance Requirements. The Mortgagor shall comply with all of the
following provisions with regard to insurance and related matters:
(a) Hazard Insurance. The Mortgagor shall keep the Improvements and the
Equipment insured against loss by fire, casualty and such other risks as may be
specified by and for the benefit of the Mortgagee with extended coverage
endorsement, in amounts sufficient to prevent Mortgagor or Mortgagee from
becoming a co-insurer of any partial loss under the applicable policies, but in
any event in amounts not less than the full replacement cost of the Improvements
to the Premises, without deduction for depreciation.
(b) Flood Insurance. If the Premises are located in an area which has
been identified by the Secretary of Housing and Urban Development as a flood
hazard area, the Mortgagor will keep the Improvements covered until the
repayment in full of all sums evidenced by the Amended and Restated Note by
flood insurance in an amount at least equal to the full amount of the Amended
and Restated Note or the maximum limit of coverage available for the Premises
under the National Flood Insurance Act of 1968, whichever is less.
(c) Business Interruption. Rent or business interruption insurance
against loss of income arising out of any hazard against which the Premises are
required to be insured hereunder, in an amount not less than reasonably
determined by Mortgagee.
(d) Regarding Policies. All such insurance shall be fully paid for by
the Mortgagor and shall be written in forms, amounts and by companies
satisfactory to the Mortgagee (Best's Rating of "A" or better) for the benefit
of the Mortgagee, and losses thereunder shall be payable to the Mortgagee
pursuant to a standard first mortgage endorsement substantially equivalent to
the New York standard mortgagee endorsement. All policies shall require at least
thirty (30) days prior written notice to Mortgagee before cancellation,
amendment, non-renewal or termination.
(e) Losses and Recoveries. All policy or policies of such insurance
shall be delivered to the Mortgagee. Mortgagor covenants and agrees that the
Mortgagee is hereby authorized and empowered, at its option, to adjust,
compromise or settle any loss under any insurance policies maintained pursuant
hereto, and to collect and receive the proceeds from any policy or policies.
Each insurance company is hereby authorized and directed to make payment for all
such losses directly to Mortgagee, instead of to Mortgagor and Mortgagee
jointly. In the event any insurance company fails to disburse directly and
solely to Mortgagee but disburses instead either solely to Mortgagor or to
Mortgagor and Mortgagee jointly, Mortgagor agrees immediately to endorse and
transfer such proceeds to Mortgagee. Upon the failure of Mortgagor to endorse
and transfer such proceeds as aforesaid, Mortgagee may execute such endorsements
or transfers for and in the name of Mortgagor, and Mortgagor hereby irrevocably
appoints Mortgagee at its agent and attorney in-fact to do so.
3.6 Condemnation. The Mortgagor, immediately upon obtaining knowledge
of the institution of any proceedings for the condemnation of the Mortgaged
Premises or any portion thereof, will notify the Mortgagee of the pendency of
such proceedings. The Mortgagee may participate in any such proceedings and the
Mortgagor from time to time will deliver to the Mortgagee all instruments
requested by it to permit such participation. All condemnation awards or
compensation payable in connection with condemnation of any portion of the
Mortgaged Premises is hereby assigned to and in the event of such condemnation
proceedings, shall be paid to the Mortgagee. The Mortgagee shall be under no
obligation to question the amount of any such award or compensation and may
accept the award in the amount in which the award shall be paid. In any such
condemnation proceedings, the Mortgagee may be represented by counsel selected
by the Mortgagee.
3.7 Application of Insurance Proceeds and Condemnation Awards. Provided
that Mortgagor is not then in default of its obligations under this Mortgage,
all proceeds of insurance and all proceeds of condemnation received in
connection with the Mortgaged Premises or any portion thereof, after the
deduction therefrom and repayment to the Mortgagee of any and all costs incurred
by the Mortgagee in the recovery thereof, including attorneys' fees, may be
applied by Mortgagor, at its sole option (i) to a prepayment of the
Indebtedness, whether or not due, or (ii) to the repair and/or restoration of
the Improvements, upon such conditions as Mortgagor may determine, all without
reducing or impairing the lien of this Mortgage or any obligations secured
hereby. Any balance of such proceeds then remaining shall be paid to Mortgagor
or the person or entity lawfully entitled thereto. Notwithstanding anything
herein to the contrary, Mortgagee shall not be obligated to see to the proper
application of any amount paid over to Mortgagor and shall not be held
responsible for any failure to collect any insurance proceeds due under the
terms of any policy or any condemnation awards, regardless of the cause of such
failure. If Mortgagor shall elect to apply such proceeds to any then unpaid
installments of the principal balance of the Amended and Restated Note in the
inverse order of their maturity, the regular payments, if any, under the Amended
and Restated Note shall not be reduced or altered in any manner. Any reduction
in the principal balance of the Indebtedness evidenced by the Amended and
Restated Note from the application insurance or condemnation proceeds shall be
without penalty.
3.8 Maintenance of Improvements. The Mortgagor will not threaten,
commit, permit or suffer to occur any waste on the Mortgaged Premises or make
any change in the use of the Mortgaged Premises which will in any way increase
any ordinary fire or other hazard arising out of construction or operation. The
Mortgagor will, at all times, maintain the Improvements in good operating order
and condition and will promptly make, from time to time, all repairs, renewals,
replacements, additions and improvements in connection therewith which are
necessary or desirable to such end. The Improvements shall not be removed,
demolished or substantially altered, nor shall any Equipment be removed, without
the prior written consent of the Mortgagee, except where appropriate
replacements of Equipment, free of superior title, liens and claims, are
immediately made of value at least equal to the value of the Equipment removed.
3.9 Compliance With Laws. The Mortgagor will promptly comply with all
regulations, rules, ordinances, statutes, orders and decrees of any governmental
authority or court applicable to the Mortgagor or the Mortgaged Premises or any
part thereof.
3.10 Escrow to Pay Realty Taxes and Insurance. If Mortgagor fails to
pay any installment of taxes or an insurance premium when due, the Mortgagee
shall require the deposit by the Mortgagor, at the time of each payment of any
installment of interest or principal under the Amended and Restated Note, of an
additional amount sufficient to discharge the obligations under Sections 3.2,
3.4 and 3.5 when they become due. The determination of the amount so payable and
of the fractional part thereof to be deposited with the Mortgagee, so that the
aggregate of such deposit shall be sufficient for this purpose, shall be made by
the Mortgagee in its sole discretion. Such amounts shall be held by the
Mortgagee without interest and applied to the payment of the obligations in
respect to which such amounts were deposited or, at the option of the Mortgagee,
to the payment of said obligations in such order or priority as the Mortgagee
shall determine, on or before the respective dates on which the same or any of
them would become delinquent. If one month prior to the due date of any of the
aforementioned obligations the amount then due on deposit therefor shall be
insufficient for the payment of such obligation in full, the Mortgagor, within
ten (10) days after demand, shall deposit the amount of the deficiency with the
Mortgagee. Nothing herein contained shall be deemed to affect any right or
remedy of the Mortgagee under any provisions of this Mortgage or of any statute
or rule of law to pay any such amount and to add the amount so paid together
with interest at the legal rate to the indebtedness hereby secured.
3.11 Financial Records. The Mortgagor will keep adequate records and
books of account in accordance with generally accepted accounting principles
consistently applied and will permit the Mortgagee, by its agents, accountants
and attorneys, to visit and inspect the Mortgaged Premises and examine its
records and books of account and make copies of same and to discuss its affairs,
finances and accounts with the officers of the Mortgagor, at such reasonable
times as may be required by the Mortgagee.
3.12 Financial Statements. The Mortgagor will deliver to the Mortgagee
compilation level financial statements in such form and detail as required by
Mortgagee within one hundred twenty (120) days after the end of Mortgagor's
fiscal year prepared by a certified public accountant and satisfactory to
Mortgagee. In addition, all guarantors of the Amended and Restated Note shall
annually provide to Mortgagee their fully executed, personal financial
statements in such form and detail as may be required by Mortgagee, together
with their fully executed, United States Personal Income Tax Returns, with all
schedules attached.
3.13 Estoppel Certificates. The Mortgagor, within three (3) days upon
request in person or within five (5) days upon request by mail, will furnish to
Mortgagee a written statement duly acknowledged of the amount due whether for
principal or interest on this Mortgage and whether any offsets of defenses exist
against the Mortgagee.
3.14 Real Property Law Sec. 291-f. The Mortgagor shall not, without the
prior written consent of the Mortgagee, accept prepayments of rents more than
one month in advance or modify, amend, extend, cancel or accept surrender of any
lease or sublease of the Mortgaged Premises. The agreement contained in this
Section has been made with reference to Section 291-f of the New York Real
Property Law.
3.15 Assignment of Rents. The Mortgagor hereby assigns to the Mortgagee
all of its right, title and interest to the rents, issues and profits of the
Mortgaged Premises as further security for the payment of the Indebtedness, and
the Mortgagor grants to the Mortgagee the right to enter upon and to take
possession of the Mortgaged Premises for the purpose of collecting the rents and
to let the Mortgaged Premises or any part of them, and to apply the sums, rents,
issues and profits, after payment of all necessary charges and expenses, on
account of the Indebtedness. This assignment and grant shall continue in effect
until all sums secured by this Mortgage are paid. The Mortgagee hereby waives
the right to enter upon and to take possession of the Mortgaged Premises for the
purpose of collecting those sums, rents, issues and profits, and the Mortgagor
shall be entitled to collect and receive those sums, rents, issues and profits
until an Event of Default (as defined in Section 5 hereof) shall occur, and
agrees to use those sums, rents, issues and profits in payment of principal and
interest becoming due on this Mortgage and in payment of taxes, assessments,
sewer rents, water rents and carrying charges becoming due against the Mortgaged
Premises, but that right of the Mortgagor may be revoked by the Mortgagee upon
an Event of Default. The Mortgagor will not, without the written consent of the
Mortgagee, receive or collect rent from any tenant of the Mortgaged Premises or
any part thereof for a period of more than one month in advance, and upon an
Event of Default under this Mortgage will pay monthly in advance to the
Mortgagee, or to any receiver appointed to collect those rents, issues and
profits, the fair and reasonable rental value for the use and occupation of the
Mortgaged Premises or of such part as may be in the possession of the Mortgagor,
and upon default in any such payment will vacate and surrender the possession of
the Mortgaged Premises to the Mortgagee or to such receiver, and in default of
that payment may be evicted by summary proceedings.
3.16 Effect of Sale or Transfer. The entire unpaid principal of the
Amended and Restated Note then outstanding (if not then due and payable) and all
accrued and unpaid interest thereon shall at the election of the Mortgagee
become due and payable immediately in the event of the sale, conveyance,
exchange, assignment or other transfer (whether by gift, bequest, operation of
law, merger, acquisition, consolidation or any other method or manner
whatsoever) (i) of the Mortgaged Premises or any portion thereof or interest
therein; or (ii) any of the Mortgaged Premises, rents, revenues, proceeds,
issues, profits or income stream of the Mortgaged Premises or any portion
thereof. For purposes of this Section, if the Mortgagor is a partnership or
corporation, a sale, transfer, or change in ownership percentage, of more than
fifty percent (50%) of the Partnership interests or stock, as the case may be,
shall be deemed a transfer. Notwithstanding the foregoing a sale, transfer, or
change in ownership percentage, of more than 50% of the partnership interests of
Mortgagor shall not be deemed a transfer violative of this paragraph if made by
reason of the death, disability or estate planning of any individual partner of
Mortgagor.
3.17 Environmental Matters.
(a) As used herein the term "Hazardous Substance" means any substance
(i) the presence of which requires investigation or remediation under any law;
or (ii) which is or becomes defined as a "hazardous waste", "hazardous
substance", "toxic substance, pollutant or contaminant" under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended (42 U.S.C.
section 9601 et seq.) and/or the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.) as amended and/or the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801 et seq.) and/or the Toxic
Substances Control Act, as amended (U.S.C. Section 2601, et seq.), and/or
Articles 15 or 27 of the New York State Environmental Conservation Law, or any
other applicable law or any regulations promulgated under any of the foregoing;
or (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of the United States, the State of New York or any
political subdivision thereof; or (iv) the presence of which on the Mortgaged
Premises causes or threatens to cause a nuisance upon the Mortgaged Premises or
to adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about the Mortgaged Premises; or (v) which contains
gasoline, diesel fuel or other petroleum hydrocarbons; or (vi) which contains
polychlorinated biphenols (PCBs), asbestos or urea formaldehyde foam insulation.
(b) The Mortgagor shall keep or cause the Mortgaged Premises to be kept
free of Hazardous Substances, except as permitted by this Section. The Mortgagor
shall comply with and ensure compliance by all tenants and subtenants with all
applicable federal, state and local laws, ordinances, rules and regulations, and
with administrative or consent orders issued by governmental agencies. The
Mortgagor shall promptly provide Mortgagee with a copy of all notifications
which it gives or receives relating to any past or present release or the threat
of any release of Hazardous Substances on or from the Mortgaged Premises or any
adjacent property. The Mortgagor shall conduct and complete all investigations
and testing, and all remedial, removal, and other actions necessary to clean up
and remove all Hazardous Substances, on, from, or affecting the Mortgaged
Premises (i) in accordance with all applicable federal, state and local laws,
ordinances, rules, regulations, and policies, and (ii) in accordance with the
orders and directives of all federal, state and local governmental authorities.
(c) The Mortgagor shall defend, indemnify, and hold harmless the
Mortgagee, its employees, agents, officers, and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs, or
expenses of whatever kind or nature, known or unknown, contingent or otherwise,
arising out of, or in any way related to, the presence, disposal, release, or
threatened release of any Hazardous Substances including, without limitation,
attorney and consultant fees, investigation and laboratory fees, court costs,
and litigation expenses. The provisions of this paragraph shall be in addition
to any and all other obligations and liabilities the Mortgagor may have to the
Mortgagee at common law or by separate agreement, and shall survive payment in
full of the Indebtedness, foreclosure of this Mortgage, or acceptance by
Mortgagee or its nominee of a deed in lieu of foreclosure.
3.18 Leases. The Mortgagor will not execute any lease (which term shall
also include subleases as the context may require) of any portion of the
Mortgaged Premises except with the prior written consent of the Mortgagee.
Mortgagor shall (i) fulfill or perform each and every material provision of any
lease or leases of the Mortgaged Premises on the part of Mortgagor to be
fulfilled or performed, (ii) promptly send to Mortgagee copies of all notices of
default which Mortgagor shall send or receive under such leases and (iii)
enforce the performance or observance of the material provisions of such leases
by the tenants thereunder.
3.19 Further Assurances. The Mortgagor will, at the cost of the
Mortgagor, and without expense to the Mortgagee, do, execute, acknowledge and
deliver all and every such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment, transfers and assures as the Mortgagee shall
from time to time require, for the better assuring, conveying, assigning,
transferring and confirming unto the Mortgagee the property and rights hereby
conveyed or assigned or intended now or hereafter so to be, or which the
Mortgagor may be or may hereafter become bound to convey or assign to the
Mortgagee, or for carrying out the intention or facilitating the performance of
the terms of this Mortgage, or for filing, registering or recording this
Mortgage and, on demand, will execute and deliver, and hereby authorizes the
Mortgagee to execute and file in the name of the Mortgagor, to the extent it may
lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments, to evidence more effectively the lien hereof
upon the Equipment.
3.20 Intentionally Omitted.
3.21 Advances to Cure Defaults. If the Mortgagor shall fail to perform
any of the covenants contained in this Mortgage involving the payment of money
within fifteen (15) days after notice and demand for payment thereof from
Mortgagee, Mortgagee may make advances to perform the same on its behalf, and
all sums so advanced shall be a lien upon the Mortgaged Premises and shall be
secured hereby. The Mortgagor will repay on demand all sums so advanced on its
behalf with interest at the rate provided in the Amended and Restated Note plus
300 basis points (3.0%) (the "Default Rate"). The provisions of this Section
shall not prevent any default in the observance of any covenant contained in any
of said sections from constituting an Event of Default.
3.22 Corporate Existence. The Mortgagor, if a corporation will, so long
as it is the owner of the Mortgaged Premises, do all things necessary to
preserve and keep in full force and effect, its existence, franchises, rights
and privileges as a business or stock corporation under the laws of the state of
its incorporation and the state where the property is located.
3.23 Liens. Except for Permitted Liens, Mortgagor will not create,
incur, assume or suffer to exist any lien or encumbrance on or with respect to
the Mortgaged Premises or any part thereof or Mortgagor's or Mortgagee's
interest therein or any income or profits arising therefrom, irrespective of
whether such lien or encumbrance is junior to the lien of this Mortgage. As used
herein, the term "Permitted Liens" shall mean:
(a) mechanics' liens or liens for real property taxes and assessments
either not delinquent or being contested in good faith and by appropriate
proceedings, provided, however, that the Mortgagor may in good faith contest
such liens or taxes only if (i) it shall have first notified Mortgagee of such
contest, (ii) no Event of Default under this Mortgage shall have occurred and be
continuing, and (iii) the Mortgage shall have set aside adequate reserves for
any such taxes or liens. If the Mortgagor demonstrates to the satisfaction of
the Mortgagee and certifies to the Mortgagee by delivery of a written
certificate that the nonpayment of any such items will not endanger the lien of
this Mortgage as to any part of the Mortgaged Premises or subject the Mortgaged
Premises or any part thereof to loss or forfeiture, the Mortgagor may permit
such liens or taxes so contested to remain unpaid during the period of such
contest and any appeal therefrom. Otherwise, such liens and taxes shall be paid
promptly by the Mortgagor or secured by the Mortgagor's posting a bond in form
and substance satisfactory to the Mortgagee.
(b) utility, access and other easements and rights of way that benefit
or do not materially impair the utility or the value of the Mortgaged Premises
affected thereby for the purposes for which it is intended.
(c) liens or encumbrances listed in any title insurance policy issued
to Mortgagee in connection with this Mortgage.
3.24 Expenses Incurred in Protecting or Enforcing Rights. If Mortgagee
shall incur or expend any sums, including reasonable attorneys' fees, to the
extent permitted by law, whether in connection with any action or proceeding or
not, to sustain the lien of this Mortgage or its priority, or to protect or
enforce any of its rights hereunder, or to recover any indebtedness hereby
secured, or for any title examination or title insurance policy relating to the
title to the Mortgaged Premises if obtained for any of the purposes described in
this paragraph, all such sums, to the extent permitted by law, shall on notice
and demand be paid or caused to be paid by Mortgagor, together with interest
thereon at the Default Rate and shall be a lien on the Mortgaged Premises, if
and to the extent permitted by applicable law, prior to any right of title to,
interest in or claim upon, the Mortgaged Premises subordinate to the lien of
this Mortgage, and shall be deemed to be part of the debt secured hereby.
4. SECURITY AGREEMENT
4.1 Grant of Security. This Mortgage shall, in addition to constituting
a mortgage, constitute a Security Agreement within the meaning of the Uniform
Commercial Code with respect to (a) all machinery, apparatus, equipment,
appliances, floor coverings, furniture, furnishings, supplies, materials,
fittings and fixtures of every kind and nature whatsoever, now or hereafter
located in or upon, affixed to or intended for use in or upon the Premises
(whether stored thereon or elsewhere), or any part thereof, now owned or
hereafter acquired by Mortgagor, and used or usable in connection with any
present or future operation or maintenance of the Premises, and all replacements
thereof, including, but without limiting the generality of the foregoing, all
heating, lighting, ventilating and power equipment, pipes, ducts, pumps, tanks,
compressors, engines, motors, conduits, plumbing and cleaning equipment,
fire-extinguishing systems, refrigerating and ventilating apparatus, air-cooling
and air conditioning apparatus, gas, water and electrical equipment, elevators,
escalators, attached cabinets, shelving, partitions, carpeting, communications
equipment and all of the right, title and interest of the Mortgagor in and to
any equipment which may be subject to any title retention or security agreement
superior in lien to the lien of this Security Agreement (collectively, the
"Equipment"), (b) if such property includes any instruments, all instrument
collateral, (c) the proceeds, products and accessions thereof and thereto, (d)
all replacements and substitutions therefor, and (e) to the extent not otherwise
included, all records (including but not limited to records maintained on
computer software) of debtor evidencing or otherwise relating to the things
referred to in this sentence (subsections "a", "b", "c", "d" and "e" shall,
collectively, be referred to as the "Collateral"). The Mortgagor hereby grants
the Mortgagee a security interest in and to the Collateral for the benefit of
the Mortgagee to secure the payment of the Indebtedness. Mortgagor will not sell
or offer to sell or otherwise transfer the Collateral or any interest in it nor
remove the Collateral from the State of New York.
4.2 Financing Statements. No financing statement executed by Mortgagor
covering the Equipment or any part of it or any proceeds from it is on file in
any public office, and at the request of Mortgagee the Mortgagor will join with
Mortgagee in executing one or more financing statements in a form satisfactory
to Mortgagee and will pay the costs of filing same in all public offices
wherever filing is considered by Mortgagee to be necessary or desirable. In
addition, Mortgagor hereby authorizes Mortgagee (as Secured Party) to file
without the signature of the Mortgagor, one or more financing statements in all
public offices wherever Mortgagee considers filing to be necessary or desirable
and Mortgagor will pay such filing costs.
4.3 Multiple Remedies. Upon the occurrence of an Event of Default as
defined in Section 5, Mortgagee shall have the rights and remedies provided by
the applicable laws, including, but not limited to, the New York Uniform
Commercial Code and this Mortgage; the right to enter on the Mortgaged Premises
or any other place or places where the Equipment or any part of it may be; the
right to take possession of the Equipment with or without demand or with or
without process of law, using whatever force may be necessary, including
forcible entry of the building in which the Equipment or any part of it may be
found or located; and the right to sell and dispose of the Equipment and
distribute the proceeds according to law. All requirements of reasonable notice
shall be met if Mortgagee sends notice to Mortgagor at least five (5) days prior
to the date of sale, disposition or other event giving rise to the required
notice. Public sale of the Equipment by auction conducted in any county in which
the Equipment was repossessed or in which the Premises are located, after
advertisement of the time and place of the sale in a newspaper circulated in the
county, city or village in which the sale is to be held, shall be considered to
be a commercially reasonable disposition of the Equipment. Mortgagee may bid at
any sale held pursuant to these provisions after the occurrence of an Event of
Default. At the request of Mortgagee, the Mortgagor shall assemble the Equipment
and make it available to the Mortgagee upon the Mortgaged Premises at such time
as Mortgagee reasonably may specify. Mortgagee may sell the Equipment or any
part of it at any private sale.
Notwithstanding anything contained herein to the contrary, upon the
occurrence of an Event of Default hereunder, Mortgagee shall have the option of
proceeding as to both real and personal property in accordance with its rights
and remedies in respect of the real property, in which event the default
provisions of the Uniform Commercial Code shall not apply.
4.4 Expenses of Disposition of Equipment. The Mortgagor shall reimburse
the Mortgagee, on demand, for all reasonable expenses of retaking, holding,
preparing for sale, lease or other use or disposition, selling, leasing or
otherwise using or disposing of the Equipment which are incurred or paid by the
Mortgagee, including, without limitation, all attorneys' fees, legal expenses
and costs, and all such expenses shall be added to the Mortgagor's obligations
to the Mortgagee and shall be secured hereby.
5. EVENTS OF DEFAULT
Each and every one of the following constitutes an Event of Default
under this Mortgage:
5.1 Monetary Defaults. Failure by Mortgagor to pay (i) any installment
of principal or interest under the Amended and Restated Note or other
indebtedness secured by this Mortgage or any other sum that may be due and
payable under this Mortgage or any instrument secured hereby, within fifteen
(15) days from the date when due and payable.
5.2 Defaults In Other Covenants. Failure by Mortgagor duly to observe
or perform any other covenant or condition on the part of the Mortgagor in the
Amended and Restated Note, or in this Mortgage contained, and such default shall
have continued for a period of thirty (30) days after the Mortgagor has actual
knowledge (including, but not limited to, any written notice from Mortgagee) of
such default. If the default cannot reasonably be cured within the thirty (30)
day period Mortgagor shall not be in default provided Mortgagor commences to
cure the default within the thirty (30) day period and diligently and in good
faith continues to cure the default.
5.3 Appointment of Receiver. The appointment, by the order of a court
of competent jurisdiction, of a trustee, receiver (except pursuant to Section
6.12 hereof) or liquidator of the Mortgaged Premises or any part thereof, or of
the Mortgagor, and such order shall not be discharged or dismissed within sixty
(60) days after such appointment.
5.4 Voluntary Bankruptcy. The filing by the Mortgagor of a petition in
bankruptcy or for reorganization of the Mortgagor pursuant to the Federal
Bankruptcy Code or any similar law, federal or state, or the Mortgagor's making
an assignment for the benefit of the creditors, or admitting in writing its
inability to pay its debts generally as they become due, or consenting to the
appointment of a receiver or receivers of all or any part of its property.
5.5 Involuntary Bankruptcy. The filing by any of the creditors of the
Mortgagor of a petition in bankruptcy against the Mortgagor or for
reorganization of the Mortgagor pursuant to the Federal Bankruptcy Code or any
similar law, federal or state, and such petition shall not be discharged or
dismissed within sixty (60) days after the date on which the petition was filed.
5.6 Monetary Judgments and Tax Liens. The rendering of final judgment
for the payment of money, against the Mortgagor, or the filing of any tax lien
against the Premises, and the Mortgagor shall not discharge the same or cause it
to be discharged within sixty (60) days from the entry thereof, or shall not
appeal therefrom or from the order, decree or process upon which or pursuant to
which said judgment was granted, based or entered, and secure a stay of
execution pending such appeal.
5.7 Adjudication of Bankruptcy. The adjudication or declaration, by
decree of a court of competent jurisdiction, that the Mortgagor is a bankrupt or
insolvent.
5.8 Matters Involving any Guarantor. Any of the events described in
Sections 5.4, 5.5, 5.6 or 5.7 shall happen to any Guarantor or to the property
of any Guarantor.
5.9 Illegality of Obligation to Pay Certain Taxes. It shall be or
become illegal for the Mortgagor to pay any tax referred to in Section 3.4
hereof or the payment of such tax by the Mortgagor would result in the violation
of the usury laws of the state in which the Premises are located.
5.10 Intentionally Omitted.
5.11 Intentionally Omitted.
5.12 Other Security Interest or Encumbrance. The creation or sufferance
by the Mortgagor of an assignment, mortgage or other security interest or
encumbrance in any manner of its interest in the whole or any part of the
Mortgaged Premises or of the Improvements or of the rents, revenues, proceeds,
issues and profits of any part thereof or the income stream therefrom (other
than such other assignments, mortgages, security interests or encumbrances as
may be held by the Mortgagee), in each case without the prior written consent of
the Mortgagee.
5.13 Untrue Representations and Warranties. Should any representation
or warranty made by the Mortgagor in this Mortgage prove to be materially
untrue.
6. REMEDIES OF MORTGAGEE
6.1 Acceleration of Debt. During the continuance of any Event of
Default, the Mortgagee, by written notice given to the Mortgagor, may declare
the entire Indebtedness (including, but not limited to, the Amended and Restated
Note) then outstanding (if not then due and payable), and all accrued and unpaid
interest thereon, to be due and payable immediately, and upon any such
declaration, the Indebtedness accrued and unpaid interest thereon shall become
and be immediately due and payable, anything in the Amended and Restated Note or
in this Mortgage to the contrary notwithstanding.
6.2 Entry to Premises. To the extent permitted by law, during the
continuance of any Event of Default, the Mortgagee personally, or by its agents
or attorneys, may enter into and upon all or any part of the Mortgaged Premises,
and each and every part thereof, and may exclude the Mortgagor, its agents and
servants wholly therefrom; and having and holding the same, may use, operate,
manage and control the Mortgaged Premises and conduct the business thereof,
either personally or by its superintendents, managers, agents, servants,
attorneys or receivers.
6.3 Maintenance and Management. Following any entry contemplated by
Section 6.2 or any other entry by Mortgagee following an Event of Default, the
Mortgagee, at the expense of the Mortgagor, from time to time, either by
purchase, repairs or construction, may maintain and restore the Mortgaged
Premises, whereof it shall become possessed as aforesaid; and likewise, from
time to time, at the expense of the Mortgagor, the Mortgagee may make all
necessary or proper repairs, renewals and replacements and such useful
alterations, additions, betterments and improvements thereto and thereon as to
it may seem advisable and may complete the construction of the Improvements and
in the course of such completion may make such changes in the contemplated
Improvements as it may deem desirable and may insure same; and in every such
case the Mortgagee shall have the right to manage and operate the Mortgaged
Premises and to carry on the business thereof and exercise all rights and powers
of the Mortgagor with respect thereto either in the name of the Mortgagor or
otherwise as it shall deem best.
6.4 Rents, Issues, Profits, Etc. Following the occurrence of any Event
of Default, the Mortgagee shall be entitled to collect and receive all earnings,
revenues, rents, issues, profits and income of the Mortgaged Premises and every
part thereof, all of which shall for all purposes constitute property of the
Mortgagee; and, after deducting the expenses of conducting the business thereof
and of all maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements and amounts necessary to pay for taxes,
assessments, insurance and prior or other proper charges upon the Mortgaged
Premises or any part thereof, as well as just and reasonable compensation for
the services of the Mortgagee and for all attorneys, counsel, agents, clerks,
servants and other employees by it properly engaged and employed, the Mortgagee
shall apply the balance of the moneys arising as aforesaid as provided in
Section 6.11 hereof.
6.5 Foreclosure. Following the occurrence of any Event of Default, the
Mortgagee may institute proceedings for the complete or partial foreclosure of
this Mortgage. Mortgagor waives all rights, legal and equitable, it may now or
hereafter have to require marshaling of assets or to require upon foreclosure
the sale of assets in a particular order.
6.6 Other Actions or Proceedings. Following the occurrence of any Event
of Default, the Mortgagee may, personally or by its agents or attorneys insofar
as may be applicable, take such steps to protect and enforce its rights whether
by action, suit or proceeding in equity or at law for the specific performance
of any covenant, condition or agreement in the Amended and Restated Note or in
this Mortgage or in any other instrument or document executed in connection with
the loan secured hereby, or in aid of the execution of any power herein or
therein granted, or for any foreclosure hereunder, or for the enforcement of any
other appropriate legal or equitable remedy or otherwise as the Mortgagee shall
elect.
6.7 Adjournment of Sale. The Mortgagee may adjourn from time to time
any sale by it to be made under or by virtue of this Mortgage by announcement at
the time and place appointed for such sale or for such adjourned sale or sales;
and, except as otherwise provided by any applicable provision of law, the
Mortgagee, without further notice or publication, may make such sale at the time
and place to which the same shall be so adjourned.
6.8 Deficiencies. Subject to the non-recourse provisions of the Amended
and Restated Note and this Mortgage, in the event of a sale of the Mortgaged
Premises, and of the application of the proceeds of sale, as provided in this
Mortgage, to the payment of the debt hereby secured, the Mortgagee shall be
entitled to enforce payment of, and to receive all amounts then remaining due
and unpaid upon, the Amended and Restated Note, and to enforce payment of all
other charges, payments, and costs due under this Mortgage or under any other
instrument or document executed in connection with the loan secured hereby, and
shall be entitled to recover judgment for any portion of the debt remaining
unpaid, with interest.
6.9 Enforcement of Monetary Obligations. Subject to the non-recourse
provisions of the Amended and Restated Note and this Mortgage, in the event the
Mortgagor should fail forthwith to pay such amounts upon such demand, the
Mortgagee shall be entitled and empowered to institute such action or
proceedings at law or in equity as may be advised by its counsel for the
collection of the sums so due and unpaid, and may prosecute any such action or
proceedings to judgment or final decree, and may enforce any such judgment or
final decree against the Mortgagor and collect, out of the property of the
Mortgagor, wherever situated, as well as out of the Mortgaged Premises, in any
manner provided by law, moneys adjudged or decreed to be payable. The Mortgagee
shall be entitled to recover judgment as aforesaid either before or after or
during the pendency of any proceedings for the enforcement of the provisions of
this Mortgage; and the right of the Mortgagee to recover such judgment shall not
be affected by any entry or sale hereunder or by the exercise of any other
right, power or remedy for the enforcement of the provisions of this Mortgage or
of any other instrument or document executed in connection with the loan secured
hereby, or the foreclosure of the lien hereof. In case of proceedings against
the Mortgagor in insolvency or bankruptcy or any proceedings for its
reorganization or involving the liquidation of its assets, then the Mortgagee
shall be entitled to prove the whole amount of principal and interest due upon
the Amended and Restated Note to the full amount thereof, and all other
payments, charges and costs due under this Mortgage or under any other
instrument or document executed in connection with the loan secured hereby,
without deducting therefrom any proceeds obtained from the sale of the whole or
any part of the Mortgaged Premises.
6.10 Effect of Recoveries. To the extent permitted by law, no recovery
of any judgment by the Mortgagor and no levy of an execution under any judgment
upon the Mortgaged Premises or upon any other property of the Mortgagor shall
affect in any manner or to the extent, the lien of this Mortgage upon the
Mortgaged Premises or any part thereof, or any liens, rights, powers or remedies
of the Mortgagee hereunder, but such liens, rights, powers and remedies of the
Mortgagee shall continue unimpaired as before.
6.11 Application of Proceeds of Sale or Judgments or Collections. The
purchase money, proceeds or avails of any sale made under or by virtue of this
Section 6, together with any other sums which then may be held by the Mortgagee
under this Mortgage, whether under the provisions of this Section 6 or
otherwise, together with any other sums which Mortgagee may collect by
enforcement of judgments or otherwise in accordance with Section 6.9 shall be
applied as follows:
FIRST: To the payment of all court costs, all reasonable expenses of
such sale (including attorneys' fees and expenses incurred on behalf of
Mortgagee), all reasonable costs and expenses of any receiver, and all taxes,
assessments or charges, which are prior to the lien of this Mortgage, except any
taxes, assessments or other charges subject to which the Mortgaged Premises
shall have been sold.
SECOND: To the payment of the whole amount then due, owing or unpaid
upon the Indebtedness, other than Indebtedness evidenced by the Amended and
Restated Note, with interest on the unpaid principal thereof at the Default Rate
from and after the happening of any Event of Default described in Section 5 from
the due date of any such payment of principal until the same is paid.
THIRD: To the payment of all amounts of principal and interest at the
time due and payable on the Amended and Restated Note (whether at maturity or by
prepayment or by declaration or otherwise), and including, to the extent
permitted under applicable law, interest on any overdue interest at the Default
Rate.
FOURTH: The balance, if any, received or held by Mortgagee after
payment in full of all amounts referred to above, shall, unless a court of
competent jurisdiction may otherwise direct, be paid to or upon the direction of
Mortgagor.
6.12 Appointment of Receiver. After the happening of any Event of
Default and during its continuance, or upon the commencement of any proceedings
to foreclose this Mortgage or to enforce the specific performance hereof or in
aid thereof or upon the commencement of any other judicial proceeding to enforce
any right of the Mortgagee, the Mortgagee shall be entitled, as a matter of
right, if it shall so elect, without the giving of notice to any other party and
without regard to the adequacy or inadequacy of any security for the
Indebtedness secured by this Mortgage, forthwith either before or after
declaring the unpaid principal of the Amended and Restated Note to be due and
payable, to the appointment of a receiver or receivers. If required by the
Mortgagee, Mortgagor shall confirm its consent to the appointment of a receiver
or receivers of the Mortgaged Premises and of all earnings, revenues, rents,
issues, profits and income thereof. Notwithstanding the appointment of any
receiver, liquidator or trustee of the Mortgagor, or of any of its property, or
the Mortgaged Premises or any part thereof, the Mortgagee shall be entitled to
retain possession and control of all property now or hereafter held under this
Mortgage.
6.13 No Reinstatement. If an Event of Default under Section 5 shall
have occurred and Mortgagee shall have proceeded to enforce any right, power or
remedy permitted hereunder, then a tender of payment by Mortgagor or by anyone
on behalf of Mortgagor of the amount necessary to satisfy less than all of the
sums due hereunder (including the entire amount due of the Indebtedness
following an acceleration thereof) made at any time prior to foreclosure, or the
acceptance by Mortgagee of any such partial payment so tendered, shall not
constitute a reinstatement of the Amended and Restated Note or this Mortgage.
6.14 General Statements Regarding Remedies. Subject to the non-recourse
provisions of the Amended and Restated Note and this Mortgage, no remedy herein
conferred upon or reserved to the Mortgagee is intended to be exclusive of any
other remedy or remedies, each and every such remedy shall be cumulative, and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. No delay or omission of the
Mortgagee to exercise any right or power accruing upon any Event of Default
shall impair any such right or power, or shall be construed to be a waiver of
any such Event of Default or any acquiescence therein; and every power and
remedy given by this Mortgage to the Mortgagee may be exercised from time to
time as often as may be deemed expedient by the Mortgagee. Subject to the
non-recourse provisions of the Amended and Restated Note and this Mortgage,
nothing in this Mortgage or in the Amended and Restated Note or in any other
instrument or document executed in connection with the loan secured hereby shall
affect the obligation of the Mortgagor to pay the principal of, and interest on,
the Amended and Restated Note in the manner and at the time and place therein
respectively expressed.
7. MISCELLANEOUS
7.1 Severability. In the event any one or more of the provisions
contained in this Mortgage or in the Amended and Restated Note or in any other
instrument or document executed in connection with the loan secured hereby shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall, at the option of the
Mortgagee, not affect any other provisions of this Mortgage, but this Mortgage
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
7.2 Notices. All notices hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally or sent by registered mail or certified mail, return receipt
requested, to any party hereto at its address above stated or at such other
address of which it shall have notified the party giving such notice in writing.
Whenever in this Mortgage the giving of notice by mail or otherwise is required,
the giving of such notice may be waived in writing by the person or persons
entitled to receive such notice.
7.3 Successors and Assigns. All of the grants, covenants, terms,
provisions and conditions herein shall run with the land and shall apply to,
bind and inure to the benefit of, the successors and assigns of the Mortgagor
and the indorsees, transferees, successors and assigns of the Mortgagee.
7.4 Waivers, Extensions. Modifications and Amendments.
(a) The Mortgagor recognizes that, in general, borrowers who experience
difficulties in honoring their loan obligations, in an effort to inhibit or
impede lenders from exercising the rights and remedies available to lenders
pursuant to mortgages, notes, loan agreements or other instruments evidencing or
affecting loan transactions, frequently present in court the argument, without
merit, that some loan officer or administrator of lender made an oral
modification or made some statement which could be interpreted as an extension
or modification or amendment of one or more debt instruments and that the
borrower relied to its detriment upon such "oral modification of the loan
document." For that reason, and in order to protect the Mortgagee from such
allegations in connection with the transaction contemplated by this Mortgage,
the Mortgagor acknowledges that this Mortgage, the Amended and Restated Note,
and all instruments referred to in any of them can be extended, modified or
amended only in writing executed by the Mortgagee and that none of the rights or
benefits of the Mortgagee can be waived permanently except in a written document
executed by the Mortgagee. The Mortgagor further acknowledges the Mortgagor's
understanding that no officer or administrator of the Mortgagee has the power or
the authority from the Mortgagee to make an oral extension or modification or
amendment of any such instrument or agreement on behalf of the Mortgagee.
(b) If the Mortgagee (i) grants forbearance or an extension of time for
payment of any sums secured hereby; (ii) takes other or additional security for
the payment of any sums secured hereby; (iii) waives or does not exercise any
right granted herein or in the Amended and Restated Note; (iv) releases any part
of the Mortgaged Premises from the lien of this Mortgage or otherwise changes
any of the terms, covenants, conditions or agreements of the Amended and
Restated Note or this Mortgage; (v) consents to the filing of any map, plat or
replat affecting the Mortgaged Premises; or (vi) makes or consents to any
agreement subordinating the lien hereof, any such act or omission shall not
release, discharge, modify, change or affect the original liability under the
Amended and Restated Note, this Mortgage, the Indebtedness, or any other
obligation of Mortgagor or any subsequent purchaser of the Mortgaged Premises or
any part thereof, or any maker, co signer, endorser, surety or guarantor; nor
shall any such act or omission preclude Mortgagee from exercising any right,
power or privilege granted or intended to be granted in the event of any default
then made or of any subsequent default.
7.5 Limitation on Interest. This Mortgage and the Amended and Restated
Note are subject to the express condition that at no time shall Mortgagor be
obligated or required to pay interest on the principal balance due under the
Amended and Restated Note at a rate which could subject the holder of the
Amended and Restated Note 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 Mortgage or the Amended and
Restated Note, Mortgagor is at any time required or obligated to pay interest on
the principal balance due under the Amended and Restated Note at a rate in
excess of such maximum rate, the rate of interest under the Amended and Restated
Note shall be deemed to be immediately reduced to such maximum rate and the
interest payable shall be computed at such maximum rate and all prior interest
payments in excess of such maximum rate shall be applied and shall be deemed to
have been payments in reduction of the principal balance of the Amended and
Restated Note.
7.6 Waiver of Jury Trial. Both Mortgagor and Mortgagee hereby
irrevocably waive all right to trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Mortgage.
7.7 Counterparts. This Mortgage may be executed in any number of
counterparts and each of such counter parts shall for all purposes be deemed to
be an original; and all such counterparts shall together constitute but one and
the same Mortgage.
7.8 Joint and Several Liability. If the Mortgagor is comprised of more
than one party, such parties shall be jointly and severally bound and liable
under this Mortgage.
7.9 Time of the Essence. TIME IS OF THE ESSENCE with respect to each
and every covenant, agreement, and obligation of the Mortgagor under this
Mortgage, the Amended and Restated Note and any and all other loan documents.
7.10 Governing Law. This Mortgage shall be construed and enforced in
accordance with the laws of the State of New York.
7.11 Trust Fund Provisions. This Mortgage is subject to the trust fund
provisions of Section 13 of the Lien Law.
7.12 Nonrecourse Obligation. Mortgagor shall not be liable for the
payment of amounts payable under or secured by this Mortgage. The sole recourse
of the holder of this Mortgage for the collection of such amounts shall be
against the property covered by the Mortgage and against any other collateral
held by the holder hereof as security for the Amended and Restated Note;
provided, however, that nothing herein contained shall be construed to release
or impair the indebtedness evidenced by the Amended and Restated Note or the
lien of this Mortgage. Notwithstanding the foregoing, Mortgagor shall be liable
to Mortgagee for any loss or damage incurred by Mortgagee resulting from (i)
Mortgagor's misappropriating any insurance condemnation proceeds or awards; (ii)
Mortgagor's failing to turn over rents collected by Mortgagor following an event
of default and an acceleration of the indebtedness evidenced by the Amended and
Restated Note to a receiver of rents appointed by a court on behalf of the
Mortgagee; (iii) Mortgagor's failing to comply with the provisions of this
Mortgage or other loan documents relating to hazardous or toxic substances; (iv)
there being any fraud or material misrepresentations by Mortgagor made in
connection with the Mortgagee's loan to Mortgagor; or (v) Mortgagor's failing,
following an event of default and an acceleration of the indebtedness under the
Amended and Restated Note, to deliver to the Mortgagee or a court appointed
receiver of rents, on demand, all security deposits relating to the property
covered by this Mortgage.
IN WITNESS WHEREOF, this Mortgage has been duly executed by the Mortgagor.
PYRAMID SHERLYLE COMPANY
By: Sherlyle Properties Company, Partner
By: s/ Sherwood Finn
________________
Sherwood Finn, Partner
FIRST NATIONAL BANK OF ROCHESTER
By: s/ David T. Reaske
___________________
David T. Reaske, Vice President
<PAGE>
EXHIBIT "A"
All that tract or parcel of land, situate in the City of Syracuse,
County of Onondaga and State of New York, being part of Farm Lot No. 241 and
part of block no. four hundred fifty one (451) bounded and described as follows:
Beginning at a point in the center line of Oak Street and two hundred sixty feet
(260) feet north from the intersection of the said center line with the north
line of James Street; thence east parallel with the north line of James Street
one hundred and eighty three (183) feet; thence north parallel with the center
line of Oak Street Seventy five (75) feet; thence west parallel with the north
line of James Street to the center of Oak Street; thence south along the center
line of Oak Street seventy five (75) feet to the place of beginning.
Also all that tract or parcel of land, situate in the City of Syracuse,
County of Onondaga and State of New York and known and distinguished on a map of
said City made by Borden and Griffin as being part of block number four hundred
fifty one (451) Syracuse and bounded and described as follows, viz: Beginning at
the intersection of the center of Oak Street with the northerly line of James
Street; thence easterly on the northerly line of James Street to a point one
hundred fifty (150) feet east of the east line of Oak Street; thence northerly
parallel to Oak Street two hundred sixty (260) feet; thence westerly parallel to
James Street to the center of Oak Street; thence southerly on the center of Oak
Street two hundred sixty (260) feet to the place of beginning.
Also all that tract or parcel of land situate in the City of Syracuse,
County of Onondaga and State of New York known and distinguished as being part
of Farm Lot No. 241 in said City and also part of block number 451 Syracuse, New
York, described as follows: Beginning at a point in the easterly line of the
premises of Minnie B. Martin 232 feet north of the intersection of the easterly
line of the said Minnie B. Martin's premises with the northerly line of James
Street running thence northerly and parallel with the center line of Oak Street
194 feet to the southerly line of lands conveyed by John A. Weis and tine J.
Weis, his wife, by Carleton A. Chase being deed dated August 16,1 912 and
recorded in the Onondaga County Clerk's Office on August 28, 1912 in Book 427 of
Deeds at Page 19 etc., thence westerly and along the southerly line of lands so
conveyed to said John A. Weis and Tine J. Weis, his wife, and lands conveyed by
the said Chase to the Tine J. Weis by another deed dated August 16, 1912 and
recorded in said Clerk's Office on August 28, 1912 in Book 427 of Deeds at Page
20 etc., 87 feet more or less to the northeasterly line of lands devised to
Marjory H.C. Bell by the Will of said Carleton A. Chase; thence southerly along
the line of the lands so devised to Marjory H.C. Bell and parallel with the
easterly line of Oak Street 91 feet more or less to southeasterly corner of said
lands so devised to said Marjory H.C. Bell as aforesaid; thence southwesterly
along the southerly line of said lands so devised to said Marjory H.C. Bell as
aforesaid and parallel with James Street 54 feet to the westerly line of lands
owned by said Carleton A. Chase at the time of his death which line was the
westerly line of the premises which were conveyed to the said Carleton A. Chase
by Clifford D. Beebe and wife by deed dated July 25, 1911 and recorded in said
Clerk's Office on August 1, 1911 in Book 408 of Deeds at Page 367 etc., thence
southerly along the westerly line of said lands so conveyed to said Chase by
said Beebe and wife and parallel with the center line of Oak Street 106 feet to
a point; thence easterly and parallel with the northerly line of James Street
141.03 feet to the place of beginning.
The above premises are more particularly described according to a
recent survey made by Lehr Land Surveyors dated August 25, 1998 as follows:
ALL THAT TRACT OR PARCEL OF LAND situate in the City of Syracuse,
County of Onondaga and State of New York and being a portion of Block #451, in
said City and being more particularly described as follows:
BEGINNING at the intersection of the present northwesterly line of
James Street with the present northeasterly line of Oak Street;
thence N.34-17'10"W., along said northeasterly line of Oak Street, a
distance of 334.59 feet to a point;
thence N.55-42'-20"E., a distance of 204.00 feet to the most easterly
corner of property now or formerly owned by M.E. DeRosa, as recorded in the
Onondaga County Clerks Office, in Liber of Deeds #3671, Page #1;
thence N.34-17'-10"W., along the northeasterly line of said DeRosa
property, a distance of 91.00 feet to the most northerly corner of said DeRosa
property;
thence N.55-42'-20"E., a distance of 87.00 feet to a point;
thence S.34-17'10"E., along the southwesterly lines of properties now
or formerly owned by T.D. & A.A. Summers and M.A. Conti, a distance of 193.80
feet to the most northerly corner of property now or formerly owned by A.J. &
M.P. Vigliotti, as recorded in the Onondaga County Clerk's Office in Liber of
Deeds #3618, Page #311;
thence S.54-31'-42"W., along the northwesterly line of said Vigliotti
property, a distance of 141.03 feet to a point;
thence S.34-17'-10"E., along the southwesterly line of said Vigliotti
property, a distance of 229.00 feet to its intersection with said northwesterly
line of James Street;
thence S.55-44'-50"W., along said northwesterly line of James Street, a
distance of 150.00 feet to the place of beginning.
<PAGE>
EXHIBIT "B"
Mortgage in the amount of $1,100,000.00 made by Pyramid Sherlyle
Company, Inc. to the Savings Bank of Utica dated and recorded September 15, 1972
in the Onondaga County Clerk's Office in Book of Mortgages 2478 at Page 505&c.
Mortgage Consolidation and Modification Agreement in the amount of
$255,153.45 made by Pyramid Sherlyle Company to the Savings Bank of Utica dated
July 29, 1986 and recorded July 30, 1986 in the Onondaga County Clerk's Office
in Book of Mortgages 4101 at page 84&c.
Note: The above mortgages were consolidated and modified to constitute
a single lien in the amount of $1,100,000.00 by Agreement dated July 29, 1986
and recorded on July 30, 1986 in the Onondaga County Clerk's Office in Book 4101
at Page 84&c.
Note: The above mortgage was assigned to John Alden Life Insurance
Company of New York by Assignment dated October 27, 1989 and recorded October
31, 1989 in Book 5344 at Page 154.
Loan Extension Agreement by and between Pyramid Sherlyle Company and
John Alden Life Insurance Company of New York dated October 6, 1997 and recorded
October 28, 1997 in the Onondaga County Clerk's Office in Book 9218 at page 49
to secure the sum of $966,782
EXHIBIT "C"
[Form of Note]
<PAGE>
LIMITED GUARANTY OF PAYMENT
Borrower: PYRAMID SHERLYLE COMPANY
Dated: September 14, 1998
In consideration of a loan in the principal amount of Eight Hundred
Seventy Five Thousand and 00/100 Dollars ($875,000.00) (the "Indebtedness") by
First National Bank of Rochester, a national banking association having its
chief executive office at 35 State Street, Rochester, New York 14614 ("Bank"),
to the entity identified above as "Borrower," the undersigned ("Guarantor") does
hereby agree and make this Guaranty as follows:
1. Definition of Certain Terms. As used in this Guaranty:
(a) "Obligations" shall mean and include the Indebtedness, and
all liabilities and obligations of Borrower to Bank related to the Indebtedness
(including, but not limited to, any Borrower obligation to pay principal,
interest, costs, expenses and attorneys' fees) and all extensions, renewals and
modifications thereof;
(b) "Collateral" shall mean all property, real, personal
(including both tangible and intangible personal property) and mixed, located at
premises owned by Borrower and commonly known as 1001 James Street, Syracuse,
New York and upon which there has been conveyed or will be conveyed by Borrower
to Bank a security interest and mortgage to secure payment of the Indebtedness
(collectively, the "Mortgage"); and
(c) "Event of Default" shall mean (i) any event or condition
of default under any agreement between Borrower and Bank governing or related to
the Obligations including, but not limited to, a failure to make payment when
due under the note evidencing the Indebtedness (the "Note") or the Mortgage; and
(ii) any other event, occurrence or condition that results in the Obligations,
or any part of the Obligations, being immediately due and payable by Borrower to
Bank.
2. Unconditional Guaranty of Payment. Guarantor does hereby unconditionally
guarantee the punctual payment to Bank when due, whether at a stated maturity,
by acceleration or otherwise, of fifty percent (50%) of any sums necessary for
Borrower or Bank to discharge the Obligations, in accordance with the terms and
provisions of the Note, Mortgage and all other loan documents executed by
Borrower related to the Indebtedness (the Note, Mortgage and all other loan
documents executed by Borrower related to the Indebtedness shall hereinafter,
collectively, be referred to as the "Loan Documents") and subject to all rights
of Bank arising from or related to the Obligations. The duty, liability and
obligation of Guarantor pursuant to this Guaranty shall not be diminished,
altered, terminated or changed in any respect, notwithstanding any law,
regulation, decree, action, proceeding, equitable doctrine or other circumstance
that would or might otherwise diminish, alter, terminate, void or change the
liability or obligations of Borrower, any other guarantor or any other entity or
person to pay any or all of the Obligations. Any payments required to be made
pursuant to this Guaranty shall be made in United States dollars in immediately
available funds at such place and time as shall be designated by Bank. This
Guaranty shall be construed at all times to be a guaranty of payment and not a
guaranty of collection.
3. Certain Rights of Bank. Bank, in its sole discretion and without notice to or
further assent from Guarantor at any time or from time to time, either before or
after the occurrence of an Event of Default, and without diminishing, altering,
terminating or changing in any respect the liability and Obligations of
Guarantor pursuant to this Guaranty, may: (a) decrease the amount of, extend,
change, or amend the time, manner, place, amount or terms of payment of the
Obligations; (b) exchange, release, surrender, substitute or sell any
Collateral, or fail unintentionally or otherwise to perfect its interest or
create a valid security interest in any of the Collateral; (c) waive, fail to
exercise or delay in exercising any right or remedy granted to Bank by any
agreement or by law with respect to Borrower, the Obligations, any guarantor or
the Collateral; (d) release, agree not to sue, settle or compromise with
Borrower, any guarantor or any other entity or person who is otherwise obligated
to pay the Obligations; (e) subordinate the payment of the Obligations to the
payment of any other debt owed by Borrower to any other entity or person; (f)
sell or purchase all or any part of the Collateral at any public or private
sale, and after deduction of all expenses incurred therefor, including
attorneys' fees, apply the proceeds to the Obligations in such manner as is set
forth in the Mortgage; or (g) act or refuse to act in any other manner which
might constitute a legal or equitable discharge or defense of a guarantor.
4. Financial Information. Until there are no further Obligations outstanding
between Borrower and Bank, Guarantor shall provide Bank, promptly upon Bank's
request, with (a) annual personal financial statements fully executed by
Guarantor, in form satisfactory to Bank; and (b) a copy of Guarantor's fully
executed annual federal income tax return, together with all schedules attached.
5. Bank's Rights Upon Event of Default. Upon the occurrence of any Event of
Default, or at any time thereafter, the Obligations, at the sole option of Bank,
shall immediately become due and payable in full, together with interest and all
costs and expenses of enforcing this Guaranty or the Obligations, including
court costs and reasonable attorneys' fees. In such circumstances, the liability
of Guarantor to Bank shall be absolute, and it shall not constitute a defense,
counterclaim, set-off or recoupment thereto that Bank has not made any demand or
instituted any action or proceeding against Borrower or against any other party
who may be liable for all or any of the Obligations or that Bank has not validly
taken or perfected a security interest in the Collateral or has not or has
improperly foreclosed upon the Collateral or any part of it, nor shall Bank be
required to perform any of the above acts against Borrower, any guarantor or the
Collateral as a condition to enforcing its rights against Guarantor in
accordance with the terms of this Guaranty.
6. Persons or Entities Bound. If this Guaranty is executed by two or more
persons or entities, they shall be jointly and severally liable, and all
provisions of this Guaranty shall apply to them. The termination of this
Guaranty or similar agreement as to one or more of such persons or entities
shall not terminate this Guaranty as to any remaining persons or entities. This
Guaranty shall be binding upon the heirs, executors, trustees, transferees,
administrators, assigns and successors of Guarantor and shall inure to the
benefit of and be enforceable by Bank, its successors, transferees and assigns.
7. Reinstatement of Guarantor's Liability. In the event any payment or recovery
is received by Bank with respect to the Obligations during the time that this
Guaranty is effective and such payment or recovery is subsequently invalidated,
declared fraudulent or preferential or otherwise set aside under the terms of
any federal or state law or equitable doctrine, then the liability of Guarantor
shall be reinstated and Guarantor shall be responsible for the amount of such
payment or recovery to Bank under the terms of this Guaranty, notwithstanding
the fact that this Guaranty was terminated voluntarily or by law at the time
that the payment or recovery was set aside or invalidated as described above.
8. Waiver of Subrogation and Similar Rights. Until the Obligations are finally
and irrevocably paid in full, Guarantor irrevocably waives each and every right
of subrogation, indemnity, contribution and reimbursement and each and every
similar right that Guarantor would have against either or both of Borrower and
any other guarantor of the Obligations because of any payment by Guarantor of
any portion of the Obligations or because of the provision by Guarantor of any
collateral security for such Obligations. To the extent that any of the
foregoing rights survive such waiver, Guarantor assigns such rights to Bank as
collateral security for payment of the Obligations.
9. New York Law; Consent to Jurisdiction and Venue; Waiver of Trial by Jury.
This Guaranty shall be governed by and interpreted and enforced in accordance
with the internal law of the State of New York, without regard to principles of
conflict of laws. Guarantor consents to the jurisdiction of the courts of the
State of New York and agrees that any court located in the county in which Bank
has its chief executive office shall be the proper forum for any action or
proceeding between them unless either (a) Bank, in its sole discretion, chooses
another forum or (b) applicable law requires another forum. Guarantor also
waives the right to assert in any such action or proceeding any unrelated
offsets or counterclaims which it may otherwise have or claim to have. GUARANTOR
AND BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN
THEM BASED UPON, ARISING OUT OF, OR IN ANY WAY CONNECTED TO, THIS GUARANTY, THE
OBLIGATIONS, OR ANY TRANSACTION CONTEMPLATED HEREBY.
10. Certain Consents and Waivers; Miscellaneous Provisions.
(a) Any provision of this Guaranty which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of the Guaranty in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
(b) This Guaranty constitutes the final, complete and exclusive
agreement between Bank and Guarantor with respect to the guarantee by Guarantor
of the Obligations.
(c) No delay by Bank in exercising any right hereunder, or under the
Obligations, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right preclude other or further exercises thereof or the
exercise of any other right. No waiver, amendment, modification or release of
this Guaranty or any provision of this Guaranty or of the Obligations shall be
enforceable against Bank unless it is in a writing signed by an officer of Bank
and expressly referring to this Guaranty.
(d) All rights granted Bank pursuant to this Guaranty shall be
cumulative and shall be in addition to those granted or available to Bank with
respect to the Obligations, any other guaranty agreement and under applicable
law, and nothing herein shall be construed as limiting any such other right.
(e) Guarantor represents and warrants that the execution, delivery and
performance of this Guaranty does not and will not contravene any law,
agreement, charter, by-law or undertaking to which it is a party or by which it
may in any way be bound.
(f) Guarantor waives notice of presentment, dishonor and protest of the
Obligations and of this Guaranty, and furthermore waives promptness in the
commencement of any action relating to this Guaranty or the Obligations and in
the giving of notice or making of demand upon it or upon any other entity or
person.
(g) Words of the neuter gender may mean and include correlative words
of the masculine and feminine gender as appropriate and vice versa. Words noting
the singular number shall mean and include the plural number as appropriate and
vice versa.
(h) The headings used in this Guaranty are for convenience only and are
not of substantive effect.
s/ Robert J. Congel
___________________
Robert J. Congel
s/ Michael J. Falcone
_____________________
Michael J. Falcone
MORTGAGE NOTE
Rochester, New York $530,000.00
October 6, 1998
FOR VALUE RECEIVED, the undersigned, POWDER MILL LAND COMPANY, with offices at
15 Fishers Road, Suite 220, Pittsford, New York 14534, ( 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 Five Hundred Thirty
Thousand and No/100 Dollars ($530,000.00) (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.
"Maturity Date" means October 6, 2008.
"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 commonly
known as Powder Mill Office Park, Building No. 1, located at 1151
Pittsford-Victor Road, in the Town of Perinton, County of Monroe, and State of
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.
Introduction
This Note is secured by a Mortgage of even date herewith on the
Premises.
Payment Terms
(a) During the first five (5) years of the term of the Loan
beginning on the date hereof, interest shall be fixed at and accrue on the
Principal Sum or so much thereof as is outstanding from time to time at the rate
of 7.90% per annum. On the first day November, 1998, Mortgagor shall make one
(1) payment of interest only to the Bank. Thereafter, on the first day of
December, 1998, and on the first day of each and every month thereafter during
said first five (5) years of the term, Mortgagor shall make a constant monthly
payment of principal and interest to Bank in the sum of Four Thousand Four
Hundred and 20/100 Dollars ($4,400.20).
(b) On the fifth annual anniversary of the date hereof, the
interest rate shall be modified to a rate of 2.25% per annum higher than the
weekly average yield on United States Treasury securities adjusted to a constant
maturity of five (5) years, 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 fixed at and accrue on the Principal
Sum or so much there as is outstanding from time to time at such modified rate
until the Maturity Date.
(c) The principal and interest payment shall be readjusted as of
the first day of the second month following the interest rate adjustment in
subparagraph (b) above in order to fully re-amortize the Loan over the months
remaining in the original amortization period of the Loan.
(d) The entire unpaid Principal Sum of the Loan, together with all
accrued and unpaid interest thereon, shall become due and payable on the
Maturity Date,
(e) Interest shall be calculated on the basis of a year consisting
of 360 days for the actual number of days any portion of the principal amount of
the Loan is outstanding. There shall be no negative amortization.
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 upon written
notice received by the Holder at least 30 days prior to making such payment;
provided, however, that upon making any payment in full or in part, 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 October 6, 1999,
(b) a premium equal to 4% of the amount prepaid if paid on or after October 6,
1999, and before October 6, 2000, (c) a premium equal to 3% of the amount
prepaid if paid on or after October 6, 2000, and before October 6, 2001, (d) a
premium equal to 2% of the amount prepaid if paid on or after October 6, 2001,
and before October 6, 2002, (e) a premium equal to 1% of the amount prepaid if
paid on or after October 6, 2002, and before October 6, 2008. 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.
Tax Escrow
In the event of any delinquency by Mortgagor in the payment of any
Taxes or installments thereof due on the Premises, and failure to pay in full
and cure said delinquency upon five (5) days notice thereof from Bank to
Mortgagor, then in order to more fully protect the security of the Mortgage, the
Bank, in addition to and without prejudice to its continuing right to demand
immediate payment of any said delinquencies, may at its option require Mortgagor
to 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. 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. Any excess
funds accumulated under the provisions of this paragraph after the payment of
the items herein mentioned shall be credited to subsequent monthly payments of
the same nature required hereunder; but if any such item shall exceed the
estimate therefor, the Mortgagor shall without demand forthwith pay the
deficiency.
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.
Events 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 Premises or
any portion thereof without the Bank's prior written consent, which may
be withheld in its sole and absolute discretion, except upon written
notice to Mortgagee, transfers between and among the partners of the
Mortgagor and between and among immediate family members of the
Mortgagors, shall be permitted. However, all obligations of James D.
Ryan, Philip A. O'Brien and Daniel C. O'Brien under the Guarantees and
all other documents, as applicable, will remain in full force and
effect.
(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.
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 canceled, 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
The Borrower shall provide to the Bank a signed federal income tax
return with all schedules attached, satisfactory to the Bank, within 120 days
after the end of each fiscal year of Borrower.
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.
POWDER MILL LAND COMPANY
By: S/ James D. Ryan
_________________
JAMES D. RYAN
Its General Partner
Locol Properties
By: S/ David C. O'Brien
___________________
DAVID C. O'BRIEN
Its General Partner
<PAGE>
MORTGAGE
THIS MORTGAGE, made the 6th day of October, 1998, between POWDER MILL
LAND COMPANY, a New York Limited Liability Company, with its principal office at
15 Fishers Road, Suite 220, Pittsford, New York 14534, (herein called the
"Mortgagor"), and FIRST NATIONAL BANK OF ROCHESTER, a national banking
association with its principal office at 35 State Street, Rochester, New York
14614, (herein called the "Mortgagee").
WITNESSETH, to secure the payment of an indebtedness in the sum of Five
Hundred Thirty Thousand and No/100 ($530,000.00) lawful money of the United
States (or so much as may be advanced) 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"), together with all refinancings,
modifications, extensions or renewals 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 equipment and
machinery, appliances, 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 made 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 except in accordance
with a Building Loan Agreement dated even date herewith.
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 arising out of the construction or
operation. 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, provided that proceeds of insurance are made available to
Mortgagor, to the extent received by Mortgagee and necessary to such
restoration, replacement, rebuilding or alteration. 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 or 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, 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 the event the Mortgagor is delinquent to any extent on
payments due hereunder to Mortgagee, or in the payment of property taxes and
assessment on the Premises, then the Mortgagee may require that 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 may request at such time that the
Mortgagor also escrow for insurance held or required by Mortgagee. 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 of Fifty Dollars ($50.00) or $.06 of each $1.00 so
overdue, whichever is larger, 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 to such conveyance or transfer, which may be withheld 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 any interest or
estate therein, or any interest in Mortgagor, including testate or intestate
succession and conveyance by land contract, including, without limitation
thereto, any assignment or sublease of any Lease of any portion of the Premises,
each of which must be subordinate to the lien of the Mortgage. 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.
However, upon written notice to Mortgagee, transfers between and among the
partners of the Mortgagor and between and among immediate family members of the
Mortgagors, shall be permitted. However, all obligations of James D. Ryan,
Philip A. O'Brien and Daniel C. O'Brien under the Guarantees and all other
documents, as applicable, will remain in full force and effect.
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 mortgage, lien or
other encumbrance is placed on the Premises without Mortgagee's prior written
consent.
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 together with any
applicable notice thereof and opportunity to cure, 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 (except for utility lines and conduits coming directly to the
Premises from a public road).
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, 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 waive
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.
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 to the best
of its knowledge, 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
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.
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.
BUILDING LOAN. The Mortgagor will cause the improvements to be constructed
in accordance with the terms of the Building Loan Agreement of even date
herewith, will proceed with such construction with due diligence and will comply
with the covenants made by it in the Building Loan Agreement, all of which are
incorporated herein by reference.
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.
POWDER MILL LAND COMPANY
By: S/ James D. Ryan
________________
JAMES D. RYAN
Its General Partner
Locol Properties
By: S/ David C. O'Brien
___________________
DAVID C. O'BRIEN
Its General Partner
<PAGE>
CONTINUING UNLIMITED GUARANTY
In consideration of any extension of credit by FIRST NATIONAL BANK OF
ROCHESTER, (hereinafter called "Bank") to POWDER MILL LAND COMPANY (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 Mortgage Note
of Customer to Bank in the amount of Five Hundred Thirty Thousand and No/100
Dollars ($530,000.00) of even date herewith, 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, except as further set forth in Paragraph "14"
hereinbelow. 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 a signed current personal
financial statement on a Bank form, together with a signed complete copy of the
guarantor's federal income tax return (with all schedules attached) on or before
April 15th of each year. A financial statement prepared by an accountant is
acceptable if attached to Bank's form, with all questions answered on the Bank
form and the Bank form signed.
14. This guaranty shall be limited in amount to Two Hundred Thirty
Five Thousand and No/100 Dollars ($235,000.00) of the principal amount of the
Indebtedness, plus and together with all accrued and unpaid interest, premiums
and expenses incurred with respect to the Indebtedness and all costs and
expenses and fees, including reasonable attorney fees, incurred by the Bank with
respect to this guaranty.
15. 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 at Rochester, New York this 6th day of October, 1998.
S/James D. Ryan
_________________
JAMES D. RYAN
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.
Independent Auditors' Consent
The Board of Directors:
FNB Rochester Corp.:
We consent to incorporation by reference in registration statements Nos.
33-65194, 333-15325, and 333-66413 on Form S-8 of FNB Rochester Corp. of our
report dated January 25, 1999, relating to the consolidated statements of
financial condition of FNB Rochester Corp. and subsidiary as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 1998, which report has been
included in the December 31, 1998 annual report on Form 10-K of FNB Rochester
Corp.
/s/ KPMG LLP
Rochester, New York
March 23, 1999
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