<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
-------------
/ / 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 1-13213
-------
PREMIER NATIONAL BANCORP, INC.
------------------------------
(Exact name of registrant as specified in its charter)
New York 14-1668718
- ------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
PO Box 310, 240 Route 55, Lagrangeville, NY 12540
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914)471-1711
- -------------
(Registrant`s telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
15,188,806 shares of Common Stock outstanding, par value $.80 per share, at July
31, 1999.
<PAGE>
PREMIER NATIONAL BANCORP, INC. & SUBSIDIARIES
INDEX
Page Reference
--------------
PART I
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements
of Income and Expense 2
Condensed Consolidated Statements
of Cash Flows 3
Condensed Consolidated Statements
of Changes in Stockholders' Equity 4
Condensed Consolidated Statements of
Comprehensive Income 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 29
PART II - Other Information
Item 4 - Submission of matters to a vote of security holders 30
Item 6 - Exhibits and Reports on Form 8-K 30
Exhibit Index 31
Signatures 32
<PAGE>
Part 1
Item 1: Financial information
PREMIER NATIONAL BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited) June 30, December 31,
1999 1998
ASSETS
<S> <C> <C>
Cash and due from banks $37,279 $53,230
Federal funds sold 35,000 121,100
------ -------
Total cash and cash equivalents 72,279 174,330
Securities
Available for sale, at fair value 478,405 359,612
Held to maturity, at cost, (fair value of $15,741 in 1999 15,415 17,536
and $18,117 in 1998)
Regulatory securities (at cost which approximates fair value) 9,727 9,703
Gross loans 958,549 973,847
Allowance for loan losses (21,294) (21,270)
------- -------
Net loans 937,255 952,577
Premises and equipment, net 27,549 28,714
Accrued income 11,705 8,940
Deferred Taxes 14,855 10,463
Other real estate owned 1,743 628
Intangible assets, net 5,753 6,734
Other assets 2,157 4,932
-------------------------------------
TOTAL ASSETS $1,576,843 $1,574,169
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing $237,785 $241,289
Interest bearing 1,124,567 1,165,770
-------------------------------------
Total deposits 1,362,352 1,407,059
Notes payable 55,000 1,725
Other liabilities 13,194 9,231
-------------------------------------
TOTAL LIABILITIES 1,430,546 1,418,015
STOCKHOLDERS' EQUITY (see notes)
Preferred stock
($.01 par value; 5,000,000 shares authorized; none issued) - -
Common stock ($.80 par value; 50,000,000 shares authorized) 12,620 12,558
15,767,644 shares issued net of 597,119 treasury shares in 1999 and
15,697,290 shares issued net of 2,166 treasury shares in 1998
Additional paid-in capital 85,516 84,492
Retained earnings 62,434 57,621
Accumulated other comprehensive income/(loss) (3,397) 1,521
Treasury stock (10,876) (38)
-------------------------------------
TOTAL STOCKHOLDERS' EQUITY 146,297 156,154
-------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,576,843 $1,574,169
=====================================
</TABLE>
See notes to condensed consolidated financial statements.
-1-
<PAGE>
PREMIER NATIONAL BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
06/30/99 06/30/98 06/30/99 06/30/98
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $20,191 $22,912 $40,674 $46,166
Federal finds sold 238 943 1,140 1,796
Taxable securities 5,089 5,908 9,657 11,521
Tax-exempt securities 1,112 914 2,050 1,809
-----------------------------------------------------------------------------
Total interest income 26,630 30,677 53,521 61,292
Interest expense 10,290 13,989 20,959 27,869
-----------------------------------------------------------------------------
Net interest income 16,340 16,688 32,562 33,423
Provision for loan losses 500 2,555 1,500 3,530
-----------------------------------------------------------------------------
Net interest income
after provision for loan losses 15,840 14,133 31,062 29,893
-----------------------------------------------------------------------------
Noninterest income:
Service charges and fees 2,070 1,891 4,032 3,575
Trust earnings 273 239 536 459
Gains on sales of securities, net 95 0 171 51
Gains on sales of loans, net 12 179 78 298
Other income 207 48 472 198
-----------------------------------------------------------------------------
Total noninterest income 2,657 2,357 5,289 4,581
-----------------------------------------------------------------------------
GROSS OPERATING INCOME 18,497 16,490 36,351 34,474
-----------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 5,533 5,970 11,242 11,690
Net occupancy and equipment expense 1,824 1,783 3,579 3,545
Other real estate owned (15) (372) 5 (324)
Merger expenses 0 1,403 0 2,200
Other expenses 3,599 3,403 6,583 6,411
-----------------------------------------------------------------------------
Total noninterest expense 10,941 12,187 21,409 23,522
-----------------------------------------------------------------------------
Income before income taxes 7,556 4,303 14,942 10,952
Income taxes 2,563 1,589 5,217 4,107
-----------------------------------------------------------------------------
Net income $4,993 $2,714 $9,725 $6,845
=============================================================================
Weighted average common shares outstanding (1)
Basic 15,334,000 15,608,000 15,518,000 15,556,000
Diluted 15,554,000 16,090,000 15,739,000 16,017,000
Per common share data:
Basic earnings $0.33 $0.17 $0.63 $0.44
Diluted earnings $0.32 $0.17 $0.62 $0.43
Cash dividends declared $0.15 $0.12 $0.28 $0.24
Book value at period end 9.64 9.92
</TABLE>
(1) Adjusted for 10% Stock Dividend declared December 1998.
See notes to condensed consolidated financial statements.
-2-
<PAGE>
PREMIER NATIONAL BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six
Months Ended
OPERATING ACTIVITIES 06/30/99 06/30/98
-------- --------
<S> <C> <C>
Net income $9,725 $6,845
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,500 3,520
Depreciation and amortization 1,537 1,145
Amortization of security premiums and
accretion of discounts 530 898
Amortization of goodwill/core deposit intangible/acquisition costs 988 397
Realized gains on sales of securities and loans (249) (221)
Gains on sales of other real estate (24)
(Gains) loss on sale of premises and equipment (216) 6
Deferred income tax benefits (887) (868)
Increase in accrued income (2,765) (112)
Other, net 4,841 (5,838)
-------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,980 5,772
-------------------------------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 35,981 6,055
Proceeds from maturities of securities available for sale 54,583 52,675
Proceeds from maturities of securities held to maturity 4,766 20,889
Purchases of securities available for sale (213,639) (106,069)
Purchases of securities held to maturity (7,169) (8,963)
Sale of loans 1,209 11,292
Net decrease in loans 12,691 23,164
Purchase of premises and equipment (753) (3,693)
Proceeds from sales of premises and equipment 597 14
Proceeds from sale of OREO 563 306
-------------------------------
NET CASH USED IN INVESTING ACTIVITIES (111,171) (4,330)
-------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (44,707) 40,780
Proceeds from reissuance of common stock 2,591 1,791
Repurchase of common stock (12,974) (159)
Borrowings 55,000
Repayment of borrowings (1,725)
Cash dividends-common (4,045) (2,472)
-------------------------------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES (5,860) 39,940
-------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (102,051) 41,382
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 174,330 93,261
-------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $72,279 $134,643
===============================
CASH PAID FOR:
Interest $20,779 $25,988
Taxes 4,983 2,383
NON-CASH ITEMS
Transfer from loans to OREO 1,529 703
Net change in unrealized gains (losses) recorded
on securities available for sale (8,423) (597)
Change in deferred taxes on unrealized (gains)
losses recorded on securities available for sale (3,505) (171)
Loans to finance OREO - 129
Purchase of land by issuance of shares - 300
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income
(Loss)
=================================================================================================================================
<S> <C> <C> <C> <C>
Balance January 1, 1999 $12,558 $84,492 $57,621 $1,521
Net Income 9,725
Cash dividends declared on common stock($0.28 per share) (4,281)
Dividend reinvestment and stock purchase plan - 36,013 shares 14 285
Options exercised - 104,204 shares 48 750
Cash in lieu issued for fractional shares (11)
Effect of Treasury stock issued at less than cost (631)
Purchase of treasury stock - 718,083 shares
Net change in unrealized gain on securities, after tax (4,918)
-----------------------------------------------------------
Balance June 30, 1999 $12,620 $85,516 $62,434 ($3,397)
===========================================================
Balance January 1, 1998 $11,308 $59,628 $78,612 $1,647
Net Income 6,845
Cash dividends declared on common stock($0.24 per share) (2,472)
Dividend reinvestment and stock purchase plan - 28,932 shares
Options exercised - 84,601 shares 50 551
Purchase of land by issuances of treasury shares - 15,998
Effect of Treasury stock issued at less than cost (1,250)
Purchase of treasury stock - 7,030 shares
Net change in unrealized gain on securities, after tax (426)
-----------------------------------------------------------
Balance June 30, 1998 $11,358 $60,179 $81,735 $1,221
===========================================================
<CAPTION>
=========================
Treasury
Stock Total
=========================
<S> <C> <C>
Balance January 1, 1999 ($38) $156,154
Net Income 9,725
Cash dividends declared on common stock($0.28 per share) (4,281)
Dividend reinvestment and stock purchase plan - 36,013 shares 299
Options exercised - 104,204 shares 1,505 2,303
Cash in lieu issued for fractional shares (11)
Effect of Treasury stock issued at less than cost 631 0
Purchase of treasury stock - 718,083 shares (12,974) (12,974)
Net change in unrealized gain (loss) on securities, after tax (4,918)
-------------------------
Balance June 30, 1999 ($10,876) $146,297
=========================
Balance January 1, 1998 ($2,358) $148,837
Net Income 6,845
Cash dividends declared on common stock($0.24 per share) (2,472)
Dividend reinvestment and stock purchase plan - 28,932 shares 734 734
Options exercised - 84,601 shares 156 757
Purchase of land by issuances of treasury shares - 15,998 300 300
Effect of Treasury stock issued at less than cost 1,250 0
Purchase of treasury stock - 7,030 shares (159) (159)
Net change in unrealized gain on securities, after tax (426)
-------------------------
Balance June 30, 1998 ($77) $154,416
=========================
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
===================================================================================================================================
Six Months Ended Three Months Ended
1999 1998 1999 1998
===================================================================================================================================
<S> <C> <C> <C> <C>
Net Income $9,725 $6,845 $4,993 $2,714
Other Comprehensive income, net of tax:
Net unrealized gains (loss) on securities:
Net unrealized holding gains (losses)
arising during year (5,305) (584) (3,971) (138)
Less reclassification adjustment for (gains)
losses included in net income: 387 158 278 137
---------------- ---------------- ---------------- ----------------
Other comprehensive income (loss) (4,918) (426) (3,693) (1)
---------------- ---------------- ---------------- ----------------
COMPREHENSIVE INCOME $4,807 $6,419 $1,300 $2,713
================ ================ ================ ================
</TABLE>
See notes to condensed consolidated financial statements
-5-
<PAGE>
FORM 10-Q
PREMIER NATIONAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
- ---------------------
The unaudited condensed consolidated financial statements and related notes of
Premier National Bancorp, Inc. (the "Company") have been prepared in accordance
with Regulation S-X under the Securities Exchange Act of 1934, as amended, and
consequently the accompanying unaudited, condensed consolidated financial
statements and notes do not contain all disclosures required by generally
accepted accounting principles. The condensed consolidated financial statements
include the Company's wholly owned subsidiary, Premier National Bank, and its
subsidiaries (the "Bank"). These interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
note disclosures in the Annual Report on Form 10-K for the year ended December
31, 1998.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the Company's consolidated
financial position as of June 30, 1999 and December 31, 1998 and its
consolidated results of operations and comprehensive income for the three and
six month periods ended June 30, 1999 and 1998 and the consolidated cash flows
and changes in consolidated stockholders' equity for the six months ended June
30, 1999 and 1998.
In preparing such financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the dates of the consolidated statements of condition and the revenues and
expenses for the periods reported. Actual results could differ significantly
from those estimates.
Estimates that are particularly susceptible to significant change relate to the
determination of the adequacy of the allowance for loan losses and the valuation
of other real estate acquired in connection with foreclosures or in satisfaction
of loan receivables. In connection with the determination of the balances of the
allowance for loan losses and other real estate owned, management obtains
independent appraisals for significant properties, according to Bank policy or
regulation.
The results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the full year.
Material intercompany items and transactions have been eliminated in
consolidation. Certain reclassifications have been made to conform to the
current presentation.
Forward-Looking Statements
- --------------------------
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for the remainder of 1999 and, in certain instances, subsequent
periods. The Company cautions that these forward-looking statements are subject
to numerous assumptions, risks and uncertainties, and that statements for
subsequent periods are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and
6
<PAGE>
assumptions. Actual results could differ materially from forward-looking
statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements: pricing
pressures on loan and deposit products; continued high level of prepayments of
loans; actions of competitors; changes in economic conditions; the extent and
timing of actions of the Federal Reserve Board; customer deposit
disintermediation; changes in customers' acceptance of the Company's products
and services; other normal business risks such as credit losses, litigation,
etc.; continued performance of unseasoned loans; continued increases in the
levels of nonperforming assets; the extent and timing of legislative and
regulatory actions and reform, estimated cost savings from recent or anticipated
acquisitions and mergers cannot be fully realized within the expected time
frame, revenues following such transactions are lower than expected, and costs
or difficulties related to the integration of acquired and existing businesses
are greater than expected or system costs related to the year 2000 are greater
than expected.
The Company's forward-looking statements speak only as of the date on which such
statements are made. By making any forward-looking statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated events
or circumstances.
7
<PAGE>
Loans
- -----
Major classifications of loans (excluding loans held for sale, of which there
are none at June 30, 1999 and December 31, 1998) are summarized below (in
thousands):
At June 30, 1999 At December 31, 1998
---------------- --------------------
Commercial and industrial $114,012 $113,680
Consumer installment 130,553 134,152
Real estate - construction 50,486 50,888
Real estate - mortgage (Commercial) 253,008 242,062
Real estate - mortgage
(Residential & Home Equity) 405,439 427,440
Other loans 5,051 5,625
-------- --------
Total $958,549 $973,847
======== ========
Deposits
- --------
Major classifications of deposits are summarized below (in thousands):
At June 30, 1999 At December 31, 1998
---------------- --------------------
Demand deposits $237,785 $241,289
NOW accounts 88,748 61,816
Money market deposit accounts 299,764 326,102
Savings accounts 265,777 304,578
Time deposits under $100,000 325,140 347,662
Time deposits over $100,000 145,138 125,612
---------- ----------
Total $1,362,352 $1,407,059
========== ==========
8
<PAGE>
Securities
- ----------
Securities consist of the following (in thousands):
<TABLE>
<CAPTION>
At June 30, 1999 At December 31, 1998
---------------------------------- ------------------------------------
Carrying Amortized Fair Carrying Amortized Fair
Amount Cost Value Amount Cost Value
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US Treasury:
Available for Sale $ 50,374 $ 50,444 $ 50,374 $ 64,933 $ 64,027 $ 64,933
US Gov't Agencies:
Available for Sale 135,453 136,384 135,453 28,461 28,270 28,461
Obligations of States and
Political Subdivisions:
Available for Sale 158,321 160,519 158,321 97,082 94,905 97,082
Held to Maturity 15,340 15,340 15,664 17,461 17,461 18,038
Other Securities:
Available for Sale 134,257 136,866 134,257 169,136 169,795 169,136
Held to Maturity 75 75 77 75 75 79
Regulatory Securities 9,727 9,727 9,727 9,703 9,703 9,703
-------------------------------------------------------------------------
Total Securities $503,547 $509,355 $503,873 $386,851 $384,236 $387,432
=========================================================================
Total Available for Sale $478,405 $484,213 $478,405 $359,612 $356,997 $359,612
Total Held to Maturity 15,415 15,415 15,741 17,536 17,536 18,117
Regulatory Securities 9,727 9,727 9,727 9,703 9,703 9,703
-------------------------------------------------------------------------
Total Securities $503,547 $509,355 $503,873 $386,851 $384,236 $387,432
=========================================================================
</TABLE>
At June 30, 1999 and December 31, 1998, the net unrealized gain (loss) on
securities available for sale (net of tax effect of $2,411,000 and $1,094,000,
respectively) that was included in accumulated other comprehensive income
(loss), a separate component of stockholders' equity, was $(3,397,000) and
$1,521,000, respectively. Net unrealized gains and (losses) on available for
sale securities at June 30, 1999 and December 31, 1998, were $(5,808,000) and
$2,615,000, respectively.
9
<PAGE>
Earnings per common share 1998 data has been adjusted for the 10% stock dividend
- -------------------------
which the Company declared in December 1998.
Basic earnings per common share is computed as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 15,334 15,608 15,518 15,556
====== ====== ====== ======
Total basic shares 15,334 15,608 15,518 15,556
====== ====== ====== ======
Net income $4,993 $2,714 $9,725 $6,845
====== ====== ====== ======
Basic earnings per common share $0.33 $0.17 $0.63 $0.44
===== ===== ===== =====
<CAPTION>
Diluted earnings per common share is computed as follows (in thousands, except
per share data):
Three months ended Six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 15,334 15,608 15,518 15,556
Effect of dilutive stock options 220 482 221 461
------ ------ ------ ------
Total diluted shares 15,554 16,090 15,739 16,017
====== ====== ====== ======
Net income $4,993 $2,714 $9,725 $6,845
====== ====== ====== ======
Diluted earnings per common share $0.32 $0.17 $0.62 $0.43
</TABLE>
Stockholders' Equity
- --------------------
Issued and outstanding shares (net of treasury shares) at June 30, 1999 and
December 31, 1998, were 15,170,525 and 15,695,124, respectively. The Company
purchased approximately 720,000 treasury shares in open market transactions
during the first half of 1999. The Company paid a 10% stock dividend in January
1999 which increased common shares outstanding by 1,426,800. (All 1998 share
data has been accordingly restated in the condensed consolidated statements of
income and expense and Stockholders' Equity.)
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
- -------------------
Total assets of the Company are little changed at $1,576.8 million at June 30,
1999, from $1,574.2 million at December 31, 1998. Increases in securities of
$116.7 million to $503.5 million at June 30, 1999 were funded by declines in
cash and cash equivalents of $102.1 million to $72.3 million and net loans of
$15.3 million to $937.3 million.
In the first half of 1999 the Bank originated $141.4 million of new loans.
Amortization, prepayments and sales into the secondary market were $156.7
million resulting in a net decrease from year end 1998 in gross loans
outstanding to $958.5 million at June 30, 1999. The net increase in commercial
mortgages of $10.9 million or 4.5% and commercial and industrial loans ($.3
million or .3%) was offset by declines in other categories as follows:
residential mortgage loans (including home equity) of $22.0 million (5.1%),
consumer installment of $3.6 million (2.7%), real estate construction of $.4
million (.8%) and other loans of $.6 million (10.2%). Continuing the trend
established in 1998, consumers have been refinancing and consolidating first
lien adjustable mortgages and home equity loans resulting in significant
prepayments of the Company's loan balances in these categories. As of June 30,
1999, the Company held approximately $55.0 million in adjustable rate first lien
mortgage loans that are scheduled to reprice during the remainder of 1999.
Although interest rates on fixed rate mortgage loans have risen recently,
customers may still choose to refinance to a long-term fixed rate mortgage in
lieu of maintaining an adjustable rate mortgage. The Company continues its
practice of not retaining significant balances in long-term fixed rate mortgages
in its portfolio. Therefore, there can be no assurance that residential mortgage
balances will not continue to decline due to refinancing. The company is focused
on increasing commercial loans and commercial mortgages while attempting to
mitigate the runoff of residential mortgages through active solicitation of
borrowers identified as more likely to refinance their balances. It should be
noted that the interest earned on such refinanced loans may be lower than that
currently earned on the existing loans.
Period end total deposits decreased $44.7 million in the first half of 1999 to
$1,362.4 million. Of this amount, total Public (Municipal) Funds increased $26.8
million or 40.3% to $93.1 million and total non-public funds decreased by $71.5
million to $1,269.3 million. In addition, an exceptional customer deposit was
made on June 30, 1999 in the amount of $33.0 million, which funds were
subsequently withdrawn three business days after period end. The declines in
deposit balances principally reflect the result of the Company's pricing
policies and management of interest expense paid on deposits. As a result,
customers seeking the highest rates paid by competitor institutions and have
been consequently withdrawing rate sensitive deposits.
11
<PAGE>
The following tables summarize the net changes in public (municipal) fund and
non-public fund deposits from December 31, 1998 to June 30, 1999 (in thousands):
PUBLIC FUNDS
Percent
Balance Balance Net Change over
12/31/98 6/30/99 Change Y/E`98
----------------------------------------------------
Demand accounts $2,482 $4,159 $1,677 67.6%
NOW accounts 12,211 11,613 (598) (4.9)
Money market accounts 10,901 11,415 514 4.7
Savings accounts 2,418 2,307 (111) (4.6)
Time deposits 38,309 63,585 25,276 66.0
----------------------------------------------------
Total public deposits $66,321 $93,079 $26,758 40.3%
====================================================
Public funds balances increased in the first half of 1999 due both to matching
competitive pricing on large time deposits as funding for a portion of the
securities portfolio and seasonal increases due to village tax assessments
levied in June. Historically, this increase reverses by year end as
municipalities employ their funds. However, increases are anticipated in the
third quarter due to school district tax levies.
NON PUBLIC FUNDS
Percent
Balance Balance Net Change over
12/31/98 6/30/99 Change Y/E`98
----------------------------------------------------
Demand accounts $238,807 $233,626 $(5,181) (2.2)%
NOW accounts 49,605 77,135 27,530 55.5
Money market accounts 315,201 288,349 (26,852) (8.5)
Savings accounts 302,160 263,470 (38,690) (12.8)
Time deposits 434,965 406,693 (28,272) (6.5)
----------------------------------------------------
Total non public deposits $1,340,738 $1,269,273 $(71,465) (5.3)
====================================================
Non-public deposits declined $71,465,000 compared to December 31, 1998. The
decrease in demand accounts reflects the historical seasonality experienced by
the Bank. Money market, savings and time deposits declines are the result of the
Company's pricing policies, as the Company has actively reduced the rates paid
on these deposits in order to improve the net interest margin. The increase in
NOW accounts is due solely to a $33.0 million deposit into an escrow account at
June 30, 1999 that was subsequently withdrawn. Excluding this, deposit NOW
accounts were down $5,470,000 or 11.0%.
Notes payable increased to $55.0 million at June 30, 1998 vs. $1.7 million at
year end 1998, as the Company has employed a modest leverage strategy utilizing
borrowings (in addition to municipal time deposits) to fund an increase in its
securities portfolio. Although such spreads on the incremental assets acquired
are lower than on loan assets, the Company
12
<PAGE>
believes this strategy will improve its net interest income. See also
"Asset/Liability Management".
Consolidated stockholders' equity at June 30, 1999 was $146.3 million, down $9.9
million over year end 1998, primarily due to the purchase of approximately
720,000 shares of Treasury stock during the first half of 1999 ($12.9 million)
and by the decline of $4.9 million in accumulated other comprehensive income
(net unrealized gains and losses, after tax, in market value of available for
sale securities). These decreases were partially offset by the Company's net
retentions of earnings for the first half of the year $5.4 million and by $2.6
million of stock issuance proceeds from the Company's stock option and dividend
reinvestment plans. The ratio of shareholders' equity to total assets remained
strong at June 30, 1999 standing at 9.2%.
Results of Operations
- ---------------------
Interest income as reported, for the six months ended June 30, 1999, compared to
the same period in 1998, decreased $7.8 million while interest expense decreased
by $6.9 million. This resulted in a decrease in net interest income of $.9
million. Provision for loan losses decreased by $2.0 million. Total non-interest
income increased $708,000 or 15.5%. Total noninterest expenses were $2.1 million
or 8.9% less than the first half of 1998, due mainly to the non-reoccurrence of
merger-related expenses of $2.2 million incurred in the first half of 1998.
Excluding merger related expenses, total non-interest expense was relatively
unchanged with an increase of $87,000 over June 30, 1998 levels. Net income
after tax increased by $2.9 million or 42.1% to $9.7 million. Diluted earnings
per common share increased to $.62 for the six months of 1999 compared to $.43
for 1998. Excluding merger-related expenses incurred in 1998 of $2.2 million (or
$1.6 million after-tax) comparative net income for the 1998 first half of 1998
on a pro forma basis would have been $8.5 million and diluted earnings per
common share would have been $.53.
The net income and earnings per common share data discussed above is presented
in the following table:
Three months ended
------------------
Pro forma
---------
Actual 6/30/99 Actual 6/30/98* 6/30/98(1)*
-------------- --------------- -----------
Net income (in thousands) $4,993 $2,714 $3,670
Per common share:*
Basic earnings 0.33 0.17 0.24
Diluted earnings 0.32 0.17 0.23
(1) Excludes merger-related expenses after tax of $1.0 million for the three
months ended June 30, 1998. (Includes $.7 million after tax of conforming
accounting adjustments recorded in connection with the merger of
Progressive Bank, Inc. with and into Hudson Chartered Bancorp, Inc. "the
Merger")
* Adjusted for the 10% stock dividend declared December 1998.
13
<PAGE>
Six months ended
----------------
Pro forma
---------
Actual 6/30/99 Actual 6/30/98* 6/30/98(1)*
-------------- --------------- -----------
Net income (in thousands) $9,725 $6,845 $8,466
Per common share:*
Basic earnings 0.63 0.44 0.54
Diluted earnings 0.62 0.43 0.53
(1) Excludes merger-related expenses after tax of $1.6 million for the six
months ended June 30, 1998. (Includes $.7 million after tax of conforming
accounting adjustments recorded in connection with the Merger.)
* Adjusted for the 10% stock dividend declared December 1998.
The Company's return on average assets and return on average equity for the
three and six months ended June 30, 1999 and 1998, and pro forma (excluding
merger-related expenses of $1.0 and $1.6 million after tax for the three and six
month periods ended June 30, 1998), are detailed in the table below:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
Actual Actual Pro forma Actual Actual Pro forma
------ ------ --------- ------ ------ ---------
6/30/99 6/30/98 6/30/98(1) 6/30/99 6/30/98 6/30/98(1)
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Actual:
- ------
Return on average assets
1.31% .66% .89% 1.27% .83% 1.03%
Return on average
stockholders'equity 13.20 7.09 9.59 12.73 9.02 11.16
</TABLE>
(1) Excludes merger-related expenses after tax of $1.0 million and $1.6 million
respectively for the three months and six months ended June 30, 1998. (Includes
$.7 million of conforming accounting adjustments in connection with the Merger.)
Interest income
- ---------------
On a tax equivalent basis, gross interest income decreased by $7.6 million or
12.2% for the six months ended June 30, 1999 compared to the same period in
1998, due principally to the decrease in average earning assets of $99.9
million. Average loans decreased by $68.2 million, average securities decreased
$12.0 million and average federal funds sold decreased by $19.5 million.
Total interest expense decreased by $6.9 million or 24.8% for the six month
period ended June 30, 1999 as compared to the six months ended June 30, 1998 due
primarily to lower interest rates paid on deposits and declines in average
balances of $57.9 million and $62.0 million in time and savings deposits,
respectively.
Consistent with general market interest rates in the comparative periods,
average yields on interest earning assets continued the declining trend (49
basis points) witnessed in recent quarters to 7.57% for the six months ended
June 30, 1999 vs. 8.06% as of the same period in 1998 reflecting both declines
in loan yields as well as lower yields on taxable securities and fed funds sold.
These declines were modestly offset by an increase in yield on tax-exempt
securities. However, average interest bearing liability rates paid decreased (77
basis points) to 3.68% for the six months ended June 30, 1999 vs. 4.45% for the
six months ended June 1998 due primarily to the Company's continued downward
management of deposit interest rates paid to
14
<PAGE>
reflect its increasing liquidity. Accordingly, net interest margins on a tax
equivalent basis increased to 4.66% for the six months ended June 30, 1999
compared to 4.45% in 1998. However, this improvement in net interest margin was
not sufficient to offset the full impact of the decline in interest earning
assets (principally loans). Thus, while variances due to changes in rates
(primarily lower deposit costs) produced an $813,000 increase in net interest
income in the six months of 1999 compared to the same period in 1998, the
decrease in average earning assets and liabilities principally contributed to
the $1,674,000 decrease in net interest income due to volume variances over the
same period. The net effect was that net interest income before provisions for
loan losses was $32.6 million for the six months ended June 30, 1999 compared to
$33.4 million for the comparable period in 1998, or a decrease of $861,000
(2.6%).
As previously stated, the Company is implementing a leverage strategy to
increase earning assets. While the program has had some impact on the second
quarter earnings, the fuller impact will be seen in the third and fourth
quarters of 1999, which should witness increases in quarterly net interest
income of an additional $150,000.
15
<PAGE>
The table below sets forth the consolidated average balance sheets for the
Company for the periods indicated. Also set forth is information regarding
weighted average yields on interest-earning assets and weighted average rates
paid on interest-bearing liabilities (dollars in thousands).
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
---- ----
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1)
Loans (1) $960,483 $40,674 8.47% $1,028,599 $46,166 8.98%
Taxable Securities 345,834 9,657 5.59% 367,447 11,521 6.27%
Tax-exempt Securities (2) 90,107 3,154 7.00% 80,841 2,741 6.78%
Fed Funds Sold 46,785 1,140 4.87% 66,276 1,796 5.42%
---------- -------- ---------- -------
Total Interest Earning Assets 1,443,209 54,625 7.57% 1,543,163 $62,224 8.06%
---------- -------- ---------- -------
NonInterest Earning Assets:
Cash & Due from Banks 49,873 48,539
Premises & Equipment 27,942 26,571
Other Assets 27,406 42,333
Allowance for Loan Losses (21,408) (19,574)
---------- -------- ---------- -------
Total Assets $1,527,022 $54,625 7.15% $1,641,031 $62,224 7.58%
========== ======== =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing Liabilities:
Savings Deposits $285,707 $3,706 2.59% $347,732 $6,417 3.69%
NOW Accounts 58,446 290 0.99% 72,648 440 1.21%
Money Market Accounts 321,413 5,566 3.46% 304,290 6,818 4.48%
CD's over $100,000 139,730 3,563 5.10% 115,569 3,211 5.56%
Other Time Deposits 328,444 7,671 4.67% 410,546 10,936 5.33%
Borrowed Funds 6,238 163 5.23% 1,725 47 5.45%
---------- -------- ---------- -------
Total Interest-Bearing Liabilities 1,139,978 20,959 3.68% 1,252,510 27,869 4.45%
Noninterest-Bearing Liabilities:
Demand Deposits 222,990 215,682
Other 11,218 21,138
----------
Total Noninterest-Bearing Liabilities 234,208 236,820
Stockholders' Equity 152,836 3.05% 151,701 3.74%
---------- ------ ---------- -----
Total Liabilities and Stockholders' Equity $1,527,022 20,959 $1,641,031 27,869
---------- ------- ---------- -------
Net interest Margin 33,666 4.66% 34,355 4.45%
Less Tax Equivalent Adjustments (1,104) (932)
------- -------
Net Interest Income $32,562 4.51% $33,423 4.33%
======== ====== ======= =====
Excess of interest earning assets over $290,653
interest bearing liabilities $303,231
Ratio of Average Interest-Earning Assets to 126.60% 123.21%
Average Interest-Bearing Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average Balances include non-accrual loans.
(2) Tax Equivalent Yields on tax-exempt securities based on a Federal tax rate
of 35%.
16
<PAGE>
The table below details the changes in interest income and interest expense for
the period indicated due to both changes in average outstanding balances and
changes in average interest rates:
Rate/Volume Analysis (in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 vs. 1998
-----------------------------------------------------------------
Increase (Decrease) due to
-----------------------------------------------------------------
Volume Rate Net(1)
------ ---- ---------
<S> <C> <C> <C>
Interest Income:
Loans $(3,057) $(2,435) $(5,492)
Taxable investment securities (678) (1,186) (1,864)
Tax-exempt investment(2) securities 314 99 413
Federal funds sold (528) (128) (656)
----------- ---------- ----------
Total interest income (3,949) (3,650) (7,599)
Interest expense:
Savings deposits (1,145) (1,566) (2,711)
NOW/accounts (86) (64) (150)
Money market accounts 384 (1,635) (1,252)
Certificates over $100,000 671 (320) 352
Other Time Deposits (2,187) (1,078) (3,265)
Borrowed funds 123 (7) 116
----------- ---------- ----------
Total interest expense (2,240) (4,670) (6,910)
----------- ---------- ----------
Net interest margin (1,709) 1,020 (689)
Less tax equivalent effect 35 (207) (172)
----------- ---------- ----------
Net interest income ($1,674) $813 $(861)
=========== ========== ==========
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each to the total change.
(2) Yields on tax exempt securities based on a Federal tax rate of 35%.
Provision for loan losses and credit quality
- --------------------------------------------
Provisions for loan losses are based on management's assessment of risk of loss
inherent in the loan portfolio and as such reflect, among other things, both
trends in local economic conditions and the categorization of the credit quality
of individual loans. Such assessment is ongoing, and may not directly reflect
the charge-offs taken in any accounting period, although the trend in
charge-offs is an important element in the evaluation of the adequacy of the
allowance for loan losses.
17
<PAGE>
The 1998 provision for loan losses included a $1.4 million charge to conform
accounting policies in connection with the merger. Excluding this charge, the
provision for loan losses declined from $2.1 million in 1998 to $1.5 million in
1999.
Net charge-offs for the first six months of 1999 were $1.5 million compared to
$2.9 million for the same period in 1998. The ratio of net chargeoffs to average
loans, on an annualized basis, decreased to .31% in the first six months of 1999
vs. .57% for the same period of 1998.
Total non-performing assets were approximately $12.9 million at the end of June
1999, up $.6 million over the $12.3 million at June 1998, and up $2.9 million
from the year end 1998 level of $10.0 million representing .82% of total assets,
vs. .64% at year end. OREO balances at $1.7 million were up from the $.6 million
reported at year end 1998 and period end non-performing loans of $11.1 million
were up $1.7 million over the December 31, 1998 level of $9.4 million primarily
due to three large commercial mortgages, two of which are in process of
foreclosure while one is held in OREO and three commercial and industrial loans
which are primarily secured by real estate.
Nonperforming assets represent 168 loans or OREO properties of which on1y
5 have balances in excess of $300,000. Of the total nonperforming loans, 50% are
collateralized by residential property, 47% by commercial property, and 3% by
other assets or unsecured.
Management believes that the allowance for loan losses is adequate to cover the
risk of loss inherent in the portfolio. However, the Company has experienced
substantial growth in its residential mortgage and related residential housing
construction portfolios in recent years. As a result of this growth, a portion
of the Company's loan portfolio may be considered "unseasoned". Until these
portfolios become more "seasoned", it is more difficult to assess the latent
risk in these portfolios, and, therefore, the allowances are based on the
present performance indices of this portfolio. Furthermore, no assurance can be
given that the relatively stable current economic conditions of the Company's
overall market area will not be unsettled by future events. Any such
developments would be expected to adversely effect the financial performance of
the Company.
18
<PAGE>
The table below summarizes the Company's loan loss experience for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
For the six months For the year
ended June 30, ended December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
-------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period $21,270 $19,331 $19,331 $18,533 $16,803
Chargeoffs:
Commercial & industrial 125 318 406 1,448 894
Consumer installment & other 662 690 1,620 1,146 821
Real estate mortgage 990 2,333 3,344 2,164 2,575
-------------------------- ------------------------------------
Total charge-offs 1,777 3,341 5,370 4,758 4,290
Recoveries:
Commercial & industrial 31 64 462 164 118
Consumer installment & other 270 218 481 160 180
Real estate mortgage 118 437 757 572
-------------------------- ------------------------------------
Total recoveries 301 400 1,380 1,081 870
-------------------------- ------------------------------------
Net charge-offs (1,476) (2,941) (3,990) (3,677) (3,420)
Provision for loan losses 1,500 3,530 5,929 4,475 5,150
------- -------- ----- ----- -------
Balance at end of period $21,294 $19,920 $21,270 $19,331 $18,533
========================== ====================================
Ratio of net charge-offs to average
loans outstanding during the period
(annualized) .31% .57% .40% .35% .34%
Allowance for loan losses as a
percent of period-end loans 2.22% 1.98% 2.18% 1.85% 1.78%
Allowance as a percent of
non-performing loans 192% 194% 226% 214% 181%
Nonperforming loans and OREO
to total loans and OREO 1.34% 1.22% 1.03% 1.00% 1.32%
</TABLE>
19
<PAGE>
The table below summarizes the Company's nonperforming assets and restructured
loans at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
at June 30, at December 31,
----------- ---------------
1999 1998 1998 1997 1996
--------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans: (1)
Real estate mortgage $9,205 $9,552 $8,282 $7,602 $8,088
Commercial & Industrial 1,428 181 558 164 712
Consumer & other 208 134 83 123 313
--------------------------- ---------------------------------------
Total nonaccrual loans 10,841 9,867 8,923 7,889 9,113
Loans 90 days or more past due and
still accruing:
Real estate mortgage 146 224 129 430
Commercial & industrial 75 85 205 188 193
Consumer & other 24 21 68 126 22
--------------------------- ---------------------------------------
Total 90 days past due accruing 245 106 497 443 645
Restructured - real estate 27 312 28 682 500
--------------------------- ---------------------------------------
Total non-performing and restructured
loans 11,113 10,285 9,448 9,014 10,258
Other real estate owned 1,743 2,024 628 1,366 2,923
--------------------------- ---------------------------------------
Total non-performing assets $12,856 $12,309 $10,076 $10,380 $13,181
=========================== =======================================
Non-performing and restructured
loans as a percent of total
loans 1.16% 1.02% .96% .87% .98%
=========================== =======================================
Nonperforming assets as a percent of
total assets 0.82% 0.74% .64% .64% .84%
=========================== =======================================
</TABLE>
(1) Nonaccrual status denotes loans on which, in the opinion of management, the
collection of interest is unlikely, or loans that meet other nonaccrual criteria
as established by regulatory authorities. Payments received on loans classified
as nonaccrual are either applied to the outstanding principal balance or
recorded as interest income, depending upon management's assessment of the
collectibility of the loan.
Other real estate owned totals $1,743,000 at June 30, 1999 and includes 13
properties acquired through foreclosure: 10 residences, and 3 non-farm
nonresidential properties.
20
<PAGE>
In addition to the nonperforming loans and other nonperforming assets noted
above, at June 30, 1999, the Company had approximately $18.2 million in loans
requiring special attention (substandard) compared to $19.0 million of similar
loans at December 31, 1998. Such loans are being monitored so that if present
concerns about the borrowers ability to comply with repayment terms becomes
evident, management will be able to quickly assess impairment. Further
deterioration in such borrowers' financial position may result in reclassifying
them as nonperforming assets.
Management recently completed an expanded evaluation of its loan portfolio
related to homogenous pools of loans (primarily larger balance residential
mortgages). As a result of this review, certain loans previously evaluated in a
"pool" of loans were individually reviewed for impairment. As a result of this
review, loans classified as impaired increased from year end 1998 levels by
approximately $6.7 million (even though total nonperforming loans only increased
by $1.7 million in the same period). Further, as a result of this review,
allowance allocations related to such impaired loans increased by $1.6 million
which were reallocated from within the overall balance of the allowance for loan
losses.
The following table summarizes impaired loans for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Impaired loans with allowance established $3,872,000
and $2,242,000, respectively) $13,614 $5,545
Impaired loans which have been written down
$1,266,000 and $1,641,000, respectively) 1,984 3,323
----- -----
Total $15,598 $8,868
======= ======
Average amount of impaired loans
for the period $12,150 $8,700
======= ======
</TABLE>
The following table shows, at the dates indicated, the allocation of the
allowance for loan losses, by category, and the percentage of loans in each
category to total gross loans (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1998 1997 1996
--------------------------------------- --------------------------------------------------------------
Balance at end of % of % of % of % of % of
period applicable to: Amount total Amount total Amount total Amount total Amount total
loans loans loans loans loans
---------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial &
industrial $ 4,802 11.9% $ 2,514 9.3% $ 2,472 11.7% $ 2,131 9.0% $ 2,476 7.9%
Consumer & other 2,797 14.2 2,817 15.1 3,530 14.4 3,699 15.2 3,341 14.5
Real estate -
mortgage 12,543 73.9 13,087 75.6 11,679 73.9 12,124 75.8 11,577 77.6
Unallocated 1,152 1,502 3,589 1,377 1,139
---------------------------------------- --------------------------------------------------------------
Total $21,294 100% $19,920 100% $21,270 100% $19,331 100% $18,533 100.00%
======================================== ==============================================================
</TABLE>
21
<PAGE>
Noninterest Income
- ------------------
Total non interest income increased by $708,000 or 15.5% to $5.3 million during
the first half of 1999 compared to the same period of 1998. Specifically,
service charges and fees increased $457,000 as a result of the implementation of
a singular fee schedule for the merged bank. In addition, primarily due to
nonrecurring sales of properties, other income increased by $274,000. While
trust earnings and gains on sales of securities increased by $77,000 and
$120,000, respectively, lower levels of sales of loans into the secondary market
resulted in a decrease in gains on sales of loans of $220,000.
Other Expenses
- --------------
In total, noninterest expense decreased by $2,113,000 or 9% to $21.4 million for
the first six months of 1999 compared to the same period of 1998, due mainly to
merger-related expenses incurred in 1998 of $2,200,000.
Salaries and employee benefits expense decreased $448,000 to $11,242,000 at June
30, 1999 vs. $11,690,000 in the first six months of 1998, as merger-related
reductions in salary expense allowed the Company to absorb normal salary
increases for its staff during the year and add 14 full time equivalent staff in
connection with new branches established during the second and third quarters of
1998.
Occupancy and equipment expense was little changed over the same period in 1998,
as the effect of branch closings in connection with the merger was offset by the
costs of new branches opened in 1998. Other real estate owned expense increased
by $329,000 due to the reversal in 1998 of valuation reserves no longer
required. Other expenses increased by $172,000 as Y2K expenses of $216,000
incurred in 1999 and computer service bureau costs and consulting fee increases
of $442,000 and $317,000 respectively were offset by reductions in legal and
other professional fees, loan processing and advertising expenditures.
Net Income
- ----------
Pretax income increased by $3,990,000. The Company's effective tax rate
decreased to 34.9% from 37.9% as a result of higher levels of investments in tax
preferenced securities (including the utilization of a State tax advantaged
subsidiary) and elimination of the non-deductible expense associated with the
merger. Net income was $9.7 million for the six months ended June 30, 1999 vs.
$6.8 million for the same period in 1998, an increase of $2,880,000 or 42.07%.
Three months ended June 30, 1999 vs. June 30, 1998
- --------------------------------------------------
Net interest income decreased only $348,000 or 2.0% for the three months ended
June 30, 1999 compared to 1998, primarily due to declines in average loan
balances and generally lower levels of interest rates being almost completely
offset by reductions in interest expense.
Provisions for loan losses decreased by $2.0 million for the three month period
ended June 30, 1999 vs. June 30, 1998 due to merger-related charges and related
charge-offs during the three months ended June 30, 1998.
Other income increased $300,000 to $2.7 million for the three months ended June
30, 1999 compared to 1998, primarily as a result of increases in service charges
and fees $(179,000) as the service charge structure of the merged
22
<PAGE>
bank is fully implemented, increases in net gains on sales of securities of
$95,000 and other income (primarily income derived from outsourcing official
checks) increases of $159,000. These increases were partially offset by a
decrease in gains on sales of loans ($167,000).
Total noninterest expense decreased $1.2 million for the three months ended June
30, 1999 compared to 1998 due almost entirely to merger-related expenses in 1998
of $1.4 million. Decreases were also seen in salaries and benefits ($437,000).
These decreases were offset by reductions in OREO expense recoveries ($357,000)
from the recognition of valuation allowances in the second quarter of 1998, and
"other" expense of $196,000 (primarily computer service bureau and Y2K
remediation). Occupancy expense remained relatively unchanged as the cost of new
branches was offset by savings associated with the closure of branches due to
the merger.
Pretax income increased $3.3 million to $7.6 million for the three months ended
June 30, 1999 compared to the same period of 1998, while income taxes increased
by $1.0 million. Comparative income after taxes increased $2.3 million to $5.0
million for the quarter ended June 30, 1999 vs. 1998. However, excluding
merger-related items, net income increased by $1.3 million of which $.7 million,
after tax, was due principally to the aforementioned conforming accounting
adjustments, primarily provisions for loan losses and OREO valuation allowances,
in 1998.
Asset/Liability Management
- --------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities and capital resources. The Company's
Investment Committee of the Board monitors, and the Bank, through its treasury
division, controls the rate sensitivity of the balance sheet while seeking to
maintain an appropriate level of net interest income contribution to the
operations of the Company.
The Company's net interest revenue is affected by fluctuations in market
interest rates as a result of timing differences in the repricing of its assets
and liabilities. These repricing differences are quantified in specific time
intervals and are referred to as interest rate sensitivity gaps. The Company
manages the interest rate risk of current and future earnings to a level that is
consistent with its mix of businesses and seeks to limit such risk exposure to
appropriate percentages of both earnings and the imputed value of stockholders'
equity. The objective in managing interest rate risk is to support the
achievement of business strategies, while controlling earnings variability and
ensuring appropriate liquidity. Further, the historical level of demand deposits
(greater than 10% of total assets) serves to mitigate the effects of increases
in interest rates and reduces the average cost of total liabilities. The Company
is implementing a leverage strategy, whereby it intends to increase assets by
$100.0 million and fund such increased assets with a portion of its available
line of credit with the Federal Home Loan Bank repurchase agreements and
municipal deposits. As of June 30, 1999, $70.0 million of the strategy was
implemented with the balance of the transaction anticipated to be completed in
the third quarter of 1999. The Company expects to generate pretax net interest
income of approximately 1% on the transaction. The component securities and
funding sources utilized in the transaction (a combination of fixed and floating
rate securities funded primarily with variable rate liabilities) is not expected
to raise significantly the Company's overall exposure to fluctuations in market
interest rates.
23
<PAGE>
The following chart (in thousands) provides a quantification of the Company's
interest rate sensitivity gap as of June 30, 1999, based upon the known
repricing dates of certain assets, at amortized cost, and liabilities and the
assumed repricing dates of others. As shown in the chart below, at June 30,
1999, assuming no management action, the Company's principal interest rate risk
is to a rising rate environment and particularly within one year time frame.
That is, net interest revenue would be expected to be adversely affected by an
increase in interest rates (on a one-for-one basis) above the rates embedded in
the current yield curve, principally due to the higher level of liabilities
($1.05 billion) that would reprice relative to similarly classified assets
($709,478) in that time frame.
This exposure would be mitigated over the longer term as the Company has
$650 million more in repriceable interest earning assets than interest bearing
liabilities beyond one year.
24
<PAGE>
This chart displays only a static view of the Company's interest rate
sensitivity gap and does not capture the dynamics of balance sheet, rate and
spread movements nor management actions that may be taken to manage this risk
(in thousands).
<TABLE>
<CAPTION>
Total Greater
Maturity Repricing 3 months or 4 months to within One yr. than
Date (1)(2) less one yr. one yr. to 5 yrs. five yrs. Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities (3) $142,744 $41,250 $183,994 $172,256 $147,297 $503,547
Fed Funds 35,000 35,000 35,000
Fixed rate loans 85,329 131,283 216,612 245,492 38,034 500,138
Floating rate loans (3) 168,505 105,367 273,872 169,463 4,235 447,570
-------- ------- -------- -------- ------ --------
Total interest
earning assets (1) 431,578 277,900 709,478 587,211 189,566 1,486,255
-------- -------- -------- -------- -------- ----------
Other interest bearing
deposits (4) 316,388 288,088 604,476 45,159 649,635
Time/Other (5) 267,836 182,603 450,439 71,664 7,829 529,932
-------- -------- -------- ------- ------ --------
Total interest-bearing
liabilities 584,224 470,691 1,054,915 116,823 7,829 1,179,567
-------- -------- ---------- -------- ------ ----------
Interest Sensitivity
gap (6) $(152,646) $(192,791) $(345,437) $470,388 $181,737 $306,688
==========================================================================================
Gap as a percent of earnings
assets (10.3)% (13.0)% (23.2)% 31.6% 12.2% 20.6%
==========================================================================================
</TABLE>
(1) Interest rate sensitivity gaps are defined as the fixed rate positions
(assets less liabilities) for a given time period. The gaps measure the
time weighted dollar equivalent volume of positions fixed for a particular
period. The gap positions reflect a repricing date at which date funds are
assumed to "mature" and reprice to a current market rate for the asset or
liability. The table does not include loans on nonaccrual status or net
unrealized losses recorded on available-for-sale securities as of June 30,
1999.
(2) Variable rate balances are reported based on their repricing formulas.
Fixed rate balances are reported based on their scheduled contractual
maturity dates, except for certain investment securities and loans secured
by 1-4 family residential properties that are based on anticipated cash
flows.
(3) Prime-priced loans and investments are considered as 1 to 3 month assets.
(4) Other interest-bearing deposits include Money Market accounts (three months
or less) and Savings and NOW accounts (four months to one year) reflecting
the lagging period that historically exists in Savings and NOW account
interest rate movements. The remainder of other interest-bearing deposits
are "Merit" accounts (savings accounts whose yield is repriced directly
with the Federal Reserve Discount Rate). This discount rate changes less
frequently than other market rates. As a result, management places these
balances at one-half in the three month to six month category and the
balance beyond one year repricing category (the Federal Reserve Discount
Rate has not changed since November 1998.) The interest rate sensitivity
assumptions presented for these deposits are based on historical and
current experiences regarding balance retention and interest rate repricing
behavior.
(5) Time/Other: Time deposits and other interest-bearing liabilities are
classified by contractual maturity or repricing frequency.
(6) Non-interest bearing deposit liabilities were approximately $238 million at
June 30, 1999.
25
<PAGE>
Capital Resources and Liquidity
- -------------------------------
The following summarizes the minimum capital requirements and capital position
at June 30, 1999:
<TABLE>
<CAPTION>
To be Well Capitalized Under
"Prompt Corrective Action"
Capital Position at Provision of FDICIA
June 30, 1999 ------------------------
--------------------
Bank Only Consolidated
--------- ------------
<S> <C> <C> <C>
Total Capital
to Risk-Weighted Assets 13.25% 14.37% 10%
Tier 1 Capital
to Risk-Weighted Assets 11.99 13.12 6
Tier 1 Capital to Average
Assets (Leverage Ratio) 8.54 9.05 5(1)
</TABLE>
(1) Regulatory authorities require all but the most highly rated banks and bank
holding companies to have a leverage ratio of at least between 4.0% - 5.0%.
At June 30, 1999, the Bank met the requirements for a "well capitalized"
institution based on its capital ratios as of such date.
The Company believes that its cash and cash equivalents of $72.3 million in
addition to its securities available for sale of $478.5 million at June 30, 1999
are sufficient to meet both the funding needs of its borrowers and the liquidity
requirements of its depositors.
The Company's total capital to assets level is 9.2% at June 30, 1999. As such,
management believes that the Company has ample capital available for future
expansion and diversification and regularly evaluates appropriate business
opportunities to efficiently deploy its capital resources. The Company also has
available lines of credit with the Federal Home Loan Bank, Federal Reserve and
other commercial banks.
Year 2000
- ---------
1) The Company's state of readiness
Information Technology: The Company relies heavily on complex internal and
third party computer systems for all phases of its operations, including
document and electronic transaction processing, interest calculation,
financial record keeping and customer service. The Company has outsourced
services and software for substantially all its mission critical systems,
and has been working with these third party providers since mid-1997 to
address Year 2000 concerns.
At June 30, 1999, the Company has substantially completed the testing of
its mission-critical software, including 1998 testing of the wire transfer
and automated clearinghouse systems. Based on its review of the test
results, the Company believes that its mission critical systems are now
year 2000 compliant.
26
<PAGE>
Replacement of non-compliant non-mission critical hardware and software
was largely completed as part of the planned 1998 and 1999 upgrade of
branch automation software. As of June 30, 1999, the Company is in the
process of completing the installation of certain non-mission critical
hardware and software, including optical data storage software, a
telephone interface for the Company's call center and certain file
servers.
Non-Information Technology: The Company's exposure to non-information
technology systems is not material, in that its fixtures such as
vaults, elevators and environmental control systems are not generally
equipped with date sensitive microchips.
Third Parties: During 1998, the Company implemented a process for
evaluating the credit risk associated with its major customers. The
Year 2000 risk associated with each credit is based in part on
responses to a Year 2000 questionnaire, in part on evaluations
completed by account officers and in part on other considerations, such
as the type of industry and reliance on automated systems. The Company
disclaims any liability or obligation for the completeness, or lack
thereof, of its customers' Year 2000 remediation plans.
To the extent that this process disclosed borrowers or classes of
borrowers with significant Year 2000 risk, the Company allocated
reserves for possible Y2K related credit losses.
This allocation was based on the Company's assessment that credit risk
combined with Year 2000 risk increases its exposure to loss. The amount
of the allocation for each individual loan varied depending on the
degree of credit weakness, whether the Year 2000 risk was deemed to be
moderate or high, and whether the Company demonstrated satisfactory or
unsatisfactory Year 2000 compliance programs. At June 30, 1999, the
Company allocated a Year 2000 reserve in the amount of $2.5 million.
This amount did not have a material effect on the level of its
allowance for loan losses.
The Company continues to work with key vendors and suppliers and its
correspondent banks and brokers to assure no interruption in the
business relationship between the Company and these important third
party providers. These key providers include, but are not limited to,
payroll service providers, secondary market software providers,
telephone and utility companies and fiduciary record keeping
processors. The Company has completed some testing of these key vendors
and suppliers, and plans to test or obtain assurances from all others.
At June 30, 1999, the Company is not aware of the likely failure of any
of these suppliers, but will continue to monitor and evaluate their
Year 2000 readiness.
The Company notes that it is critically dependent on certain unrelated
third parties for the conduct of its business, such as the Federal
Reserve payment system, the automated clearinghouse system, and
telecommunications and local energy providers. The Company exercises no
influence over these providers, and there are few, if any, alternatives
for obtaining these services.
27
<PAGE>
2) The costs to address the Company's Year 2000 issues
Management does not consider the amounts expended to date to be
material, and the projected costs to be incurred over the remainder of
1999 are not expected to have a material effect on the Company's
results of operations or financial position. To date, the Company has
incurred costs associated with the renovation of custom code by a third
party provider, proxy testing, the cost of consultants, and the
renovation of certain ATMs. In addition, costs were incurred in
connection with certain phases of the Company's test plan, such as test
time with the Bank's primary service bureau and the costs of
consultants engaged to evaluate the results of the Company's Year 2000
testing program.
At June 30, 1999, the Company has expensed approximately $216,000 of
the originally estimated $300,000 in anticipated Year 2000 costs.
Although this original estimate appears to remain appropriate, no
assurance can be given that challenges will not be arise in the future
that will require additional expense to resolve, particularly in
connection with testing and remediating the Company's contingency
plans.
Although the Company does not specifically monitor the cost of internal
resources diverted to the Year 2000 project, these costs have consumed,
and can be expected to continue to consume, a substantial portion of
these internal resources, notably information technology department
resources.
Management will fund these Year 2000 costs, which represent our current
best estimates, from normal cash flow.
3) The risks of the Company's Year 2000 issues
At June 30, 1999, the Company views an extended disruption in service
to its customers as the most likely worst case scenario. If the
Company's mission critical systems are not compliant, it may not be
able to correctly process transactions in a reasonable period of time.
This scenario could result in a wide variety of claims for improper
handling of its assets as well as liabilities and other borrowings from
its customers.
At June 30, 1999, management deems the probability of this scenario to
be low, but the impact of any such disruption on the Company could be
anticipated to be material, and to raise serious concerns about the
ability of the Company to continue as a going concern.
A more likely scenario is one in which the Company experiences
temporary disruptions in service if one or more of the unrelated
vendors on which the Bank is critically dependent is not Year 2000
compliant. These unrelated vendors include providers of
telecommunication services and other utilities. The Company would
manage this risk by relying, temporarily, on manual record keeping; as
well as by closing or limiting hours of operations at selected offices,
and by transferring staff and equipment to locations not affected by
the loss of service.
28
<PAGE>
4) The Company's contingency plans
The Company had completed the preparation of its initial mission
critical Year 2000 contingency plans by March 31, 1999. The Company
completed the testing and validation of essential elements of this plan
by June 30, 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Quantitative and qualitative disclosure about market risk is presented at
December 31, 1998 in Item 7A in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on June 30, 1999. The following is
an update of the discussion provided therein:
General. The Company's largest component of market risk continues to be interest
rate risk. The Company is not subject to foreign currency exchange or commodity
price risk. At June 30, 1999, neither the Company nor the Bank owned any trading
assets, nor did they utilize hedging transactions such as interest rate swaps
and caps.
GAP Analysis. The one-year and five-year cumulative interest sensitivity gap as
a percentage of total assets have increased from (19.5%) and 31.4% at December
31, 1998, respectively, to (23.2%) and 31.6% at June 30, 1999, respectively,
utilizing similar assumptions as at December 1998.
Interest Rate Risk Compliance. The Bank continues to monitor the impact of
interest rate volatility upon net interest income and net portfolio value in the
same manner as at December 31, 1998. There have been no changes in the board
approved limits of acceptable variance in net interest income and net portfolio
value change at June 30, 1999 compared to December 31, 1998, and the projected
changes continue to fall within all board approved limits for potential interest
rate volatility.
See also Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations "Asset/Liability Management".
29
<PAGE>
Part II
Item 4. Submission of matters to a vote of security holders.
- -------------------------------------------------------------
The Company held its Annual Meeting of Shareholders on May 13, 1999. The
following matters were approved by the Company's shareholders at the meeting:
(1) Election of six directors for three year term expiring in 2002.
The total shares outstanding on the record date of April 5, 1999 were
15,426,482.
Individual votes cast were as follows:
Votes FOR Votes WITHHELD
--------- --------------
Edward vK. Cunningham Jr. 12,053,050 143,464
Warren Marcus 12,061,020 135,494
John Charles VanWormer 11,996,341 200,173
John J. Page 12,032,595 163,919
David A. Swinden 12,086,280 110,233
Archibald A. Smith III 12,085,015 111,499
(2) Amended Company's 1995 Stock Option Plan:
For: 11,423,048
Against: 601,362
Abstain: 172,103
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibits
10.1 Premier National Bancorp, Inc. Directors' Retirement Plan
(effective July 1, 1999.)
10.2 Supplemental Retirement Agreement of T. Jefferson Cunningham
III dated July 22, 1999.
10.3 Employment Agreement of Ronald M. Bentley
27 Financial Data Schedule (with EDGAR filings included)
Item 6(b). Reports on Form 8-K
- ---------- -------------------
None.
30
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Premier National Bancorp, Inc. Directors' Retirement Plan
(effective July 1, 1999)
10.2 Agreement of T. Jefferson Cunningham III dated July 22, 1999.
10.3 Employment Agreement of Ronald M. Bentley
27 Financial Data Schedule (with EDGAR filings included)
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed in its behalf by the undersigned
thereunto duly authorized.
Premier National Bancorp, Inc.
(Registrant)
Date: August 13, 1999 /s/ Paul A. Maisch
------------------
Paul A. Maisch
Duly Authorized Officer and
Principal Financial Officer
32
<PAGE>
Exhibit 10.1
PREMIER NATIONAL BANCORP, INC.
DIRECTORS' RETIREMENT PLAN
(Effective July 1, 1999)
In addition to any other terms defined in this Plan, the following terms
have the following meanings:
(a) "Beneficiary" means the person or persons, natural or otherwise,
-----------
designated by a Director pursuant to Section 6 hereof to receive any death
benefit payable hereunder pursuant to Section 6 hereof.
(b) "Board" means the Board of Directors of the Company, Progressive
-----
Bank, Inc., Hudson Chartered Bancorp, Inc., Community Bancorp, Inc. or Fishkill
National Corporation.
(c) "Change in Control" means a change in control of the Company of a
-----------------
nature that would be required to be reported after July 1, 1999 in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item
on any similar schedule or form) promulgated under the Securities Exchange Act
of 1934, as amended, whether or not the Company is then subject to such
reporting requirement; provided, however, that without limitation, a Change in
Control shall be deemed to have occurred if after July 1, 1999:
(i) the Company consummates a merger, consolidation, share
exchange, division or other reorganization or transaction of the Company (a
"Fundamental Transaction") with any other corporation, other than a Fundamental
Transaction that the Premier Board declares a "merger of equals" or that results
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty-one percent (51%)
of the combined voting power immediately after such Fundamental Transaction of
(A) the Company's outstanding securities, (B) the surviving entity's outstanding
securities, or (C) in the case of a division, the outstanding securities of each
entity resulting from the division;
(ii) the shareholders of the Company approve a plan of complete
liquidation or winding-up of the Company or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets; or
(iii) as a result of a proxy contest, individuals who, prior to
the conclusion thereof, constituted the Premier Board (including for this
purpose any new director whose election or nomination for election by the
Company's shareholders in connection with such proxy contest was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors prior to such proxy contest) cease to constitute at least a majority
of the Premier Board (excluding any Premier Board seat that is vacant or
<PAGE>
otherwise unoccupied).
(d) "Company" means Premier National Bancorp, Inc.
-------
(e) "Director" means a member (not including a member Emeritus) of a
--------
Board who is not also an employee or former employee of the Company or any of
its subsidiaries, including any former member of a Board who has a vested right
to a Retirement Benefit hereunder.
(f) "Plan" means the Premier National Bancorp, Inc. Directors
----
Retirement Plan as set forth herein.
(g) "Plan Administrator" means the Premier Board or such person or
------------------
committee designated by the Premier Board to administer this Plan.
(h) "Premier Board" means the Board of Directors of the Company.
-------------
(i) "Termination of Service" means any termination of a Director's
----------------------
service on a Board for any reason.
(j) "Vesting Date" means, with respect to a Director, the earlier of
------------
(i) the Director's Termination of Service on the Premier Board with the consent
of the Company (which consent shall not be unreasonably withheld) or at the
request of the Company, in either case after completing of five Years of
Service, (ii) the Director's death or disability after completing five Years of
Service, (iii) the Director's having attained at least age 70, and (iv) the
occurrence of a Change in Control.
(k) "Years of Service" means a Director's years of service (including
----------------
fractions thereof based on full calendar quarters of service) as a member of a
Board (or as a member of the Board of Directors of a subsidiary of the Company,
Progressive Bank, Inc., Hudson Chartered Bancorp, Inc., Community Bancorp, Inc.
or Fishkill National Corporation while not also concurrently serving as a member
of a Board).
2. Eligibility. Each person who is a Director on or after July 1, 1999
-----------
shall be covered by this Plan as of the later of (a) July 1, 1999 or (b) the
date such person first becomes a Director; provided, however, that in the case
of a Director who was a member of the Board of Directors of Progressive Bank,
Inc., such Director shall not be covered by this Plan unless the Director waives
in writing, in a form prescribed by the Plan Administrator, all of the
Director's rights under the Progressive Bank, Inc. Noncontributory Retirement
and Severance Plan for Certain Members of the Board of Directors.
3. Eligibility For Retirement Benefit. A Director who serves as a
----------------------------------
Director until the Director's Vesting Date shall be entitled to receive a
Retirement Benefit equal to the Director's Accrued Benefit, as determined in
accordance with Section 4 hereof and paid in accordance with Section 5 hereof. A
Director who does not continue to serve as a
-2-
<PAGE>
Director until his or her Vesting Date shall not be entitled to any Retirement
Benefit hereunder
4. Amount of Accrued Benefit. A Director's Accrued Benefit shall be
-------------------------
equal to $75,000 reduced by the product of (a) $5,000 and (b) the difference
between (i) 15 and (ii) the Director's Years of Service (not in excess of 15).
5. Payment of Retirement Benefit.
-----------------------------
(a) Lump-Sum Payment. Except as provided in Section 5(b) hereof, the
----------------
Company shall pay to a Director the Director's Retirement Benefit as soon a
practicable after the Director's Termination of Service, in the form of a single
lump-sum cash payment.
(b) Deferral of Payment. A Director may elect, in lieu of receiving
-------------------
his or her Retirement Benefit in the form of a lump-sum cash payment pursuant to
Section 5(a) hereof, to have the amount of the Director's Retirement Benefit
credited to a Deferred Compensation Account established in the Director's name
under the Premier National Bancorp, Inc. Deferred Compensation Plan (the
"Premier Deferred Compensation Plan"), and any such amount so credited shall be
administered and paid in accordance with the terms of such plan. Any such
election shall be made (i) not later than the later of (A) August 1, 1999, or
(B) 30 days after a Director first becomes a Director, or (ii) if the Plan
Administrator consents, at any time at least one year prior to the Director's
Termination of Service. Once made, an election may not be revoked except with
the consent of the Plan Administrator, and any such revocation shall not be
effective unless made at least one year prior to the Director's Termination of
Service. If a Director does not make an effective election pursuant to this
Section 5(b), his or her Retirement Benefit shall be paid in accordance with
Section 5(a) hereof.
6. Death of a Director; Designation of Beneficiary.
-----------------------------------------------
(a) Death Benefit. In the event of a Director's death prior to payment
-------------
of the Director's Retirement Benefit to the Director pursuant to Section 5(a)
hereof or the crediting of the amount of such benefit to a Deferred Compensation
Account established in the Director's name under the Premier Deferred
Compensation Plan pursuant to Section 5(b) hereof, the Company shall, as soon as
practicable after the Director's death, pay to the Director's Beneficiary the
amount of the Director's Accrued Benefit as of the date of his or her death in
the form of a single lump-sum cash payment.
(b) Designation of Beneficiary. Each Director may designate from time
--------------------------
to time any person or persons, natural or otherwise, as his Beneficiary or
Beneficiaries to whom benefits under Section 6(a) are to be paid in the event of
his or her death. Each Beneficiary designation shall be made on a form
prescribed by the Plan Administrator and shall be effective only when filed with
the Plan Administrator during the Director's lifetime. Each Beneficiary
designation filed with the Plan Administrator shall revoke all Beneficiary
designations previously made by the Director. The revocation of a
-3-
<PAGE>
Beneficiary designation shall not require the consent of any designated
Beneficiary.
7. Transferability, Attachment, Etc. Except to the extent provided in
--------------------------------
Section 8 hereof, a Director's rights hereunder are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors of the Director or creditors of any
successors or heirs of the Director. A Director's rights hereunder shall not be
transferable other than by will or the laws of descent and distribution.
8. Termination for Cause. Notwithstanding anything to the contrary
---------------------
herein, a Director shall immediately forfeit all right to any Retirement Benefit
hereunder upon the Director's termination of membership on the Premier Board for
cause pursuant to the Company's Certificate of Incorporation.
9. General Creditor Status. Each Director shall have the status of a
-----------------------
general unsecured creditor of the Company with respect to his or her rights
under this Plan.
10. Amendment and Termination. The Premier Board shall have the power at
-------------------------
any time to terminate this Plan and to amend it any respect, provided that no
termination or amendment of the Plan may adversely affect the rights of any
Director (or a Director's Beneficiary) hereunder with respect to the Director's
Accrued Benefit as of the date of such termination or amendment without the
Director's or Beneficiary's, as the case may be, consent.
11. General Provisions.
------------------
(a) No Additional Rights. The establishment of the Plan shall not
--------------------
confer upon any Director any legal or equitable right against the Company or any
of its subsidiaries, except as expressly provided in the Plan.
(b) No Right to Continued Board Membership. Participation in the Plan
--------------------------------------
shall not give any Director any right to be continue as a member of a Board.
(c) Administration and Interpretation. The Plan Administrator shall
---------------------------------
have discretionary authority and the responsibility to administer and interpret
the Plan and any such interpretations shall be conclusive and binding upon
Directors and all other persons.
(d) Governing Law. This Plan shall be construed under the laws of the
-------------
State of New York.
-4-
<PAGE>
Exhibit 10.2
AGREEMENT
---------
THIS AGREEMENT (the "Agreement"), made as of July 22, 1999, is by and
between Premier National Bancorp, Inc. (the "Company") and T. Jefferson
Cunningham III (the "Executive").
WHEREAS, the Executive is Chairman of the Company; and
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to provide the Executive
with a supplemental retirement benefit;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the parties hereto agree as
follows:
1. Supplemental Retirement Benefit. Upon the Executive's Retirement, the
-------------------------------
Executive shall be shall be entitled to receive, for a period of ten years or,
if earlier, until the death of the Executive, an annual retirement benefit (the
"Retirement Benefit") equal to the Executive's Accrued Benefit. Such Retirement
Benefit shall be paid in equal monthly installments commencing on the first day
of the calendar month coinciding with or next following the Executive's
Retirement Date.
2. Medical Benefits. Commencing on the Executive's Retirement Date and for
----------------
a period of ten years thereafter, the Company shall provide to the Executive, at
no cost to the Executive, continued medical insurance that provides coverage and
benefits that is at least as favorable to the Executive as the coverage and
benefits provided to the Executive immediately prior to his Retirement Date (not
taking into account any reduction or adverse changes in such coverage or
benefits that, either alone or together with one or more other conditions,
constitutes (or would constitute) a Triggering Event, as defined under the
Employment Agreement).
3. Payment Obligation Absolute. The obligation of the Company to pay or
---------------------------
provide to the Executive the payments and benefits provided for by Sections 1
and 2 hereof shall be absolute and unconditional and shall not be affected by
any circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive. All amounts payable by the Company hereunder shall be paid without
notice or demand. Each and every payment made hereunder by the Company shall be
final and the Company shall not seek to recover all or any part of such payment
from the Executive, or from whosoever may be entitled thereto, for any reason.
4. No Right to Continued Employment. Nothing in this Agreement shall be
--------------------------------
deemed to give the Executive the right to be retained in the employ or service
of the Company, or to interfere with the right of the Company to discharge the
Executive at any time, subject in all cases to the terms of this Agreement.
<PAGE>
5. Withholding. Any payments provided for hereunder shall be paid net of
-----------
any applicable withholding required under federal, state or local law and any
additional tax withholding to which the Executive has agreed in writing.
6. Successors and Assigns. This Agreement may not be assigned by the
----------------------
Company, or assumed from the Company by, any other party without the prior
written consent of the Executive. Subject to the foregoing limitation, all
rights hereunder shall inure to the benefit of the parties hereto, their
personal or legal representatives, heirs, successors and assigns. The Company
will require any successor (whether direct or indirect, by purchase, assignment,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company expressly to assume this Agreement and to agree to
perform hereunder in the same manner and to the same extent that the Company
would be required to perform if no such succession had taken place. References
herein to the Company will be understood to refer to the successor or successors
of the Company, respectively.
7. Waiver of Breach. Waiver by any party of a breach of any provision of
----------------
this Agreement by the other party shall not operate or be construed as a waiver
by such party of any subsequent breach of any provision hereof.
8. Counterparts. This Agreement may be executed in counterparts, all of
------------
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party hereto and delivered to the
other party, it being understood that all parties need not sign the same
counterpart.
9. Governing Law. This Agreement is governed by and is to be construed and
-------------
enforced in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely therein.
10. Consent to Jurisdiction. Each party hereto irrevocably consents to the
-----------------------
exclusive jurisdiction of the courts of the State of New York and the federal
courts situated in the State of New York in connection with any action to
enforce the provisions of this Agreement, to recover damages or other relief for
breach or default under this Agreement, to enforce any decision or award of any
arbitrators, or otherwise arising under or by reason of this Agreement.
11. Authorization. The Company represents and warrants that the execution
-------------
of this Agreement has been duly authorized by resolution of the Board.
12. Nonalienability. Except for the withholding of any tax under applicable
---------------
law, no amount payable at any time hereunder shall be subject in any manner to
alienation, sale, transfer, assignment, pledge, attachment or other legal
process, or encumbrance of any kind. Any attempt to alienate, sell, transfer,
assign, pledge or otherwise encumber any such amount, whether currently or
hereafter payable, shall be
-2-
<PAGE>
void. Except as otherwise specifically provided by law, no amount payable
hereunder shall, in any manner, be liable for or subject to the debts or
liabilities of the Executive or his spouse.
13. Participation in Other Plans. Nothing contained herein shall exclude or
----------------------------
in any manner modify or otherwise affect any existing or future rights of the
Executive to participate in and receive the benefits of any compensation, bonus,
pension, life insurance, medical and hospitalization insurance or other employee
benefit plan or program to which he otherwise might be or become entitled as an
employee of the Company.
14. Incapacity. If the Company determines that the Executive is unable to
----------
care for his or her affairs because of illness or accident, any payment due
hereunder (unless a prior claim therefor shall have been made by a duly
appointed guardian, committee, or other legal representative) may be paid to the
payee's spouse, child, brother or sister, or to any person deemed by the Company
to have incurred expenses for such person otherwise entitled to payment. Any
such payment shall be a complete discharge of the obligations of the Company
hereunder.
15. Amendment. This Agreement may not be modified, amended, terminated or
---------
waived in any manner except by an instrument in writing signed by both parties
hereto (or their successors in interest).
16. Headings. The headings of Sections and Subsections herein are included
--------
solely for convenience of reference and shall not affect the meaning or
interpretation of any of the provisions of this Agreement.
17. Notices. Any notice hereunder by either party to the other shall be
-------
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to the Executive, the notice shall be delivered or
mailed to the Executive at the address specified under the Executive's signature
hereto (or to such other address as the Executive may specify in a written
notice addressed to the Company), or if addressed to the Company, the notice
shall be delivered or mailed to the Company at its executive offices to the
attention of the Board. A notice shall be deemed given, if by personal delivery,
on the date of such delivery or, if by certified mail, on the date shown on the
applicable return receipt.
18. Supersedes Previous Agreements. This Agreement supersedes all prior or
------------------------------
contemporaneous negotiations, commitments, agreements and writings with respect
to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties to
any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.
-3-
<PAGE>
19. Definitions.
-----------
(a) "Accrued Benefit" means a dollar amount equal to the product of (i)
---------------
12.5% of the Executive's Target Annual Retirement Benefit and (ii) the
Executive's Years of Service after the date hereof (not in excess of eight);
provided, however, that in the event of (A) the Executive's Disability while
employed by the Company, (B) the occurrence of a Triggering Event (as defined in
the Employment Agreement), (C) the occurrence of a Change in Control (as defined
in the Employment Agreement), or (D) the Executive's Early Retirement, "Accrued
Benefit" shall mean a dollar amount equal to the Target Annual Retirement
Benefit.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Disability" means the Executive's inability to perform his duties
----------
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness.
(d) "Early Retirement" means the Executive's retirement prior to his
----------------
attainment of age 65 with the approval of the Board.
(e) "Employment Agreement" means the employment agreement between the
--------------------
Executive and the Company, dated as of July 11, 1998, as in effect as of the
date hereof.
(f) "Retirement" means the Executive's termination of employment with
----------
the Company after the date hereof for any reason.
(g) "Retirement Date" means the date on which the Executive terminates
---------------
employment with the Company on or after the date hereof for any reason. .
(h) "Target Annual Retirement Benefit" means the product of (i) 20% and
--------------------------------
(ii) the greater of (A) the Executive's highest annual base salary while
employed by the Company or (B) the product of twelve and the Executive's monthly
base salary in effect immediately prior to the Executive's Retirement Date.
(i) "Years of Service" means the Executive's years of service
----------------
(including fractions thereof based on full calendar quarters of service) as an
employee of the Company or any of its subsidiaries after the date hereof.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
PREMIER NATIONAL BANCORP, INC.
By: /s/ Thomas C. Aposporos
--------------------------------------------
Name: Thomas C. Aposporos
Title: Chair, Personnel and Compensation
Committee
/s/ T. Jefferson Cunningham III
--------------------------------------------
Executive
160 Moffet Road
--------------------------------------------
Cold Spring NY 10516
--------------------------------------------
Address
ATTEST:
Secretary
-5-
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of May 17, 1999, is
by and between Premier National Bank, a national banking association having its
principal place of business at Route 55, LaGrangeville, New York 12540 (the
"Company"), and Ronald Bentley, residing at 30 Springfield Drive, Voorheesville,
NY 12186. (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company, a wholly-owned subsidiary of Premier (as hereinafter
defined), has determined that it is in its best interests to employ the
Executive as a Executive Vice President, Director Retail Banking pursuant to a
written employment agreement, as hereinafter provided; and
WHEREAS, the Executive desires to accept such employment, upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in furtherance of the interests described above and in
consideration of the respective covenants and agreements contained herein, the
parties hereto agree as follows:
1. Agreement of Employment. During the term of employment provided for in
-----------------------
this Agreement, the Company agrees to employ the Executive, and the Executive
agrees to accept employment and to serve the Company, as Executive Vice
President, Director Retail Banking, all upon the terms and conditions
hereinafter set forth.
2. Term.
----
(a) Effective Date. This Agreement and the employment of the
--------------
Executive under this Agreement shall become effective as of May 17, 1999 (the
"Effective Date").
(b) Duration of Agreement. This Agreement shall terminate on the twelve
---------------------
(12) month anniversary of the Effective Date (the "Initial Term"), but shall be
extended automatically for additional one year periods (each, a "Renewal Term")
unless the Company or the Executive gives written notice to the other party that
the Agreement shall not be so extended at least twelve (12) months prior to the
expiration of the Initial Term or any Renewal Term (a "Failure to Renew"), in
which case this Agreement shall terminate on the expiration of such Initial Term
or such Renewal Term; provided, however, that after a Change in Control (as
-------- -------
hereinafter defined) no termination of this Agreement pursuant to a Failure to
Renew by the Company shall be effective prior to the expiration of twenty four
(24) months after such Change in Control (such period being referred to herein
as the "CIC Coverage Period"). Notwithstanding any other provision of this
Agreement, nothing contained in this Agreement shall prohibit or prevent the
continued employment of the Executive by the Company, as [name position] or in
any other capacity, after the termination of this Agreement as a result of a
Failure to Renew.
1
<PAGE>
Except as specifically set forth herein, the terms and provisions of this
Agreement shall not govern, control or be applied to any such continued
employment of the Executive by the Company in any capacity after the termination
of this Agreement as a result of a Failure to Renew. Notwithstanding any other
provision of this Agreement, nothing contained in this Agreement shall be deemed
to create any obligation on the part of the Company or the Executive to extend
this Agreement beyond the Initial Term or any Renewal Term.
(c) Duration of Employment Pursuant to this Agreement. Notwithstanding
-------------------------------------------------
any Failure to Renew this Agreement, the employment of the Executive under this
Agreement shall be terminated only pursuant to, and in compliance with, the
terms and conditions set forth in Section 6 herein. A Failure to Renew this
Agreement in and of itself shall not (i) constitute termination of the
employment of the Executive under this Agreement pursuant to, or for purposes
of, any provision of Section 6 herein or (ii) give rise to any obligation on the
part of the Company to make, or any right on the part of the Executive to
receive, any payments or other benefits provided for pursuant to Section 6
herein.
3. Duties. The Executive shall perform the duties and discharge the
------
responsibilities of Director of Retail Banking of the Company, and shall perform
all other duties and responsibilities as may reasonably be assigned from time to
time by the Chief Executive Officer of the Company. The Executive agrees to
devote substantially all of his business time to the Company's business and
affairs and the performance of the services provided for herein.
4. Compensation. For the services rendered by the Executive to the Company
------------
under this Agreement, the Company shall compensate the Executive as follows:
(a) Salary. The Company shall pay the Executive for services an annual
------
salary of $125,000.00 (the "Annual Base Salary"), payable in accordance with the
payroll practices of the Company applicable to all employees and subject to
periodic review and increase in accordance with the Company's salary
administration program and policies as may be in effect from time to time.
(b) Bonus and Executive Benefits. The Executive shall be entitled to
----------------------------
participate, on an equitable basis with other executive personnel of the
Company, in such bonus programs as the Company may extend from time to time to
its executive personnel. The Executive shall be entitled to receive, on the same
basis as other executive personnel of the Company, group employee benefits such
as sick leave, group disability and health, life and accident insurance and
similar benefits as the Company may extend from time to time to its employees.
(c) Other Benefits. The Executive shall be entitled to receive such
--------------
additional benefits as are set forth in Schedule 1 hereto on the terms and
----------
conditions set forth in such schedule.
2
<PAGE>
5. Reimbursement of Business Expenses. The Company shall promptly reimburse
----------------------------------
the Executive for all reasonable travel and other business expenses incurred by
him in the performance of his duties and responsibilities hereunder, subject to
such reasonable requirements with respect to substantiation and documentation as
may be specified by the Company.
6. Termination.
-----------
(a) Termination for Cause. The Company may terminate the employment of
---------------------
the Executive hereunder if the Executive (i) commits any violation of any law,
rule or regulation or of a cease and desist order with respect to Premier, the
Company or any of their subsidiaries (each hereinafter referred to as a
"Subsidiary") which has become final, (ii) engages or participates in any unsafe
or unsound practice in connection with Premier, the Company or any Subsidiary
regardless of whether actual harm or damages result to Premier, the Company or
any Subsidiary, (iii) commits or engages, or fails to commit or engage, in any
act or practice, which action or practice or the failure to engage in such
action or practice involves personal dishonesty on the part of the Executive or
demonstrates a willful or continuing disregard for the best interests of
Premier, the Company, or any Subsidiary, (iv) is adjudicated to be of an unsound
mind, (v) is adjudicated to be bankrupt, (vi) intentionally destroys the
property of Premier, the Company or any Subsidiary, (vii) breaches or violates
in any material respect any agreement with Premier, the Company or any
Subsidiary signed by the Executive, including, but not limited to, this
Agreement and any other confidentiality and nondisclosure agreements, (viii)
engages in dishonorable or disruptive behavior, practices or acts that would be
reasonably expected to harm or bring into disrepute Premier, the Company or any
Subsidiary, or any of their businesses or employees, (ix) is convicted of a
felony, or (x) continually fails to substantially perform his duties under
Section 3 hereof for a period of thirty (30) days (other than as a result of a
disability pursuant to Section 6(g) hereof) after delivery by the Company to the
Executive of a written demand for substantial performance, stating with
reasonable detail the nature of such failure and affording the Executive an
opportunity, as soon as practicable, to correct the acts or omissions specified.
Termination pursuant to this Section 6(a) shall be referred to herein as a
"Termination for Cause." A Termination for Cause shall be effective immediately
upon written notification thereof by the Company unless otherwise specified in
the written notice. Upon a Termination for Cause, whether such Termination for
Cause occurs prior or subsequent to a Change in Control (as hereinafter
defined), the Company shall have no further obligation to pay the Executive's
Annual Base Salary or to provide any employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(b) Termination Without Cause. At any time after the Effective Date, the
-------------------------
Company may terminate the employment of the Executive hereunder without cause
for any reason. Such termination shall be effective by the Company providing the
Executive with a written notice of termination at least thirty (30) days prior
to the effective date of such termination. Termination pursuant to this Section
6(b) shall be referred to herein as "Termination Without Cause."
3
<PAGE>
(c) Termination by the Executive for Good Reason. At any time after the
--------------------------------------------
Effective Date, the Executive may terminate his employment hereunder if any one
or more of the following occurs without the written consent of the Executive:
(i) a reduction by the Company in the Executive's Annual Base Salary as in
effect on the Effective Date or as the same may be increased from time to time;
(ii) the failure by the Company to pay to the Executive any portion of the
Executive's then-current compensation, or to pay to the Executive any portion of
an installment of deferred compensation under any deferred compensation program
of the Company, in each case within seven (7) days of the date such compensation
is due; (iii) any failure by the Company to comply with and satisfy Section
10(b) hereof; (iv) any material breach by the Company of this Agreement if such
breach is not cured within a period of thirty (30) days after delivery by the
Executive to the Company of a written notice stating with reasonable detail the
nature of such breach and affording the Company an opportunity, as soon as
practicable, to cure such breach; (v) the Executive is required by the Company
to occupy a position or positions in the Company, the function or functions of
which is or are materially inconsistent with the Executive's skills and
experience at that time; (vi) after or in connection with any Change in Control
(as hereinafter defined), the Executive is required to be based at any office or
location that is more than fifty (50) miles from the nearer of (A) the
Executive's residence or (B) the Company's administrative headquarters
immediately prior to the Change in Control. Termination pursuant to this Section
6(c) shall be referred to herein as a "Termination for Good Reason." A
Termination for Good Reason shall be effective immediately upon written
notification thereof by the Executive.
(d) Benefits in the Event of a Termination Without Cause or a
---------------------------------------------------------
Termination for Good Reason. In the event of a Termination Without Cause or a
- ---------------------------
Termination for Good Reason the Executive shall be entitled to the following:
If a Termination Without Cause or a Termination for Good Reason
occurs at any time other than during the CIC Coverage Period, the
Company shall be obligated to make an undiscounted lump sum payment to
the Executive equal to the Executive's Annual Base Salary as in effect
on the effective date of such termination (without giving effect to any
reduction in Annual Base Salary described in Section 6(c)(i) hereof),
such payment to be made within ten (10) business days of the effective
date of such Termination Without Cause or Termination for Good Reason,
as the case may be.
If a Termination Without Cause or a Termination for Good Reason
occurs during the CIC Coverage Period, the Executive shall be entitled
to an undiscounted lump sum payment equal to the product of (A) the
Executive's Annual Base Salary as in effect on the effective date of
such termination (without giving effect to any reduction in Annual Base
Salary described in Section 6(c)(i) hereof) and (B) two (2) years.
(e) Termination by the Executive Without Good Reason. The Executive may
------------------------------------------------
voluntarily terminate his employment hereunder without cause for any reason
other
4
<PAGE>
than the occurrence of any event set forth in Section 6(c) hereof by providing
the Company with a written notice of termination at least forty-five (45) days
prior to the effective date of such termination. Termination pursuant to this
Section 6(e) shall be referred to herein as a "Termination Without Good Reason."
Upon a Termination Without Good Reason, whether such Termination Without Good
Reason occurs prior or subsequent to a Change in Control (as hereinafter
defined), the Company shall have no further obligation to pay the Executive's
Annual Base Salary or to provide any other employee or other benefits hereunder
except for any Annual Base Salary or other such benefits that have fully accrued
and vested but not been paid as of the effective date of such termination.
(f) Death. The employment of the Executive hereunder shall terminate
-----
automatically effective as of the death of the Executive, in which case the
Company shall have no further obligation to pay the Executive's Annual Base
Salary or to provide any other employee or other benefits hereunder except for
any Annual Base Salary or other such benefits that have fully accrued and vested
but not been paid as of the effective date of such termination.
(g) Disability. If, during the Initial Term or any Renewal Term, the
----------
Executive suffers an illness or incapacity of such a character as to prevent or
preclude him from devoting substantially full working time to his employment
hereunder or otherwise from carrying out any substantial portion of the normal
and usual duties of his employment hereunder for 180 days (whether or not
consecutive) during any twelve-month period, then the employment of the
Executive hereunder may be terminated by the Company (a "Disability
Termination") upon thirty (30) days' prior written notice to the Executive, such
Disability Termination to be effective as of the expiration date of such thirty
(30) days' notice. During the period of the Executive's disability and until the
expiration date of such thirty (30) days' notice, the Executive shall continue
to earn all compensation provided herein as if he had not been disabled, such
compensation to be paid at the time, in the amounts, and in the manner provided
for herein. Upon the effectiveness of any Disability Termination, whether such
Disability Termination occurs prior or subsequent to a Change in Control (as
hereinafter defined), the Company shall have no further obligation to pay the
Executive's Annual Base Salary or to provide any other employee or other
benefits hereunder except for any Annual Base Salary or other such benefits that
have fully accrued and vested but not been paid as of the effective date of such
termination.
5
<PAGE>
(h) Change in Control. As used in this Agreement, "Change in Control"
-----------------
shall mean a change in control of Premier National Bancorp, Inc., a New York
corporation, or any successor thereto ("Premier"), of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934, as amended from time to
time, whether or not Premier is then subject to such reporting requirement;
provided, however, that without limitation, a Change in Control shall be deemed
to have occurred if:
(i) Premier consummates a merger, consolidation, share exchange,
division or other reorganization or transaction of Premier (a
"Fundamental Transaction") with any other corporation, other than a
Fundamental Transaction that the Board of Directors of Premier
declares a "Merger of Equals" or that results in the voting securities
of Premier outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty-one percent
(51%) of the combined voting power immediately after such Fundamental
Transaction of (i) Premier's outstanding securities, (ii) the surviving
entity's outstanding securities, or (iii) in the case of a division, the
outstanding securities of each entity resulting from the division;
(ii) the shareholders of Premier approve a plan of complete
liquidation or winding-up of Premier or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Premier's assets;
(iii) as a result of a proxy contest, individuals who, prior to
the conclusion thereof, constituted the Board of Directors of Premier
(including for this purpose any new director whose election or
nomination for election by Premier's shareholders in connection with
such proxy contest was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who were directors prior to such
proxy contest) cease to constitute at least a majority of the Board of
Directors of Premier (excluding any Board of Directors seat that is
vacant or otherwise unoccupied); or
(iv) the Board of Directors of Premier determines that a Change
in Control has occurred.
(i) Continued Benefits. After any Termination Without Cause pursuant to
------------------
Section 6(b) or any Termination for Good Reason pursuant to Section 6(c),
whether prior or subsequent to a Change in Control, the Company shall provide
the Executive with life and health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the effective date
of such Termination Without Cause or Termination for Good Reason (such effective
date being referred to as the "Date of Termination"), as the case may be, for
(i) with respect to any such termination that occurs
6
<PAGE>
at any time other than during the CIC Coverage Period, a twelve-month period
beginning on the Date of Termination, and (ii) with respect to any such
termination that occurs during the CIC Coverage Period, a twenty four (24) month
period beginning on the Date of Termination (the applicable period described in
the preceding clause (i) or (ii) being referred to as the "Benefits Period").
Benefits otherwise receivable by the Executive pursuant to this Section 6(i)
shall be reduced to the extent comparable benefits are actually received by or
made available to the Executive by any other employer(s) during the Benefits
Period at a cost to the Executive that is commensurate with the cost incurred by
the Executive immediately prior to the Date of Termination; provided, however,
that if the Executive becomes employed by a new employer which maintains a
medical plan that either (A) does not cover the Executive or a family member or
dependent with respect to a preexisting condition which was covered under the
applicable Company medical plan, or (B) does not cover the Executive or a family
member or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue until the earlier of
the end of the applicable period of noncoverage under the new employer's plan or
the end of the applicable period as set forth in this Section 6(i). If health
insurance benefits are provided or made available to the Executive by any other
employer(s) of the Executive during the Benefits Period at a cost that is not
commensurate with the cost incurred by the Executive immediately prior to the
Executive's Date of Termination, the Company may, at its election, make periodic
cash payments to the Executive that are sufficient to reimburse the Executive,
in advance and on a before-tax basis, for the additional cost incurred by the
Executive for such health insurance benefits. During any period with respect to
which the Company makes such reimbursement payments to the Executive, the
Executive shall be treated herein as receiving such health insurance benefits at
a cost that is commensurate with the cost incurred by the Executive immediately
prior to the Executive's Date of Termination. The Executive shall be entitled to
elect to change his level of coverage and/or his choice of coverage options
(such as Executive only or family medical coverage) with respect to the benefits
to be provided by the Company to the Executive to the same extent that active
employees of the Company are permitted to make such changes; provided, however,
that in the event of any such change the Executive shall pay the amount of any
cost increase that would actually be paid by an active employee of the Company
by reason of making the same change in his level of coverage or coverage
options. Any such benefits actually received by or made available to the
Executive from such other employer(s) shall be reported to the Company by the
Executive.
(j) Limitation on Certain Benefits. Notwithstanding any other provision
------------------------------
of this Agreement, in the event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or the
termination of the Executive's employment pursuant to Section 6 hereof (whether
under the terms of this Agreement or any other plan, arrangement or agreement)
(all such payments and benefits, including the payments and benefits provided
for hereunder, being hereinafter called "Total Payments") would not be
deductible (in whole or part) by the Company, an affiliate or other person or
entity making such payment or providing such benefit as a result of section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), then, to the
extent necessary to make such portion of the Total Payments deductible, (A) any
cash payments provided for by Section 6 hereof shall first be reduced (if
7
<PAGE>
necessary, to zero), and (B) any non-cash benefits provided for by Section 6
hereof shall next be reduced. For purposes of this limitation, no portion of the
Total Payments the receipt or enjoyment of which the Executive shall have waived
by written notice to the Company prior to the date of any cash payment provided
for by Section 6 hereof shall be taken into account. All determinations required
to be made under the provisions of this Section 6(j) shall be made by tax
counsel selected by the Company's or Premier's independent auditors and
reasonably acceptable to the Executive.
(k) Survival. Notwithstanding any other provision herein, the Company's
--------
obligations to make payments and provide benefits pursuant to the terms and
conditions set forth in this Section 6 shall survive termination of employment
under this Agreement pursuant to this Section 6 hereof and/or termination of
this Agreement by reason of a Failure to Renew pursuant to Section 2(b) hereof.
7. Confidentiality. The Company and the Executive acknowledge that each of
---------------
Premier and the Company competes in a highly competitive industry and in
competitive markets and that, as an executive officer of the Company, the
Executive may have access to proprietary and confidential information, technical
information and trade secrets of Premier, the Company and/or a Subsidiary.
During the term of the Executive's employment hereunder and thereafter, the
Executive agrees that he will not, without the written consent of the Company,
disclose or permit any person under his control to disclose to any person or
entity not properly entitled to the information or use in any way for his own
benefit or the benefit of any other person or entity other than Premier, the
Company or any Subsidiary any confidential or proprietary information or
technical information or any trade secret of or relating to Premier, the Company
or any Subsidiary other than (a) information that is publicly disseminated or
(b) as required by any court, supervisory authority, administrative agency or
applicable law. Notwithstanding any other provision herein, the provisions of
this Section 7 shall survive termination of employment under this Agreement
pursuant to Section 6 hereof and/or termination of this Agreement by reason of a
Failure to Renew pursuant to Section 2(b) hereof.
8. Competition.
-----------
(a) Noncompete Agreement. In consideration of the Company's agreement to
--------------------
employ the Executive hereunder, the Executive hereby agrees that during the
Noncompete Period (as hereinafter defined), without the prior written approval
of the Company, the Executive shall not, directly or indirectly, enter into or
in any manner take part in any business, either individually or as an officer,
director, employee, agent, consultant, partner, investor (excluding passive
investments in publicly traded securities not aggregating more than 1% of any
such entity's total outstanding voting securities), principal or otherwise,
which is in competition with the business of Premier, the Company or any
Subsidiary in any business in which Premier, the Company or any Subsidiary is
materially engaged on the date of termination in any state or territorial
jurisdiction (including the District of Columbia) in which Premier, the Company
or any Subsidiary is so materially engaged on the date of termination. The
Executive further agrees that during the Noncompete Period he shall not,
directly or indirectly, acting either alone or in concert with others, seek to
(i) influence any employee of Premier, the
8
<PAGE>
Company or any Subsidiary to leave or otherwise terminate his or her employment
with such entity or (ii) solicit business from or otherwise do business or deal
with any person or entity who is, on the date of termination, a customer of
Premier, the Company or any Subsidiary, in connection with any product or
service similar to or competitive with any product or service offered or
provided by Premier, the Company or any such Subsidiary (to such customer or
otherwise) on the date of termination.
(b) Certain Definitions.
-------------------
(i) As used herein, "Noncompete Period" shall mean the period
commencing on the Effective Date and ending on (i) in the case of any
Termination Without Cause or Termination for Good Reason occurring
subsequent to a Change in Control, the effective date of such
termination pursuant to Section 6, or (ii) in the case of any other
termination of employment pursuant to Section 6 hereof, the first
anniversary of the effective date of such termination pursuant to
Section 6.
(ii) As used herein, the phrase "a customer of Premier, the
Company or any Subsidiary" shall mean any person or entity who has, at
the time, an effective contract with Premier, the Company or a
Subsidiary, as the case may be, under which Premier, the Company or
such Subsidiary provides products, services or a loan. In the case of
any customer which is a subsidiary, division or other business unit,
or a department, agency, authority or other political subdivision or
instrumentality of a municipal, state or federal government (in each
case, a "Unit"), the phrase " a customer of Premier, the Company or
any Subsidiary" shall mean only such Unit, and not any affiliated or
related business unit or any other department, agency or subdivision of
such government (unless such other unit, department, agency or
subdivision is itself a customer of Premier, the Company or a
Subsidiary).
(c) Executive's Acknowledgment. The Executive acknowledges that he has
--------------------------
carefully read and considered all of the terms of this Agreement, including
particularly the terms of this Section 8 and the preceding Section 7, that each
of Premier and the Company has made a substantial investment in Premier's and
the Company's business and that the restrictions provided in this Section 8 and
the preceding Section 7 are reasonable and necessary for Premier's and the
Company's protection. The Executive further acknowledges that damages at law
will not be a measurable or adequate remedy for breach of the covenants
contained in this Section 8 or in Section 7 and, accordingly the Executive
consents to the entry by any court of competent jurisdiction of any order
enjoining him from violating any such covenants. The parties hereto further
agree that if, in any judicial proceeding, a court should refuse to enforce any
covenants set forth in this Section 8 or in Section 7 because of their term or
geographical scope, then such covenants shall be deemed to be modified to permit
their enforcement to the maximum extent permitted by law. Notwithstanding any
other provision herein, the provisions of this Section 8 shall survive
termination of employment under this Agreement pursuant to Section 6 hereof
and/or termination of this Agreement by reason of a Failure to Renew
9
<PAGE>
pursuant to Section 2(b) hereof.
9. Governing Law; Consent to Jurisdiction. This Agreement shall in all
--------------------------------------
respects, including all matters of construction, validity and performance, be
governed by and construed and enforced in accordance with the laws of the State
of New York applicable to agreements made and to be performed entirely within
such jurisdiction. Each party hereto irrevocably consents to the exclusive
jurisdiction of the courts of the State of New York and the federal courts
situated in the State of New York in connection with any action to enforce the
provisions of this Agreement, to recover damages or other relief for breach or
default under this Agreement, to enforce any decision or award of any
arbitrators, or otherwise arising under or by reason of this Agreement.
10. Successors and Assigns.
----------------------
(a) Personal Services Agreement. This Agreement is a personal services
---------------------------
contract which may not be assigned or delegated by the Executive to, or assumed
from the Executive by, any other person or entity without the prior written
consent of the Company. Subject to the foregoing limitation, this Agreement and
all rights hereunder shall inure to the benefit of and be enforceable by the
parties hereto, their personal or legal representatives, heirs and permitted
successors and assigns. If the Executive should die while any amounts still are
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
(b) Successors to the Company. In addition to any obligations imposed by
-------------------------
law upon any successor to the Company, the Company shall be obligated to require
any successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place; in the event of
such a succession, references to the "Company" herein shall thereafter be deemed
to include such successor. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement.
11. Miscellaneous.
-------------
(a) Notices. Any and all notices required or permitted to be given
-------
hereunder shall be in writing and shall be deemed to have been given when
delivered personally or by facsimile or, if mailed, upon mailing by certified or
registered mail, postage prepaid, addressed as follows (or at such other address
as may hereafter be designated by notice given in compliance with the terms
hereof):
If to the Executive: Ronald Bentley
30 Springfield Drive
Voorheesville, NY 12186
10
<PAGE>
If to the Company: Premier National Bank
c/o Premier National Bancorp, Inc.
Route 55
LaGrangeville, New York 12540
Attention: Chairman of the Board's Personnel and
Compensation Committee
Facsimile: (914) 471-1114
Any party may change by notice the address to which notices to it are to be
addressed.
(b) Waivers. A waiver by any party hereto of any of the terms or
-------
conditions of this Agreement shall not operate as, constitute or be construed to
be a waiver thereof for the future or of any subsequent breach thereof.
(c) Amendments, Etc. This Agreement may not be varied, altered,
---------------
modified, waived, changed, departed from or in any way amended except by an
instrument in writing executed by the parties hereto or their legal
representatives.
(d) Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of any other term or provision hereof
in that or any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted so as to be
enforceable.
(e) Withholding. All payments to the Executive provided for hereunder
-----------
shall be paid net of (a) any applicable Social Security taxes and withholding
taxes required under federal, state or local law or regulation, (b) any other
taxes that may be lawfully levied by any governmental authority which may be
required by law from time to time to be withheld and (c) any additional
withholding to which the Executive has agreed.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, which taken together shall be deemed to constitute one original.
(g) No Right to Continued Employment. Nothing in this Agreement shall be
--------------------------------
deemed to give the Executive the right to be retained in the employ or service
of the Company (or any successor thereto), or to interfere with the right of the
Company (or any successor thereto) to discharge the Executive at any time,
subject in all cases to the terms of this Agreement.
(h) Entire Agreement. This agreement contains the entire agreement
----------------
between the parties concerning the employment of the Executive by the Company,
and supersedes any employment or change in control agreements between the
Executive and the Company or any of its predecessors, subsidiaries or
predecessors of subsidiaries.
(i) Headings and Captions. Headings and paragraph captions used in
---------------------
11
<PAGE>
this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
(j) Supervisory Suspension. Notwithstanding any other provision of this
----------------------
Agreement, in the event the Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of the affairs of
Premier, the Company or any Subsidiary by a notice served under Section 8(e)(3)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. (S) 1818(e)(3) or
1818(g)(1), the Company's obligations under this Agreement shall be suspended
effective as of the service date of the notice of suspension or temporary
prohibition, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Company shall (i) pay the Executive all compensation
withheld while its obligations under this Agreement were suspended, and (ii)
reinstate all obligations under this Agreement that were suspended.
(k) Authorization. The Company represents and warrants that it is duly
-------------
authorized to execute and enter into this Agreement.
(l) Reimbursement of Legal Costs. The Company (or any successor thereto)
----------------------------
shall pay to the Executive all reasonable legal fees and expenses incurred by
the Executive after a Change in Control as a result of or in connection with a
bona fide dispute regarding the application of any provision of this Agreement
that arises after a Change in Control, including, without limitation, all such
fees and expenses, if any, incurred (i) in disputing any termination under
Section 6, or (ii) in seeking to enforce or obtain any right or benefit provided
by this Agreement; provided, however, that the Company (or any successor
-------- -------
thereto) shall only be obligated to make payments under this Section 11(l) for
legal fees and expenses incurred by the Executive in connection with or as a
result of any such bona fide dispute regarding which the Executive has obtained
a final, nonappealable decision or determination in his favor (a "Final
Determination"). Any payments pursuant to this Section 11(l) shall be made only
if a Final Determination has been rendered and shall be made within five (5)
business days after delivery of the Executive's respective written requests for
payment accompanied by such evidence of fees and expenses incurred as the
Company (or any successor thereto) reasonably may require.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective as of the date set forth above.
PREMIER NATIONAL BANK
12
<PAGE>
By: /s/ John C. VanWormer
--------------------------------
Name: John C. VanWormer
Title: Vice Chairman
/s/ Ronald Bentley
--------------------------------
Executive: Ronald Bentley
13
<PAGE>
Schedule 1
----------
1. Minimum Bonus for 1999 - $10,000.00.
2. 16,000 non-qualified stock options, vested upon completion of one (1) year
employment, waived if change of control occurs.
3. Company automobile comparable to other EVP provided.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 72,279
<INT-BEARING-DEPOSITS> 1,124,567
<FED-FUNDS-SOLD> 35,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,415
<INVESTMENTS-CARRYING> 503,547
<INVESTMENTS-MARKET> 503,873
<LOANS> 958,549
<ALLOWANCE> 21,294
<TOTAL-ASSETS> 1,576,843
<DEPOSITS> 1,362,352
<SHORT-TERM> 55,000
<LIABILITIES-OTHER> 13,194
<LONG-TERM> 0
0
0
<COMMON> 12,620
<OTHER-SE> 133,677
<TOTAL-LIABILITIES-AND-EQUITY> 1,576,843
<INTEREST-LOAN> 40,674
<INTEREST-INVEST> 11,707
<INTEREST-OTHER> 1,140
<INTEREST-TOTAL> 53,521
<INTEREST-DEPOSIT> 20,796
<INTEREST-EXPENSE> 20,959
<INTEREST-INCOME-NET> 32,562
<LOAN-LOSSES> 1,500
<SECURITIES-GAINS> 171
<EXPENSE-OTHER> 21,409
<INCOME-PRETAX> 14,942
<INCOME-PRE-EXTRAORDINARY> 14,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,725
<EPS-BASIC> .63
<EPS-DILUTED> .62
<YIELD-ACTUAL> 8.47
<LOANS-NON> 10,841
<LOANS-PAST> 245
<LOANS-TROUBLED> 27
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,270
<CHARGE-OFFS> 1,777
<RECOVERIES> 301
<ALLOWANCE-CLOSE> 21,294
<ALLOWANCE-DOMESTIC> 21,294
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,152
</TABLE>
