<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER: 1-13213
PREMIER NATIONAL BANCORP, INC.
------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW YORK 14-1668718
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1100 ROUTE 55, LAGRANGEVILLE, NEW YORK 12540
- -------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-471-1711
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.80 PER SHARE AMERICAN STOCK EXCHANGE, INC.
- -------------------------------------- -----------------------------
(TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH
REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K ___
AS OF MARCH 1, 2000, THE AGGREGATE MARKET VALUE OF THE 12,816,412 SHARES OF
THE REGISTRANT'S VOTING COMMON STOCK ISSUED AND OUTSTANDING HELD BY
NON-AFFILIATES ON SUCH DATE WAS APPROXIMATELY $145,786,686 BASED ON THE
REPORTED CLOSING PRICE OF THE REGISTRANT'S COMMON STOCK ON SUCH DATE. FOR
PURPOSES OF THIS CALCULATION, ONLY DIRECTORS, EXECUTIVE OFFICERS AND
BENEFICIAL OWNERS OF MORE THAN 10% OF THE REGISTRANT'S VOTING COMMON STOCK
ARE CONSIDERED AFFILIATES OF THE REGISTRANT.
AS OF MARCH 1, 2000, THE REGISTRANT HAD 16,219,111 SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
1. PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF
STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 ARE INCORPORATED
BY REFERENCE INTO PART III OF THIS FORM 10-K. THE INCORPORATION BY
REFERENCE HEREIN, OF PORTIONS OF THE PROXY STATEMENT, SHALL NOT BE DEEMED
TO SPECIFICALLY INCORPORATE BY REFERENCE THE INFORMATION REFERRED TO IN
ITEM 402(a)(8) OF REGULATION S-K.
<PAGE>
FORM 10-K TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page No.
<S> <C>
ITEM 1 BUSINESS 3
ITEM 2 PROPERTIES 17
ITEM 3 LEGAL PROCEEDINGS 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 18
ITEM 6 SELECTED FINANCIAL DATA 19
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 20
ITEM 7A QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 36
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 36
PART III
ITEMS 10 THROUGH 13. (INCORPORATED BY REFERENCE TO THE
DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 WHICH
WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION NOT
LATER THAN 120 DAYS AFTER THE END OF THAT FISCAL YEAR) 36
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 37
SIGNATURES 81
</TABLE>
<PAGE>
PART I
ITEM 1 - BUSINESS
Premier National Bancorp, Inc. (the "Company") is a New York
corporation with headquarters and principal executive offices at 1100 Route 55,
Lagrangeville, New York. The Company's principal subsidiary, accounting for
99% of the consolidated assets and 90% of consolidated equity, is Premier
National Bank (the "Bank").
The Company is registered with the Board of Governors of the Federal
Reserve System (the "Reserve Board") as a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "BHCA"). As
a bank holding company, it is required to file annual reports and other
information regarding its business operations and those of its subsidiaries
with the Reserve Board. See "REGULATION AND SUPERVISION - Bank Holding
Company Regulation."
The Bank was chartered under the National Bank Act in 1863 and is a
member of the Federal Reserve System. It operates through its main office at
289-291 Main Mall, Poughkeepsie, New York, and thirty-three other branch
offices and six offsite automated teller machines in Dutchess, Ulster,
Putnam, Sullivan, Rockland, Westchester and Orange Counties. Its deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent
permitted by law. The Bank is subject to comprehensive regulation,
supervision, and examination by the Office of the Comptroller of the Currency
("Comptroller"), the Reserve Board, and the FDIC.
The Bank conducts a general commercial banking and trust business. It
offers retail and wholesale banking services including demand, savings and
time deposits, commercial, mortgage and installment loans, consumer banking,
and trust services. Services offered by the Bank's Trust Department include
trust administration, investment management, and custody services. The
Company's principal business strategy is to provide its clients with
"relationship banking", based on personalized service from dedicated account
managers who are positioned to deliver the full range of the Bank's products
to its target markets.
As of December 31, 1999, the Company, on a consolidated basis, had
total assets of approximately $1.6 billion, total deposits of $1.4 billion
and stockholders' equity of $142.0 million. At December 31, 1999, the Company
and the Bank employed 506 employees on a full-time equivalent basis.
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 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 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; actions of competitors;
changes in local and national economic conditions; the extent and timing of
actions of the Reserve Board or the Comptroller; customer deposit
disintermediation; changes in customers' acceptance of the Company's products
and services; and 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.
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.
3
<PAGE>
LENDING
GENERAL. The Bank engages in a variety of lending activities which are
primarily categorized as residential and commercial mortgage,
consumer/installment, and commercial lending. At December 31, 1999, the
Bank's gross loan portfolio totaled approximately $993.8 million. Of this
amount, real estate mortgage, consumer/installment, and commercial loans
comprised 73.6%, 14.4%, and 11.9%, respectively, of the Bank's loan portfolio.
At December 31, 1999, the Bank's unsecured lending limit to one
borrower under applicable regulations was approximately $22.0 million.
In managing the growth of its loan portfolio, the Bank has focused on:
(i) the application of its established underwriting criteria, (ii)
establishment of management lending authorities well below the Bank's legal
lending authority, (iii) establishment of industry concentration limits,
(iv) involvement by senior management and the Board of Directors in the loan
approval process for designated categories of loans, and (v) monitoring of
loans for timely payment and to seek to identify potential problem loans.
A material factor in assessing the Company's loan portfolio is the
ability of the Company's loan officers to discriminate between acceptable and
unacceptable credit risks and to identify changes in a borrower `s financial
condition that affect the borrower's ability to perform in accordance with
loan terms. Lending policies and procedures place an emphasis on assessing
consolidated financial risk and income flows as well as collateral values.
Further, the Company has developed aging systems which assist in monitoring
delinquency of loans and at varying points either the collection department,
loan officer or loan workout department, or a combination of the above, are
involved in collection efforts on past due loans. Additional collateral or
guarantees may be requested if difficulties remain unresolved.
An independent loan review department reviews each of the Bank's credit
portfolios and grades each individual credit it reviews. At December 31,
1999, approximately 93% of the Company's commercial and consumer portfolio
were graded by loan review. Additionally, approximately 85% of residential
and home equity loans, which represent homogenous pools of loans, were
graded. The grades associated with reviewed loans are a primary determinant
of the allocations to the allowance for loan losses.
The Bank's regulators require a quarterly assessment of the adequacy of
the allowance for loan losses. The Company's assessment methodology includes,
among other things, the results of the Company's continuous loan review
process, trends in economic conditions, the maturity characteristics of the
loan portfolio, volume, growth and composition of the loan portfolio, past
loss history and current delinquency and loss trends by portfolio type, and
the trends in classified loans.
For information regarding the performance of the loans in the Bank's
portfolio and the amount and composition of the Bank's allowance for loan
losses, see "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset Quality and Provisions for Loan
Losses" and Item 8, Financial Statements -- Notes to Consolidated Financial
Statements.
RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS. Residential mortgage loans
are comprised primarily of loans on one-to-four family residential units,
construction and land development loans, home equity lines of credit, and
special purpose loans (loans satisfying the objectives of the Community
Reinvestment Act). A particular, but not extensive portion of the Company's
residential mortgage lending, consists of so called "non-conforming" loans
which, while meeting the Company's underwriting standards, do not fully
comply with the underwriting criteria of FNMA and FHLMC. Such loans are
written primarily as ARM's to be held in the Company's loan portfolio.
Residential mortgage loans are originated by both Company employees on a
commission basis or by approved mortgage brokers.
In underwriting residential mortgage loans, the Bank evaluates both the
prospective borrower's ability to make payments on the loan when due and the
value of the property securing the loan. As required by banking regulations,
an appraisal of the real estate intended to secure the loan is generally
undertaken by an independent New York State licensed or certified appraiser
previously approved by the Bank. Residential mortgages are generally
underwritten up to 80% loan-to-value ("LTV") ratio. However, the Bank has
made loans greater than 80% LTV, up to 95% LTV, with private mortgage
insurance generally required for loans in excess of the 80% LTV ratio.
4
<PAGE>
The Bank offers fixed rate and adjustable rate residential mortgage
loans with a maximum term of 30 years. The Bank generally offers a three year
adjustable rate loan (and, more selectively, one and five year adjustable
rate loans). This loan provides for adjustments in the interest charged to an
amount usually equal to 2.5% - 3% over the applicable constant maturity
U.S. Treasury securities index. Adjustable rate loans are generally retained in
the Bank's portfolio in order to increase the percentage of loans in its
portfolio with greater repricing frequencies than fixed rate loans. Interest
rates and origination fees on adjustable rate loans are priced to be
competitive in the Bank's market area. Periodic adjustments of the interest
rate on an adjustable rate loan is usually limited to not more than 2% per
adjustment, with an interest rate ceiling over the life of the loan,
depending on the rate at origination, ranging from 11% to 15%. Fixed rate
loans are generally underwritten according to FNMA/FHLMC criteria in order to
qualify for sale in the secondary market. Individual fixed rate loans are
usually sold promptly after closing without recourse to the Bank. The Bank
continues to service these loans.
In 1999, the Company sold, but retained the servicing rights on,
$5.2 million of fixed rate residential mortgage loans. Total loans serviced
for other investors were $130.5 million at December 31, 1999.
The Bank also offers a 30 year "convertible" adjustable rate mortgage,
which provides the borrower an option to convert a one year adjustable rate
mortgage to a fixed rate mortgage at then prevailing market rates at the end
of five years. The originations of these loans are also usually sold into the
secondary market when the loan has been converted into a fixed rate, with
servicing rights retained.
The Bank offers three types of home equity mortgage loans. The first is
an "express loan" subject to a limit of $25,000 with a five or seven year
full payout amortization, as a substitute for a consumer loan but with
possible tax deductibility of interest. The Bank places a second mortgage on
the property with assessed value used as the principal basis for collateral
valuation. The second is an open-end revolving line of credit, which is an
adjustable rate loan with a term, depending on the size of the loan, of up to
twenty years. During the revolving period, which varies from five to ten
years based on the size of the loan, the borrower is only required to make
interest payments. Thereafter, payments are for both principal and interest.
The third type is a closed-end fixed rate home equity loan with maturities of
up to 15 years. All home equity loans are limited to one-to-four family
owner-occupied residences. The Bank restricts its home equity loans to a
maximum of 80% of the appraised value of the collateral property including
the balance of the first mortgage loan on such property, if any, and executes
a second mortgage as collateral. Open-end lines of credit not yet advanced
totaled $27.3 million at December 31, 1999. Loans secured by residential
mortgages totaled $408.2 million at December 31, 1999, of which $351.0
million were first and $57.2 million were second mortgages.
Commercial real estate loans are offered by the Bank generally on a
fixed or variable rate basis with a three to five and exceptionally seven
year balloon maturity, although the amortization basis generally range from
10 to 20 and exceptionally to 30 years. These loans are typically related to
commercial business loans and are secured by the underlying real estate used
in these businesses. The maximum loan-to-value ratio on commercial real
estate loans is 75%, with the valuation of the collateral for loans in excess
of $250,000 being based on independent appraisals. The Bank typically
requires personal guarantees of the principals of corporations to which it
lends. Commercial real estate loans are often larger and may involve greater
risks than other types of lending. Because payments on such loans are often
dependent upon the successful operation of the business involved, repayment
of such loans may be negatively impacted to a greater extent by adverse
changes in economic conditions. Loans secured by commercial mortgages totaled
$261 million at December 31, 1999.
CONSTRUCTION LOANS. The Bank makes short-term construction loans
secured by land, residential, and non-residential properties. At December 31,
1999, total construction loans aggregated approximately $62.6 million and
amounts not yet advanced totaled $30.6 million. While the Bank does finance
residential developments for local builders, the Bank has no major commitments
to lend for developments of significant multi-unit residential or commercial
projects, and does not intend to actively engage in this type of lending.
Construction loans are generally only made for the purpose of site
improvement and building owner occupied dwellings or buildings, and are
usually for terms of 6 months but can be up to 24 months. Funds for
construction loans are disbursed as phases of construction are completed. The
Bank's residential construction loan underwriting procedure generally limits
the loan amount to 80% LTV ratio with an LTV of up to 90% allowed where
private mortgage insurance on the amount over 80% is provided with respect to
the permanent mortgage. Nonresidential construction lending is
5
<PAGE>
generally limited to owner-occupied properties and generally limited to not
greater than 75% LTV. The Bank does not generally fund construction loans for
single family homes or commercial real estate built by investors until the
builder has a firm sales contract for the residence or building to be
constructed, although in certain larger projects, "showhouse" construction
may be financed within the overall site improvement financing package.
COMMERCIAL LOANS. The Bank's commercial loan portfolio consists
primarily of commercial business loans to small and medium sized businesses.
At December 31, 1999, the Bank's commercial business loans outstanding
totaled $118.5 million with an additional $55.6 million available under
committed lines and letters of credit.
Commercial business loans are usually made to finance the purchase of
inventory or new or used equipment or for other short-term working capital
purposes. Generally, these loans are secured, but are also offered on an
unsecured basis. Commercial business loans for the purchase of new or used
equipment are normally written on an installment basis with a term of between
one and seven years. Loans for the purchase of inventory or other working
capital purposes are structured as demand or time loans with a term of
12 months or less. In granting commercial loans, the Bank looks primarily to
the borrower's cash flow as the principal source of repayment of the loan.
Collateral and personal guarantees may be secondary sources of repayment. The
Bank generally requires commercial borrowers to have a debt service coverage
ratio of 125% or higher. Commercial business loans are often larger and may
involve greater risks than other types of lending. Payments on such loans are
often dependent upon the successful operation of the underlying business
involved and, therefore, repayment of such loans may be negatively impacted
by adverse changes in economic conditions.
CONSUMER, INSTALLMENT, AND OTHER LOANS. The Bank offers a full range of
consumer/installment loans. Such loans include financing for new and used
cars, wholesale and indirect financing programs for autos and other vehicle
dealerships in addition to, on a direct basis, personal loans for consumer
goods, home improvement, overdraft checking, and debt consolidation.
Wholesale dealer loans (secured by dealer inventories) are structured as
one-year lines of credit and are reviewed annually. Consumer loans are made
on both a secured and unsecured basis. Maturities for consumer loans are
generally for periods of 12 to 60 months, excluding secured home improvement
loans, which are usually written as home equity loans. Interest rates for
consumer products are structured either at fixed or variable rates. Leasing
services are offered directly by the Bank. Both debit and credit cards are
available. At December 31, 1999, installment, consumer, and all other loans
totaled $143.5 million, of which $121.4 million represents loans generated
from the indirect (dealer) loan program. Indirect automobile financing is
subject to aggressive price competition, which can impact future profitability.
It can also carry a higher risk of loss than direct financing. Such risk is
taken into account in management's evaluation of the adequacy of the
Allowance for Loan Losses. At December 31, 1999, overdraft lines of credit
and credit card lines not advanced totaled $16.8 million.
For additional information concerning asset/liability management, see
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations -- "Asset/Liability Management" and "Results of
Operations". The following tables show (1) the Company's loan distribution
(exclusive of loans held for sale) at the end of each of the last five years,
(2) the maturity of loans (excluding construction, consumer, installment, and
other miscellaneous loans and expected amortization) outstanding as of
December 31, 1999, and (3) the amounts due for loans as previously stated in
(2) after one year classified according to their sensitivity to changes in
interest rates.
6
<PAGE>
1) LOAN DISTRIBUTION EXCLUDING LOANS HELD FOR SALE IN 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
December 31,
1999 % 1998 % 1997 % 1996 % 1995 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R/E Const. $ 62,596 6.3% $ 50,888 5.2% $ 61,009 5.9% $ 68,331 6.5% $ 59,370 6.2%
R/E
Mortgage
(Comm.) 260,998 26.3 242,062 24.8 223,542 21.5 $ 221,229 21.2 201,246 20.9
R/E
Mortgage
(Res.) 408,240 41.1 427,440 43.9 504,544 48.5 520,018 49.8 504,423 52.5
Com'l. &
Industrial 118,492 11.9 113,680 11.7 93,351 9.0 82,221 7.9 76,173 7.9
Con.,
Instl. & 143,495 14.4 139,777 14.4 158,426 15.1 151,528 14.6 120,618 12.5
Other
-------- ----- -------- ----- ---------- ----- ---------- ----- -------- -----
Total $993,821 100% $973,847 100% $1,040,872 100% $1,043,327 100% $961,830 100%
-------- ----- -------- ----- ---------- ----- ---------- ----- -------- -----
-------- ----- -------- ----- ---------- ----- ---------- ----- -------- -----
</TABLE>
2) MATURITY OF LOANS AT DECEMBER 31, 1999:
(DOLLARS IN THOUSANDS):
Exclusive of consumer, installment and other loans, the maturities of loans
are summarized as follows:
<TABLE>
<CAPTION>
Maturing
--------
After One But Within
Within One Year Within Five Years After Five Years Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential Mortgage $ 8,376 $25,005 $409,563 $442,944
Commercial Mortgage 9,033 29,546 250,311 288,890
Comm/Industrial (A) 51,583 41,656 25,253 118,492
-------------------------------------------------------------------------------
Total $68,992 $96,207 $685,127 $850,326
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
(A) Demand loans are categorized as due within one year.
3) RATE SENSITIVITY OF ABOVE LOANS MATURING AFTER ONE YEAR:
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
One to Five Years After Five Years
---------------------------------------------
<S> <C> <C>
Fixed Interest Rate $83,650 $261,386
Variable Interest Rate 12,557 423,741
---------------------------------------------
Total $96,207 $685,127
---------------------------------------------
---------------------------------------------
</TABLE>
7
<PAGE>
SECURITIES
The Company records its investment in securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement requires that unrealized gains and losses on
securities classified "available for sale" be recorded, net of taxes, in the
"accumulated other comprehensive income" component of stockholders' equity.
The net balance of unrealized gains (loss) recorded in stockholders' equity
was $(6.6) million, $1.5 million and $1.6 million at December 31, 1999, 1998
and 1997, respectively. The related tax asset (liability) recorded in other
assets offsetting other deferred tax assets was $4.6 million, ($1.1) million,
and ($1.2) million at December 31, 1999, 1998 and 1997, respectively.
See Note A and Note B to the 1999 Consolidated Financial Statements,
included herein at Item 8, for discussion of accounting policies related to
securities and for information as to the amortized cost and fair value of
securities at December 31, 1999 and 1998:
The table below sets forth the carrying amounts of securities at the
dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies $114,139 $ 93,394 $116,751
Mortgage-backed securities 41,539 78,644 191,354
State and political subdivisions 152,582 114,543 95,116
Other securities 160,779 90,567 29,001
Regulatory securities 9,726 9,703 7,720
-----------------------------------------------
Total $478,765 $386,851 $439,942
-----------------------------------------------
-----------------------------------------------
</TABLE>
The following table sets forth certain information concerning the
maturities of debt securities, other than regulatory and equity securities,
amortized cost, and the weighted average yields of such securities (calculated
on the basis of their cost and effective yields) at December 31, 1999.
Tax-equivalent adjustments (using a 35% rate) have been made in calculating
yields on obligations of states and political subdivisions (dollars in
thousands):
<TABLE>
<CAPTION>
MATURING
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
(1) (2) (3) (4)
TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US TREASURY
AND US
GOVERNMENT
AGENCIES (5) $16,638 5.48% $ 94,689 5.71% $ 30,914 6.21% $15,591 6.12% $157,832 5.82%
STATE AND
POLITICAL
SUBDIVISIONS 11,603 6.70 60,367 6.31 60,377 6.64 24,578 7.72 156,925 6.69
OTHER 2,632 5.97 66,865 5.90 70,056 6.17 25,890 6.22 164,386 6.07
------------------------------------------------------------------------------------------
TOTAL $30,873 5.98% $221,921 5.93% $161,347 6.35% $66,059 6.75% $479,143 6.19%
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $14.3 million of adjustable rate securities
(2) Includes $36.2 million of adjustable rate securities
(3) Includes $50.6 million of adjustable rate securities
(4) Includes $32.4 million of adjustable rate securities
(5) For purposes of this schedule, mortgage-backed securities consisting of
mortgages guaranteed by U.S. Government agencies and SBA participation
certificates totaling $65.0 million have been included based upon the
estimated average lives of the securities. Prepayments were estimated
based on 1999 levels.
8
<PAGE>
The Company has established written investment, liquidity, and
asset/liability management policies, which are reviewed annually by the Board of
Directors. These policies identify investment criteria and state specific
objectives in terms of risk, interest rate sensitivity, and liquidity. The
policies are administered by the Investment Committee of the Board of Directors.
The Company does not have a trading portfolio. At December 31, 1999, the Company
had no investments in which the aggregate cash value of the securities held by
the Company exceeded 10% of stockholders' equity, except for investments in the
securities of or those guaranteed by the U.S. Government and other U.S.
Government agencies and corporations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The Company adopted SFAS 133 in the third
quarter 1998. In connection with the adoption of SFAS 133, the Company
transferred securities with a carrying value of approximately $96.0 million from
held to maturity to available for sale. This transfer of securities resulted in
an increase in unrealized gains (losses) on securities available for sale,
comprehensive income, accumulated other comprehensive income and stockholders=
equity of approximately $576,000 net of income taxes of $407,000. Except as
discussed above, the adoption of SFAS 133 did not have a material effect on the
consolidated financial position, results of operations or liquidity of the
Company.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information regarding securities and
interest rate risk.
DEPOSITS
The Company has developed a variety of deposit products ranging in
maturity from demand-type accounts to certificates of deposit with maturities of
up to five years. The Company also offers several multi-product Arelationship@
accounts to its depositors. The Company's deposits are primarily derived from
the areas where its banking offices are located. It does not solicit deposits
outside its market area and does not pay fees to others to obtain deposits for
the Company. From time to time, the Company has used premiums, promotions or
special products to attract depositors to branch offices.
The Company influences the flow of deposits primarily by pricing its
accounts to remain generally competitive with other financial institutions in
its market area, although the Company does not necessarily seek to match the
highest rates paid by competing institutions. The Company has established an
Asset/Liability Management Committee which meets monthly to review interest
rates on all deposit and consumer loan products. Periodic changes are made to
the rates and product features based on liquidity needs, competition, and
general economic conditions. While the Company has $380.0 million in time
deposits maturing in 2000, the Company=s previous experience indicates that a
significant portion will "roll over" on maturity. Of this amount, $164.5 million
represent time deposits over $100,000 (primarily municipalities whose deposits
are collateralized) which are generally considered to be more volatile than
"core" deposits. This amount increased from $90.9 million in 1998 as the Company
built up cash to meet its Y2K liquidity needs rather than borrowings to meet
potential year-end cash out flows. Management operates under a formal liquidity
policy intended to provide adequate cash equivalents and other liquid assets to
meet unforeseen outflows of time deposits, as well as outflows from other
deposit products that the Company offers. Demand deposit growth has more than
kept pace with overall deposit growth. For further information regarding the
Company's deposits, see Item 7. "Management's Discussion and Analysis of
Financial Condition -- Results of Operations."
The average amount and the average rates paid on deposits are summarized
in the following table (dollars in thousands):
<TABLE>
Year ended December 31,
AVERAGE AVERAGE AVERAGE
1999 YIELD 1998 YIELD 1997 YIELD
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $240,407 - $228,010 - $204,638 -
Money Market & NOW accounts 364,555 3.15% 386,160 3.72% 337,096 3.88%
Savings deposits 269,005 2.51 333,273 3.44 368,277 3.79
Time deposits 482,101 4.90 511,892 5.33 524,625 5.40
-------------------------------------------------------------------------
Total deposits $1,356,068 3.09% $1,459,335 3.64% $1,434,636 3.86%
=========================================================================
</TABLE>
9
<PAGE>
The maturities of time deposits under $100,000 and time deposits of $100,000 or
more outstanding at December 31, 1999, are summarized for the periods indicated
in the following table (balances in thousands):
<TABLE>
Time Deposits Under Time Deposits
$100,000 $100,000 or More Total
------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES OUTSTANDING AT DECEMBER 31,
1999, MATURING IN:
3 months or less $91,876 $128,976 $220,852
Over 3 through 6 months 72,052 23,998 96,050
Over 6 through 12 months 51,653 11,480 63,133
Over 12 months 123,019 39,250 162,269
------------------------------------------------------------------------
Total $338,600 $203,704 $542,304
========================================================================
</TABLE>
TRUST SERVICES
The Bank maintains a Trust Department which offers a wide range of
custodial, investment management, and investment advisory services to the Bank=s
customers. The Trust Department also offers the administration of personal
trusts and estates in a fiduciary capacity, self-directed IRA and Keogh accounts
and pension accounts. At December 31, 1999, customer assets under administration
totaled approximately $294.8 million, representing approximately 626 accounts.
NON-DEPOSIT INVESTMENT PRODUCTS
Although the Company has offered fixed rate annuities for some time,
during 1998 the Company began offering a wide range of non-deposit investment
products to its customers, through appropriately licensed representatives, under
a third party agency relationship. Such products include mutual funds and
variable rate annuities. Total sales of non-deposit products for 1999 was $32.0
million.
COMPETITION
The Bank principally competes in a market area of seven New York counties
(Dutchess, Putnam, Orange, Sullivan, Westchester, Rockland and Ulster). As of
June 1999 (the latest available data), such market area included 24 commercial
banks (299 branches) with deposits of $10.2 billion, 35 thrift institutions (101
branches) with deposits of $4.9 billion, and 69 credit unions (69 branches) with
deposits of $2.1 billion. Total market deposits aggregated $17.2 billion as of
such date. As of that date, the Bank had the largest share of the total
commercial bank deposits in combined Dutchess and Putnam counties (12%), and was
second in market share for Ulster County with 11%.
Management believes that the Bank is a prominent financial institution in
its market area. Although the Bank faces competition for deposits from other
financial institutions and other investment vehicles offered by securities
firms, management believes the Bank has been able to compete effectively for
deposits because of its image as a community-oriented bank and the high level of
service it offers its local customers. Many of the Bank=s competitors have
substantially greater resources and lending limits, and as such may offer a
greater array of products and services. The Bank has emphasized personalized
banking and the advantage of local decision-making in its banking business,
which strategy appears to have been well received in the Bank's market area. The
Bank does not rely upon any individual, group, or entity for a material portion
of its deposits.
In addition, the Bank is a significant provider of credit in its market
area. Although the Bank faces competition for loans from mortgage banking
companies, savings banks, savings and loan associations, other commercial banks,
insurance companies, and other institutional lenders, including manufacturers,
management believes that the Bank's business strategy gives it a competitive
advantage within the market segments it serves. Other factors which affect loan
growth include the general availability of lendable funds and general and local
economic conditions, and current interest rate levels.
10
<PAGE>
RISK MANAGEMENT
In the normal course of business, the Company is subject to various risks,
the most significant of which are credit, liquidity and interest rate. Although
it cannot eliminate these risks, the Company has risk management processes
designed to provide for risk identification, measurement, monitoring and
control.
CREDIT RISK. Credit risk represents the possibility that a customer or
counterparty may not perform in accordance with contractual terms. Credit risk
results from extending credit to customers, purchasing securities and entering
into certain off-balance-sheet financial transactions. Risk associated with the
extension of credit includes general risk, which is inherent in the lending
business, industry risk, and risk specific to individual borrowers. The Company
seeks to manage credit risk through portfolio diversification, underwriting
policies and procedures, and loan monitoring practices.
LIQUIDITY RISK. Liquidity represents an institution's ability to generate
cash or otherwise obtain funds at reasonable rates to satisfy commitments to
borrowers and demands of depositors and debtholders, and to invest in strategic
initiatives. Liquidity risk represents the likelihood the Company would be
unable to generate cash or otherwise obtain funds at reasonable rates for such
purposes. Liquidity is managed through deposit and loan pricing and the
coordination of the relative maturities and liquidity of assets, liabilities and
off-balance-sheet positions and is enhanced by the ability to raise funds in
capital markets through securities sales, direct borrowing or securitization of
assets, such as mortgage loans.
INTEREST RATE RISK. Interest rate risk arises primarily through the
Company's normal business activities of extending loans and taking deposits.
Interest rate risk is the sensitivity of net interest income and the market
value of financial instruments to the timing, magnitude and frequency of changes
in interest rates. Interest rate risk results from various repricing frequencies
and the maturity structure of assets, liabilities, and off-balance-sheet
positions. Interest rate risk also results from, among other factors, changes in
the relationship or spread between interest rates. Many factors, including
economic and financial conditions, general movements in market interest rates
and consumer preferences, affect the spread between interest earned on assets
and interest paid on liabilities. The Company uses a number of measures to
monitor and manage interest rate risk, including income simulation and interest
sensitivity ("gap") analyses.
For additional information relating to the Company's risk management processes,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations.
REGULATION AND SUPERVISION
Bank holding companies and banks are extensively regulated under both
Federal and State law. The following information describes certain aspects of
that regulation. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular provisions. The following is not intended to be an
exhaustive description of the statutes and regulations applicable to the
business of the Company or the Bank.
BANK HOLDING COMPANY REGULATION
The Company is a registered bank holding company under the BHCA and is
subject to Reserve Board regulations, examination, supervision, and reporting
requirements. Under the BHCA, a bank holding company must obtain Reserve Board
approval before acquiring, directly or indirectly, ownership or control of any
voting shares of a bank or bank holding company if, after such acquisition, it
would own or control more than 5% of such shares. Reserve Board approval also
must be obtained before any bank holding company acquires all or substantially
all of the assets of another bank or bank holding company or merges or
consolidates with another bank holding company. The George Gale Foster
Corporation ("GGF"), which controls approximately 5.73% of the Company's Common
Stock, is also a registered bank holding company of the Bank under the BHCA. As
a result, GGF may have to obtain Reserve Board approval prior to the Company
being able to undertake certain activities.
<PAGE>
Under the Change in Bank Control Act, persons who intend to acquire
control of a bank holding company, whether acting directly or indirectly or
through or in concert with one or more persons, must give 60 days prior written
notice to the Reserve Board, unless the transaction is subject to prior Reserve
Board approval under the BHCA. "Control" exists when the acquiring party has
voting control of at least 25% of any class of the bank holding company's voting
securities or the power to direct the management or policies of such company.
Under the Reserve Board regulations, a rebuttable
11
<PAGE>
presumption of control arises with respect to an acquisition where, after the
transaction, the acquiring party has ownership, control, or the power to vote
at least 10% (but less than 25%) of any class of the Company's voting
securities. The Reserve Board may disapprove proposed acquisitions of control
on certain specified grounds.
Under New York State Banking Law, the Company must obtain the prior
approval of the New York State Banking Board before acquiring, directly or
indirectly, 5% or more of the voting stock of another banking institution
located in New York State. Federal law permits adequately capitalized and
adequately managed bank holding companies to acquire banks and bank holding
companies in any state, subject to certain conditions, including certain
nationwide and statewide concentration limits. Consequently, subject to such
conditions, the Company has the authority to acquire any bank or bank holding
company, and can be acquired by any bank or bank holding company located
anywhere in the United States. Federal law permits banks, subject to certain
provisions, including state opt-out provisions, to merge with banks in other
states, or to acquire, by acquisition or merger, branches outside its home
state. The establishment of new interstate branches also is possible in those
states with laws that expressly permit it. Branches of interstate banks are
subject to various host state laws, including laws relating to intrastate
branching, consumer protection, fair lending, community reinvestment, and
taxation (unless in the case of national banks such laws are preempted by
Federal law or discriminatory in effect). Competition has increased as banks
branch across state lines and enter new markets.
The BHCA prohibits a bank holding company, with certain limited
exceptions, from acquiring or retaining direct or indirect ownership or control
of more than 5% of the voting shares of any company that is not a bank or a bank
holding company, and from engaging in any activities other than those of
banking, managing or controlling banks, or activities which the Reserve Board
has determined to be so closely related to the business of banking or managing
or controlling banks as to be a proper incident thereto.
The recently enacted Gramm-Leach-Bliley Act ("GLB Act") permits a
qualifying bank holding company to become a financial holding company and
thereby to affiliate with a broader range of financial companies than has
previously been permitted for a bank holding company. Permitted affiliates
include securities brokers, underwriters and dealers, investment managers,
insurance companies and companies engaged in other activities that are declared
by the Reserve Board, in cooperation with the Treasury Department, to be
"financial in nature or incidental thereto" or declared by the FRB unilaterally
to be "complementary" to financial activities. A bank holding company may elect
to become a financial holding company if each of its subsidiary banks is "well
capitalized," is "well managed," and has at least a "satisfactory" CRA rating.
As a bank holding company, the Company is required to file with the
Reserve Board an annual report and any additional information as the Reserve
Board may require pursuant to the BHCA. The Reserve Board also makes
examinations of the Company and the Bank, and possesses cease and desist powers
over bank holding companies and their non-bank subsidiaries if their actions
represent unsafe or unsound practices.
The Company has registered its common stock with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As a result of such registration, the proxy and tender
offer rules, periodic reporting requirements and insider trading restrictions
and reporting requirements, as well as certain other requirements of the
Exchange Act, are applicable to the Company. Because the Company's stock is
listed on the American Stock Exchange (the "AMEX"), the Company is also subject
to the rules and regulations of the AMEX. The Company also may, from time to
time, be subject to regulation by various state securities commissions with
respect to the offer and sale of its securities.
The Company is a legal entity separate and distinct from the Bank and any
non-bank subsidiaries thereof. Accordingly, the right of the Company, and
consequently the right of creditors and stockholders of the Company, to
participate in any distribution of the assets or earnings of any subsidiary is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of the Company in its capacity as a creditor may be
recognized.
BANK REGULATION
As a national bank, the Bank is subject to the supervision of, and is
regularly examined by, the Comptroller and is required to furnish quarterly
reports to the Comptroller under the National Bank Act. In addition, the Bank is
insured by and subject to certain regulations of the FDIC. The Bank is also
subject to various requirements and restrictions under Federal and State law,
including requirements to maintain reserves against deposits, restrictions on
the types, amounts, terms and conditions of loans that may be granted and
limitations on the types of investments that may be made, the activities that
may be engaged in, and the types of services that may be offered. Various
consumer laws and regulations also affect the
12
<PAGE>
operations of the Bank. The approval of the Comptroller is required for the
establishment of additional branch offices by any national bank, subject to
applicable state law restrictions. New York State Banking Law precludes a
bank from establishing a de novo branch in any city or village with a
population of 50,000 or less in which the principal office of another bank or
trust company is located (other than a bank which is a subsidiary of a bank
holding company or is itself a bank holding company).
CAPITAL
The Company and the Bank are subject to substantially similar minimum
capital requirements. The capital adequacy guidelines provide for three types of
capital: (I) Tier 1 capital (or core capital), (ii) Tier 2 capital (or
supplementary capital), and (iii) total capital. Tier 1 capital primarily
includes common stockholders' equity, and qualifying perpetual preferred stock
and related surplus less goodwill and certain disallowed tangibles.
Tier 2 capital generally includes allowances for credit losses in an
amount up to 1.25% of risk-weighted assets, other perpetual preferred stock and
any related surplus, certain hybrid capital instruments, and subordinated and
other qualifying debt, subject to certain limitations. Total capital generally
includes Tier 1 capital, plus qualifying Tier 2 capital, minus investments in
unconsolidated subsidiaries and other adjustments. At least 50% of total capital
must consist of Tier 1 capital.
Under current capital adequacy guidelines, bank holding companies and
banks must maintain minimum leverage ratios of Tier 1 capital to adjusted
average total consolidated assets of 3.0% for bank holding companies and banks
meeting certain specified criteria, which include having the highest composite
regulatory examination rating, and 4.0% for all other bank holding companies and
banks, such as the Company and Bank. Bank holding companies and banks must also
maintain minimum ratios of total risk based capital to risk-weighted assets of
8.0%, including a minimum ratio of Tier 1 capital to risk-weighted assets of
4.0%. The risk-weighted asset base is determined by assigning each asset and the
credit equivalent amount of off-balance sheet items to one of several broad risk
categories, after which the aggregate dollar value of the items in each category
is multiplied by a weight (ranging from 0% to 100%) assigned to each asset
category and totaled. The federal bank regulatory agencies may set higher
capital requirements when particular circumstances warrant. Regulators also
consider interest rate risk, concentrations of credit risk and the risk arising
from non-traditional activities, as well as the ability to manage these risks,
as important factors in assessing overall capital adequacy. Exposure to a
decline in the economic value of capital due to changes in interest rates is
also considered in evaluating capital adequacy.
At December 31, 1999, the Company and Bank exceeded all minimum capital
requirements. The Company had a ratio of Tier I capital to total average assets
of 9.25%, a ratio of Tier 1 capital to risk-weighted assets of 12.54%, and a
ratio of total capital to risk-weighted assets of 13.79%. The Bank had a ratio
of Tier 1 capital to total assets of 8.17%, a ratio of Tier 1 capital to
risk-weighted assets of 11.39%, and a ratio of total capital to risk-weighted
assets of 12.64%.
The Company's ability to pay dividends and expand business can be
restricted if capital falls below minimum requirements. In addition, the
Comptroller has established levels at which a national bank is well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized, and is required to take prompt corrective action
with respect to banks that fall below minimum capital standards. In addition,
the Comptroller may determine that a national bank should be classified in a
lower category based on other information, such as the institution's examination
report, after written notice. The degree of regulatory intervention is tied to
an insured institution's capital category. The prompt corrective actions for
undercapitalized institutions include increased monitoring and periodic review
of capital compliance efforts, a requirement to submit a capital plan,
restrictions on dividends and total asset growth, and limitations on certain new
activities (such as opening new branch offices and engaging in acquisitions and
new lines of business). At December 31, 1999, the Bank met the requirements for
a "well-capitalized" institution based on its capital ratios as of such date.
In connection with the submission of a capital restoration plan, a company
that has control of an undercapitalized institution must guarantee that the
institution will comply with the plan and provide appropriate assurances of
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the institution's assets at the
time it became undercapitalized, or (ii) the amount necessary to bring the
institution into capital compliance at the time it failed to comply with its
capital plan. If the Bank becomes undercapitalized, the Company will be required
to guarantee performance of the capital plan as a condition of the approval of
the plan by the Comptroller.
13
<PAGE>
TRANSACTIONS WITH AFFILIATES
The Bank is also subject to federal law that limits its transactions to or
on behalf of the Company and to or on behalf of any nonbank subsidiaries. Such
transactions are individually limited to 10 percent of the Bank's capital and
surplus and, with respect to the Company and all nonbank subsidiaries, to an
aggregate of 20 percent of the Bank's capital and surplus. Further, loans and
extensions of credit to or on behalf of the Company or non-bank subsidiaries
generally are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits the Bank from purchasing "low-quality"
assets from affiliates.
DEPOSIT INSURANCE
The deposits of the Bank are insured by the FDIC up to the limits set
forth under applicable law. Most of the deposits of the Bank are subject to
deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC.
However, approximately $11.3 million in deposits are subject to assessments of
the Savings Association Insurance Fund ("SAIF") of the FDIC.
The assessment rates imposed on all FDIC deposits for deposit insurance
ranges from 0 to 27 basis points per $100 of insured deposits, depending on the
institution's capital position and other supervisory factors. The rate does not
differ between BIF and SAIF-insured deposits. However, because legislation
enacted in 1996 requires all FDIC-insured institutions to bear the cost of bonds
issued by the Financing Corporation ("FICO"), the FDIC is currently assessing an
additional 2.12 basis points per $100 of insured deposits, on an annualized
basis, to cover those obligations. The Bank's current assessment rate is 0 basis
points before the FICO assessment.
FEDERAL RESERVE SYSTEM
The Bank is a member of the Federal Reserve Bank of New York, which is one
of 12 regional Federal Reserve Banks comprising the Federal Reserve System. The
Federal Reserve Bank of New York provides a central credit facility for member
institutions. As a member bank, the Bank is required to own shares of Federal
Reserve Bank capital stock in an amount equal to 6% of the Bank's paid-up
capital and surplus. The Bank is in compliance with this requirement with an
investment in Federal Reserve Bank of New York stock at December 31, 1999 of
34,212 shares. The Reserve Board also requires depository institutions to
maintain non-earning reserves against certain transaction accounts (primarily
checking accounts) and non-personal time deposits (those which are transferable
or held by a person other than a natural person). At December 31, 1999, the Bank
was in compliance with these requirements.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
The principal source of the Company's revenue and cash flows is dividends
from the Bank. The Bank is subject to various statutory and regulatory
restrictions on its ability to pay dividends to the Company. As of January 2000,
the amount available for payment of dividends to the Company by the Bank totaled
$5.0 million. In addition, the Comptroller has authority to prohibit the Bank
from paying dividends, depending upon the Bank's financial condition if such
payment is deemed to constitute an unsafe or unsound practice. The Comptroller
and the Reserve Board have indicated their view that it generally would be an
unsafe and unsound practice to pay dividends except out of current operating
earnings. The ability of the Bank to pay dividends could be further influenced
by bank regulatory and supervisory policies.
Under New York law, the Company may declare and pay dividends on its
outstanding common stock out of available surplus, unless such payment would
render the Company insolvent. As of December 31, 1999, the Company had $39.8
million in "available surplus" for such purposes.
Under Reserve Board policy, a bank holding company is expected to act as a
source of financial strength to its subsidiary bank and to commit resources to
support the bank. Consistent with its "source of strength" policy for subsidiary
banks, the Reserve Board has stated that, as a matter of prudent banking, a bank
holding company generally should not pay cash dividends unless its net income
available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with the corporation's capital needs, asset quality, and overall
financial condition.
14
<PAGE>
COMMUNITY REINVESTMENT
Bank holding companies and their subsidiary banks are subject to the
provisions of the Community Reinvestment Act of 1977, as amended (the "CRA"). A
bank's record in meeting the credit needs of its community, including low-and
moderate-income neighborhoods is evaluated as part of the examination process,
as well as when an institution applies to undertake a merger, acquisition, or to
open a branch facility. The Bank received a satisfactory CRA rating during its
1999 OCC examination.
GOVERNMENT POLICIES
Bank holding companies and their subsidiaries are affected by the credit
and monetary polices of the Reserve Board. An important function of the Reserve
Board is to regulate the national supply of bank credit. Among the instruments
of monetary policy used by the Reserve Board to implement its objectives are
open market operations in U.S. Government securities, changes in the discount
rate on bank borrowings, and changes in reserve requirements on bank deposits.
These instruments of monetary policy are used in varying combinations to
influence the overall level of bank loans, investments and deposits, the
interest rates charged on loans and paid for deposits, the price of the dollar
in foreign exchange markets, and the level of inflation. The monetary policies
of the Reserve Board are expected to continue to have a significant effect on
the operating results of banking institutions. It is not possible to predict the
nature or timing of future changes in monetary and fiscal policies, or the
effect that they may have on the Company's business and earnings.
LEGISLATIVE PROPOSALS AND REFORM
The GLB Act was enacted in 1999, and permits qualifying bank holding
companies to become financial holding companies and thereby to affiliate with
securities brokers, underwriters and dealers, investment managers, insurance
companies and companies engaged in certain other financial activities.
Qualifying bank holding companies are required to file a declaration with the
Reserve Board to become financial holding companies. Similarly, the GLB Act
authorized qualifying national banks to file a certification with the OCC to
engage in expanded activities through the formation of a "financial subsidiary."
A national bank may have a "financial subsidiary" engaged in any activity that
is financial in nature or incidental to a financial activity, except for
insurance underwriting, insurance investments, real estate investment or
development, or merchant banking. In order to qualify to establish or acquire a
financial subsidiary, a national bank and each of its depository institution
affiliates, must be "well-capitalized" and "well-managed," and may not have a
less than satisfactory CRA rating. The total assets of all financial
subsidiaries of a national bank may not exceed the lesser of $50 billion or 45%
of the parent bank's total assets.
The GLB Act also contains provisions requiring financial institutions to
protect the privacy of customer information and allowing customers, subject to
certain exceptions, to opt out of institutions providing customer information to
unaffiliated third parties for marketing purposes.
No assurance can be given as to whether any additional legislation will be
enacted or as to the effect of such legislation on the business of the Company.
EMPLOYEES
As of December 31, 1999, the Company had 461 full-time and 90 part-time
employees. The employees are not represented by a collective bargaining
agreement. The Company believes its relationship with its employees to be
satisfactory.
15
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position for each
executive officer of the Company and the Bank and the business experience of
these individuals for the past five years. Each executive officer held the
position indicated or a similar position with the same entity or one of its
predecessors for the past five years, unless otherwise indicated.
<TABLE>
NAME AGE(a) POSITION WITH THE COMPANY AND/OR THE BANK AND RECENT EXPERIENCE
- ---- ----- ----------------------------------------------------------------
<S> <C> <C>
T. JEFFERSON CUNNINGHAM III 57 CHAIRMAN AND CEO OF THE COMPANY AND THE BANK.
JOHN CHARLES VANWORMER 52 PRESIDENT OF THE COMPANY AND THE BANK.
IAN C. LUCY 45 EXECUTIVE VICE PRESIDENT OF THE BANK (1999-PRESENT); PRINCIPAL ICLA
CONSULTING (1995-1999)
DAVID S. MACFARLAND 56 EXECUTIVE VICE PRESIDENT OF THE BANK
PAUL A. MAISCH 44 EXECUTIVE VICE PRESIDENT OF THE BANK; TREASURER AND CHIEF FINANCIAL OFFICER OF THE
COMPANY.
RONALD M. BENTLEY 47 EXECUTIVE VICE PRESIDENT OF THE BANK (1999-PRESENT); REGIONAL
RETAIL PRIVATE BANKING MANAGER, KEY BANK, ALBANY (1996-1999); EASTERN
REGIONAL ADMINISTRATOR, KEY BANK, ALBANY (1994-1996).
ROBERT APPLE 44 CORPORATE COUNSEL AND CORPORATE SECRETARY OF THE COMPANY AND
THE BANK.
PAUL S. MACK 52 EXECUTIVE VICE PRESIDENT, CHIEF CREDIT OFFICER OF THE BANK.
GEORGE ELFERINK 60 SENIOR VICE PRESIDENT/SENIOR TRUST OFFICER OF THE BANK
(1997-PRESENT); PRESIDENT OF KEY TRUST CO. (1996-1997); EXECUTIVE
VICE PRESIDENT OF KEY TRUST CO. (1993-1995).
</TABLE>
(a) AS OF FEBRUARY 29, 2000
16
<PAGE>
ITEM 2. PROPERTIES
The Company owns the land and a two-story 20,000 square foot building at 20 Mill
Street, Rhinebeck, New York, which houses the Bank's largest branch
(approximately 3,200 square feet are leased to tenants).
In addition, the Company owns two buildings at Route 55 in Lagrangeville, New
York. The complex is two parcels of land comprising 23 acres, of which
approximately 18 acres are undeveloped. The buildings house the Company's
executive offices as well as several administrative support services and a
branch facility. The facilities contain approximately 36,000 square feet of
which approximately 70% is occupied by the Company and the remaining 30% is
leased to tenants. These properties represent approximately 15% the value of the
premises and equipment owned by the Company.
The Company's operations center is a 44,000 square foot facility located on
Route 52, Fishkill, New York. This owned building houses the Bank's processing,
services and several other support services. This property represents
approximately 10% of the value of the premises and equipment owned by the
Company.
Further, the Company owns a 12,600 square foot two-story office building located
at 289-291 Main Mall in Poughkeepsie, New York. This building houses certain
administrative support functions and the Bank's Trust department as well as a
banking office.
The Company, through the Bank, also owns 15 other banking premises which are
used almost exclusively for conducting commercial banking business. Similarly,
the Bank leases 17 other branch banking premises for conducting its commercial
banking business.
ITEM 3. LEGAL PROCEEDINGS
As the nature of the Bank's business involves providing certain financial
services, the collection of loans and the enforcement and validity of security
interests, mortgages and liens, the Bank is plaintiff or defendant in various
legal proceedings which may be considered as arising in the ordinary course of
its business. Neither the Company nor the Bank are presently involved in any
legal proceedings the outcome of which management or counsel to the Company
believe to be material to its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of Premier National Bancorp,
Inc. during the fourth quarter of 1999.
17
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on American Stock Exchange (AMEX),
since August 4, 1997, and currently trades under the symbol "PNB". On March 15,
2000, there were approximately 2,200 shareholders of record of Common Stock and
16,088,948 shares of Common Stock issued and outstanding.
The following table sets forth the cash dividends declared by the Company on its
Common Stock and the range of high and low prices of the Common Stock during the
two most recent years based on high and low sale prices as quoted by the AMEX,
since January 1, 1998. This table has been adjusted retroactively to give effect
to the 10% stock dividends paid January 15, 1999 and January 14, 2000.
<TABLE>
Cash Dividends Per
Share Price
-------------------------------------------------
HIGH LOW
<S> <C> <C> <C>
1998
First Quarter $.107 $20 21/32 $16 27/64
Second Quarter .107 19 47/64 17 9/16
Third Quarter .107 19 7/32 13 7/16
Fourth Quarter .118 15 45/64 12 19/64
1999
First Quarter .118 17 3/64 13 41/64
Second Quarter .136 18 3/4 14 7/16
Third Quarter .136 18 41/64 15
Fourth Quarter .15 17 7/32 14 31/64
</TABLE>
The declaration and payment of future dividends is at the sole discretion of the
Board of Directors and the amount, if any, depends upon the earnings, financial
condition and capital needs of the Company and the Bank and other factors,
including restrictions arising from federal banking laws and regulations to
which the Company and the Bank are subject. The ability of the Bank to pay cash
dividends to the Company on its capital stock is subject to, among other
matters, the restrictions set forth in federal statutes and regulations. For
additional information, see Note N - "Restriction on Subsidiary Dividends and
Loans to Affiliates" of the Notes to Consolidated Financial Statements under
Item 8.
18
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
THE FOLLOWING SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31,
1999 IS DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PREMIER
NATIONAL BANCORP INC. THE INFORMATION PRESENTED HAS BEEN RESTATED FOR ALL
YEARS TO REFLECT THE MERGER OF PROGRESSIVE BANK INC. WITH AND INTO HUDSON
CHARTERED BANCORP, INC. TO BECOME PREMIER NATIONAL BANCORP, INC. ON JULY 17,
1998. THE MERGER HAS BEEN ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS
METHOD. THE DATA SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS, RELATED NOTES, AND OTHER FINANCIAL INFORMATION INCLUDED
HEREIN AT ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AT OR FOR THE
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998* 1997* 1996 1995*
---- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
AVERAGE - ASSETS $1,554,122 $1,630,920 $1,599,351 $1,550,059 $1,384,071
- DEPOSITS 1,356,068 1,459,335 1,434,636 1,391,677 1,244,531
- LOANS 963,955 1,002,263 1,046,967 996,539 940,371
- EQUITY 148,032 153,001 141,767 133,055 123,083
YEAR END - ASSETS 1,595,666 1,574,169 1,615,018 1,572,055 1,439,697
- DEPOSITS 1,367,779 1,407,059 1,452,698 1,420,027 1,288,072
- LOANS 972,035 952,577 1,021,541 1,024,794 945,300
- EQUITY 142,038 156,154 148,837 137,707 128,587
- PREFERRED STOCK INCLUDED IN EQUITY 5,713
- INTEREST-EARNING ASSETS 1,504,368 1,481,798 1,531,793 1,476,198 1,345,025
- INTEREST-BEARING LIABILITIES 1,190,913 1,167,495 1,235,643 1,222,003 1,099,356
INCOME DATA:
NET INTEREST INCOME $65,302 $67,095 $66,054 $62,901 $57,265
PROVISION FOR LOAN LOSSES (2,000) (5,929) (4,475) (5,150) (2,900)
REALIZED GAINS ON SALES OF SECURITIES AND LOANS, NET 214 816 782 327 958
TOTAL OTHER OPERATING INCOME 10,109 8,736 8,687 9,379 8,127
---------- ---------- ---------- ----------- ----------
GROSS OPERATING INCOME 73,625 70,718 71,048 67,457 63,450
TOTAL OTHER OPERATING EXPENSES (42,596) (49,988) (43,411) (42,566) (41,735)
---------- ---------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES 31,029 20,730 27,637 24,891 21,715
INCOME TAXES (3) (10,431) (7,678) (9,997) (6,904) (7,964)
---------- ---------- ---------- ----------- ----------
NET INCOME 20,598 13,052 17,640 17,987 13,751
---------- ---------- ---------- ----------- ----------
DIVIDEND REQUIREMENTS OF PREFERRED STOCK 0 0 0 (89) (414)
---------- ---------- ---------- ----------- ----------
NET INCOME APPLICABLE TO COMMON SHARES $20,598 $13,052 $17,640 $17,898 $13,337
========== ========== ========== =========== ==========
PER COMMON SHARE: (1)
BASIC EARNINGS $1.23 $0.76 $1.04 $1.05 $0.81
DILUTED EARNINGS 1.21 0.74 1.01 1.03 0.76
CASH DIVIDENDS 0.54 0.44 0.41 0.34 0.28
BOOK VALUE (2) 8.65 9.04 8.73 8.09 7.47
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: (1)
BASIC 16,793,000 17,174,300 16,963,100 17,011,500 16,554,000
DILUTED 17,057,400 17,565,900 17,427,300 17,423,000 17,641,800
SELECTED FINANCIAL RATIOS:
RETURN ON AVERAGE ASSETS 1.33% 0.80% 1.10% 1.16% 0.99%
RETURN ON AVERAGE EQUITY 13.91 8.53 12.44 13.45 10.84
AVERAGE EQUITY TO AVERAGE ASSETS 9.53 9.38 8.86 8.57 8.89
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF LOANS 2.19 2.18 1.85 1.78 1.75
ALLOWANCE FOR LOAN LOSSES AS A PERCENT OF NONPERF. LOANS 290 226 214 181 155
NONPERFORMING LOANS AND OREO TO TOTAL LOANS & OREO 0.89 1.03 1.00 1.26 1.47
CAPITAL TO RISK-WEIGHTED ASSETS 13.79 15.38 15.30 14.88 16.16
COMMON DIVIDEND PAYOUT RATIO 41.69 62.89 33.80 32.80 35.10
TIER 1 CAPITAL TO AVERAGE ASSETS (LEVERAGE RATIO) 9.25 9.13 8.69 8.11 8.89
</TABLE>
*INCLUDES AFTER TAX MERGER EXPENSE OF $5,316,000, $314,000, AND $145,000 IN
1998, 1997 AND 1995 RESPECTIVELY.
(1)INFORMATION HAS BEEN ADJUSTED RETROACTIVELY TO GIVE EFFECT TO THE 10%
STOCK DIVIDENDS DECLARED IN DECEMBER 1995, DECEMBER 1996, DECEMBER 1998 AND
DECEMBER 1999, AS WELL AS A 50% STOCK DIVIDEND DECLARED SEPTEMBER 1997.
(2)AS TO 1995 INCLUDES THE DILUTIVE EFFECT OF SERIES B CONVERTIBLE PREFERRED
STOCK OF APPROXIMATELY 880,000 SHARES.
(3)THE 1996 TOTALS REFLECT A TAX BENEFIT OF $2.4 MILLION RELATED TO
SETTLEMENT OF AUDITS OF CERTAIN PRIOR YEARS' TAX RETURNS.
19
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is to be read in conjunction with the Company's
consolidated financial statements, presented elsewhere in this report under
Item 8.
FINANCIAL CONDITION
The following table compares the changes in major categories of the Company's
balance sheet from December 31, 1998 to December 31, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
CHANGE 12/31/99 VS. 12/31/98
----------------------------
12/31/99 12/31/98 AMOUNT PERCENT
-------- -------- ------ -------
<S> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS $78,671 $174,330 $(95,659) (54.9)%
SECURITIES 478,765 386,851 91,914 23.8
LOANS 993,821 973,847 19,974 2.1
ALLOWANCE FOR LOAN LOSSES (21,786) (21,270) (516) (2.4)
PREMISES & EQUIPMENT 26,982 28,714 (1,732) (6.0)
OTHER 39,213 31,697 7,516 23.7
---------- ---------- ---------
TOTAL ASSETS $1,595,666 $1,574,169 $21,497 1.4%
========== ========== ========= =======
DEPOSITS:
NON-INTEREST BEARING $252,166 $241,289 $10,877 4.5%
INTEREST BEARING 1,115,613 1,165,770 (50,157) (4.3)
---------- ---------- --------- -------
TOTAL DEPOSITS 1,367,779 1,407,059 (39,280) (2.8)
OTHER INTEREST BEARING
LIABILITIES 75,300 1,725 73,575 4265.2
OTHER LIABILITIES 10,549 9,231 1,319 14.3
---------- ---------- --------- -------
TOTAL LIABILITIES 1,453,628 1,418,015 35,613 2.5
STOCKHOLDERS' EQUITY 142,038 156,154 (14,116) (9.0)
---------- ---------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,595,666 $1,574,169 $21,497 1.4%
========== ========== ========= =======
</TABLE>
20
<PAGE>
Financial Condition
December 31, 1999 compared to December 31, 1998
Total assets in 1999 increased by $21.5 million from year end 1998 or 1.4%. Such
increases were principally in net loans of $19.5 million and securities of $91.9
million. These increases were offset by declines of $95.7 million in cash and
cash equivalents. Of the change in loans, residential mortgages, principally
ARM's, and construction loans held by the Bank and Home Equity loans decreased
$19.2 million or 4.5% and consumer and other decreased $15.4 million or 8.1%.
Although the balances of residential mortgages held by the Bank declined, new
originations of such loans totaled approximately $78.7 million of which
approximately $4.7 million were sold into the secondary market reflecting the
Company's interest rate risk management policy. These decreases were offset by
growth in commercial mortgage loans which increased by $18.9 million or 7.8%,
commercial and industrial loans which increased $4.8 million or 4.2%, and
indirect loans which increased $6.9 million or 6.1%.
Taxable non-corporate securities decreased by $15.6 million, or 8.5%, at year
end while municipal holdings increased by $38.1 million or 33.2%. This shift was
made principally by investing in "bank-qualified" bonds within New York State,
where the tax equivalent yields are significantly higher (and market price
volatility value risks lower) than other securities of comparable maturity.
Corporate securities also increased by $71.4 million or 71.2% reflecting the
Company's leverage strategy, principally funded by $75 million of borrowed funds
(Federal Home Loan Bank advances and short-term repurchase agreements).
Deposits decreased by $39.3 million principally reflecting the Company's
interest rate policies in light of its high liquidity. While noninterest bearing
deposits increased by $10.9 million, interest bearing deposits declined by $50.2
million. Of the decrease in interest bearing deposits, $69.0 million of growth
in time deposits was largely offset by declines in savings accounts of $55.8
million, NOW accounts $8.8 million, and money market accounts of $54.6 million.
Decline in savings and money market accounts reflect the Company's decision to
not "price up" its basic products and instead to compete for funds using special
term CDs, municipal deposits and other promotional products. For additional
information regarding deposits, see "Item 1 - BUSINESS--Deposits".
Additionally, net investments in premises and equipment decreased by $1.7
million due principally to sales of bank properties of $.9 million. Other assets
increased $7.5 million, primarily due to higher levels of accrued interest
income receivable and deferred taxes.
The allowance for loan losses grew by $.5 million to $21.8 million or a 2.4 %
increase, as provisions for loan losses of $2.0 million exceeded net charge-offs
of $1.5 million. The allowance for loan losses represented 2.19% of total loans
for 1999 compared to 2.18% in 1998. Further, the allowance for loan losses was
290% of nonperforming loans at December 31, 1999 compared to 226% at December
31, 1998, as nonperforming loans decreased from $9.4 million at year end 1998 to
$7.5 million at year end 1999.
Stockholders' equity decreased $14.1 million or 9.0% in 1999 compared to
year-end 1998. Credits of $20.6 million from net income and $6.5 million from
the sale of additional shares of stock through the Company's dividend
reinvestment and employee stock option plans, were offset by cash dividends
declared of $9.0 million, treasury stock repurchases of $24.1 million and $8.1
million from the net change in the unrealized loss on securities available for
sale, after tax.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the ability to meet the cash flow requirements of
customers who may be depositors wishing to withdraw funds or borrowers who need
to draw funds under their available credit facilities.
As detailed in the Company's Consolidated Statement of Cash Flows included in
the financial statements, cash flows are derived from three sources: cash
flows from operating activities, cash flows from investing activities and
cash flows from financing activities. Net cash provided by operating
activities was $23.2 million in 1999. Investing activities (primarily
purchases and sales of securities and the funding of loans) utilized $127.0
million in 1999 as purchases of securities of $264.6 million exceeded sales,
maturities, and prepayment of loans and securities of $162.9 million.
Financing activities provided $8.1 million as proceeds of new common stock
issuances of $6.5 million and net borrowings of $73.6 million were offset by
$39.3 million decrease in deposits, cash dividends paid of $8.6 million and
stock repurchases and redemptions of $24.1 million. The overall result was
that cash and cash equivalents decreased $95.7 million at December 31, 1999.
The Company's liquidity ratio (defined as cash and cash equivalents plus
securities available-for-sale [$530.7 million] to total assets) was 33.3% at
year-end 1999. The average life of the available-for-sale portfolio, on a
rate sensitivity basis, is slightly over three years. These liquid assets,
together with maturing loans, are deemed by management to be more than
adequate to meet expected liquidity needs. In addition, the Bank is a member
of the Federal Home Loan Bank and has the ability to borrow substantial
further funds ($55 million) under its secured advance program.
21 <PAGE>
The Holding Company's own liquidity needs are chiefly for paying dividends. The
principal sources of income for the Company are investment income and dividends
and rents received from the Bank. Dividends from the Bank are subject to certain
regulatory limitations at year-end. The Company had ample cash and liquid
investments at the holding company level [$8.8 million] to meet its reasonably
anticipated cash needs in 2000.
Financial institutions' assets are monetary in nature and are thus impacted by
inflation, interest rate and credit considerations. This results in the need to
maintain an appropriate equity to assets ratio. In addition, the Company and the
Bank are subject to regulatory requirements to maintain minimum capital levels.
These capital requirements and the actual levels maintained by the Bank and the
Company are summarized in Note O to the Consolidated Financial Statements,
included herein under Item 8. The capital levels of both the Bank and the
Company exceed all regulatory requirements and regulatory agencies have informed
management that, as of December 31, 1998, the Bank qualifies for "well
capitalized" status under the appropriate regulatory definitions. Further, the
Company believes that the capital levels maintained are more than adequate to
meet its currently foreseeable needs and that additional capital resources would
be required only for exceptional investment opportunities.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991,
the Bank's regulator developed risk-based capital standards that take account of
interest-rate risk, concentration of credit risk, the risk of nontraditional
activities and the actual performance and expected risk of loss on multi-family
mortgages. Such standards may have the effect of increasing the level of
regulatory capital that the Company and Bank are required to maintain. The
Company's risk based capital ratio as of December 31, 1999 was 13.79%.
In February 1999, the Board of Directors approved a stock repurchase program and
authorized management to purchase up to 1,250,000 shares (approximately 7.9%) of
the Company's common stock from the market. This program was completed in
December 1999. The Company's Board of Directors approved a further 1,000,000
shares (approximately 6.8%). At the current market prices at the time of the
approval, the total second repurchase program would utilize approximately $11 -
$15 million offset by Dividend Reinvestment Plan issuances estimated to total
approximately $2.5 million and an unknown amount of employee stock option
exercises over the period. The purpose of the repurchase program is to offset
the effects of new stock issuances under the Company's dividend reinvestment and
stock option plans and for other general corporate purposes. The Company has
sufficient cash and securities and plans to effect this repurchase program over
the next two years.
YEAR 2000
During 1999, the Company completed the process of preparing for the year 2000
date change event. This process involved reviewing, modifying and replacing
existing hardware and software, as necessary. The Company also assessed the year
2000 preparedness of third parties such as vendors, customers, governmental
entities and others. Contingency plans, subject to oversight and regulation by
certain federal bank regulatory authorities, for year 2000 issues were
maintained. Business continuity plans were reviewed and strengthened to address
year 2000 implications.
The estimated total cumulative cost to become year 2000 ready through December
31, 1999, which has been expensed as incurred, was approximately $300,000. No
significant outlays were made to replace existing systems solely for year 2000
reasons, although approximately $400,000 was spent in 1999 to upgrade the Bank's
personal computer network during the year.
The Company to date has not encountered any materially significant problems
associated with its mission critical systems or service providers as a result of
the date change event.
Unanticipated issues associated with the year 2000 date change event could still
occur that may have an adverse impact on the financial condition and results of
operations of the Company, its customers and service providers. To the extent
that customers' financial positions are weakened due to year 2000 issues, credit
quality could be adversely affected. It is not possible to predict with
certainty all of the adverse effects that could result from a failure of third
parties to address year 2000 issues or whether such effects could have a
material adverse impact on the Company.
22
<PAGE>
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 maintaining
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.
The following chart (in thousands) provides a quantification of the Company's
interest rate sensitivity gap as of December 31, 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 December 31,
1999, assuming no management action, the Company's principal interest rate risk
is to a rising rate environment within the one-year time frame and a declining
interest rate risk beyond the one year time frame. That is, net interest revenue
would be expected to be adversely affected by an increase in interest rates
above the rates embedded in the current yield curve, principally due to the
higher level of liabilities ($1,036 million) that would reprice relative to
similarly situated assets ($666.0 million) in that time frame. This exposure
would be mitigated over the longer term as the Company has $686.6 million more
in repriceable interest earning assets than interest bearing liabilities beyond
one year. Demand deposits (approximately 20% of total assets) and capital serves
to mitigate the effects of increases in interest rates and reduces the average
cost of total liabilities.
23
<PAGE>
This chart displays only a static view of the Company's interest rate
sensitivity gap and does not capture the dynamics of rate and spread
movements nor management's actions that may be taken to manage this risk
(dollars in thousands).
<TABLE>
<CAPTION>
THREE FOUR TOTAL GREATER
MONTHS MONTHS TO WITHIN ONE ONE YEAR TO THAN FIVE
MATURITY REPRICING DATE (1) (2) OR LESS ONE YEAR YEAR FIVE YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES $132,396 $33,088 $165,484 $186,457 $137,985 $489,926
FEDERAL FUNDS SOLD 31,782 0 31,782 0 0 31,782
FIXED RATE LOANS 82,568 67,351 149,919 242,150 48,410 440,479
FLOATING RATE LOANS 160,675 158,122 318,797 225,137 2,092 546,026
---------- ---------- ---------- -------- -------- --------
TOTAL INTEREST
EARNING ASSETS (1) 407,421 258,561 665,982 653,744 188,487 1,508,213
---------- ---------- ---------- -------- -------- --------
OTHER INTEREST BEARING (3) 294,516 241,985 536,501 36,809 0 573,310
TIME AND OTHER (3) 276,886 146,815 423,701 116,274 2,328 542,303
BORROWINGS 75,300 75,300 75,300
TOTAL INTEREST-
BEARING LIABILITIES 646,702 388,800 1,035,502 153,083 2,328 1,190,913
---------- ---------- ---------- -------- -------- --------
INTEREST SENSITIVITY GAP (4) $(239,281) $(130,239) $(369,520) $500,661 $186,159 $317,300
========== ========== ========== ======== ======== ========
GAP AS A PERCENT OF
EARNING ASSETS (15.87)% (8.64)% (24.50)% 33.20% 12.34% 21.04%
========== ========== ========== ======== ======== ========
</TABLE>
NOTES TO CHART:
(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 DECEMBER 31, 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) SAVINGS ACCOUNTS: ONE HALF OF THE LEVEL OF "MERIT" SAVINGS ACCOUNTS,
WHICH REPRICE AGAINST CHANGES IN THE FEDERAL RESERVE DISCOUNT RATE, ARE
CLASSIFIED AS THREE MONTH TO SIX MONTH MATURITIES. THE BALANCE OF THESE
ACCOUNTS ARE BEYOND ONE YEAR REPRICING CATEGORY. MANAGEMENT'S' ANALYSIS
OF CHANGES IN LEVELS INDICATE THAT CHANGES IN THIS RATE ARE
APPROXIMATELY HALF AS OFTEN AS CHANGES IN OTHER MARKET RATES. OTHER
SAVINGS ACCOUNTS ARE CLASSIFIED AS FOUR MONTHS TO ONE YEAR MATURITIES,
REFLECTING THE LAGGING PERIOD THAT HISTORICALLY EXISTS IN RATES PAID ON
PASSBOOK AND SAVINGS ACCOUNTS.
OTHER DEPOSITS: TIME DEPOSITS ARE CLASSIFIED BY CONTRACTUAL MATURITY
OR REPRICING FREQUENCY. NOW ACCOUNTS ARE CLASSIFIED AS FOUR MONTHS
TO ONE-YEAR MATURITIES. THE BALANCE OF DEPOSITS ARE CONSIDERED LESS
THAN THREE MONTHS, INCLUDING ALL MONEY MARKET DEPOSIT ACCOUNTS. THE
INTEREST RATE SENSITIVITY ASSUMPTIONS PRESENTED FOR THESE DEPOSITS
ARE BASED ON HISTORICAL AND CURRENT EXPERIENCES REGARDING BALANCE
RETENTION AND INTEREST RATE REPRICING BEHAVIOR.
(4) NON-INTEREST BEARING DEPOSIT LIABILITIES WERE APPROXIMATELY $252.0
MILLION AT DECEMBER 31, 1999.
24
<PAGE>
INTEREST RATE RISK
Management of interest rate risk focuses on both tactical (one year or less) and
structural (beyond one year) time frames. The Company has established interest
rate risk limits based on an Earnings at Risk (EAR) concept and on an imputed
market value of portfolio equity (MVPE). EAR measures the potential adverse
impact on earnings from a given change in the yield curve, while the MVPE risk
limit is set in terms of changes in the economic present value of future cash
flow streams. To effectively measure and manage interest rate risk, the Company
uses simulation analysis to determine the impact on EAR and MVPE under various
interest rate scenarios. From these simulations, interest rate risk is
quantified and appropriate strategies are developed and implemented. Model
parameters are determined based on past interest rate movements and are
periodically updated. EAR is calculated by multiplying the gap between asset and
liability maturities/repricings by given changes in the yield curve. MVPE is
calculated by subtracting the net present value of deposits and other interest
bearing liabilities from the net present value of interest earning assets using
the same yield curve model. Both MVPE and EAR are measured assuming a parallel
change in market interest rates up 300 basis points and down 300 basis points
over a one-year shock.
While the Company principally utilizes the parallel rate shift model for
monitoring its compliance with its interest rate risk limits, it also
periodically reviews and assesses its rate risk exposure to non-parallel yield
curve changes (including inversion). Compliance with established limits is
monitored by the Investment Committee and the Company's interest rate risk
profile is presented quarterly to the Board of Directors. Both MVPE and EAR
assess the Company's interest rate risk based on the Company's current asset and
liability mix. Such limit for MVPE changes is a maximum 50% change in the excess
of the Company's current MVPE over the Company's GAAP equity value. At year-end
1999, this limit was $43.8 million. For EAR, the limit is not greater than a $15
million (pre-tax) change in EAR.
The following table presents an analysis of the sensitivity inherent in the
Company's net interest income and market value of portfolio equity (market value
of assets, less liabilities). The interest rate scenarios presented in the table
are based on interest rates at December 31, 1999 adjusted by instantaneous
parallel rate changes upward and downward of up to 300 basis points. Each rate
scenario reflects unique prepayment and repricing assumptions.
Since there are limitations inherent in any methodology used to estimate the
exposure to changes in market interest rates, this analysis is not intended to
be a forecast of the actual effect of a change in market interest rates on the
Company. The net interest income variability reflects the Company's negative
interest rate sensitivity gap. The MVPE is significantly impacted by the
estimated effect of prepayments on the value of loans, and amortizing investment
securities. Further, this analysis is based on the Company's present profile of
assets, liabilities and equity and does not reflect any actions the Company
might undertake in response to changes in market interest rates. This action
could minimize the change in both EAR and MVPE in the various rate scenarios (in
thousands).
<TABLE>
<CAPTION>
Change in Change in Market Value
Interest Rates Change in Net Interest of Portfolio Equity
(basis points) Income (EAR) (MVPE) % Change MVPE
------------- ----------- ----- -------------
<S> <C> <C> <C>
+300 $(7,482) $(31,183) (13.58)%
+200 (4,852) (21,343) (9.30)
+100 (2,244) (10,493) (4.57)
0 0 0 0
-100 1,967 9,378 4.08
-200 3,376 15,540 6.77
-300 6,844 16,164 7.04
</TABLE>
MORTGAGE-BACKED AND SBA SECURITIES OF U.S. GOVERNMENT AGENCIES
25
<PAGE>
The Company currently invests in mortgage-backed securities (FHLMC, FNMA, and
GNMA) and SBA pooled loans in connection with its asset/liability management
strategy. As of December 31, 1999, the Company had $39.6 million in fixed rate
securities and $51.3 million in adjustable rate securities of this nature. These
securities are all guaranteed by U.S. Government agencies and are, therefore, of
the highest investment grade. These securities are subject to varying monthly
payments due to varying prepayments by the borrowers on the underlying loans. As
a general rule, when interest rates rise, prepayments slow down, extending the
anticipated maturities of the fixed rate securities. Conversely, when interest
rates decline, prepayments rise, as many of the borrowers refinance their loans
at lower rate levels. The Company may not be able to reinvest the proceeds of
prepayments in securities or other earning assets with comparable yields, which
can adversely affect net interest income. Prepayment levels affect the
contractual repayment profile of the securities.
These uncertainties cause more volatile market value shifts than do serial or
single payment bonds, particularly as interest rates rise. The Company manages
this portion of its investment portfolio by only investing in such fixed rate
securities with expected average lives of 2-4 years but not greater than 5
years, or in adjustable rate securities which evidence lower price volatility
due to their adjustable rate feature.
26
<PAGE>
RESULTS OF OPERATIONS
The table that follows sets forth the major components of net income for each of
the three years ended December 31, 1999, 1998 and 1997. Net income increased
$7.5 million in 1999 over 1998, although the 1998 period included after-tax
merger-related expenses of $5.3 million vs. none in 1999. The Company
experienced a decrease in net interest income of $1.8 million, an increase in
other income of $.8 million, reductions in the provisions for loan losses of
$3.9 million and excluding merger expenses virtually unchanged operation expense
levels. Reported diluted earnings per share increased by $.47 per share to
$1.21. Net income for 1998 was $13.1 million or $.74 per diluted share compared
to net income for 1997 of $17.6 million or $1.01 per diluted share. Excluding
merger-related expenses, net income would have been $18.4 million in 1998 or
$1.05 per diluted share compared to $18.0 million or $1.03 per diluted share in
1997.
Return on average assets was 1.33%, .80% and 1.10% in 1999, 1998 and 1997,
respectively. The return on average equity was 13.91%, 8.53% and 12.44% in 1999,
1998 and 1997, respectively. Excluding merger-related expense, return on average
assets would have been 1.13% and 1.12% in 1998 and 1997, respectively, and
return on average equity would have been 12.01% and 12.66% for 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
%
1999 VS. CHANGE 1998 VS. % CHANGE
1998 1999 VS. 1997 1998 VS.
1999 VARIANCE 1998 1998 VARIANCE 1997 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST
INCOME $109,303 $(11,024) (9.2)% $120,327 $(1,218) (1.0)% $121,545
TOTAL INTEREST
EXPENSE 44,001 (9,231) (17.3) 53,232 (2,259) (4.1) 55,491
-------------------- -------------------- --------
NET INTEREST INCOME 65,302 (1,793) (2.7) 67,095 1,041 1.6 66,054
PROVISION FOR LOAN
LOSSES 2,000 (3,929) (66.3) 5,929 1,454 32.5 4,475
-------------------- -------------------- --------
NET INTEREST INCOME
AFTER PROVISION 63,302 2,136 3.5 61,166 (413) (0.7) 61,579
FOR LOAN LOSSES
OTHER INCOME 10,323 771 8.1 9,552 83 0.9 9,469
-------------------- -------------------- --------
GROSS OPERATING
INCOME 73,625 2,907 4.1 70,718 (330) (0.5) 71,048
MERGER EXPENSE 0 (7,511) (100.0) 7,511 6,970 1,288.4 541
OTHER EXPENSE 42,596 119 .3 42,477 (393) (0.9) 42,870
-------------------- -------------------- --------
INCOME BEFORE
INCOME TAXES 31,029 10,299 49.7 20,730 (6,907) (25.0) 27,637
INCOME TAXES 10,431 2,753 35.9 7,678 (2,319) (23.2) 9,997
-------------------- -------------------- --------
NET INCOME $ 20,598 $ 7,546 57.8% $ 13,052 $(4,588) (26.0)% $ 17,640
-------------------- -------------------- --------
PER COMMON SHARE:*
BASIC EARNINGS $1.23 $.76 $1.04
===== ==== =====
DILUTED EARNINGS $1.21 $.74 $1.01
===== ==== =====
</TABLE>
(*) BASED UPON THE WEIGHTED-AVERAGE NUMBER OF DILUTED SHARES OF COMMON
STOCK OUTSTANDING DURING EACH OF THE PERIODS, ADJUSTED RETROACTIVELY
FOR 10% STOCK DIVIDENDS DECLARED DECEMBER 1998 AND 1999 AND THE 50%
STOCK DIVIDEND DECLARED SEPTEMBER 1997.
Net interest income is the primary component of the Company's earnings and is
derived from interest income earned on loans and securities offset by
interest expense paid on deposits and other interest-bearing liabilities.
The following table presents, for each of the years 1999, 1998 and 1997, the
average balances of the various categories of the Company's balance sheet and
the related interest income on earning assets and interest expense on
interest-bearing deposits and liabilities. Also presented are the related
average tax equivalent interest yields and interest rates paid on the
Company's interest-earning assets and interest-bearing liabilities.
27
<PAGE>
AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS/COSTS FOR THE YEAR ENDED
DECEMBER 31, (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
LOANS(1) $ 963,955 $ 81,608 8.47% $1,002,263 $ 89,807 8.96% $1,046,967 $ 93,849 8.96%
TAXABLE
SECURITIES 368,825 21,144 5.73 363,068 22,736 6.26 340,075 21,782 6.41
TAX-EXEMPT
SECURITIES(2) 101,892 7,165 7.03 81,688 5,558 6.80 69,199 5,002 7.23
FED FUNDS SOLD 37,683 1,894 5.03 82,381 4,171 5.06 48,357 2,613 5.40
---------- -------- ---------- -------- ---------- --------
TOTAL INTEREST
EARNING ASSETS 1,472,355 111,811 7.59 1,529,400 122,272 7.99 1,504,598 123,246 8.19
---------- -------- ---------- -------- ---------- --------
CASH & DUE FROM
BANKS 43,933 51,706 44,344
PREMISES &
EQUIPMENT 27,626 27,525 25,654
OTHER ASSETS 31,861 42,425 43,807
ALLOWANCE FOR
LOAN LOSSES (21,652) (20,136) (19,052)
---------- ---------- ----------
TOTAL NON-
INTEREST
EARNING ASSETS 81,768 101,520 94,753
TOTAL ASSETS $1,554,122 111,811 7.19% $1,630,920 122,272 7.50% $1,599,351 123,246 7.71%
========== ======== ========== ========= ========== ========
LIABILITIES
- -----------
MONEY MARKET $ 307,704 10,907 3.54 $ 314,383 13,552 4.31 $ 266,022 12,143 4.56
NOW ACCOUNTS 56,851 570 1.00 71,777 825 1.15 71,074 944 1.33
SAVINGS 269,005 6,756 2.51 333,273 11,470 3.44 368,277 13,955 3.79
TIME DEPOSITS 482,101 23,634 4.90 511,892 27,290 5.33 524,625 28,342 5.40
OTHER 38,259 2,134 5.58 1,725 95 5.51 1,809 107 5.91
---------- -------- ---------- -------- ---------- --------
TOTAL INTEREST
BEARING
LIABILITIES 1,153,920 44,001 3.81 1,233,050 53,232 4.32 1,231,807 55,491 4.50
DEMAND DEPOSITS 240,407 228,010 204,638
OTHER 11,763 16,859 21,139
---------- ---------- ----------
TOTAL NON-
INTEREST
BEARING
LIABILITIES 252,170 244,869 225,777
(TABLE CONTINUED ON NEXT PAGE.)
- ------------------------------------------------------------------------------------------------------------------------------------
28
<PAGE>
<CAPTION>
1999 1998 1997
---- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE COST OF
TOTAL LIABILITIES 3.13% 3.60% 3.81%
STOCKHOLDERS'
EQUITY 148,032 153,001 141,767
---------- ---------- ----------
TOTAL LIABILITIES
AND EQUITY $1,554,122 44,001 2.83% $1,630,920 53,232 3.26% $1,599,351 55,491 3.47%
========== ======== ========== ======== ========== ========
NET INTEREST
MARGIN 67,809 4.61% 69,040 4.51% 67,755 4.50%
LESS TAX
EQUIVALENT
ADJUSTMENTS (2,508) (1,945) (1,701)
-------- -------- -------
NET INTEREST
INCOME $ 65,302 4.44% $ 67,095 4.39% $66,054 4.39%
======== ==== ======== ==== ======= ====
EXCESS OF INTEREST
EARNING ASSETS
OVER INTEREST $ 272,791
BEARING LIABILITIES $318,435 $ 296,350
RATIO OF AVERAGE
INTEREST EARNING
ASSETS TO AVERAGE
INTEREST BEARING
LIABILITIES 127.60% 124.03% 122.15%
</TABLE>
(1) AVERAGE BALANCES INCLUDE NON-ACCRUAL LOANS.
(2) YIELDS ON TAX-EXEMPT SECURITIES BASED ON A FEDERAL TAX RATE OF 35% IN
1999 AND 1998, AND 34% IN 1997.
The Company's net interest margin (tax equivalent net interest income divided
by average earning assets) has continued to improve over the period from
4.50% in 1997 to 4.51% in 1998 and 4.61% in 1999 reflecting the Company's
efforts to improve the quality of its core net interest income. The improved
interest margin is primarily due to downward pricing of interest paid on
interest bearing deposits and other interest bearing liabilities.
29
<PAGE>
The table below details the changes in interest income and interest expense
for the periods indicated due to both changes in average outstanding balances
and changes in average interest rates (in thousands):
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
--------------------- ---------------------
INCREASE/(DECREASE) DUE TO: INCREASE/(DECREASE) DUE TO:
VOLUME RATE TOTAL(1) VOLUME RATE TOTAL(1)
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:(2)
LOANS $(3,433) $(4,766) $ (8,199) $(4,006) $ (36) $(4,042)
TAXABLE SECURITIES 361 (1,953) (1,592) 1,440 (486) 954
TAX-EXEMPT SECURITIES 1,375 232 1,607 850 (294) 556
FEDERAL FUNDS SOLD (2,263) (14) (2,277) 1,723 (165) 1,558
-------- -------- --------- -------- -------- --------
TOTAL INTEREST INCOME (3,960) (6,501) (10,461) 7 (981) (974)
-------- -------- --------- -------- -------- --------
INTEREST PAID ON:
MONEY MARKET ACCOUNTS (288) (2,357) (2,645) 2,085 (676) 1,409
NOW ACCOUNTS (172) (83) (255) 8 (127) (119)
SAVINGS ACCOUNTS (2,212) (2,502) (4,714) (1,205) (1,280) (2,485)
TIME DEPOSITS (1,588) (2,068) (3,656) (679) (373) (1.052)
OTHER 2,012 27 2,039 (4) (8) (12)
-------- -------- --------- -------- -------- --------
TOTAL INTEREST EXPENSE (2,248) (6,983) (9,231) 205 (2,464) (2,259)
-------- -------- --------- -------- -------- --------
NET INTEREST MARGIN (1,712) 482 (1,230) (198) 1,483 1,285
LESS TAX EQUIVALENT EFFECT (500) (63) (563) (297) 53 (2.44)
======== ======== ========= ======== ======== ========
NET INTEREST INCOME $(2,212) $ 419 $ (1,793) $ (495) $ 1,536 $ 1,041
======== ======== ========= ======== ======== ========
</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% IN
1999 AND 1998 AND 34% IN 1997.
1999 vs. 1998 net interest income was positively impacted by $.4 million due
to changes in rates. The primary component was decreases in rates paid on
deposits of $7.0 million which offset falling yields on assets. However, the
decline in loan volume led to an overall decline in net interest income as
lower liability volume savings did not fully absorb the loss of lower loan
volume income.
In 1998 vs. 1997, net interest income was positively impacted by $1.5 million,
due to changes in rates. The primary components were decreases in rates paid
on deposits of $2.5 million offsetting declines in investment portfolio
yields. However, overall gross interest income was negatively impacted due to
changes in volume. While the average loan interest volume decline of
$4.0 million was offset by increases in the size of securities portfolio, the
average changes in the volume of interest-bearing liabilities reduced
interest income by $.2 million. After the effects of taxes, net interest
income declined by $.5 million overall due to volume changes.
30
<PAGE>
ASSET QUALITY AND PROVISIONS FOR LOAN LOSSES
The following table presents details of the Company's nonperforming assets and
restructured loans. The accrual of interest income is generally discontinued
when a loan becomes 90 days past due as to interest or principal or, with
respect to "current" loans, if management has doubts about the ability of the
borrower to regularly pay interest and/or principal on a timely basis. When
interest accruals are discontinued, any interest income credited to the current
year which has not been collected is reversed, and any uncollected interest
accrued in the prior year is charged to the allowance for loan losses.
Management may elect to continue the accrual of interest when the loan is in the
process of collection and the estimated fair value of the collateral is
sufficient to cover the principal and accrued interest. If payments on
nonaccrual loans are made, income is recorded when received unless management
has reason to doubt the ultimate collectibility of the principal remaining on
the loan in which case all payments are applied to principal. Loans are returned
to accrual status once doubt concerning collectibility has been removed and the
borrower has demonstrated performance in accordance with the loan terms and
conditions.
The table below summarizes the Company's non-performing assets and restructured
loans for the years indicated (in thousands):
<TABLE>
At December 31,
1999 1998 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) $7,316 $8,868 $7,889 $9,113 $10,010
Accruing loans past due 90 days or more (2) 164 497 443 645 694
Restructured loans and troubled debt 25 28 682 500 1,849
-----------------------------------------------------------------
Total non-performing loans 7,505 9,393 9,014 10,258 12,553
-----------------------------------------------------------------
AMOUNT COLLATERALIZED BY REAL ESTATE 6,289 8,282 8,420 8,701 10,141
-----------------------------------------------------------------
Other real estate owned 1,369 628 1,366 2,923 1,758
-----------------------------------------------------------------
Total non-performing assets $8,874 $10,021 $10,380 $13,181 $14,311
=================================================================
</TABLE>
(1) Nonaccrual status denotes loans on which, in the opinion of management,
the collection of interest or principal 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.
(2) Includes loans and mortgages secured by residential real estate of $0,
$224, $128, $457 and $406 at December 31, 1999, 1998, 1997, 1996, and
1995, respectively.
Non-performing assets decreased by $1.1 million to $8.9 million at December 31,
1999. Of the amount of non-performing loans outstanding at December 31, 1999,
$6.3 million is collateralized by real estate (approximately 83.8%). At December
31, 1998, the Company had $9.4 million in non-performing loans of which $8.3
million (88%) was collateralized by real estate compared to December 31, 1997
non-performing loans total $9.0 million (93% being collateralized by real
estate). Other real estate owned (OREO) totaling $1.4 million, comprised eleven
properties at December 31, 1999 of which five were commercial properties and six
were residential properties. During the year the Company disposed of OREO
properties totaling $2.2 million.
For a discussion of the allowance for loan losses, concentrations of credit risk
and impaired loans, see Notes A, C and D to the 1999 Consolidated Financial
Statements, under Item 8 contained herein. At December 31, 1999, there were no
commitments to lend additional funds to borrowers whose loans were classified as
non-performing.
If the Company's nonaccrual loans had been current in accordance with the
original loan terms, $971,000 in gross interest income would have been recorded
in 1999 vs. $892,000 in 1998 and $858,000 in 1997. The actual amount of interest
income on nonaccrual loans recorded in interest income for 1999 was $319,000 vs.
$100,000 in 1998 and $273,000 in 1997.
31
<PAGE>
At December 31, 1999, the Company had a total of approximately $22.9 million in
loans classified as substandard, in addition to the nonperforming assets noted
above. Of this amount, $15.5 million are loans collateralized by real estate.
Such loans may be classified as nonperforming in the future, if present concerns
about the borrower's ability to comply with repayment terms become clearly
evident. The following table details changes in the Allowance for Loan Losses
for the years ended December 31 (in thousands):
<TABLE>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $21,270 $19,331 $18,533 $16,803 $17,728
Chargeoffs:
Commercial (368) (406) (1,448) (894) (441)
Installment (1,461) (1,620) (1,146) (821) (812)
Real estate (1,308) (3,344) (2,164) (2,575) (3,299)
------- ------- ------- ------- -------
Total chargeoffs (3,137) (5,370) (4,758) (4,290) (4,552)
------- ------- ------- ------- -------
Recoveries:
Commercial 322 462 164 118 81
Installment 532 481 160 180 249
Real estate 799 437 757 572 397
------- ------- ------- ------- -------
Total recoveries: 1,653 1,380 1,081 870 727
------- ------- ------- ------- -------
Net charge-offs (1,484) (3,990) (3,677) (3,420) (3,825)
------- ------- ------- ------- -------
Provision for loan losses 2,000 5,929 4,475 5,150 2,900
------- ------- ------- ------- -------
Balance at end of year $21,786 $21,270 $19,331 $18,533 $16,803
======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding .15% .40% .35% .34% .41%
during year
Allowance for loan losses as a
percent of year-end loans 2.19 2.18 1.85 1.78 1.75
Allowance as a percent of non-
Performing loans 290 226 214 181 134
</TABLE>
The provision for loan losses, which is charged to operations, is based on both
the amount of net loan losses incurred and management's ongoing evaluation of
the level and composition of risk in the loan portfolio. The evaluation
considers, in addition to the results of a continuous program of individual loan
assessment, factors including, but not limited to, and the effect of general
economic conditions on its borrowers and recent trends, loan portfolio
composition, the level of nonperforming assets, prior loan loss experience and
trends, growth of the portfolio and management's statistical estimate of losses
inherent in the portfolio. The Company has not been involved in any foreign
loans or highly leveraged transactions, which are generally considered high-risk
loans. The provision for loan losses decreased by $3.9 million or 66.3% in 1999
compared to an increase of $1.4 million or 32.5% in 1998. This decrease was
substantially attributable to the reduced levels of charge-offs from the levels
experienced in 1998 and to a special provision of $1.4 million taken in June
1998 to conform the provisioning policy of the constituent banks in the July
1998 merger.
The ratio of allowance for loan losses to total loans has increased from 1.75%
in 1995 to 2.19% in 1999 which increase is also reflected in an increased ratio
of the loan loss allowance to nonperforming loans. The Company's loan loss
allowance model reflects the risk potential of both performing and
non-performing loans. Net charge-offs of loans were $1.5 million in 1999 as
compared to $4.0 million in 1998 and $3.7 million in 1997.
32
<PAGE>
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:
<TABLE>
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------
% OF % OF % OF % OF % OF
BALANCE AT END OF TOTAL TOTAL TOTAL TOTAL TOTAL
YEAR APPLICABLE TO: AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL $4,426 11.9% $2,472 11.7% $2,131 9.0% $2,476 7.9% $2,355 7.9%
CONSUMER & OTHER 3,399 14.4 3,530 14.4 3,699 15.1 3,341 14.6 2,307 12.5
REAL ESTATE - MORTGAGE 11,871 73.7 11,679 73.9 9,451 75.9 6,964 77.5 8,319 79.6
UNALLOCATED 2,090 3,589 4,050 5,752 3,822
-------------------------------------------------------------------------------------------
TOTAL ALLOWANCE
FOR LOAN LOSSES $21,786 100% $21,270 100% $19,331 100% $18,533 100% $16,803 100%
===========================================================================================
</TABLE>
Management believes the allowance for loan losses is adequate to cover credit
risk inherent in the portfolio but no assurance can be given that the current
apparent stabilization of the local economy will not be unsettled by future
events. Such developments could be expected to adversely affect the financial
performance of the Company.
NONINTEREST INCOME
The following table details the components of noninterest income for the years
ended December 31 (dollars in thousands):
<TABLE>
NET CHANGE NET CHANGE
---------- ----------
1999 AMOUNT PERCENT 1998 AMOUNT PERCENT 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM FIDUCIARY
ACTIVITIES $1,146 $223 24.2% $923 $186 25.2% $737
SERVICE CHARGE INCOME 8,048 532 7.1 7,516 (218) (2.8) 7,734
NET REALIZED GAINS
ON SECURITIES 135 (238) (63.8) 373 44 13.4 329
NET GAINS ON SALES OF
LOANS 79 (364) (82.2) 443 (10) (2.2) 453
OTHER 915 618 208.0 297 81 37.5 216
---------------------- --------------------- -------------
TOTAL $10,323 771 8.1% $9,552 $83 .9% $9,469
====================== ===================== =============
</TABLE>
Noninterest income increased in 1999 compared to 1998 as increases in trust
income of $.2 million and service charge income of $.5 million was offset by a
decrease in net gains on sales of loans ($.4 million) and net realized gains on
securities (of $.2 million). Other non-interest income of $.6 million reflects
gains on sales of redundant premises of $.3 million. Noninterest income
increased $.1 million in 1998 compared to 1997. 1998 service charge income
reflects little impact from the introduction of new service charge schedules
which did not become fully effective until year end and declined $.2 million,
which was offset by increases in trust income and other miscellaneous income.
33
<PAGE>
NONINTEREST EXPENSE
The following chart outlines the major changes in noninterest expense for the
years ended December 31, 1999, 1998 and 1997, respectively (dollars in
thousands):
<TABLE>
YEARS ENDED DECEMBER 31,
NET CHANGE NET CHANGE
1999 AMOUNT PERCENT 1998 AMOUNT PERCENT 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALARIES & BENEFITS $21,675 $(1,454) (6.3)% $23,129 $(120) (.5)% $23,249
NET OCCUPANCY &
EQUIPMENT 7,345 221 3.1 7,124 364 5.4 6,760
OREO (166) 9 5.1 (175) (397) (178.8) 222
MERGER-RELATED 0 (7,511) (100) 7,511 6,970 1,288.4 541
OTHER 13,742 1,343 10.8 12,399 (240) (1.9) 12,639
---------------------- -------------------- -------
TOTAL $42,596 $(7,392) (14.8)% $49,988 $6,577 15.2% $43,411
====================== ==================== =======
</TABLE>
Salaries and benefits expense decreased in 1999 compared to 1998 by $1.5
million, as a result of a lower headcount reflecting further efficiencies
achieved as a result of the merger. Salaries and benefits expense decreased in
1998 by $.1 million compared to 1997 as reductions in salary expense in
connection with the merger were substantially offset by increases in staff in
the four new branches, general salary increases during 1998, and temporary staff
costs incurred in connection with the data processing conversion.
Occupancy and equipment expenses increased by $.2 million in 1998 vs. 1997
primarily due to the expense of four new branches opened in 1999. Although the
Company consolidated seven branches in connection with the merger, the occupancy
cost associated with these long established branches was modest compared to the
costs of the newer branches.
Other expenses increased by $1.3 million in 1999, mainly due to increases in
consulting fees of $1.3 million, data processing expense of $.7 million,
miscellaneous losses of $.3 million and telephone expense of $.2 million being
partially offset by decreases in legal fees ($.4 million), advertising expense
($.2 million), audit fees ($.2 million), postage ($.1 million) and loan
processing expense ($.1 million). Other expenses decreased by $.2 million in
1998 over 1997 levels, of which $.4 million represents savings achieved in the
levels of expense for postage, supplies, advertising, foreclosure expense and
consultant fees, somewhat offset by increases in data processing, telephone and
miscellaneous losses of $.6 million. Exclusive of merger expenses, the Company's
efficiency ratio for 1999 was 56.54% vs. 55.65% for 1998, and 56.47% for 1997.
Income taxes increased by $2.8 million in 1999 to $10.4 million compared to $7.7
million in 1998 and $10.0 million in 1997, reflecting pretax income of $31.0
million, $20.7 million and $27.6 million in 1999, 1998 and 1997, respectively.
The Company's effective tax rates were 33.6%, 37.0% and 36.2% in 1999, 1998 and
1997, respectively. The Company's effective tax rate in 1998 particularly
reflects $1.6 million in nondeductible merger-related expense. For further
information regarding income taxes, see Note J to the Consolidated Financial
Statements under Item 8.
34
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table shows selected quarterly financial data of the Company for
the three month periods indicated. The information contained in the table does
not purport to be complete and is qualified in its entirety by the more detailed
financial information contained elsewhere herein.
(Dollars in thousands, except share data)
<TABLE>
1999
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $26,891 $26,630 $27,586 $28,197
Interest expense 10,669 10,290 11,050 11,992
---------- ---------- ---------- ----------
Net interest income 16,222 16,340 16,536 16,205
Provision for loan losses (1,000) (500) (300) (200)
Other income 2,632 2,657 2,478 2,556
Other expense (10,468) (10,941) (10,587) (10,600)
---------- ---------- ---------- ----------
Income before income taxes 7,386 7,556 8,127 7,961
Income tax expense 2,654 2,563 2,800 2,415
---------- ---------- ---------- ----------
Net Income $4,732 $4,993 $5,327 $5,546
========== ========== ========== ==========
Weighted average common shares:
Basic 17,275,500 16,867,400 16,662,800 16,338,000
Diluted 17,594,500 17,109,400 16,888,300 16,482,000
Earnings per common share:*
Basic $.27 $.30 $.32 $.34
Diluted .27 .29 .31 .34
</TABLE>
<TABLE>
1998
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $30,673 $30,619 $30,377 $28,658
Interest expense 13,881 13,988 13,373 11,990
---------- ---------- ---------- ----------
Net interest income 16,792 16,631 17,004 16,668
Provision for loan losses (975) (2,555) (1,199) (1,200)
Other income 2,346 2,235 2,365 2,606
Merger related expense (1,2,3) (648) (1,552) (5,311) -
Other expense (10,809) (10,513) (10,496) (10,659)
---------- ---------- ---------- ----------
Income before income taxes 6,706 4,246 2,363 7,415
Income tax expense 2,518 1,589 1,136 2,435
---------- ---------- ---------- ----------
Net Income $4,188 $2,657 $1,227 $4,980
========== ========== ========== ==========
Weighted average common shares:
Basic 17,053,300 17,168,800 17,197,730 17,244,700
Diluted 17,603,850 17,698,480 17,709,560 17,571,400
Earnings per common share:*
Basic $.25 $.15 $.07 $.29
Diluted .24 .15 .07 .28
</TABLE>
*Earnings per share have been retroactively adjusted to give effect to the 10%
stock dividends, declared December 1998 and December 1999.
(1)The merger related expense charge of $5.3 million reduced third quarter 1998
income by $3.7 million after tax and reduced diluted earnings per share by $.21
(2)The merger-related expense charge of $1.6 million reduced second quarter net
income by $1.2 million after tax and reduced diluted earnings per share by
$.07.
(3)The merger-related expense charge of $.6 million reduced first quarter net
income by $.4 million after tax and reduced diluted earnings per share by $.02.
35
<PAGE>
Item 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations "Asset/Liability Management".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included in this item beginning on the pages indicated:
<TABLE>
Page
<S> <C>
Report of Management to the Stockholders 39
Independent Accountants' Report 40
Independent Auditors' Report 41
Consolidated Balance Sheets at December 31, 1999 and 1998 42
Consolidated Statements of Income and Expense for each of the three years in the
period ended December 31, 1999 43
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1999 44
Consolidated Statements of Changes in Stockholders' Equity for each of the three
years in the period ended December 31, 1999 45
Consolidated Statements of Comprehensive Income for each of the three years in the period 46
ended December 31, 1999
Notes to Consolidated Financial Statements 47
</TABLE>
Selected quarterly financial data of the Company for 1999 and 1998 are reported
in "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Selected Quarterly Financial Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10 THROUGH 13.
Information required by Part III (Items 10 through 13) of this Form 10-K is
incorporated by reference to the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on May 11, 2000, which will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year to which this report relates.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Documents Filed as Part of This Report.
(1) Financial Statements Filed:
1. Independent Auditors' Report
2. Consolidated Balance Sheets at December 31, 1999 and 1998
3. Consolidated Statements of Income and Expense for each of the
three years in the period ended December 31, 1999
4. Consolidated Statements of Changes in Stockholders' Equity for
each of the three years in the period ended December 31, 1999
5. Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999
6. Consolidated Statements of Comprehensive Income for each of
the three years in the period ended December 31, 1999
7. Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. All schedules are omitted because of
the absence of conditions under which they are required or because
the required information is included in the consolidated financial
statements or related notes.
(3) Exhibits. The exhibits listed on the Exhibit Index on page 37 of
this Form 10-K are filed herewith or are incorporated herein by
reference.
(b) Reports on Form 8-K
None.
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 RESTATED CERTIFICATE OF INCORPORATION OF PREMIER NATIONAL BANCORP, INC.
(INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 3.1 TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998).
3.2 BYLAWS, AS AMENDED, OF PREMIER NATIONAL BANCORP, INC. (INCORPORATED HEREIN
BY REFERENCE TO EXHIBIT 3.1 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998).
10.1 FISHKILL NATIONAL CORPORATION INCENTIVE STOCK OPTION PLAN, AS AMENDED
(INCORPORATED HEREIN BY REFERENCE TO THE FISHKILL NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1990,
FILE NO. 33-79844).+
10.2 EXECUTIVE SUPPLEMENTAL INCOME PLAN BETWEEN THE COMPANY AND JOHN CHARLES
VANWORMER (INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(J) TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1993).+
10.3 DIRECTORS' DEFERRED COMPENSATION PLAN (INCORPORATED HEREIN BY REFERENCE TO
EXHIBIT 10.3 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1995).+
10.4 PREMIER NATIONAL BANCORP, INC. 1995 INCENTIVE STOCK PLAN AS AMENDED.+*
10.5 EMPLOYMENT AGREEMENT OF T. JEFFERSON CUNNINGHAM III. (INCORPORATED HEREIN
BY REFERENCE TO EXHIBIT 10-5 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998). +
10.6 EMPLOYMENT AGREEMENT OF JOHN CHARLES VANWORMER DATED JULY 1, 1995 AS
AMENDED.+*
10.7 EMPLOYMENT AGREEMENT OF IAN C. LUCY.+*
10.8 EMPLOYMENT AGREEMENT OF PAUL A. MAISCH (INCORPORATED HEREIN BY REFERENCE
TO EXHIBIT 10-8 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998). +
10.9 INDEMNIFICATION AGREEMENT BY AND BETWEEN PREMIER NATIONAL BANCORP, INC.
AND EACH OF THE MEMBERS OF THE BOARD OF DIRECTORS (INCORPORATED BY
REFERENCE TO EXHIBIT 10.9 TO THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998).
10.10 EMPLOYMENT AGREEMENT OF RONALD M. BENTLEY. +*
10.10 EMPLOYMENT AGREEMENT OF DAVID S. MACFARLAND (INCORPORATED HEREIN BY
REFERENCE TO EXHIBIT 10-10 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1998). +
10.11 EMPLOYMENT AGREEMENT OF PAUL S. MACK (INCORPORATED HEREIN BY REFERENCE TO
EXHIBIT 10-11 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998). +
10.14 PROGRESSIVE BANK, INC. AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN
(INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10-2 TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K, FILE NO. 0-15025 OF PROGRESSIVE BANK INC., FILED
MARCH 22, 1998). +
10.15 PROGRESSIVE BANK, INC. 1993 NON-QUALIFIED STOCK OPTION PLAN -- DIRECTORS
(INCORPORATED BY REFERENCE TO EXHIBIT 10.9 TO THE ANNUAL REPORT ON FORM
10-K, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994, FILE NO. 0-15025, OF
PROGRESSIVE BANK, INC.)
10.16 PROGRESSIVE BANK, INC. NONCONTRIBUTORY RETIREMENT AND SEVERANCE PLAN FOR
CERTAIN MEMBERS OF THE BOARD OF DIRECTORS (INCORPORATED BY REFERENCE TO
EXHIBIT 10.11 OF THE FILE NO. 01-15025 TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996).+
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
10.17 PROGRESSIVE BANK, INC. DEFERRED COMPENSATION PLAN, AS AMENDED AND RESTATED
(INCORPORATED HEREIN BY REFERENCE TO THE PROGRESSIVE BANK, INC. ANNUAL
REPORT ON FORM 10-K FOR HE FISCAL YEAR ENDED DECEMBER 31, 1997, FILE NO.
01-15025). +
10.18 THE PAWLING SAVINGS BANK SUPPLEMENTAL RETIREMENT PLAN (INCORPORATED HEREIN
BY REFERENCE TO EXHIBIT 10-18 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998). +
10.19 PREMIER NATIONAL BANCORP, INC. DIRECTORS' RETIREMENT PLAN (EFFECTIVE JULY
1, 1999). +
10.20 SUPPLEMENTAL RETIREMENT PLAN FOR T. JEFFERSON CUNNINGHAM III.+*
11 COMPUTATION OF EARNINGS PER SHARE (INCLUDED IN NOTE A TO THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS).*
21 SUBSIDIARIES OF PREMIER NATIONAL BANCORP, INC.*
23.1 CONSENT OF DELOITTE & TOUCHE LLP.*
23.2 INDEPENDENT AUDITORS' REPORT OF KPMG LLP.*
27 FINANCIAL DATA SCHEDULE.*
</TABLE>
- ----------------------
+ MANAGEMENT CONTRACT OR COMPENSATORY PLAN.
* FILED HEREWITH.
39
<PAGE>
REPORT OF MANAGEMENT TO THE STOCKHOLDERS
January 27, 2000
CONSOLIDATED FINANCIAL STATEMENTS
The management of Premier National Bancorp, Inc. and subsidiaries, (the
"Company"), is responsible for the preparation, integrity, and fair presentation
of its published financial statements and all other information presented in
this Annual Report. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and, as such, include
amounts based on informed judgments and estimates made by management.
INTERNAL CONTROL
Management is responsible for establishing and maintaining effective internal
control over financial reporting, including safeguarding of assets, for
financial presentations in conformity with generally accepted accounting
principles and for the Company's bank subsidiary, Premier National Bank, in
conformity with the Federal Financial Institutions Examination Council
Instructions for Consolidated Reports of Condition and Income ("Call Report
instructions"). The internal control contains monitoring mechanisms, and actions
are taken to correct deficiencies identified.
THERE ARE INHERENT LIMITATIONS IN THE EFFECTIVENESS OF ANY INTERNAL CONTROL,
INCLUDING THE POSSIBILITY OF HUMAN ERROR AND THE CIRCUMVENTION OR OVERRIDING OF
CONTROLS. ACCORDINGLY, EVEN EFFECTIVE INTERNAL CONTROL CAN PROVIDE ONLY
REASONABLE ASSURANCE WITH RESPECT TO FINANCIAL STATEMENT PREPARATION. FURTHER,
BECAUSE OF CHANGES IN CONDITIONS, THE EFFECTIVENESS OF INTERNAL CONTROL MAY VARY
OVER TIME.
Management assessed the Company's internal control over financial reporting,
including safeguarding of assets, for financial presentations in conformity with
generally accepted accounting principles and, for Premier National Bank, in
conformity with the Call Report Instructions as of December 31, 1999. This
assessment was based on criteria for effective internal control over financial
reporting, including safeguarding of assets, established in INTERNAL
CONTROL--INTEGRATED FRAMEWORk issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that the Company maintained effective internal control over financial
reporting, including safeguarding of assets, presented in conformity with
generally accepted accounting principles and, for Premier National Bank, in
conformity with the Call Report instructions, as of December 31, 1999.
<PAGE>
AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised entirely of outside
directors who are independent of the Company's management. The Audit Committee
is responsible for recommending to the Board of Directors the selection of
independent auditors, which selection is then ratified by the stockholders. The
Audit Committee meets periodically with management, the independent auditors,
and the internal auditors to ensure that they are carrying out their
responsibilities. The Audit Committee is also responsible for performing an
oversight role by reviewing and monitoring the financial, accounting and
auditing procedures of the Company in addition to reviewing the Company's
financial reports. The independent auditors and the internal auditors have full
and free access to the Audit Committee, with or without the presence of
management, to discuss the adequacy of internal control for financial reporting
and any other matters which they believe should be brought to the attention of
the Audit Committee.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for ensuring compliance with the federal laws and
regulations concerning loans to insiders and the federal and state laws and
regulations concerning dividend restrictions, both of which are designated by
the Federal Deposit Insurance Corporation (FDIC) as safety and soundness laws
and regulations.
Management assessed Premier National Bank's compliance with the designated
safety and soundness laws and regulations and has maintained records of its
determinations and assessments as required by the FDIC. Based on this
assessment, management believes that Premier National Bank has complied, in all
material respects, with the designated safety and soundness laws and regulations
for the year ended December 31, 1999.
T. Jefferson Cunninghan III Paul A. Maisch
Chairman of the Board and CEO Treasurer & Chief Financial Officer
40
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Audit Committee
Premier National Bancorp, Inc.
We have examined management's assertion, included in the accompanying Report of
Management to the Stockholders, that Premier National Bancorp., Inc. and
subsidiaries, (the "Company") maintained effective internal control over
financial reporting, including safeguarding of assets, presented in conformity
with generally accepted accounting principles and, for the Company's bank
subsidiary, Premier National Bank, in conformity with the Federal Financial
Institutions Examination Council Instructions for Consolidated Reports of
Condition and Income as of December 31, 1999 based on the criteria established
in INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO report). Management is
responsible for maintaining effective internal control over financial reporting.
Our responsibility is to express an opinion on management's assertion based on
our examination.
Our examination was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants and,
accordingly, included obtaining an understanding of internal control over
financial reporting, testing, and evaluating the design and operating
effectiveness of the internal control, and performing such other procedures as
we considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to
error or fraud may occur and not be detected. Also, projections of any
evaluation of internal control over financial reporting to future periods are
subject to the risk that the internal control may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assertion that the Company maintained effective
internal control over financial reporting, including safeguarding of assets,
presented in conformity with generally accepted accounting principles and, for
Premier National Bank, in conformity with the Federal Financial Institutions
Examination Council Instructions for Consolidated Reports of Condition and
Income as of December 31, 1999, is fairly stated, in all material respects,
based on the criteria established in the COSO report.
January 27, 2000
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Premier National Bancorp, Inc.
We have audited the consolidated balance sheets of Premier National Bancorp,
Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998 and the
related consolidated statements of income and expense, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the merger of Progressive Bank, Inc. and Hudson
Chartered Bancorp, Inc., which has been accounted for as a pooling of interests
as described in note a to the consolidated financial statements. We did not
audit the statements of income, stockholders' equity and cash flows of
Progressive Bank, Inc. for the year ended December 31, 1997, which statements
reflect net interest income of $34 million for the year ended December 31, 1997.
Those statements were audited by other auditors whose unqualified report dated
February 2, 1998 has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Progressive Bank, Inc. For 1997, is based
solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of Premier National Bancorp, Inc. and
subsidiaries at December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
January 27, 2000
42
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
NOTES 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks K $46,889 $53,230
Federal funds sold 121,100
31,782
----------------- -----------------
Total cash and cash equivalents 174,330
78,671
Securities: B
Available for sale, at fair value 452,025 359,612
Held to maturity, fair value of $17,168 in 1999 17,014 17,536
and $18,117 in 1998.
Regulatory securities
9,726 9,703
Loans: C,D,K,L
Gross loans 993,821 973,847
Allowance for loan losses
(21,786) (21,270)
----------------- -----------------
Net loans E 972,035 952,577
Premises and equipment, net F
26,982 28,714
Accrued income
12,111 8,940
Deferred taxes
16,024 10,463
Other real estate owned
1,369 628
Intangible assets, net G
4,992 6,734
Other assets D
4,717 4,932
----------------- -----------------
TOTAL ASSETS $ 1,595,666 $ 1,574,169
================= =================
LIABILITIES
Deposits: G
Non-interest bearing deposits $252,166 $241,289
Interest bearing deposits 1,115,613 1,165,770
----------------- -----------------
Total deposits 1,367,779 1,407,059
Other interest bearing liabilities M
75,300 1,725
Other liabilities
10,549 9,231
----------------- -----------------
TOTAL LIABILITIES 1,453,628 1,418,015
----------------- -----------------
Commitments and contingencies C,K
STOCKHOLDERS' EQUITY N,O
Preferred stock ($.01 par value; 5,000,000 shares authorized; none issued) - -
Common stock ($.80 par value; 50,000,000 shares authorized in 1999 and 1998); 13,142 12,558
17,267,019 shares issued in 1998 and 16,429,226 shares
issued in 1999
Additional paid-in capital
95,755 84,492
Retained earnings
39,789 57,621
Accumulated other comprehensive income (loss)
(6,581) 1,521
Treasury stock, at cost, 2,166 shares in 1998 and
3,600 shares in 1999
(67) (38)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 142,038 156,154
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,595,666 $ 1,574,169
================= =================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
NOTES 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $81,608 $89,807 $93,849
Federal funds sold 1,894 4,171 2,613
Taxable securities 21,144 22,736 21,782
Tax-exempt securities 4,657 3,613 3,301
------------ ------------ ------------
Total interest income 109,303 120,327 121,545
------------ ------------ ------------
Interest expense:
Deposits G 41,867 53,137 55,384
Other 2,134 95 107
------------ ------------ ------------
Total interest expense 44,001 53,232 55,491
------------ ------------ ------------
NET INTEREST INCOME 65,302 67,095 66,054
Provision for loan losses E 2,000 5,929 4,475
------------ ------------ ------------
Net interest income after provision for loan losses 63,302 61,166 61,579
Noninterest income:
Service charges on deposit accounts 5,882 5,503 6,182
Other service charges, commissions and fees 2,166 2,013 1,552
Income from fiduciary activities 1,146 923 737
Realized gains on sales of securities, net B 135 373 329
Gains on sales of loans, net E 79 443 453
Other 915 297 216
------------ ------------ ------------
Total noninterest income 10,323 9,552 9,469
------------ ------------ ------------
GROSS OPERATING INCOME 73,625 70,718 71,048
Noninterest expense:
Salaries and employee benefits H 21,675 23,129 23,249
Net occupancy and equipment I 7,345 7,124 6,760
Consulting expense 1,345 32 488
Printing, postage, telephone and supplies 2,597 2,693 2,725
Advertising and public relations 1,118 1,368 1,542
Merger related expense - 7,511 541
Other real estate owned D (166) (175) 222
Amortization of goodwill 1,492 1,526 1,516
Other 7,190 6,780 6,368
------------ ------------ ------------
Total noninterest expense 42,596 49,988 43,411
------------ ------------ ------------
Income before income taxes 31,029 20,730 27,637
Income taxes J 10,431 7,678 9,997
------------ ------------ ------------
NET INCOME $20,598 $13,052 $17,640
============ ============ ============
Weighted average common shares: (1)
Basic 16,793,000 17,174,300 16,963,100
Diluted 17,057,400 17,565,900 17,427,300
Per common share (1)
Earnings - basic $1.23 $0.76 $1.04
Earnings - diluted 1.21 0.74 1.01
Dividends declared 0.54 0.44 0.41
</TABLE>
(1) Adjusted for 10% stock dividends declared in December 1998 and 1999 and 3
for 2 stock split in the form of a 50% stock dividend declared in
September 1997.
See notes to consolidated financial statements.
44
<PAGE>
PREMIERNATIONAL BANKCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $20,598 $13,052 $17,640
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,000 5,929 4,475
Depreciation and amortization 3,037 2,731 2,800
Amortization of security premiums, net 1,318 464 622
Amortization of intangible assets 1,492 1,526 1,516
Realized gains on sales of securities and loans (214) (816) (782)
Gains on sales of premises and equipment (339) (85) (186)
Gains on sales of other real estate (168) (443) (627)
Deferred income tax benefit 381 (1,818) (39)
(Increase) decrease in accrued income (3,171) 2,241 78
Other, net (1,703) (3,994) (3,041)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,231 18,787 22,456
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale 64,786 56,448 60,695
Proceeds from maturities of securities available-for-sale 83,118 219,560 108,872
Proceeds from maturities of securities held-to-maturity 9,775 16,622 33,199
Purchase of securities available-for-sale (254,471) (231,372) (148,411)
Purchase of securities held-to-maturity (10,082) (8,446) (103,956)
Proceeds from sales of loans 5,218 22,563 21,495
Net decrease/(increase) in loans (26,597) 42,037 (22,761)
Purchase of investment subsidiary - (250) -
Purchase of premises and equipment (1,911) (6,300) (2,010)
Proceeds from sales of premises and equipment 945 258 650
Proceeds from sales of other real estate owned 2,219 1,292 4,588
----------- ----------- -----------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (127,000) 112,412 (47,639)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net increase/(decrease) in demand, money market, NOW and
savings accounts (108,310) 4,826 43,578
Net increase/(decrease) in other time deposits 69,030 (50,465) (10,907)
Proceeds from borrowings 75,300 - -
Repayment of borrowings (1,725) - -
Repurchase of common stock held in treasury (24,071) (190) (3,858)
Proceeds from issuance of common stock 6,473 2,789 2,745
Cash dividends - common (8,587) (7,090) (5,963)
----------- ----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 8,110 (50,130) 25,595
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (95,659) 81,069 412
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF YEAR 174,330 93,261 92,849
----------- ----------- -----------
AT END OF YEAR $78,671 $174,330 $93,261
=========== =========== ===========
Non-cash investing activities:
Transfer from loans to OREO $3,145 $2,001 $2,898
Net unrealized gains (losses) recorded on securities (13,777) (188) 987
Increase (decrease) in deferred tax liability on net
unrealized securities gains 5,675 68 (405)
Transfer of securities from held to maturity to available-for-sale - 96,985 -
Loans originated to finance sales of other real estate 1,541 493 676
Additional cash flow disclosures:
Interest paid $43,761 $53,762 $57,466
Income taxes paid 10,653 9,228 9,206
Cancellation of predecessor entity treasury stock - 486 362
Purchase of land by issuance of stock - 300 -
</TABLE>
See notes to consolidated financial statements.
45
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Accumulated Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income (Loss) Stock ESOP Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $11,301 $59,391 $67,628 $1,065 ($1,549) ($129) $137,707
Net income - - 17,640 - - - 17,640
Cash dividends declared on common stock - - (6,107) - - - (6,107)
Stock reinvestment and purchase plan - 59,065 shares* - - - - 923 - 923
Cash in lieu paid on fractional shares - 369 shares - (9) - - - - (9)
Options exercised - 153,586 shares* - - - - 1,474 - 1,474
Effect of treasury stock sold at less than cost - - (290) - 290 - -
Purchase of treasury stock - 156,665 shares (1) - - - - (3,496) - (3,496)
Payments on ESOP borrowings - - - - - 129 129
Other comprehensive income - - - 582 - - 582
Predecessor entity transactions:
Purchase and retirement of treasury stock (15) (88) (259) - - - (362)
Options exercised - 48,723 shares 22 334 - - - - 356
-------- -------- --------- ------------ ---------- ---- ---------
BALANCE AT DECEMBER 31, 1997 $11,308 $59,628 $78,612 $1,647 ($2,358) $0 $148,837
======== ======== ========= ============ ========== ==== =========
Net income - - 13,052 - - - 13,052
Cash dividends declared on common stock - - (8,208) - - - (8,208)
Stock reinvestment and purchase plan - 68,319 shares* 34 835 - - 290 - 1,159
Purchase of land by issuances of treasury
stock - 15,999 - - - - 300 - 300
Options exercised - 208,897 shares* 74 736 - - 520 - 1,330
Effect of treasury stock sold at less than cost - - (1,400) - 1,400 - -
Purchase of treasury stock - 9,919 shares - - - - (190) - (190)
Stock dividend declared on common 1,142 23,293 (24,435) - - - -
Other comprehensive loss - - - (126) - - (126)
-------- -------- --------- ------------ ---------- ---- ---------
BALANCE AT DECEMBER 31, 1998 $12,558 $84,492 $57,621 $1,521 $(38) $0 $156,154
======== ======== ========= ============ ========== ==== =========
Net Income 20,598 - - - 20,598
Cash dividends declared on common stock - - (9,014) - - - (9,014)
Stock reinvestment and purchase plan - 80,896 shares* 14 285 - - 982 - 1,281
Stock dividend declared on common shares 522 10,239 (26,470) - 15,709 - -
Options exercised - 539,309 shares* 48 750 586 - 3,819 - 5,203
Cash in lieu paid for fractional shares - (11) - - - (11)
Effect of Treasury stock sold at less than cost - - (3,532) - 3,532 - -
Purchase of treasury stock - 1,459,215 shares - - - - (24,071) - (24,071)
Other comprehensive loss - - - (8,102) - - (8,102)
-------- -------- --------- ------------ ---------- ---- ---------
BALANCE AT DECEMBER 31, 1999 $13,142 $95,755 $39,789 ($6,581) ($67) $0 $142,038
======== ======== ========= ============ ========== ==== =========
</TABLE>
* Adjusted for 10% stock dividends declared in December 1998 and 1999 and 3 for
2 stock splits in the form of 50% dividend declared in September 1997. See Note
O.
(1) Treasury shares not adjusted for 50% stock dividend declared in Sept.
1997. The effect of such shares reissued prior to the 50% stock dividend
included in the shares (adjusted for the stock dividend) for the "stock
reinvestment and purchase plan" and "options exercised" is 53,304 shares
See notes to consolidated financial statements.
46
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year ended December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $20,598 $13,052 $ 17,640
Other comprehensive income
Net unrealized gains (losses) on securities:
Net unrealized holding gains (losses)
arising during year (8,996) 955 829
Less effect of securities transferred to
available for sale from held to maturity - (576) -
Less reclassification adjustment for (gains)
losses included in net income: 894 (505) (247)
----------- ---------- ----------
Other comprehensive income (loss), net of tax (8,102) (126) 582
----------- ---------- ----------
COMPREHENSIVE INCOME $12,496 $12,926 $18,222
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements
47
<PAGE>
PREMIER NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise indicated, except share data)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Premier National Bancorp, Inc. is a New York State bank holding company which
operates 34 branches in Dutchess, Ulster, Sullivan, Orange, Westchester, Putnam
and Rockland counties of Southeastern New York State through its commercial
banking subsidiary, Premier National Bank (Bank). Collectively, these entities
are referred to herein as the "Company". The Bank is principally engaged in a
variety of lending activities and deposit gathering activities within the above
noted market place. As such, its future growth and profitability are dependent,
in large part, on the performance of the local economy and the value of local
real estate. The Bank competes with a significant number of other financial
institutions. Diversity of product lines, availability of funds, interest rates
charged on loans and offered on deposits, responsiveness and customer
convenience are all factors in competing effectively with these other financial
institutions. The local economy is heavily dependent on employment levels of two
large employers, IBM and New York State and local government. Although present
conditions are stable, the local economy was weakened, in recent years, from
large employment cutbacks from these employers. Approximately 75% of the
Company's loans outstanding are collateralized by real estate. The Company also
has made commitments to lend additional funds also collateralized by real estate
in the amount of approximately $77.6 million.
The Company does not presently engage in hedging activities, utilize derivative
financial instruments or maintain a trading portfolio.
MERGER
Effective July 17, 1998, Progressive Bank, Inc. ("PBI") was merged with and into
Hudson Chartered Bancorp, Inc. ("HCB") under the name of Premier National
Bancorp, Inc. Each share of PBI common stock was converted into 1.82 shares of
the Company's common stock. Approximately 7,954,316 common shares were issued
for the outstanding common stock of PBI. At the same time, Pawling Savings Bank
("Pawling"), a subsidiary of PBI, was merged with and into First National Bank
of the Hudson Valley ("Hudson Valley"), a subsidiary of HCB, under the name
Premier National Bank.
The transaction was accounted for using the pooling-of-interests method and
accordingly, all historical financial data has been restated to include both
entities for all periods presented. Direct costs of mergers accounted for by the
pooling-of-interests method are expensed as incurred. Merger related costs
expensed in 1997 aggregated $541 ($314 net of tax), and in 1998 aggregated
$7,511 ($5,316 net of tax). These merger expenses include legal, accounting,
regulatory and severance costs as well as integration costs such as conversions,
abandonments and relocations. The following table presents summary results of
operations for the companies for the year prior to the merger.
<TABLE>
1997
----
NET INTEREST NET
INCOME INCOME
<S> <C> <C>
PBI $34,066 $8,632
HCB 31,988 9,008
------- -------
Consolidated $66,054 $17,640
======= =======
</TABLE>
48
<PAGE>
BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of Premier
National Bancorp, Inc., its commercial banking subsidiary, Premier National
Bank, and Hudson Chartered Realty, Inc., a company utilized to hold title to
certain foreclosed real estate properties. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles.
All significant intercompany transactions have been eliminated in consolidation.
Assets held in an agency or fiduciary capacity for trust department customers
totaling $294.8 million at year end 1999 and mortgages serviced for others by
the Bank totaling $130.5 million at year end 1999 are not included in the
consolidated financial statements.
In preparing financial statements, management is required to make estimates and
assumptions, particularly in determining the adequacy of the allowance for loan
losses, that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the
consolidated balance sheet and the results of operations for the period.
Actual results could differ significantly from those estimates.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
credit quality of the portfolio, past loan loss experience and current loan loss
trends, local and regional economic conditions, the volume, growth and
composition of the loan portfolio, and other relevant factors. The allowance is
increased by provisions for loan losses charged against income and by recoveries
of loans previously charged off.
While management uses available information to determine possible loan losses,
future additions to the allowance may be necessary based on changes in economic
conditions, particularly in real estate values and employment levels in
Company's primary market area, Dutchess, Ulster, Sullivan, Orange, Westchester,
Putnam and Rockland counties of Southeastern New York State. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require the
Bank to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination. A regulatory
examination of the bank was conducted in 1999 and no increase in the allowance
was required as a result of the examination.
49
<PAGE>
IMPAIRED LOANS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118,
"Accounting for Impairment of a Loan - Income Recognition and Disclosures" a
loan is recognized as impaired when it is probable that principal and/or
interest are not collectible in accordance with the contractual terms of the
loan. Income is recorded using the income recognition principles outlined below.
Measurement of impairment is based on the present value of expected future cash
flows discounted at the loan's effective interest rate or at the loan's
observable market price or at the fair value of the collateral, if the loan is
collateral dependent. Smaller homogenous performing loans, principally
residential mortgages, consumer loans, and credit cards, are not separately
reviewed for impaired status. Separate allocations of the allowance for loan
losses for these loans are made based upon trends and prior loss experience and
composition of credit risk in these types of loans. This evaluation is
inherently subjective as it requires material estimates that may be susceptible
to significant change.
If the fair value of an impaired loan is less than the related recorded amount,
a specific valuation allowance is established or, if the impairment is
considered to be permanent, a write down is charged against the allowance for
loan losses.
INCOME RECOGNITION
Interest on loans is determined using the level yield method. Under this method,
discount accretion and premium amortization on loans are recorded in interest
income.
The accrual of interest income generally is discontinued when its receipt is in
doubt, which typically occurs at or prior to the date when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, any interest credited to income in the current year which has not
been collected is reversed, and any interest accrued in the prior year is
charged to the allowance for loan losses. If payments on nonaccrual loans are
made, income is recorded as received unless management has reason to doubt the
ultimate collectibility of the principal remaining on the loan. When the
ultimate collectibility of the loan principal is in doubt, all of such payments
are applied to reduce the principal balance of the loan. Management may elect to
continue the accrual of interest when a loan is in the process of collection and
the estimated fair value of collateral is clearly sufficient to cover the
principal balance and accrued interest. Loans are returned to accrual status
once the doubt concerning collectibility has been removed and the borrower has
demonstrated performance in accordance with the loan terms and conditions.
OTHER REAL ESTATE OWNED (OREO)
OREO includes properties for which the Bank has obtained title through
foreclosure or deed in lieu of foreclosure. These properties are recorded at the
lower of cost or estimated fair value (net of estimated disposal costs). If a
valuation loss exists when properties are acquired, the loss is recorded as a
charge to the allowance for loan losses. Management periodically monitors the
value of such OREO properties. If, due to further reductions in estimated fair
value, further losses are anticipated, such losses are recorded as OREO expense.
Any gains on disposition of such properties reduce OREO expense. Holding costs
on properties are included in current operations, while costs that improve such
properties may be capitalized. If the Bank lends funds in conjunction with
dispositions of OREO, such loans are required to meet normal loan underwriting
criteria.
LOAN ORIGINATION FEES
Loan origination and commitment fees and direct loan origination costs are
deferred and the net amount is amortized or accreted as an adjustment of
interest income using the level yield method. These deferrals are amortized over
the expected lives or commitment period of the respective categories, which
generally vary from one to twelve years.
50
<PAGE>
SECURITIES
Securities include U.S. Treasury, mortgage-backed and other U. S. Government
Agency, municipal and corporate bonds, regulatory and equity securities. Those
debt securities which management has the positive intent and ability to hold
until maturity are classified as held to maturity and are carried at amortized
cost (specific identification) with amortization of premiums and accretion of
discounts determined using the level yield method to the earlier of the call or
maturity date, respectively. Held to maturity securities primarily include local
municipal bonds purchased from smaller municipalities in the Company's market
area, and certain other securities with yield and/or maturity characteristics
such that management intends to retain them until maturity. Equity securities
principally include modest investments in the common stock of certain banks in
the Company's market area. Regulatory securities include equity investments
required for membership in the Federal Reserve System, Federal Home Loan Bank,
and New York State Business Development Corporation. Such investments are
carried at cost unless considered impaired, in which case a writedown would be
taken and charged to income.
Securities which have been identified as assets for which there is not a
positive intent to hold to maturity are classified as available for sale.
Dispositions of such securities may be appropriate for either liquidity or
interest rate risk management. Available for sale securities are reported at
fair value with unrealized gains and losses (net of tax) excluded from
operations and reported in the "Accumulated Other Comprehensive Income"
component of stockholders' equity. At December 31, 1999, 1998 and 1997, the net
unrealized gains (loss), after tax, on available for sale securities were
($6,581), $1,521 and $1,647, respectively. Realized gains and losses from sales
of securities are recognized on the trade date by specific identification of the
security sold.
RELATED PARTY TRANSACTIONS
It is the policy of the Company that loans and other business transactions with
directors, officers and other related parties be made on terms and conditions no
more favorable than those with unrelated parties.
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or market value as
determined on an aggregate basis. There were no loans held for sale at December
31, 1999 or 1998.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method based on estimated useful lives ranging from, dependent on asset type, 3
to 40 years. Leasehold improvements are amortized over the shorter of the terms
of the respective leases, including available extensions, or the estimated
useful lives of the assets. Maintenance and repair costs are charged to
operating expenses as incurred.
INCOME TAXES
The provision for income taxes is based on income as reported in the financial
statements. Deferred taxes are provided for financial reporting purposes using
an asset-liability approach for recognizing the tax effects of temporary
differences between the basis of assets and liabilities for tax and financial
reporting purposes. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A valuation
allowance is recognized if, based on analysis of available evidence, management
determines that some or all of the deferred tax asset is not "more likely than
not" to be realized. Adjustments to increase or decrease the valuation allowance
are charged or credited, respectively, to income tax expense. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the income statement in the period the change is enacted.
51
<PAGE>
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," requires the recognition of the cost of these benefits over an
employee's working career on an accrual basis. SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" establishes standards for accounting and
reporting the cost of benefits provided by an employer to its former or inactive
employees after employment but before retirement. SFAS No. 112 requires an
employer to recognize an obligation for such benefits if certain conditions are
met. SFAS Nos. 106 and No. 112 resulted in postretirement benefit liabilities of
$1,647 and $1,713 at December 31, 1999 and 1998, respectively.
EARNINGS PER COMMON SHARE
In accordance with SFAS No. 128 "Earnings Per Share", basic earnings per common
share is computed by dividing net income, adjusted for any preferred stock
dividends, by the weighted average number of common shares outstanding. Diluted
earnings per common share includes the additional dilutive effect of stock
options using the treasury stock method based on the average market price of the
Company's common stock for the period.
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $20,598 $13,052 $17,640
Weighted average basic shares outstanding 16,793,000 17,174,000 16,963,000
Effect of dilutive stock options 264,000 392,000 464,000
---------- ---------- ----------
Weighted average diluted shares 17,057,000 17,566,000 17,427,000
========== ========== ==========
Earnings per common share:
Basic $1.23 $0.76 $1.04
Diluted 1.21 0.74 1.01
</TABLE>
MORTGAGE SERVICING RIGHTS
The Company's mortgage servicing portfolio totaled $130.5 million, $146.0
million and $150.6 million for the benefit of third party investors (primarily
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association) at December 31, 1999, 1998 and 1997, respectively, and it recorded
servicing fee income of $333, $418 and $458 for the years ended December 31,
1999, 1998 and 1997. The Company records the sale of loans in which servicing is
retained on the basis of the relative fair values of the loans and the servicing
rights. The Company sold loans of $5.2 million, $22.6 million and $21.5 million
in 1999, 1998 and 1997, respectively, with servicing rights retained, and at
December 31, 1999, 1998 and 1997 servicing rights outstanding totaled $288, $434
and $426, respectively. The value of servicing rights must be evaluated for
impairment on a quarterly basis and a valuation allowance established if fair
value is lower than the recorded amounts.
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights exceed their fair value. No impairment of
servicing assets was experienced in 1999, 1998 or 1997.
When participating interests in loans sold have an average contractual interest
rate, adjusted for servicing fees, that differs from the agreed yield to the
purchaser, gains or losses are recognized equal to the present value of such
differential over the estimated remaining life of such loans. The resulting
Amortgage servicing receivables" or "deferred servicing revenue" is amortized
over the estimated life using a method approximating the interest method.
Quoted market prices are not available for the mortgage servicing receivables.
Thus, the mortgage servicing receivables and the amortization thereon are
periodically evaluated in relation to estimated future servicing revenues,
taking into consideration changes in interest rates, current prepayment rates,
and expected future cash flows. The Company evaluates the carrying value of the
mortgage servicing receivables by estimating the future servicing income of the
mortgage servicing receivables based on management's best estimate of remaining
loan lives and discounted at the original discount rate.
52
<PAGE>
BRANCH PURCHASE PREMIUM
The purchase premium paid in connection with the 1996 acquisition of two
branches has been capitalized as an intangible asset. The premium is being
amortized on a straight-line basis over seven years (the estimated average
remaining life of the acquired customer base). The unamortized premium is
reviewed for impairment if events or changes in circumstances indicate that the
carrying amount may not be fully recoverable.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages but does not
require, companies to record compensation cost from stock-based employee
compensation plans at fair value. As permitted, the Company has elected to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
The Company utilizes the provisions of SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," in
determining the transfer and services of financial assets and was adopted by the
Company as of January 1, 1997 and had no significant effect on the Company's
consolidated financial statements. This standard specifies accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities and for distinguishing whether a transfer of
financial assets in exchange for cash or other consideration should be accounted
for as a sale or as a pledge of collateral in a secured borrowing.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130), was adopted by
the Company on January 1, 1998 and financial statements for earlier periods have
been reclassified to reflect the application of the provisions of this standard.
Comprehensive income is defined as "the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Company's only current source of other
comprehensive income is net unrealized gains and losses on available for sale
securities which, in accordance with prior accounting standards, had been
directly included, net of tax, in a separate component of stockholders' equity.
Under SFAS No. 130, all items that are recognized as components of comprehensive
income are required to be reported in a financial statement that is displayed
with the same prominence as other financial statements. Adoption of this
standard had no effect on the Company's financial condition or results of
operations.
SEGMENT INFORMATION
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information"(SFAS No. 131), which became effective for the Company as of January
1, 1998, establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
subsequent interim financial reports issued to shareholders. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined it operates as
one reportable segment, "Community Banking." All of the Company's activities are
interrelated, and each activity is dependent and assessed based on how each of
the activities of the Company supports the others. For example, commercial
lending is dependent upon the ability of the Bank to fund itself with retail
deposits and other borrowings and to manage interest rate and credit risk of the
portfolio and related funding. This situation is also similar for personal and
residential mortgage lending. Accordingly, all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.
Although the Company's trust department is managed as a relatively distinct
unit, its impact on the assets, liabilities and net income of the Company is not
material.
General information required by SFAS No. 131 is disclosed in the Consolidated
Financial Statements and accompanying notes. The Company operates in only the
U.S. domestic market, specifically the Hudson Valley, which includes the
counties of Dutchess, Rockland, Westchester, Orange, Putnam, Sullivan and
Ulster, New York, as well as Long Island, New York and southern Connecticut. For
the year ended December 31, 1999, 1998 and 1997, no customer accounted for more
than 10% of the Company's revenue.
53
<PAGE>
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective 1998, the Company adopted Statement of Financial Accounting Standards
No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other
Postretirement Benefits". The statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans, but requires additional information
on changes in the benefit obligations and fair values of plan assets.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the third quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities". The Statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be recorded at fair value through earnings. If the
derivative qualifies as a hedge, depending on the nature of the exposure being
hedged, changes in the fair value of derivatives are either offset against the
change in fair value of assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value is recognized in earnings. The adoption of this standard did not have a
material effect on the Company's financial statements. In connection with the
adoption of SFAS No. 133, the Company, as permitted, transferred, at fair value,
securities having a fair value of $96,985 and a carrying amount of $95,993 from
its held to maturity portfolio to its available for sale portfolio during 1998.
The effect of this increase was to increase stockholders' equity after tax by
$576.
CASH FLOW INFORMATION
Cash and cash equivalents include federal funds sold, which generally are
available to the Company on one day's notice, and other highly liquid
instruments with an original term of three months or less.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial statements to
conform to the presentation of 1999 financial information.
54
<PAGE>
NOTE B - SECURITIES
SECURITIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
CARRYING AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR
AMOUNT COST GAINS LOSSES VALUE
-------- --------- ---------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
AVAILABLE FOR SALE $33,975 $34,255 $10 $290 $33,975
U.S. GOVERNMENT AGENCIES
AVAILABLE FOR SALE 80,164 81,558 49 1,443 80,164
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS
AVAILABLE FOR SALE 136,443 140,786 124 4,467 136,443
HELD TO MATURITY 16,139 16,139 202 48 16,293
MORTGAGE BACKED SECURITIES
AVAILABLE FOR SALE 41,539 42,019 37 517 41,539
OTHER DEBT SECURITIES
AVAILABLE FOR SALE 159,625 164,311 97 4,783 159,625
HELD TO MATURITY 75 75 75
EQUITY SECURITIES
AVAILABLE FOR SALE 279 257 22 279
HELD TO MATURITY 800 800 800
REGULATORY SECURITIES 9,726 9,726 9,726
-------- -------- ---- ------- --------
TOTAL SECURITIES $478,765 $489,926 $541 $11,548 $478,919
======== ======== ==== ======= ========
TOTAL AVAILABLE FOR SALE $452,025 $463,186 $339 $11,500 $452,025
TOTAL HELD TO MATURITY 17,014 17,014 202 48 17,168
REGULATORY SECURITIES 9,726 9,726 9,726
-------- -------- ---- ------- --------
TOTAL SECURITIES $478,765 $489,926 $541 $11,548 $478,919
======== ======== ==== ======= ========
</TABLE>
At December 31, 1999, the net unrealized loss on securities "available for sale"
(net of tax effect at a rate of 41.1% or $4,580) that was included in the
"Accumulated Other Comprehensive Income" component of stockholders' equity was
$6,581.
55
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
CARRYING AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR
AMOUNT COST GAINS LOSSES VALUE
-------- --------- ---------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
AVAILABLE FOR SALE $64,933 $64,027 $906 $64,933
U.S. GOVERNMENT AGENCIES
AVAILABLE FOR SALE 28,461 28,270 227 $36 28,461
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS
AVAILABLE FOR SALE 97,082 94,905 2,254 77 97,082
HELD TO MATURITY 17,461 17,461 577 18,038
MORTGAGE BACKED SECURITIES
AVAILABLE FOR SALE 78,644 78,161 640 157 78,644
OTHER DEBT SECURITIES
AVAILABLE FOR SALE 90,188 91,368 88 1,268 90,188
HELD TO MATURITY 75 75 4 79
EQUITY SECURITIES
AVAILABLE FOR SALE 304 266 38 304
REGULATORY SECURITIES 9,703 9,703 9,703
---------- --------- ------ ------ --------
TOTAL SECURITIES $386,851 $384,236 $4,734 $1,538 $387,432
========== ========= ====== ====== ========
TOTAL AVAILABLE FOR SALE $359,612 $356,997 $4,153 $1,538 $359,612
TOTAL HELD TO MATURITY 17,536 17,536 581 18,117
REGULATORY SECURITIES 9,703 9,703 9,703
---------- --------- ------ ------ --------
TOTAL SECURITIES $386,851 $384,236 $4,734 $1,538 $387,432
========== ========= ====== ====== ========
</TABLE>
56
<PAGE>
At December 31, 1998, the net unrealized gain on securities "available for
sale" (net of tax effect at a rate of 42% or $1,094) that was included in the
"Accumulated Other Comprehensive Income" component of stockholders' equity
was $1,521.
In the third quarter of 1998, the Company transferred, at fair value,
mortgage-backed securities having a fair value of $96,985 (carrying value of
$95,993) from its "held to maturity" portfolio to its portfolio of "available
for sale" securities. This was done to enhance the Company's ability to
respond to changes in the interest rate environment. This transfer was made
in accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". Concurrent with the adoption of this statement,
corporations were permitted to reclassify their "available for sale" and
"held to maturity" securities without calling into question the past intent
of an entity to hold securities to maturity. The effect of this transfer,
after tax, was a $576 increase in stockholders' equity.
Subsequent changes in unrealized gains or losses on these transferred
securities have been reflected in the "Accumulated Other Comprehensive
Income" component of the Company's equity accounts, on an after-tax basis. If
any of the transferred securities are sold, the realized gains or losses
would be reflected in the Company's results of operations.
The Company has no plans to establish a trading account.
The Company's mortgage-backed securities at year end 1999 are all classified
as "available for sale" and are principally pass-through securities issued by
Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National
Mortgage Association (Fannie Mae).
The contractual maturities at December 31, 1999 of the Company's available
for sale and held to maturity debt securities other than mortgage-backed and
SBA securities are summarized in the following table. Actual maturities may
differ from contractual maturities because certain issuers have the right to
call or prepay obligations with or without call premiums.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
MATURITY PERIOD AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Within 1 year $81,606 $81,290 $8,870 $8,873
1-5 years 127,487 124,261 4,553 4,641
5-10 years 96,051 91,367 2,860 2,915
Over 10 years 67,123 64,926 731 739
Mortgage-backed and SBA securities of
U.S. Government Agencies not allocated
by maturity date 90,919 90,181
---------------- -------------- -------------- -------------
TOTAL DEBT SECURITIES $463,186 $452,025 $17,014 $17,168
================ ============== ============== =============
</TABLE>
Gross realized gains from sales of securities were $ 241, $537 and $338 in 1999,
1998 and 1997, respectively, and gross realized losses were $106, $164 and $9.
At December 31, 1999, securities with a carrying amount of $162.5 million were
pledged as collateral for municipal deposits and other purposes. Municipal
deposits so collateralized totaled $137.8 million at the same date.
57
<PAGE>
NOTE C - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Company utilizes financial instruments with off-balance-sheet risk to
accommodate the financing needs of its customers. These instruments involve
varying degrees of credit or interest-rate risk which are not recognized on
the balance sheet. Credit risk is defined as the possibility of sustaining a
loss because the other parties to a financial instrument fail to perform in
accordance with the terms of the contract, whereas interest-rate risk arises
from changes in the market value of positions stemming from movements in
interest rates. In order to minimize credit risk, the Company subjects such
commitments to its lending policy which includes a formal credit approval and
monitoring process. This lending policy requires collateral where the
customer credit evaluation determines that the inherent risk in the
transaction warrants such collateral. In order to minimize interest-rate
risk, the Company has established an asset/liability management policy,
adherence to which is monitored by the Bank's Investment Committee of the
Board. The contract amounts of the instruments referred to in the chart below
reflect the extent of involvement in particular classes of financial
instruments.
UNUSED COMMITMENTS AND STANDBY LETTERS OF CREDIT
Unused commitments include loan origination commitments, which are legally
binding agreements to lend at a specified interest rate for a specified
purpose, usually containing an expiration date, and lines of credit, which
represent loan agreements under which the lender has an obligation, subject
to certain conditions, to lend funds up to a particular amount, whereby the
borrower may repay and re-borrow at any time within the contractual period.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party.
The Company's maximum exposure to accounting loss related to the contract
amounts of these financial instruments, assuming they are fully funded, all
borrowers default and any collateral proves to be worthless, at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
LOAN
ORIGINATION UNUSED LINES STANDBY LETTERS
COMMITMENTS OF CREDIT OF CREDIT TOTAL
---------------------- --------------- -------------------- -------------
<S> <C> <C> <C> <C>
Real Estate - Mortgage $11,448 $11,448
Real Estate - Construction 8,257 $30,619 38,876
Home Equity Loans 27,276 27,276
Other Consumer Loans 16,837 16,837
Commercial Loans 49,066 $6,572 55,638
---------------------- --------------- -------------------- -------------
TOTAL (December 31, 1999) $19,705 $123,798 $6,572 $150,075
====================== =============== ==================== =============
TOTAL (December 31, 1998) $29,813 $109,758 $3,284 $142,855
====================== =============== ==================== =============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company lends primarily in the Dutchess, Ulster, Sullivan,
Orange, Westchester, Putnam and Rockland counties of Southeastern New York
State. The Company also originates larger one-to-four family mortgage and
commercial mortgage loans in the Connecticut counties of Fairfield, Hartford,
New Haven and Litchfield and larger one-to-four family mortgage loans in the
New York counties of Nassau and Suffolk. The ability of borrowers to make
principal and interest payments in the future will depend upon, among other
things, the level of overall economic activity and real estate market
conditions prevailing within the Company's lending region.
58
<PAGE>
Approximately 75% of the company's loans (commercial, residential and
personal) are collateralized by real estate. In addition to such loans
outstanding, as shown on the balance sheet, the Company has standby letters
of credit and other off-balance sheet credit risk exposure related to real
estate loans. The Company generally requires collateral on all real estate
related facilities and loan to value ratios not exceeding 75% to 80%. Private
mortgage insurance is generally required on residential mortgages with loan
to value ratios above 80%.
NOTE D - NONPERFORMING ASSETS, PAST DUE LOANS AND IMPAIRED LOANS
The following table presents nonperforming assets outstanding at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
$7,316 $8,868 $7,889
Nonaccrual loans
Loans past due 90 days and still accruing 164 497 443
Restructured troubled debt 25 28 682
----------- ----------- -----------
Total nonperforming loans 7,505 9,393 9,014
Other real estate owned, net 1,369 628 1,366
----------- ----------- -----------
Total nonperforming assets $8,874 $10,021 $10,380
=========== =========== ==========
</TABLE>
Information concerning interest income on nonperforming loans and
restructured troubled debt is summarized below:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income if all loans were current $971 $892 $858
Interest income recorded 319 100 273
</TABLE>
At December 31, 1999 there were no commitments to lend additional funds to the
borrowers associated with the nonperforming assets noted above.
Loans past due 30-89 days were as follows at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Amount past due $6,334 $12,813 $ 7,392
Percent of gross loans .64% 1.32% 0.71%
</TABLE>
As described in Note A, the Company applies the guidelines in SFAS No. 114 to
loans individually evaluated for impairment (principally commercial mortgage,
commercial and industrial, construction loans and nonaccrual residential
mortgages). Generally, the fair value of impaired loans was determined using
the fair value of underlying collateral. Additional impaired residential
mortgages might have been identified if the impairment identification
procedures of SFAS No. 114 were required to be applied to homogenous loan
portfolios. In the opinion of management, the amount of any such additional
impaired loans would not be significant to the Company's consolidated
financial position or results of operations.
59
<PAGE>
Information regarding the recorded investment in impaired loans at December
31 and for the year then ended consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Impaired loans for which an allowance of $3,793, $2,242 and $912,
respectively has been established $11,515 $5,545 $7,339
Impaired loans for which an impairment write down of
$219, $1,641and $1,483, respectively, has been taken 431 3,323 1,232
-------- --------- --------
Total recorded investment in impaired loans $11,946 $8,868 $8,571
======== ========= ========
Additional information regarding impaired loans is as follows:
Income recorded on impaired loans while they were considered to
be impaired, on a cash basis $774 $100 $273
Average investment in impaired loans during the year $10,407 $8,720 $9,092
</TABLE>
NOTE E - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table outlines the balances, including related deferred loan fees
and costs, of loan categories at December 31:
<TABLE>
<CAPTION>
CATEGORY 1999 1998
- -------- ---- ----
<S> <C> <C>
Real Estate - Residential $408,240 $427,440
Real Estate - Commercial 260,998 242,062
Consumer & Installment 138,256 134,152
Commercial & Industrial 118,492 113,680
Real Estate - Construction 62,596 50,888
Other loans 5,239 5,625
------------ ------------
Total $993,821 $973,847
============ ============
</TABLE>
60
<PAGE>
Changes in the allowance for loan losses for the years ended December 31 were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $21,270 $19,331 $18,533
Charge-offs (3,137) (5,370) (4,758)
Recoveries 1,653 1,380 1,081
-------- -------- -------
Net charge-offs (1,484) (3,990) (3,677)
Provision for loan losses 2,000 5,929 4,475
-------- -------- -------
Balance, end of year $21,786 $21,270 $19,331
======== ======== =======
</TABLE>
Substantially all newly originated fixed rate residential mortgage loans with
20 and 30 year terms are sold in the secondary market. The net realized gains
on these sales were $79, $443 and $453 in 1999, 1998 and 1997, respectively.
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment is comprised of the following at December 31:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Land $3,319 $3,713
Buildings and improvements 28,459 28,634
Furniture and equipment 25,545 24,747
--------- --------
57,323 57,094
Accumulated depreciation and amortization (30,341) (28,380)
--------- --------
TOTAL $26,982 $28,714
========= ========
</TABLE>
NOTE G - DEPOSITS
The following table outlines balances at December 31, for interest bearing
accounts:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Money Market $271,518 $326,102
NOW 53,045 61,816
Savings 248,746 304,578
Time 542,304 473,274
---------- ----------
TOTAL $1,115,613 $1,165,770
========== ==========
</TABLE>
61
<PAGE>
At December 31, 1999 and 1998, certificates of deposit of $100 or more included
in time deposits totaled $203,704 and $110,291 respectively. The Company does
not accept brokered deposits. Interest expense on deposits was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Savings accounts $6,756 $11,470 $13,955
Certificates of deposit ($100 or more) 10,756 7,557 5,392
Other time deposits 12,878 19,733 22,950
NOW accounts 570 825 944
Money market accounts 10,907 13,552 12,143
------- ------- -------
TOTAL $41,867 $53,137 $55,384
======= ======= =======
</TABLE>
The maturities of time deposits outstanding at December 31, 1999 and 1998 are
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
WEIGHTED WEIGHTED
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
------ ------- ---- ------ ------------
<S> <C> <C> <C> <C>
Balances outstanding at December 31,
maturing in:
Three months or less $220,852 5.09% $154,294 4.93%
Three months through one year 159,183 4.79 232,317 4.87
One to two years 89,560 5.42 43,480 5.25
Two to three years 31,029 5.97 18,118 5.65
Three to five years 39,351 5.56 21,530 5.69
Over five years 2,329 5.31 3,535 5.59
-------- --------
Total $542,304 5.14% $473,274 5.00%
======== ===== ======== =====
</TABLE>
In April 1996, Pawling completed the acquisition of two branch offices located
in Rockland County, New York and assumed deposit liabilities of approximately
$152.8 million. Assets recorded in the acquisition were principally cash and a
deposit purchase premium. The unamortized purchase premium of $4.5 and $5.9
million at December 31, 1999 and 1998, respectively, is included in intangible
assets in the consolidated balance sheets.
62
<PAGE>
NOTE H- EMPLOYEE BENEFIT PLANS
At the date of the Merger, all predecessor plans were carried forward to the
Company. The existing plans are described below. The Company is in the process
of implementing amended benefit plans to present uniform coverage. For purposes
of this note, employees of the predecessor companies continue to be described as
being employees of those entities.
THRIFT PLAN
The Premier National Bancorp, Inc. Retirement and Thrift Plan is a qualified
401(k) defined contribution plan covering substantially all full time employees
who have attained age 21 and have at least one year of service. Employee
contributions vest immediately, while plan contributions vest as follows: 40%
after 2 years, 60% after 3 years, 80% after 4 years and 100% after 5 years of
service. For the profit sharing component of the plan, Hudson Chartered Bancorp
previously determined, at the end of each fiscal year, an annual amount of
profit sharing to be funded. However, as a result of the utilization of the CASH
BALANCE PLAN described below, profit sharing contributions were suspended in
1998 and 1999. For the thrift component of the plan, Hudson Chartered matched
employee contributions under deferred salary reduction agreements dollar for
dollar up to 4% of eligible compensation. As of the date of the merger, the plan
was amended to match two-thirds dollar for each dollar contributed under a
salary reduction agreement up to 6% of eligible compensation. Employees can
contribute up to 10% by way of such salary reduction agreements and, in
addition, can voluntarily contribute up to an additional 10% of their eligible
compensation. (PBI also maintained a qualified 401(k) defined contribution plan.
Eligible employees could elect to contribute up to 8% of their compensation. PBI
made contributions equal to 50% of the first 5% of a participant's contribution
for non-highly compensated employees, and 50% of the first 3% for
highly-compensated employees. Contributions to this plan were suspended as of
the date of the merger.) Upon completion of all required approvals, the PBI
401(k) plan is intended to be merged into the Premier National Bancorp, Inc.
Retirement and Thrift Plan. Expense for these plans was $747, $754 and $768 for
1999, 1998 and 1997, respectively.
CASH BALANCE PLAN
A retirement plan established by PBI covers substantially all employees of PBI
who meet certain age and length of service requirements. Prior to October 1,
1997, the plan was a defined benefit plan providing for benefits based on the
employees' years of accredited service and their average annual three years'
earnings, as defined by the plan. Plan benefits were funded through PBI
contributions at least equal to the amounts required by law. Effective October
1, 1997, the defined benefit plan was amended and restated as a "cash balance"
plan. The annual service credit under the cash balance plan equals 5% of annual
compensation (8% for those employees who were 50 years of age or older with at
least 10 years of service as of September 30, 1997), and the actual earnings
credit on employee balances is the rate on the 30 year Treasury bond prevailing
at the beginning of each plan year. After the merger, the former Hudson
Chartered Bancorp employees were included in this plan with benefits calculated
retroactively back to October 1, 1997, and vesting requirements were changed to
mirror the ongoing thrift plan.
63
<PAGE>
The following are reconciliations of the benefit obligations and the fair
value of plan assets of the Cash Balance plan, the amounts not recognized in
the statements of financial position, and the amounts recognized in the
statement of financial position as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $8,454 $7,060
Service cost 815 833
Interest cost 406 443
Actuarial (gain) loss (151) 1,297
Annuity payments (353) (442)
Settlements (877) (737)
------ ------
Benefit obligation at end of year 8,294 8,454
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 10,007 10,133
Actual return on plan assets 1,606 1,053
Annuity payments (353) (442)
Settlements (877) (737)
------ ------
Fair value of plan assets at end of year 10,383 10,007
------ ------
Funded status 2,090 1,553
Unrecognized net actuarial gain (1,881) (879)
Unrecognized prior service cost (189) (378)
Unrecognized net transaction obligation 0 4
------ ------
Prepaid benefit expense included in other assets $ 20 $ 300
------ ------
</TABLE>
The plan assets are primarily invested in a money market fund, stocks, and
bonds. Valuation of the cash balance plan as shown above was conducted as of
December 31, 1999 and 1998. Assumptions used by the Company in the determination
of cash balance plan information consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate 6.0% 5.0% 7.25%
Rate of increase in compensation levels 5.5 4.0 5.0
Expected long-term rate of return on plan assets 8.0 8.0 8.0
</TABLE>
64
<PAGE>
The components of net periodic benefit cost consisted of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $815 $833 $263
Interest cost 406 443 508
Expected return on plan assets (755) (787) (676)
Net amortization and deferral (186) (219) (39)
---- ---- ----
Total $280 $270 $56
==== ==== ====
</TABLE>
OTHER RETIREMENT PLANS
Both HCB and PBI had certain employment arrangements which include supplemental
retirement benefits for certain key executives that offset the reduction in
benefits due to certain limitations imposed under the federal income tax laws.
These arrangements are unfunded and are a general liability of the Company. The
unfunded liability at December 31, 1999 was $300.
HCB also maintained an Executive Supplemental Income Plan ("ESI Plan"), a
nonqualified plan that provides certain employees with supplemental retirement
benefits. The ESI Plan utilizes life insurance contracts for indirect funding of
preretirement benefits. Related expense was $25, $74 and $117 in 1999, 1998 and
1997, respectively. These plans also provide that, in the event of a "change in
control", employees who have attained age 55 may retire and are immediately
eligible to receive benefits without prior board approval and without satisfying
any minimum years of service requirement. Other covered employees who are
terminated, without just cause, or who voluntarily terminate employment, after a
change in control, are entitled to receive their retirement benefits upon
reaching normal retirement age. This plan has not been offered by the Company
since 1994 and its provisions covers five employees.
In 1999, the Company approved an additional supplemental retirement plan for the
Chairman of the Board. The plan allows for the payment of 20% of his final
annual salary, payable upon retirement, annually, for 10 years plus payment of
medical benefits for the same period. The accumulated benefit obligation at
December 31, 1999 was $25.
PBI also maintained a non-qualified, unfunded retirement and severance plan for
members of its Board of Directors of its banking subsidiary. The plan was
modified in 1999 to allow former Hudson Chartered Bancorp directors to join the
plan. Under this plan, each member retiring the Board after at least five years
of service is entitled to a benefit consisting of the annual retainer fee of
$5,000 per annum at the time of departure multiplied by the director's number of
years of service, up to 15 years, maximum $75,000. The annual cost of this plan
was $133, $113 and $80 in 1999, 1998 and 1997, respectively. All of the present
non-officer directors of the Company are currently covered by this plan. The
accumulated benefit obligation was $354 at December 31, 1999.
The Company maintains a deferred compensation plan for directors and executive
officers that allows for the individual to defer compensation into a variety of
funded vehicles or phantom stock of the Company. The phantom stock component is
unfunded, and the Company has recorded a liability of $445 as of December 31,
1999.
65
<PAGE>
POSTRETIREMENT BENEFITS
PBI provided certain postretirement health care benefits. Substantially all
PBI employees became eligible for postretirement benefits if they met certain
age and length of service requirements. PBI accrued the cost of these
benefits as they were earned by active employees. Effective with the merger,
non-retiree benefits were frozen at levels earned and such future benefit
will only be paid should the employee retire. As a result of this change, the
Company recorded a credit to compensation expense of $169 in 1998. The
liability for these non-retired employees is accrued on an actuarial basis.
The liability at December 30, 1999 is $188.
The following are reconciliations of the benefit obligation and the fair value
of plan assets, the funded status of the plan, the amounts not recognized in the
statement of financial position, and the amounts recognized in the statement of
financial position.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $1,332 $1,392
Interest cost 84 80
Actuarial (gain) loss (96) 108
Benefits paid (89) (76)
Settlements - (172)
------- -------
Benefit obligation at end of year $1,231 $1,332
------- -------
Change in plan assets:
Contributions to the plan $89 $76
Benefits paid (89) (76)
------- -------
Fair value of plan assets at end of year 0 0
------- -------
Funded status (1,231) (1,332)
Unrecognized net actuarial gain (416) (381)
------- -------
Accrued benefit cost $(1,647) $(1,713)
------- -------
</TABLE>
Valuations of the post retirement health insurance plan as shown above were
conducted as of December 31, 1999, 1998 and October 1, 1997. Assumptions used
by the Company in the determination of post retirement benefit plan
information consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.0% 6.5% 7.25%
Current medical trend rate 6.5 6.5 7.0
Ultimate medical trend rate 5.0 5.0 5.0
</TABLE>
66
<PAGE>
The components of net periodic benefit cost consisted of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $26
Interest cost $84 $80 96
Net amortization and deferral (60) (73) (69)
Settlements and curtailments - (437)
----- ------ ----
Net periodic benefit cost (credit) $24 $(430) $53
===== ====== ====
</TABLE>
At December 31, 1999, the assumed rate of increase in future health care costs
was 6.5% for 2000, gradually decreasing to 5.0% in the year 2003 and remaining
at that level thereafter. Increasing the assumed health care cost trend rate by
1.0% in each future year would increase the accumulated benefit obligation as of
December 31, 1999 by $ 114 and the aggregate of the service and interest cost by
$9 for the year then ended.
EMPLOYMENT AGREEMENTS
PNB has entered into employment and change in control agreements with certain
key executives. The agreements range in period from one to three years, expiring
from 2000 through 2002, and contain specified conditions for extension or
expiration, either annually or prior to expiration. In certain cases, conditions
exist which allow for lump sum payments in connection with defined changes in
control, termination without cause or failure to extend. The maximum liability
under these contracts, at December 31, 1999, if such payments were required for
all executives, would be approximately $3.2 million.
SEVERANCE PLANS
The company has adopted a change in control severance pay plan on behalf of
employees not covered by individual agreements. The plan provides employees
with certain rights and benefits upon termination following a change in
control as defined in the plan. Benefits range from a minimum of three weeks
of salary to a maximum of 104 weeks of salary depending on years of service
and position. No liability has been recorded under this plan.
In connection with the merger, the Company adopted the former PBI severance
pay plan for all employees employed by the Company prior to January 14, 1998.
Those employees terminated within two years of the merger date (July 17,1998)
may be eligible for severance benefits ranging eight weeks of salary to a
maximum of nine months of salary plus continuation of medical insurance for
periods ranging from six to nine months, depending on length of service and
position.
NOTE I - LEASES
Total rental expense for operating leases for 1999, 1998 and 1997 was $891, $989
and $857, respectively. Future minimum payments, under non-cancelable operating
leases with initial or remaining terms of one year or more, consisted of the
following at December 31, 1999:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
2000 $853
2001 683
2002 603
2003 441
2004 304
Thereafter 2,070
--------
Total $4,954
========
</TABLE>
The Company leases a portion of its buildings to tenants for various terms with
varying renewal periods. Rental income received was $335, $381 and $348 in 1999,
1998 and 1997, respectively.
67
<PAGE>
NOTE J - INCOME TAXES
The following is a reconciliation between the effective income tax rate and the
statutory federal tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax based on pretax income at statutory rate 35.0% 35.0% 34.0%
Charges (credits) resulting from:
State taxes, net of federal tax benefit 4.0 6.0 5.7
Income from tax-exempt securities (5.3) (5.4) (3.7)
Non-deductible merger expenses - 2.8 .2
Other, net (.1) (1.4) -
----- ----- -----
Effective income tax rate 33.6% 37.0% 36.2%
===== ===== =====
</TABLE>
The valuation allowance applicable to the Company's state deferred tax asset was
eliminated in 1998, resulting in a reduction in income taxes of $238.
The components of income tax expense (benefit) are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $8,408 $7,142 $7,666
State 1,642 2,354 2,370
------- ------- ------
10,050 9,496 10,036
Deferred 381 (1,818) (39)
------- ------- ------
Total $10,431 $7,678 $9,997
======= ======= ======
</TABLE>
68
<PAGE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses and OREO $ 8,953 $ 9,022 $ 8,042
Compensation 1670 1,597 1,454
Core deposit intangible 1,233 941 607
Deferred fee income (75) 713 342
Other 73 54 450
------- ------ -------
Gross deferred tax assets 11,854 12,327 10,895
------- ------ -------
DEFERRED TAX LIABILITIES:
Depreciation (275) (345) (496)
Unrealized holding (gains) losses on "available for
sale" securities 4,587 (1,088) (1,156)
Mortgage servicing (76) (96) (31)
Accretion on securities (66) (68) (130)
------- ------ -------
Gross deferred tax liabilities 4,170 (1,597) (1,813)
------- ------ -------
Net deferred tax assets before valuation allowance 16,024 10,730 9,082
Valuation allowance - - (238)
------- ------ -------
Net deferred tax asset $16,024 $10,730 $ 8,844
======= ======= =======
</TABLE>
As a thrift institution, Pawling was subject to special provisions in the
federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically
were determined using methods based on loss experience or a percentage of
taxable income. Tax bad debt reserves are maintained equal to the excess of
allowable deductions over actual bad debt losses and other reserve
reductions. These reserves consisted of a defined base-year amount, plus
additional amounts ("excess reserves") accumulated after the base year. SFAS
No. 109 requires recognition of deferred tax liabilities with respect to such
excess reserves, as well as any portion of the base-year amount which is
expected to become taxable (or "recaptured") in the foreseeable future.
Certain amendments to the federal and New York State tax laws regarding bad
debt deductions were enacted in 1996. The federal amendments included
elimination of the percentage of taxable income method for tax years
beginning after December 31, 1995 and imposition of a requirement to
recapture into taxable income (over a six-year period) the bad debt reserves
in excess of the base-year amounts. Pawling established a deferred tax
liability with respect to such excess federal reserves. The New York State
amendments redesignated all of Pawling's state bad debt reserves as the
base-year amount.
As a result of the merger described in Note A, the Company was required to
immediately recapture Pawling's state base-year reserve and recorded a net
expense of $752 under merger expenses to reflect its tax liability to the
State in the 1998 financial statements. Under the present tax laws, however,
Pawling's federal base-year reserve was not subject to immediate recapture.
69
<PAGE>
In accordance with SFAS No. 109, the Company has not recognized deferred tax
liabilities with respect to Pawling's federal base-year tax bad debt reserves
of $8.8 million. The unrecognized deferred tax liability at December 31, 1999
with respect to the federal base-year reserves was $3.0 million. This reserve
could be recognized as taxable income and create a current and/or deferred
tax liability using the income tax rates then in effect if one of the
following occur: (1) the Company's retained earnings represented by this
reserve are used for dividends or distributions in liquidation or for any
other purpose other than to absorb losses from bad debts., (2) the Company
fails to qualify as a Bank as provided by the Internal Revenue Code, or
(3) there is a change in federal tax law.
NOTE K - OTHER COMMITMENTS AND CONTINGENCIES
The financial statements do not reflect various commitments, contingent
liabilities and fiduciary liabilities for assets held in trust, which arise
in the normal course of business. Trust Department assets under
administration total approximately $294.8 million at December 31, 1999.
The Bank regularly sells certain types of long-term fixed rate mortgages to a
United States agency which are under recourse arrangements for four months.
As of December 31, 1999, $2.5 million of these sales are subject to such
recourse.
The Bank is required to maintain an interest free deposit balance with the
Federal Reserve Bank, which averaged approximately $8.1million during 1999;
the Bank does not earn interest or other income on such deposited funds.
The Bank is a party to various legal proceedings in the normal course of
business, the ultimate outcome of which, in management's opinion, will not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
NOTE L - RELATED PARTY TRANSACTIONS
The Bank has granted loans to officers and directors of the Company and to
their associates. The following table summarizes activity associated with
these loans.
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Balance, beginning of year $10,023 $ 23,614
New loans 1,781 1,443
Repayments/Deletions (1,440) (15,034)
------- --------
Balance, end of year $10,364 $ 10,023
======= ========
</TABLE>
The Bank leases premises from an affiliate of a director which lease will
expire in December 2000. Payments made to this affiliate in 1999, 1998 and
1997 were $141, $112 and $142, respectively. Entities in which directors have
interests provide automotive, insurance and legal services to the Company.
The total cost of such services aggregated $985, $705 and $713 in 1999, 1998
and 1997, respectively.
70
<PAGE>
NOTE M - OTHER INTEREST BEARING LIABILITIES
During 1999, the Bank entered into a leverage strategy of approximately
$100.0 million. The funding for this strategy consisted of Federal Home Loan
Bank advances in the amounts of $20.0 million and $25.0 million, securities
sold under agreements to repurchase of $30.0 million and $25.0 million from
local municipal certificates of deposit.
The Federal Home Loan Bank advances for $20 million and the repurchase
agreements of $55 million considered short-term borrowings with original
maturities of two months and four months, respectively, and rates ranging
between 5.72% to 6.13%.
Long-term borrowings consist of $25 million in FHLB advances which will
mature in 2004. The rate paid on this borrowing adjusts quarterly. The rate
as of December 31, 1999 was 6.16%.
Additional information regarding the Bank's short-term and long-term
borrowings are summarized as follows as of December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding balance $75,300 $1,725 $1,725
Average balance 38,259 1,725 1,809
Weighted average Interest rate 5.58% 5.51% 5.91%
</TABLE>
From time to time, the Company has purchased federal funds. These borrowings
generally mature within one to four days of the transaction date. Although
outstanding borrowings at December 31, 1999 were $300 the Company also on the
same date had sold Fed Funds of $31.8 million. There were no such borrowings
at any time during 1998 or 1997.
The Bank maintains a $100 million line of credit with the Federal Home Loan
Bank and, at December 31, 1999, had immediate access to additional liquidity
in the amount of $55 million under FHLB's secured advance program.
Additionally, the Bank maintains a federal funds secured line of credit in
the amount of $5 million with one of its correspondents. There were no
borrowings under the federal funds secured line of credit in 1999 or 1998.
NOTE N - RESTRICTION ON SUBSIDIARY DIVIDENDS AND LOANS TO AFFILIATES
Dividends are paid by the Company from its liquid assets which are mainly
provided by dividends from the Bank. Certain restrictions exist regarding the
ability of the Bank to transfer funds to the Company in the form of cash
dividends, loans or advances. The approval of the Office of the Comptroller
of the Currency is required to pay dividends in excess of earnings retained
in the current year plus retained net earnings for the preceding two years.
After December 31, 1999, $5.0 million is available for distribution to the
Company as dividends without prior regulatory approval (in addition to the
2000 results of operations of the Bank).
Under Federal Reserve regulations, the Bank also is limited as to the amount
it may loan to its affiliates, including the Company, unless such loans are
collateralized by specific obligations. At December 31, 1999, the maximum
amount available for lending by the Bank to the Company or its affiliates in
the form of loans approximated 20% of consolidated net assets with a maximum
per affiliate limit of 10%. The parent company has a mortgage loan from the
Bank at December 31, 1999 of $759. Interest is payable at the prime rate plus
one percent (9.50% at December 31, 1999). Such amounts eliminate in
consolidation.
NOTE O - STOCKHOLDERS' EQUITY
COMMON STOCK
- ------------
In both December 1998 and 1999, the Board of Directors approved 10% stock
dividends, payable in January 1999 and 2000, respectively. The Board also
declared a three for two stock split in September 1997, payable October 1997
in the form of a 50% stock dividend. Shares and share prices have been
retroactively adjusted to reflect the issuance of the stock dividends and the
stock splits for September 1997, December 1998 and December 1999. The 1998
and 1999 financial statements reflect the capitalization of $24.4 million and
$26.5 million, respectively, of retained earnings
71
<PAGE>
reflecting a market value of $14.36 and $17.05 per adjusted share on the
respective dates of declaration of the 10% stock dividends. In connection
with the merger, the equity accounts of PBI have been retroactively restated
to reflect the 1.82 exchange ratio.
Common stock has a par value of $0.80 per share. The following table
summarizes the number of shares at December 31:
<TABLE>
<CAPTION>
1999 1998(1)
---- -------
<S> <C> <C>
Total issued and outstanding shares 16,425,626 15,695,124
Other issued shares - Treasury shares 3,600 2,166
---------- ----------
Total issued shares 16,429,226 15,697,290
Reserved shares (not yet issued):
Dividend reinvestment and stock purchase plan 456,178 488,246
HCB 1995 Incentive Stock Option (Plan II) 1,547,955 902,863
Frozen plans:
HCB 1990 Incentive Stock Option (Plan I) 13,909 24,823
PBI Employees Stock Option Plan 235,357 456,883
PBI Directors Stock Option Plan 39,203 187,971
Other authorized but unissued shares 31,278,172 32,241,924
---------- ----------
Total authorized 50,000,000 50,000,000
---------- ----------
</TABLE>
(1) Number of shares at December 31, 1998 have not been restated to reflect the
10% stock dividend declared December 1999.
Under its Certificate of Incorporation as amended and restated in the Merger,
Premier National Bancorp, Inc. is authorized to issue 50,000,000 shares of
common stock, par value $0.80 per share.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
- ---------------------------------------------
The Company has a Dividend Reinvestment and Stock Purchase Plan that allows
participating common stockholders to reinvest cash dividends in additional
shares of common stock (at market value) in lieu of cash dividends and gives
participants the right to elect to make optional cash payments to purchase up
to five thousand dollars per quarter of shares of common stock (at market
value), subject to the terms and limitations of the plan.
PREFERRED STOCK
- ---------------
The Company has authorized a total of 5,000,000 shares of preferred stock,
$.01 par value, which the Board of Directors has the authority to divide into
series and to fix the dividends, rights and preferences of any series so
established. There was no outstanding preferred stock at December 31, 1999 or
1998.
TREASURY STOCK PURCHASE PROGRAM
- -------------------------------
On February 25, 1999, the Board of Directors approved a stock repurchase
program and authorized management to repurchase, over the next two years, up
to 1,250,000 shares (approximately 7.9%) of the Company's Common stock in the
open market to fund the Company's dividend reinvestment and purchase plan and
option exercises. Having completed the plan, on November 18, 1999, the Board
of Directors approved an additional stock repurchase program for 1,000,000
shares as of December 31, 1999, there were 921,275 shares remaining to be
purchased under the program. In connection with its 10% stock dividend
declared in December 1999, the Company reissued 841,412 shares of treasury
stock, leaving only 3,600 shares at December 31, 1999.
72
<PAGE>
STOCK COMPENSATION PLANS
HCB INCENTIVE STOCK OPTION PLAN
Under the HCB 1990 Incentive Option Plan (Plan I), options to purchase shares
of common stock were granted to key personnel of a predecessor company based
upon their performance for terms up to 10 years at exercise prices not less
than the fair value of the shares at the date of grant. Such options vest and
are exercisable on a cumulative basis at 20% per year with a maximum exercise
period of 5 years from date of vesting. Stock purchased under the plan is
subject to certain resale restrictions and HCB retains the right to redeem
outstanding shares at book value for employees terminating prior to
retirement. No new options have been granted under this plan since 1994.
In 1995, HCB established the HCB 1995 Incentive Stock Plan (Plan II).
Incentive and nonqualified stock options are utilized to assist in
attracting, retaining and providing incentives to key officers and employees.
In 1999, the plan was amended to include directors and to increase the
authorized shares by 627,913. Grants under the plan may be in the form of
incentive stock options, nonqualified stock options, restricted stock or
stock appreciation rights. Stock options may be granted with the stock
appreciation rights or the stock appreciation rights may be issued
separately. Options may not be granted at less than 100% of the fair market
value on the date of grant. Options vest no less than six months after the
date they were granted and expire no later than 10 years from the grant date.
The determination and grant of an incentive stock option, nonqualified stock
option, a stock appreciation right or restricted stock is determined solely
at the discretion of the Personnel and Compensation Committee of the Board of
Directors. The maximum number of shares of common stock with respect to which
options or rights may be outstanding to any eligible employee under the plan
(or any other HCB plans) is 220,000 shares. The plan was amended in 1999 to
add directors. At December 31, 1999, shares available for future grants
totaled 669,903. In 1999, options of 326,583 were granted at an exercise
price of $17.12.
PBI EMPLOYEES AND DIRECTORS STOCK OPTION PLANS
PBI established stock option plans for its employees and directors. Under the
plans, the option exercise price may not be less than the fair market value
of the common stock at the date of the grant. Options granted pursuant to the
employees' plan are generally exercisable any time within ten years of the
date of grant. Unexercised options generally expire either 90 days or one
year (options granted after 1996) after termination of an employee's
continuous employment by the Company, except in connection with severance
arrangements which provide employees up to nine months to exercise the
options. Options granted pursuant to the directors' non-qualified stock
option plans have ten-year terms, and vest and become fully exercisable six
months after the date of grant. The plans were not merged with the Hudson
Chartered Bancorp 1995 Incentive Stock Plans and no new options will be
granted under the plans.
73
<PAGE>
COMBINED OPTION PLAN INFORMATION
In connection with the merger of HCB and PBI, all of the outstanding PBI
options were converted into options to purchase common stock of the Company.
Consolidated transactions under the Company's Stock Option Plans, including
SAR's, for the years ended December 31, 1999, 1998 and 1997, are presented
below:
<TABLE>
<CAPTION>
Stock Option Plan
-----------------
Weighted
Average
Shares Price
--------- --------
<S> <C> <C>
Outstanding at January 1, 1997 1,187,780 $ 7.00
Granted 218,051 12.75
Exercised (186,441) 6.89
Forfeited (3,304) 7.96
---------
Outstanding at December 31, 1997 1,216,086 8.02
Granted 408,356 17.10
Exercised (208,897) 6.55
Forfeited (4,404) 10.55
---------
Outstanding at December 31, 1998 1,411,141 10.59
Granted 326,583 17.12
Exercised (539,309) 7.08
Forfeited (31,894) 15.00
--------- ------
Outstanding at December 31, 1999 1,166,521 $13.97
========= ======
Exercisable at December 31:
1997 1,123,284 $ 7.41
1998 1,127,759 9.02
1999 842,133 12.75
</TABLE>
74
<PAGE>
The following table summarizes information about the Company's stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
----------------
Exercise Price Number Remaining Life (yrs) Exercise Price
-------------- ------ -------------------- --------------
<S> <C> <C> <C> <C>
$3.52 - $5.27 30,535 2.5 $4.81
$5.27 - $7.03 92,367 3.8 $6.00
$7.03 - $8.79 93,140 5.2 $7.79
$8.79 - $10.55 127,230 6.5 $10.11
$10.55 - $14.07 65,033 7.0 $11.00
$14.07 - $15.82 102,132 8.1 $15.42
$15.82 - $17.58 658,279 9.1 $17.21
Exercisable $ 3.52 - $17.58 842,133 7.2 $12.75
=============== ======= ======
Not Exercisable $17.12 326,583 9.1 $17.12
====== ======= ======
</TABLE>
The fair value of each option grant was estimated on the date of grant by
PNB, HCB and PBI, respectively, using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1999, 1998
and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
PNB PNB/PBI HCB-PBI
<S> <C> <C> <C>
Dividend yield 2.53 - 3.71% 2.27 - 2.94% 2.2 - 3.0%
Expected volatility 26.5 - 44.0% 25.9 - 40.8% 23.6 - 27.8%
Risk free rate of return 5.78 - 5.90% 4.95 - 5.11% 6.05 - 6.45%
Expected life (years) 5.0 - 10.0 5.0 - 10.0 5.0 - 5.4
</TABLE>
The weighted average fair value of options granted in 1999, 1998 and 1997
were $5.28, $4.21 and $4.98, respectively.
The Company maintains stock option plans as described above. The Company
applies APB No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Company's stock option based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net income As reported $20,598 $13,052 $17,640
Pro forma 19,158 11,909 16,982
Basic earnings per share As reported $1.23 $.76 $1.04
Pro forma 1.14 .69 1.01
Diluted earnings per share As reported $1.21 $.74 $1.01
Pro forma 1.13 .68 .97
</TABLE>
The effects of applying SFAS No. 123 for disclosing compensation cost under
this pronouncement may not be representative of the effects on reported net
income for future years.
75
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
As of December 31, 1999, the ESOP owned 134,169 shares of the Company's common
stock (all of which were available to participants and considered in total
issued and outstanding shares). The Company recorded compensation expense of
$113 in 1999 and $ 129 in 1997. There was no compensation expense associated
with 1998.
CAPITAL ADEQUACY
Both Premier National Bancorp, Inc. and Premier National Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on their financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, they must meet or exceed specific capital guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank and its parent company to maintain or exceed minimum amounts
and ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined). Management believes, as of
December 31, 1999 and 1998, that both the Bank and its parent company meet all
capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Bank's primary
regulator (the Office of the Comptroller of the Currency) as to Premier National
Bank categorized the Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well capitalized" a bank
must maintain or exceed minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since those notifications that management believes have changed either
institution's category.
76
<PAGE>
CAPITAL RATIOS
THE FOLLOWING SUMMARIZES THE MINIMUM CAPITAL REQUIREMENTS AND THE ACTUAL CAPITAL
POSITION AT DECEMBER 31, 1998 AND 1999:
<TABLE>
MINIMUM
TO BE WELL
MINIMUM CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------ ------------------ ------------------
BANK ONLY
AS OF DECEMBER 31, 1998: AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $134,412 12.61% $85,275 8.0% $106,594 10.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 121,593 11.41 42,638 4.0 63,956 6.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 121,593 7.82 62,185 4.0 77,732 5.0
AS OF DECEMBER 31, 1999:
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $144,406 12.64% $91,369 8.0% $114,211 10.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 130,037 11.39 45,685 4.0 68,527 6.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 130,037 8.17 63,649 4.0 79,561 5.0
CONSOLIDATED
AS OF DECEMBER 31, 1998:
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $161,483 15.38% $84,012 8.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 148,333 14.12 42,006 4.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 148,333 9.13 64,952 4.0
AS OF DECEMBER 31, 1999:
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $158,182 13.79% $91,756 8.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 143,812 12.54 45,878 4.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 143,812 9.25 62,165 4.0
</TABLE>
77
<PAGE>
NOTE P - PARENT COMPANY ONLY FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash (deposited in Bank) $4,441 $7,790
Cash (other) 56 -
Securities available for sale, at fair value 4,172 6,388
Other securities 109 109
Investment in subsidiaries:
Bank 128,397 131,848
Other 335 319
Premises 4,703 4,840
Other assets 5,441 8,253
-------- --------
TOTAL ASSETS $147,654 $159,547
======== ========
LIABILITIES
Notes payable - Bank subsidiary $759 $859
Other liabilities 4,857 2,534
STOCKHOLDERS' EQUITY 142,038 156,154
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $147,654 $159,547
======== ========
</TABLE>
STATEMENTS OF INCOME AND EXPENSE
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividends from Bank $15,544 $14,315 $11,105
Other income 1,474 1,374 1,511
Merger related expenses - (2,272) (541)
Other expenses (786) (1,144) (1,306)
------- ------- -------
Income before income taxes and equity in undistributed net income 16,232 12,273 10,769
(loss) of subsidiaries
Income tax benefit (expense) (100) 240 238
------- ------- -------
Income before equity in undistributed net income (loss) of 16,132 12,513 11,007
subsidiaries
Equity in undistributed net income (loss) of subsidiaries:
Bank 4,450 596 6,686
Other 16 (57) (53)
------- ------- -------
NET INCOME $20,598 $13,052 $17,640
======= ======= =======
</TABLE>
78
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $20,598 $13,052 $17,640
Adjustments to reconcile net income to net cash provided by
Operating activities:
Equity in undistributed net income of subsidiaries (4,466) (539) (6,633)
Depreciation 184 136 208
Other, net 4,851 (6,735) (945)
-------- ------- -------
Net cash provided by operating activities 21,167 5,914 10,270
-------- ------- -------
INVESTING ACTIVITIES
Purchase of available for sale securities (2,410) (1,654) (5,586)
Proceeds from sale/maturities of available for sale securities 4,235 3,055 400
-------- ------- -------
Net cash provided (used) by investing activities 1,825 1,401 (5,186)
-------- ------- -------
FINANCING ACTIVITIES
Payments on borrowings (100) (100) (100)
Proceeds from issuance of stock 6,473 2,789 2,745
Repurchase of common stock (24,071) (190) (3,858)
Cash dividends (8,587) (7,090) (5,963)
-------- ------- -------
Net cash used by financing activities (26,285) (4,591) (7,176)
-------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,293) 2,724 (2,092)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,790 5,066 7,158
-------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $4,497 $7,790 $5,066
======== ======= =======
</TABLE>
79
<PAGE>
NOTE Q - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
that the Company disclose estimated fair values for certain financial
instruments. Estimated fair values are as of December 31, 1999 and December 31,
1998, respectively, and have been determined using available market information
and various valuation estimation methodologies. Considerable judgment is
required to interpret the effects on fair value of such items as future expected
loss experience, current economic condition, risk characteristics of various
financial instruments and other factors. The estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Also, the use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
values.
<TABLE>
DECEMBER 31, 1999 DECEMBER 31, 1998
(DOLLARS IN MILLIONS) CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $78.7 $78.7 $174.3 $174.3
Securities 478.8 478.9 386.9 387.4
Loans, net 966.5 964.6 946.0 953.7
Accrued income 12.1 12.1 8.9 8.9
LIABILITIES
Deposits without stated maturities 825.5 825.5 933.8 933.8
Time deposits 542.3 544.3 473.3 473.9
Borrowings 75.3 75.3 1.7 1.7
Accrued interest payable .8 .8 .5 .5
</TABLE>
The fair value estimates presented above are based on pertinent information
available to management as of December 31, 1999 and December 31, 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since December 31, 1999 and, therefore, current estimates of fair value
may differ significantly from the amounts presented above.
FAIR VALUE METHODS AND ASSUMPTIONS ARE AS FOLLOWS:
CASH AND CASH EQUIVALENTS - The estimated fair value is based on current rates
for similar assets.
SECURITIES - The fair value of securities is estimated based on quoted market
prices or dealer quotes, or if not available, estimated using quoted market
prices for similar securities. Regulatory securities are recorded at carrying
value.
LOANS - The fair value of fixed rate loans has been estimated by discounting
projected cash flows using current rates for similar loans. For other loans,
which reprice frequently to market rates, the carrying amount approximates
the estimated fair value. The fair value of nonaccrual loans having a net
carrying value of approximately $5,996 and $6,626 in 1999 and 1998,
respectively, are not estimated because it was not practical to reasonably
assess the timing of the cash flows or the credit adjustment that would be
applied in the market-place for such loans. The total amount of loans
included has been reduced by the allowance for loan losses of $19,969 and
$19,028 in 1999 and 1998, respectively.
DEPOSITS WITHOUT STATED MATURITIES - Under the provision of SFAS No. 107, the
estimated fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings accounts, now accounts, money
market and checking accounts, is equal to the amount payable on demand as of
December 31, 1999 and December 31, 1998.
TIME DEPOSITS - The fair value of certificates of deposits is based on the
discounted value of contractual cash flows. The discount rates used are the
rates currently offered for deposits of similar remaining maturities. The
excess of the estimated fair value of time deposits over their recorded
amounts represents the discounted value of contractual rates over rates
currently being offered.
BORROWINGS - The estimated fair value for short-term advances and repurchase
agreements in which applicable interest rates reprice based on changes in
market rates is equal to the amount payable at the reporting date.
Financial Instruments with Off-Balance Sheet Risk - As described in Note C, the
Company was a party to financial instruments with off-balance sheet risk at
December 31, 1999 and 1998. Such financial instruments consist of commitments to
extend permanent financing and letters of credit. If the options are exercised
by the prospective borrowers, these financial instruments will become
interest-earning assets of the Company. If the options expire, the Company
retains any fees paid by the counterparty in order to obtain the commitment or
guarantee. The fair value of commitments is estimated based upon fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate commitments, the fair value estimation takes into consideration
an interest rate risk factor. The fair value of guarantees and letters of credit
is based on fees currently charged for similar agreements. The fair value of
these off-balance sheet items at December 31, 1999 and 1998, respectively,
approximates the recorded amounts of the related fees, which are not material.
The Company has not engaged in hedge transactions such as interest rate futures
contracts or interest rate swaps.
80
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PREMIER NATIONAL BANCORP, INC.
BY:
/s/ T. Jefferson Cunningham III
Chairman of the Board
Date: March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ T. Jefferson Cunningham III March 23, 2000
Chairman of the Board & CEO
Principal Financial and Accounting Officer:
/s/ Paul A. Maisch March 23, 2000
Treasurer
Directors:
/s/ Elizabeh P. Allen March 23, 2000
/s/ Thomas C. Aposporos March 23, 2000
/s/ Robert M. Bowman March 23, 2000
/s/ H. Todd Brinckerhoff March 23, 2000
/s/ Edward VK. Cunningham Jr. March 23, 2000
/s/ T. Jefferson Cunningham III March 23, 2000
/s/ Tyler Dann March 23, 2000
/s/ Thomas C. DeBenedictus March 23, 2000
/s/ R. Abel Garraghan March 23, 2000
/s/ Richard T. Hazzard March 23, 2000
/s/ Richard Novik March 23, 2000
/s/ Lewis J. Ruge March 23, 2000
/s/ Roger W. Smith March 23, 2000
/s/ David A. Swinden March 23, 2000
/s/ Peter Van Kleeck March 23, 2000
/s/ John C. VanWormer March 23, 2000
81
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EXHIBIT 10.4
PREMIER NATIONAL BANCORP, INC
1995 INCENTIVE STOCK PLAN
(as amended and restated effective May 13, 1999)
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the
following definitions apply:
1.1. "Agreement" means a written agreement evidencing the grant of an
Option or Right or the award of Restricted Stock or Incentive Shares.
1.2. "Award" means an Option or Right or an award of Incentive Shares
or Restricted Stock hereunder.
1.3. "Board" means the Board of Directors of the Corporation.
1.4. "CBI Incentive Stock Option Plan" means the Community Bancorp,
Inc. Incentive Stock Option Plan.
1.5. "CBI Non-Qualified Stock Option Plan" means the Community Bancorp
1988 Non-Qualified Stock Option Plan.
1.6. "Code" means the Internal Revenue Code of 1986, as amended.
1.7. "Committee" means the committee of the Board appointed by the
Board to administer the Plan. Unless otherwise determined by the Board, the
Personnel and Compensation Committee of the Board shall be the Committee.
Notwithstanding the foregoing, "Committee" shall mean the Board for purposes of
granting Nonqualified Stock Options to Non-Employee Directors and administering
the Plan with respect to such Options.
1.8. "Common Stock" means the common stock, par value $.80 per share,
of the Corporation.
1.9. "Corporation" means Premier National Bancorp, Inc.
1.10. "Date of Exercise" means the date on which the Corporation
receives notice of the exercise of an Option or Right in accordance with the
terms of Article 8.
1.11. "Date of Grant" means the date on which an Option or Right is
granted to an Eligible Person by the Committee.
1.12. "Effective Date" shall mean April 1, 1995.
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1.13. "Eligible Person" means (a) any person determined by the
Committee to be an officer or key employee of the Corporation or a Subsidiary
(b) any person who is hired to be an employee of the Corporation or a Subsidiary
and who the Committee determines will be an officer or key employee upon
commencement of employment, (c) any Non-Employee Director and (d) any consultant
or independent contractor to the Corporation or a Subsidiary who is determined
by the Committee to render key services to the Corporation or a Subsidiary.
1.14. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.15. "Exercise Price" means the price per share at which an Option may
be exercised, as determined by the Committee in accordance with Section 6.2
hereof.
1.16. "Fair Market Value" of a share of Common Stock means an amount
equal to the fair market value of a share of Common Stock determined pursuant to
a reasonable method adopted by the Committee in good faith for such purpose.
Unless the Committee has adopted another method, the fair market value of a
share of Common Stock shall equal the average of the last reported closing
prices of the Common Stock on the American Stock Exchange on the five trading
days immediately preceding the date such fair market value is to be determined.
1.17. "Incentive Shares" means a contingent award of shares of Common
Stock made pursuant to the provisions of Article 10.
1.18. "Incentive Stock Option" means an Option that is intended to
qualify as an incentive stock option under section 422 of the Code and that is
designated as such in the applicable Agreement.
1.19. "Nonqualified Stock Option" means an Option that is not an
Incentive Stock Option.
1.20. "Non-Employee Director" means a member of the Board who is not
also an employee of the Corporation or a Subsidiary.
1.21. "Option" means an option to purchase shares of Common Stock
granted under the Plan after the Effective Date.
1.22. "Option Period" means the period during which an Option may be
exercised.
1.23. "Participant" means an Eligible Person who has received an Award
hereunder.
1.24. "Performance Goals" means achievement objectives established by
the Committee which may be based on earnings or earnings growth, sales, return
on assets, equity or investment, regulatory compliance, satisfactory internal or
external audits, improvement of financial ratings, achievement of balance sheet
or income statement objectives, or any other objective goals established by the
Committee, and may be
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absolute in their terms or measured against or in relationship to other
companies comparably, similarly or otherwise situated. Such performance
standards may be particular to an employee or the department, branch, Subsidiary
or other division in which the employee works, or may be based on the
performance of the Corporation generally, and may cover such period as may be
specified by the Committee.
1.25. "Plan" means the Premier National Bancorp, Inc. 1995 Incentive
Stock Plan. The Plan constitutes an amendment, restatement, and continuation of
the CBI Incentive Stock Option Plan and the CBI 1988 Non-Qualified Stock Option
Plan.
1.26. "Pre-1995 Stock Option" means a stock option (and any related
stock appreciation rights) granted prior to January 1, 1995 under the CBI
Incentive Stock Option Plan or the CBI Non-Qualified Stock Option Plan.
1.27. "Related Option" means an Option in connection with which, or by
amendment to which, a Right is granted hereunder.
1.28. "Related Right" means a Right granted in connection with, or by
amendment to, an Option granted hereunder.
1.29. "Restricted Stock" means shares of Common Stock awarded pursuant
to the provisions of Article 9.
1.30. "Right" means a stock appreciation right granted under the Plan
after the Effective Date.
1.31. "Right Period" means the period during which a Right may be
exercised.
1.32. "Rule 16b-3" means Rule 16b-3 under Section 16 of the Exchange
Act.
1.33. "Subsidiary" means a corporation at least 50% of the total
combined voting power of all classes of stock of which is owned by the
Corporation, either directly or through one or more other Subsidiaries.
2. PURPOSE
The purpose of the Plan is to assist the Corporation and its
Subsidiaries in attracting, retaining and providing incentives to officers, key
employees, Non-Employee Directors and consultants or other service providers by
offering them the opportunity to acquire or increase their proprietary interest
in the Corporation and to promote the identification of their interests with
those of the shareholders of the Corporation.
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3. ADMINISTRATION
The Committee shall administer the Plan and shall have plenary
authority, in its discretion, to award Options, Rights, Restricted Stock and
Incentive Shares to Eligible Persons; provided, however, that Non-Employee
Directors shall only be eligible to receive grants of Nonqualified Stock
Options. The Committee shall have plenary authority and discretion to determine
the terms of all Awards (which terms need not be identical), including, but not
limited to, the exercise price of Options, the time or times at which Awards are
made, the number of shares covered by Awards, whether an Option shall be an
Incentive Stock Option or a Nonqualified Stock Option, and the period during
which Options and Rights may be exercised and Restricted Stock shall be subject
to restrictions. In making its determinations, the Committee may take into
account the nature of the services rendered by the respective Eligible Persons,
their present and potential contributions to the success of the Corporation and
its Subsidiaries, and such other factors as the Committee in its discretion
shall deem relevant. Subject to the express provisions of the Plan, the
Committee shall have plenary authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The determinations of the Committee on the matters referred to in this Section 3
shall be binding and final.
4. ELIGIBILITY
Options, Rights, Restricted Stock and Incentive Shares may be granted
or awarded only to Eligible Persons; provided, however, that Non-Employee
Directors shall only be eligible to receive grants of Nonqualified Stock
Options. The provisions of this Article 4 shall supersede the eligibility
provisions of the CBI Incentive Stock Option Plan and the CBI Non-Qualified
Stock Option Plan as of the Effective Date.
5. STOCK SUBJECT TO THE PLAN
5.1. The maximum number of shares of Common Stock that may be issued
pursuant to Awards made hereunder after the Effective Date and Pre-1995 Stock
Options is 2,000,000 shares. Notwithstanding any other provision of this Plan,
no Award may be made to an Eligible Person hereunder to the extent that the
number of shares of Common Stock covered by such Award and all other Awards
(whether or not outstanding) made hereunder to the Eligible Person after the
Effective Date exceeds 200,000 reduced by the number of shares of Common Stock
covered by Pre-1995 Stock Options granted to the Eligible Person that are
outstanding as of the date of the Award and as to which the option has not been
exercised. For purposes of the preceding sentence, an Option and corresponding
Related Right shall be treated as a single Award covering the number of shares
with respect to which the Option and Related Right may be exercised.
5.2. If (a) an Option, Right or a Pre-1995 Stock Option expires or
terminates for any reason (other than termination by virtue of the exercise of a
Related Option or
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Related Right, as the case may be) without having been fully exercised, (b)
shares of Restricted Stock are forfeited, or (c) an award of Incentive Shares is
forfeited, the unissued or forfeited shares of Common Stock which had been
subject to the Award or the Pre-1995 Stock Option shall become available for the
grant of additional Awards.
5.3. Upon exercise of a Right (regardless of whether the Right is
settled in cash or shares of Common Stock), the number of shares of Common Stock
with respect to which the Right is exercised shall be charged against the number
of shares of Common Stock issuable under the Plan and shall not become available
for the grant of other Awards.
6. OPTIONS
6.1. Options granted under the Plan to Eligible Persons shall be either
Incentive Stock Options or Nonqualified Stock Options, as designated by the
Committee; provided, however, that Non-Employee Directors may only be granted
Nonqualified Stock Options. Each Option granted under the Plan shall be clearly
identified either as a Nonqualified Stock Option or an Incentive Stock Option
and shall be evidenced by an Agreement that specifies the terms and conditions
of the grant. Options shall be subject to the terms and conditions set forth in
this Article 6 and such other terms and conditions not inconsistent with this
Plan as the Committee may specify.
6.2. The price per share of Common Stock at which an Option granted
under this Plan may be exercised shall not be less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the Date of Grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted
to a Participant who (applying the rules of Section 424(d) of the Code) owns
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or a Subsidiary (a "Ten-Percent
Shareholder"), the exercise price per share shall not be less than one hundred
and ten percent (110%) of the Fair Market Value of the Common Stock on the date
on which the option is granted.
6.3. Options granted hereunder shall be exercisable at such times and
under such conditions as shall be established by the Committee; PROVIDED,
HOWEVER, that no Option shall be exercisable after the expiration of ten years
(five years in the case of an Incentive Stock Option granted to a Ten-Percent
Shareholder) from its Date of Grant.
7. RIGHTS
7.1. Rights granted under the Plan shall be evidenced by an Agreement
specifying the terms and conditions of the grant. A Right may be granted under
the Plan: (a) in connection with, and at the same time as, the grant of an
Option under the Plan; (b) by amendment of an outstanding Option granted under
the Plan; or (c) independently of any Option granted under the Plan. A Right
described in clause (a) or (b) of the preceding sentence is a Related Right. A
Related Right may, in the Committee's discretion, apply to all or a portion of
the shares subject to the Related Option.
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7.2. A Right may be exercised in whole or in part as provided in the
applicable Agreement, and, subject to the terms of the Agreement, entitles a
Participant to receive, without payment to the Corporation (but subject to
required tax withholding), either cash or that number of shares of Common Stock
(equal to the highest whole number of shares), or a combination thereof, in an
amount or having a Fair Market Value determined as of the Date of Exercise not
to exceed the number of shares of Common Stock subject to the portion of the
Right exercised multiplied by an amount equal to the excess of (a) the Fair
Market Value of a share of Common Stock on the Date of Exercise of the Right
over (b) either (i) the Fair Market Value of a share of Common Stock on the Date
of Grant of the Right if it is not a Related Right (or such amount in excess of
such Fair Market Value as may be specified by the Committee is connection with
the grant of the Right), or (ii) the Exercise Price as provided in the Related
Option if the Right is a Related Right.
7.3. The Right Period shall be determined by the Committee and set
forth in the Agreement; provided, however, that (a) a Right will expire no later
than the earlier of (i) ten years from the Date of Grant, or (ii) in the case of
a Related Right, the expiration of the Related Option, and (b) a Right that is a
Related Right to an Incentive Stock Option may be exercised only when and to the
extent the Related Option is exercisable.
7.4. The exercise, in whole or in part, of a Related Right shall cause
a reduction in the number of shares of Common Stock subject to the Related
Option equal to the number of shares with respect to which the Related Right is
exercised. Similarly, the exercise, in whole or in part, of a Related Option
shall cause a reduction in the number of shares of Common Stock subject to the
Related Right equal to the number of shares with respect to which the Related
Option is exercised.
8. EXERCISE OF OPTIONS AND RIGHTS
8.1. An Option or Right may, subject to the terms of the applicable
Agreement, be exercised in whole or in part by the delivery to the Corporation
of written notice of the exercise, in such form as the Committee may prescribe,
accompanied, in the case of an Option, by full payment for the shares of Common
Stock with respect to which the Option is exercised. To the extent provided in
the applicable Agreement, payment may be made, in whole or in part, by the
delivery (including constructive delivery) of Common Stock (other than
Restricted Stock) valued at Fair Market Value on the Date of Exercise or by
delivery of a promissory note as provided in Section 8.2 hereof.
8.2. To the extent provided in an Option Agreement and permitted by
applicable law, the Committee may accept as partial payment of the Exercise
Price of an Option a promissory note executed by the Participant evidencing his
obligation to make future cash payment thereof; provided, however, that in no
event may the Committee accept a promissory note for an amount in excess of the
difference between the aggregate Exercise Price and the par value of the shares.
Promissory notes delivered as partial payment of an Option's Exercise Price
shall be payable upon such terms as may be established by the Committee, shall
be secured by a pledge of the shares of Common
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Stock received upon exercise of the Option, and shall bear interest at a rate
fixed by the Committee.
9. RESTRICTED STOCK AWARDS
9.1. Restricted Stock awarded under the Plan shall be evidenced by an
Agreement specifying the terms and conditions of the Award. Each Agreement
evidencing an award of Restricted Stock shall:
(a) prohibit the sale, assignment, transfer, exchange, pledge,
hypothecation, or other encumbrance of (i) the shares awarded as Restricted
Stock under the Plan, (ii) the right to vote the shares, and (iii) the right to
receive dividends thereon in each case during the restriction period applicable
to the shares; provided, however, that the Participant shall have all the other
rights of a shareholder including, but not limited to, the right to receive
dividends and the right to vote the shares;
(b) require that each certificate representing shares of
Restricted Stock be deposited with the Corporation, or its designee, and bear
the following legend:
"This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture provisions
and restrictions against transfer) contained in the Premier National
Bancorp, Inc. 1995 Incentive Stock Plan, and an Agreement entered into
between the registered owner and Premier National Bancorp, Inc. Release
from such terms and conditions shall be made only in accordance with
the provisions of the Plan and the Agreement, a copy of each of which
is on file in the office of the Secretary of Premier National Bancorp,
Inc."
(c) contain such other terms, conditions and restrictions as
the Committee in its discretion may specify, including, without limitation,
terms that condition the lapse of forfeiture and transfer restrictions upon the
achievement of Performance Goals; and
(d) specify the terms and conditions upon which the
restrictions applicable to the shares of Restricted Stock shall lapse and new
certificates free of the foregoing legend shall be issued to the Participant or
his legal representative.
10. INCENTIVE SHARE AWARDS
10.1. Incentive Shares awarded under the Plan shall be evidenced by an
Agreement specifying the terms and conditions of such Award. Incentive Share
awards shall provide for the issuance of shares of Common Stock to a Participant
at such times and subject to such terms and conditions as the Committee shall
deem appropriate including, but not limited to, terms and conditions that
condition the issuance of shares of Common Stock upon the achievement of
Performance Goals.
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11. NONTRANSFERABILITY
Except as otherwise provided by the Committee in an Agreement,
(a) awards made hereunder shall not be transferable other than by will or the
laws of descent and distribution, and (b) an Option or Right may be exercised
during the lifetime of a Participant only by the Participant or, in the event of
his or her legal disability, by his legal representative. A Related Right is
transferable only when the Related Option is transferable and only with the
Related Option and under the same conditions that apply to the Related Option.
12. CAPITAL ADJUSTMENTS
In the event of any change in the outstanding Common Stock by reason of
any stock dividend, split-up, recapitalization, reclassification, combination or
exchange of shares, merger, consolidation or liquidation and the like, the
Committee may, in its discretion, provide for a substitution for or adjustment
in (a) the number and class of shares of stock subject to outstanding Options,
Rights, Restricted Stock and Incentive Share awards, (b) the Exercise Price of
Options and the base price upon which payments under Rights that are not Related
Rights are determined, and (c) the aggregate number and class of shares of stock
for which Awards thereafter may be made under the Plan and to individual
Participants.
13. TERMINATION OR AMENDMENT
The Board may amend, alter or terminate the Plan in any respect at any
time; PROVIDED, HOWEVER, that no amendment, alteration or termination of the
Plan shall be made by the Board without approval of (a) the Corporation's
shareholders to the extent shareholder approval of the amendment is required to
comply with the requirements of applicable law, regulation or the exchange on
which the Common Stock is listed, and (b) each affected Participant if such
amendment, alteration or termination would impair the rights of a Participant
under any Award made hereunder prior to the date of such amendment, alteration
or termination.
14. MODIFICATION, EXTENSION AND RENEWAL OF STOCK
OPTIONS, RIGHTS, RESTRICTED STOCK AND INCENTIVE
SHARES; SUBSTITUTED OPTIONS AND RIGHTS
14.1. Subject to the terms and conditions of the Plan, the Committee
may modify, extend or renew outstanding Options and Rights, or accept the
surrender of outstanding options and stock appreciation rights (to the extent
not theretofore exercised) granted under the Plan or under any other plan of the
Corporation or a Subsidiary, and authorize the granting of new Options and
Rights pursuant to the Plan in substitution therefor (to the extent not
theretofore exercised), and the substituted Options or Rights
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may specify a lower exercise price than the surrendered options and stock
appreciation rights, a longer term than the surrendered options and stock
appreciation rights, or have any other provisions that are authorized by the
Plan. Subject to the terms and conditions of the Plan, the Committee may modify
the terms of any outstanding awards of Restricted Stock or Incentive Shares.
Notwithstanding the foregoing, however, no modification of an Option or Right
granted under the Plan, or an award of Restricted Stock or Incentive Shares,
shall, without the consent of the Participant, alter or impair any such
Participant's rights or obligations under such Awards.
14.2. Anything contained herein to the contrary notwithstanding,
Options and Rights may, at the discretion of the Committee, be granted under the
Plan in substitution for stock appreciation rights and options to purchase
shares of capital stock of another corporation which is merged into,
consolidated with, or all or a substantial portion of the property or stock of
which is acquired by, the Corporation or one of its Subsidiaries. The terms and
conditions of the substitute Options and Rights so granted may vary from the
terms and conditions set forth in this Plan to such extent as the Committee may
deem appropriate (but only to the extent consistent with the requirements of
Rule 16b-3) in order to conform, in whole or part, to the provisions of the
options and stock appreciation rights in substitution for which they are
granted. Such Options and Rights shall not be subject to the provisions of
Sections 6.4 and 7.5 hereof, except to the extent it is determined by the
Committee that the applicability of such sections is required in order for
grants of Options and Rights hereunder to be eligible to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code.
15. EFFECTIVENESS OF THE PLAN; GOVERNING PROVISIONS
This Plan constitutes an amendment, restatement and continuation of the
CBI Incentive Stock Option Plan, which was adopted by the Corporation on October
30, 1986, and the CBI 1988 Non-Qualified Stock Option Plan, which was adopted by
the Corporation on April 4, 1988. The Plan became effective as of April 1, 1995.
Notwithstanding the foregoing, Pre-1995 Stock Options shall be governed by the
terms of the agreements evidencing such awards, as amended, except that the
provisions of the Plan relating to administration of the Plan after the
Effective Date shall apply to Pre-1995 Options and any determinations relating
to such options required to be made by the Board pursuant to such agreements
shall be made by the Committee.
16. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock or pay
any amount pursuant to the terms of any Award hereunder shall be subject to the
satisfaction of applicable federal, state and local tax withholding
requirements. To the extent provided in the applicable Agreement and in
accordance with rules prescribed by the Committee, a Participant may satisfy any
such withholding tax obligation by any of the following means or by a
combination of such means: (a) tendering a cash payment, (b) authorizing the
Corporation to withhold shares of Common Stock from the shares
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otherwise issuable to the Participant, or (c) delivering to the Corporation
already owned and unencumbered shares of Common Stock.
17. TERM OF THE PLAN
Unless sooner terminated by the Board pursuant to Article 13, the Plan
shall terminate on May 13, 2009, and no Options, Rights, Restricted Stock or
Incentive Shares may be granted or awarded after such date. Termination of the
Plan shall not affect the validity of any Award outstanding on the date of
termination.
18. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option, Right,
Restricted Stock or Incentive Shares granted or awarded hereunder, and against
all amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Corporation.
19. GENERAL PROVISIONS
19.1. The establishment of the Plan shall not confer upon any Eligible
Person any legal or equitable right against the Corporation, any Subsidiary or
the Committee, except as expressly provided in the Plan.
19.2. The Plan does not constitute inducement or consideration for the
employment or service of any Eligible Person, nor is it a contract between the
Corporation or any Subsidiary and any Eligible Person. Participation in the Plan
shall not give an Eligible Person any right to be retained in the employment or
service of the Corporation or any Subsidiary.
19.3. Neither the adoption of this Plan, nor its submission to the
Corporation's shareholders, shall be taken to impose any limitations on the
powers of the Corporation or its Subsidiaries to issue, grant, or assume
options, warrants, rights, or restricted stock, otherwise than under this Plan,
or to adopt other stock option or restricted stock plans or to impose any
requirement of shareholder approval upon the same.
19.4. The interests of any Participant under the Plan are not subject
to the claims of creditors and may not, in any way, be assigned, alienated or
encumbered except as provided in Article 11.
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19.5. The Committee may require each person acquiring shares of Common
Stock pursuant to Awards hereunder to represent to and agree with the
Corporation in writing that such person is acquiring the shares without a view
to distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock issued pursuant to the Plan shall be
subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed, and any applicable federal or state securities laws. The
Committee may place a legend or legends on any such certificates to make
appropriate reference to such restrictions.
19.6. The Corporation shall not be required to issue any certificate or
certificates for shares of Common Stock with respect to awards under this Plan,
or record any person as a holder of record of such shares, without obtaining, to
the complete satisfaction of the Committee, the approval of all regulatory
bodies deemed necessary by the Committee, and without complying with all rules
and regulations, under federal, state or local law deemed applicable by the
Committee to the Committee's complete satisfaction.
19.7. Notwithstanding any other provision of this Plan to the contrary,
Pre-1995 Options and Awards made hereunder may be amended at any time after the
date of grant or award by agreement between the Committee and the Participant or
holder thereof to contain any terms and conditions that are permissible with
respect to Awards made hereunder after the Effective Date.
19.8. If any of the terms or provisions of this Plan conflict with the
requirements of Rule 16b-3 and/or Section 422 of the Code, then such terms or
provisions shall be deemed inoperative to the extent they so conflict with the
requirements of Rule 16b-3 and/or Section 422 of the Code. If this Plan does not
contain any provision required to be included herein under Rule 16b-3 and/or
Section 422 of the Code, such provision shall be deemed to be incorporated
herein with the same force and effect as if such provision had been set forth
herein.
19.9. The masculine pronoun whenever used shall include the feminine
pronoun, and the singular shall include the plural unless the context clearly
indicates the distinction.
19.10. The Plan shall be governed, construed and administered in
accordance with the laws of the State of New York.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of July 1, 1995 ("Effective Date") and as
amended January 9, 1997 and as further amended December 16, 1999 ("Amended
Date") by and between Premier National Bancorp, Inc. (the "Company"), Premier
National Bank (the "Bank") and John C. VanWormer (the "Employee"); and,
WHEREAS, the Employee has heretofore been employed by the Bank and the
Company as their President and is experienced in all phases of the business of
the Bank and the Company; and,
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank, the Company and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Employee is employed as the President of the Bank
and as the President of the Company in the capacity of its Chief Banking
Officer. The Employee shall render such administrative and management services
for the Bank and the Company as are customarily performed by persons similarly
situated. The Employee's duties shall be such as the Board of Directors of the
Bank or the Company and/or CEO of the Bank or the Company may from time to time
reasonably direct, including normal duties as an officer of the Bank and of the
Company. The Employee shall also promote, by entertainment or otherwise as and
to the extent permitted by law, the business of the Bank and the Company.
2. BASE COMPENSATION. The Bank agrees to pay the Employee, beginning as
of the July 1, 1999 date, a salary at the rate of $235,000 per annum, payable in
cash not less frequently than monthly. In lieu of paying the Employee a base
salary during the term of the Agreement, the Company agrees that to the extent
permitted by law, it shall be jointly and severally liable with the Bank for the
payment of all amounts due thereunder. The Board of Directors of the Company may
nevertheless at any time agree to pay the Employee, during the remaining term of
this Agreement, a salary for his services rendered for the Company. The Board of
Directors of the Bank and of the Company shall have the discretion to increase
the Employee's salary at any time and from time to time. Any such increase shall
reflect the Employee's contribution to the financial and business performance of
the Company and the Bank during the preceding period.
3. DISCRETIONARY BONUSES. The Employee shall participate in any
equitable manner with all other senior management employees of the Bank and/or
the Company in discretionary bonuses that their respective Board of Directors
may award from time to time to its senior management employees. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses.
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4 (a) PARTICIPATION IN RETIREMENT, MEDICAL AND OTHER PLANS. Blue
Cross/Blue Shield medical insurance coverage, including major medical insurance
coverage, or similar insurance coverage provided by another insurance company,
shall be maintained for the Employee and his dependents. In addition, the
Employee shall participate in any plan that the Bank or the Company maintains
generally for the benefit of its employees if the plan relates to (i) pension,
profit sharing or other retirement benefits, (ii) medical insurance or the
reimbursement of medical or dependent care expenses, or (iii) other group
benefits, including disability and life insurance plans. The Employee's
participation in each such plan or program shall be in accordance with the terms
and provisions thereof as generally applicable to all participants.
(b) EMPLOYEE BENEFITS: EXPENSES. The Employee shall
participate in any fringe benefits which are approved by the Board of Directors,
including, for example: any stock option or incentive compensation plans,
deferred compensation plans, club memberships and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Employee shall be reimbursed for all
reasonable out of pocket expenses which he shall incur in connection with his
services under this Agreement upon substantiation of such expenses in accordance
with the policies of the Bank and/or the Company.
5. TERM. The Bank and the Company shall employ the Employee, and the
Employee accepts such employment, for the period commencing on July 1, 1995
("Employment Date") and ending thirty six months thereafter (or such earlier
date as is determined in accordance with Section 11). On each annual anniversary
date from the Employment Date, the Employee's term of employment shall be
extended for a one year period beyond the then effective expiration date, unless
the Bank or the Company provides written notice to the Employee prior to such
anniversary date advising the Employee that this Agreement shall not be further
extended. Any such extension shall be subject to the consent of the Employee,
which shall be presumed to be received unless the Employee provides the Company
or the Bank with written notice on the contrary.
6. The Employee shall be eligible to participate in and benefit from a
supplemental retirement program ("SRP") as described in this section. The SRP
shall provide supplemental retirement and tax deferral benefits to the extent
benefits under the Premier National Bancorp, Inc. Retirement and Thrift Plan or
any other similar qualified plan maintained by the Company (the "Plan") are
limited by provisions of the Internal Revenue Code, ERISA or any other
applicable law or regulation (the "Limitations").
The SRP shall provide to the Employee an annual profit sharing
contribution equal to the excess of the amount that would have been contributed
for the Employee under the Plan, absent the Limitations, over the amount
actually contributed to the Plans. The SRP will also permit the Employee to
defer from his eligible compensation, as defined in the Plan, a dollar amount
equal to the excess he could have deferred under the 401(k) feature of the Plan,
absent the Limitations, over the amount he actually deferred under that plan,
provided however that the Employee has deferred the maximum amount permitted by
the Limitations. The SRP will also provide, with respect to the supplemental
deferral described in the previous sentence, a matching contribution equal to
the matching contribution that the Plan would have provided if the supplemental
deferral had been made into the 401(k) feature of the Plan.
<PAGE>
The SRP shall be an account maintained on the books of the
Employer on behalf of the Employee which shall include each of the amounts
described in the preceding paragraph for each year of employment under this
Agreement. Each of such amounts shall be recorded in the SRP at the same time it
would have been paid or credited to the Employee's accounts under the Plan. The
Employee's account under the SRP shall be credited with earnings equal to the
Chase Bank prime rate in effect from time to time, at the same time that
earnings would be credited under the Plan. Although the SRP is a bookkeeping
account maintained by the Employer to record its supplemental retirement
liability to the Employee, the Employer may create a reserve or a fund to cover
some or all of such liability. However, any such reserve or fund shall at all
times be subject to the claims of creditors of the Employer. Benefits under the
SRP shall be paid solely from the general assets of the Employer and the
Employee shall be a general unsecured creditor of the Employer with respect to
the Employer's liability to the Employee under the SRP.
Benefits under the SRP shall be fully vested at all times and
shall be paid to the Employee in the same manner and at the same time as
benefits shall be paid to the Employee from the Plan.
7. LOYALTY: NONCOMPETITION.
(a) During the period of his employment thereunder and except
for illnesses, reasonable vacation periods and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill and efforts
to the faithful performance of his duties thereunder, provided, however, from
time to time, Employee may serve on boards of directors of and hold any other
offices or positions in companies or organizations which will not present any
conflict of interest with the Company or the Bank or any of their subsidiaries
or affiliates or unfavorably affect the performance of Employee's duties
pursuant to this Agreement or will not violate any applicable statute or
regulation. "Full business time" is hereby defined by the fact that the Employee
cannot be gainfully employed in any other position or job, but the time devoted
to the Company and the Bank shall be that amount of time usually devoted to like
companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to or conflicting with the business affairs or interests of
the Bank or the Company or any of their subsidiaries or affiliates.
(b) Nothing contained in this Paragraph 7 shall be deemed to
prevent or limit the Employee's right to invest in the capital stock or other
securities of any business dissimilar from that of the Bank and the Company, or
solely as a passive or minority investor in any business.
8. STANDARDS. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards as the CEO of the Company
or the Bank or the Board of Directors of the Bank and/or of the Company may
establish from time to time ("Performance Standards"). The Bank will provide the
Employee with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
<PAGE>
9. VACATION AND SICK LEAVE. At such reasonable times as the Board of
Directors of the Bank and/or the Company shall in its discretion permit, the
Employee shall be entitled, without loss of pay, to absent himself voluntarily
from the performance of his employment under this Agreement, all such voluntary
absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation of
not less than four weeks in accordance with the policies that the Board of
Directors of the Bank and/or the Company periodically establishes for senior
management employees of the Bank or the Company.
(b) The Employee shall not receive any additional compensation
from the Bank or the Company on account of his failure to take a vacation and
the Employee shall not accumulate unused vacation from one fiscal year to the
next, except in accordance with the policies that the Board of Directors of the
Bank and/or the Company periodically establish for the employees of the Bank or
the Company.
(c) The Board of Directors of the Bank or the Company may
grant to the Employee a leave or leaves of absence, with or without pay, at such
time or times and upon such terms and conditions as such Board of Directors in
its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual
sick leave benefit as established by the Board of Directors of the Bank or the
Company.
10. TERMINATION AND TERMINATION PAY. Subject to Section 12 hereof, the
Employee's employment thereunder may be terminated under the following
circumstances:
(a) DEATH. The Employee's employment under this Agreement
shall terminate upon his death during the term of this Agreement, in which event
the Employee's estate shall be entitled to receive the salary provided pursuant
to Section 2 hereof through the last day of the calendar month in which his
death occurred.
(b) JUST CAUSE. The Board of Directors of the Bank or the
Company may, by written notice to the Employee, immediately terminate his
employment at any time for Just Cause. The Employee shall have no right to
receive compensation or other benefits for any period after termination for Just
Cause. Termination for "Just Cause" shall mean termination because of, in the
good faith determination of the Company's or the Bank's Board of Directors, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, consistent failure to meet Performance Standards (after notice to the
Employee), willful violation of any law, rule, regulation (other than traffic
violations or similar offenses) or final cease and desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Just Cause unless there
shall have been delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board of Directors of the Bank or the Company at a meeting of the Board called
and held for the purpose (after reasonable notice to the Employee and an
opportunity for the Employee to be heard before the Board), finding that in the
good faith opinion of the Board, the Employee was guilty of conduct set forth
above in the third sentence of this Subsection (b) and specifying the
particulars thereof in detail.
<PAGE>
(c) WITHOUT JUST CAUSE. Subject to Section 12 hereof, the
Board of Directors of the Bank or the Company may, by written notice to the
Employee, immediately terminate his employment at any time for reason other than
Just Cause, in which event the Employee shall be entitled to receive salary
provided pursuant to Section 2 hereof, up to the date of termination of the term
of this Agreement (including any renewal term of this Agreement previously
agreed to by the Board of Directors) plus he shall be paid salary for an
additional 12 month period. Said sum shall be paid, at the request of the
Employee, with the consent of the Board of the Company, either (i) in periodic
payments over the reamining term of this Agreement, as if the Employee's
employment had not been terminated or (ii) in one lump sum within 10 days of
such termination. In addition, the Company or the Bank shall provide, at no cost
to the Employee, medical and life insurance benefits comparable to those
provided by the Company to employees of similar position for a period of 24
months following the date such coverage would otherwise have expired due to the
termination.
(d) TERMINATION OR SUPERVISION UNDER FEDERAL LAW.
(1) If the Employee is removed and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an
order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit
Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of
the Company and the Bank under this Agreement shall terminate as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in Section
3(x)(1) of FDIA), all obligations of the parties under this Agreement shall
terminate as of the date of default, but this Section 8(e)(2) shall not affect
any vested rights of the parties.
(3) If a notice served under Section 8(e)(3) or
(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily
prohibits the Employee from participating in the conduct of the Bank's affairs,
the Bank's and the Company's obligations under this Agreement shall be suspended
as of the date of such service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may (i) pay the Employee all or
part of the compensation withheld while its contract obligations were suspended
and (ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(e) VOLUNARY TERMINATION BY EMPLOYEE. Subject to Section 12
hereof, the Employee may voluntarily terminate employment with the Bank and the
Company during the term of this Agreement, upon at least 60 days prior written
notice to each of their Board of Directors, in which case the Employee shall
receive only his compensation and vested rights in the employee benefits up to
the date of his termination.
11. NO MITIGATION. The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment, or otherwise, and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the employee in any
subsequent employment.
<PAGE>
12. CHANGE IN CONTROL.
(a) Nothwithstanding any provision herein to the contrary, if
the Employee's employment under this Agreement is terminated by the Company or
the Bank, without the Employee's prior written consent and for a reason other
than Just Cause, in connection with or within 12 months after any change in
control of the Bank or the Company, the Employee shall receive the compensation
and benefits as set out in Section 10(c) subject to the limitation that he shall
not be eligible to receive any compensation in excess of an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986 as amended (the "Code")
and regulations promulgated thereunder and (ii) the sum of any other parachute
payments as defined under Section 280G(b)(2) of the Code that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within 10 days after such termination.
The term "change in control" shall mean (1) the ownership,
holding or power to vote more than 25% of the Bank's or Company's voting stock,
(2) the control of the election of a majority of the Bank's or Company's
directors, (3) the exercise of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons acting as a
"group" within the meaning of Section 13(d) of the Securities Exchange Act of
1934 (except in the case of (1), (2) and (3) hereof, ownership or control of the
Bank or its Directors by the Company itself shall not constitute a "change in
control") and (4) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company or
the Bank (the "Continuing Directors") cease for any reason to constitute at
least two thirds thereof, provided that any individual whose election or
nomination for election as a member of either of such boards was approved by a
vote of at least two thirds of the Continuing Directors then in office shall be
considered a Continuing Director. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to
the contrary, the Employee may voluntarily terminate his employment under this
Agreement within 12 months following a change in control of the Bank or the
Company and the Employee shall thereupon be entitled to receive the payment
described in Section 12a of this Agreement upon the occurrence of any of the
following events, which have not been consented to within 90 days thereafter by
the Employee in writing: (i) the requirement that the Employee perform his
principal executive functions, more than 35 miles from his primary office as of
the Effective Date of this Agreement; (ii) a reduction in the Employee's base
compensation as in effect on the Effective Date of this Agreement, or as the
same may have been increased from time to time; (iii) the failure by the Bank or
the Company to continue to provide the Employee with compensation and benefits
provided for the Employee under the terms of this Agreement, or the taking of
any action by the Company or the Bank which would directly or indirectly reduce
any such benefits or deprive the Employee of any material fringe benefit enjoyed
by him at the time of the change in control; (iv) the assignment to the Employee
of material duties and responsbilities other than those normally associated with
his position as referenced at Section 1; (v) a failure to elect or reelect the
Employee to the Board of Directors of the Bank or the Company; or, (vi) a
material diminution or reduction in the Employee's responsibilities or authority
(including reporting responsibilities) in connection with his employment with
the Bank or the Company.
<PAGE>
(c) In the event that any dispute arises between the Employee
and Bank as to the terms or interpretation of this Agreement, including this
Section 12, whether instituted by formal legal proceedings or otherwise,
including any action that the Employee takes to enforce the terms of this
Section 12 or to defend against any action taken by the Bank, the Employee shall
be reimbursed for all costs and expenses, including reasonable attorney's fees,
arising from such dispute, proceedings or actions provided that the Employee
shall obtain a final judgement by a court of competent jurisdiction in favor of
the Employee. Such reimbursement shall be paid within 10 days of Employee's
furnishing to the Bank written evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by the
Employee.
13. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Bank or the Company which
shall acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Bank or the
Company.
(b) Since the Bank and the Company are contracting for the
unique and personal skills of the Employee, the Employee shall be precluded from
assigning or delegating his rights or duties thereunder without first obtaining
the written consent of the Bank and the Company, such consent to be within the
sole discretion of the Bank and the Company.
14. JOINT AND SEVERAL LIABILITY. To the extent permitted by law, the
Company and the Bank shall be jointly and severally liable for the payment of
all amounts due and shall be jointly and severally entitled to the benefits and
remedies of this Agreement.
15. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all parties, except as herein
otherwise specifically provided.
16. APPLICABLE LAW. Except to the extent preempted by Federal law, the
laws of the State of New York shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
17. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
effect the validity or enforceability of the other provisions hereof.
18. ENTIRE AGREEMENT. This Agreement, together with any understanding
or modifications hereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall supersede any prior
agreements between the parties (including, but not limited to, the agreement
dated May 15, 1985, as thereafter amended, between the Employee and the
predecessor of the Bank).
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first hereinabove written.
PREMIER NATIONAL BANCORP, INC.
By: T. Jefferson Cunningham III
---------------------------
Signature
Chairman & CEO
---------------
Title
PREMIER NATIONAL BANK
By: /s/ John C. Vanwormer
---------------------
John C. VanWormer
President & CBO
--------------------
Title
<PAGE>
EXHIBIT 10-7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of September
7, 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 Ian C. Lucy, residing at 7 Colby Court, Bedford, NH
03110 (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 Chief Administrative Officer 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 Chief
Administrative Officer, 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 September 7, 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
<PAGE>
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 Chief
Administrative Officer or in any other capacity, after the termination of this
Agreement as a result of a Failure to Renew. 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 Chief Administrative Officer 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 $ 200,000 (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.
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<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.
3
<PAGE>
(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."
(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:
(i) 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.
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<PAGE>
(ii) 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) three
(3).
(e) TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. The
Executive may voluntarily terminate his employment hereunder without cause for
any reason other 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.
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(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
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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 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")
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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 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),
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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 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
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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 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.
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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: 7 Colby Court
Bedford, NH 03110
Facsimile: (603) 647-9654
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.
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(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 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. Section
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
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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.
-- END OF PAGE --
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective as of the date set forth above.
PREMIER NATIONAL BANK
By: /s/ T. J. Cunningham III
------------------------
Name: T. J. Cunningham III
Title: Chairman
/s/ Ian C. Lucy
----------------------------------
Executive: Ian C. Lucy
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SCHEDULE 1
<PAGE>
EXHIBIT 10.10
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").
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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. 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.
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(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.
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.
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(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."
(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.
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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 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.
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6
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(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
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Termination"), as the case may be, for (i) with respect to any such termination
that occurs 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
8
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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 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,
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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 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
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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 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.
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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
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.
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(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 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. Section
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.
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IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective as of the date set forth above.
PREMIER NATIONAL BANK
By:
----------------------------------
Name:
Title:
/s/ Ronald Bentley
----------------------------------
Executive: Ronald Bentley
<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.
<PAGE>
EXHIBIT 10.19
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
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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.
<PAGE>
AGREEMENT EXHIBIT 10.20
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
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF PREMIER NATIONAL BANCORP, INC.
<TABLE>
<CAPTION>
Jurisdiction of Name Under Which Subsidiary
Name of Subsidiary Incorporation Conducts Business
- ------------------ ------------- -----------------
<S> <C> <C>
Premier National Bank United States Premier National Bank
Premier National
Investment Company, Inc. Nevada Premier National Investment
Company, Inc.
Hudson Chartered Realty New York Hudson Chartered Realty
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference, in the Registration Statements
listed below, of our report dated January 27, 2000 relating to the consolidated
financial statements of Premier National Bancorp, Inc. (the "Company") and
subsidiaries, appearing in this Annual Report on Form 10-K of the Company for
the year ended December 31, 1999:
Form S-8 relating to the Company's employee stock option plan (File No.
33-71806)
Post-Effective Amendment No. 3 to Form S-3 relating to the Company's
Dividend Investment and Stock Purchase Plan (File No. 33-48188)
Post-Effective Amendment No. 1 (on Form S-8) to Form S-4 relating to
shares of the Company's common stock offered pursuant to the Fishkill
National Corporation Inventive Stock Option Plan (File No. 33-79844)
Post-Effective Amendment No. 2 (on Form S-3) to Form S-2 relating to
the offering of shares of the Company's common stock by certain
stockholders (File No. 33-48660)
Post-Effective Amendment No. 1 (on Form S-8) to Form S-4 relating to
shares of the Company's common stock offered pursuant to the
Progressive Bank, Inc. 1997 Employee Stock Option Plan, the Progressive
Bank, Inc. 1993 Non-Qualified Stock Option Plan for Directors, the
Progressive Bank, Inc. Amended and Restated Incentive Stock Option Plan
and the Pawling Savings Bank Incentive Stock Option Plan (File No.
333-49793)
Deloitte & Touche LLP
Stamford, Connecticut
March 27, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Progressive Bank, Inc.:
We have audited the consolidated statements of income, shareholders' equity, and
cash flows of Progressive Bank, Inc. and subsidiary (the "Company) for the year
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Progressive Bank, Inc. and subsidiary for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG LLP
3001 Summer St.
Stamford, Connecticut
February 2, 1998
<TABLE> <S> <C>
<PAGE>
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