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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 25, 1998
ALLIANCE FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 0-15366 16-1276885
- - ---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
65 MAIN STREET, P.O. BOX 5430, CORTLAND, NEW YORK 13045-5430
------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
CORTLAND FIRST FINANCIAL CORPORATION
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(Former name or former address, if changed since last report)
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<PAGE>
On December 1, 1998, Alliance Financial Corporation (the "Registrant")
filed a Current Report on Form 8-K (the "Form 8-K") with the Securities and
Exchange Commission to report the consummation of a merger (the "Merger")
between Oneida Valley Bancshares, Inc. ("Oneida Valley") and the Registrant,
which was previously named Cortland First Financial Corporation ("Cortland
First"). This Amendment No. 1 to the Form 8-K is being filed to include certain
historical financial statements of Oneida Valley and pro forma financial
information of the combined entity.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Oneida Valley.
The audited financial statements of Oneida Valley for the years ended
December 31, 1995, 1996 and 1997 and unaudited financial statements of Oneida
Valley for the nine months ended September 30, 1997 and September 30, 1998 set
forth on Exhibit 99.1 hereto are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma financial information of the combined entity for
the years ended December 31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1997 and September 30, 1998 set forth on Exhibit 99.2 hereto is
incorporated herein by reference.
(c) Exhibits.
Exhibit No. Description
----------- -----------
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Financial Statements of Oneida Valley
99.2 Pro Forma Financial Information
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
ALLIANCE FINANCIAL CORPORATION
By: /s/ DAVID R. ALVORD
-------------------
Name: David R. Alvord
Title: President and Co-Chief Executive Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Cortland First Financial Corporation on Form S-3 (File No. 33-65417) of our
report dated January 16, 1998, on our audits of the consolidated financial
statements of Oneida Valley Bancshares, Inc. as of December 31, 1997 and 1996
and for the years then ended and our report dated January 17, 1997 on our audit
of the consolidated financial statements of Oneida Valley Bancshares, Inc. as of
December 31, 1995, which reports are included in this Form 8-K.
PRICEWATERHOUSECOOPERS LLP
Syracuse, NY
February 8, 1999
EXHIBIT 99.1
To the Shareholders and Board of Directors of
Oneida Valley Bancshares, Inc.
We have audited the accompanying consolidated statements of condition of
Oneida Valley Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in stockholders?
equity and cash flows for the years then ended. 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.
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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial condition of Oneida Valley
Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
January 16, 1998
<PAGE>
To the Shareholders and Board of Directors of
Oneida Valley Bancshares, Inc.
We have audited the accompanying consolidated statements of condition of
Oneida Valley Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders?
equity and cash flows for the years then ended. 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.
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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial condition of Oneida Valley
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
January 17, 1997
<PAGE>
1997 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
ONEIDA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
December 31, 1997 and 1996
(Thousands of Dollars)
1997 1996
---- ----
ASSETS
Cash and cash equivalents
Cash and due from banks $ 9,750 $ 10,956
Federal funds sold 0 1,800
-------- --------
Total cash and cash equivalents 9,750 12,756
Investment securities 63,745 61,127
Loans 137,621 130,031
Less: Allowance for possible loan losses 1,717 1,754
Less: Unearned income 15 35
-------- --------
Net loans 135,889 128,242
Bank premises and equipment 5,192 4,607
Other assets 2,923 2,506
-------- --------
TOTAL ASSETS $217,499 $209,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-Interest Bearing $28,649 $30,048
Interest Bearing 157,068 150,702
-------- --------
Total deposits 185,717 180,750
Short-term borrowings 4,008 839
Accrued taxes and other liabilities 3,031 2,850
-------- --------
Total liabilities 192,756 184,439
-------- --------
Stockholders' equity
Common stock, par value $2.50 per share;
2,000,000 shares authorized, 964,740 issued 2,412 2,412
Surplus 2,412 2,412
Undivided profits 22,003 20,589
Unrealized holding gain (loss) on securities, net 66 (88)
Treasury stock, at cost: 59,461 and 15,000 shares (2,150) (526)
-------- --------
Total stockholders' equity 24,743 24,799
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $217,499 $209,238
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
1997 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (Con't)
<TABLE>
<CAPTION>
ONEIDA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996, and 1995
(Thousands of Dollars)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $11,845 $11,338 $10,961
Interest and dividends on investment securities:
U.S. government agency obligations 2,960 3,059 3,221
State and municipal obligations 403 424 394
Other 373 362 413
Interest on federal funds sold and balances with banks 225 201 236
------- ------- -------
Total interest income 15,806 15,384 15,225
------- ------- -------
INTEREST EXPENSE Interest on deposits:
Regular savings, NOW, money market 2,288 2,148 2,419
Time deposits 4,090 3,784 3,632
Interest on short term borrowings 75 42 114
------- ------- -------
Total interest expense 6,453 5,974 6,165
------- ------- -------
Net interest income 9,353 9,410 9,060
PROVISION FOR POSSIBLE LOAN LOSSES 235 350 175
------- ------- -------
Net interest income after provision for possible
loan losses 9,118 9,060 8,885
------- ------- -------
OTHER OPERATING INCOME
Trust Department income 353 300 251
Service charges on deposit accounts 861 793 753
Computer service 244 239 202
Other 631 532 516
------- ------- -------
Total other operating income 2,089 1,864 1,722
------- ------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 4,297 4,070 3,848
Net occupancy expense of bank premises 585 544 523
Furniture and equipment expense 528 620 595
Printing stationery and supplies 192 212 208
FDIC insurance expense 28 2 202
Other 1,763 1,662 1,505
------- ------- -------
Total other operating expense 7,393 7,110 6,881
------- ------- -------
Income before income taxes 3,814 3,814 3,726
APPLICABLE INCOME TAXES 1,300 1,306 1,321
------- ------- -------
NET INCOME $ 2,514 $ 2,508 $ 2,405
======= ======= =======
BASIC EARNINGS PER COMMON SHARE $ 2.72 $ 2.63 $ 2.49
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
1997 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (Con't)
<TABLE>
<CAPTION>
ONEIDA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996, and 1995
(Thousands of Dollars)
Unrealized holding Treasury
Common Undivided Gain (loss) on Stock At
Stock Surplus Profits Securities, net Cost Total
------ ------- --------- ------------------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $2,412 $2,412 $17,802 $(1,585) $21,041
Net income - 1995 2,405 2,405
Dividends ($1.08 per share) (1,042) (1,042)
Changes in unrealized holding
gain (loss) on securities, net 1,484 1,484
------ ------ ------- ------- ----- -------
Balance at December 31, 1995 $2,412 $2,412 $19,165 $ (101) $23,888
Net income - 1996 2,508 2,508
Dividends ($1.14 per share) (1,084) (1,084)
Changes in unrealized holding
gain on securities, net 13 13
Treasury stock transactions
15,000 shares (526) (526)
------ ------ ------- ------- ------ -------
Balance at December 31, 1996 $2,412 $2,412 $20,589 $ (88) $ (526) $24,799
Net income - 1997 2,514 2,514
Dividends ($1.20 per share) (1,100) (1,100)
Changes in unrealized holding
gain on securities, net 154 154
Treasury stock transactions
44,461 shares (1,624) (1,624)
------ ------ ------- ------- ------ -------
Balance at December 31, 1997 $2,412 $2,412 $22,003 $ 66 $(2,150) $24,743
====== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
1997 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (Con't)
<TABLE>
<CAPTION>
ONEIDA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
(Thousands of Dollars)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,514 $ 2,508 $ 2,405
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 468 460 505
Provision for possible loan losses 235 350 175
Provision for deferred taxes (50) 9 57
Loss on sale of securities 0 4 (6)
Amortization of bond premium, net 32 (3) 23
Changes in other assets and liabilities: (245) 452 (86)
-------- ------- --------
Net cash provided by operating activities 2,954 3,780 3,073
-------- ------- --------
Cash flows from investing activities:
Proceeds from investment activities 18,705 13,692 16,593
Purchase of investment securities (21,122) (7,905) (15,170)
Net increase in loans (7,882) (8,506) (4,131)
Capital expenditures (1,053) (736) (334)
-------- ------- --------
Net cash used in investing activities (11,352) (3,455) (3,042)
-------- ------- --------
Cash flows from financing activities:
Net (decrease) increase in demand deposits (1,399) 688 3,054
Net increase (decrease) in Regular savings, NOW, Money Market 2,613 (4,877) (10,204)
Net increase in Certificates of deposit 3,753 3,009 12,892
Net increase (decrease) in short term borrowings 3,169 314 (581)
Purchases of treasury stock (1,624) (526) 0
Dividends paid (1,120) (1,062) (1,042)
-------- ------- --------
Net cash provided by (used in) financing activities 5,392 (2,454) 4,119
-------- ------- --------
Net (decrease) increase in cash and cash equivalents (3,006) (2,129) 4,150
Cash and cash equivalents at beginning of year 12,756 14,885 10,735
-------- ------- --------
Cash and cash equivalents at end of year $ 9,750 $12,756 $ 14,885
======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6,333 $ 6,306 $ 6,050
Income taxes $ 1,330 $ 1,229 $ 1,226
Non-cash investing activity:
Unrealized gains on investment securities, net $ 233 $ 20 $ 2,248
Non-cash financing activity:
Dividends declared and unpaid $ 407 $ 427 $ 405
</TABLE>
Included in proceeds from investment securities is $10,106, $9,931, and $7,678
of proceeds resulting from maturities and principal payments of securities
designated as held to maturity for 1997, 1996, and 1995, respectively.
Investment securities purchased includes $3,481, $3,223, and $11,512 for
purchases of held-to-maturity securities for 1997, 1996, and 1995, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ONEIDA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Oneida Valley Bancshares, Inc. (the Company) is a one-bank holding company
whose only subsidiary and operating entity, Oneida Valley National Bank
(the Bank), delivers commercial banking services from nine branches in
Madison, Oneida, and Onondaga counties.
Basis of Presentation
The consolidated financial statements of the Oneida Valley Bancshares, Inc.
and subsidiary, The Oneida Valley National Bank, conform to generally
accepted accounting principles and general banking practices prescribed by
the Comptroller of the Currency. The following is a summary of the more
significant policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary after elimination of inter-company accounts
and transactions.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments and in
determining the unrealized holding gain or loss on securities:
Cash and Cash Equivalents: The carrying amount reported in the balance
sheet for cash and short term instruments approximate those assets' fair
values.
Investment Securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair value for all other loans is estimated using discounted
cash flow analysis, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The carrying
value of accrued interest approximates its fair value.
Deposit Liabilities: The fair values disclosed for non-interest bearing
accounts, and accounts with no stated maturity date, are by definition
equal to the amount payable on demand at the reporting date. The fair value
of time deposits was estimated by discounting expected monthly maturities
<PAGE>
at interest rates approximating those currently being offered on time
deposits of similar terms. The fair value of accrued interest approximates
carrying value.
Short-term borrowings: The carrying amounts of short-term borrowings
approximate their fair values.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
Investment Securities
The Company classifies investment securities as held-to-maturity or
available-for-sale. Held-to-maturity securities are those which the Company
has the positive intent and ability to hold to maturity, and are reported
at cost, adjusted for amortization of premiums and accretion of discounts.
Investment securities not classified as held-to-maturity are classified as
available-for-sale and are reported at fair value, with net unrealized
holding gains and losses reflected as a separate component of stockholders'
equity, net of the applicable income tax effect. None of the Company's
investment securities have been classified as trading securities.
Gains and losses on investment securities are based on the specific
identification method.
Loans
Loans are reported at their principal outstanding balance net of
charge-offs and unearned income. Interest income is generally recognized
when income is earned using the interest method. Loan origination fees and
certain loan origination costs are deferred and the net amounts are
amortized as adjustments of the loans' yields.
Allowance for Credit Losses
The adequacy for the allowance for possible loan losses is periodically
evaluated by the Company in order to maintain the allowance at a level that
is sufficient to absorb probable credit losses. Management's evaluation of
the adequacy of the allowance is based on a review of the Company's
historical loss experience, known and inherent risks in the loan portfolio,
including adverse circumstances that may affect the ability of the borrower
to repay interest and/or principal, the estimated value of collateral, and
an analysis of the levels and trends of delinquencies, charge-offs, and the
risk ratings of the various loan categories. Such factors as the level and
trend of interest rats and the condition of the national and local
economies are also considered.
A loan is considered impaired, based on current information and events, if
it is probable that the Company will be unable to collect the scheduled
payments of principle or interest when due according to the contractual
terms of the loan agreement. The measurement of impaired loans is generally
based upon the present value of future cash flows discounted at the
historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on fair value of the collateral.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity of payment of principal or interest for a
period of more than 90 days unless they are well secured and are in the
process of collection. While a loan is classified as nonaccrual and the
<PAGE>
future collectibility of the recorded loan balance is doubtful, collections
of interest and principal are generally applied as a reduction to principal
outstanding.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation computed principally using the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are charged
to operating expenses as incurred. The asset cost and accumulated
depreciation are removed from the accounts for assets sold or retired and
any resulting gain or loss is included in the determination of income.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (Accounting for Income Taxes). FAS
109 requires the recognition of deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding throughout each year
(925,930, 952,919, and 964,740 for 1997, 1996, and 1995, respectively).
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" in 1997, which had no affect on quarterly or
annual earnings as previously reported.
Retirement Benefit Plans
The Company has contributory and non-contributory benefit plans covering
substantially all employees. The majority of the employees are covered by a
defined benefit plan, with benefits based upon an employee's years of
service and average final salary.
Additionally, the Company provides certain medical and life insurance
postretirement benefits.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Accounting Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income" effective 1998. This
statement will require the Company to report comprehensive income.
Comprehensive income is determined by adding unrealized investment holding
gains or losses during the period to net income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires companies
to disclose financial and descriptive information about its reportable
business segments. Management believes the Company only operates in one
segment, which is the banking segment. Therefore, disclosures required
under this pronouncement will not affect the financial statements of the
Company.
<PAGE>
2. INVESTMENT SECURITIES
As discussed in Note 1, the amortized cost and approximate fair value of
investment securities at December 31, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Carrying
1997 Cost Gains Losses Fair Value Value
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and other U.S.
government agencies $10,934 $ 26 $ 16 $10,944 $10,944
Mortgage-backed securities 24,693 193 111 24,775 24,775
States and political subdivisions 446 0 0 446 446
Other securities 1,571 8 0 1,579 1,579
------- ---- ---- ------- -------
Total 37,644 227 127 37,744 37,744
------- ---- ---- ------- -------
HELD TO MATURITY
U.S. Treasury and other U.S.
government agencies 9,029 53 10 9,072 9,029
Mortgage-backed securities 6,070 53 19 6,104 6,070
States and political subdivisions 8,386 190 0 8,576 8,386
Other securities 2,516 25 3 2,538 2,516
------- ---- ---- ------- -------
Total 26,001 321 32 26,290 26,001
------- ---- ---- ------- -------
Total investment securities $63,645 $548 $159 $64,034 $63,745
======= ==== ==== ======= =======
1996
AVAILABLE FOR SALE
U.S. Treasury and other U.S.
government agencies $9,660 $26 $38 $9,648 $9,648
Mortgage-backed securities 22,737 132 275 22,612 22,612
Other securities 1,563 4 0 1,567 1,567
------- ---- ---- ------- -------
Total 33,960 162 295 33,827 33,827
------- ---- ---- ------- -------
HELD TO MATURITY
U.S. Treasury and other U.S.
government agencies 10,074 31 37 10,068 10,074
Mortgage-backed securities 6,296 52 69 6,279 6,296
States and political subdivisions 8,983 135 26 9,092 8,983
Other securities 1,947 3 15 1,935 1,947
------- ---- ---- ------- -------
Total 27,300 221 147 27,374 27,300
------- ---- ---- ------- -------
Total investment securities $61,260 $383 $442 $61,201 $61,127
======= ==== ==== ======= =======
</TABLE>
The carrying value and estimated market value of debt securities at
December 31, 1997, by contractual maturity are shown below. The maturities
of mortgage-backed securities are based on the average life of the
security. All other expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<PAGE>
<TABLE>
<CAPTION>
Available for sale Held to maturity
--------------------------- --------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 8,815 $ 8,810 $ 2,548 $ 2,554
Due after one year through five years 21,069 21,151 20,037 20,237
Due after five years through ten years 5,986 6,063 3,281 3,364
Due after ten years 1,774 1,720 135 135
------- ------- ------- -------
Total investment securities $37,644 $37,744 $26,001 $26,290
------- ------- ------- -------
</TABLE>
At December 31, 1997, and 1996, investment securities carried at $47,544
and $47,616, respectively, were pledged as collateral for certain deposits
and other purposes as required or permitted by law. Included in States and
political subdivisions at December 31, 1997 and 1996 are $1,397 and $357,
respectively, of securities of New York State and its agencies.
3. LOANS
Major classifications of loans at December 31, are as follows:
1997 1996
---- ----
Commercial, financial and agricultural $ 35,985 $ 29,976
Real estate mortgage fixed rate 48,953 50,167
Real estate mortgage variable rate 15,891 16,011
Consumer 35,668 32,713
Credit card 1,124 1,164
-------- --------
Total 137,621 130,031
-------- --------
Less: Allowance for possible loan losses 1,717 1,754
Less: Unearned income 15 35
-------- --------
Net loans $135,889 $128,242
======== ========
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid balances of
mortgage loans serviced for others was $7,637 and $4,700 at December 31,
1997 and 1996, respectively.
<PAGE>
PAST DUE AND NONACCRUAL LOANS
Loans past due 90 days or more and nonaccrual loans consisted of the
following at December 31:
1997 1996
---- ----
Loans past due 90 days or more
Commercial, financial and agricultural $ 479 $150
Real estate mortgage 419 216
Consumer 200 157
Credit card 6 11
------ ----
Total 1,104 534
------ ----
Nonaccrual loans
Commercial, financial and agricultural 137 102
Real estate mortgage 119 136
Consumer 37 67
Credit card 0 0
------ ----
Total 293 305
------ ----
Total past due and nonaccrual loans $1,397 $839
====== ====
4. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the Allowance for Possible Loan Losses for the years ended
December 31 are presented in the following summary:
1997 1996 1995
---- ---- ----
Balance at beginning of year $1,754 $1,691 $1,610
Recoveries credited 57 54 56
Provision for possible loan losses 235 350 175
Loans charged-off (329) (341) (150)
------ ------ ------
Balance at end of year 1,717 1,754 1,691
====== ====== ======
For the years ended December 31, 1997, and 1996, the average recorded
investment in impaired loans did not exceed $500 and $250, respectively.
None of these loans had a specific valuation allowance recorded. The
Company recognized no interest income on impaired loans during 1997 and
1996.
<PAGE>
5. LOANS TO RELATED PARTIES
At December 31, the subsidiary Bank had loans to directors and executive
officers of the Company and its subsidiary, and to entities in which they
owned or controlled 10% or more of the voting stock as follows:
1997 1996
---- ----
Balance at beginning of year $829 $935
New loans and advances 259 72
Loan payments (264) (178)
---- ----
Balance at end of year $824 $829
==== ====
6. BANK PREMISES
Bank premises and equipment at December 31, consist of the following:
1997 1996
---- ----
Land $ 386 $ 386
Premises 4,802 4,558
Equipment 4,602 3,793
------ ------
9,790 8,737
Less: Accumulated depreciation 4,598 4,130
------ ------
Balance at end of year $5,192 $4,607
====== ======
Depreciation expense was $468 and $460 for 1997 and 1996.
7. DEPOSITS
The carrying amounts of deposits consisted of the following at December 31:
1997 1996
---- ----
Non-interest bearing checking $ 28,649 $ 30,048
Interest bearing checking 22,108 19,638
Savings accounts 35,947 39,558
Money market accounts 20,949 17,195
Time certificates of deposit 78,064 74,311
-------- --------
Total deposits $185,717 $180,750
======== ========
<PAGE>
The following table indicates the maturities of the Company's time deposits
at December 31:
1997 1996
---- ----
Due in one year $61,150 $52,508
Due in two years 9,060 13,824
Due in three years 6,559 4,422
Due in four years 825 2,675
Due in five years or more 470 882
------- -------
$78,064 $74,311
======= =======
Total time deposits in excess of $100 thousand as of December 31, 1997 and
1996 were $27,259 and $26,820, respectively.
8. BORROWINGS
The following is a summary of borrowings at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Original Original
Amount Rate Term Amount Rate Term
------ ---- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C>
Short-term borrowings:
Treasury Tax and Loan $1,108 5.20% Demand $839 6.00% Demand
Federal Home Loan Bank advances 1,000 5.87% Six months 0
Securities sold under repurchase agreements 1,000 5.88% One year 0
Federal funds purchased 900 6.63% Overnight 0
------ ----
$4,008 $839
====== ====
</TABLE>
Information related to short-term borrowings at December 31 is as follows:
1997 1996
---- ----
Maximum outstanding at any month end $4,008 $1,307
Average amount outstanding during the year $1,377 $951
Average interest rate during the year 5.47% 4.42%
Average amounts outstanding and average interest rates are computed using
monthly averages.
At December 31, 1997 and 1996, the Bank had available a line of credit with
the Federal Home Loan Bank of New York of $10,600 and $10,000,
respectively, $1,900 and $0 of which was outstanding as of December 31,
1997 and 1996, respectively.
At December 31, 1997 and 1996, the Bank also had available a $2,500 line of
credit with another financial institution which was unused.
<PAGE>
9. INCOME TAXES
The provision for income taxes for the years ended December 31 is comprised
of the following:
1997 1996 1995
---- ---- ----
Current portion:
Federal $1,011 $1,019 $ 967
State 278 278 297
------ ------ ------
Total current 1,289 1,297 1,264
Deferred portion 11 9 57
------ ------ ------
Total consolidated provision for income taxes $1,300 $1,306 $1,321
====== ====== ======
A reconciliation of the statutory rate to the effective income tax rate for
the years ended December 31 is as follows:
1997 1996 1995
---- ---- ----
Statutory federal income tax rate
Variances from statutory rate: 34% 34% 34%
State income tax
net of federal tax benefit 5 5 5
Tax exempt income (5) (4) (4)
---- ---- ----
Effective tax rate 34% 35% 35%
==== ==== ====
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
Deferred tax
Assets (liabilities)
1997 1996
---- ----
Allowance for possible loan losses $ 491 $ 503
Benefit plans 360 317
Accretion (30) (38)
Depreciation (162) (154)
Unrealized (gain) loss on securities, net (34) 45
Other, net 15 17
---- ----
Total deferred taxes net, included in other assets $640 $690
==== ====
<PAGE>
10. RETIREMENT PLANS
The Company, through its Bank subsidiary, is a participant in the New York
State Bankers Retirement System. Substantially, all full-time employees who
meet minimum service requirements are covered.
The following table sets forth the plan's funded status and amounts
recognized in the Company's Statement of Financial Condition at December
31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $3,229 and $3,084 $(3,244) $(3,101)
------- -------
Projected benefit obligation for service
rendered to date $(4,090) $(4,169)
Plan assets at fair value, primarily listed
stocks and U.S. bonds 6,167 5,127
------- -------
Excess of plan assets over
projected plan benefit obligation 2,077 958
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions (1,140) (22)
Prior service cost not yet recognized in net
periodic pension cost, being recognized over
18 years (70) (78)
Unrecognized net asset at January 1,
being recognized over 18 years (304) (348)
------- -------
Prepaid pension cost included in other assets $ 563 $ 510
======== =======
<CAPTION>
Net pension cost included the following components: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $236 $228 $199
Interest cost on projected benefit obligation 325 308 286
Actual return on plan assets (426) (393) (343)
Net amortization and deferral (82) (53) (38)
----- ---- ----
Net periodic pension expense $ 53 $ 90 $104
===== ==== ====
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in 1997 and 1996 in determining the actuarial
present value of the projected benefit obligation were 8.0%, and 4.0% in
1997, and 8.0% and 5.0% in 1996. The expected long-term rate of return on
assets was 8.5% for 1997 and 1996.
The actuarial present value of accumulated plan benefits represents the
liability of the pension plan at the plan year-end. Net assets available
for benefits includes funds anticipated to be necessary to provide for
future increases in earnings between the plan year-end and the normal
retirement date of participants. The plan is funded on the expected level
of benefits at retirement, whereas the present value is only a snapshot at
a point in time.
The Company has a deferred profit sharing/401(k) plan. Contributions to the
deferred profit sharing plan are determined semi-annually by the Board of
Directors. Contributions by the Company to the 401(k) and profit sharing
trust, including payments directly to employees, were $317 and $343 in 1997
and 1996, respectively.
<PAGE>
11. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides post-retirement medical and life insurance benefit
plans covering substantially all employees. Medical benefits are provided
to retirees and their dependents and supplements coverage provided by
Medicare. The life insurance plan is non-contributory and is provided in a
fixed amount based on the level of compensation at retirement. The Company
pays health premiums for retirees based on a fixed percentage up to a
predetermined level.
The following table sets forth the status of the Company's post-retirement
plans, which are unfunded, at December 31:
Accumulated Post-retirement Benefit Obligation (APBO):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Retirees $551 $495
Active plan participants fully eligible 30 63
Other active plan participants not yet fully eligible 342 336
---- ----
Total APBO 923 894
Unrecognized prior service cost 121 135
Unrecognized net loss (68) (53)
---- ----
Accrued post-retirement benefit obligation $976 $976
==== ====
<CAPTION>
Net periodic post-retirement benefit cost
included the following components: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits attributed to service during
the period $ 23 $ 22 $ 24
Amortization of unrecognized prior service
cost (11.8 years) (14) (14) (14)
Interest cost on accumulated post-retirement
benefit obligation 62 63 58
---- ---- ----
Net post-retirement benefit cost $ 71 $ 71 $ 68
==== ==== ====
</TABLE>
A 9.5% annual rate of increase in the per capita costs of covered health
care benefits was assumed for 1997, gradually decreasing to 5.5% by the
year 2005. Increasing the assumed health care cost trend rates by one
percentage point would not have a significant impact on the accumulated
post-retirement benefit obligation or the aggregate service and interest
cost components of the net periodic post-retirement benefit for 1997. A
discount rate of 7.0% and 7.5% for 1997 and 1996 was used to determine the
accumulated post-retirement benefit obligation.
12. DIVIDENDS
The primary source of cash to pay dividends to the Company's shareholders
is through dividends from its banking subsidiary. Banking regulations limit
the amount of dividends that a bank may pay to its parent company. At
December 31, 1997, additional dividends totaling $4,199 could have been
paid without prior regulatory approval. There were no loans or advances
from the subsidiary Bank to the Company as of December 31, 1997.
<PAGE>
13. COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financial needs of its
customers. These financial instruments consist primarily of commitments to
extend credit which involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the statement of condition. The contract
amount of those commitments to extend credit reflects the extent of
involvement the Company has in this particular class of financial
instruments. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amount of
the instrument. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
Contract Amount
Financial instruments whose contract 1997 1996
amounts represent credit risk: -------------------------
Commitments to extend credit $19,597 $17,012
The fair value of these commitments to extend credit is not
significantly different than the contract amount.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include
residential real estate and income-producing commercial properties.
The Company is required to maintain a reserve balance, as established by
the Federal Reserve Bank of New York. The required average total reserve
for the 14-day maintenance period ended December 31, 1997 was $1,281 of
which $600 was required to be on deposit with the Federal Reserve Bank of
New York. The remaining $681 was represented by cash on hand.
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the fair value of the Company's financial
instruments:
<TABLE>
<CAPTION>
1997 1997 1996 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 9,750 $ 9,750 $ 12,756 $ 12,756
Investment securities 63,745 64,034 61,127 61,201
Loans 137,606 139,184 129,996 129,650
Allowance for loan losses (1,717) (1,754)
-------- -------- -------- --------
Net loans 135,889 139,184 128,242 129,650
-------- -------- -------- --------
Total financial assets $209,384 $212,968 $202,125 $203,607
======== ======== ======== ========
Financial liabilities
Deposits $185,717 $185,820 $180,750 $180,902
Short term borrowings 4,008 4,008 839 839
-------- -------- -------- --------
Total financial liabilities $189,725 $189,828 $181,589 $181,741
======== ======== ======== ========
</TABLE>
Please refer to the appropriate footnotes that contain the related
disclosures for the above financial instruments.
15. OTHER OPERATING EXPENSE
Other expense at December 31 includes:
1997 1996 1995
---- ---- ----
Outside services $ 685 $ 529 $ 518
Advertising and marketing 214 211 193
Office supplies 192 212 208
Postage and shipping 133 139 135
FDIC insurance 28 2 202
Other 731 783 659
------ ------ ------
Total other operating expense $1,983 $1,876 $1,915
====== ====== ======
16. DISCLOSURES REQUIRED BY THE OFFICE OF THE
COMPTROLLER OF THE CURRENCY
This annual report includes all of the information required by the Office
of the Comptroller of the Currency for the annual disclosure statement
required of national banks. The Office of the Comptroller of the Currency
has not verified or confirmed the accuracy of the data presented.
17. CAPITAL
The Bank is 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 the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and
<PAGE>
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 to maintain 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) to average assets (as defined).
Management believes, as of December 31, 1997, that the Bank meets all the
requirements to which it is subject.
As of September 30, 1997, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as "well-capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as "well-capitalized", the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
To Be Well-
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------ ------------------- -------------------
(Thousands of dollars) Amount Ratio Amount Ratio Amount Ratio
------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) 26,245 20.9% 10,037 8.0% 12,546 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 24,677 19.7% 5,018 4.0% 7,527 6.0%
Tier 1 Capital
(to Average Assets) 24,677 11.3% 8,721 4.0% 10,901 5.0%
As of December 31, 1996
Total Capital
(to Risk Weighted Assets) 26,348 22.7% 9,285 8.0% 11,606 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 24,887 21.4% 4,643 4.0% 6,964 6.0%
Tier 1 Capital
(to Average Assets) 24,887 11.9% 8,341 4.0% 10,427 5.0%
</TABLE>
<PAGE>
18. PARENT COMPANY FINANCIAL INFORMATION
CONDENSED FINANCIAL STATEMENT INFORMATION OF
ONEIDA VALLEY BANCSHARES, INC. IS AS FOLLOWS:
<TABLE>
<CAPTION>
BALANCE SHEET
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 6 $ 6
Investment in subsidiary, at equity 24,710 24,765
Dividend receivable from subsidiary 407 427
Other assets 27 28
------- -------
TOTAL ASSETS $25,150 $25,226
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Dividends payable $ 407 $ 427
------- -------
TOTAL LIABILITIES $ 407 $ 427
------- -------
Stockholders' equity:
Common stock, $2.50 par value;
2,000,000 shares authorized,
964,740 shares issued 2,412 2,412
Surplus 2,412 2,412
Retained earnings 22,003 20,589
Unrealized holding gain (loss) on securities, net 66 (88)
Treasury stock (2,150) (526)
------- -------
TOTAL STOCKHOLDERS' EQUITY $24,743 $24,799
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,150 $25,226
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Dividends from The Oneida Valley National Bank $2,724 $1,612 $1,042
Other dividends 2 2 2
------ ------ ------
Total revenue 2,726 1,614 1,044
------ ------ ------
Expenses:
Other expense 2 2 2
------ ------ ------
Total other expenses 2 2 2
------ ------ ------
Income before equity in undistributed 2,724 1,612 1,042
income of subsidiary
Equity in undistributed net income of (210) 896 1,363
subsidiary bank
------ ------ ------
NET INCOME $2,514 $2,508 $2,405
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,514 $ 2,508 $ 2,405
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed (earnings) losses of subsidiaries 210 (896) (1,363)
Net cash provided by operating activities 2,724 1,612 1,042
------- ------- -------
Cash flows from financing activities:
Purchases of treasury stock (1,624) (526) 0
Dividends paid (1,100) (1,084) (1,042)
------- ------- -------
Net cash provided by (used in) financing activities (2,724) (1,610) (1,042)
Net (decrease) increase in cash and cash equivalents 0 2 0
Cash and cash equivalents at beginning of year 6 4 4
------- ------- -------
Cash and cash equivalents at end of year $ 6 $ 6 $ 4
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ONEIDA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
September 30, 1998 (unaudited) and December 31, 1997
(Thousands of Dollars)
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 8,476 $ 9,750
Federal funds sold 4,900 0
-------- --------
Total cash and cash equivalents 13,376 9,750
Investment securities 64,900 63,745
Loans 141,254 137,621
Less: Allowance for possible loan losses 1,702 1,717
Less: Unearned income 6 15
-------- ---------
Net loans 139,546 135,889
Bank premises and equipment 4,996 5,192
Other assets 3,175 2,923
-------- --------
TOTAL ASSETS $225,993 $217,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-Interest Bearing $ 27,255 $ 28,649
Interest Bearing 168,257 157,068
-------- --------
Total deposits 195,512 185,717
Short-term borrowings 1,317 4,008
Accrued taxes and other liabilities 3,291 3,031
-------- --------
Total liabilities 200,120 192,756
-------- --------
Stockholders' equity
Common stock, par value $2.50 per share;
2,000,000 shares authorized, 964,740 issued 2,412 2,412
Surplus 2,412 2,412
Undivided profits 22,928 22,003
Accumulated other comprehensive income 357 66
Treasury stock, at cost: 61,863 and 59,461 shares (2,236) (2,150)
-------- --------
Total stockholders' equity 25,873 24,743
-------- --------
TOTAL STOCKHOLDERS' AND
STOCKHOLDERS' EQUITY $225,993 $217,499
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ONEIDA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1998 1997 1998 1997
------- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,099 $ 3,031 $ 9,166 $ 8,804
Interest and dividends on investment securities:
U.S. government and agency obligations 739 775 2,254 2,276
State and municipal obligations 127 97 346 305
Other 67 75 203 213
Interest on federal funds sold and balances with banks 133 51 275 158
------- ------- ------- -------
Total Interest Income 4,165 4,029 12,244 11,756
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits:
Regular savings, NOW, money market 643 599 1,837 1,693
Time deposits 1,129 1,047 3,342 2,982
Interest on short term borrowings 23 17 82 37
------- ------- ------- -------
Total interest expense 1,795 1,663 5,261 4,712
------- ------- ------- -------
Net Interest income 2,370 2,366 6,983 7,044
PROVISION FOR POSSIBLE
LOAN LOSSES 98 25 296 175
------- ------- ------- -------
Net interest income after provision
for possible loan losses 2,272 2,341 6,687 6,869
------- ------- ------- -------
OTHER OPERATING INCOME
Trust Department income 65 54 244 201
Service charges on deposit accounts 216 233 645 645
Computer service 67 59 191 177
Other 192 200 514 464
Investment security losses 0 0 (9) 0
------- ------- ------- -------
Total other operating income 540 546 1,585 1,487
------- ------- ------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,020 1,058 3,303 3,227
Net occupancy expense of bank premises 144 160 465 428
Furniture and equipment expense 207 125 471 373
Printing stationary and supplies 38 51 130 144
FDIC insurance expense 2 (16) 17 22
Other 630 486 1,569 1,289
------- ------- ------- -------
Total other operating expense 2,041 1,864 5,955 5,483
------- ------- ------- -------
Income before income taxes 771 1,023 2,317 2,873
APPLICABLE INCOME TAXES 233 359 714 985
------- ------- ------- -------
NET INCOME $ 538 $ 664 $ 1,603 $ 1,888
======= ======= ======= =======
BASIC EARNINGS PER COMMON SHARE
Weighted average shares outstanding 903,272 949,740 903,959 932,890
------- ------- ------- -------
Net Income per share $ 0.60 $ 0.70 $ 1.77 $ 2.02
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
ONEIDA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998
(Thousands of Dollars)
(Unaudited)
Accumulated other Treasury
Common Undivided Comprehensive Stock
Stock Surplus Profits Income At Cost Total
------ ------- ---------- ----------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,412 2,412 22,003 66 (2,150) 24,743
Net income-September, 30, 1998 1,603 1,603
Dividends ($.75 per share) (678) (678)
Changes in unrealized holding
gain on securities, net 291 291
Treasury stock transactions
2,402 shares (86) (86)
----- ------ ------ --- ------- ------
Balance at September 30, 1998 2,412 2,412 22,928 357 (2,236) 25,873
===== ====== ====== === ======= ======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ONEIDA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 1998 and 1997
(Thousands of Dollars)
(unauditied)
September 30, September 30,
1998 1997
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income $ 1,603 $ 1,888
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 376 341
Provision for possible loan losses 296 175
Loss on sale of securities 9 0
Amortization of bond premium, net 101 17
Changes in other assets and liabilities: 39 (278)
-------- --------
Net cash provided by operating activities 2,424 2,143
-------- --------
Cash flows from investing activities:
Purchase of investment securities 22,461 11,081
Proceeds from investment securities (23,285) (12,650)
Net increase in loans (3,953) (5,547)
Capital expenditures (180) (913)
-------- --------
Net cash used in investing activities (4,957) (8,029)
-------- --------
Cash flows from financing activities:
Net decrease in demand deposits (1,089) (4,323)
Net increase in Regular savings, NOW, Money Market 10,302 5,353
Net increase in Certificates of deposit 582 2,666
Net (decrease) increase in short term borrowings (2,691) 1,168
Purchases of treasury stock (86) (1,624)
Dividends paid (859) (893)
-------- --------
Net cash provided by (used in) financing activities 6,159 2,347
-------- --------
Net increase (decrease) in cash and cash equivalents 3,626 (3,539)
Cash and cash equivalents at beginning of year 9,750 12,756
-------- --------
Cash and cash equivalents at end of year $ 13,376 $ 9,217
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for; $ 5,072 $ 5,166
Interest $ 870 $ 942
Income taxes
Non-cash investing activity:
Unrealized gains on investment securities, net $ (441) $ (144)
Non-cash financing activity:
Dividends declared and unpaid $ 226 $ 226
Included in proceeds from investment securities is $5,683 and
$4,940 of proceeds resulting from maturities and
principal payments of securities designated as held to maturity for
1998 and 1997, respectively. Investment securities purchased
includes $1,133 and $3,346 for purchases of
held-to-maturity securities for 1998 and 1997, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
ONEIDA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
BASIS OF PRESENTATION
The foregoing consolidated financial statements are unaudited; however, in
the opinion of Management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial statements have
been included. A summary of the Bank's significant accounting policies is set
forth in note 1 to the 1997 Consolidated Financial Statements of the Bank. The
balance sheet at December 31, 1997, has been derived from the audited financial
statements at that date.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January, 1, 1998, the Bank adopted Statement of Financial
Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income." This
pronouncement requires the Bank to report the effects of unrealized investment
holding gains or losses on comprehensive income.
In June of 1998 the Financial accounting Standards Board (FASB) issued SFAS
No. 133. This statement requires an entity to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. This statement is effective for fiscal quarters of fiscal years
beginning after June 30, 1999. Since the Company does not have any derivative
instruments or hedges, management believes there will be no effect on the
Company.
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
present the condensed financial position of Cortland First and Oneida Valley as
of September 30, 1998 assuming that the Merger had occurred as of September 30,
1998 and giving effect to the Merger by combining the results of operations of
Cortland First and Oneida Valley for the years ended December 31, 1997, 1996 and
1995 and for the nine months ended September 30, 1998. Pro forma earnings per
common share and weighted average common shares are based on an exchange ratio
of 1.80.
The unaudited pro forma condensed combined financial statements were
prepared giving effect to the Merger on the pooling-of-interests accounting
method. All adjustments necessary to arrive at a fair presentation of the
combined financial condition and results of operations of Cortland First and
Oneida Valley, in the opinion of the managements of the Registrant, have been
included and are of a normal recurring nature. The data presented below do not
reflect possible adjustments for expenses related to the Merger, or any
potential cost savings or revenue enhancements resulting from the Merger.
Accordingly, the financial condition and results of operations of the Registrant
as of the effective date of the Merger and thereafter may be materially
different from those reflected in the pro forma information below.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements and notes thereto
of Cortland First set forth in its Annual Report on Form 10-K for the year ended
December 31, 1997 and of Oneida Valley set forth on Exhibit 99.1 hereto. The
unaudited pro forma condensed combined financial statements are presented for
informational purposes only. These statements are not necessarily indicative of
the combined financial position and results of operations that would have
occurred if the Merger had been consummated on December 31, 1997 or at the
beginning of the periods or that may be attained in the future.
<PAGE>
<TABLE>
<CAPTION>
HISTORIAL AND PRO FORMA BALANCE SHEET
At September 30, 1998
----------------------------------------
Historical
----------------------- Pro Forma
ASSETS Cortland Oneida Combined
--------- ------ ---------
<S> <C> <C> <C>
Cash and cash equivalents $ 13,022 $ 13,376 $ 26,398
Investment securities 89,851 64,900 $154,751
Loans 119,104 141,248 $260,352
Less: Allowance for possible loan losses 1,286 1,702 2,988
Net loans 117,818 139,546 $257,364
Bank premises and equipment 3,268 4,996 $8,264
Other assets 4,466 3,175 $7,641
-------- -------- --------
TOTAL ASSETS $228,425 $225,993 $454,418
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 199,716 195,512 395,228
Short-term borrowings 0 1,317 1,317
Accrued taxes and other liabilities 2,585 3,291 5,876
-------- -------- --------
TOTAL LIABILITIES 202,301 200,120 402.421
Stockholders' equity 26,124 25,873 51,997
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $228,425 $225,993 $454,418
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORIAL AND PRO FORMA STATEMENT OF OPERATIONS
For the nine months ended September 30, 1998
--------------------------------------------
Historical
------------------------ Pro Forma
Cortland Oneida Combined
-------- ------ ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,772 $ 9,166 $16,938
Interest and dividends on investment securities 3,719 2,803 6,522
Interest on federal funds sold and balances with banks 314 275 589
--------- ------- -------
Total interest income 11,805 12,244 24,049
--------- ------- -------
INTEREST EXPENSE
Interest on deposits 4,841 5,179 10,020
Interest on short-term borrowings 0 82 82
--------- ------- -------
Total interest expense 4,841 5,261 10,102
--------- ------- -------
Net interest income 6,964 6,983 13,947
PROVISION FOR POSSIBLE
LOAN LOSSES 160 296 456
--------- ------- -------
Net interest income after provision
for possible loan losses 6,804 6,687 13,491
--------- ------- -------
OTHER OPERATING INCOME
Trust Department income 315 244 559
Service charges on deposit accounts 621 645 1,266
Investment securities gains/losses 35 (9) 26
Other operating income 425 705 1,130
--------- ------- -------
Total other operating income 1,396 1,585 2,981
--------- ------- -------
Total operating income 8,200 8,272 16,472
--------- ------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 3,279 3,303 6,582
Supplies, advertising and communications expense 554 499 1,053
Occupancy of bank premises 395 465 860
Computer and equipment expense 587 471 1,058
Legal, audit and outside services 766 771 1,537
Other operating expenses 394 446 840
--------- ------- -------
Total other expenses 5,975 5,955 11,930
--------- ------- -------
Income before income taxes 2,225 2,317 4,542
APPLICABLE INCOME TAXES 563 714 1,277
--------- ------- -------
NET INCOME $ 1,662 $ 1,603 $ 3,265
========= ======= =======
Net income per share - basic and diluted:
Historical $ 0.84 $ 1.77
========= =======
Pro forma at an exchange rate of 1.8 shares $ 0.91
=======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORIAL AND PRO FORMA STATEMENT OF OPERATIONS
For the nine months ended September 30, 1997
--------------------------------------------
Historical
------------------------ Pro Forma
Cortland Oneida Combined
-------- ------ ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,758 $ 8,804 $16,562
Interest and dividends on investment securities 4,040 2,794 6,834
Interest on federal funds sold and balances with banks 237 158 395
------- ------- -------
Total interest income 12,035 11,756 23,791
------- ------- -------
INTEREST EXPENSE
Interest on deposits 4,886 4,675 9,561
Interest on short-term borrowings 0 37 37
------- ------- -------
Total interest expense 4,886 4,712 9,598
------- ------- -------
Net interest income 7,149 7,044 14,193
PROVISION FOR POSSIBLE
LOAN LOSSES 285 175 460
------- ------- -------
Net interest income after provision
for possible loan losses 6,864 6,869 13,733
------- ------- -------
OTHER OPERATING INCOME
Trust Department income 287 201 488
Service charges on deposit accounts 490 645 1,135
Investment securities gains/losses 115 0 115
Other operating income 412 641 1,053
------- ------- -------
Total other operating income 1,304 1,487 2,791
------- ------- -------
OTHER OPERATING EXPENSE
Salaries, wages and employee benefits 3,017 3,227 6,244
Supplies, advertising and communications expense 482 505 987
Occupancy expense of bank premises 384 428 812
computer and equipment expense 586 373 959
legal, audit and outside services 820 571 1,391
other operating expenses 188 379 567
------- ------- -------
Total other expenses 5,477 5,483 10,960
------- ------- -------
Income before income taxes 2,691 2,873 5,564
APPLICABLE INCOME TAXES 717 985 1,702
------- ------- -------
NET INCOME $ 1,974 $ 1,888 $ 3,862
======= ======= =======
Net income per share - basic and diluted:
Historical $ 0.99 $ 2.02
======= =======
Pro forma at an exchange rate of 1.8 shares $ 1.06
=======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORIAL AND PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 1997
---------------------------------------
Historical
---------------------- Pro Forma
Cortland Oneida Combined
-------- ------ ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans 10,360 11,845 22,205
Interest on investment securities 5,356 3,736 9,092
Interest on federal funds sold 269 225 494
------ ------ ------
Total interest income 15,985 15,806 31,791
------ ------ ------
Interest expense:
Interest on deposits 6,526 6,378 12,904
Interest on short-term borrowings 5 75 80
------ ------ ------
Total interest expense 6,531 6,453 12,984
------ ------ ------
Net interest income 9,454 9,353 18,807
Provision for possible loan losses 390 235 625
------ ------ ------
Net interest income after provision for loan
losses 9,064 9,118 18,182
------ ------ ------
Other income:
Trust department services 422 353 775
Service charges on deposit accounts 689 861 1,550
Investment securities gains/losses 115 0 115
Other operating income 551 875 1,426
------ ------ ------
Total other income 1,777 2,089 3,866
------ ------ ------
Total operating income 10,841 11,207 22,048
------ ------ ------
Other expenses:
Salaries, wages and employee benefits 3,909 4,297 8,206
Supplies, advertising and communications
expense 689 678 1,367
Occupancy expense of bank premises 513 585 1,098
Computer and equipment expense 786 528 1,314
Legal, audit and outside services 1,083 774 1,857
Other operating expenses 322 531 853
------ ------ ------
Total other expenses 7,302 7,393 14,695
------ ------ ------
Income before income taxes 3,539 3,814 7,353
Provision for income taxes 920 1,300 2,220
------ ------ ------
Net income $2,619 $2,514 $5,133
====== ====== ======
Net income per share - Basic and Diluted:
Historical $ 1.31 $ 2.72
====== ======
Pro forma at an exchange rate of 1.8 shares $ 1.76
======
</TABLE>
<PAGE>
HISTORIAL AND PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended December 31, 1996
---------------------------------------
Historical
---------------------- Pro Forma
Cortland Oneida Combined
--------- ------ ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans 10,453 11,338 21,791
Interest on investment securities 4,700 3,845 8,545
Interest on federal funds sold 479 201 680
------ ------ ------
Total interest income 15,632 15,384 31,016
------ ------ ------
Interest expense:
Interest on deposits 6,220 5,932 12,152
Interest on short-term borrowings 0 42 42
------ ------ ------
Total interest expense 6,220 5,974 12,194
------ ------ ------
Net interest income 9,412 9,410 18,822
Provision for possible loan losses 283 350 633
------ ------ ------
Net interest income after provision for loan
losses 9,129 9,060 18,189
------ ------ ------
Other income:
Trust department services 440 300 740
Service charges on deposit accounts 641 793 1,434
Investment securities gains/losses (23) (4) (27)
Other operating income 465 775 1,240
------ ------ ------
Total other income 1,523 1,864 3,387
------ ------ ------
Total operating income 10,652 10,924 21,576
------ ------ ------
Other expenses:
Salaries, wages and employee benefits 3,625 4,070 7,695
Supplies, advertising and communications
expense 600 662 1,262
Occupancy expense of bank premises 503 544 1,047
Computer and equipment expense 598 620 1,218
Legal, audit and outside services 967 667 1,634
Other operating expenses 385 547 932
------ ------ ------
Total other expenses 6,678 7,110 13,788
------ ------ ------
Income before income taxes 3,974 3,814 7,788
Provision for income taxes 1,128 1,306 2,434
------ ------ ------
Net income $2,846 $2,508 $5,354
====== ====== ======
Net income per share - Basic and Diluted:
Historical $ 1.41 $ 2.63
====== ======
Pro forma at an exchange rate of 1.8 shares $ 1.80
======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORIAL AND PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 1995
---------------------------------------
Historical
---------------------- Pro Forma
Cortland Oneida Combined
-------- ------ ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans 10,456 10,961 21,417
Interest on investment securities 4,311 4,028 8,339
Interest on federal funds sold 456 236 692
------ ------ ------
Total interest income 15,223 15,225 30,448
------ ------ ------
Interest expense:
Interest on deposits 5,847 6,051 11,898
Interest on short-term borrowings 0 114 114
------ ------ ------
Total interest expense 5,847 6,165 12,012
------ ------ ------
Net interest income 9,376 9,060 18,436
Provision for possible loan losses 300 175 475
------ ------ ------
Net interest income after provision for loan
losses 9,076 8,885 17,961
------ ------ ------
Other income:
Trust department services 369 251 620
Service charges on deposit accounts 612 753 1,365
Investment securities gains/losses 0 6 6
Other operating income 465 712 1,177
------ ------ ------
Total other income 1,446 1,722 3,168
------ ------ ------
Total operating income 10,522 10,607 21,129
------ ------ ------
Other expenses:
Salaries, wages and employee benefits 3,695 3,848 7,543
Supplies, advertising and communications
expense 567 629 1,196
Occupancy expense of bank premises 523 523 1,046
Computer and equipment expense 547 595 1,142
Legal, audit and outside services 867 672 1,539
Other operating expenses 501 614 1,115
------ ------ ------
Total other expenses 6,700 6,881 13,581
------ ------ ------
Income before income taxes 3,822 3,726 7,548
Provision for income taxes 1,089 1,321 2,410
------ ------ ------
Net income $2,733 $2,405 $5,138
====== ====== ======
Net income per share - Basic and Diluted:
Historical $ 1.36 $ 2.49
====== ======
Pro forma at an exchange rate of 1.8 shares $ 1.72
======
</TABLE>
