<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment to Application or Report Filed
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Center Banks Incorporated
-------------------------
(Exact name of registrant as specified in its charter)
Amendment No.1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report dated February 6,
1996, as filed on February 20, 1996, on Form 8-K as set forth in the pages
attached hereto:
Item 7. Financial Statements and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Center Banks Incorporated
By: /s/ J. Daniel Mohr
----------------------
J. Daniel Mohr
Treasurer
Dated: April 18, 1996
Page 1 of 2 pages.
<PAGE> 2
Item 7 of the Company's Current Report on Form 8-K dated
February 6, 1996, as filed with the Securities and Exchange Commission on
February 20, 1996 is amended in its entirety to read as follows:
(a) Financial statements of business acquired. The balance sheet of Cicero Bank
("Cicero") as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1995,
together with the report of independent auditors thereon, are attached as
Appendix A to this Report.
(b) Pro forma financial information. The pro forma financial information for
Cicero required pursuant to Article 11 of Regulation S-X is attached as Appendix
B to this Report. The unaudited Pro Forma Combined Condensed Balance Sheet
combines the historical Consolidated Condensed Balance Sheets of Center Banks
Incorporated and Cicero giving effect to the consummation of the purchase of
assets and assumption of liabilities of Cicero (the "Purchase and Assumption")
on December 31, 1995, using the purchase method of accounting and giving effect
to the related pro forma adjustments described in the accompanying Notes to the
Pro Forma Combined Condensed Financial Statements. The unaudited Pro Forma
Combined Condensed Statement of Income combines the historical Consolidated
Condensed Statement of Income of Center Banks and Cicero giving effect to the
consummation of the Purchase and Assumption on January 1, 1995, using the
purchase method of accounting and giving effect to the related pro forma
adjustments described in the accompanying Notes to the Pro Forma Combined
Condensed Financial Statements.
The pro forma combined condensed financial statements included herein
are presented for informational purposes only. This information includes various
estimates and may not necessarily be indicative of the financial position or
results of operations that would have occurred if the Purchase and Assumption
had been consummated on the dates indicated or which may be obtained in the
future.
(c) Exhibits. The following exhibits are filed with this report:
2.1 Purchase and Assumption Agreement by and between Cicero
Bank, Skaneateles Savings Bank and Center Banks Incorporated
dated February 2, 1996 (incorporated by reference to the
identically numbered exhibit to the Form 8-K filed by the
Company on February 20, 1996)
Page 2 of 2 pages.
<PAGE> 1
Appendix A
CICERO BANK
Financial Statements
December 31, 1995
(With Independent Auditors' Report Thereon)
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Cicero Bank:
We have audited the accompanying balance sheet of Cicero Bank as of December 31,
1995, and the related statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Cicero Bank at December 31,
1995, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
As discussed in the notes to the financial statements, the Bank adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of Loan - Income Recognition and
Disclosures, in 1995.
As discussed in Note 9 to the Financial Statements, in April 1993, the Bank
received a Memorandum of Understanding (MOU) from the Federal Deposit Insurance
Corporation (FDIC) and the State of New York Banking Department (NYSBD) which
required the Bank, within specified time periods, to take action on thirteen
provisions as specified in the MOU. At December 31, 1995, the Bank has not fully
satisfied the following provisions of the MOU: development of a financial plan
and revision of the lending policies. As there are still instances of
noncompliance, the FDIC and NYSBD may take further supervisory actions as they
deem appropriate.
/S/ KPMG Peat Marwick LLP
March 15, 1996
<PAGE> 3
CICERO BANK
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 1,047,294
Interest-bearing deposits in other financial institutions 657,578
Federal funds sold 475,000
------------------
2,179,872
Securities available-for-sale, at fair value 6,057,815
Securities held-to-maturity, fair value of $2,038,906 1,950,675
Loans receivable, net 15,360,588
Accrued interest receivable 238,161
Equipment and leasehold improvements, net 198,310
Other assets 150,314
------------------
Total assets $ 26,135,735
==================
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Non interest-bearing 2,971,817
Interest bearing (time deposits of $100,000 or more
totaled $1,995,000) 18,351,637
------------------
Total deposits 21,323,454
Accrued interest payable and other liabilities 136,797
------------------
Total liabilities 21,460,251
------------------
Commitments and contingencies (notes 7, 9 and 10)
Stockholders' equity:
Common stock, $10 par value; authorized 450,000
shares; issued and outstanding 225,000 shares 2,250,000
Additional paid-in capital 2,250,000
Retained earnings 162,378
Net unrealized gain on securities, net of taxes 13,106
------------------
Total stockholders' equity 4,675,484
------------------
Total liabilities and stockholders' equity $ 26,135,735
==================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
CICERO BANK
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Interest income:
Loans receivable $ 1,584,324
Securities 462,300
Federal funds sold and other interest bearing deposits 61,127
----------------
Total interest income 2,107,751
----------------
Interest expense on deposits 872,889
----------------
Net interest income 1,234,862
Provision for loan losses 427,500
----------------
Net interest income after provision for loan losses 807,362
----------------
Other income:
Service charges on deposit accounts 88,973
Credit card fee income 54,045
Other 26,389
----------------
Total other income 169,407
----------------
976,769
----------------
Other expenses:
Salaries and employee benefits 589,998
Occupancy 236,796
Equipment 79,227
Service fees 79,308
Directors' fees 24,250
Other outside services 55,209
Regulatory assessments 31,400
Professional fees 144,280
Advertising and marketing 26,266
Office supplies 40,015
Postage and shipping 28,390
Other 100,470
----------------
Total other expenses 1,435,609
----------------
Loss before income taxes (458,840)
Income taxes 31,486
----------------
Net loss $ (490,326)
================
Net loss per common share $ (2.20)
================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
CICERO BANK
Statement of Changes in Stockholders' Equity
Year ended December 31, 1995
<TABLE>
<CAPTION>
Net unrealized
Additional gain
Common paid-in Retained (loss) on
stock capital earnings securities Total
----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 2,250,000 2,250,000 652,704 (179,245) 4,973,459
Change in net unrealized gain
(loss) on securities available-
for-sale, net of taxes
of $99,077 - - - 192,351 192,351
Net loss - - (490,326) - (490,326)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1995 $ 2,250,000 2,250,000 162,378 13,106 4,675,484
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
CICERO BANK
Statement of Cash Flows
Years ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $ (490,326)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 51,637
Deferred income taxes 61,868
Provision for loan losses 427,500
Amortization of premiums and discounts, net 45,558
Increase in accrued interest receivable and other assets (83,925)
Increase in accrued interest payable and other liabilities 19,257
----------------
Net cash provided by operating activities 31,569
----------------
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale 2,600,000
Purchases of securities available-for-sale (2,946,485)
Purchase of securities held-to-maturity (499,922)
Purchases of equipment and leasehold improvements,
net of disposals (1,666)
Net decrease in loans receivable 539,634
----------------
Net cash used in investing activities (308,439)
----------------
Cash flows from financing activities:
Net increase in deposits 604,431
----------------
Net cash provided by financing activities 604,431
----------------
Net increase in cash and cash equivalents 327,561
Cash and cash equivalents, beginning of year 1,852,311
----------------
Cash and cash equivalents, end of year $ 2,179,872
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refund) during the year for:
Interest 867,000
Income taxes (2,193)
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
CICERO BANK
Notes to Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
Organization
------------
Cicero Bank (Bank) is a commercial bank chartered by the State of New
York Banking Department. The Bank commenced operations on September
26, 1989 and primarily serves the banking needs of the Town of Cicero
and its surrounding communities.
Basis of Presentation
---------------------
The preparation of the 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, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications have been made to the prior years financial
statements to conform to the current year presentation.
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include
cash, due from banks, interest bearing deposits in other financial
institutions and federal funds sold.
Securities
----------
The Bank classifies its debt securities as either available-for-sale or
held-to-maturity. Held-to-maturity securities are those debt
securities that the Bank has the ability and intent to hold until
maturity. All other securities are classified as available-for-sale.
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized gains
and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of shareholders' equity until realized.
A decline in the fair value of any available-for-sale or
held-to-maturity security that is deemed to be other than temporary
results in a charge to earnings and a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of the
related security and an adjustment to yield using the interest
method. Interest income is recognized when earned. Purchases and
sales are recorded on a trade date basis with settlement occurring
shortly thereafter. Realized gains and losses on securities are
included in earnings and are calculated using the specific
identification method.
1 (Continued)
<PAGE> 8
CICERO BANK
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Loans Receivable
----------------
Loans receivable are stated at the principal amount outstanding. Fees and
certain direct origination costs related to lending activities are
recognized on a basis that approximates the interest method over the
lives of the loans.
Generally, interest income is not recognized on loans which are
delinquent over 90 days. Such loans are designated as non-accruing
and income is subsequently recognized to the extent management
believes, after considering economic and business conditions and
collection efforts, the borrower's financial condition warrants
accrual.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is maintained at a level which management
considers adequate to absorb loan losses based upon an evaluation of
known and inherent risks in the loan portfolio. Management's
evaluation is based upon a continuing review of the loan portfolio
which includes many factors, such as identification of adverse
situations which may effect the borrower's ability to repay, a review
of overall portfolio quality and an assessment of current and future
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Bank's allowance for loan losses. Such agencies may require the Bank
to recognize additions to the allowance based on their judgment of
information available to them at the time of their examination. The
allowance for loan losses is increased by provisions charged to
income and reduced by charge-offs of loans, net of recoveries.
Substantially all of the Bank's loan portfolio have been granted to
customers in the Bank's market area. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio
is susceptible to changes in market conditions in this area.
The Bank adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan as amended by SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures in 1995.
Management considers a loan to be impaired when it is probable that
the Bank will be unable to collect all amounts due according to the
original terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loans
observable market price or the fair value of collateral if the loan
is collateral dependent. In considering loans for evaluation of
impairment, management generally excludes large groups of small
balances, homogeneous loans such as residential mortgage loans and
consumer loans which are collectively evaluated. Impairment losses
are included in the allowance for loan losses through a charge to the
provision for loan losses. When a loan is impaired and the future
repayment of the recorded balance is doubtful, interest payments
received are applied to principal and no interest income is
recognized. If the recorded loan balance is expected to be paid,
interest income is recognized on a cash basis.
2 (Continued)
<PAGE> 9
CICERO BANK
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Equipment and Leasehold Improvements
- ------------------------------------
Leasehold improvements and furniture and equipment, are carried at cost
less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the
term of the lease or the useful life of the asset, if shorter.
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Income Per Share
----------------
Per common share data is computed based upon the weighted average number
of common shares outstanding during each period. There are no common
stock equivalents that would dilute income per share. The Bank's
weighted average shares outstanding for the year ended December 31,
1995 were 225,000.
(2) Securities
----------
Securities at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale
U.S. Government
obligations $ 6,037,958 48,914 29,057 6,057,815
============= ========== ============ ==============
Held-to-maturity:
U.S. Government
obligations $ 1,950,674 88,232 - 2,038,906
============= ========== ============ ==============
</TABLE>
3 (Continued)
<PAGE> 10
CICERO BANK
Notes to Financial Statements
(2) Securities, Continued
---------------------
The contractual maturity distribution of debt securities as of December
31, 1995 is as follows:
<TABLE>
<CAPTION>
Securities Available- Securities Held-
for-Sale to-Maturity
-------- -----------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 2,017,398 2,013,594 499,961 504,375
Due after one year through
five years 4,020,560 4,044,221 1,450,713 1,534,531
------------- ------------- --------------- -------------
$ 6,037,958 6,057,815 1,950,674 2,038,906
============= ============= =============== =============
</TABLE>
Approximately $2,000,000 of these U.S. Government agency securities have
been pledged to secure deposits as required or permitted by law.
There were no sales of securities in 1995.
(3) Loans Receivable
----------------
Loans receivable at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Real estate loans $ 4,924,728
Commercial loans 6,446,762
Consumer loans 4,556,185
---------------
15,927,675
Allowance for loan losses 567,087
---------------
Total loans receivable $ 15,360,588
===============
The following summarizes the changes in the allowance for loan losses
during 1995:
Balance at January 1 $ 246,591
Provision charged to operations 427,500
Charge-offs (114,345)
Recoveries 7,341
------------
Balance at December 31 $ 567,087
============
</TABLE>
4 (Continued)
<PAGE> 11
CICERO BANK
Notes to Financial Statements
(3) Loans Receivable, Continued
---------------------------
As discussed in note 1, the Bank changed its method of accounting for
impairment of loans in 1995 to adopt the provisions of SFAS No. 114.
At December 31, 1995, loans that are considered to be impaired
totaled $607,038. Included in this amount is $279,735 of impaired
loans for which an allowance for loan losses of $252,385 has been
provided and $327,303 of impaired loans that as a result of the
adequacy of underlying collateral do not require an allowance for
loan losses. The average recorded investment in impaired loans during
1995 was $566,485. Interest income recognized on impaired loans was
$20,646 in 1995.
The principal balances of loans not accruing interest are $771,638 at
December 31, 1995. Interest foregone due to nonaccruing loans
approximated $58,000 for the year ended December 31, 1995.
(4) Equipment and Leasehold Improvements
------------------------------------
Equipment and leasehold improvements at December 31, 1995 are summarized
as follows:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements $ 220,396
Furniture and equipment 364,377
------------
584,773
Less accumulated depreciation and
amortization 386,463
------------
$ 198,310
============
</TABLE>
(5) Income Taxes
------------
Total income taxes for the year ended December 31, 1995 were allocated as
follows:
<TABLE>
<CAPTION>
<S> <C>
Income from operations $ 31,486
Changes in stockholders' equity, for changes
in unrealized gain (loss) on securities 99,077
------------
$ 130,563
============
</TABLE>
5 (Continued)
<PAGE> 12
CICERO BANK
Notes to Consolidated Financial Statements
(5) Income Taxes, Continued
-----------------------
The components of income tax expense (benefit) attributable to income
from operations for the year ended December 31, 1995 consist of:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal $ (32,083)
State 1,701
------------
(30,382)
Deferred:
Federal 39,669
State 22,199
------------
61,868
------------
$ 31,486
============
Deferred tax expense (exclusive of the
change in valuation allowance) (106,816)
Change in valuation allowance 168,684
============
$ 61,868
============
Actual tax expense differs from "expected" tax expense, computed by
applying the U.S. Federal statutory tax rate of 34% to income before
income taxes at December 31, 1995 is as follows:
Computed "expected" tax expense $ (156,006)
Increases decrease in income taxes
resulting from:
State taxes, net Federal benefits 15,774
Change in valuation allowance 168,684
Other items, net 3,034
------------
$ 31,486
============
</TABLE>
6 (Continued)
<PAGE> 13
CICERO BANK
Notes to Consolidated Financial Statements
(5) Income Taxes, Continued
-----------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 are:
<TABLE>
<CAPTION>
<S> <C>
Assets:
Allowance for loan losses $ 199,680
Deferred rent 21,637
-----------
Total gross deferred tax assets 221,317
Less valuation allowance (168,684)
-----------
Net deferred tax assets 52,633
Liabilities:
Depreciation 877
Net unrealized gain on securities 6,751
-----------
Total gross deferred tax liabilities 7,628
-----------
Net deferred tax assets $ 45,005
===========
</TABLE>
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income
within the carryback period. A valuation allowance is provided when
it is more likely than not that some portion of the deferred tax
assets will not be realized. In assessing the need for a valuation
allowance, management considers the scheduled reversal of the
deferred tax liabilities, the level of historical taxable income and
projected future taxable income. A valuation allowance was
established in 1995 due to limited taxes paid in the carryback period
and historical earnings.
(6) Employee Savings Plan
---------------------
The Bank has an employee savings 401(k) plan (the Plan), which covers
employees who have met minimum service and age requirements. Under
the terms of the Plan, eligible employees may defer portions of their
salary, subject to IRS limitations, as contributions to the Plan. The
Bank contributes a discretionary portion of participating employee
salaries. The Bank's contribution to the Plan was $1,583 for the year
ended December 31, 1995.
7 (Continued)
<PAGE> 14
CICERO BANK
Notes to Consolidated Financial Statements
(7) Commitments and Contingencies
-----------------------------
Lease Agreement
---------------
The Bank leases its premises under a noncancellable operating lease from
a related party. At December 31, 1995, minimum payments under this
lease are as follows: $140,475 in 1996; $135,900 in 1997; $114,600 in
1998; $114,080 in 1999; $117,978 in 2000; and $1,048,053 in later
years. In addition to required lease payments, the lease requires the
Bank to pay the property taxes and insurance costs.
The total annual lease expense was $168,305 in 1995.
Commitments to Extend Credit
----------------------------
In the normal course of business, there are outstanding various
commitments and contingent liabilities, such as commitments to extend
credit, which are not reflected in the accompanying financial
statements. Commitments to outside parties under standby letters of
credit, unused portions of lines of credit, and commitments to fund
new loans totaled $833,000 at December 31, 1995.
Contingencies
-------------
The Bank is involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these
matters is not expected to have a material adverse effect on the
financial condition of the Bank.
Other
-----
At December 31,1995, the Bank had an unused line of credit with another
bank. The line totals $1,000,000, has a variable interest rate based
on the lending bank's prime rate, and is due on demand. The line is
collateralized with U.S. Treasury securities.
Financial Instruments with Off-Balance Sheet Risk
-------------------------------------------------
The Bank 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 include commitments to extend
credit and letters of credit. These instruments involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other parties to the financial instrument for commitments to extent
credit and letters of credit is represented by the amounts of those
commitments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance
sheet instruments. The Bank controls credit risk through credit
approvals, limits and monitoring procedures. Management believes that
market risk from the Bank's commitments to extend credit is minimal.
8 (Continued)
<PAGE> 15
CICERO BANK
Notes to Consolidated Financial Statements
(7) Commitments and Contingencies, Continued
----------------------------------------
Financial Instruments with Off-Balance Sheet Risk, Continued
------------------------------------------------------------
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 many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on
a case by case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counter-party. Collateral held
varies but may include cash, securities, receivables, inventory, and
equipment.
(8) Disclosures About the Fair Value of Financial Instruments
---------------------------------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, as
amended by SFAS No. 119, Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments, became effective
for the Company in 1995. SFAS No. 107 requires disclosures about the
fair value of financial instruments for which it is practicable to
estimate fair value. The definition of a financial instrument
includes many of the assets and liabilities recognized in the Bank's
balance sheet, as well as certain off-balance sheet items. Fair value
is defined in SFAS Nos. 107 and 119 as the amount at which a
financial instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents
-------------------------
The carrying amounts for cash and due from banks approximate the
estimated fair values of such assets.
Securities
----------
Fair values for securities are based on quoted market prices, if
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans Receivable
----------------
The fair values of loans are estimated based on discounted cash flow
analyses using interest rates currently offered for loans with
similar terms to borrowers of similar credit quality.
9 (Continued)
<PAGE> 16
CICERO BANK
Notes to Consolidated Financial Statements
(8) Disclosures About the Fair Value of Financial Instruments, Continued
--------------------------------------------------------------------
Deposit Liabilities
-------------------
The fair values estimated for demand deposits (e.g., interest and
non-interest bearing demand deposits, savings, and certain types of
money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying
amounts). Fair values of fixed rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered to a schedule of aggregated
expected monthly time deposit maturities.
The estimated fair value of the Bank's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
1995
----
Carrying Fair
value value
----- -----
<S> <C> <C>
Financial assets:
Cash and due from banks $ 2,180 2,180
Securities 8,008 8,097
Loans receivable 15,928 16,030
Financial liabilities:
Deposits 21,323 20,123
</TABLE>
(9) Regulatory Matters
------------------
The Bank is regulated by the State of New York Banking Department (NYSBD)
and the Federal Deposit Insurance Corporation (FDIC) and is subject
to capital adequacy requirements of the FDIC. The Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), established
capital levels for which insured institutions will be categorized as
well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized.
Under FDICIA, a "well capitalized" institution must have a risk-based
capital ratio of 10%, a leverage capital ratio of 5% and a tier 1
risk-based capital ratio of 6%. The Bank is a "well capitalized"
institution under the definitions.
In April 1993, the Bank received a Memorandum of Understanding (MOU)
from the FDIC and NYSBD which required the Bank, within specific time
periods, to take action on thirteen provisions as specified in the
MOU. At December 31, 1995, the Bank has not fully satisfied the
following provisions of the MOU: development of a financial plan and
revision of the lending policies. As there are still instances of
noncompliance, the FDIC and NYSBD may take further supervisory
actions as they deem appropriate.
10 (Continued)
<PAGE> 17
CICERO BANK
Notes to Consolidated Financial Statements
(9) Regulatory Matters, Continued
-----------------------------
The Bank is subject to legal limitations on the amount of dividends it
can pay. Dividends are limited to net profits for the current periods
and retained net profits for the two preceding years as defined by
New York State Banking Law.
(10) Subsequent Events
-----------------
In January 1996, the Bank entered into an agreement to purchase the
building in which their main office is located from a related party.
By purchasing the building, the Bank will terminate a long-term lease
that was to expire in the year 2009. The purchase price is $725,000,
and the building has been recently appraised at approximately
$480,000. The agreement is subject to regulatory approval and the
approval of the Bank's stockholders.
On February 6, 1996, the Bank entered into a Purchase and Assumption
Agreement with Center Banks Incorporated and its wholly-owned
subsidiary, Skaneateles Savings Bank, a New York State chartered
savings bank (collectively Center Banks), pursuant to which Center
Banks will acquire substantially all of the Bank's assets and assume
substantially all of the Bank's deposit liabilities. The transaction,
which is subject to regulatory approval and the approval of the
Bank's stockholders, is expected to close in mid-1996.
11
<PAGE> 18
Center Banks Incorporated and Cicero Bank Appendix B
Unaudited Pro Forma Condensed Balance Sheet
December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Center Banks
Purchase and and CiceroBank
Center Cicero Assumption After Purchase
Banks Bank Adjustments and Assumption
------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 9,289 2,180 (1,980) (a) 9,489
Investment Securities 21,457 8,008 (3,421) (b) 26,044
Loans 171,634 15,928 0 187,562
Allowance for loan losses (2,667) (567) 0 (3,234)
........................................................... ............. ............... .................
Loans receivable, net 168,967 15,361 0 184,328
Other assets 10,934 587 725 (c) 12,246
........................................................... ............. ............... .................
$ 210,647 26,136 (4,676) 232,107
- ----------------------------------------------------------- ------------- --------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits 179,119 21,323 0 200,442
Borrowings 14,386 0 0 14,386
Other liabilities 2,203 137 0 2,340
........................................................... ............. ............... .................
Total liabilities 195,708 21,460 0 217,168
- ----------------------------------------------------------- ------------- --------------- -----------------
Stockholders' equity 14,939 4,676 (4,676) (d) 14,939
- ----------------------------------------------------------- ------------- --------------- -----------------
210,647 26,136 (4,676) 232,107
- ----------------------------------------------------------- ------------- --------------- -----------------
</TABLE>
See notes to Unaudited Pro Forma Condensed Financial Statements
<PAGE> 19
Center Banks Incorporated and Cicero Bank Appendix B
Unaudited Pro Forma Condensed Statement of Income
Year ended December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Center Banks
Purchase and and Cicero Bank
Center Cicero Assumption After Purchase
Banks Bank Adjustments and Assumption
------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Interest income $ 15,871 2,108 (170) (e) 17,809
Interest expense 8,608 873 0 9,481
- ------------------------------------------------------------ ------------- ---------------- ------------------
Net interest income 7,263 1,235 (170) 8,328
Provision for loan losses 235 428 0 663
- ------------------------------------------------------------ ------------- ---------------- ------------------
Net interest income after provision
for loan losses 7,028 807 (170) 7,665
Other operating income 587 169 0 756
Other operating expenses 6,211 1,435 (281) (f) 7,365
- ------------------------------------------------------------ ------------- ---------------- ------------------
Income (loss) before income taxes 1,404 (459) 111 1,056
Income taxes 352 31 (119) (g) 264
............................................................ ............. ................ ..................
Net income $ 1,052 (490) 230 $ 792
- ------------------------------------------------------------ ------------- ---------------- ------------------
Net income per common share $ 1.13 (2.20) $ 0.85
Weighted average shares outstanding 927,633 225,000 927,633
</TABLE>
See notes to Unaudited Pro Forma Condensed Financial Statements
<PAGE> 20
Appendix B
Notes to Unaudited Pro Forma Condensed Financial Statements
December 31, 1995
(In Thousands)
Note: The book value of assets purchased and liabilities assumed approximate
their fair value as of December 31, 1995.
(a) Represents the use of cash by Cicero to purchase its banking office ($725)
and use of cash ($1,255) to pay portion of liquidating dividend to Cicero
stockholders.
(b) Represents the liquidation of a portion of Cicero's investment portfolio to
pay remainder of liquidating dividend to Cicero stockholders.
(c) Represents Cicero's purchase of its banking office (See Note a). The fair
value of the building, based upon current appraisals, is approximately
$480. Skaneateles will be paying $725 for the building. In accordance with
purchase accounting rules, the excess of the purchase price over fair value
($245), plus the costs of acquisition, will be capitalized as goodwill and
amortized straight line over 7 years.
(d) Represents payment of liquidating dividend to Cicero stockholders. $225
of this amount will be held in
escrow for a period of 1 year after closing.
(e) Represents a reduction of Cicero's interest income resulting from the sale
of investments to pay liquidating dividend to Cicero stockholders (See Note
b). The reduction is calculated using the average yield on Cicero's
investment portfolio as of January 1, 1995.
(f) Represents the reduction of identified expenses resulting from operation as
a branch office of Skaneateles Savings Bank instead of as an independent
bank. These estimated reductions are set forth below:
<TABLE>
<CAPTION>
1995 Historical Amount Pro Forma Reduction (Increase)
---------------------- ------------------------------
<S> <C> <C>
Occupancy & equipment 316 129
Professional services 224 91
Regulatory assessments 31 31
Amortization of purchase premium and
acquisition costs(1) 0 (56)
Other 275 86
</TABLE>
(1) Straight line amortization over 7 years.
(g) Represents adjustments to income tax expense using Center Banks effective
1995 tax rate of 25%.
