<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-18513
CENTER BANKS INCORPORATED
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1368745
-------- -----------
(State of incorporation) (I.R.S. Employer
Identification Number)
33 E. Genesee St. Skaneateles, New York, 13152-0460
---------------------------------------------------
(Address of principal executive office-Zip Code)
Registrant's Telephone Number including Area Code: (315) 685-2265
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
-----------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to
this Form 10-K. [ ]
As of March 15, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $11,289,000.
As of March 15, 1996, 1,034,509 shares of registrant's common stock were
outstanding, including 102,700 shares in the treasury.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Part of 10-K into which incorporated
-------- ------------------------------------
<S> <C>
Portions of the Annual Report to Shareholders
for the year ended December 31, 1995 Parts II and IV
Portions of the Proxy Statement for Annual Meeting
of Shareholders to be held April 16, 1996 Part III
Form 8-K Current Report dated February 20, 1996 Part IV
</TABLE>
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT 1995
CENTER BANKS INCORPORATED
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I.
Item 1. Business ................................................................................................1
Item 2. Properties .............................................................................................19
Item 3. Legal Proceedings ......................................................................................19
Item 4. Submission Of Matters To A Vote Of Security Holders ....................................................19
PART II.
Item 5. Market For The Registrant's Common Stock And Related Security Holder Matters ...........................20
Item 6. Selected Financial Data ................................................................................20
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations ........................................................................20
Item 8. Financial Statements And Supplementary Data ............................................................20
Item 9. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure .........................................................................20
PART III.
Item 10. Directors And Executive Officers Of The Registrant .....................................................21
Item 11. Executive Compensation .................................................................................21
Item 12. Security Ownership Of Certain Beneficial Owners And Management .........................................21
Item 13. Certain Relationships and Related Transactions .........................................................21
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................................21
</TABLE>
<PAGE> 3
PART I.
BUSINESS
GENERAL
Center Banks Incorporated ("Center Banks" or the "Company") is a
Delaware-chartered bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), the primary business of which is
the ownership and operation of its sole subsidiary, Skaneateles Savings Bank
("Skaneateles" or the "Bank"). Skaneateles is a New York-chartered stock
savings bank headquartered in the Village of Skaneateles, Onondaga County, New
York. Deposit accounts of the Bank are insured by the Bank Insurance Fund
("BIF"), as administered by the Federal Deposit Insurance Corporation ("FDIC").
In continuous operation since 1866, the Bank conducts business from seven
full-service banking offices located in Onondaga and Oswego counties of New
York State. Historically, Skaneateles has been engaged in the business of
attracting deposits from the general public and earning income on those funds
through various lending and investment activities. The Bank operated as a
single office savings bank in Skaneateles, New York until 1967 when it opened
its first branch office in Camillus, a suburb of Syracuse. During 1988, the
Bank opened an office in downtown Syracuse. In December 1994 the Bank
purchased a second branch in Syracuse. The Bank opened three in-store branches
in newly constructed or renovated supermarkets in Onondaga and Oswego counties
during the fourth quarter of 1994 and first four months of 1995, bringing the
total number of branches to seven. The in-store branches provide all the same
products and services as the Bank's traditional branches, with the exception
of safe deposit boxes.
As previously reported on Form 8-K Current Report dated February 20,
1996, on February 6, 1996, the Company and the Bank entered into a certain
Purchase and Assumption Agreement (the "Agreement") with Cicero Bank, a New
York State chartered commercial bank ("Cicero"), pursuant to which Skaneateles
will acquire substantially all of Cicero's assets and assume substantially all
of Cicero's deposit liabilities, subject to regulatory approvals and the
favorable vote of Cicero's shareholders. Assets to be acquired include
Cicero's sole banking branch and the improvements and equipment located
therein, and Cicero's loan portfolio. All assets will be valued at their book
value as of the last day of the month preceding the closing of the transactions
contemplated by the Agreement, net of loan loss reserves of $569,000. At
December 31, 1995, Cicero had total loans of approximately $15,706,000, net of
a loan loss reserve of approximately $217,000. The book value of the other
assets to be acquired was approximately $661,000 at December 31, 1995.
Skaneateles will pay the purchase price for the assets by assumption of
Cicero's deposit liabilities and certain specified contractual obligations,
such as safe deposit box contracts and miscellaneous lease obligations, entered
into by Cicero in the ordinary course of its business, valued at their book
value as of the last day of the month preceding the closing. At December 31,
1995, Cicero's deposit liabilities were approximately $21,319,000. All of the
above financial information for Cicero is unaudited. The parties intend that
the value of the liabilities assumed by Skaneateles will equal the value of the
assets being acquired. Under the Agreement, to the extent that the liabilities
being assumed by Skaneateles exceed the book value of the assets being
acquired, Cicero will, at the closing, make a payment to Skaneateles in the
form of cash or assignment of marketable securities having a value equal to the
amount of the shortfall. The Agreement provides for a post-closing
verification of this amount. The Agreement contains customary representations,
warranties and covenants by Cicero with respect to its business and the assets
being acquired and liabilities being assumed by Skaneateles. Closing of the
transactions contemplated by the Agreement is subject to several conditions,
primarily receipt of regulatory approvals and the favorable vote of Cicero's
shareholders holding two-thirds of Cicero's outstanding common stock.
Directors and officers of Cicero, who together with certain of their affiliates
hold approximately 50% of Cicero's outstanding common stock, have committed to
Registrant to vote their respective shares in favor of the transaction. The
Company anticipates closing to occur in June 1996.
Following the closing, the Company intends to conduct its banking
business through Skaneateles at the location acquired, and Cicero intends to
dissolve and liquidate. At the closing, Cicero will deposit into escrow for
the benefit of Registrant and Skaneateles the sum of $225,000 as security for
any damages they may incur as a result of Cicero's breach of any
representation, warranty or obligation on its part contained in the Agreement,
such escrow to exist for one year after the closing or until any disputes
between the parties are resolved.
The Company's financial performance depends primarily on the Bank's net
interest income, which is the difference between interest income on
interest-earning assets, primarily loans, investments and securities, and
interest
<PAGE> 4
expense on interest-bearing liabilities, primarily deposits and borrowings.
The relative amounts of interest-earning assets, deposits and borrowings also
impact net interest income. The Company's financial performance is also
affected by the establishment of provisions for loan losses and the level of
its other income, including fees on loans sold, deposit service charges, the
results of foreclosed real estate activities, gains or losses from the sale of
loans as well as its other operating expenses and income tax provisions. The
Company's financial performance has historically been affected by local
economics and competitive conditions, primarily in the market area of
Metropolitan Syracuse. Changes in market interest rates, government
legislation and policies concerning monetary and fiscal affairs, housing and
financial institutions and the attendant actions of the regulatory authorities
all have an impact on the Company's financial performance.
INTEREST SENSITIVITY ANALYSIS
The following table sets forth, as of December 31, 1995, information
regarding the interest-sensitive assets and liabilities of the Company.
<TABLE>
<CAPTION>
Over 3 Over 1 Over 5
0 to 3 to 12 to 5 to 10 Over 10
Months Months Years Years Years Total
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 3,400 0 0 0 0 3,400
Securities 2,376 7,782 8,438 1,310 1,350 21,256
Federal Home Loan Bank stock 1,303 0 0 0 0 1,303
Mortgage loans 19,057 51,363 36,427 23,688 13,634 144,169
Consumer loans 10,438 1,051 4,286 1,118 319 17,212
Commercial loans 10,184 0 0 0 0 10,184
- ------------------------------------------------------------------------------------------------------------------
Total 46,758 60,196 49,151 26,116 15,303 197,524
- ------------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
Deposits:
Savings and club accounts(1) 3,302 9,906 13,203 6,605 0 33,016
Time certificates 18,147 32,715 43,044 5,568 0 99,474
Money market accounts 21,448 0 0 0 0 21,448
Now and escrow accounts(1) 699 2,285 9,118 3,152 0 15,254
Borrowings 1,651 1,000 8,020 2,365 1,350 14,386
- ----------------------------------------------------------------------------------------------------------------
Total 45,247 45,906 73,385 17,690 1,350 183,578
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Gap $ 1,511 14,290 (24,234) 8,426 13,953 13,946
- ----------------------------------------------------------------------------------------------------------------
Cumulative gap $ 1,511 15,801 (8,433) (7) 13,946
- ----------------------------------------------------------------------------------------------------------------
Cumulative gap as a
percentage of
interest-earning
assets 0.76% 8.00% (4.27%) (0.00%) 7.06%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The scheduled repricing of savings and Now accounts is based on FDIC
guidelines. These guidelines state Savings and Now accounts may be
distributed across any of the first four time bands, with a maximum
of 20 percent in the 5 to 10 year time band and no more than 40
percent combined in years 3 through 10.
Although the gap approach delineates when a given dollar of assets or
liabilities has the ability to mature or reprice, it provides no insight
concerning the probable response of that asset or liability to changes in
interest rates. During 1995 management of the Company, while acknowledging
there is value in understanding the relative repricings and maturities of
interest-sensitive accounts, came to the conclusion that complete reliance on a
gap report to analyze the Company's interest rate risk position can lead to
undesirable investment and lending decisions.
2
<PAGE> 5
In view of this conclusion, the Company adopted a new model for interest
rate risk measurement, adding approaches known as income simulation and
rate-shock market-value analysis to traditional gap analysis. Income
simulation considers the maturity and repricing characteristics of assets and
liabilities and it captures the relative sensitivities of these balance sheet
components. Income simulation analysis attends to both the possibility and
probability of the behavior of balance sheet items.
Market value of equity analysis is intended to address the change in
equity value arising from movements in interest rates. The market value of
equity is estimated by valuing the Company's assets and liabilities. The
extent to which assets have gained or lost value in relation to the gains or
losses of liabilities determines the appreciation or depreciation in equity on
a market-value basis. For example, in a rising- rate environment, both assets
and liabilities decrease in value. If the assets lose relatively more value
than the liabilities, the market value of equity will shrink. Conversely,
should the liabilities depreciate by a proportionally greater amount, the
market value of equity will increase despite the fact that rates have risen.
In the latter case, the Company's obligations have lost more value than its
assets, and hence the Company has realized greater equity value.
Because of the ability to model the relative rate sensitivities of
assets and liabilities, management believes it can more clearly define the
ability of the Company to absorb or benefit from shifts in interest rates.
Proposed strategies to manage perceived risks can be tested in the computer
model prior to implementation. Overall, the use of the Company's simulation
model greatly enhances the planning process.
3
<PAGE> 6
RATE/VOLUME ANALYSIS
The following table presents changes in interest income and expense
attributable to (i) changes in volume (change in volume multiplied by old
rate), and (ii) changes in rate (change in rate multiplied by old volume). The
net change attributable to the combined impact of volume and rate has been
allocated in proportion to the absolute change due to volume and the change due
to rate. Interest earned on non-accruing loans is included in interest income
on loans only when collected, but the average balances of such loans are
included in the average balances of loans.
<TABLE>
<CAPTION>
1995 1994
------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
VOLUME RATE NET VOLUME RATE NET
--------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income on interest-earning
assets:
Mortgage loans $ 1,266 949 2,215 2,486 (292) 2,194
Other loans (69) 422 353 (442) 221 (221)
Securities 105 127 232 (778) (45) (823)
Federal funds sold 126 5 131 (93) 39 (54)
- --------------------------------------------------------------------------------------------------------------
Total 1,428 1,503 2,931 1,173 (77) 1,096
- --------------------------------------------------------------------------------------------------------------
Interest expense on interest-bearing
liabilities:
Deposits:
Savings and club accounts $ (108) 50 (58) 19 (70) (51)
Time certificates 1,481 712 2,193 145 (140) 5
Money market accounts (142) 137 (5) (35) (22) (57)
Now and escrow accounts 41 24 65 9 (57) (48)
- --------------------------------------------------------------------------------------------------------------
Total deposits 1,272 923 2,195 138 (289) (151)
Borrowings (13) 77 64 626 (114) 512
- --------------------------------------------------------------------------------------------------------------
Total 1,259 1,000 2,259 764 (403) 361
- --------------------------------------------------------------------------------------------------------------
Net interest income $ 169 503 672 409 326 735
- --------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. Skaneateles' loan portfolio is
predominantly comprised of conventional real estate mortgages, primarily on
residences and one-to-four-family dwellings, but also including commercial real
estate. The Bank's primary emphasis in the past has been on the origination of
residential mortgages.
The following table sets forth the composition of Skaneateles' loan
portfolio by loan type as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------- ------------- ------------ ------------- ----------------
1995 1994 1993 1992 1991
------------- ------------- ------------ ------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------------- -------------- ------------- ------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by first
mortgages
on real estate:
Residential $ 116,320 67.80% 110,404 66.10% 87,623 61.16% 53,033 46.92% 54,098 46.65%
Commercial 27,357 15.94% 28,175 16.87% 25,854 18.05% 24,423 21.61% 23,830 20.55%
Other loans:
Commercial 10,631 6.20% 13,274 7.95% 15,574 10.87% 20,571 18.20% 24,626 21.23%
Home equity and
improvement 14,578 8.50% 13,219 7.92% 12,454 8.69% 12,499 11.06% 9,672 8.34%
Guaranteed student 858 0.50% 789 0.47% 825 0.58% 1,094 0.97% 1,734 1.50%
Other consumer 1,821 1.06% 1,148 0.69% 928 0.65% 1,407 1.24% 2,011 1.73%
- ----------------------------------------------------------------------------------------------------------------------------------
Total 171,565 100.00% 167,009 100.00% 143,258 100.00% 113,027 100.00% 115,971 100.00%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total loans were $171.6 million at December 31, 1995, an increase of
$4.6 million or 2.8% from December 31, 1994. Residential mortgage loans
increased $5.9 million or 5.3% and were $116.3 million at December 31, 1995.
During 1995, the Bank originated $18.8 million of residential loans, a decrease
of $18.7 million or 49.9% from 1994's originations of $37.5 million. This
decrease is primarily the result of reduced loan demand caused by the lingering
effects of higher interest rates in late 1994 and early 1995 and a general
slowdown in the economy.
Approximately $12 million or 63.8% of the residential loans originated
in 1995 were for fixed rates of interest, compared with $18.2 million and
48.5%, respectively, in 1994. The shift in residential loan demand away from
variable rate loans into loans with fixed rates is a direct result of the sharp
drop in long term interest rates during 1995. At December 31, 1995 the average
rate for a 30 year fixed rate mortgage in the Company's market area was
approximately 7.5%, compared with a fully indexed rate of approximately 8.5%
for a 1 year ARM. It is expected that demand will continue to be more weighted
toward fixed rate loans until this rate difference narrows.
Commercial loans were $10.6 million or 6.20% of the total loan portfolio
at December 31, 1995, compared with $13.3 million or 7.95% at December 31,
1994. The decrease was due in large part to prepayments on existing loans
during 1995, compounded by slow growth in new loans due to a highly competitive
local market.
Consumer, home equity and improvement and student loans totaled $17.3
million or 10.06% of total loans at December 31, 1995, compared with $15.2
million or 9.08% at December 31, 1994.
Residential mortgage loans have accounted for most of the growth in the
Bank's loan portfolio over the past three years. During the latter part of
1995, the Bank began to place greater emphasis on commercial and consumer
lending which will continue indefinitely. These loans will provide a higher
level of return and greater diversification in the Bank's portfolio. The Bank
sees its market niche for commercial loans as being small to mid sized
businesses in central New York, including corporations, partnerships and sole
proprietorships. The Bank's commercial loan department recently instituted an
expanded calling program whereby lenders dedicate more of their time to making
calls on businesses. In addition, the Bank has attempted to increase its name
recognition in the business community via advertisements in trade journals,
business publications and participation in trade shows. In light of the
regionally soft
5
<PAGE> 8
economic conditions and highly competitive local market in which the Bank
operates, no assurances can be given as to how soon or to what extent the Bank
will achieve its objectives with respect to the mix of its loan portfolio.
The average yield on loans was 8.30%, 7.49% and 7.64% for the years
ended December 31, 1995, 1994 and 1993, respectively. Yields were up for all
categories of loans in 1995, due to the higher level of interest rates that
resulted from a series of rate hikes during 1994 and early 1995 by the Federal
Reserve (the Fed). The yield on mortgage loans increased .72% in 1995, and the
yield on all other loans increased 1.52%. Home equity lines and commercial
loans generally carry a variable rate of interest tied to the Bank's prime
rate. The rate on commercial loans adjusts whenever the prime rate changes.
Home equity adjustments take effect between 15 and 45 days after a change in
the prime rate. The Bank's prime rate, which is directly impacted by movements
in short term rates by the Fed, averaged 8.83% in 1995, compared with 7.04% in
1994.
Contractual maturities of mortgage loans do not reflect the actual term
of Skaneateles' loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments and
because of enforcement of due-on-sale clauses, which give Skaneateles the right
to declare a loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage while the
loan is outstanding. The average life of mortgage loans tends to increase,
however, when current mortgage rates substantially exceed rates on existing
mortgages, as was the case in 1995, and tends to decrease due to prepayments
when current mortgage interest rates are below the rates on existing mortgages,
as was experienced during 1992 and 1993.
The following table sets forth the contractual maturity of the
commercial loan portfolio and real estate construction loans at December 31,
1995.
<TABLE>
<CAPTION>
WITHIN ONE TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans - adjustable rate $ 2,709 4,732 1,670 9,111
Commercial loans - fixed rate 29 1,149 342 1,520
Real estate construction loans - adjustable 1,427 0 0 1,427
rate
- -----------------------------------------------------------------------------------------------------
Total $ 4,165 5,881 2,012 12,058
- -----------------------------------------------------------------------------------------------------
</TABLE>
The lending activities of Skaneateles are affected principally by the
demand for such loans, competition and the supply of funds available for
lending purposes. These factors are in turn affected by general economic
conditions, monetary policies of the Federal government, including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters.
ORIGINATION, PURCHASE AND SALE OF LOANS. Most of Skaneateles'
residential loan portfolio is secured by first mortgages on real estate located
in the greater Syracuse area, and to a lesser extent, the greater Rochester
area. Most local residential loans and commercial real estate loans are
originated directly by Skaneateles, although the Bank also originates
residential loans through mortgage brokers. The Bank also purchases loans for
its portfolio from time to time, although no purchases were made in 1995 or
1994. Loans purchased or originated through a broker are subject to the same
underwriting standards as loans originated directly by the Bank.
It is Skaneateles' policy to require borrowers to obtain title insurance
naming the Bank as the insured party on certain real estate loans. Borrowers
are required to obtain hazard insurance prior to closing. Borrowers typically
are required to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage escrow account from which Skaneateles
makes disbursements for items such as real estate taxes, hazard insurance and
private mortgage insurance premiums as they are due.
RESIDENTIAL REAL ESTATE LENDING. The Bank originates both fixed and
adjustable rate residential mortgages with a maximum maturity of 30 years, and
for fixed rate loans, a monthly or bi-weekly payment option. The bi-weekly
mortgages requires the borrower maintain a deposit account with the Bank from
which mortgage payments are
6
<PAGE> 9
automatically deducted. Loans will be granted in amounts up to 95% of
appraised value, however all loans with a loan-to-value ratio in excess of 80%
are required to carry private mortgage insurance sufficient to reduce the
Bank's exposure to 75% of appraised value.
Fixed rate mortgages are predominately underwritten in accordance with
secondary market standards, and therefore can be sold at any time in response
to changes in interest rates or to meet liquidity needs. Fixed rate mortgages
with terms of 15 years or less are originated for portfolio as long as they fit
the Company's established asset/liability mix, while fixed rate mortgages with
terms greater than 15 years are sold on the secondary market to control the
Company's interest rate risk.
The Bank offers adjustable rate loans, indexed to the one year or three
year U.S. Treasury Note, with rates that adjust annually (1 year ARM), or once
every three years (3 year ARM). The Bank also offers a 5/1 ARM, which has a
fixed rate of interest for the first five years. On the loan's fifth
anniversary, the rate converts to the current rate for a 1 year ARM, and
adjusts annually over the remaining term of the loan.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. Skaneateles originates
loans secured by multi-family (over four units) and commercial properties, such
as small office buildings, which are generally owner-occupied.
The majority of loans on income-producing property currently offered by
Skaneateles carry an adjustable rate tied to the one, three or five year U.S.
Treasury Note, typically with a maximum amortization period of 20 years. In
setting interest rates and origination fees on new loans and loan extensions,
management considers both current conditions and its analysis of the risk
associated with the particular project.
Skaneateles' underwriting policies with respect to loans on income
producing properties are designed to ensure that a project's cash flow will be
sufficient to cover operating expenses and debt service payments. A detailed
analysis of the project is undertaken by Skaneateles' commercial real estate
loan underwriters. Loan-to-value ratios on commercial real estate loans made
by Skaneateles generally do not exceed 75%. All income producing properties
are appraised by an independent appraiser approved by the Board of Directors.
Skaneateles requires that the borrower obtain title insurance and hazard
insurance in the amount of the loan, naming Skaneateles as loss payee.
COMMERCIAL LENDING. The Bank makes loans to small and medium-sized
businesses in its primary market area of Onondaga County, eastern Cayuga County
and the city of Oswego, New York, offering mortgages, secured and unsecured
working capital loans, term loans and lines of credit. Rates, terms,
compensatory balances, fees and charges are based upon market conditions and
the risk involved for each loan. The risks involved are determined based upon
a credit analysis performed on the potential borrower which emphasizes economic
conditions as well as the availability of cash flow from operations to support
the credits, and collateral.
Commercial loans generally involve a higher degree of risk than
residential mortgage loans. Unlike residential mortgage loans, which are
generally made on the basis of the borrower's ability to make repayment from
employment and other income and which are secured by real property whose value
tends to be easily ascertainable, commercial loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
business and are generally secured by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds
for the repayment of commercial loans may be substantially dependent on the
success of the business itself. Further, the collateral securing the loans may
depreciate over time, may not be appraised with as much precision as
residential real estate, and may fluctuate in value based on the success of the
business. The Bank attempts to mitigate the risks inherent in commercial
lending through its underwriting, documentation, financial analysis and
monitoring of the borrower's financial performance.
CONSUMER LENDING. New York State law permits Skaneateles to engage in
various types of consumer lending. Consumer loan products include auto and
boat loans, unsecured personal loans, home equity loans and home equity line of
credit. All consumer loans except home equity lines of credit carry fixed
rates of interest and terms ranging from three years to fifteen years. The
Bank's home equity line of credit program offers a credit line secured by a
second mortgage of up to 75% of appraised market value less other mortgages
outstanding on residential properties, repricing monthly indexed to the prime
rate. The spread over prime is determined by the Bank's asset/liability
committee and was 1.5% at December 31, 1995. Two repayment programs are
available to borrowers. Under the first program, no principal payments are
required for five years, then the balance of principal and interest is repaid
over the next twenty
7
<PAGE> 10
years. Under the second program, interest and principal payments are made
monthly over a twenty year period. The Bank also originates student loans and
hold them in its portfolio while the student is in school. At the time the
loan is to go into repayment it will be sold to the Student Loan Marketing
Association under a continuing commitment.
LOAN ORIGINATION FEES AND OTHER FEES. Loan origination fees vary with
the volume and type of loans made and with competitive conditions in the
mortgage market. Loan demand, new construction activity and availability of
money affect these market conditions. The Bank defers net loan fees (costs)
and amortizes such net fees (costs) over the life of the loan as an adjustment
of yield.
DELINQUENCIES. When a borrower fails to make a scheduled payment on a
loan, Skaneateles takes steps to have the borrower cure the delinquency.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition precludes accrual. Generally, interest income is
not recognized on loans which are delinquent over 90 days, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case the loan is
returned to accrual status. If the delinquency exceeds 90 days or is not cured
through Skaneateles' normal collection procedures, Skaneateles will institute
measures to enforce its remedies resulting from the default, including, in the
case of mortgage loans, commencing a foreclosure action. In certain cases,
Skaneateles will also consider accepting from the mortgagor a voluntary deed to
the mortgaged premises in lieu of foreclosure. Property acquired by
Skaneateles as a result of foreclosure or by deed in lieu of foreclosure is
classified as "Real Estate Owned."
Other loan delinquencies are remedied in a similar fashion. The
collateral is repossessed and sold to pay off the loan balance. In the case of
unsecured installment and commercial business loans, Skaneateles either
commences legal action to collect the balance or negotiates a "work-out"
payment schedule over a period which may exceed the original term of the loan.
8
<PAGE> 11
The following table sets forth information with respect to loans delinquent 90
days or more, non-accrual loans, restructured loans, and real estate owned as
of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Residential real estate mortgages $ 271 317 291 582 686
Commercial (1) 1,757 2,894 2,481 1,900 4,271
Consumer 110 40 10 63 22
- ----------------------------------------------------------------------------------------------------------------
Total $ 2,138 3,251 2,782 2,545 4,979
- ----------------------------------------------------------------------------------------------------------------
Other loans past due 90 days or more
and still accruing:
Consumer (2) $ 1 0 12 16 25
Commercial (1) 0 447 0 0 0
Lease loans 0 0 0 0 52
- ----------------------------------------------------------------------------------------------------------------
Total $ 1 447 12 16 77
- ----------------------------------------------------------------------------------------------------------------
Restructured loans, not included above 1,125 932 1,006 901 114
- ----------------------------------------------------------------------------------------------------------------
Real estate owned 397 984 1,807 1,578 1,671
- ----------------------------------------------------------------------------------------------------------------
Total assets containing specific risk
elements $ 3,661 5,614 5,607 5,040 6,841
- ----------------------------------------------------------------------------------------------------------------
Ratio of total loans past due
90 days or more to gross loans 1.25% 2.05% 1.95% 2.27% 4.36%
- ----------------------------------------------------------------------------------------------------------------
Ratio of assets containing specific
risk elements to total assets 1.74% 2.78% 3.21% 2.98% 3.74%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes commercial real estate loans.
(2)Consists primarily of Guaranteed Student Loans.
The following table sets forth the amounts of interest income not recognized
on non-accruing loans during each period (not including the effect of loans
charged off during the period).
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income that would have been accrued
at original contract rates $ 155 172 104 112 181
Amount recognized as income (1) 0 0 0 0 83
- --------------------------------------------------------------------------------------------------------------------
$ 155 172 104 112 98
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Beginning in 1992, the Company wrote off all previously recognized
interest income on loans that were placed on non-accrual status. Prior
to 1992 interest previously recognized on loans at the time they went to
non-accrual status remained accrued.
Nonperforming assets (nonaccrual loans and real estate owned) totaled
$2.5 million, or 1.2% of total assets at December 31, 1995, down from $4.2
million, or 2.1% of total assets at December 31, 1994. Nonaccrual loans were
$2.1 million and $3.3 million at December 31, 1995 and 1994, respectively, and
consisted primarily of business loans
9
<PAGE> 12
and commercial real estate loans. The reduction in nonaccrual loans is
primarily attributable to the reclassification of a large commercial loan which
accounted for $1.1 million or 33.3% of nonaccrual loans at December 31, 1994,
due to its restructuring in 1995. This loan, which matures in 1996, is
included in the amount of loans considered by management to be impaired. Real
estate owned totaled $397,000 at December 31, 1995, which represents a decrease
of $587,000 or 59.7% from the balance at December 31, 1994. The Company wrote
down its REO portfolio by $237,000 in 1995 and sold properties with book values
aggregating $714,000, including two large non-residential properties which had
been owned by the Company for a number of years.
Potential problem loans at December 31, 1995 amounted to $3.5 million.
"Potential problem loans" are defined as loans which are not included with past
due and non-accrual loans discussed above, but about which management, through
normal internal credit review procedures, has information about possible credit
problems which may result in the borrowers inability to comply with the present
loan repayment terms. Included in potential problem loans are loans totaling
$2.7 million which are considered impaired under SFAS No.114, as discussed
below. There have been no loans classified for regulatory purposes as loss,
doubtful, or substandard that are not included above or which caused management
to have serious doubts as to the ability of the borrower to comply with
repayment terms. In addition, there were no material commitments to lend
additional funds to borrowers whose loans were classified as non-performing.
ALLOWANCE FOR LOAN LOSSES. Skaneateles uses the allowance method of
accounting for loan losses. Under this method, provisions for loan losses are
charged to operations and actual loan losses (recoveries) are charged
(credited) to the allowance. The allowance for loan losses represents amounts
provided to absorb anticipated future loan losses in the existing loan
portfolio. The adequacy of the allowance for loan losses is evaluated monthly,
and is determined primarily by management's informed judgment concerning the
amount of risk inherent in the portfolio. Management's judgment is based upon a
number of factors including historical loan loss experience, the present and
prospective financial condition of borrowers, estimated value of underlying
collateral, industry and geographic concentrations, and current and prospective
economic conditions.
The Company utilizes a risk rating system in its credit quality
estimation process. This system involves an ongoing review of business loans
and commercial real estate loans that culminates in loans being assigned a risk
rating based upon various credit criteria. If the review indicates a
sufficient level of risk, an allowance is established proportional to the
perceived risk for each loan. Loans not having an individually established
allowance are aggregated by the type of loan and an allowance is estimated
based upon aging statistics, past experience and economic factors.
As with any financial institution, poor economic conditions, high
interest rates, high unemployment and other matters outside of the Company's
control may lead to increased losses in the loan portfolio. Management has
various controls in place designed in an effort to limit losses, such as: 1) a
comprehensive "watch list" of possible loan problems, 2) a fully documented
policy concerning loan administration (loan file documentation, disclosures,
approvals, etc.) and 3) a loan review staff to audit for adherence to
established Company controls and to review the quality and anticipated
collectibility of the portfolio. The loan review department reports monthly to
the Executive Committee of the board of directors, which in turn, reports to
the full board of directors. The power to authorize charge-offs rests solely
with the board of directors.
The Financial Accounting Standards Board (FASB) issued Statement 114
"Accounting by Creditors for Impairment of a Loan" as amended by Statement 118,
"Accounting by Creditors for Impairment of a Loan -Income Recognition and
Disclosures". These statements prescribe recognition criteria for loan
impairment, generally related to commercial type loans, and measurement methods
for certain impaired loans and all loans whose terms are modified in troubled
debt restructuring subsequent to the adoption of these statements. A loan is
considered impaired when it is probable that the borrower will be unable to
repay the loan according to the original contractual terms of the loan
agreement. As of January 1, 1995, the Company has adopted the provisions of
SFAS No. 114 and SFAS No. 118. The effect of adoption was not material to the
consolidated financial statements.
Impaired loans, which included troubled debt restructured loans, were
$4,004,000 at December 31, 1995. Included in this amount is $2,688,000 of
impaired loans for which the related allowance for loan losses is $884,000, and
$1,316,000 of impaired loans for which no allowance is recorded due to the
adequacy of collateral values in accordance with SFAS 114. The amount of
interest income recognized on impaired loans in 1995 was approximately
$281,000. The Bank is not committed to lend additional funds to these
borrowers.
10
<PAGE> 13
The Company recognizes interest income on impaired loans using the cash
basis of income recognition. Cash receipts on impaired loans are generally
applied according to the terms of the loan agreement, or as a reduction of
principal, based upon management judgment and other factors.
Management believes that the allowance as of December 31, 1995 was
adequate based upon the quality of the loan portfolio at that date. Future
additions to the allowance will be based, among other factors, on changes in
economic conditions and financial stress of the Company's borrowers.
The following table sets forth the activity in the allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 3,040 2,938 2,847 4,019 2,371
Provision 235 360 600 455 5,651
Charge-offs
- -----------
Residential mortgages 0 (18) 0 0 0
Commercial mortgages (569) 0 (237) (522) (70)
Business (153) (331) (428) (1,145) (3,657)
Credit cards 0 0 0 0 383)
Other consumer (10) (17) (64) (30) (46)
- -------------------------------------------------------------------------------------------------------------------
(732) (366) (729) (1,697) (4,156)
- -------------------------------------------------------------------------------------------------------------------
Recoveries
- ----------
Commercial mortgages 0 0 4 0 41
Business 118 96 203 60 75
Credit cards 0 0 0 0 32
Other consumer 6 12 13 10 5
- ------------------------------------------------------------------------------------------------------------------
124 108 220 70 153
- ------------------------------------------------------------------------------------------------------------------
Net Charge-offs (608) (258) (509) (1,627) (4,003)
- ------------------------------------------------------------------------------------------------------------------
Ending Balance $ 2,667 3,040 2,938 2,847 4,019
- -------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the year
to average loans outstanding during the
year 0.36% 0.17% 0.41% 1.43% 2.99%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
The following table sets forth the allocation of the allowance for loan losses
as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ----------- ----------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consumer $ 80 59 34 39 39
Commercial (1) 2,517 2,926 2,850 2,670 3,822
Residential 70 55 54 138 158
- --------------------------------------------------------------------------------------------------------------------
$ 2,667 3,040 2,938 2,847 4,019
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes commercial real estate loans.
SECURITIES
Skaneateles has authority to purchase a wide range of securities,
subject to various restrictions. See "Regulation - New York Law."
Historically, Skaneateles' investment strategy was primarily to hold
securities for the purpose of providing liquidity and generating income. Such
securities consisted primarily of U.S. Treasury Notes, high grade corporate
bonds and mortgage-backed securities (primarily fixed rate and variable rate
pass through certificates issued and guaranteed by Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)).
Pursuant to the Bank's investment policy, all purchases for the investment
portfolio must be investment grade securities that are included in one of the
top four bond rating categories. At December 31, 1995, all of the corporate
bond portfolio consisted of investments which were included in such a category.
The Company classifies its debt securities as either available-for-sale or
held-to-maturity. Equity securities are classified as available- for-sale.
Held-to-maturity securities are those debt securities that the Company has the
ability and intent to hold until maturity. All other securities not included
as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized 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
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized
gains or losses associated with transfers of securities from held-to-maturity
to available-for-sale are recorded as a separate component of stockholders'
equity. The unrealized gains or losses included in the separate component of
equity for securities transferred from available-for-sale to held-for-maturity
are maintained and amortized into earnings over the remaining life of the
security as an adjustment to yield in a manner consistent with the amortization
or accretion of premium or discount on the associated security.
Securities available-for-sale were $8.7 million (including net
unrealized gains of $202,000) at December 31, 1995, compared with $17.3 million
(including net unrealized losses of $329,000) at December 31, 1994 and
consisted of U.S. government and agency obligations and mortgage-backed
securities. On January 1, 1995 the Company reclassified its entire portfolio
of mortgage-backed securities from available-for- sale to held-to-maturity, at
the securities' fair value of $8.3 million. The $234,000 unrealized loss on
the securities was maintained and is being amortized into earnings over the
remaining life of the securities as an adjustment to yield in a manner
consistent with the amortization or accretion of premium or discount on the
associated securities. The change reflected management's intention to hold the
securities to maturity and was done to shield equity from future volatility in
the fair value of the securities due to changes in market rates.
In November 1995, FASB issued a special report entitled "A GUIDE TO
IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES" (Guide). Concurrent with the initial adoption of the
Guide, but no later than December 31, 1995, the Company was permitted to
reassess the appropriateness of the classifications of all securities held at
the time and implement reclassifications without calling into question the
12
<PAGE> 15
Company's intent to hold other debt securities to maturity in the future. The
Company adopted the implementation guidance in November 1995 and transferred
securities with an amortized cost of $2,471,000 from the held-to-maturity
portfolio to the available-for-sale category. The $46,000 net unrealized gain
on the securities was recorded in the separate component of stockholders'
equity at the time of transfer.
Presented below are the carrying values (in thousands) of the securities
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993
<S> <<C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. government and Federal agency obligations $ 6,106 8,942 10,385
Mortgage-backed securities:
FNMA 0 191 246
FHLMC 2,547 8,143 10,189
Other asset-backed securities 0 0 48
- --------------------------------------------------------------------------------------------------------------
$ 8,653 17,276 20,868
- --------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY:
U.S. government and Federal agency obligations $ 6,026 1,963 0
Mortgage-backed securities:
FNMA 170 0 0
FHLMC 4,493 0 0
Obligations of states and political subdivisions 1,714 1,731 1,994
Corporate bonds, notes and debentures 401 901 1,467
- --------------------------------------------------------------------------------------------------------------
$ 12,804 4,595 3,461
- --------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
Skaneateles attracts both short-term and long-term deposits of
individuals and businesses by providing a wide assortment of accounts.
Included among these products are savings accounts, demand deposit accounts,
NOW accounts, money market deposit account (MMDA) and certificates of deposit.
Skaneateles has no brokered deposits. The Bank's most direct competition for
deposits has historically come from commercial banks and other savings
institutions located in its market area. The Bank faces additional significant
competition for investors' funds from short- term money market mutual funds and
issuers of corporate and government securities. Skaneateles competes for
deposits principally by offering depositors a wide variety of deposit programs
with competitive terms, convenient branch locations and hours, tax deferred
retirement programs and other services. Skaneateles does not rely upon any
individual group or entity for a material portion of its deposits.
Skaneateles offers fixed rate certificates of deposit with maturities of
91 days to seven years. A minimum of $500 is required to open a certificate of
deposit. Generally, interest rates on these certificates are determined by the
combination of open market interest rates, rates offered by competitors, and
the Bank's liquidity needs and income objectives. Interest is compounded and
credited monthly on such certificates.
The Bank currently offers a tiered money market deposit account which
earns interest at a rate of 2.50% to 3.69% depending on account balances.
Interest is compounded and credited monthly on these accounts.
Regular savings accounts (including club accounts) currently earn
interest at an annual rate of 2.85%, which accrues daily and is compounded and
credited monthly. A savings account must have a balance of at least $100 for
daily interest to accrue and must have a balance of at least $100 at the end of
the month for the accrued interest to be credited.
13
<PAGE> 16
Skaneateles offers a wide array of checking accounts, including a
non-interest bearing account which has no minimum balance requirement, no
monthly maintenance fee and no per check charge. The Bank also offers interest
bearing checking accounts whose rates vary based on the type of the account and
amount on deposit.
Skaneateles also offers non-deposit products including annuities and
mutual funds through an arrangement with a third party agent. These products
are not insured by the FDIC.
The following table sets forth deposits by type of account as of the dates
indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
---------------------- ---------------------- -------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings and club accounts 33,016 18.43% 36,255 21.24% 37,421 25.09%
Time certificates 99,474 55.54% 85,909 50.33% 65,575 43.96%
Money market accounts 21,448 11.98% 25,502 14.94% 27,706 18.57%
NOW accounts 13,244 7.39% 13,488 7.90% 11,437 7.67%
Demand accounts 9,927 5.54% 7,645 4.48% 5,159 3.46%
Escrow accounts 2,010 1.12% 1,897 1.11% 1,875 1.25%
- -------------------------------------------------------------------------------------------------------------
Total $ 179,119 100.00% 170,696 100.00% 149,173 100.00%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank offers preferred rates on certificates of deposit of $100,000
or more. These rates are determined daily based upon the factors noted above.
The Bank does not rely heavily on these deposits. At December 31, 1995, 1994
and 1993, the aggregate amounts of certificates of deposit in denominations of
$100,000 or more were approximately $9,074,000, $7,839,000 and $4,384,000,
respectively.
The following table presents the amounts of certificates of deposit in
denominations of $100,000 or more at December 31, 1995 which mature during the
periods indicated.
<TABLE>
<CAPTION>
MATURITY AMOUNT
-------- --------
<S> <C>
3 months or less $ 1,731
3 to 6 months 858
6 to 12 months 1,675
Over 12 months 4,810
- ------------------------------------------------------------
Total $ 9,074
- ------------------------------------------------------------
</TABLE>
During 1995, the Company's deposit base (including escrow accounts)
experienced an overall increase of $8.4 million or 4.9%. NOW and demand
accounts increased $2 million, time accounts grew by $13.6 million and savings
and money market accounts decreased $7.3 million. This change in the Company's
deposit mix is attributable primarily to the movement of rate sensitive savings
and money market accounts to higher yielding alternatives, such as time
accounts, in response to the higher market rates in late 1994 and early 1995.
This trend slowed considerably in the latter part of 1995 in response to lower
interest rates. Based on historical analysis, the Company believes that a
portion of its savings account balances are rate sensitive and may move to
higher yielding alternatives, such as time accounts, during a period of rising
rates.
14
<PAGE> 17
The Company's liquidity position is monitored daily and the
Asset/Liability Committee is responsible for setting general guidelines to
ensure maintenance of prudent levels of liquidity. Because of the multitude of
funding sources available to it, the Company does not foresee any difficulty in
generating sufficient liquidity.
The following table sets forth the average amount of and the average rate
paid on each category of deposits which is in excess of ten percent of average
total deposits.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
------------------- -------------------- ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------------------- ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings and club accounts $ 33,133 2.83% 37,045 2.59% 36,381 2.88%
Time certificates 97,596 5.74% 70,395 4.84% 67,461 5.04%
Money market accounts 23,000 3.33% 27,652 2.79% 28,916 2.86%
</TABLE>
The cost of funds increased for all categories of interest bearing
deposits listed above in 1995 compared with 1994, due to an overall increase in
open market interest rates in the latter part of 1994 and first half of 1995,
and local market competition. The Company's cost of funds has trended downward
beginning in the latter part of 1995 and continuing into 1996 due in large part
to the lower interest rate environment compared with most of 1995. Market
interest rates alone do not dictate the rates the Company pays for its funds,
although they are an important factor. Other factors that impact the Company's
cost of funds include liquidity needs, the desired mix of deposits and
borrowings, local market competition, asset growth objectives and profit
objectives.
BORROWINGS
The Bank occasionally borrows funds to invest in assets to manage its
asset/liability position and its net interest income. Additionally, the Bank
also borrowed $2.0 million from the Federal Home Loan Bank of New York (FHLB)
in 1987 at 10.51% for 15 years to fund the purchase of the downtown Syracuse
banking center.
The following table sets forth the borrowings of Skaneateles as of the dates
indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1995 1994 1993
-------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities sold under repurchase agreements $ 1,651 1,229 0
Overnight advances from the FHLB of New York 0 0 1,100
Advances from the FHLB of New York 11,000 11,000 8,000
Municipal securities sold with put options 1,735 1,755 2,020
- --------------------------------------------------------------------------------------------------------------
$ 14,386 13,984 11,120
- --------------------------------------------------------------------------------------------------------------
Weighted average interest cost of 6.70% 6.17% 8.04%
borrowings during the year
- --------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
SELECTED PERFORMANCE RATIOS
Selected performance ratios of the Company are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Return on Assets
Net Income / Average Total Assets 0.51% 0.54% 0.48%
Return on Equity
Net Income / Average Stockholders' Equity 7.24% 7.27% 6.30%
Dividend Payout Ratio
Cash Dividends Declared / Net Income 16.81% 11.32% 0
Equity to Asset Ratio
Average Stockholders' Equity /Average Total Assets 7.03% 7.38% 7.55%
</TABLE>
PERSONNEL
As of December 31, 1995 Skaneateles had 86 full-time equivalent
employees. The employees are not represented by a collective bargaining unit,
and Skaneateles considers its relationship with its employees to be good.
EXECUTIVE OFFICERS. The following information is supplied with respect
to the executive officers of the Company as of December 31, 1995.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
John P. Driscoll 55 Chairman, President and Chief
Executive Officer
J. David Hammond 51 Executive Vice President
J. Daniel Mohr 30 Treasurer
William J. Welch 46 Secretary
</TABLE>
16
<PAGE> 19
REGULATION
GENERAL
As a bank holding company, Center Banks Incorporated is subject to
regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). The Company is also required to file certain reports
and otherwise comply with the rules and regulations of the Securities and
Exchange Commission (the "Commission") under the federal securities laws.
Skaneateles Savings Bank is a banking corporation chartered under the laws of
the State of New York, and its deposits are insured by the Bank Insurance Fund
("BIF"), as administered by the FDIC. It is also a member of the FHLB System.
As such, Skaneateles is subject to the regulation, examination and supervision
of the Banking Department of the State of New York (the "Department") and the
FDIC. The Bank is further subject to the regulation of the Federal Reserve
Board with respect to reserves required to be maintained against deposits and
certain other matters. The Federal Reserve Board, the Department and the FDIC
issue regulations and require the filing of reports describing the activities
and financial condition of the institutions under their jurisdiction. Each
agency conducts periodic examinations to test compliance with various
regulatory requirements and generally supervises the operations of such
institutions. This supervision and regulation is intended primarily for the
protection of depositors. Certain of the regulatory requirements applicable to
the Company and to Skaneateles are referred to below or elsewhere herein.
FEDERAL BANK HOLDING COMPANY REGULATION. Center Banks is required to
file with the Federal Reserve Board annual reports and such additional
information as the Federal Reserve Board may require pursuant to the Bank
Holding Company Act of 1956, as amended (the "BHCA"). The Federal Reserve
Board may conduct examinations of Center Banks and its subsidiary. Under the
BHCA and regulations adopted by the Federal Reserve Board, a bank holding
company and its subsidiaries are prohibited from requiring certain tie-in
arrangements in connection with any extension of credit, lease, or sale of
property or furnishing of services.
Under the BHCA, Federal Reserve Board approval is required for any
action which causes a bank or other company to become a bank holding company
and for any action which causes a bank to become a subsidiary of a bank holding
company. A bank holding company must obtain Federal Reserve Board approval
before it acquires direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, it will own or control directly or
indirectly more than 5% of the voting stock of such bank unless it already owns
a majority of the voting stock of such bank. Federal Reserve Board approval
must also be obtained before a bank holding company acquires all or
substantially all of the assets of a bank or merges or consolidates with
another bank holding company. Any acquisition, directly or indirectly, by a
bank holding company or its subsidiaries of more than 5% of the voting shares
of, or interest in, or all or substantially all of the assets of any bank
located outside of the state in which the operations of the bank holding
company's banking subsidiaries are principally conducted may not be approved by
the Federal Reserve Board unless the laws of the state in which the bank to be
acquired is located expressly authorize such an acquisition.
A bank holding company is prohibited, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank or bank
holding company, and from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or furnishing services to
its subsidiaries.
The Federal Reserve Board has adopted capital adequacy guidelines
pursuant to which it assesses the adequacy of capital in examining and
supervising a bank holding company and in analyzing its applications to the
Federal Reserve Board. In addition, the Federal Reserve Board has the power to
issue capital directives (having the force of cease and desist orders) to
mandate the maintenance of adequate capital levels. The Company is in
compliance with Federal Reserve Board capital requirements.
FEDERAL DEPOSIT INSURANCE CORPORATION. Skaneateles' deposit accounts
are insured by the FDIC up to a maximum of $100,000 per insured depositor. As
an insured bank, Skaneateles is subject to certain FDIC requirements designed
to maintain the safety and soundness of individual banks and the banking
system. The FDIC periodically conducts examinations of insured institutions
and, based upon evaluations, may revalue assets of an insurance institution and
require establishment of specific reserves in amounts equal to the difference
between such revaluation and the book value of the assets. In addition, the
FDIC has adopted regulations and a statement of policy which define
17
<PAGE> 20
and establish certain minimum requirements for capital adequacy. Under the
regulations, insured state nonmember banks such as Skaneateles are required to
maintain minimum risk-based capital and leverage capital. The Bank is in
compliance with FDIC capital requirements.
The annual premium charge for FDIC insurance is based on the level of
capital maintained by the institution and results of periodic regulatory
examinations. The following table sets forth the annual premium charge for the
periods indicated for FDIC insurance per $100 of the Bank's total deposits.
<TABLE>
<CAPTION>
PREMIUM PER $100 OF TOTAL
DATE DEPOSITS
- ----------------------------------------------------------------------------------------
<S> <C>
January 1, 1996 to present (*) $.00
June 1, 1995 to December 31, 1995 $.04
January 1, 1995 to May 30, 1995 $.23
January 1, 1993 to December 31, 1994 $.26
</TABLE>
(*) The Bank's FDIC insurance premium was reduced to the legal minimum of
$2,000 per year effective for the first six months of 1996.
FEDERAL RESERVE SYSTEM. Skaneateles is subject to regulation of certain
matters by the Federal Reserve Board. The Federal Reserve Board requires
depository institutions, including savings banks the deposits of which are
insured by the FDIC, to maintain reserves in accordance with applicable
regulations for the purpose of facilitating the implementation of monetary
policy by the Federal Reserve System. Generally, the Federal Reserve Board
establishes reserve requirements for net transaction accounts. It also has
authority, subject to the satisfaction of certain conditions, to impose
emergency reserve and supplemental reserve requirements. As of December 31,
1995, net transaction accounts (transaction accounts, primarily NOW and regular
checking accounts, less certain permitted deductions) in the amount of $0 to
$52 million are subject to a reserve requirement of 3% of said amount. Net
transaction accounts over $52 million are subject to a reserve requirement of
$1,560,000 plus 10% of the total in excess of $52 million. However, $4.3
million of otherwise reservable liabilities are subject to an exemption from
reserve requirements. The amount of this exemption is subject to adjustment by
the Federal Reserve Board each calendar year. The Bank was in compliance with
its reserve requirements throughout 1995.
FEDERAL HOME LOAN BANK SYSTEM. In 1986, Skaneateles became a member of
the Federal Home Loan Bank System, which consists of twelve regional Federal
Home Loan Banks each subject to Federal Housing Finance Board supervision and
regulation. The Federal Home Loan Banks provide a central credit facility
primarily for member institutions. Skaneateles, as a member of the FHLB of New
York, is required to acquire and hold shares of capital stock in that Bank in
an amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts, and similar obligations at
the beginning of each year, or 5% of its advances (borrowings) from the FHLB,
whichever is greater. Skaneateles is in compliance with this requirement.
NEW YORK LAW
The Bank derives its lending and investment authority primarily from the
applicable provisions of the New York Banking Law and the General Regulations
of the Banking Board of the State of New York. Under these laws and
regulations, savings banks may invest in real estate mortgage, commercial and
consumer loans, home improvement and educational loans, certain types of debt
securities, including certain corporate debt securities and the federal and
state government and agency obligations, certain types of corporate equity
securities and certain other assets.
Savings banks have the power to make commercial, corporate and business
loans, to make secured and unsecured installment loans for personal, family and
household purposes, and to exercise trust powers upon approval of the Banking
Board. These lending powers are not subject to percentage of asset
limitations, although there are limits applicable to single borrowers.
18
<PAGE> 21
PROPERTIES
Skaneateles conducts its business from seven full-service offices and
one administrative office. The following table sets forth certain information
relating to each of Skaneateles' offices as of December 31, 1995.
<TABLE>
<CAPTION>
LEASE EXPIRATION NET BOOK
OWNED DATE INCLUDING VALUE AT
OR LEASED OPTIONS DECEMBER 31, 1995
--------------------------------------------------------------
BRANCH OFFICE LOCATION (IN THOUSANDS)
- ----------------------
<S> <C> <C> <C>
33 E. Genesee Street
Skaneateles, New York Owned N/A $514
13152
431 E. Fayette Street
Syracuse, New York 13202 Owned N/A 3,173
100 Kasson Road
Camillus, New York 13031 Leased 2000 63
Teall Ave. & Grant Blvd.
Syracuse, New York 13206 Leased 2014 220
3803 Brewerton Road
North Syracuse, New York 13212 Leased 2009 210
7785 Frontage Road
Cicero, New York 13039 Leased 2010 204
137 East State Street
Oswego, New York 13126 Leased 2010 223
ADMINISTRATIVE OFFICE
- ---------------------
27 Fennell Street
Skaneateles, New York 13152 Leased 2005 274
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings other than
routine legal proceedings undertaken in the ordinary course of business. In
the opinion of management, after consultation with counsel, the aggregate
amount involved in such proceedings is not material to the financial condition
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, there were no matters submitted to a
vote of the shareholders of Center Banks.
PART II.
19
<PAGE> 22
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The information contained on the inside back cover of the Company's
Annual Report to Shareholders for the year ended December 31, 1995 (the "Annual
Report") and page 1 of the definitive Proxy Statement are incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Cash dividends declared per share $ 0.19 0.12 0 0 0
</TABLE>
Other required information contained in the table on page 6 of the
Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in the
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements contained in the 1995 Annual
Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE> 23
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the reporting to the Securities and Exchange Commission (the
"Commission") within required time frames of transactions in Company common
stock by insiders. All filings required under Section 16 of the Exchange Act
during 1995 were filed on a timely basis, except for a Form 4 for J. David
Hammond, Executive Vice President, which was filed late due to an oversight. In
making these statements, the Company has relied on written representations of
its incumbent executive officers and directors.
Additional information regarding directors of the Company is
incorporated by reference from pages 2 to 5 of the definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is incorporated by reference from pages
6 to 7 of the definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference from pages
2 to 4 of the definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)(1) The following financial statements are incorporated herein by reference:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994
and 1993.
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements
(a)(2) There are no financial statement schedules which are required to be
filed as a part of this form since they are not applicable.
(a)(3) See (c) below for all exhibits filed herewith.
(b) During the three-month period ended December 31, 1995, the Registrant filed
a Form 8-K announcing the election of Anne E. O' Connor to the Company's
Board of Directors. No financial statements were filed with this report.
21
<PAGE> 24
(c) Exhibits. The following exhibits are either filed as part of this annual
report on Form 10-K, or are incorporated herein by reference:
<TABLE>
<CAPTION>
No. Exhibit
- --- -------
<S> <C>
3.1 Certificate of Incorporation of Center Banks Incorporated (1)
3.2 Certificate of Amendment of Certificate of Incorporation of Center
Banks Incorporated (1)
3.3 Bylaws of the Company (2)
10.1 Employment Agreement dated as of January 1, 1996 between Skaneateles
Savings Bank and John P. Driscoll
10.2 Employment Agreement dated as of March 19, 1996 between Skaneateles
Savings Bank and J. David Hammond
10.3 Employment Agreement dated as of March 19, 1996 between Skaneateles
Savings Bank and Karen E. Lockwood
10.4 Employment Agreement dated as of March 19, 1996 between Skaneateles
Savings Bank and John A. Mason
10.5 Employment Agreement dated as of March 19, 1996 between Skaneateles
Savings Bank and J. Daniel Mohr
10.6 Employment Agreement dated as of March 11, 1996 between Skaneateles
Savings Bank and William J. Welch
10.7 Purchase and Assumption Agreement by and between Cicero Bank,
Skaneateles Savings Bank and Center Banks Incorporated dated February
2, 1996 (3)
13 Annual Report to Shareholders for the Year Ended December 31, 1995
21 List of Registrant's Subsidiaries
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
<FN>
- -------------------
(1) Exhibit is incorporated herein by reference to the identically numbered
exhibit to the 1990 Form 10-K filed by the Company with the Securities and
Exchange Commission on April 1, 1991.
(2) Exhibit is incorporated herein by reference to the identically numbered
exhibit to the 1994 Form 10-K filed by the Company with the Securities and
Exchange Commission on March 31, 1994.
(3) Exhibit is incorporated herein by reference to exhibit 2.1 to the Form 8-K
Current Report dated February 20, 1996 filed with the Securities and
Exchange Commission on February 20, 1996.
</TABLE>
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Center Banks Incorporated
- -------------------------
Registrant
<TABLE>
<S> <C> <C>
By: /s/ John P. Driscoll Date: March 26, 1996
-------------------- --------------
John P. Driscoll
Chairman, President and Chief
Executive Officer
By: /s/ J. Daniel Mohr Date: March 26, 1996
------------------ --------------
J. Daniel Mohr
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Clifford C. Abrams Date: March 26, 1996
---------------------- --------------
Clifford C. Abrams
Director
Date:
------------------------ ---------------
Israel Berkman
Director
/s/ David E. Blackwell Date: March 26, 1996
---------------------- --------------
David E. Blackwell
Director
/s/ Walter D. Copeland Date: March 26, 1996
---------------------- --------------
Walter D. Copeland
Director
Date:
---------------------- --------------
Carl W. Gerst
Director
/s/ John Bernard Henry Date: March 26, 1996
---------------------- --------------
John Bernard Henry
Director
Date:
---------------------- --------------
Ann G. Higbee
Director
Date:
---------------------- --------------
Bruce H. Leslie
Director
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
Date:
--------------------------- --------------
Howard J. Miller
Director
/s/ Raymond C. Traver, Jr., M.D. Date: March 26, 1996
-------------------------------- --------------
Raymond C. Traver, Jr., M.D.
Director
/s/ Anne E. O'Connor Date: March 26, 1996
--------------------------- --------------
Anne E. O' Connor
Director
</TABLE>
24
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 1, 1996, by and
among Center Banks Incorporated, a Delaware corporation (the "COMPANY"), and
its wholly-owned subsidiary, Skaneateles Savings Bank (the "BANK"), each having
its principal place of business at 33 East Genesee Street, Skaneateles, New
York 13152-0460, and John P. Driscoll, residing at 4 West Lake Street,
Skaneateles, New York 13152 ("EXECUTIVE").
In consideration of the mutual covenants herein contained, the Company,
the Bank and Executive, intending to be legally bound, hereby agree as follows:
A. TERMS OF EMPLOYMENT
1. EMPLOYMENT. Executive shall serve as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company and the Bank
and shall continue to be employed by the Company and the Bank exclusively in
those capacities during the term hereof. Executive shall have such executive,
policy and management authority and prerogative as is customarily given to
persons serving in such capacities, and shall also perform such key executive
duties and responsibilities for the Company and the Bank as may from time to
time reasonably be specified by their respective Boards of Directors.
2. TERM. This Agreement shall be effective from January 1, 1996
until terminated in accordance with the provisions hereof.
3. EXECUTIVE DUTIES. Executive agrees that during the term of this
Agreement and his employment hereunder, he will devote his full business time
and energy to the business, affairs and interests of the Company and the Bank,
which he will serve diligently and to the best of his ability.
4. COMPENSATION. The Bank agrees to pay to Executive, as
compensation for the services rendered by him to the Company or the Bank during
the term of this Agreement and his employment hereunder, the following:
(a) Base Salary. A base salary for 1996 of $118,350.
Executive's base salary for 1997 shall be increased in an amount not exceeding
the increase, if any, in the Consumer Price Index (Urban Wage Earners and
Clerical Workers, U.S. City Average, All Items) for 1996 over the prior year.
In 1998 and thereafter Executive's base salary shall annually be reviewed and
fixed as determined by the Board of Directors of the Company in its discretion,
provided, however, that in no event shall Executive's base salary be reduced
without his prior written consent.
<PAGE> 2
(b) Formula Cash Bonus. A cash bonus (the "Formula Bonus"), payable in the
first quarter of each year beginning in 1996 and determined with reference to
the Company's actual earnings per share for the immediately preceding fiscal
year, in an amount which, on an after-tax basis calculated using Executive's
effective tax rate for the prior year, is equal to:
<TABLE>
<CAPTION>
IF ACTUAL EARNINGS PER SHARE ARE: THEN EXECUTIVE'S BONUS SHALL BE:
<S> <C>
Less than Budget EPS $0
Equal to Budget EPS $5,000
Budget EPS plus $.06 per share $10,000
Budget EPS plus $.12 per share $15,000
Budget EPS plus $.18 per share $20,000
Budget EPS plus $.30 per share $25,000
</TABLE>
For purposes of this Section 4, "Budget EPS" means the earnings per share
approved by the Board of Directors of the Company in its budget for a given
fiscal year, appropriately adjusted to reflect any stock splits, combination of
shares, stock dividends, rights offerings, or other changes in the corporate
structure of shares of the Company. Budget EPS for any fiscal year shall, for
purposes of this Agreement, always be equal to or greater than Budget EPS for
the preceding fiscal year. If Budget EPS for any fiscal year is less than
Budget EPS for the preceding fiscal year, then the figure for the preceding
fiscal year shall be used in calculating Executive's Formula Bonus hereunder.
Any Formula Bonus determined to be payable hereunder shall be invested in the
Annuity (as hereinafter defined).
(c) Discretionary Cash Bonus. Such cash bonus (the
"Discretionary Bonus") as the Board of Directors of the Company may, in its
discretion, award to the Executive from time to time. The Formula Bonus and
the Discretionary Bonus, if any, are collectively referred to in this Agreement
as the "Bonus."
5. ANNUITY. As additional compensation for the services rendered by
him, the Company and the Bank, jointly and severally, agree to pay, for the
account of Executive, each year until he reaches age 62, and thereafter if the
parties shall mutually agree, the premium in the amount of $5,345 (calculated
on an after-tax basis using Executive's effective tax rate for the prior year)
on an individual flexible premium deferred variable annuity contract chosen by
Executive (the "Annuity"). The obligation of the Company and the Bank to pay
for the Annuity shall survive the expiration of the term of this Agreement and
Executive's employment hereunder, except as otherwise provided in Section 8
hereof. As between the Company and the Bank, on the one hand, and Executive,
on the other, Executive shall have sole investment authority and prerogative
with respect to the Annuity, and the Company and the Bank shall have no
responsibility for the investment performance thereof. Executive shall make no
withdrawals from the Annuity for so long as he is employed by the Company and
the Bank.
6. BENEFITS. During the term of this Agreement and his employment
hereunder, Executive shall be entitled to participate in all fringe benefits,
including pension, group insurance, hospitalization, deferred compensation, and
any other benefit or incentive plans of the Company or the Bank currently in
effect or hereafter adopted and generally or customarily available to all
employees of senior executive status ("Benefits"), for which he meets the
eligibility requirements.
7. EXPENSE REIMBURSEMENT. During the term of this Agreement and his
employment hereunder, the Company and the Bank shall reimburse Executive
promptly for, or pay on his behalf, all expenditures incurred by him in
furtherance of or in connection with the business of the Company or the Bank.
Such expenses shall include travel, entertainment, parking, business meetings
and the monthly costs, including dues, of maintaining memberships at the
Skaneateles Country Club, Onondaga Country Club, Oak Hill Country Club, and
such other appropriate clubs or organizations approved by the Board of
Directors of the Company. The Company and the Bank shall also furnish
Executive with the use of a suitable vehicle.
8. TERMINATION. This Agreement, and Executive's employment
hereunder, may be terminated:
(a) Termination for Cause. By the Company or the Bank, upon
thirty (30) days' prior written notice to Executive for any of the following
reasons ("Cause"): (i) Executive's continuing refusal to perform such services
(other than services constituting a Material Change, as that term is
hereinafter defined) as may reasonably be assigned to him by the
<PAGE> 3
Company or the Bank; or (ii) Executive's willful misconduct or gross negligence
in the performance of his employment duties; or (iii) Executive's breach of his
duty of loyalty to, or acts of unfair competition with, the Company or the Bank
while he is employed by them; or (iv) Executive's conviction of any crime or
offense involving money, property or personnel of the Company or the Bank, or
of any other crime which constitutes a felony; or (v) Executive's illegal use,
possession or being under the influence of any narcotic, controlled substance
or alcoholic beverage while at work; or (vi) any conduct by Executive that,
under applicable laws and regulations, disqualifies him from serving as an
officer or employee of the Bank. In the event of a termination for Cause, the
Company and the Bank shall have no liability to Executive hereunder for salary,
Bonus or Benefits (as defined in Section 6 hereof) and no further liability in
respect of the payment of premiums on the Annuity beyond the effective date of
termination except as required by law.
(b) Termination Without Cause. By the Company or the Bank,
upon thirty (30) days' prior written notice to Executive, without Cause;
provided, however, that in such event, Executive shall be entitled to receive,
and the Company and the Bank shall be obligated to pay, (i) his full salary,
Bonus and Benefits (as defined in Section 6 hereof, and to the extent that
Executive's continued participation is possible under the general terms and
provisions of such plans and programs) until the earlier of (A) expiration of a
two (2) year period beginning on the effective date of his termination, or (B)
Executive reaches age 65, and (ii) premiums on the Annuity in accordance with
the terms of Section 5 hereof each year until Executive reaches (or would have
reached) age 62.
(c) Termination By Executive. By Executive, upon thirty (30)
days' prior written notice to the Company and the Bank. In such event, (i) the
Company and the Bank shall have no liability to Executive hereunder for salary,
Bonus or Benefits (as defined in Section 6 hereof) and no further liability in
respect of the payment of premiums on the Annuity beyond the effective date of
termination except as required by law, and (ii) Executive shall pay to the Bank
or the Company (as the case may be), unless they otherwise agree, an amount
equal to $5,345 times the actual number of years of service (including partial
years) completed by Executive hereunder, subject to a maximum of five (5), such
repayment to be in the form of cash or assignment of the value of the Annuity,
as elected by Executive. However, notwithstanding any resignation or other
seemingly voluntary departure, Executive's termination of employment shall not
be deemed voluntary for purposes of this Agreement if, without Executive's
express written consent, the Company or the Bank: (i) downgrades Executive's
title, or reduces the nature or scope of Executive's authority and prerogative,
or materially increases the nature or scope of his responsibilities and duties,
from those applicable to him as of the effective date of this Agreement; or
(ii) reduces his base salary; or (iii) fails to provide Executive with a
package of Benefits (as defined in Section 6 hereof) that, though one or more
elements may vary from those in effect as of the date of this Agreement, is
substantially comparable to such Benefits; or (iv) changes the location of
Executive's principal place of employment to a location that is outside the
general metropolitan area of Syracuse, New York; or (v) otherwise breaches this
Agreement (the foregoing reasons being collectively referred to herein as a
"MATERIAL CHANGE"). In the event Executive's employment terminates in
consequence of a Material Change, Executive shall be entitled to receive, and
the Company and the Bank shall be obligated to pay, (i) his full salary, Bonus
and Benefits (as defined in Section 6 hereof, and to the extent that such
continued participation is possible under the general terms and provisions of
such plans and programs) until the earlier of (A) expiration of a two (2) year
period beginning on the effective date of the Material Change, or (B) Executive
reaches age 65, and (ii) premiums on the Annuity in accordance with the terms
of Section 5 hereof each year until Executive reaches (or would have reached)
age 62.
(d) Death. Automatically on the date of Executive's death.
In such event, Executive's estate shall be entitled to receive, and the Company
and the Bank shall be obligated to pay, (i) his base salary during, and a pro
rata portion of his Bonus for, a period of six (6) months following the date of
his death, and (ii) premiums on the Annuity in accordance with the terms of
Section 5 hereof up to and including the year of his death.
(e) Disability. Automatically on the date that he begins to
receive payments under the policy of long-term disability insurance maintained
by the Company or the Bank for the benefit of its senior executives. In such
event, Executive shall be entitled to receive, and the Company and the Bank
shall be obligated to pay, (i) his base salary during, and a pro rata portion
of his Bonus for, any waiting period under such insurance, and (ii) premiums on
the Annuity in accordance with the terms of Section 5 hereof each year until
Executive reaches (or would have reached) age 62.
(f) Retirement. Automatically on the date of Executive's
retirement at or after age 62.
<PAGE> 4
Termination of this Agreement and Executive's employment hereunder for
any reason shall, unless the Company and the Bank shall otherwise agree,
constitute his resignation as a director and officer of the Company and the
Bank as of the effective date of termination without the need for any
additional or further action on part of Executive.
B. PAYMENT OF SEVERANCE UPON CHANGE IN CONTROL
9. PAYMENT OF SEVERANCE AMOUNT.
(a) If, during the term of this Agreement and Executive's
employment hereunder, there shall occur a Change in Control (as defined in
Section 10 hereof), then Executive may, at his election, voluntarily terminate
this Agreement and his employment thereunder, in which event the Successor
shall:
(i) continue to be responsible to pay to and provide for
Executive his full base salary, Bonus and Benefits as were in
effect immediately preceding the effective date of the Change in
Control (such amount being referred to herein as the "SEVERANCE
AMOUNT") until the earlier of (A) expiration of a two (2) year
period beginning on the effective date of the Change of Control,
or (B) Executive reaches age 65; and
(ii) make a lump sum payment on the Annuity for the
account of Executive within thirty (30) days after the Change of
Control, such payment to be in an amount equal to the present
value of annual installments of $10,345 each for the number of
years (including partial years) from the date of the Change of
Control until Executive reaches age 62. For purposes of the
foregoing payment, present value shall be calculated using the
Bank's posted certificate of deposit rate for the relevant period
of time, or, if no rate is posted for such period, an
approximation thereof.
(b) Executive shall not be required to mitigate the Severance
Amount by seeking other employment or otherwise, nor shall the Severance Amount
be reduced or offset by any compensation earned by Executive as the result of
his employment by another employer subsequent to the effective date of
termination of his employment with the Successor.
10. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "CHANGE IN CONTROL" shall have occurred if:
(i) the Company is merged or consolidated with another
entity and as a result thereof less than seventy-five percent (75%) of
the outstanding voting securities of the surviving or resulting entity
shall then be owned in the aggregate by the former shareholders of the
Company; or
(ii) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, or sale
or other disposition of assets, or any combination of the foregoing
transactions, the individuals who constitute the Board of Directors of
the Company before any such transaction shall not constitute a majority
of the board of directors of the surviving or resulting entity; or
(iii) a tender offer or exchange offer for the ownership of
securities of the Company representing over twenty-five percent (25%) of
the combined voting power of the Company's then outstanding voting
securities is made and consummated; or
(iv) any "person," including a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
but excluding any employee stock ownership plan or similar employee
benefit plan of the Company or the Bank, is or becomes, directly or
indirectly, the beneficial owner of securities of the Company
representing over twenty-five percent (25%) of the combined voting power
of the Company's then outstanding voting securities; or
(v) the Company transfers substantially all of its
assets to another corporation that is not a wholly-owned subsidiary of
the Company.
<PAGE> 5
(b) "SUCCESSOR" means any successor to the assets, rights or
business of the Company or the Bank as a result of a Change in Control,
including without limitation the Company and the Bank if either of them is the
surviving or resulting entity of the Change in Control.
11. WITHHOLDING OF TAXES. The Successor may withhold from the
Severance Amount all Federal, state, city or other taxes as may be required
under any law, governmental regulation or ruling.
C. GENERAL TERMS
12. PAYMENT OF ACCRUED SALARY, ETC. Nothing in this Agreement shall
affect Executive's right to receive all earned but unpaid salary or Bonus,
accrued but unpaid vacation pay, and submitted but outstanding travel or other
expenses due and owing from the Company, the Bank or the Successor on the
effective date of the termination of his employment, or any incentive
compensation earned but unpaid prior to or coincidental with such date, all of
which shall be paid to Executive by the Company, the Bank or the Successor, as
the case may be, in accordance with the terms of such obligations.
13. AMENDMENT. This Agreement sets forth the entire understanding of
the parties with respect to its subject matter, and supersedes in their
entirety all prior understandings, agreements, representations or arrangements,
including Executive's Employment Agreement dated November 24, 1992, as amended
on April 7, 1993, February 15, 1994, and May 24, 1994 (as so amended, the
"Prior Agreement"). This Agreement may not be modified or terminated except
upon written amendment executed by Executive, the Company and the Bank (or, if
subsequent to the Change in Control, by Executive and the Successor).
14. NO ASSIGNMENT. Executive's duties and responsibilities hereunder
are personal in nature, and accordingly, his rights under this Agreement
(including his right to receive the Severance Amount) shall not be assignable
or transferable, whether by pledge, creation of a security interest or
otherwise, other than a transfer by will or by the laws of descent or
distribution. In the event of any attempted assignment or transfer contrary to
this Section, neither the Company nor the Bank shall have any liability to pay
the Severance Amount or any portion thereof so attempted to be assigned or
transferred.
15. BENEFIT. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, Executive and his personal or legal
representatives, executors, administrators, heirs and distributees. This
Agreement shall be binding upon, and shall inure to the benefit of and be
enforceable by, the Company, the Bank, and their respective successors and
assigns, including the Successor.
16. NOTICES. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company or to the
Successor (as the case may be) at the address set forth in the first paragraph
of this Agreement, and addressed to Executive at his residence address as shown
on the records of the Company or the Successor (as the case may be), or to such
other address as either party may furnish to the other by like notice;
provided, however, that notices of changes of address shall be effective only
upon receipt.
17. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
18. SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
CENTER BANKS INCORPORATED
By: /s/ Dr. John Bernard Henry
-------------------------------------------
Dr. John Bernard Henry
Chairman of Personnel & Compensation
Committee for the Board of Directors,
Center Banks Incorporated and
Skaneateles Savings Bank
/s/ John P. Driscoll
--------------------
John P. Driscoll
<PAGE> 1
Exhibit 10.2
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 19th day of March,
1996, by and among Center Banks Incorporated, a Delaware corporation (the
"COMPANY"), and its wholly-owned subsidiary, Skaneateles Savings Bank (the
"BANK"), each having its principal place of business at 33 East Genesee Street,
Skaneateles, New York 13152-0460, and J. David Hammond, residing at 231 Beach
Road, RD 4, Auburn, NY 13021 ("EMPLOYEE").
In consideration of the mutual covenants herein contained, the Company,
the Bank and Employee, intending to be legally bound, hereby agree as follows:
1. PURPOSE OF THIS AGREEMENT. Employee is a key officer and
employee of the Bank. Although the Company does not presently anticipate a
change in control of the Bank, it nevertheless desires to (i) assure the
continued loyalty, cooperation and services of certain key officers and
employees of the Bank if one should occur, and (ii) provide for those
individuals to receive compensation if there is a change in control of the Bank
as a result of which their employment with the Bank terminates. This Agreement
is entered into by the parties to set forth the terms and conditions under
which Employee will receive compensation in connection with a change of
control, if one should occur.
2. PAYMENT OF SEVERANCE AMOUNT.
(a) If, during the term of Employee's employment as an officer
of the Bank, there shall occur a Change in Control (as defined in Section 4
hereof), and during the one-year period following the effective date thereof
Employee's employment with the Successor (as defined in Section 4 hereof)
terminates for any reason, then, subject to the qualifications set forth in
Section 3 hereof, the Successor shall be obligated to pay and continue
Employee's full salary, bonus and benefits (to the extent that Employee's
continued participation is possible under the general terms and provisions of
such plans and programs) as were in effect immediately preceding the Change of
Control, for a period of twelve (12) months following the effective date of
termination of employment. The obligation of the Successor contained in the
preceding sentence is referred to herein as the "SEVERANCE AMOUNT."
(b) Employee shall not be required to mitigate the Severance
Amount by seeking other employment or otherwise, nor shall the Severance Amount
be reduced or offset by any compensation earned by Employee as the result of
his employment by another employer subsequent to the effective date of
termination of his employment with the Successor.
3. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 2
hereof, Employee shall not be entitled to receive, and the Successor shall have
no obligation to pay, the Severance Amount if, during the one-year period
following the Change in Control:
(a) Employee voluntary terminates his employment with the
Successor. However, notwithstanding any resignation or other seemingly
voluntary departure, Employee's termination of employment shall not be deemed
voluntary for purposes of this Agreement if, without Employee's express written
consent, the Successor, during the one-year period following the Change in
Control: (i) downgrades Employee's title, or reduces the nature or scope of
Employee's authority and prerogative, or materially increases the nature or
scope of his responsibilities and duties, from those applicable to him
immediately prior to the Change in Control; or (ii) reduces the base salary
payable to Employee from that payable to him by the Company immediately prior
to the Change in Control; or (iii) fails to provide Employee with a package of
fringe benefits that, though one or more elements may vary from those in effect
immediately prior to the Change in Control, is substantially comparable to such
fringe benefits; or (iv) changes the location of Employee's principal place of
employment to a location that is outside the general metropolitan area of
Syracuse, New York (the foregoing reasons being referred to herein as a
"MATERIAL CHANGE"). In the event Employee's employment terminates in
consequence of a Material Change, Employee shall be entitled to receive, and
the Successor shall be obligated to pay, the Severance Amount.
(b) The Successor terminates Employee's employment for any of
the following reasons: (i) Employee's continuing refusal to perform such
services (other than services constituting a Material Change) as may reasonably
be assigned to him by the Successor; or (ii) Employee's willful misconduct or
gross negligence in the performance of his employment duties; or (iii)
Employee's breach of his duty of loyalty to, or acts of unfair competition
with, the Successor; or (iv) Employee's
<PAGE> 2
conviction of any crime or offense involving money, property or personnel of
the Successor, or of any other crime which constitutes a felony; or (v)
Employee's illegal use, possession or being under the influence of any
narcotic, controlled substance or alcoholic beverage while at work; or (vi) any
conduct by Employee that, under applicable laws and regulations, disqualifies
him from serving as an officer or employee of the Bank.
(c) His employment terminates by reason of Employee's death,
total disability, or normal retirement at or after age 65.
4. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "CHANGE IN CONTROL" shall have occurred if:
(i) the Company is merged or consolidated with another
entity and as a result thereof less than seventy-five percent (75%) of
the outstanding voting securities of the surviving or resulting entity
shall then be owned in the aggregate by the former shareholders of the
Company; or
(ii) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, or sale
or other disposition of assets, or any combination of the foregoing
transactions, the individuals who constitute the Board of Directors of
the Company before any such transaction shall not constitute a majority
of the board of directors of the surviving or resulting entity; or
(iii) a tender offer or exchange offer for the ownership
of securities of the Company representing over twenty-five percent (25%)
of the combined voting power of the Company's then outstanding voting
securities is made and consummated; or
(iv) any "person," including a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
but excluding any employee stock ownership plan or similar employee
benefit plan of the Company or the Bank, is or becomes, directly or
indirectly, the beneficial owner of securities of the Company
representing over twenty-five percent (25%) of the combined voting power
of the Company's then outstanding voting securities; or
(v) the Company transfers substantially all of its
assets to another corporation that is not a wholly-owned subsidiary of
the Company.
(b) "SUCCESSOR" means any successor to the assets, rights or
business of the Company or the Bank as a result of a Change in Control,
including without limitation the Company and the Bank if either of them is the
surviving or resulting entity of the Change in Control.
5. PAYMENT OF ACCRUED SALARY, ETC. This Agreement shall not affect
Employee's right to receive all earned but unpaid salary, accrued but unpaid
vacation pay, and submitted but outstanding travel or other expenses due and
owing from the Successor on the effective date of the termination of his
employment, or any incentive compensation earned but unpaid prior to or
coincidental with such date, all of which shall be paid by the Successor to
Employee in accordance with the terms of such obligations.
6. WITHHOLDING OF TAXES. The Successor may withhold from the
Severance Amount all Federal, state, city or other taxes as may be required
under any law, governmental regulation or ruling.
7. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Agreement
is intended, nor shall it be deemed, to give Employee any rights (or impose any
obligations) to continued employment by the Company, the Bank or the Successor,
or give the Company, the Bank or the Successor any rights (or impose any
obligations) for the continued performance of duties by Employee, or otherwise
alter Employee's status as an employee at will.
8. AMENDMENT. This Agreement sets forth the entire understanding of
the parties with respect to its subject matter, and may not be modified or
terminated except upon written amendment executed by Employee, the Company and
the Bank (or, if subsequent to the Change in Control, by Employee and the
Successor).
<PAGE> 3
9. NO ASSIGNMENT. Employee's right to receive the Severance Amount
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this Section the Successor shall have no liability to pay
the Severance Amount or any portion thereof so attempted to be assigned or
transferred.
10. BENEFIT. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, Employee and his personal or legal
representatives, executors, administrators, heirs and distributees. This
Agreement shall be binding upon, and shall inure to the benefit of and be
enforceable by, the Company, the Successor and their respective successors and
assigns.
11. NOTICES. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company or to the
Successor (as the case may be) at the address set forth in the first paragraph
of this Agreement, and addressed to Employee at his residence address as shown
on the records of the Company or the Successor (as the case may be), or to such
other address as either party may furnish to the other by like notice;
provided, however, that notices of changes of address shall be effective only
upon receipt.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
13. SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
CENTER BANKS INCORPORATED
By: /s/ John P. Driscoll
-----------------------------
John P. Driscoll,
Chairman, President and CEO
SKANEATELES SAVINGS BANK
By: /s/ John P. Driscoll
-------------------------------
John P. Driscoll,
Chairman, President and CEO
/s/ J. David Hammond
------------------------------------
J. David Hammond
<PAGE> 1
Exhibit 10.3
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 19th day of March,
1996, by and among Center Banks Incorporated, a Delaware corporation (the
"COMPANY"), and its wholly-owned subsidiary, Skaneateles Savings Bank (the
"BANK"), each having its principal place of business at 33 East Genesee Street,
Skaneateles, New York 13152-0460, and Karen E. Lockwood, residing at RD 3,
Route 236, Auburn, NY 13021 ("EMPLOYEE").
In consideration of the mutual covenants herein contained, the Company,
the Bank and Employee, intending to be legally bound, hereby agree as follows:
1. PURPOSE OF THIS AGREEMENT. Employee is a key officer and
employee of the Bank. Although the Company does not presently anticipate a
change in control of the Bank, it nevertheless desires to (i) assure the
continued loyalty, cooperation and services of certain key officers and
employees of the Bank if one should occur, and (ii) provide for those
individuals to receive compensation if there is a change in control of the Bank
as a result of which their employment with the Bank terminates. This Agreement
is entered into by the parties to set forth the terms and conditions under
which Employee will receive compensation in connection with a change of
control, if one should occur.
2. PAYMENT OF SEVERANCE AMOUNT.
(a) If, during the term of Employee's employment as an officer
of the Bank, there shall occur a Change in Control (as defined in Section 4
hereof), and during the one-year period following the effective date thereof
Employee's employment with the Successor (as defined in Section 4 hereof)
terminates for any reason, then, subject to the qualifications set forth in
Section 3 hereof, the Successor shall be obligated to pay and continue
Employee's full salary, bonus and benefits (to the extent that Employee's
continued participation is possible under the general terms and provisions of
such plans and programs) as were in effect immediately preceding the Change of
Control, for a period of six (6) months following the effective date of
termination of employment. The obligation of the Successor contained in the
preceding sentence is referred to herein as the "SEVERANCE AMOUNT."
(b) Employee shall not be required to mitigate the Severance
Amount by seeking other employment or otherwise, nor shall the Severance Amount
be reduced or offset by any compensation earned by Employee as the result of
his employment by another employer subsequent to the effective date of
termination of his employment with the Successor.
3. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 2
hereof, Employee shall not be entitled to receive, and the Successor shall have
no obligation to pay, the Severance Amount if, during the one-year period
following the Change in Control:
(a) Employee voluntary terminates his employment with the
Successor. However, notwithstanding any resignation or other seemingly
voluntary departure, Employee's termination of employment shall not be deemed
voluntary for purposes of this Agreement if, without Employee's express written
consent, the Successor, during the one-year period following the Change in
Control: (i) downgrades Employee's title, or reduces the nature or scope of
Employee's authority and prerogative, or materially increases the nature or
scope of his responsibilities and duties, from those applicable to him
immediately prior to the Change in Control; or (ii) reduces the base salary
payable to Employee from that payable to him by the Company immediately prior
to the Change in Control; or (iii) fails to provide Employee with a package of
fringe benefits that, though one or more elements may vary from those in effect
immediately prior to the Change in Control, is substantially comparable to such
fringe benefits; or (iv) changes the location of Employee's principal place of
employment to a location that is outside the general metropolitan area of
Syracuse, New York (the foregoing reasons being referred to herein as a
"MATERIAL CHANGE"). In the event Employee's employment terminates in
consequence of a Material Change, Employee shall be entitled to receive, and
the Successor shall be obligated to pay, the Severance Amount.
(b) The Successor terminates Employee's employment for any of
the following reasons: (i) Employee's continuing refusal to perform such
services (other than services constituting a Material Change) as may reasonably
be assigned to him by the Successor; or (ii) Employee's willful misconduct or
gross negligence in the performance of his employment duties; or (iii)
Employee's breach of his duty of loyalty to, or acts of unfair competition
with, the Successor; or (iv) Employee's
<PAGE> 2
conviction of any crime or offense involving money, property or personnel of
the Successor, or of any other crime which constitutes a felony; or (v)
Employee's illegal use, possession or being under the influence of any
narcotic, controlled substance or alcoholic beverage while at work; or (vi) any
conduct by Employee that, under applicable laws and regulations, disqualifies
him from serving as an officer or employee of the Bank.
(c) His employment terminates by reason of Employee's death,
total disability, or normal retirement at or after age 65.
4. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "CHANGE IN CONTROL" shall have occurred if:
(i) the Company is merged or consolidated with another
entity and as a result thereof less than seventy-five percent (75%) of
the outstanding voting securities of the surviving or resulting entity
shall then be owned in the aggregate by the former shareholders of the
Company; or
(ii) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, or sale
or other disposition of assets, or any combination of the foregoing
transactions, the individuals who constitute the Board of Directors of
the Company before any such transaction shall not constitute a majority
of the board of directors of the surviving or resulting entity; or
(iii) a tender offer or exchange offer for the ownership
of securities of the Company representing over twenty-five percent (25%)
of the combined voting power of the Company's then outstanding voting
securities is made and consummated; or
(iv) any "person," including a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
but excluding any employee stock ownership plan or similar employee
benefit plan of the Company or the Bank, is or becomes, directly or
indirectly, the beneficial owner of securities of the Company
representing over twenty-five percent (25%) of the combined voting power
of the Company's then outstanding voting securities; or
(v) the Company transfers substantially all of its
assets to another corporation that is not a wholly-owned subsidiary of
the Company.
(b) "SUCCESSOR" means any successor to the assets, rights or
business of the Company or the Bank as a result of a Change in Control,
including without limitation the Company and the Bank if either of them is the
surviving or resulting entity of the Change in Control.
5. PAYMENT OF ACCRUED SALARY, ETC. This Agreement shall not affect
Employee's right to receive all earned but unpaid salary, accrued but unpaid
vacation pay, and submitted but outstanding travel or other expenses due and
owing from the Successor on the effective date of the termination of his
employment, or any incentive compensation earned but unpaid prior to or
coincidental with such date, all of which shall be paid by the Successor to
Employee in accordance with the terms of such obligations.
6. WITHHOLDING OF TAXES. The Successor may withhold from the
Severance Amount all Federal, state, city or other taxes as may be required
under any law, governmental regulation or ruling.
7. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Agreement
is intended, nor shall it be deemed, to give Employee any rights (or impose any
obligations) to continued employment by the Company, the Bank or the Successor,
or give the Company, the Bank or the Successor any rights (or impose any
obligations) for the continued performance of duties by Employee, or otherwise
alter Employee's status as an employee at will.
8. AMENDMENT. This Agreement sets forth the entire understanding of
the parties with respect to its subject matter, and may not be modified or
terminated except upon written amendment executed by Employee, the Company and
the Bank (or, if subsequent to the Change in Control, by Employee and the
Successor).
<PAGE> 3
9. NO ASSIGNMENT. Employee's right to receive the Severance Amount
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this Section the Successor shall have no liability to pay
the Severance Amount or any portion thereof so attempted to be assigned or
transferred.
10. BENEFIT. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, Employee and his personal or legal
representatives, executors, administrators, heirs and distributees. This
Agreement shall be binding upon, and shall inure to the benefit of and be
enforceable by, the Company, the Successor and their respective successors and
assigns.
11. NOTICES. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company or to the
Successor (as the case may be) at the address set forth in the first paragraph
of this Agreement, and addressed to Employee at his residence address as shown
on the records of the Company or the Successor (as the case may be), or to such
other address as either party may furnish to the other by like notice;
provided, however, that notices of changes of address shall be effective only
upon receipt.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
13. SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
CENTER BANKS INCORPORATED
By: /s/ John P. Driscoll
-----------------------------------
John P. Driscoll,
Chairman, President and CEO
SKANEATELES SAVINGS BANK
By: /s/ John P. Driscoll
-----------------------------------
John P. Driscoll,
Chairman, President and CEO
/s/ Karen E. Lockwood
----------------------------------------
Karen E. Lockwood
<PAGE> 1
Exhibit 10.4
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 19th day of March,
1996, by and among Center Banks Incorporated, a Delaware corporation (the
"COMPANY"), and its wholly-owned subsidiary, Skaneateles Savings Bank (the
"BANK"), each having its principal place of business at 33 East Genesee Street,
Skaneateles, New York 13152-0460, and John A. Mason, residing at 606 Mitchell
St., Ithaca, NY, 14850 ("EMPLOYEE").
In consideration of the mutual covenants herein contained, the Company,
the Bank and Employee, intending to be legally bound, hereby agree as follows:
1. PURPOSE OF THIS AGREEMENT. Employee is a key officer and
employee of the Bank. Although the Company does not presently anticipate a
change in control of the Bank, it nevertheless desires to (i) assure the
continued loyalty, cooperation and services of certain key officers and
employees of the Bank if one should occur, and (ii) provide for those
individuals to receive compensation if there is a change in control of the Bank
as a result of which their employment with the Bank terminates. This Agreement
is entered into by the parties to set forth the terms and conditions under
which Employee will receive compensation in connection with a change of
control, if one should occur.
2. PAYMENT OF SEVERANCE AMOUNT.
(a) If, during the term of Employee's employment as an officer
of the Bank, there shall occur a Change in Control (as defined in Section 4
hereof), and during the one-year period following the effective date thereof
Employee's employment with the Successor (as defined in Section 4 hereof)
terminates for any reason, then, subject to the qualifications set forth in
Section 3 hereof, the Successor shall be obligated to pay and continue
Employee's full salary, bonus and benefits (to the extent that Employee's
continued participation is possible under the general terms and provisions of
such plans and programs) as were in effect immediately preceding the Change of
Control, for a period of six (6) months following the effective date of
termination of employment. The obligation of the Successor contained in the
preceding sentence is referred to herein as the "SEVERANCE AMOUNT."
(b) Employee shall not be required to mitigate the Severance
Amount by seeking other employment or otherwise, nor shall the Severance Amount
be reduced or offset by any compensation earned by Employee as the result of
his employment by another employer subsequent to the effective date of
termination of his employment with the Successor.
3. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 2
hereof, Employee shall not be entitled to receive, and the Successor shall have
no obligation to pay, the Severance Amount if, during the one-year period
following the Change in Control:
(a) Employee voluntary terminates his employment with the
Successor. However, notwithstanding any resignation or other seemingly
voluntary departure, Employee's termination of employment shall not be deemed
voluntary for purposes of this Agreement if, without Employee's express written
consent, the Successor, during the one-year period following the Change in
Control: (i) downgrades Employee's title, or reduces the nature or scope of
Employee's authority and prerogative, or materially increases the nature or
scope of his responsibilities and duties, from those applicable to him
immediately prior to the Change in Control; or (ii) reduces the base salary
payable to Employee from that payable to him by the Company immediately prior
to the Change in Control; or (iii) fails to provide Employee with a package of
fringe benefits that, though one or more elements may vary from those in effect
immediately prior to the Change in Control, is substantially comparable to such
fringe benefits; or (iv) changes the location of Employee's principal place of
employment to a location that is outside the general metropolitan area of
Syracuse, New York (the foregoing reasons being referred to herein as a
"MATERIAL CHANGE"). In the event Employee's employment terminates in
consequence of a Material Change, Employee shall be entitled to receive, and
the Successor shall be obligated to pay, the Severance Amount.
(b) The Successor terminates Employee's employment for any of
the following reasons: (i) Employee's continuing refusal to perform such
services (other than services constituting a Material Change) as may reasonably
be assigned to him by the Successor; or (ii) Employee's willful misconduct or
gross negligence in the performance of his employment duties; or (iii)
Employee's breach of his duty of loyalty to, or acts of unfair competition
with, the Successor; or (iv) Employee's
<PAGE> 2
conviction of any crime or offense involving money, property or personnel of
the Successor, or of any other crime which constitutes a felony; or (v)
Employee's illegal use, possession or being under the influence of any
narcotic, controlled substance or alcoholic beverage while at work; or (vi) any
conduct by Employee that, under applicable laws and regulations, disqualifies
him from serving as an officer or employee of the Bank.
(c) His employment terminates by reason of Employee's death,
total disability, or normal retirement at or after age 65.
4. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "CHANGE IN CONTROL" shall have occurred if:
(i) the Company is merged or consolidated with another
entity and as a result thereof less than seventy-five percent (75%) of
the outstanding voting securities of the surviving or resulting entity
shall then be owned in the aggregate by the former shareholders of the
Company; or
(ii) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, or sale
or other disposition of assets, or any combination of the foregoing
transactions, the individuals who constitute the Board of Directors of
the Company before any such transaction shall not constitute a majority
of the board of directors of the surviving or resulting entity; or
(iii) a tender offer or exchange offer for the ownership
of securities of the Company representing over twenty-five percent (25%)
of the combined voting power of the Company's then outstanding voting
securities is made and consummated; or
(iv) any "person," including a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
but excluding any employee stock ownership plan or similar employee
benefit plan of the Company or the Bank, is or becomes, directly or
indirectly, the beneficial owner of securities of the Company
representing over twenty-five percent (25%) of the combined voting power
of the Company's then outstanding voting securities; or
(v) the Company transfers substantially all of its
assets to another corporation that is not a wholly-owned subsidiary of
the Company.
(b) "SUCCESSOR" means any successor to the assets, rights or
business of the Company or the Bank as a result of a Change in Control,
including without limitation the Company and the Bank if either of them is the
surviving or resulting entity of the Change in Control.
5. PAYMENT OF ACCRUED SALARY, ETC. This Agreement shall not affect
Employee's right to receive all earned but unpaid salary, accrued but unpaid
vacation pay, and submitted but outstanding travel or other expenses due and
owing from the Successor on the effective date of the termination of his
employment, or any incentive compensation earned but unpaid prior to or
coincidental with such date, all of which shall be paid by the Successor to
Employee in accordance with the terms of such obligations.
6. WITHHOLDING OF TAXES. The Successor may withhold from the
Severance Amount all Federal, state, city or other taxes as may be required
under any law, governmental regulation or ruling.
7. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Agreement
is intended, nor shall it be deemed, to give Employee any rights (or impose any
obligations) to continued employment by the Company, the Bank or the Successor,
or give the Company, the Bank or the Successor any rights (or impose any
obligations) for the continued performance of duties by Employee, or otherwise
alter Employee's status as an employee at will.
8. AMENDMENT. This Agreement sets forth the entire understanding of
the parties with respect to its subject matter, and may not be modified or
terminated except upon written amendment executed by Employee, the Company and
the Bank (or, if subsequent to the Change in Control, by Employee and the
Successor).
<PAGE> 3
9. NO ASSIGNMENT. Employee's right to receive the Severance Amount
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this Section the Successor shall have no liability to pay
the Severance Amount or any portion thereof so attempted to be assigned or
transferred.
10. BENEFIT. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, Employee and his personal or legal
representatives, executors, administrators, heirs and distributees. This
Agreement shall be binding upon, and shall inure to the benefit of and be
enforceable by, the Company, the Successor and their respective successors and
assigns.
11. NOTICES. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company or to the
Successor (as the case may be) at the address set forth in the first paragraph
of this Agreement, and addressed to Employee at his residence address as shown
on the records of the Company or the Successor (as the case may be), or to such
other address as either party may furnish to the other by like notice;
provided, however, that notices of changes of address shall be effective only
upon receipt.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
13. SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
CENTER BANKS INCORPORATED
By: /s/ John P. Driscoll
------------------------------------
John P. Driscoll,
Chairman, President and CEO
SKANEATELES SAVINGS BANK
By: /s/ John P. Driscoll
------------------------------------
John P. Driscoll,
Chairman, President and CEO
/s/ John A. Mason
----------------------------------------
John A. Mason
<PAGE> 1
Exhibit 10.5
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 19th day of March,
1996, by and among Center Banks Incorporated, a Delaware corporation (the
"COMPANY"), and its wholly-owned subsidiary, Skaneateles Savings Bank (the
"BANK"), each having its principal place of business at 33 East Genesee Street,
Skaneateles, New York 13152-0460, and J. Daniel Mohr, residing at 8002
Evesborough Drive, Clay, NY 13041 ("EMPLOYEE").
In consideration of the mutual covenants herein contained, the Company,
the Bank and Employee, intending to be legally bound, hereby agree as follows:
1. PURPOSE OF THIS AGREEMENT. Employee is a key officer and
employee of the Bank. Although the Company does not presently anticipate a
change in control of the Bank, it nevertheless desires to (i) assure the
continued loyalty, cooperation and services of certain key officers and
employees of the Bank if one should occur, and (ii) provide for those
individuals to receive compensation if there is a change in control of the Bank
as a result of which their employment with the Bank terminates. This Agreement
is entered into by the parties to set forth the terms and conditions under
which Employee will receive compensation in connection with a change of
control, if one should occur.
2. PAYMENT OF SEVERANCE AMOUNT.
(a) If, during the term of Employee's employment as an officer
of the Bank, there shall occur a Change in Control (as defined in Section 4
hereof), and during the one-year period following the effective date thereof
Employee's employment with the Successor (as defined in Section 4 hereof)
terminates for any reason, then, subject to the qualifications set forth in
Section 3 hereof, the Successor shall be obligated to pay and continue
Employee's full salary, bonus and benefits (to the extent that Employee's
continued participation is possible under the general terms and provisions of
such plans and programs) as were in effect immediately preceding the Change of
Control, for a period of six (6) months following the effective date of
termination of employment. The obligation of the Successor contained in the
preceding sentence is referred to herein as the "SEVERANCE AMOUNT."
(b) Employee shall not be required to mitigate the Severance
Amount by seeking other employment or otherwise, nor shall the Severance Amount
be reduced or offset by any compensation earned by Employee as the result of
his employment by another employer subsequent to the effective date of
termination of his employment with the Successor.
3. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 2
hereof, Employee shall not be entitled to receive, and the Successor shall have
no obligation to pay, the Severance Amount if, during the one-year period
following the Change in Control:
(a) Employee voluntary terminates his employment with the
Successor. However, notwithstanding any resignation or other seemingly
voluntary departure, Employee's termination of employment shall not be deemed
voluntary for purposes of this Agreement if, without Employee's express written
consent, the Successor, during the one-year period following the Change in
Control: (i) downgrades Employee's title, or reduces the nature or scope of
Employee's authority and prerogative, or materially increases the nature or
scope of his responsibilities and duties, from those applicable to him
immediately prior to the Change in Control; or (ii) reduces the base salary
payable to Employee from that payable to him by the Company immediately prior
to the Change in Control; or (iii) fails to provide Employee with a package of
fringe benefits that, though one or more elements may vary from those in effect
immediately prior to the Change in Control, is substantially comparable to such
fringe benefits; or (iv) changes the location of Employee's principal place of
employment to a location that is outside the general metropolitan area of
Syracuse, New York (the foregoing reasons being referred to herein as a
"MATERIAL CHANGE"). In the event Employee's employment terminates in
consequence of a Material Change, Employee shall be entitled to receive, and
the Successor shall be obligated to pay, the Severance Amount.
(b) The Successor terminates Employee's employment for any of
the following reasons: (i) Employee's continuing refusal to perform such
services (other than services constituting a Material Change) as may reasonably
be assigned to him by the Successor; or (ii) Employee's willful misconduct or
gross negligence in the performance of his employment duties; or (iii)
Employee's breach of his duty of loyalty to, or acts of unfair competition
with, the Successor; or (iv) Employee's conviction of any crime or offense
involving money, property or personnel of the Successor, or of any other crime
which constitutes a felony; or (v) Employee's illegal use, possession or being
under the influence of any narcotic, controlled substance or alcoholic beverage
while at work; or (vi) any conduct by Employee that, under applicable laws and
regulations, disqualifies him from serving as an officer or employee of the
Bank.
(c) His employment terminates by reason of Employee's death,
total disability, or normal retirement at or after age 65.
<PAGE> 2
4. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "CHANGE IN CONTROL" shall have occurred if:
(i) the Company is merged or consolidated with another
entity and as a result thereof less than seventy-five percent (75%) of
the outstanding voting securities of the surviving or resulting entity
shall then be owned in the aggregate by the former shareholders of the
Company; or
(ii) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, or sale
or other disposition of assets, or any combination of the foregoing
transactions, the individuals who constitute the Board of Directors of
the Company before any such transaction shall not constitute a majority
of the board of directors of the surviving or resulting entity; or
(iii) a tender offer or exchange offer for the ownership
of securities of the Company representing over twenty-five percent (25%)
of the combined voting power of the Company's then outstanding voting
securities is made and consummated; or
(iv) any "person," including a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
but excluding any employee stock ownership plan or similar employee
benefit plan of the Company or the Bank, is or becomes, directly or
indirectly, the beneficial owner of securities of the Company
representing over twenty-five percent (25%) of the combined voting power
of the Company's then outstanding voting securities; or
(v) the Company transfers substantially all of its
assets to another corporation that is not a wholly-owned subsidiary of
the Company.
(b) "SUCCESSOR" means any successor to the assets, rights or
business of the Company or the Bank as a result of a Change in Control,
including without limitation the Company and the Bank if either of them is the
surviving or resulting entity of the Change in Control.
5. PAYMENT OF ACCRUED SALARY, ETC. This Agreement shall not affect
Employee's right to receive all earned but unpaid salary, accrued but unpaid
vacation pay, and submitted but outstanding travel or other expenses due and
owing from the Successor on the effective date of the termination of his
employment, or any incentive compensation earned but unpaid prior to or
coincidental with such date, all of which shall be paid by the Successor to
Employee in accordance with the terms of such obligations.
6. WITHHOLDING OF TAXES. The Successor may withhold from the
Severance Amount all Federal, state, city or other taxes as may be required
under any law, governmental regulation or ruling.
7. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Agreement
is intended, nor shall it be deemed, to give Employee any rights (or impose any
obligations) to continued employment by the Company, the Bank or the Successor,
or give the Company, the Bank or the Successor any rights (or impose any
obligations) for the continued performance of duties by Employee, or otherwise
alter Employee's status as an employee at will.
8. AMENDMENT. This Agreement sets forth the entire understanding of
the parties with respect to its subject matter, and may not be modified or
terminated except upon written amendment executed by Employee, the Company and
the Bank (or, if subsequent to the Change in Control, by Employee and the
Successor).
9. NO ASSIGNMENT. Employee's right to receive the Severance Amount
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this Section the Successor shall have no liability to pay
the Severance Amount or any portion thereof so attempted to be assigned or
transferred.
10. BENEFIT. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, Employee and his personal or legal
representatives, executors, administrators, heirs and distributees. This
Agreement shall be
<PAGE> 3
binding upon, and shall inure to the benefit of and be enforceable by, the
Company, the Successor and their respective successors and assigns.
11. NOTICES. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company or to the
Successor (as the case may be) at the address set forth in the first paragraph
of this Agreement, and addressed to Employee at his residence address as shown
on the records of the Company or the Successor (as the case may be), or to such
other address as either party may furnish to the other by like notice;
provided, however, that notices of changes of address shall be effective only
upon receipt.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
13. SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
CENTER BANKS INCORPORATED
By: /s/ John P. Driscoll
----------------------------------
John P. Driscoll,
Chairman, President and CEO
SKANEATELES SAVINGS BANK
By: /s/ John P. Driscoll
----------------------------------
John P. Driscoll,
Chairman, President and CEO
/s/ J. Daniel Mohr
--------------------------------------
J. Daniel Mohr
<PAGE> 1
Exhibit 10.6
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 11th day of March,
1996, by and among Center Banks Incorporated, a Delaware corporation (the
"COMPANY"), and its wholly-owned subsidiary, Skaneateles Savings Bank (the
"BANK"), each having its principal place of business at 33 East Genesee Street,
Skaneateles, New York 13152-0460, and William J. Welch, residing at 60 E.
Elizabeth St., Skaneateles, NY, 13152 ("EMPLOYEE").
In consideration of the mutual covenants herein contained, the Company,
the Bank and Employee, intending to be legally bound, hereby agree as follows:
1. PURPOSE OF THIS AGREEMENT. Employee is a key officer and
employee of the Bank. Although the Company does not presently anticipate a
change in control of the Bank, it nevertheless desires to (i) assure the
continued loyalty, cooperation and services of certain key officers and
employees of the Bank if one should occur, and (ii) provide for those
individuals to receive compensation if there is a change in control of the Bank
as a result of which their employment with the Bank terminates. This Agreement
is entered into by the parties to set forth the terms and conditions under
which Employee will receive compensation in connection with a change of
control, if one should occur.
2. PAYMENT OF SEVERANCE AMOUNT.
(a) If, during the term of Employee's employment as an officer
of the Bank, there shall occur a Change in Control (as defined in Section 4
hereof), and during the one-year period following the effective date thereof
Employee's employment with the Successor (as defined in Section 4 hereof)
terminates for any reason, then, subject to the qualifications set forth in
Section 3 hereof, the Successor shall be obligated to pay and continue
Employee's full salary, bonus and benefits (to the extent that Employee's
continued participation is possible under the general terms and provisions of
such plans and programs) as were in effect immediately preceding the Change of
Control, for a period of six (6) months following the effective date of
termination of employment. The obligation of the Successor contained in the
preceding sentence is referred to herein as the "SEVERANCE AMOUNT."
(b) Employee shall not be required to mitigate the Severance
Amount by seeking other employment or otherwise, nor shall the Severance Amount
be reduced or offset by any compensation earned by Employee as the result of
his employment by another employer subsequent to the effective date of
termination of his employment with the Successor.
3. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 2
hereof, Employee shall not be entitled to receive, and the Successor shall have
no obligation to pay, the Severance Amount if, during the one-year period
following the Change in Control:
(a) Employee voluntary terminates his employment with the
Successor. However, notwithstanding any resignation or other seemingly
voluntary departure, Employee's termination of employment shall not be deemed
voluntary for purposes of this Agreement if, without Employee's express written
consent, the Successor, during the one-year period following the Change in
Control: (i) downgrades Employee's title, or reduces the nature or scope of
Employee's authority and prerogative, or materially increases the nature or
scope of his responsibilities and duties, from those applicable to him
immediately prior to the Change in Control; or (ii) reduces the base salary
payable to Employee from that payable to him by the Company immediately prior
to the Change in Control; or (iii) fails to provide Employee with a package of
fringe benefits that, though one or more elements may vary from those in effect
immediately prior to the Change in Control, is substantially comparable to such
fringe benefits; or (iv) changes the location of Employee's principal place of
employment to a location that is outside the general metropolitan area of
Syracuse, New York (the foregoing reasons being referred to herein as a
"MATERIAL CHANGE"). In the event Employee's employment terminates in
consequence of a Material Change, Employee shall be entitled to receive, and
the Successor shall be obligated to pay, the Severance Amount.
(b) The Successor terminates Employee's employment for any of
the following reasons: (i) Employee's continuing refusal to perform such
services (other than services constituting a Material Change) as may reasonably
be assigned to him by the Successor; or (ii) Employee's willful misconduct or
gross negligence in the performance of his employment duties; or (iii)
Employee's breach of his duty of loyalty to, or acts of unfair competition
with, the Successor; or (iv) Employee's conviction of any crime or offense
involving money, property or personnel of the Successor, or of any other crime
which constitutes a felony; or (v) Employee's illegal use, possession or being
under the influence of any narcotic, controlled substance or alcoholic beverage
while at work; or (vi) any conduct by Employee that, under applicable laws and
regulations, disqualifies him from serving as an officer or employee of the
Bank.
(c) His employment terminates by reason of Employee's death,
total disability, or normal retirement at or after age 65.
4. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "CHANGE IN CONTROL" shall have occurred if:
(i) the Company is merged or consolidated with another
entity and as a result thereof less than seventy-five percent (75%) of
the outstanding voting securities of the surviving or resulting entity
shall then be owned in the aggregate by the former shareholders of the
Company; or
<PAGE> 2
(ii) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, or sale
or other disposition of assets, or any combination of the foregoing
transactions, the individuals who constitute the Board of Directors of
the Company before any such transaction shall not constitute a majority
of the board of directors of the surviving or resulting entity; or
(iii) a tender offer or exchange offer for the ownership
of securities of the Company representing over twenty-five percent (25%)
of the combined voting power of the Company's then outstanding voting
securities is made and consummated; or
(iv) any "person," including a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
but excluding any employee stock ownership plan or similar employee
benefit plan of the Company or the Bank, is or becomes, directly or
indirectly, the beneficial owner of securities of the Company
representing over twenty-five percent (25%) of the combined voting power
of the Company's then outstanding voting securities; or
(v) the Company transfers substantially all of its
assets to another corporation that is not a wholly-owned subsidiary of
the Company.
(b) "SUCCESSOR" means any successor to the assets, rights or
business of the Company or the Bank as a result of a Change in Control,
including without limitation the Company and the Bank if either of them is the
surviving or resulting entity of the Change in Control.
5. PAYMENT OF ACCRUED SALARY, ETC. This Agreement shall not affect
Employee's right to receive all earned but unpaid salary, accrued but unpaid
vacation pay, and submitted but outstanding travel or other expenses due and
owing from the Successor on the effective date of the termination of his
employment, or any incentive compensation earned but unpaid prior to or
coincidental with such date, all of which shall be paid by the Successor to
Employee in accordance with the terms of such obligations.
6. WITHHOLDING OF TAXES. The Successor may withhold from the
Severance Amount all Federal, state, city or other taxes as may be required
under any law, governmental regulation or ruling.
7. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Agreement
is intended, nor shall it be deemed, to give Employee any rights (or impose any
obligations) to continued employment by the Company, the Bank or the Successor,
or give the Company, the Bank or the Successor any rights (or impose any
obligations) for the continued performance of duties by Employee, or otherwise
alter Employee's status as an employee at will.
8. AMENDMENT. This Agreement sets forth the entire understanding of
the parties with respect to its subject matter, and supersedes in their
entirety all prior understandings, agreements, representations or other
arrangements, including Employee's Employment Agreement dated April 11, 1989.
This Agreement may not be modified or terminated except upon written amendment
executed by Employee, the Company and the Bank (or, if subsequent to the Change
in Control, by Employee and the Successor).
9. NO ASSIGNMENT. Employee's right to receive the Severance Amount
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by will or by the
laws of descent or distribution. In the event of any attempted assignment or
transfer contrary to this Section the Successor shall have no liability to pay
the Severance Amount or any portion thereof so attempted to be assigned or
transferred.
10. BENEFIT. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, Employee and his personal or legal
representatives, executors, administrators, heirs and distributees. This
Agreement shall be binding upon, and shall inure to the benefit of and be
enforceable by, the Company, the Successor and their respective successors and
assigns.
11. NOTICES. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company or to the
Successor (as the case may be) at the address set forth in the first paragraph
of this
<PAGE> 3
Agreement, and addressed to Employee at his residence address as shown on the
records of the Company or the Successor (as the case may be), or to such other
address as either party may furnish to the other by like notice; provided,
however, that notices of changes of address shall be effective only upon
receipt.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
13. SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
CENTER BANKS INCORPORATED
By: /s/ John P. Driscoll
----------------------------------------
John P. Driscoll,
Chairman, President and CEO
SKANEATELES SAVINGS BANK
By: /s/ John P. Driscoll
----------------------------------------
John P. Driscoll,
Chairman, President and CEO
/s/ William J. Welch
--------------------------------------------
William J. Welch
<PAGE> 1
Exhibit 13
Annual Report to Shareholders for the year ended December 31, 1995.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The common stock of Center Banks Incorporated trades on the NASDAQ National
Market System under the ticker symbol "CTBK".
The following table shows the range of high and low closing stock prices for
each quarter of 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
Quarter HIGH LOW High Low
- -------
<S> <C> <C> <C> <C>
Fourth $15.25 $14.00 $ 13.00 $ 10.25
Third 15.25 13.63 14.75 12.50
Second 14.25 12.38 13.00 9.25
First 14.00 10.75 10.00 8.50
</TABLE>
Cash dividends totaling $.19 and $.12 per share were declared in 1995 and 1994,
respectively.
On February 16,1996, there were 931,809 shares of Common Stock issued and
outstanding, held of record by 614 shareholders.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In Thousands)
BALANCE SHEET DATA:
Total assets $ 210,647 201,841 174,558 169,142 182,773
Net loans 168,967 163,921 140,224 110,145 111,841
Securities 21,457 21,871 24,329 43,651 46,008
Federal funds sold 3,400 1,200 0 3,200 13,400
Deposits, including escrow 179,119 170,696 149,173 152,331 166,326
Borrowings 14,386 13,984 11,120 4,045 4,055
Stockholders' equity 14,939 13,791 13,286 12,236 11,858
- --------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
OPERATIONS DATA:
Total interest income $ 15,871 12,940 11,844 13,121 18,702
Total interest expense 8,608 6,349 5,988 7,749 12,334
- --------------------------------------------------------------------------------------------------------------------
Net interest income 7,263 6,591 5,856 5,372 6,368
Provision for loan losses 235 360 600 455 5,651
Other operating income 587 509 907 610 2,203
Other operating expenses 6,211 5,580 5,373 5,224 6,659
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 1,052 983 803 348 (3,252)
- --------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income (loss) $ 1.13 1.06 0.87 0.38 (3.52)
Dividends declared .19 0.12 0.00 0.00 0.00
Book value 16.05 14.90 14.37 13.23 12.82
- --------------------------------------------------------------------------------------------------------------------
SELECTED OTHER DATA:
Earning asset yield 8.07% 7.31% 7.28% 7.80% 9.72%
Cost of funds 4.71% 3.90% 3.99% 4.90% 6.79%
Interest rate spread 3.36% 3.41% 3.29% 2.90% 2.93%
Net interest margin 3.69% 3.72% 3.60% 3.19% 3.31%
Full service banking offices 7 5 3 3 3
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Center Banks Incorporated (the "Company") is a bank holding company, with
Skaneateles Savings Bank (the "Bank") being its sole subsidiary. The financial
condition and operating results of the Company are largely dependent on the
Bank, its primary investment.
Consolidated assets of the Company were $210.6 million at December 31, 1995,
compared with $201.8 million at December 31, 1994, an increase of $8.8 million
or 4.4%. This growth was funded primarily by deposit growth of $8.3 million or
4.9%.
Net loans were $169.0 million at December 31, 1995, an increase of $5.1 million
or 3.1% from December 31, 1994. Mortgage loans increased $5.1 million or 3.7%
and were $143.7 million at December 31, 1995. Residential mortgages accounted
for all of the increase, while commercial mortgages decreased $700,000. During
1995, the Bank originated $18.8 million of residential loans, a decrease of
$18.7 million or 49.9% from 1994's originations of $37.5 million. This
decrease is primarily the result of reduced loan demand caused by the lingering
effects of higher interest rates in late 1994 and early 1995 and a general
slowdown in the economy. Approximately $5 million of the Bank's residential
loan originations in 1995 were refinancings, compared with $14 million in 1994.
During the first half of 1994, refinancings comprised approximately 67% of
total originations, while only 12% of the originations in the second half of
1994 were refinancings. This trend, brought upon by higher interest rates,
continued into the first part of 1995. During the first half of 1995,
refinancings comprised approximately 15% of the $8 million originated.
Refinancings during the second half of 1995 increased as interest rates fell,
comprising approximately 34% of the $10.8 million originated during the period.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Total loans (millions) $140 $164 $169
</TABLE>
Approximately $12 million or 63.8% of the residential loans originated in 1995
were for fixed rates of interest, compared with $18.2 million and 48.5%,
respectively, in 1994. Fixed rate mortgages with terms of 15 years or less are
originated for portfolio as long as they fit the Company's established
asset/liability mix, while fixed rate mortgages with terms greater than 15
years are sold on the secondary market to control the Company's interest rate
risk. During 1995, the Bank retained approximately $10 million of 15 year
fixed rate mortgages for portfolio, compared with $14.3 million in 1994. In
addition to fixed rate loans, the Bank offers adjustable rate loans with rates
that adjust annually (1 year ARM), or once every three years (3 year ARM).
Originations of 1 year and 3 year ARM's totaled $2.6 million or 13.8% in 1995,
compared with $8.9 million or 23.7% in 1994. The Bank also offers a 5/1 ARM
and 10/1 ARM. The 5/1 ARM is a loan with a fixed rate of interest for the
first five years. On the loan's fifth anniversary, the rate converts to the
current rate for a 1 year ARM, and adjusts annually over the remaining term of
the loan. The 10/1 ARM is identical to the 5/1 ARM except that the rate of
interest is fixed for the first 10 years.
<PAGE> 3
Originations of 5/1 and 10/1 ARM's totaled $4.2 million or 22.4% of the
residential loan originations in 1995, compared with $10.4 million or 27.7% in
1994.
During 1995 the Bank sold approximately $2 million of fixed rate residential
loans, compared with $2.9 million in 1994. The Bank retains servicing on all
sold loans. Variable rate loans are generally retained for portfolio.
The shift in residential loan demand away from variable rate loans into loans
with fixed rates is a direct result of the sharp drop in long term interest
rates during 1995. At December 31, 1995 the average rate for a 30 year fixed
rate mortgage in the Company's market area was approximately 7.5%, compared
with a fully indexed rate of approximately 8.5% for a 1 year ARM. It is
expected that demand will continue to be heavily weighted toward fixed rate
loans until this rate difference narrows.
Other loans (business, home equity, consumer and student loans) were $27.9
million at December 31, 1995, down 1.9% from December 31, 1994. Business loans
decreased $2.6 million or 19.9% due in large part to prepayments on existing
loans during 1995, compounded by slow growth in new loans due to a highly
competitive local market. Consumer, home equity and student loans increased
$2.1 million or 13.9%. The Company placed more of an emphasis on consumer
lending in 1995, particularly for home equity products and home improvement
loans, which are secured by a second mortgage on residential property. Total
outstanding balances on home equity and home improvement loans were $14.6
million at December 31, 1995, up from $13.2 million at December 31, 1994.
Securities available-for-sale were $8.7 million (including net unrealized gains
of $202,000) at December 31, 1995, compared with $17.3 million (including net
unrealized losses of $329,000) at December 31, 1994 and consisted of U.S.
government and agency obligations and mortgage-backed securities. On January
1, 1995 the Company reclassified its entire portfolio of mortgage-backed
securities from available-for-sale to held-to- maturity, at the securities'
fair value of $8.3 million. The change reflected management's intention to
hold the securities to maturity and was done to shield equity from future
volatility in the fair value of the securities due to changes in market rates.
In November 1995, the Financial Accounting Standards Board (FASB) issued a
special report entitled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities", as more
fully discussed in Note 2 to the consolidated financial statements. The
Company adopted the provisions of the guide in November 1995 and transferred
securities with an amortized cost of $2,471,000 from the held-to-maturity
portfolio to the available-for-sale category. The $46,000 net unrealized gain
on the securities was recorded in the separate component of stockholders'
equity at the time of transfer.
Other assets were $2.1 million at December 31, 1995, an increase of $1.3
million or 162.5% from December 31, 1994. The Company reclassified $1 million
from cash and due from banks to other assets in 1995. This amount represents
the amount owed the Bank by Nationar, as more fully discussed in note 10 to the
consolidated financial statements.
ASSET QUALITY
Nonperforming assets are comprised of nonaccrual loans and other real estate
owned. Management's policy is to place a loan on nonaccrual status with
respect to interest income recognition when collection of the interest is
doubtful. Generally, this occurs when principal or interest payments are
ninety days or more past due, although interest accruals may continue for
certain loans that are adequately secured. The classification of a loan as
nonaccruing does not necessarily indicate that the principal and interest
ultimately will be uncollectable. The Company's historical experience suggests
that a portion of assets so classified will eventually be recovered. All
nonperforming loans are in various stages of workout, settlement or
foreclosure.
Nonperforming assets totaled $2.5 million, or 1.2% of total assets at December
31, 1995, down from $4.2 million, or 2.1% of total assets at December 31, 1994.
Nonaccrual loans were $2.1 million and $3.3 million at December 31, 1995 and
1994, respectively, and consisted primarily of business loans and commercial
real estate loans. The reduction in nonaccrual loans is primarily attributable
to the reclassification of a large commercial loan which accounted for $1.1
million or 33.3% of nonaccrual loans at December 31, 1994, due to its
restructuring in 1995. This loan, which matures in 1996, is included in the
amount of loans considered by management to be impaired, as disclosed in note 3
to the consolidated financial statements.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Non Performing Assets/Total Assets 2.6% 2.1% 1.2%
</TABLE>
<PAGE> 4
The allowance for loan losses was $2.7 million at December 31, 1995 compared
with $3.0 million at the end of 1994. The ratio of the allowance to
nonperforming loans was 125% at December 31, 1995, compared with 94% at the end
of 1994. Charge-offs, net of recoveries, amounted to $608,000 in 1995,
compared with $258,000 in 1994.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Allowance for Loan Losses as a % of Nonperforming Loans 106% 94% 125%
</TABLE>
The adequacy of the allowance for loan losses is evaluated monthly, and is
determined primarily by management's informed judgment concerning the amount of
risk inherent in the portfolio. Management's judgment is based upon a number
of factors including historical loan loss experience, the present and
prospective financial condition of borrowers, estimated value of underlying
collateral, industry and geographic concentrations, and current and prospective
economic conditions.
The Company utilizes a risk rating system in its credit quality estimation
process. This system involves an ongoing review of business loans and
commercial real estate loans that culminates in loans being assigned a risk
rating based upon various credit criteria. If the review indicates a
sufficient level of risk, an allowance is established proportional to the
perceived risk for each loan. Loans not having an individually established
allowance are aggregated by the type of loan and an allowance is estimated
based upon aging statistics, past experience and economic factors.
As with any financial institution, poor economic conditions, high interest
rates, high unemployment and other matters outside of the Company's control may
lead to increased losses in the loan portfolio. Management has various
controls in place designed in an effort to limit losses, such as: 1) a
comprehensive "watch list" of possible loan problems, 2) a fully documented
policy concerning loan administration (loan file documentation, disclosures,
approvals, etc.) and 3) a loan review staff to audit for adherence to
established Company controls and to review the quality and anticipated
collectibility of the portfolio. The loan review department reports monthly to
the Executive Committee of the board of directors, which in turn, reports to
the full board of directors. The power to authorize charge-offs rests solely
with the board of directors.
The Financial Accounting Standards Board issued Statement 114 "Accounting by
Creditors for Impairment of a Loan" as amended by Statement 118, "Accounting by
Creditors for Impairment of a Loan -Income Recognition and Disclosures". These
statements prescribe recognition criteria for loan impairment, generally
related to commercial type loans, and measurement methods for certain impaired
loans and all loans whose terms are modified in troubled debt restructuring
subsequent to the adoption of these statements. A loan is considered impaired
when it is probable that the borrower will be unable to repay the loan
according to the original contractual terms of the loan agreement. As of
January 1, 1995, the Company has adopted the provisions of SFAS No. 114 and
SFAS No. 118. The effect of adoption was not material to the consolidated
financial statements.
The Company recognizes interest income on impaired loans using the cash basis
of income recognition. Cash receipts on impaired loans are generally applied
according to the terms of the loan agreement, or as a reduction of principal,
based upon management judgment and other factors.
Management believes that the allowance as of December 31, 1995 was adequate
based upon the quality of the loan portfolio at that date. Future additions to
the allowance will be based, among other factors, on changes in economic
conditions and financial stress of the Company's borrowers.
Real estate owned, net (REO) totaled $397,000 at December 31, 1995, which
represents a decrease of $587,000 or 59.7% from the balance at December 31,
1994. The Company wrote down its REO portfolio by $237,000 in 1995 and sold
properties with book values aggregating $714,000, including two large
non-residential properties which had been owned by the Company for a number of
years.
ASSET/LIABILITY MANAGEMENT
The goal of asset/liability management is to reduce the volatility of net
interest income during periods of changing market interest rates (interest rate
risk). Historically, interest rate risk measurement was limited to a review of
the Company's gap position, or the difference between assets and liabilities
which reprice and/or mature within a given time frame, typically the cumulative
one-year horizon. The Company's cumulative 1 year ratio of rate sensitive
assets to rate sensitive liabilities (RSA/RSL) was 1.15 at December 31, 1995,
compared to 1.27 at December 31, 1994.
<PAGE> 5
Although the gap approach delineates when a given dollar of assets or
liabilities has the ability to mature or reprice, it provides no illumination
concerning the probable response of that asset or liability to changes in
interest rates. During 1995 management of the Company, while acknowledging
there is value in understanding the relative repricings and maturities of
interest-sensitive accounts, came to the conclusion that undue reliance on a
gap report to analyze the Company's interest rate risk position can lead to
flawed investment and lending decisions.
In view of this conclusion, the Company adopted a new model for interest rate
risk measurement, adding to traditional gap analysis approaches known as income
simulation and rate-shock market-value analysis. Not only does income
simulation consider the maturity and repricing characteristics of assets and
liabilities: it captures the relative sensitivities of these balance sheet
components. Income simulation analysis attends to both the possibility and
probability of the behavior of balance sheet items.
Market value of equity analysis is intended to address the change in equity
value arising from movements in interest rates. The market value of equity is
estimated by valuing the Company's assets and liabilities. The extent to which
assets have gained or lost value in relation to the gains or losses of
liabilities determines the appreciation or depreciation in equity on a
market-value basis. For example, in a rising- rate environment, both assets
and liabilities decrease in value. If the assets lose relatively more value
than the liabilities, the market value of equity will shrink. Conversely,
should the liabilities depreciate by a proportionally greater amount, the
market value of equity will increase despite the fact that rates have risen.
In the latter case, the Company's obligations have lost more value than its
assets, and hence the Company has realized greater equity value.
Management believes that because of the ability to model the relative rate
sensitivities of assets and liabilities, management can more clearly define the
ability of the Company to absorb or benefit from shifts in interest rates.
Proposed strategies to manage perceived risks can be tested in the computer
model prior to implementation. Overall, the use of the Company's simulation
model greatly enhances the planning process.
STOCKHOLDER'S EQUITY
At December 31, 1995, the Company's stockholders' equity totaled $14.9 million,
an increase of $1.1 million from $13.8 million at December 31, 1994. This
increase is the result of (i) net income of $1 million, (ii) proceeds of
$51,000 from issuance of stock under stock plans, (iii) cash dividends of
$175,000, and (iv) a $220,000 increase in the fair value of securities
available for sale, net of taxes.
The Company's leverage capital ratio was 7.06% at December 31, 1995 compared
with 6.91% at December 31, 1994. Total capital to risk-adjusted assets was
12.66% and 12.13%, respectively, at December 31, 1995 and 1994. The Company
and Bank are in compliance with Federal Reserve Board and FDIC capital
requirements as of both respective dates.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Leverage Capital Ratio 7.50% 6.91% 7.06%
</TABLE>
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
The purpose of liquidity management is to assure that there is sufficient cash
flow to meet all of the Company's financial requirements and to be able to
capitalize on opportunities for increasing income. Liquidity is mainly
provided by cash, securities available for sale, principal collections on loans
and mortgage-backed securities and borrowing facilities from correspondent
banks.
Another component affecting the Company's liquidity is deposit accounts, which
provide liquidity as well as a customer base to which additional products and
services can be offered. During 1995, the Company's deposit base experienced
an increase of $8.3 million or 4.9%. NOW and demand accounts increased $2
million, time accounts grew by $13.6 million and savings and money market
accounts decreased $7.3 million. This change in the Company's deposit mix is
attributable primarily to the movement of rate sensitive savings and money
market accounts to higher yielding alternatives, such as time accounts, in
response to the higher market rates in late 1994 and early 1995. This trend
slowed considerably in the latter part of 1995 in response to lower interest
rates. Based on historical analysis, the Company believes that a portion of
its savings account balances are rate sensitive and may move to higher yielding
alternatives, such as time accounts, during a period of rising rates.
The Company's liquidity position is monitored daily and the Asset/Liability
Committee is responsible for setting general guidelines to ensure maintenance
of prudent levels of liquidity. Because of the multitude of funding sources
available, the Company does not foresee any difficulties in generating
sufficient liquidity.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
COMPARED TO YEAR ENDED DECEMBER 31, 1994
GENERAL
The Company's and Bank's earnings are largely dependent upon net interest
income, and are also affected by its provision for loan losses, other operating
income and expenses, and taxes.
Net income was $1,052,000 or $1.13 per share in 1995, compared with $983,000 or
$1.06 per share in 1994. A $672,000 increase in net interest income and a
$125,000 decrease in provision for loan losses was partially offset by a
$631,000 increase in other expenses. Income taxes increased $175,000.
NET INTEREST INCOME
Net interest income is affected by the difference between the yield earned on
interest earning assets and rates paid on deposits and borrowings. The
relative amounts of interest earning assets, deposits, and borrowings also
impact net interest income levels.
Net interest income was $7.3 million in 1995, an increase of $672,000 or 10.2%
from $6.6 million in 1994. Interest income increased $2.9 million or 22.7% in
1995 due to a $19.6 million increase in average interest earning assets and a
.76% increase in the yield on those assets. Residential mortgages accounted
for much of the growth in earning assets during 1995. Yields were up for all
categories of interest earning assets in 1995, due to the higher level of
interest rates that resulted from a series of rate hikes during 1994 and early
1995 by the Federal Reserve (the Fed). The yield on mortgage loans increased
.72% in 1995, and the yield on other loans, which consist primarily of business
loans and home equity lines of credit, increased 1.52%. Home equity lines and
business loans generally carry a variable rate of interest tied to the Bank's
prime rate. The rate on business loans adjusts whenever the prime rate
changes. Home equity adjustments take effect between 15 and 45 days after a
change in the prime rate. The Bank's prime rate, which is directly impacted by
movements in short term rates by the Fed, averaged 8.83% in 1995, compared with
7.04% in 1994.
Interest expense increased $2.3 million or 36.5% in 1995 due to a $20.2 million
increase in average interest bearing liabilities and a .81% increase in the
cost of funds. Average interest bearing deposits increased $20.5 million or
13.9% due in large part to the assumption of $16.1 million of interest bearing
deposits acquired from First National Bank of Rochester in December 1994. The
Company's cost of funds has trended downward beginning in the latter part of
1995 and continuing into 1996 due in large part to the lower interest rate
environment compared with most of 1995. Market interest rates alone do not
dictate the rates the Company pays for its funds, although they are an
important factor. Other factors that impact the Company's cost of funds
<PAGE> 7
include liquidity needs, the desired mix of deposits and borrowings, local
market competition, asset growth objectives and profit objectives.
The Company's net interest margin, which is computed by dividing net interest
income by average interest earning assets, was 3.69% in 1995, compared with
3.72% in 1994.
ANALYSIS OF NET INTEREST INCOME - The following table sets forth, for the
periods indicated, information regarding (i) the total dollar amount of
interest income from interest-earning assets and the resulting average yields;
(ii) the total dollar amount of interest expense on interest- bearing
liabilities and the resultant average cost; (iii) net interest income; (iv)
interest rate spread; (v) net interest-earning assets; (vi) net yield on
interest-earning assets; and (vii) ratio of interest-earning assets to
interest-bearing liabilities. No tax equivalent adjustments were made.
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
--------------------------- -------------------------- -------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
-------------------------- -------------------------- -------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $ 141,802 11,252 7.94% 125,159 9,037 7.22% 90,910 6,843 7.53%
Other loans 27,702 2,816 10.17% 28,484 2,463 8.65% 33,748 2,684 7.95%
- ---------------------------------------------------------------------------------------------------------------------
Total loans 169,504 14,068 8.30% 153,643 11,500 7.49% 124,658 9,527 7.64%
- ---------------------------------------------------------------------------------------------------------------------
Securities 24,459 1,643 6.72% 22,824 1,411 6.18% 35,387 2,234 6.31%
Federal funds sold 160 6.11% 29 5.33% 2,738 83 3.03%
2,619 544
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 196,582 15,871 8.07% 177,011 12,940 7.31% 162,783 11,844 7.28%
- ---------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 10,176 0 6,163 0 6,185 0
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 206,758 15,871 183,174 12,940 168,968 11,844
Interest-bearing liabilities:
Deposits:
Savings and club $ 33,133 937 2.83% 37,045 960 2.59% 36,381 1,046 2.88%
accounts
Time certificates 97,596 5,598 5.74% 70,395 3,405 4.84% 67,461 3,400 5.04%
Money market accounts 23,000 765 3.33% 27,652 770 2.79% 28,916 827 2.86%
Now and escrow accounts 14,575 329 2.26% 12,708 299 2.35% 12,365 312 2.52%
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 168,304 7,629 4.53% 147,800 5,434 3.68% 145,123 5,585 3.85%
- ---------------------------------------------------------------------------------------------------------------------
Borrowings 14,618 979 6.70% 14,828 915 6.17% 5,010 403 8.04%
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 182,922 8,608 4.71% 162,628 6,349 3.90% 150,133 5,988 3.99%
Non-interest-bearing deposits 8,470 0 6,176 0 5,374 0
Non-interest-bearing
liabilities 835 0 846 0 706 0
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 192,227 8,608 169,650 6,349 156,213 5,988
Stockholders' equity 14,531 0 13,524 0 12,755 0
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 206,758 8,608 183,174 6,349 168,968 5,988
- --------------------------------------------------------------------------------------------------------------------
Net interest income/
interest rate spread 7,263 3.36% 6,591 3.41% 5,856 3.29%
- --------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/
net yield on interest-
earning assets $ 13,660 3.69% 14,383 3.72% 12,650 3.60%
- --------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning
assets to interest-bearing
liabilities 1.07% 1.09% 1.08%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $235,000 in 1995, compared with $360,000 in
1994. The lower provision is the result of an improvement in the credit
quality of the Company's loan portfolio, as discussed previously.
<PAGE> 8
OTHER OPERATING INCOME
Other operating income includes gain or loss from sale of loans and securities,
and service charges and other income. Other operating income in 1995 was
$587,000, compared with $509,000 in 1994, an increase of $78,000 or 15.3%.
Excluding security transactions, operating income increased $184,000 or 36.7%.
Net loss on securities transactions was $99,000 in 1995, compared with a $7,000
gain in 1994. The loss in 1995 is due entirely to the write off of the Bank's
investment in Nationar.
Service charges increased $151,000 or 66.5% in 1995 due primarily to the
increase in the Company's deposit base in 1995.
OTHER OPERATING EXPENSES
Other operating expenses were $6.2 million in 1995, compared with $5.6 million
in 1994, an increase of $631,000 or 11.3%.
Salaries and employee benefits expense was $2.7 million in 1995, compared with
$2.3 million in 1994, an increase of $416,000 or 18.1%. The increase is
directly attributable to the addition of four new branch offices between
November 1994 and April 1995, as well as normal merit increases.
Building, occupancy and equipment expense was $1 million in 1995, compared with
$715,000 in 1994, an increase of $376,000 or 52.6%. Rent expense and
depreciation increased by a total of $319,000 in 1995 due to the addition of
four new branches and to a full year of depreciation on computer hardware and
communications systems purchased in 1994.
Deposit insurance was $197,000 in 1995, compared with $391,000 in 1994, a
decrease of $194,000 or 49.6%. The Bank's cost of FDIC insurance dropped from
$.23 per $100 of insured deposits to $.04 per $100 in the fourth quarter of
1995. The rate reduction was retroactive to June 1, 1995, the date the Bank
Insurance Fund reached the congressionally mandated capitalization level. The
Bank's FDIC insurance premium was further reduced to the legal minimum of
$2,000 per year effective for the first six months of 1996.
Real estate owned expense was $273,000 in 1995, compared with $324,000 in 1994,
a decrease of $51,000 or 15.6%, due to a lower level of foreclosed real estate
in 1995.
Other expenses were $1.4 million in 1995, compared with $1.2 million in 1994,
an increase of $186,000 or 15.5%. All increases in this category were directly
related to the growth in the size of the Company in 1995.
The Company's operating expense ratio to average assets was 3.0% in 1995, down
from 3.05% in 1994.
INCOME TAXES
Statement of Financial Accounting Standards No. 109 was adopted by the Company
in 1992. The statement requires that a valuation allowance be provided when it
is more likely than not that some portion of deferred tax assets will not be
realized. The Company recognized no immediate financial statement effect from
adopting Statement No. 109. Due to the realizability limitations discussed
above, a valuation allowance was provided on the deferred tax asset. As a
result of ongoing evaluations, the allowance may be decreased to reflect
changes in the scheduled reversal of deferred tax assets and liabilities, taxes
paid in the carryback period and other factors affecting the realizability of
the Company's deferred tax assets. A $464,000 reduction in the valuation
allowance in 1995 contributed to an effective rate lower than the statutory
expected rate of 40%. The Company recorded income tax expense of $352,000 in
1995, compared with $177,000 in 1994.
<PAGE> 9
YEAR ENDED DECEMBER 31, 1994
COMPARED TO YEAR ENDED DECEMBER 31, 1993
GENERAL
Net income was $983,000 or $1.06 per share in 1994, compared with $803,000 or
$.87 per share in 1993. A $735,000 increase in net interest income and a
$240,000 decrease in provision for loan losses was partially offset by a
$398,000 decrease in other operating income and $207,000 increase in other
expenses. Income taxes increased $190,000.
NET INTEREST INCOME
Net interest income was $6.6 million in 1994, an increase of $735,000 or 12.5%
from $5.9 million in 1993. Interest income increased $1.1 million or 9.3% due
to a $14.2 million increase in average interest earning assets and a .03%
increase in the yield on those assets. During 1993 and 1994, the Company
reduced its investment securities and federal funds sold balances and invested
the funds in locally originated loans, primarily adjustable rate mortgage
loans. Average loans increased $29 million or 23.3% in 1994. The decline in
loan yields of .15% is attributable to the lingering effects of the declining
interest rate environment prior to 1994, which contributed to a decline in loan
yields of .83% in 1993. The full effect of the rate increases in 1994 have yet
to be reflected in the yield on mortgage loans, which declined .31% in 1994.
Much of the Company's $76.7 million portfolio of adjustable rate mortgages is
indexed to the 1 year U.S. Treasury Note and the rates are adjusted annually.
In 1994, the yield on the 1 year Treasury Note nearly doubled, increasing to
approximately 7.25% at the end of 1994, with roughly 40% of the increase
occurring in the last quarter. As a result, rates on many adjustable rate
mortgages either adjusted before the majority of the market rate increases in
1994 had occurred or, for residential mortgages that adjusted in the latter
part of 1994, the adjustment was less than the market rate increase because of
annual adjustment caps, which are generally 2%. The result of these factors
was an increase in the yield on adjustable rate mortgages of approximately .90%
in 1994.
The yield on other loans increased .70% to 8.65% in 1994 due primarily to
increases in the Bank's prime rate, which was 8.5% at the end of 1994, up from
6% at the beginning of the year.
Interest expense increased $361,000 or 6% due to a $12.5 million increase in
interest bearing liabilities being partially offset by a .09% decrease in the
cost of funds. Average interest bearing deposits increased $2.7 million or
1.9% due in large part to the assumption of $16.1 million of interest bearing
deposits acquired from First National Bank of Rochester in December 1994.
Average borrowings increased $9.8 million or 196% and were used to fund asset
growth. Part of the proceeds from the assumption of deposits were used to
liquidate borrowings totaling $11.9 million in December. The Company's cost of
funds did not move in direct step with its earning asset yield because of the
Company's ability to manage its liability structure and the magnitude and
timing of changes in deposit rates. The cost of funds declined for all
categories of interest bearing liabilities in 1994 compared with 1993, however
the trend in 1994 and into 1995 has been an increase in the cost of funds. The
cost of time certificates showed the greatest change, increasing from 4.81% in
January 1994 to 5.28% in December.
The Company's net interest margin increased to 3.72% in 1994, from 3.60% in
1993.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $360,000 in 1994, compared with $600,000 in
1993. The lower provision is the result of an improvement in the credit
quality of the Company's loan portfolio. Loan charge-offs, net of recoveries,
amounted to $258,000 in 1994, compared with $509,000 in 1993.
OTHER OPERATING INCOME
Other operating income in 1994 was $509,000, compared with $907,000 in 1993, a
decrease of $398,000 or 43.9%.
Net gain on security transactions were $7,000 in 1994, down $279,000 from 1993.
The gains recognized in 1993 resulted from the liquidation of a large portion
of the Company's securities portfolio to fund residential mortgage originations
coupled with higher overall bond prices due to lower market rates. Sales of
securities totaled $3 million in 1994, compared with $17.5 million in 1993.
<PAGE> 10
The Company recognized losses on the sale of loans totaling $8,000 in 1994,
compared with gains of $90,000 in 1993. The losses resulted from sharply
higher interest rates in 1994 which reduced the value of the Company's
portfolio of fixed rate loans held for sale. In 1994, sales of fixed rate
residential mortgages totaled $2.9 million, down from $6.8 million in 1993.
This decrease was due to a 55% drop in originations of fixed rate residential
mortgages, due primarily to higher interest rates.
Other income was $510,000 in 1994, compared with $531,000 in 1993, a decrease
of $21,000 or 3.9%. Included in other income in 1993 was a $60,000 one-time
recovery of real estate taxes resulting from a reduced assessment of one of the
Company's properties. Service fees, the largest component of other income, was
$432,000 in 1994, compared with $420,000 in 1993, an increase of $12,000 or
2.9%. Income from the sale of annuities and mutual funds was $65,000 in 1994,
up from $52,000 in 1993 on higher sales volume.
OTHER OPERATING EXPENSES
Other operating expenses were $5.6 million in 1994, compared with $5.4 million
in 1993, an increase of $207,000 or 3.8%.
Salaries and employee benefits expense was $2.3 million in 1994, compared with
$2.1 million in 1993, an increase of $172,000 or 8.2%. Approximately $27,000
was paid for overtime and temporary labor in 1994 due to the conversion and
upgrade of the Company's data processing systems. In addition, salaries paid
to employees of the Bank's two new branches, both of which opened in the fourth
quarter of 1994, totaled approximately $31,000. The remaining increase in
salaries and benefits is due primarily to annual raises and performance
bonuses.
Building, occupancy and equipment expense was $715,000 in 1994, compared with
$835,000 in 1993, a decrease of $120,000 or 14.4%. Rental income increased
$53,000 or 35.3% and was $204,000 in 1994, compared with $150,000 in 1993.
This increase is due to higher occupancy levels of the Company's rentable
office space. Depreciation expense was $384,000 in 1994, a decrease of $35,000
or 8.4% from $419,000 in 1993. This decrease was due to a higher level of
fully depreciated assets in 1994. Also contributing to the decrease in
building, occupancy and equipment expense were lower repairs and maintenance
expense and real estate taxes.
Data processing expense was $318,000 in 1994, compared with $219,000 in 1993,
an increase of $99,000 or 45.2%. This increase is attributable to the cost of
changing the Company's external provider of data processing services, and to an
upgrade in the Company's internal data processing and communications systems.
Legal fees were $171,000 in 1994, compared with $269,000 in 1993, a decrease of
$98,000 or 36.4%. In 1993, the Company incurred legal fees of $81,000 in its
successful defense of a stockholder lawsuit.
Real estate owned expense was $324,000 in 1994, compared with $103,000 in 1993,
an increase of $221,000 or 214.5%. In 1994 the Company increased its provision
for losses on real estate owned by $109,000 or 143.4% due to the difficulty in
liquidating certain properties. In addition, in 1994 the Company paid $32,000
in delinquent real estate taxes for tax years prior to 1994. The remaining
increase of $80,000 resulted primarily from the cost of operating, maintaining
and disposing of properties.
Other expenses were $1.2 million in 1994, compared with $1.3 million in 1993, a
decrease of $60,000 or 4.6%. In 1993 the Company recorded a one time charge of
$85,000 in connection with the resignation of the President of the Company and
the Bank in 1991, representing an obligation that the Bank was then barred by
regulatory authorities from honoring.
Also contributing to the increase in operating expenses in 1994 were costs
associated with opening the Bank's two new branches in the fourth quarter of
1994, including advertising, promotions and stationery and supplies.
The Company's operating expense ratio to average assets was 3.05% in 1994,
compared with 3.13% in 1993.
<PAGE> 11
INCOME TAXES
Statement of Financial Accounting Standards No. 109 was adopted by the Company
in 1992. The statement requires that a valuation allowance be provided when it
is more likely than not that some portion of deferred tax assets will not be
realized. The Company recognized no immediate financial statement effect from
adopting Statement No. 109. Due to the realizability limitations discussed
above, a valuation allowance was provided on the deferred tax asset. As a
result of ongoing evaluations, the allowance may be decreased to reflect
changes in the scheduled reversal of deferred tax assets and liabilities,
taxes paid in the carryback period and other factors affecting the
realizability of the Company's deferred tax assets. A $277,000 reduction in the
valuation allowance in 1994 contributed to an effective rate lower than the
statutory expected rate of 40%. The Company recorded income tax expense of
$177,000 in 1994, compared with an income tax benefit of $13,000 in 1993.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements presented in the Annual Report have been
prepared in accordance with generally accepted accounting principles.
Measurement of financial position and operating results have been made in terms
of historical dollars. Changes in the relative purchasing power of money due
to inflation are not reflected.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature, thus banks are more affected by changes in interest rates
than by inflation. Interest rates do not necessarily reflect the direction or
magnitude of changes in the price of goods and services which are primarily
affected by inflation. In the current interest rate environment, liquidity and
the maturity structure of the Company's assets and liabilities are of major
importance in maintaining acceptable levels of performance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of". The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by a company be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of the asset may not be recoverable.
In performing the review for recoverability, companies are required to estimate
the future cash flows expected to result from the use of the asset and its
eventual disposition. Under SFAS No. 121, an impairment loss is recognized if
the sum of the undiscounted future cash flows is less than the carrying amount
of the asset. The Statement also establishes standards for recording an
impairment loss for certain assets that are subject to disposal. Excluded from
the scope of the statement are financial instruments, mortgage and other loan
servicing rights, deposit intangibles and deferred tax assets. SFAS No. 121
will be prospectively adopted and is effective for the Company's fiscal year
beginning January 1, 1996. The expected impact to the consolidated financial
statements in 1996 is not material.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights", an amendment to SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities". SFAS No. 122 requires a mortgage banking enterprise that acquires
mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing rights
retained to allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans based on their relative fair values. SFAS No.
122 will be prospectively adopted and is effective for the Company's fiscal
year beginning January 1, 1996. The expected impact to the consolidated
financial statements in 1996 is not material, based on historical loan sales
and projected loan sales with servicing retained for 1996.
The Company maintains compensation plans which provide for grants of stock
options to officers. The Company currently follows Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for
its plans. In October 1995, the FASB issued Statement No. 123 entitled
"Accounting for Stock-Based Compensation" which encourages, but does not
require, companies to use a fair value based method of accounting for
stock-based employee compensation plans. Under this method, compensation cost
is measured as of the date stock awards are granted based on the fair value
rather than the intrinsic value of the award, and such cost is recognized over
the service period, which is usually the vesting period. If a company elects
to continue using the intrinsic value based method under Opinion 25, pro forma
disclosures of net income and net income per share are required, as if the fair
value based method had been applied. Under the intrinsic value based method
presently utilized by the Company, compensation cost is the excess, if any, of
the quoted market price of the stock as of the grant date over the amount
employees must pay to acquire it, or over the price established for determining
appreciation. Under the Company's compensation policies, there is no such
excess on the dates of grant. SFAS No. 123 is effective on January 1, 1996.
The Company will continue to account for its compensation plans under Opinion
No. 25.
<PAGE> 12
STATEMENT OF MANAGEMENT RESPONSIBILITY
Management of Center Banks Incorporated is responsible for the accuracy and
content of the financial information in this Annual Report. In order to meet
this responsibility, the consolidated financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis.
The accounting systems which record, summarize and report financial data are
supported by a system of internal controls, augmented by written policies,
internal audits and an organizational structure which provides for an effective
division of responsibilities. The system is also designed to provide
reasonable assurance that transactions are executed in accordance with
management's authorizations, and that assets are safeguarded from significant
loss or unauthorized use.
The Examining Committee of the Board of Directors reviews the activities of the
internal audit function and meets regularly with representatives of KPMG Peat
Marwick LLP, independent auditors. KPMG Peat Marwick LLP has been appointed,
upon recommendation of the Board of Directors, to conduct an independent audit
and to express an opinion as to the fairness of the presentation of the
consolidated financial statements of Center Banks Incorporated, in conformance
with generally accepted accounting principles.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Center Banks Incorporated:
We have audited the accompanying consolidated balance sheets of Center Banks
Incorporated and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Center Banks
Incorporated and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" as amended by Statement No.
118, "Accounting by Creditors for Impairment of a Loan -Income Recognition and
Disclosures" at January 1, 1995.
/s/ KPMG PEAT MARWICK LLP
Syracuse, New York
January 23, 1996
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, December 31,
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
Cash and due from banks $ 5,889 5,125
Federal funds sold 3,400 1,200
Securities available for sale, at fair value 8,653 17,276
Securities held to maturity, fair value of
$13,117 in 1995 and $4,479 in 1994 12,804 4,595
Federal Home Loan Bank stock, at cost 1,303 1,200
Mortgage loans receivable 143,677 138,579
Other loans receivable 27,888 28,430
- --------------------------------------------------------------------------------------------------------------------------
171,565 167,009
Less: Net deferred fees (costs) (69) 48
Allowance for loan losses 2,667 3,040
- --------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 168,967 163,921
Premises and equipment, net 5,885 5,606
Real estate owned, net 397 984
Accrued interest receivable 1,255 1,161
Other assets 2,094 773
- --------------------------------------------------------------------------------------------------------------------------
$ 210,647 201,841
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits $ 167,182 161,154
Demand deposits 9,927 7,645
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 177,109 168,799
Advance payments by borrowers for property
taxes and insurance 2,010 1,897
Borrowings 14,386 13,984
Other liabilities 2,203 3,370
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 195,708 188,050
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 500,000 shares, none issued 0 0
Common stock, par value $.01 per share,
authorized 2,500,000 shares,
1,033,619 and 1,028,444 shares issued
in 1995 and 1994, respectively 10 10
Additional paid-in capital 9,526 9,475
Retained earnings 6,083 5,206
Net unrealized gain (loss) on securities, net of taxes 33 (187)
Treasury stock, at cost (102,700 shares) (713) (713)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 14,939 13,791
- --------------------------------------------------------------------------------------------------------------------------
$ 210,647 201,841
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C> <C>
Interest income:
Mortgage loans $ 11,252 9,037 6,843
Other loans 2,816 2,463 2,684
Securities 1,643 1,411 2,234
Federal funds sold 160 29 83
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 15,871 12,940 11,844
- ---------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 7,629 5,434 5,585
Borrowings 979 915 403
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 8,608 6,349 5,988
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 7,263 6,591 5,856
Provision for loan losses 235 360 600
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 7,028 6,231 5,256
- ---------------------------------------------------------------------------------------------------------------------
Other operating income:
Net gain (loss) on security transactions (99) 7 286
Net gain (loss) on sale of loans 14 (8) 90
Service charges 378 227 257
Other 294 283 274
- ---------------------------------------------------------------------------------------------------------------------
Total other operating income 587 509 907
- ---------------------------------------------------------------------------------------------------------------------
7,615 6,740 6,163
- ---------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 2,702 2,286 2,114
Building, occupancy and equipment 1,091 715 835
Data processing 292 318 219
Deposit insurance 197 391 390
Legal fees 103 171 269
Correspondent bank fees 147 155 163
Real estate owned, net 273 324 103
Other 1,406 1,220 1,280
- ---------------------------------------------------------------------------------------------------------------------
Total other operating expenses 6,211 5,580 5,373
- ---------------------------------------------------------------------------------------------------------------------
Income before income tax expense (benefit) 1,404 1,160 790
Income tax expense (benefit) 352 177 (13)
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1,052 983 803
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.13 1.06 0.87
- ---------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 927,633 925,092 924,669
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 15
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL GAIN (LOSS)
COMMON PAID-IN- RETAINED ON TREASURY LOAN TO
STOCK CAPITAL EARNINGS SECURITIES STOCK ESOP TOTAL
- --------------------------------------------------------------------------------------------------------------------
(In Thousands)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 10 9,468 3,532 0 (713) (61) 12,236
Net income 0 0 803 0 0 0 803
ESOP loan payment 0 0 0 0 0 32 32
Change in net unrealized gain on
securities available for sale, net
of taxes of $162,000 0 0 0 215 0 0 215
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ 10 9,468 4,335 215 (713) (29) 13,286
- --------------------------------------------------------------------------------------------------------------------
Net income 0 0 983 0 0 0 983
ESOP loan payment 0 0 0 0 0 29 29
Sale of 1,075 shares under option 0 7 0 0 0 0 7
Cash dividend declared on
Common stock ($.12 per share) 0 0 (112) 0 0 0 (112)
Change in net unrealized gain on
securities available for sale, net
of taxes of $303,000 0 0 0 (402) 0 0 (402)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 10 9,475 5,206 (187) (713) 0 13,791
- --------------------------------------------------------------------------------------------------------------------
Net income 0 0 1,052 0 0 0 1,052
Sale of 3,860 shares under option 0 32 0 0 0 0 32
Issuance of 1,315 shares of stock
under 1995 Non-employee
Director's Stock Plan 0 19 0 0 0 0 19
Cash dividend declared on
Common stock ($.19 per share) 0 0 (175) 0 0 0 (175)
Change in net unrealized
gain on securities, net of
taxes of $163,000 0 0 0 220 0 0 220
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 10 9,526 6,083 33 (713) 0 14,939
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,052 983 803
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for loan losses 235 360 600
Provision for losses on real estate owned 240 185 76
Depreciation and amortization 557 383 419
Mortgage loans originated for sale (2,565) (2,764) (7,062)
Proceeds from sale of mortgage loans originated for sale 2,060 2,989 6,854
Net (gain) loss on security transactions 99 (7) (286)
Net (increase) decrease in interest receivable (94) (204) 275
Net increase (decrease) in other liabilities (1,253) 1,426 743
Other, net (607) (196) 0
- --------------------------------------------------------------------------------------------------------------
Total adjustments (1,328) 2,172 1,619
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (276) 3,155 2,422
INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 6,020 1,030 0
Proceeds from sale of securities available for sale 0 3,053 0
Purchase of securities available for sale (2,978) (3,538) 0
Proceeds from maturities of securities held to maturity 4,526 831 4,984
Proceeds from sale of securities 0 0 17,832
Purchase of securities held to maturity (7,981) (1,960) (6,088)
Principal collected on mortgage-backed securities 1,244 2,240 3,059
Purchase of Federal Home Loan Bank stock (103) (191) 0
Net increase in loans made to customers (5,017) (24,195) (30,747)
Proceeds from sale of real estate owned 714 495 41
Purchase of property and equipment, net (829) (1,251) (120)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,404) (23,486) (11,039)
FINANCING ACTIVITIES:
Deposits of acquired branch 0 16,434 0
Net increase (decrease) in time certificates 13,565 8,711 (4,312)
Net increase (decrease) in other deposits (5,142) (3,622) 1,154
Increase in overnight borrowings 422 129 1,100
Net increase (decrease) in long-term borrowings (20) 2,735 5,975
Proceeds from issuance of stock pursuant to stock plans 51 7 0
Dividends paid (175) (112) 0
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,701 24,282 3,917
- --------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,021 3,951 (4,700)
Reclassification of balance due from Nationar to other assets (1,057) 0 0
Cash and cash equivalents at beginning of period 6,325 2,374 7,074
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,289 6,325 2,374
- --------------------------------------------------------------------------------------------------------------
Interest paid $ 8,607 6,315 5,949
- --------------------------------------------------------------------------------------------------------------
Income taxes paid $ 269 468 60
- --------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing activities:
Transfer of securities from available for sale to held to maturity $8,334 0 0
Transfer of securities from held to maturity to available for sale 2,471 0 20,868
Mortgage loans foreclosed and transferred to real estate owned 358 131 305
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Center Banks (the Company) is a bank holding company registered under the Bank
Holding Company Act of 1956. The results of the Company are largely dependent
upon the results of Skaneateles Savings Bank (the Bank), its sole subsidiary.
Skaneateles Savings Bank is a full service retail bank.
The preparation of the consolidated 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
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
The following summarizes the significant accounting policies of the Company:
(A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany balances and transactions are eliminated
in consolidation.
(B) SECURITIES
The Company classifies its debt securities as either available-for-sale or
held-to-maturity. Equity securities are classified as available- for-sale.
Held-to-maturity securities are those debt securities that the Company has the
ability and intent to hold until maturity. All other securities not included
as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized 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 stockholders' equity until
realized. Transfers of securities between categories are recorded at fair
value at the date of transfer. Unrealized gains or losses associated with
transfers of securities from held-to-maturity to available-for-sale are
recorded as a separate component of stockholders' equity. The unrealized gains
or losses included in the separate component of equity for securities
transferred from available-for-sale to held-for-maturity are maintained and
amortized into earnings over the remaining life of the security as an
adjustment to yield in a manner consistent with the amortization or accretion
of premium or discount on the associated security.
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment of yield using the effective 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 sold are derived using the specific
identification method for determining the cost of securities sold.
(C) LOANS RECEIVABLE
Loans receivable are reported at the principal amount outstanding, net of
deferred fees and an allowance for loan losses. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition precludes accrual. Generally, interest income is not recognized on
loans which are delinquent over 90 days, and income is subsequently recognized
only to the extent that cash payments are received until, in management's
judgment, the borrower's ability to make periodic interest and principal
payments is back to normal, in which case the loan is returned to accrual
status.
Net loan fees and costs are capitalized as an adjustment of loan principal and
amortized over the life of the related loan as an adjustment of yield using the
interest method.
The Bank originates some mortgage loans with the intent to sell. These loans
are carried at the lower of aggregate cost or fair value. Gains or losses on
sales of mortgages are recorded equal to the difference between sales proceeds
and the carrying value of the loans. The Bank typically retains the servicing
rights to mortgages sold.
<PAGE> 18
(D) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses consists of the provision charged to operations
based upon past loan loss experience, management's evaluation of the loan
portfolio under current economic conditions and such other factors that require
current recognition in estimating loan losses. Loan losses and recoveries of
loans previously written-off are charged or credited to the allowance as
incurred or realized, respectively.
Management believes that the allowance for loan losses is adequate. Management
uses presently available information to recognize losses on loans; however,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses and may require the Company to recognize additions to the allowance
based on their judgment of information available to them at the time of their
examination.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (the
Statement) as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures" on January 1, 1995.
Management considers a loan impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
of principal and interest under the original terms of the loan agreement.
Significant factors impacting management's judgment in determining when a loan
is impaired include an evaluation of compliance with repayment program,
condition of collateral, deterioration in financial strength of borrower or any
case when the expected future cash payments may be less than the recorded
amount. Accordingly, the Company measures certain impaired commercial mortgage
loans based on the present value of expected future cash flows, discounted at
the loan's effective interest rate or, at the loan's observable market price or
fair value of collateral. In considering loans for evaluation of impairment,
management generally excludes large groups of small balance, homogeneous loans
such as residential mortgage loans, home equity loans and all consumer loans.
These loans are collectively evaluated for impairment. Impairment losses are
included in the allowance for loan losses through a charge to the provision for
loan losses. Troubled debt restructurings involving a modification of terms
are recorded at fair value as of the date of the transaction. The Company
recognizes interest income on impaired loans using the cash basis of income
recognition. Cash receipts on impaired loans are generally applied according
to the terms of the loan agreement, or as a reduction of principal, based upon
management judgment and the related factors discussed above. Adoption of the
Statement did not have a material impact on the Company's 1995 consolidated
financial statements.
(E) PREMISES AND EQUIPMENT
Land is carried at cost and buildings and improvements, furniture and
equipment, and leasehold improvements are carried at cost less allowances for
depreciation and amortization. Depreciation and amortization are provided over
the estimated service lives of the respective assets or lease terms on the
straight-line method.
(F) REAL ESTATE OWNED
Real estate acquired in settlement of loans is carried at the lower of cost or
fair value less costs to sell. Write-downs from cost to fair value which are
required at the time of foreclosure are charged to the allowance for loan
losses. Subsequent write-downs to fair value, net of disposal costs, are
charged to other operating expenses.
(G) 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.
(H) PER COMMON SHARE DATA
Per common share data is computed based upon the weighted average number of
shares outstanding. Common stock equivalents are not included since dilution
is less than 3%.
(I) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash,
amounts due from banks and federal funds sold.
(J) RECLASSIFICATIONS
<PAGE> 19
Certain reclassifications have been made to prior period amounts for
consistency in reporting.
(2) SECURITIES
Securities available for sale at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency obligations $5,980 126 0 6,106
Mortgage-backed securities-FHLMC 2,471 77 (1) 2,547
- ----------------------------------------------------------------------------------------------------------------------
$8,451 203 (1) 8,653
- ----------------------------------------------------------------------------------------------------------------------
1994
------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency obligations $9,037 0 (95) 8,942
Mortgage-backed securities:
FNMA 202 0 (11) 191
FHLMC 8,366 14 (237) 8,143
- ----------------------------------------------------------------------------------------------------------------------
$17,605 14 (343) 17,276
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
Securities held to maturity at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency $6,026 51 0 6,077
obligations
Mortgage-backed securities:
FNMA 170 4 0 174
FHLMC 4,493 192 0 4,685
Obligations of states and political 1,714 66 (3) 1,777
subdivisions
Corporate bonds, notes and debentures 401 3 0 404
- ---------------------------------------------------------------------------------------------------------------------
$12,804 316 (3) 13,117
- ---------------------------------------------------------------------------------------------------------------------
1994
---------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency $1,963 0 (3) 1,960
obligations
Obligations of states and political 1,731 12 (106) 1,637
subdivisions
Corporate bonds, notes and debentures 901 0 (19) 882
- ---------------------------------------------------------------------------------------------------------------------
$4,595 12 (128) 4,479
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
On January 1, 1995 the Company reclassified its entire portfolio of
mortgage-backed securities from available-for-sale to held-to-maturity, at the
securities' fair value of $8.3 million. The $234,000 unrealized loss on the
securities was maintained and is being amortized into earnings over the
remaining life of the securities as an adjustment to yield in a manner
consistent with the amortization or accretion of premium or discount on the
associated securities.
In November 1995, the Financial Accounting Standards Board (FASB) issued a
special report entitled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" (Guide).
Concurrent with the initial adoption of the Guide, but no later than December
31, 1995, the Company was permitted to reassess the appropriateness of the
classifications of all securities held at the time and implement
reclassifications without calling into question the Company's intent to hold
other debt securities to maturity in the future. The Company adopted the
implementation guidance in November 1995 and transferred securities with an
amortized cost of $2,471,000 from the held-to- maturity portfolio to the
available-for-sale category. The $46,000 net unrealized gain on the securities
was recorded in the separate component of stockholders' equity at the time of
transfer.
Gross realized gains on the sale of securities were approximately $7,000 and
$303,000 in 1994 and 1993, respectively. Gross realized losses on the sale of
securities were approximately $17,000 in 1993. Losses of $99,000 were
recognized in 1995 due to other than temporary impairment of the Bank's equity
investment in Nationar.
<PAGE> 21
The contractual maturity distribution of securities at December 31, 1995 is as
follows (in thousands):
<TABLE>
<CAPTION>
WITHIN ONE TO FIVE TO AFTER
TEN
ONE YEAR FIVE YEARS TEN YEARS YEARS TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government and Federal agency $999 4,981 0 0 5,980
obligations
Mortgage-backed securities-FHLMC 0 13 1,424 1,034 2,471
- -----------------------------------------------------------------------------------------------------------------------
$999 4,994 1,424 1,034 8,451
- -----------------------------------------------------------------------------------------------------------------------
Fair value $1,005 5,113 1,462 1,073 8,653
- -----------------------------------------------------------------------------------------------------------------------
Weighted average yield of securities 6.22% 6.56% 8.11% 8.34%
- -----------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. government and Federal agency $4,012 2,014 0 0 6,026
obligations
Mortgage-backed securities:
FNMA 0 0 0 170 170
FHLMC 0 0 0 4,493 4,493
Obligations of states and political 0 20 346 1,348 1,714
subdivisions
Corporate bonds, notes and debentures 0 200 201 0 401
- -----------------------------------------------------------------------------------------------------------------------
$4,012 2,234 547 6,011 12,804
- -----------------------------------------------------------------------------------------------------------------------
Fair value $4,032 2,266 557 6,262 13,117
- -----------------------------------------------------------------------------------------------------------------------
Weighted average yield of securities 6.32% 6.14% 6.88% 7.36%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities carried at $6,055,000 at December 31, 1995 were pledged for
borrowings and other purposes required by law.
Accrued interest receivable on securities was $262,000 and $314,000 at December
31, 1995 and 1994, respectively.
(3) LOANS RECEIVABLE, NET
Major categories of loans receivable at December 31, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans secured by first mortgages on real
estate:
Residential $ 116,320 110,404
Commercial 27,357 28,175
- -----------------------------------------------------------------------------------------------------------------------
143,677 138,579
- -----------------------------------------------------------------------------------------------------------------------
Other loans:
Business 10,631 13,274
Guaranteed student 858 789
Home equity and improvement 14,578 13,219
Other consumer 1,821 1,148
- -----------------------------------------------------------------------------------------------------------------------
27,888 28,430
- -----------------------------------------------------------------------------------------------------------------------
171,565 167,009
Less:
Net deferred fees (costs) (69) 48
Allowance for loan losses 2,667 3,040
- -----------------------------------------------------------------------------------------------------------------------
$168,967 163,921
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
Changes in the allowance for loan losses for the years ended December 31 were
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $3,040 2,938 2,847
Provision charged to operations 235 360 600
Recoveries 124 108 220
Loans charged off (732) (366) (729)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 2,667 3,040 2,938
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal balances of loans not accruing interest amounted to approximately
$2,138,000 and $3,251,000 at December 31, 1995 and 1994, respectively. The
effect of non-accrual loans on interest income for 1995, 1994 and 1993 was
approximately $155,000, $172,000 and $104,000 respectively.
As discussed in Note 1, the Company changed its method of accounting for
impairment of loans on January 1, 1995 to adopt the provisions of SFAS No. 114.
Impaired loans, which included troubled debt restructured loans, were
$4,004,000 at December 31, 1995. Included in this amount is $2,688,000 of
impaired loans for which the related allowance for loan losses is $884,000, and
$1,316,000 of impaired loans for which no allowance is recorded due to the
adequacy of collateral values in accordance with SFAS 114. The amount of
interest income recognized on impaired loans in 1995 was approximately
$281,000. The Bank is not committed to lend additional funds to these
borrowers.
Accrued interest receivable on loans was $993,000 and $847,000 at December 31,
1995 and 1994, respectively.
The Bank serviced mortgage loans for others aggregating approximately
$19,795,000 and $20,848,000 at December 31, 1995 and 1994, respectively.
The Bank entered into loan transactions with the Company's directors and
officers (related parties). Such transactions were made on substantially the
same terms as those prevailing at the same time for comparable loans to other
customers, and did not, in the opinion of management, involve more than normal
credit risk or present other unfavorable features. An analysis of related
party loan activity follows:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 1,217
Increases 3
Decreases (97)
- ------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 1,123
- ------------------------------------------------------------------------------------
</TABLE>
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 is as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 432 432
Buildings and improvements 4,611 4,510
Furniture and equipment 2,902 2,885
Leasehold improvements 1,592 1,125
- ---------------------------------------------------------------------------------------------------------
9,537 8,952
Less accumulated depreciation and amortization 3,652 3,346
- ---------------------------------------------------------------------------------------------------------
$ 5,885 5,606
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
Depreciation and amortization of premises and equipment included in building,
occupancy and equipment expense amounted to $557,000, $383,000 and $419,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
(5) DEPOSITS
Deposits at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------------- ---------------------
WEIGHTED Weighted
AVERAGE average
INTEREST interest
AMOUNT RATE Amount rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Savings and club accounts $33,016 2.85% 36,255 2.60
Time certificates 99,474 5.89 85,909 5.14
Money market accounts 21,448 3.34 25,502 3.34
NOW accounts 13,244 2.24 13,488 2.25
Demand accounts 9,927 0.00 7,645 0.00
- --------------------------------------------------------------------------------------------------------------------
$177,109 4.41% 168,799 3.86
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 and 1994, the aggregate amounts of time deposits in
denominations of $100,000 or more were approximately $9,074,000 and $7,839,000,
respectively.
The following table presents, by various interest rate categories, the amounts
of certificate accounts at December 31, 1995, which mature during the periods
indicated (in thousands):
<TABLE>
<CAPTION>
MATURING
------------------------------------------------------------------
WITHIN AFTER
ONE TWO THREE FOUR FIVE FIVE
AMOUNT YEAR YEARS YEARS YEARS YEARS YEARS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.00 to 3.99% $ 498 435 50 7 6 0 0
4.00 to 4.99% 10,783 9,232 688 750 113 0 0
5.00 to 5.99% 45,515 27,076 4,524 3,041 5,521 4,186 1,167
6.00 to 6.99% 27,756 10,402 4,020 1,715 2,400 4,730 4,489
7.00 to 7.99% 14,153 2,999 10,272 0 0 882 0
8.00 to 11.99% 769 15 501 25 196 3 29
- ------------------------------------------------------------------------------------------------------------------------------
Total certificate accounts $99,474 50,159 20,055 5,538 8,236 9,801 5,685
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest expense on deposits for the years ended December 31 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings and club accounts $ 937 960 1,046
Time certificates 5,598 3,405 3,400
Money market accounts 765 770 827
NOW and escrow accounts 329 299 312
- ------------------------------------------------------------------------------------------------------------------------------
$7,629 5,434 5,585
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
(6) BORROWINGS
Borrowings at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------- ---------------------
AMOUNT RATE Amount Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities sold under repurchase agreements $1,651 4.47% $1,229 5.07%
Advances from the FHLB of New York,
due 1995 0 0.00 1,000 6.56
due 1996 1,000 7.13 1,000 7.13
due 1997 2,000 6.15-7.79 1,000 7.79
due 1998 6,000 5.45-5.60 6,000 5.45-5.60
due 2002 2,000 10.51 2,000 10.51
Municipal securities sold with put options 1,735 6.48 1,755 6.31
- -----------------------------------------------------------------------------------------------------------------------
$14,386 $13,984
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank enters into repurchase agreements with commercial demand deposit
customers under which balances greater than $25,000 earn interest at a rate of
90% of the weekly average auction yield of the 90 day U.S. Treasury Bill.
These transactions are recorded as borrowings. At December 31, 1995, the Bank
pledged U.S. Treasury Notes totaling $2,000,000 as collateral for the
repurchase agreements.
At December 31, 1995, Federal Home Loan Bank of New York (FHLB) advances are
collateralized by the investment in stock of the FHLB of $1,303,000 and
residential mortgage loans with a carrying value approximating $12,800,000.
These advances carry fixed rates of interest.
In 1985, the Bank sold certain municipal securities to a Municipal Investment
Trust Fund which have a par value at December 31, 1995 of $1,735,000. The
trust has put options which require the Bank to repurchase the securities at
par value on annual repurchase dates and on fourteen days notice if any debt
obligation is deemed to be taxable or in default. The put options are
collateralized by approximately $2,035,000 of municipal and corporate bonds and
U.S. Treasury Notes of approximately $1,000,000. This transaction has been
recorded as a borrowing. The borrowing is reduced with proceeds from the
maturity or call of the municipal securities, which have maturity dates ranging
from November 1998 to November 2017.
The Bank maintains a line of credit with the FHLB of New York. Borrowings
under the line bear interest at .125% above the federal funds rate. The total
amount available under the line was $10,214,000 at December 31, 1995. The
amount of the line is equal to 5% of the Bank's total assets and is set each
year at March 31, the renewal date of the line.
(7) INCOME TAXES
Total income taxes for the year ended December 31 were allocated as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from operations $ 352 177 (13)
Stockholders' equity, for change in 163 (303) 162
unrealized gain (loss) on securities
- ------------------------------------------------------------------------------------------------------------
$ 515 (126) 149
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
Actual income taxes applicable to operations differ from expected taxes,
computed by applying the Federal corporate tax rate of 34% to income (loss)
before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax expense $ 477 394 269
Non-deductible expenses 101 0 0
State income taxes, net of Federal 99 8 12
benefit
Change in valuation allowance for deferred tax (464) (277) (233)
assets
Other 139 52 (61)
- -------------------------------------------------------------------------------------------------------
Income tax expense (benefit) $ 352 177 (13)
- -------------------------------------------------------------------------------------------------------
The components of income tax expense (benefit) applicable to operations are as follows (in thousands):
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 406 233 168
State 150 12 18
- -------------------------------------------------------------------------------------------------------
556 245 186
- -------------------------------------------------------------------------------------------------------
Deferred:
Federal (204) (68) (152)
State 0 0 (47)
- -------------------------------------------------------------------------------------------------------
(204) (68) (199)
- -------------------------------------------------------------------------------------------------------
$352 177 (13)
- -------------------------------------------------------------------------------------------------------
Deferred tax expense (exclusive of the change in valuation $ 260 209 34
allowance)
Change in valuation allowance (464) (277) (233)
- -------------------------------------------------------------------------------------------------------
$ (204) (68) (199)
- -------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31 are presented below (in thousands).
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,065 1,214
Unrealized loss on securities available for sale 0 141
Alternative minimum tax credit carryforwards 137 228
Unrealized gain on securities available for sale for tax 105 0
purposes
Other 90 127
- -------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,397 1,710
Less valuation allowance (572) (1,036)
- -------------------------------------------------------------------------------------------------------
Net deferred tax assets 825 674
- -------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Increase in tax bad debt reserve over base year 146 128
Unrealized gain on securities available for sale 22 0
Accumulated depreciation 117 55
Other 132 124
- -------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 417 307
- -------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 408 367
- -------------------------------------------------------------------------------------------------------
</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
<PAGE> 26
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 and the level of historical taxable income.
The Company has an alternative minimum tax credit carryforward of approximately
$137,000 at December 31, 1995, which may be carried forward indefinitely.
Additionally, the Company has a New York State mortgage tax credit carryforward
of approximately $38,000 which is available to reduce future state income
taxes.
Retained earnings at December 31, 1995 includes approximately $987,000
representing aggregate bad debt deductions taken under the provisions of the
Internal Revenue Code. Use of these reserves for purposes other than to absorb
losses on loans would result in taxable income. However, it is not
contemplated that the reserves will be used in a manner that will create tax
liabilities.
(8) STOCKHOLDERS' EQUITY
The Company's principal source of funds to pay dividends on the Company's
common stock is dividends received from the Bank. In any calendar year,
approval of the Superintendent of Banks of the State of New York is required
prior to the Bank declaring dividends in an amount in excess of net income for
that year plus net income retained in the preceding two years. At December
31, 1995 , the Bank has approximately $2,556,000 available for payment of
dividends to the Company. The Company and Bank are in compliance with Federal
Reserve Board and FDIC capital requirements at December 31, 1995 and 1994.
<PAGE> 27
(9) EMPLOYEE BENEFITS AND STOCK PLANS
The Company adopted a Stock Option Plan which was approved by the stockholders
in 1987 (1987 plan). Under the 1987 plan, 51,177 shares of authorized but
unissued common stock were reserved for the granting of options to officers and
key employees. Options are granted at the market price of shares at the date
of grant, adjusted when applicable for the effect of stock dividends, become
exercisable 20% per year after the date of grant and must be exercised within
10 years of the date of grant.
To supplement the 1987 plan, the Company adopted an additional Stock Option
Plan which was approved by the shareholders in 1991 (1991 plan). Under the
1991 plan, 46,233 shares of authorized but unissued common stock were reserved
for future issuance. The terms, conditions, and provisions of the 1991 plan
are substantially the same as those of the 1987 plan described above, except
that the vesting of options is determined by the Company's board of directors
at the time of grant.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDER OPTION PRICE
OPTION PER SHARE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, December 31, 1992 16,660 $5.25-11.00
Granted 29,500 8.50-9.50
Canceled (1,300) 5.25
- -----------------------------------------------------------------------------------------------------
Outstanding, December 31, 1993 44,860 5.25-11.00
- -----------------------------------------------------------------------------------------------------
Granted 17,500 10.25
Canceled (2,060) 5.25-9.52
Exercised (1,075) 5.25-8.50
- -----------------------------------------------------------------------------------------------------
Outstanding, December 31, 1994 59,225 5.25-11.00
- -----------------------------------------------------------------------------------------------------
Granted 5,000 15.25
Canceled (1,665) 5.25-10.25
Exercised (3,860) 5.25-9.52
- -----------------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 58,700 $5.25-15.25
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the option price per share of vested options at
December 31, 1995:
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE
VESTED OPTIONS PER SHARE
- -----------------------------------------------------------------
<S> <C>
5,440 $ 5.25
14,400 8.50
9,900 9.50
6,510 9.52
3,450 10.25
200 11.00
- -----------------------------------------------------------------
39,900
- -----------------------------------------------------------------
</TABLE>
At December 31, 1995, 33,775 options were available for grant.
<PAGE> 28
The Company maintains an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees who have completed one year of service, with
participants vesting in shares purchased by the ESOP based upon a graduated
scale over a 7 year period. In December 1987, 27,500 shares were purchased by
the ESOP Trust from $38,000 of contributions made to the ESOP by the Bank and
$196,000 from the proceeds of a promissory note obtained by the ESOP Trust.
The final installment on the promissory note was paid by the Company in
December 1994. The Company pays all administrative expenses associated with
the ESOP.
For the years 1994, and 1993, the Company expensed $30,000 and $36,000,
respectively, which was paid to the ESOP trust. Of these amounts $29,000 and
$32,000 were for repayment of the note payable annual installments and $1,000
and $4,000, respectively, were for interest. No contributions were made by the
Company in 1995. At December 31, 1995, all 18,534 shares in the plan were
allocated to plan participants.
The Bank has a 401(k) Savings Plan which covers all full time salaried
employees who have completed one year of service and are at least 21 years old.
Expense of the Plan in 1995, 1994 and 1993 was approximately $89,000, $91,000
and $79,000, respectively.
The 1995 Non-Employee Directors Stock Plan (the "Plan") was approved by
shareholders and adopted by the Company in 1995. The Plan was established to
attract, retain and compensate for the services of highly qualified individuals
who are not employees of the Company or the Bank, as members of their
respective boards of directors, and to enable them to increase their ownership
in the Company's common stock, through automatic, non-discretionary awards of
shares in lieu of cash meeting fees otherwise payable to them. The total
number of shares that may be awarded pursuant to the plan shall not exceed
25,000. Shares awarded may be authorized but unissued shares, treasury shares,
or shares purchased on the open market. The Plan terminates on December 31,
1999 unless terminated earlier by the board of directors or extended by the
board with the approval of shareholders. During 1995, 1,315 shares were
awarded and 23,685 shares were available for award at December 31, 1995.
The 1995 Non-Employee Directors Warrant Plan (the "Warrant Plan") was approved
by shareholders and adopted by the Company in 1995. The Warrant Plan was
established to attract, retain and compensate for the services of highly
qualified individuals who are not employees of Company or the Bank, as members
of their respective boards of directors, and to enable them to increase their
ownership in the Company's common stock. The total number of shares that may
be issued pursuant to warrants granted under the Warrant Plan shall not exceed
75,000. Shares subject to warrants granted may be authorized but unissued
shares, treasury shares, shares purchased on the open market or shares issued
pursuant to a rights offering or dividends. If any warrant is surrendered
before exercise, or lapses without exercise, or for any other reason ceases to
be exercisable, in whole or in part, the shares reserved for the unexercised
portion thereof shall continue to be available for the grant of warrants
hereunder. Each warrant granted vests and becomes exercisable over a
three-year period, in increments of one-third on each anniversary of the grant
date.
<PAGE> 29
(10) COMMITMENTS
The Bank occupies five branches and other office space under noncancellable
operating leases with remaining terms through 2009. A summary of future
minimum rental commitments under the terms of such leases at December 31, 1995
follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------
<S> <C>
1996 $ 318
1997 319
1998 325
1999 326
2000 347
Subsequent years 2,009
- --------------------------------------------------------------------------
$ 3,644
- --------------------------------------------------------------------------
</TABLE>
Rent expense amounted to approximately $321,000 for 1995 and $146,000 for 1994
and 1993, respectively.
Commitments to fund loans (including lines of credit) and outstanding letters
of credit at December 31, 1995 and 1994 were approximately $14,189,000 and
$193,000, and $15,568,000 and $300,000, respectively. Approximately $4,251,000
of the loan commitments at December 31, 1995 were for fixed rates of interest.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce exposure to fluctuations in interest rates. Those financial
instruments include commitments to extend credit, and loans written with
interest rate caps. Those instruments involve, to varying degrees, elements of
credit and market risk in excess of the amount recognized in the consolidated
balance sheets. Credit risk represents the accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted. Unless noted otherwise, the Company does not require collateral
or other security to support off-balance sheet financial instruments with
credit risk. Market risk represents the accounting loss that would be
recognized at the reporting date if future changes in market prices make a
financial instrument less valuable.
The Company writes variable rate loan contracts with interest rate caps in
order to manage its interest rate exposure. Substantially, all variable rate
loans are held by the Company.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments is represented by
the contractual or notional amount of these instruments. The Company uses the
same credit policies in making commitments as it does for on-balance sheet
instruments. For interest rate caps, the contract or notional amounts do not
represent exposure to credit loss. The Company controls its credit risk through
credit approvals, limits, and monitoring procedures.
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Loan commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Company evaluates each customer's credit
worthiness 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. Collateral held varies, but may include real
estate, accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties.
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, the aggregate amount involved in
such proceedings is not material to the financial condition or results of
operations of the Company.
On February 6, 1995, the Superintendent of Banks for the State of New York
seized Nationar, a check-clearing and trust company, freezing all of Nationar's
assets. On that date, the Bank had items in process of approximately $1
million, which are now included in other assets in the consolidated financial
statements. Based on information set forth in certain publicly available
documents, which by their terms are preliminary, management believes that the
Bank will recover all of its items in process owed by Nationar. The foregoing
event has not had any material effect on the Bank's ability to meet its
liquidity needs. Management has taken all steps necessary to recover the
amounts owed the Bank by Nationar.
<PAGE> 30
(11) CONCENTRATIONS OF CREDIT
A substantial portion of the Company's loans are secured by real estate in
Central New York State. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio is susceptible to changes
in market conditions in this area. The Company's concentrations of credit risk
are as disclosed in the schedule of loan classifications. The concentrations
of credit risk in letters of credit and lines of credit outstanding parallel
those loan classifications. Other than general economic risks, management is
not aware of any material concentrations of credit risk to any industry or
individual borrower. The Company's only financial instruments with off-balance
sheet risk are letters of credit and committed lines of credit. These
off-balance sheet items are shown in the Company's balance sheet upon funding.
(12) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Securities (including mortgage-backed securities): Fair values of 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 receivable: For variable rate loans that reprice frequently and loans
due on demand with no significant change in credit risk, fair values are based
on carrying values. The fair values for certain mortgage loans (e.g.
one-to-four family residential) and other consumer loans are based on quoted
market prices of similar loans sold on the secondary market, adjusted for
differences in loan characteristics. The fair values of other loans (e.g.
commercial real estate and rental property mortgage loans and business loans)
are estimates using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit equity. The carrying amount of accrued interest approximates its fair
value.
Off-balance-sheet instruments: Fair values for the Company's off-balance-sheet
instruments (letters of credit, commitments to fund loans) are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair values of loan origination commitments, lines of credit and standby
letters of credit were estimated based on an analysis of the interest rates and
fees currently charged for similar transactions. These fair values were not
significantly different from the carrying amounts at December 31, 1995 and
1994, respectively.
Deposit Liabilities: The fair values disclosed for demand deposits (interest
and non-interest checking, savings and club accounts, and money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e. their carrying amounts). Fair values for fixed-rate
certifications of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
These estimated fair values do not include the value of core deposit
relationships which comprise a significant portion of the Company's deposit
base. Management believes that the Company's core deposit relationships
provide a relatively stable, low-cost funding source which has a substantial
intangible value separate from the deposit balances.
Borrowings: The carrying amounts reported in the balance sheet for overnight
borrowings approximate the fair values of those liabilities. The fair values
of the Company's long-term borrowings are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
<PAGE> 31
The following is a summary of the carrying values and estimated fair values of
the Company's financial assets and liabilities at December 31, 1995 and 1994,
respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------- ----------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
- ---------------------------------------------------------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,289 9,289 $ 6,325 6,325
Securities available for sale 8,653 8,653 17,276 17,276
Securities held to maturity 12,804 13,117 4,595 4,479
Federal Home Loan Bank stock 1,303 1,303 1,200 1,200
Loans 168,967 171,751 163,921 158,978
Financial liabilities:
Demand, NOW, Savings and money market accounts 77,635 77,635 82,890 82,890
Time certificates 99,474 100,696 85,909 85,678
Borrowings 14,386 14,920 13,984 13,142
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(13) PARENT COMPANY FINANCIAL INFORMATION
The following presents the condensed balance sheets of the Company (parent
only) as of December 31,1995 and 1994 and its condensed statements of
operations and cash flows for the years ended December 31, 1995, 1994 and 1993
(in thousands).
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash $ 58 7
Investment in subsidiary 14,881 13,784
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 14,939 13,791
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 14,939 13,791
- ----------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
Income:
Dividends from subsidiary $ 175 112 76
Expenses 0 0 (81)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before undistributed income of subsidiary 175 112 (5)
Equity in undistributed income of subsidiary 877 871 808
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1,052 983 803
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,052 983 803
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in undistributed income of subsidiary (877) (871) (808)
Other 0 0 1
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 175 112 (4)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities:
Cash dividends paid on common stock (175) (112) 0
Proceeds from issuance of stock pursuant to stock
option plans
and Non-Employee Director's Stock Plan 51 7 0
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (124) (105) 0
- ------------------------------------------------------------------------------------------------------------------------
Cash at beginning of year 7 0 4
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 58 7 0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 33
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the years
ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 QUARTER ENDED
TOTAL
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 3,799 4,011 4,049 4,012 15,871
Total interest expense (1,944) (2,200) (2,242) (2,222) (8,608)
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 1,855 1,811 1,807 1,790 7,263
Provision for loan losses (90) (90) (30) (25) (235)
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,765 1,721 1,777 1,765 7,028
- ---------------------------------------------------------------------------------------------------------------------
Net loss on security transactions (16) 0 (83) 0 (99)
Net gain on sale of loans 2 5 4 3 14
Other operating income 154 147 184 187 672
Other operating expense (1,543) (1,568) (1,593) (1,507) (6,211)
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 362 305 289 448 1,404
Income tax expense 94 76 71 111 352
- ---------------------------------------------------------------------------------------------------------------------
Net income 268 229 218 337 1,052
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.29 0.24 0.23 0.36 1.13
- ---------------------------------------------------------------------------------------------------------------------
1994 Quarter Ended
- ------------------------------------------------------------------------------------------------------- Total
March 31 June 30 September 30 December 31 Year
- ----------------------------------------------------------------------------------------------------------------------
Total interest income $ 3,051 3,112 3,247 3,530 12,940
Total interest expense (1,471) (1,504) (1,571) (1,803) (6,349)
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 1,580 1,608 1,676 1,727 6,591
Provision for loan losses (90) (90) (90) (90) (360)
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,490 1,518 1,586 1,637 6,231
- ----------------------------------------------------------------------------------------------------------------------
Net gain on security transactions 0 0 7 0 7
Net gain (loss) on sale of loans 16 (27) 4 (1) (8)
Other operating income 124 128 133 125 510
Other operating expense (1,282) (1,346) (1,417) (1,535) (5,580)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 348 273 313 226 1,160
Income tax expense 73 43 49 12 177
Net income $ 275 230 264 214 983
- ----------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.29 0.25 0.29 0.23 1.06
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Summation of the quarterly earnings per common share, due to the averaging
effect of the number of shares throughout the year, does not necessarily equal
the annual amount.
<PAGE> 34
(15) SUBSEQUENT EVENTS (UNAUDITED)
On February 6, 1996, the Company and the Bank entered into a certain Purchase
and Assumption Agreement (the "Agreement") with Cicero Bank, a New York State
chartered commercial bank ("Cicero"), pursuant to which the Bank will acquire
substantially all of Cicero's assets and assume substantially all of Cicero's
deposit liabilities. The acquisition will be accounted for using the purchase
method of accounting. The purchase price is approximately $1,500,000. The
transaction, which is subject to regulatory approval and the approval of
Cicero's stockholders, is expected to close in mid-1996. At December 31, 1995,
Cicero's deposit liabilities were approximately $21,319,000, for which the
Company will receive loans, cash and various other assets.
<PAGE> 35
<TABLE>
<CAPTION>
DIRECTORS OF CENTER BANKS
INCORPORATED
<S> <C>
JOHN P. DRISCOLL Chairman, President & Chief Executive Officer
CLIFFORD C. ABRAMS Retired, President, Clifford C. Abrams, Inc.
ISRAEL BERKMAN Retired, Examining Officer of the
Federal Reserve Bank of New York
DAVID E. BLACKWELL President, Auburn
Steel Company, Inc.
WALTER D. COPELAND Retired, President, Walter D. Copeland
Organization, Inc.
CARL W. GERST, JR. Executive Vice President and Chief
Operating Officer, Anaren Microwave, Inc.
JOHN BERNARD HENRY Professor of Pathology
SUNY Health Science Center at Syracuse
ANN G. HIGBEE President of Public Relations Services,
Eric Mower and Associates
BRUCE H. LESLIE, PH.D. President, Onondaga Community College
HOWARD J. MILLER Retired, Vice President, Distribution, Crucible Service Centers
ANNE E. O'CONNOR Corporate Secretary, Kopp Billing Agency, Inc.
RAYMOND C. TRAVER, President, Raymond C. Traver, Jr.,
JR., MD M.D., P.C.
DIRECTORS' EMERITUS
B. Burdette Lee
Frederick R. Platt
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
OFFICERS OF CENTER BANKS
INCORPORATED
<S> <C>
JOHN P. DRISCOLL Chairman, President and Chief Executive Officer
J. DAVID HAMMOND Executive Vice President
J. DANIEL MOHR Treasurer
WILLIAM J. WELCH Secretary
JANET D. WITTER Assistant Secretary
<CAPTION>
OFFICERS OF SKANEATELES SAVINGS BANK
<S> <C>
JOHN P. DRISCOLL Chairman, President & Chief Executive Officer
J. DAVID HAMMOND Executive Vice President
KAREN E. LOCKWOOD Vice President
JOHN A. MASON Vice President
J. DANIEL MOHR Vice President, Treasurer and Chief Financial Officer
WILLIAM J. WELCH Vice President
RONALD M. DENBY Assistant Vice President
BETH L. BURGMASTER Human Resources Officer
STEPHEN G. KUNZINGER Auditor
RICHARD M. LAMBRECHT, JR. Controller
BETH H. MEYERS Operations Officer
DONNA L. ROUSE Loan Operations Officer
JANET D. WITTER Secretary
CYNTHIA W. CAMERON Community Banking Officer
DEBRA A. CHASE Community Banking Officer
JAMES E. DOVE Community Banking Officer
ROGER F. PHELPS Community Banking Officer
</TABLE>
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
DIRECTLY OR INDIRECTLY
DIRECTOR AS OF FEBRUARY 16, 1996
POSITION WITH THE COMPANY AND PRINCIPAL OF BANK ------------------------
NAME AGE OCCUPATION DURING THE PAST FIVE YEARS SINCE(1) AMOUNT PERCENT(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Clifford C. Abrams 70 Director; Retired, President and General 1983 4,821 (3)
Manager of Clifford C. Abrams, Inc., an
electrical contracting company.
David E. Blackwell 57 Director; President, Auburn Steel 1993 1,139
Company, Inc.
Howard J. Miller 63 Director; Retired, Vice President, 1993 1,543 (4)
Distribution Crucible Service Centers.
Raymond C. Traver, Jr., M.D. 53 Director; Orthopedic Surgeon. 1990 6,710 (5)
Israel Berkman 67 Director; Retired, Examining Officer of 1992 (6) 1,517
the Federal Reserve Bank of New York.
Ann G. Higbee 53 Director; President of Public Relations 1993 1,862
Services, Eric Mower and Associates.
Bruce H. Leslie 47 Director; President, Onondaga 1993 483
Community College.
Anne E. O' Connor 60 Director; Corporate Secretary, Kopp 1995 92,399 (7) 9.92%
Billing Agency, a medical billing agency.
Walter D. Copeland 62 Director; Retired, President, Walter D. 1994 360 (8)
Copeland Organization, Inc., a real
estate consulting firm.
John P. Driscoll 56 Chairman, President and Chief Executive 1992 16,847 (9) 1.78%
Officer of the Company. President & CEO
of Steamatic of Greater Rochester,
a commercial restoration and reconstruction
company from 1989 to 1992. Regional
President of Anchor Savings Bank, FSB
from 1976 to 1989.
Carl W. Gerst, Jr. 58 Director; Executive Vice President, 1982 3,578
Chief Operating Officer and Director of
Anaren Microwave, Inc., a manufacturer
of military electronic subsystems.
John Bernard Henry 67 Director; Professor of pathology and 1989 2,500 (10)
former President of the State University
of New York
</TABLE>
<PAGE> 38
Health Science Center at Syracuse.
<TABLE>
<CAPTION>
<S> <C>
(1) Includes terms as Trustee prior to the Bank's conversion from the mutual to
stock form of organization on May 30, 1986.
(2) All holdings amount to less than 1% of the issued and outstanding Common
Stock, unless otherwise indicated.
(3) Includes 1,575 shares held by Mr. Abrams' wife.
(4) Includes 500 shares held by Mr. Miller's wife.
(5) Includes 4,050 shares held in trust under a defined employee contribution
pension plan; and 524 shares held by Dr. Traver as custodian for
his children.
(6) Mr. Berkman is a director of the Company but not the Bank.
(7) Shares owned by Mrs. O' Connor's husband.
(8) Shares owned by Walter D. Copeland and Concetta M. Copeland Revocable
Living Trust dated October 11, 1995, Walter D. Copeland and Concetta
M. Copeland, trustees.
(9) Includes vested options to purchase 15,400 shares.
(10) All shares held jointly with Mr. Henry's wife, with whom Mr. Henry has
shared voting and investment power.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Since the formation of Center Banks, none of its executive officers
has received any separate form of compensation from the Company. Officers
receive compensation in their positions as officers of the Bank.
The following table sets forth the compensation paid by the Bank to
the Company's Chairman, President and Chief Executive Officer and to each
executive officer whose aggregate annual salary and bonus exceeded $100,000 for
services rendered in all capacities during the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------------------
AWARDS
OTHER -----------
ANNUAL SECURITIES ALL OTHER
NAME AND COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY (1) BONUS SATION (2) OPTIONS (#) SATION (3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John P. Driscoll
Chairman, President & CEO 1995 $ 124,547 $ 17,406 $ 10,113 0 $ 26,417
1994 110,104 0 10,784 8,000 14,627
1993 95,478 10,000 14,681 14,000 2,733
<FN>
- --------------
(1) Includes the cost of shares allocated under the Company's Employee Stock
Ownership Plan.
(2) Comprised entirely of country club dues in 1995 and 1994. Includes
relocation expenses of $12,700 in 1993.
(3) Includes contributions to
the Company's 401(k) plan totaling $6,790, premium payments on an individual
flexible premium deferred variable annuity totaling $18,607 and premiums
paid on term life insurance policy totaling $1,020.
</TABLE>
The Company did not grant any stock options to the Chairman, President
and Chief Executive Officer and named executive officers in 1995. Options to
purchase 5,000 shares at $15.25 per share were granted in 1995 to the executive
officers as a group.
<PAGE> 39
The following table sets forth information regarding In-the-Money options for
the Company's Chairman, President and Chief Executive Officer and named
executive officers at December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1995 (#) DECEMBER 31, 1995
-------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John P. Driscoll 15,400 6,400 $72,963 $24,400
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are not executive officers of the Company receive a fee
of $400 per Board meeting attended. In addition, non-officer members of
committees of the Board receive a fee of $250 per committee meeting attended.
Directors who are also officers of the Company receive no compensation for
attendance at Board or committee meetings.
EMPLOYMENT AGREEMENTS
The Company and the Bank have entered into an employment agreement
with Mr. Driscoll effective as of January 1, 1996 which supersedes in its
entirety his previous such contract. Under this agreement, Mr. Driscoll will
receive a base salary for 1996 of $118,350. Thereafter Mr. Driscoll's salary
shall be fixed as determined by the Board of Directors based upon an annual
review of his compensation. Mr. Driscoll is also entitled to receive a bonus
tied to specified target levels of the Company's earnings per share, and such
other cash bonuses as the Board, in its discretion, may award.
Under his agreement, Mr. Driscoll will receive a continuation of
his salary and benefits for two years if his employment is terminated by the
Company for any reason other than "cause", including a "change in control" of
the Company.
The Company and the Bank have also entered into agreements with
J. David Hammond, Executive Vice President, and William Welch, John Mason, J.
Daniel Mohr and Karen Lockwood, Vice Presidents, pursuant to which they will
receive a continuation of their respective salary and benefits for six months
(twelve in the case of Mr. Hammond) if there occurs a "change in control" of
the Company as a result of which their employment is terminated.
PERFORMANCE GRAPH
The following table compares cumulative total shareholder returns on
the Company's stock over the last five years to the Nasdaq Stock Market Index
for U.S. companies and the Nasdaq Bank Index. Total return values were
calculated assuming a $100 investment on December 31, 1990 and reinvestment of
dividends. The following table shall not be deemed incorporated by reference
into any filing under the Securities Act of 1933 or the 1934 Act and shall not
be deemed filed under either such act.
<TABLE>
<CAPTION>
TOTAL RETURN
DATE CENTER BANKS NASDAQ US NASDAQ BANK
- ------------------------------------------------------------------
<S> <C> <C> <C>
1990 100 100 100
1991 108 161 164
1992 154 187 239
1993 154 215 272
1994 189 210 271
1995 245 296 404
</TABLE>
<PAGE> 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF COMMON STOCK
The following table (with notes thereto) sets forth information as of
the Record Date with respect to ownership of Common Stock by any person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) who is known to the Company to be the
beneficial owner of more than 5% of Common Stock and with respect to ownership
of Common Stock by all directors and executive officers of the Company as a
group (such information being based on information filed by or on behalf of the
beneficial holder concerned).
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Francis R. O'Connor 92,399 (2) 9.92
511 E. Fayette Street
P.O. Box 2367
Syracuse, NY 13220
Jeffrey L. Gendell 88,200 (3) 9.47
Tontine Partners, L.P.
31 West 52nd Street, 17th Floor
New York, New York 10019
Dimensional Fund Advisors 64,400 (4) 6.91
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All current directors and executive
officers as a group (15 persons) 146,038 (5) 15.26
<FN>
- ---------------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended ("1934 Act"), a person is deemed to be the beneficial
owner for purposes of this table of any shares of Center Banks common
stock (a) over which he or she has or shares voting or investment
power, or (b) of which he or she has the right to acquire beneficial
ownership at any time within 60 days from February 16, 1996. For
purposes of the 1934 Act, "voting power" is the power to vote or
direct the voting of shares and "investment power" is the power to
dispose or direct the disposition of shares. All shares shown in the
table above have sole voting and investment power, except as otherwise
indicated. This table includes shares of common stock subject to
outstanding options granted pursuant to the Company's Stock Option
Plans. As of February 16, 1996, executive officers as a group held
vested options to purchase 24,950 shares. See "Compensation of
Executive Officers."
(2) Mr. O' Connor's wife is a director of the Company.
(3) As reported by Jeffrey L. Gendell and Tontine Partners, L.P., a
Delaware Limited Partnership ("Tontine") in a statement as of
September 28, 1995 on Schedule 13D under the Exchange Act. Of the
88,200 shares reported above, Mr. Gendell reported sole dispositive
powers as to 35,000 shares and both Mr. Gendell and Tontine reported
shared voting and dispositive powers as to 53,200 shares.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 64,400
shares of Center Banks Inc. common stock as of December 31, 1995, all
of which shares are held in portfolios of DFA Investment Dimensions
Group Inc., a registered open-end investment company, or in series of
the DFA Investment Trust Company, a Delaware business trust, or the
DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional serves
as investment manager. Dimensional disclaims beneficial ownership of
all such shares.
(5) Includes 92,399 shares owned by Mrs. O'Connor's husband.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE> 1
Exhibit 21
List of Registrant's Subsidiaries
Skaneateles Savings Bank, New York State-chartered.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Center Banks Incorporated:
We consent to incorporation by reference in the registration statement Nos.
33-37281, 33-92198 and 33-37282 on Form S-8 of Center Banks Incorporated of our
report dated January 23, 1996, relating to the consolidated balance sheets of
Center Banks Incorporated and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995,
which report has been incorporated by reference in the December 31, 1995 annual
report on Form 10-K of Center Banks Incorporated. Our report refers to a
change in accounting for impaired loans at January 1, 1995.
/s/ KPMG Peat Marwick LLP
Syracuse, New York
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED WITHIN THE COMPANY'S 1995 ANNUAL REPORT TO
STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,889
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,653
<INVESTMENTS-CARRYING> 12,804
<INVESTMENTS-MARKET> 13,117
<LOANS> 171,565
<ALLOWANCE> 2,667
<TOTAL-ASSETS> 210,647
<DEPOSITS> 179,119
<SHORT-TERM> 2,651
<LIABILITIES-OTHER> 2,203
<LONG-TERM> 11,735
<COMMON> 10
0
0
<OTHER-SE> 14,929
<TOTAL-LIABILITIES-AND-EQUITY> 210,647
<INTEREST-LOAN> 14,068
<INTEREST-INVEST> 1,643
<INTEREST-OTHER> 160
<INTEREST-TOTAL> 15,871
<INTEREST-DEPOSIT> 7,629
<INTEREST-EXPENSE> 8,608
<INTEREST-INCOME-NET> 7,263
<LOAN-LOSSES> 235
<SECURITIES-GAINS> (99)
<EXPENSE-OTHER> 6,211
<INCOME-PRETAX> 1,404
<INCOME-PRE-EXTRAORDINARY> 1,404
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,052
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 8.07
<LOANS-NON> 2,138
<LOANS-PAST> 1
<LOANS-TROUBLED> 1,125
<LOANS-PROBLEM> 3,493
<ALLOWANCE-OPEN> 3,040
<CHARGE-OFFS> 732
<RECOVERIES> 124
<ALLOWANCE-CLOSE> 2,667
<ALLOWANCE-DOMESTIC> 2,667
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,103
</TABLE>
