<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, 1997
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-18513
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SKANEATELES BANCORP, INC.
-------------------------
(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 18, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $25,274,000.
As of March 18, 1998, 1,438,960 shares of registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of 10-K into which incorporated
-------- ------------------------------------
Portions of the Annual Report to
Shareholders for the year ended
December 31, 1997 Parts II and IV
Portions of the definitive Proxy
Statement for Annual Meeting of
Shareholders to be held April 21, 1998 Part III
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<TABLE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT 1997
SKANEATELES BANCORP, INC.
<CAPTION>
Page
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<S> <C> <C>
PART I.
Item 1. Business ........................................................................... 1
Item 2. Properties ......................................................................... 18
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 Stockholder Matters ........... 19
Item 6. Selected Financial Data ............................................................ 19
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations ................................................... 19
Item 7A Quantitative and Qualitative Disclosures About Market Risk......................... 19
Item 8. Financial Statements And Supplementary Data ....................................... 19
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 ................................. 20
Item 11.Executive Compensation ............................................................. 20
Item 12.Security Ownership Of Certain Beneficial Owners And Management ..................... 20
Item 13.Certain Relationships and Related Transactions ..................................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................... 21
</TABLE>
<PAGE> 3
PART I.
Item 1. BUSINESS
GENERAL
Skaneateles Bancorp, Inc. (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 nine 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 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 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 economic 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 of the Bank and the Company.
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. Since
1994, the Bank acquired or opened six branch offices in and around Syracuse.
Three of these branches are in-store facilities in newly constructed or
renovated supermarkets The in-store branches provide all of the same products
and services as the Bank's traditional branches, with the exception of safe
deposit boxes.
The Company was incorporated as Center Banks Incorporated. On April 15,
1997, stockholders approved the Company's proposal to change its name from to
Skaneateles Bancorp, Inc. The name change was effective April 16, at which time
the Company's stock began trading under the symbol "SKAN" on the NASDAQ National
Market System.
In October, 1997, the Company declared a three-for-two stock split in
the form of a 50% stock dividend, payable on November 28, 1997 to shareholders
of record on November 12. The total number of shares outstanding increased by
approximately 478,000 as a result of the split. All share and per-share
information has been retroactively adjusted to reflect the split.
Certain statements in this discussion are forward-looking. These may be
identified by the use of forward-looking words or phrases, such as "believe,"
"expect," "anticipate," "should," "planned," "estimated," and "potential." These
forward-looking statements are based on the Company's current expectations. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
such statements. To comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause actual results and experience to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements. Among the risks and uncertainties that may affect
the operations, performance and results of the business of the Company and the
Bank are prevailing market rates of interest for both loans and deposits, loan
prepayments by, and the financial health of, the Bank's borrowers, general
economic conditions in the Bank's designated lending area, and competition from
banks and other financial institutions with greater resources operating in the
Bank's marketplace.
LENDING ACTIVITIES
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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.
RESIDENTIAL REAL ESTATE LENDING. 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
residential loans are originated directly by Skaneateles. The Bank has also
purchased loans for its portfolio from time to time, although no such purchases
were made in 1997 or 1996.
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.
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 require the borrower to
maintain a deposit account with the Bank from which mortgage payments are
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 were originated for portfolio prior to January, 1998.
Beginning in January, 1998, the Bank began selling all conforming fixed rate
mortgages at the time of origination due to the relatively low interest rate
environment and the resulting increased interest rate risk associated with long
term fixed rate assets. The Bank generally retains servicing on sold loans.
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. 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.
Adjustable rate loans are generally retained for portfolio.
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, leases and lines of credit. In January 1997,
the Bank expanded its commercial loan products by offering dealer floor plans.
Through this program the Bank offers revolving credit lines to local automobile,
boat and recreational vehicle dealerships to finance inventory purchases. Rates,
terms, compensatory
2
<PAGE> 5
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 lines 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 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.
The Bank also originates consumer loans through an indirect lending
program through which it receives loan applications from Bank-approved
automobile, boat and recreational vehicle dealerships on behalf of their
customers to finance their purchases. These applications are subject to the
Bank's normal consumer loan underwriting criteria.
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.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
Skaneateles' loan portfolio by loan type as of the dates indicated.
3
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<TABLE>
<CAPTION>
At December 31,
------------------ ---------------- ------------------ ----------------- -----------------
1997 1996 1995 1994 1993
------------------ ---------------- ------------------ ----------------- -----------------
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 ............... $119,350 55.63% 129,651 62.74% 116,320 67.80% 110,404 66.10% 87,623 61.16%
Commercial ................ 33,962 15.83% 31,728 15.35% 27,357 15.94% 28,175 16.87% 25,854 18.05%
Other loans:
Commercial ................ 22,995 10.72% 18,861 9.13% 10,631 6.20% 13,274 7.95% 15,574 10.87%
Home equity and improvement 20,624 9.61% 17,599 14,578 8.52% 8.50% 13,219 7.92% 12,454 8.69%
Guaranteed student ........ 1,059 0.49% 882 858 0.43% 0.50% 789 0.47% 825 0.58%
Other consumer ............ 16,565 7.72% 7,924 1,821 3.83% 1.06% 1,148 0.69% 928 0.65%
- ------------------------------------------------------------------------------------------------------------------------------
Total .............. $214,555 100.00% 206,645 100.00% 171,565 100.00% 167,009 100.00% 143,258 100.00%
==============================================================================================================================
</TABLE>
Total loans were $214.6 million at December 31, 1997, an increase of $8
million, or 3.9% from December 31, 1996. Loan originations for 1997 totaled $50
million, a decrease of 7.7% from 1996's originations of $54.2 million.
Substantial increases in both consumer and commercial loan originations were
offset by a decrease in residential lending.
Residential mortgage originations were $9.7 million in 1997, a decrease
of 68.3% from 1996's originations. Residential mortgages represented 19.3% of
1997's total loan originations, down from 56.1% in 1996. As a result of
increasing competition in mortgage lending, which squeezed margins and
profitability, the Bank shifted its lending focus late in 1996, placing more
emphasis on consumer and commercial loans. To that end, the Bank effectively
suspended the use of mortgage brokers, who had been used to supplement the
Bank's direct originations, especially outside of the Bank's designated lending
area. Accordingly, as expected, residential mortgage originations dropped
significantly in 1997.
Approximately $7.9 million, or 81.4% of the residential loans originated
in 1997 were for fixed rates of interest, compared with $15.2 million and 50%,
respectively, in 1996. Fixed rate mortgages with terms of 15 years or less were
originated for portfolio prior to January, 1998. Beginning in January, 1998, the
Bank began selling all conforming fixed rate mortgages at the time of
origination due to the relatively low interest rate environment and the
resulting increased interest rate risk associated with long term fixed rate
assets.
Consumer loan originations were $20.8 million, or 41.6% of total loan
originations in 1997, compared with $10.5 million, or 19.4% in 1996. The Bank
has seen a substantial increase in deposit customers through its Checking
Account Marketing Program ("CHAMP"). Cross-sales of consumer loan products to
these new customers was a significant factor behind the loan growth in 1997. The
CHAMP program is a long-term marketing program and cross-selling to new
customers obtained through the program is expected to be an important component
of consumer loan growth in future years. The Bank's indirect lending program was
also an important factor, accounting for approximately 33.5% of the Bank's total
consumer loan originations in 1997.
Commercial loan and mortgage originations were $19.6 million, or 39.1% of
total loan originations in 1997, up from $13.3 million, or 24.5% in 1996. The
increase resulted largely from the Bank's dealer floor plan program begun in
January, 1997. Through the program, the Bank provides lines of credit to local
boat, automobile, and recreational vehicle dealers to finance inventory
purchases. At December 31, 1997, total outstanding balances on dealer floor
plans was $4.7 million.
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,
and tends to decrease due to prepayments when current mortgage interest rates
are below the rates on existing mortgages.
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The following table sets forth the contractual maturity of the
commercial loan portfolio and real estate construction loans at December 31,
1997.
<TABLE>
<CAPTION>
Within One to After
one year five years five years Total
- ---------------------------------------------------------------------------------------------------------
In Thousands)
<S> <C> <C> <C> <C>
Commercial loans - adjustable rate $7,721 6,783 2,672 17,176
Commercial loans - fixed rate 284 4,117 1,418 5,819
Real estate construction loans - adjustable rate 56 0 0 56
- ---------------------------------------------------------------------------------------------------------
Total $8,061 10,900 4,090 23,051
=========================================================================================================
</TABLE>
INTEREST SENSITIVITY ANALYSIS
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). The Company uses three methods to measure its interest rate risk: i) gap;
ii) duration; and iii) simulation analysis. Gap analysis measures the difference
between assets and liabilities which reprice and/or mature within a given time
frame, typically the cumulative one-year horizon. An asset-sensitive gap
position could lead to an increase in net interest income in a rising rate
environment, and a decrease in net interest income in a falling rate
environment, as assets reprice or mature quicker than liabilities. Conversely, a
liability-sensitive gap position could lead to a decrease in net interest income
in a rising rate environment and an increase in net interest income in a falling
rate environment. Duration analysis measures the weighted average time to
receive (pay) all cash flows (principal and interest) on a financial instrument.
The shorter the duration of a financial instrument, the quicker its cash flows
are received (paid). Simulation analysis measures the impact on net interest
income and market value of equity of hypothetical changes in interest rates.
Through simulation analysis, management can also estimate the impact on net
interest income of different investing and funding strategies.
In February 1996, the Bank purchased an interest rate floor with a
notional amount of $18 million, to hedge a portion of its prime-based loan
portfolio. Under the agreement, which expires in February 1999, the Bank will
receive payments on a quarterly basis if the prime rate drops below 8.25% (the
"strike rate"). Payments are equal to the amount by which the prime rate falls
below the strike rate multiplied by the notional amount of the floor. The fee
paid for the floor is included in other assets and is being amortized to
interest income using the interest method over the life of the floor.
The Company's cumulative 1 year ratio of rate sensitive assets to rate
sensitive liabilities (1 year gap) was 1.10 at December 31, 1997. This indicates
a slightly asset-sensitive position.
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The following table sets forth, as of December 31, 1997, information
regarding the interest-sensitive assets and liabilities of the Company.
<TABLE>
<CAPTION>
0 to Over 3 Over 1 Over 5 Over
3 Months to 12 Months to 5 Years to 10 Years 10 Years Total
- ------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 6,700 0 0 0 0 6,700
Securities 4,489 4,183 4,027 677 2,705 16,081
Federal Home Loan Bank stock 1,561 0 0 0 0 1,561
Mortgage loans 20,085 57,457 49,519 20,956 5,295 153,312
Consumer loans 11,748 5,542 19,715 1,243 0 38,248
Commercial loans 16,996 1,357 4,642 0 0 22,995
- ------------------------------------------------------------------------------------------------------------
Total 61,579 68,539 77,903 22,875 8,001 238,897
- ------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Savings and club accounts(1) 4,245 12,735 16,976 8,495 0 42,451
Time certificates 21,376 41,145 40,754 1,797 0 105,072
Money market accounts 24,234 0 0 0 0 24,234
Now and escrow accounts(1) 1,290 4,220 16,837 3,678 0 26,025
Borrowings 2,204 7,005 7,015 936 897 18,057
- ------------------------------------------------------------------------------------------------------------
Total 53,349 65,105 81,582 14,906 897 215,839
- ------------------------------------------------------------------------------------------------------------
Gap $ 8,230 3,434 (3,679) 7,969 7,104 23,058
- ------------------------------------------------------------------------------------------------------------
Cumulative gap $ 8,230 11,664 7,985 15,954 23,058
- ------------------------------------------------------------------------------------------------------------
Cumulative gap as a
percentage of
interest-earning assets 3.44% 4.88% 3.34% 6.68% 9.65%
============================================================================================================
</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.
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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>
1997 1996
---------------------------------- -----------------------------------
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 $ 374 151 525 860 44 904
Other loans 1,548 (22) 1,526 793 (263) 530
Securities (235) (28) (263) (151) (31) (182)
Federal funds sold (4) 19 15 55 (16) 39
- -------------------------------------------------------------------------------------------------------------------------------
Total 1,683 120 1,803 1,557 (266) 1,291
===============================================================================================================================
Interest expense on interest-bearing liabilities:
Deposits:
Savings and club accounts $ 125 4 129 100 3 103
Time certificates 24 (158) (134) 369 (59) 310
Money market accounts 21 70 91 (35) 0 (35)
Now and escrow accounts 103 (15) 88 75 (12) 63
- -------------------------------------------------------------------------------------------------------------------------------
Total deposits 273 (99) 174 509 (68) 441
Borrowings 152 (2) 150 94 (32) 62
- -------------------------------------------------------------------------------------------------------------------------------
Total 425 (101) 324 603 (100) 503
===============================================================================================================================
Net interest income $ 1,258 221 1,479 954 (166) 788
===============================================================================================================================
</TABLE>
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The following table sets forth information with respect to loans delinquent 90
days or more, nonaccrual loans, restructured loans, and real estate owned as of
the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Residential real estate mortgages $1,091 1,359 271 317 291
Commercial (1) 2,573 1,626 1,757 2,894 2,481
Consumer 253 186 110 40 10
- -------------------------------------------------------------------------------------------------------------------
Total $3,917 3,171 2,138 3,251 2,782
===================================================================================================================
Other loans past due 90 days or more and still accruing:
Consumer (2) $ 0 29 1 0 12
Commercial (1) 0 370 0 447 0
Lease loans 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Total $ 0
===================================================================================================================
Restructured loans, not included above 0 0 1,125 932 1,006
===================================================================================================================
Real estate owned 951 717 397 984 1,807
===================================================================================================================
Total assets containing specific risk $4,868 4,287 3,661 5,614 5,607
===================================================================================================================
Ratio of total loans past due
90 days or more to gross loans 1.83% 1.73% 1.25% 2.05% 1.95%
===================================================================================================================
Ratio of assets containing specific
risk elements to total assets 1.90% 1.77% 1.74% 2.78% 3.21%
===================================================================================================================
(1) Includes commercial real estate loans.
(2) Consists primarily of Guaranteed Student Loans.
</TABLE>
The following table sets forth the amounts of interest income not
recognized on nonaccruing loans during each period (not including the effect of
loans charged off during the period).
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Income that would have been accrued
at original contract rates $ 274 283 155 172 104
</TABLE>
Nonperforming assets (nonaccrual loans and real estate owned) totaled
$4.9 million, or 1.9% of total assets at December 31, 1997, compared with $3.9
million, or 1.6% of total assets at December 31, 1996. Included in nonperforming
assets at December 31, 1997 were nonaccrual loans of $3.9 million, or 1.8% of
gross loans, compared with $3.2 million, or 1.5% of gross loans at December 31,
1996.
Potential problem loans at December 31, 1997 amounted to $779,000.
"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
8
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the borrower's inability to comply with the present loan repayment terms. 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 Bank 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 proportionate 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.
Generally, all commercial mortgage loans and commercial loans in a
delinquent payment status (90 days or more delinquent) are considered impaired.
The Bank estimates losses on impaired loans based on the present value of
expected future cash flows (discounted at the loan's effective interest rate) or
the fair value of the underlying collateral if the loan is collateral dependent.
An impairment loss exists if the recorded investment in a loan exceeds the value
of the loan as measured by the aforementioned methods. A loan is considered
impaired when it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Residential
mortgage loans, consumer loans, home equity lines of credit and education loans,
respectively, are evaluated collectively since they are homogenous and generally
carry smaller individual balances.
As with any financial institution, poor economic conditions, high
interest rates, high unemployment and other matters outside of the Bank'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 function to audit for adherence to
established Bank controls and to review the quality and anticipated
collectibility of the portfolio. Loan review reports are presented 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.
Impaired loans, which included troubled debt restructured loans, were
$2,079,000 and $1,929,000 at December 31, 1997 and 1996, respectively. Included
in these amounts are $1,911,000 and $832,000 of impaired loans for which the
related allowance for loan losses is $219,000 and $216,000, respectively. In
addition, included in the total impaired loans at December 31, 1997 and 1996 are
$168,000 and $1,097,000 of impaired loans for which no allowance is recorded due
to the adequacy of collateral values in accordance with SFAS 114. The average
recorded investment in impaired loans during 1997, 1996 and 1995 was
approximately $1,480,000, $2,923,000, and $3,859,000, respectively. The amount
of interest income recognized on impaired loans in 1997, 1996 and 1995 was
approximately $84,000, $166,000, and $281,000, respectively. The Bank is not
committed to lend additional funds to these borrowers.
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 the allowance for loan losses as of December 31, 1997
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.
9
<PAGE> 12
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 2,114 2,667 3,040 2,938 2,847
Provision 500 175 235 360 600
Charge-offs
- -----------
Residential mortgages (92) (74) 0 (18) 0
Commercial mortgages (237) (168) (569) 0 (237)
Business (137) (999) (153) (331) (428)
Credit Card (1) 0 0 0 0
Other consumer (106) (60) (10) (17) (64)
- -------------------------------------------------------------------------------------------------------------------
(573) (1,301) (732) (366) (729)
- -------------------------------------------------------------------------------------------------------------------
Recoveries
- ----------
Residential mortgages 2 0 0 0 0
Commercial mortgages 5 0 0 0 4
Business 496 118 118 96 203
Other consumer 16 8 6 12 13
- -------------------------------------------------------------------------------------------------------------------
519 126 124 108 220
- -------------------------------------------------------------------------------------------------------------------
Net Charge-offs (54) (1,175) (608) (258) (509)
- -------------------------------------------------------------------------------------------------------------------
Allowance of acquired bank 0 447 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Ending Balance $ 2,560 2,114 2,667 3,040 2,938
===================================================================================================================
Ratio of net charge-offs during the year
to average loans outstanding during the year 0.03% 0.62% 0.36% 0.17% 0.41%
===================================================================================================================
</TABLE>
10
<PAGE> 13
The following table sets forth the allocation of the allowance
for loan losses as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Consumer $ 428 178 80 59 34
Commercial (1) 2,039 1,822 2,517 2,926 2,850
Residential 93 114 70 55 54
- --------------------------------------------------------------------------------
$2,560 2,114 2,667 3,040 2,938
================================================================================
(1) Includes commercial real estate loans.
</TABLE>
SECURITIES
Skaneateles has authority to purchase a wide range of securities,
subject to various restrictions. See "Regulation - New York Law."
Skaneateles' investment strategy is primarily to hold securities for the
purpose of providing liquidity and generating income. The Bank invests primarily
in 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 the Federal National Mortgage Association (FNMA) and
the 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, 1997, 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, as the Company does not hold any securities considered to
be trading. 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. 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 until realized. 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.
11
<PAGE> 14
Presented below are the carrying values (in thousands) of the securities
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Securities Available for Sale:
U.S. government and Federal agency obligations $ 6,026 5,027 6,106
Mortgage-backed securities:
FNMA 752 0 0
FHLMC 0 0 2,547
Other asset-backed securities 1,638 982 0
- ----------------------------------------------------------------------------------------------------
$ 8,416 6,009 8,653
====================================================================================================
Securities Held to Maturity:
U.S. government and Federal agency obligations $ 3,007 4,992 6,026
Mortgage-backed securities:
FNMA 130 145 170
FHLMC 2,998 3,674 4,493
Obligations of states and political subdivisions 1,470 1,782 1,714
Corporate bonds, notes and debentures 100 300 401
- ----------------------------------------------------------------------------------------------------
$ 7,705 10,893 12,804
====================================================================================================
</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 accounts (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. Interest is compounded and credited monthly on such
certificates.
The Bank currently offers a tiered money market deposit account.
Accounts with balances $50,000 and over earn an annual yield equal to 90% of the
average discount rate set weekly at the 91-day Treasury Bill auction. Accounts
with lower balances earn interest based on a graduated scale. Interest is
compounded and credited monthly on these accounts.
Regular savings accounts currently earn interest at an annual rate of
2.85%, which accrues daily and is compounded and credited monthly. No minimum
balance is required to earn interest on these accounts.
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 and fees 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.
12
<PAGE> 15
The following table sets forth deposits by type of account as of the
dates indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- ------------------------------- ------------------------------
Percent Percent Percent
Amount of total Amount of total Amount of total
deposits deposits deposits
-------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings and club accounts $ 42,451 19.47% 38,690 18.87% 33,016 18.43%
Time certificates 105,072 48.19% 107,429 52.39% 99,474 55.54%
Money market accounts 24,234 11.12% 21,991 10.73% 21,448 11.98%
NOW accounts 24,456 11.22% 20,314 9.91% 13,244 7.39%
Demand accounts 20,236 9.28% 14,861 7.25% 9,927 5.54%
Escrow accounts 1,569 0.72% 1,744 0.85% 2,010 1.12%
- ------------------------------------------------------------------------------------------------------------------------------
Total $218,018 100.00% 205,029 100.00% 179,119 100.00%
==============================================================================================================================
</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, 1997, 1996 and
1995, the aggregate amounts of certificates of deposit in denominations of
$100,000 or more were approximately $13,427,000, $13,065,000 and $9,074,000,
respectively.
The following table presents the amounts of certificates of deposit in
denominations of $100,000 or more at December 31, 1997 which mature during the
periods indicated.
Maturity Amount
-------- ------
3 months or less $ 4,615
3 to 6 months 2,301
6 to 12 months 2,040
Over 12 months 4,471
- -----------------------------------------------------------
Total 13,427
- -----------------------------------------------------------
Deposit growth was the primary source of funds for the Bank in 1997.
Total deposits, including escrow, were $218 million at December 31, 1997, an
increase of $13 million or 6.3% from the end of 1996. The Bank experienced an
increase of $6.1 million in December 1997 alone, at least half of which were
short-term increases in personal and commercial demand accounts which were
withdrawn in January 1998.
The Bank's strategy for deposit growth is focused on savings and
checking accounts, which carry lower rates of interest than time accounts and
tend to be less sensitive to changes in interest rates. The Bank offers seven
checking account products, each targeted to specific demographic groups and
supported by an active direct mail marketing campaign (CHAMP). Total checking
account balances increased $9.5 million, or 27.1% in 1997, on top of a $7.8
million or 33.4% increase in 1996 (excluding accounts acquired from Cicero
Bank). The Bank opened more than 6,400 new checking accounts in 1997 as a result
of the CHAMP program.
Savings account balances increased $3.8 million, or 9.7% in 1997,
compared with an increase of $2.9 million or 8.9% in 1996 (excluding accounts
acquired from Cicero Bank). The gains resulted primarily from cross-sales to new
checking account customers.
The CHAMP program will be a key part of the Bank's deposit growth
strategy for the foreseeable future. In addition to the lower interest cost of
these deposits, the accounts generate fee income which will provide a stable
13
<PAGE> 16
source of revenue regardless of fluctuations in interest rates. Also, the
increase in checking account customers provides a significant opportunity to
cross sell other deposit and loan products.
Time certificates of deposit totaled $105.1 million at December 31,
1997, compared with $107.4 million at the end of 1996. The Bank generally kept
its rates on time certificates at or slightly above the average rates in its
market area during 1997. The Bank expects to continue this practice in 1998.
Premium rates may be offered from time to time for specific branch promotions or
in the event loan demand so justifies.
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,
1997 1996 1995
------------------------ ----------------------- -----------------------
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 $ 41,004 2.85% $ 36,576 2.84% 33,133 2.83%
Time certificates 104,447 5.53% 104,023 5.68% 97,596 5.74%
Money market accounts 22,551 3.64% 21,919 3.33% 23,000 3.33%
</TABLE>
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,
---------------------------------------------------
1997 1996 1995
------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
Securities sold under repurchase agreements $ 2,204 2,516 1,651
Overnight advances from the FHLB of New York 0 0 0
Advances from the FHLB of New York 14,486 14,000 11,000
Municipal securities sold with put options 1,367 1,665 1,735
- --------------------------------------------------------------------------------------------------------------------
18,057 18,181 14,386
====================================================================================================================
Weighted average interest cost of
borrowings during the year 6.47% 6.48% 6.70%
====================================================================================================================
</TABLE>
14
<PAGE> 17
SELECTED PERFORMANCE RATIOS
Selected performance ratios of the Company are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Return on Assets
Net Income / Average Total Assets 0.68% 0.65% 0.51%
Return on Equity
Net Income / Average Stockholders' Equity 9.66% 9.43% 7.24%
Dividend Payout Ratio
Cash Dividends Declared / Net Income 23.28% 17.78% 16.67%
Equity to Asset Ratio
Average Stockholders' Equity /Average Total Assets 7.01% 6.91% 7.03%
</TABLE>
PERSONNEL
As of December 31, 1997 Skaneateles had 119 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, 1997.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
John P. Driscoll 57 Chairman, President and Chief Executive Officer
J. David Hammond 53 Executive Vice President & Secretary
J. Daniel Mohr 32 Treasurer
William J. Welch 48 Asst. Secretary & Asst. Treasurer
</TABLE>
REGULATION
General
As a bank holding company, Skaneateles Bancorp, Inc. 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.
15
<PAGE> 18
FEDERAL BANK HOLDING COMPANY REGULATION. Skaneateles Bancorp, Inc. 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 Skaneateles Bancorp, Inc. 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 insured 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 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.
16
<PAGE> 19
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>
Date Premium per $100 of total 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
<FN>
(*) The Bank's FDIC insurance premium was reduced to the legal minimum
of $2,000 per year effective January 1, 1996. Effective January 1,
1997 the FDIC eliminated the $2,000 per year legal minimum. Beginning
January 1, 1997, the Bank is paying a fee for Financing Corporation
(FICO) debt service at an annual rate of $.013 per $100 of insurable
deposits. This fee is not an FDIC insurance premium.
</TABLE>
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,
1997, net transaction accounts (transaction accounts, primarily NOW and regular
checking accounts, less certain permitted deductions) in the amount of $0 to
$47.8 million are subject to a reserve requirement of 3% of said amount. Net
transaction accounts over $47.8 million are subject to a reserve requirement of
$1,434,000 plus 10% of the total in excess of $47.8 million. However, $4.7
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 1996.
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.
17
<PAGE> 20
Item 2. PROPERTIES
Skaneateles conducts its business from nine full-service offices and one
administrative office. The following table sets forth certain information
relating to each of Skaneateles' offices as of December 31, 1997.
<TABLE>
<CAPTION>
Lease Expiration Net Book
Owned Date Including Value at
or Leased Options December 31, 1997
--------------------------------------------------------------------
Branch Office Location (In Thousands)
- ------------------------------
<S> <C> <C> <C>
33 E. Genesee Street
Skaneateles, New York 13152 Owned n/a $441
431 E. Fayette Street
Syracuse, New York 13202 Owned n/a 2,932
5791 East Seymour Street
Cicero, New York 13039 Owned n/a 583
100 Kasson Road
Camillus, New York 13031 Leased 2000 37
Teall Ave. & Grant Blvd.
Syracuse, New York 13206 Leased 2014 171
3803 Brewerton Road
North Syracuse, New York 13212 Leased 2009 180
7785 Frontage Road
Cicero, New York 13039 Leased 2010 176
137 East State Street
Oswego, New York 13126 Leased 2010 192
5100 West Taft Road
Liverpool, New York 13088 Leased 2007 190
Administrative Office
- ------------------------------
27 Fennell Street
Skaneateles, New York Leased 2005 222
13152
</TABLE>
18
<PAGE> 21
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 1997, there were no matters submitted to a
vote of the shareholders of Skaneateles Bancorp, Inc..
PART II.
Item 5. Market For The Registrant's Common Stock And Related Stockholder Matters
The information contained on page 40 of the Company's Annual Report to
Shareholders for the year ended December 31, 1997 (the "Annual Report") and page
1 of the definitive Proxy Statement are incorporated herein by reference.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
1997 1996 1995 1994 1993
--------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Cash dividends declared per share $ 0.27 0.19 0.13 0.08 0
</TABLE>
Other required information contained in the table on page 8 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" in the Annual Report is incorporated herein by
reference.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included in the section
captioned "Interest Sensitivity Analysis" in this report.
Item 8. Financial Statements And Supplementary Data
The consolidated financial statements contained in the 1997 Annual
Report are incorporated herein by reference.
19
<PAGE> 22
Item 9. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure
Not applicable.
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 of transactions by insiders in the Company's common stock
to the Securities and Exchange Commission (the "Commission") within required
time frames. All filings required under Section 16 of the Exchange Act during
1997 were made in a timely manner, except for a Form 4 due for the month of
January 1997 for the following directors: Clifford C. Abrams, Israel Berkman,
David E. Blackwell, Walter D. Copeland, Carl W. Gerst, Jr., Ann G. Higbee,
Howard J. Miller and Raymond C. Traver, Jr. The required forms were 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
5 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
The information required herein is incorporated by reference from page 7
of the definitive Proxy Statement.
20
<PAGE> 23
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, 1997 and 1996
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995.
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, 1997, the Registrant filed
a Form 8-K announcing a three-for-two stock split effected through a 50%
stock dividend paid on November 28, 1997. No financial statements were filed
with this report.
(c) Exhibits. The following exhibits are either filed as part of this annual
report on Form 10-K, or are incorporated herein by reference:
No. Exhibit
- --- -------
3.1 Certificate of Incorporation of Skaneateles Bancorp, Inc. (1)
3.2 Certificate of Amendment of Certificate of Incorporation of Skaneateles
Bancorp, Inc.
3.3 Bylaws of the Company (2)
10.1 Employment Agreement dated as of January 1, 1998 between Skaneateles
Savings Bank and John P. Driscoll
10.2 Employment Agreement dated as of March 25, 1998 between Skaneateles
Savings Bank and J. David Hammond
10.3 Employment Agreement dated as of March 25, 1998 between Skaneateles
Savings Bank and Karen E. Lockwood
10.4 Employment Agreement dated as of March 25, 1998 between Skaneateles
Savings Bank and J. Daniel Mohr
10.5 Employment Agreement dated as of March 25, 1998 between Skaneateles
Savings Bank and William J. Welch
10.6 Supplemental Retirement Agreement dated as of January 1, 1998 between
Skaneateles Savings Bank and John P. Driscoll
10.7 Trust Under Supplemental Retirement Agreement Dated January 1, 1998
between Skaneateles Savings Bank and John P. Driscoll
10.8 Amendment To Long Term Incentive And Capital Accumulation Plan dated
October 28, 1997
21
<PAGE> 24
10.9 Amendment to Long Term Incentive And Capital Accumulation Plan dated
October 28, 1997
10.10 Amendment to 1995 Non-Employee Directors Stock Plan dated October 28,
1997
10.11 Amendment to 1995 Non-Employee Directors Warrant Plan dated October 28,
1997
10.12 Amendment to Center Banks Incorporated Employee Stock Purchase Plan
dated October 28, 1997
10.13 Amendment to Center Banks Incorporated Dividend Reinvestment Plan dated
October 28, 1997
13 Annual Report to Shareholders for the Year Ended December 31, 1997
21 List of Registrant's Subsidiaries
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
27.1996 Financial Data Schedule - Restated 1996
27.1995 Financial Data Schedule - Restated 1995
- ---------
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 1996 Form 10-K filed by the Company with the Securities and
Exchange Commission on March 31, 1997.
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.
SKANEATELES BANCORP, INC.
Registrant
By: /s/ John P. Driscoll Date: March 30, 1998
---------------------------------- --------------
John P. Driscoll
Chairman, President and Chief
Executive Officer
By: /s/ J. Daniel Mohr Date: March 30, 1998
---------------------------------- --------------
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.
Date:
---------------------------------- -------------
Clifford C. Abrams
Director
/s/ Israel Berkman Date: March 30, 1998
---------------------------------- --------------
Israel Berkman
Director
/s/ David E. Blackwell Date: March 30, 1998
---------------------------------- --------------
David E. Blackwell
Director
Date:
---------------------------------- -------------
Walter D. Copeland
Director
/s/ Carl W. Gerst Date: March 30, 1998
---------------------------------- --------------
Carl W. Gerst
Director
/s/ John B. Henry Date: March 30, 1998
---------------------------------- --------------
John Bernard Henry
Director
Date:
---------------------------------- -------------
Ann G. Higbee
Director
23
<PAGE> 26
/s/ Howard J. Miller Date: March 30, 1998
---------------------------------- --------------
Howard J. Miller
Director
/s/ Raymond C. Traver, Jr., M.D. Date: March 30, 1998
------------------------------------ --------------
Raymond C. Traver, Jr., M.D.
Director
/s/ Anne E. O' Connor Date: March 30, 1998
---------------------------------- --------------
Anne E. O' Connor
Director
24
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
-1-
<PAGE> 2
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
CENTER BANKS INCORPORATED
Center Banks Incorporated (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the Sate of Delaware, does
hereby certify as follows:
FIRST: That on or about January 21, 1997, the Board of Directors of the
Corporation duly adopted a resolution to amend the Certificate of Incorporation
of the Corporation. The resolution setting forth the amendment is as follows:
RESOLVED, that Article 1 of the Certificate of Incorporation
of the Corporation is hereby deleted in its entirety and the
following is hereby inserted in lieu thereof and is hereby
adopted:
"Article 1. CORPORATE TITLE. The name of the corporation is
Skaneateles Bancorp, Inc. (the "Corporation")."
SECOND: That the aforesaid amendment to the Certificate of
Incorporation of the Corporation was duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware at a meeting of the
stockholders of the Corporation at a meeting called and held, upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary numbers of shares as required by law
were voted in favor of the amendment.
THIRD: The effective date of filing this document with the Delaware
Department of State shall be April 15, 1997.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation of the Corporation to be signed by
John P. Driscoll, its Chairman, President and Chief Executive Officer, and
attested by J. David Hammond, its Secretary, as of the 10th day of April, 1997.
CENTER BANKS INCORPORATED
By: /s/ John P. Driscoll
---------------------
John P. Driscoll
Chairman, President and Chief Executive Officer
ATTEST:
/s/ J. David Hammond, Secretary
-------------------------------
J. David Hammond, Secretary
-2-
<PAGE> 1
Exhibit 10
Employment Agreements
-3-
<PAGE> 2
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 1, 1998, by and
among Skaneateles Bancorp, Inc., 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, 1998 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 1998 of $138,000. In 1999 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.
(b) Formula Cash Bonus. A cash bonus (the "Formula Bonus"),
payable in the first quarter of each year beginning in 1998 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:
-4-
<PAGE> 3
<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 $.04 per share $10,000
Budget EPS plus $.08 per share $15,000
Budget EPS plus $.12 per share $20,000
Budget EPS plus $.20 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 63, 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 and owned
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 9
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,
upon submission of necessary or appropriate documentation substantiating such
expenditure in accordance with the policy of the Company and 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. SUPPLEMENTAL RETIREMENT BENEFITS. As additional compensation for the
services rendered by Executive, the Company and the Bank, jointly and severally,
agree to set aside into trust, each year until Executive reaches age 63, and
thereafter if the parties shall mutually agree, the sum of $14,200 to be used
for the purposes of measuring a supplemental retirement benefit (the
"Supplemental Benefit") pursuant to a supplemental retirement agreement (the
"Supplemental Agreement") and a trust agreement (the "Trust Agreement"), both
dated as of January 1, 1998. The obligation of the Company and the Bank to pay
the Supplemental Benefit pursuant to the Supplemental Agreement and the Trust
Agreement shall survive
-5-
<PAGE> 4
the expiration of the term of this Agreement and Executive's employment
hereunder, except as otherwise provided in Section 9 hereof.
9. 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 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 or the Supplemental Benefit 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 (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 three (3) year period beginning on the effective
date of his termination, or (B) Executive reaches age 65, (ii) premiums on the
Annuity in accordance with the terms of Section 5 hereof each year until
Executive reaches (or would have reached) age 63, and (iii) payment in respect
of the Supplemental Benefits in accordance with Section 8 hereof until Executive
reaches or would have reached age 63.
(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 and no further liability in respect of the payment of premiums on the
Annuity or the Supplemental Benefit 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 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 (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 three (3) year period beginning on the
effective date of the Material Change, or (B) Executive reaches age 65, (ii)
premiums on the Annuity in accordance with the terms of Section 5 hereof each
year until Executive reaches (or would have reached) age 63, and (iii) payment
in respect of the Supplement Benefits in accordance with Section 8 hereof until
Executive reaches or would have reached age 63.
(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 and (iii) payments on the
Supplemental Benefit in accordance with the terms of Section 8 hereof up to and
including the year of his death.
-6-
<PAGE> 5
(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 63 and (iii) payments on the
Supplemental Benefit in accordance with the terms of Section 8 each year until
Executive reaches (or would have reached) age 63.
(f) Retirement. Automatically on the date of Executive's retirement
at or after age 63.
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
10. 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 11 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 three (3) year
period beginning on the effective date of the Change of Control,
or (B) Executive reaches age 65; and
(ii) make lump sum payments in respect of the Annuity and
the Supplemental Benefit for the account of Executive within
thirty (30) days after the Change of Control, such payments to be
in amounts equal to the respective present values of annual
installments of $10,345 (calculated on an after-tax basis using
Executive's effective tax rate for the prior year) and $14,200
each for the number of years (including partial years) from the
date of the Change of Control until Executive reaches age 63. For
purposes of the foregoing payments, 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.
(c) Notwithstanding any other provision of this Agreement, in no
event shall the total payments to the Executive pursuant to this Section 10
exceed the amount which could be received without incidents of excise taxation
under Section 4999 of the Internal Revenue Code, as amended, or any successor
provision thereto.
11. 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
-7-
<PAGE> 6
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.
12. 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
13. 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.
14. AMENDMENT. Except insofar as it refers to the Supplemental
Agreement and the Trust Agreement, 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 January 1, 1996 (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).
15. 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.
16. 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.
17. 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.
-8-
<PAGE> 7
18. 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.
19. 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.
-9-
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered as of the day and year first above written.
SKANEATELES BANCORP, INC.
By: S/S John Bernard Henry
-------------------------------
John Bernard Henry
Chairman of Personnel &
Compensation Committee for
the Board of Directors of
the Company and the Bank
SKANEATELES SAVINGS BANK
By: S/S John Bernard Henry
-------------------------------
John Bernard Henry
Chairman of Personnel &
Compensation Committee for
the Board of Directors of
the Company and the Bank
S/S John P. Driscoll
-------------------------------
John P. Driscoll
-10-
<PAGE> 1
Exhibit 10.2
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 25th day of March,
1998, by and among SKANEATELES BANCORP, INC., 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, New York 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
under certain circumstances in connection with a change of control, if one
should occur.
2. 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) "Material Change" means any action by the Successor or the
Company during the Transition Period, without Employee's express written
consent, that has the effect of: (i) downgrading Employee's title, or reducing
the nature or scope of Employee's authority and prerogative, or materially
increasing the nature or scope of his responsibilities and duties, from those
applicable to him immediately prior thereto; or (ii) reducing the base salary
payable to Employee from that payable to him by the Company immediately prior
thereto; or (iii) failing to provide Employee with a package of fringe benefits
that, though one or more elements may vary from those in effect immediately
prior thereto, is substantially comparable to such fringe benefits; or (iv)
changing the location of Employee's principal place of employment to a location
that is outside the general metropolitan area of Syracuse, New York.
(c) "Severance Amount" means the obligation of the Successor
to pay and continue Employee's full salary, bonus and benefits set forth in
Section 3 hereof.
-11-
<PAGE> 2
(d) "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.
(e) "Transition Period" means the time period beginning with the
agreement for or announcement of a proposed Change in Control and ending
twenty-four (24) months following the effective date of any Change in Control.
3. 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, and during the Transition
Period Employee's employment with the Successor terminates for any reason, then,
subject to the qualifications set forth in Section 4 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 twenty-four (24) months
following the effective date of termination of employment.
(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.
4. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 3 hereof,
Employee shall not be entitled to receive, and the Successor shall have no
obligation to pay, the Severance Amount if, during the Transition Period:
(a) Employee voluntary terminates his employment with the
Company, the Bank or 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 Employee's employment
terminates in consequence of a Material Change. In such case, Employee shall be
entitled to receive, and the Successor shall be obligated to pay, the Severance
Amount.
(b) The Company, the Bank or 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.
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.
-12-
<PAGE> 3
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 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.
SKANEATELES BANCORP, INC.
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
-13-
<PAGE> 1
Exhibit 10.3
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 25th day of March,
1998, by and among SKANEATELES BANCORP, INC., 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
under certain circumstances in connection with a change of control, if one
should occur.
2. 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) "Material Change" means any action by the Successor or the
Company during the Transition Period, without Employee's express written
consent, that has the effect of: (i) downgrading Employee's title, or reducing
the nature or scope of Employee's authority and prerogative, or materially
increasing the nature or scope of her responsibilities and duties, from those
applicable to her immediately prior thereto; or (ii) reducing the base salary
payable to Employee from that payable to her by the Company immediately prior
thereto; or (iii) failing to provide Employee with a package of fringe benefits
that, though one or more elements may vary from those in effect immediately
prior thereto, is substantially comparable to such fringe benefits; or (iv)
changing the location of Employee's principal place of employment to a location
that is outside the general metropolitan area of Syracuse, New York.
(c) "Severance Amount" means the obligation of the Successor
to pay and continue Employee's full salary, bonus and benefits set forth in
Section 3 hereof.
-14-
<PAGE> 2
(d) "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.
(e) "Transition Period" means the time period beginning with the
agreement for or announcement of a proposed Change in Control and ending
eighteen (18) months following the effective date of any Change in Control.
3. 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, and during the Transition
Period Employee's employment with the Successor terminates for any reason, then,
subject to the qualifications set forth in Section 4 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 eighteen (18) months following
the effective date of termination of employment.
(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 her
employment by another employer subsequent to the effective date of termination
of her employment with the Successor.
4. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 3 hereof,
Employee shall not be entitled to receive, and the Successor shall have no
obligation to pay, the Severance Amount if, during the Transition Period:
(a) Employee voluntary terminates her employment with the
Company, the Bank or 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 Employee's employment
terminates in consequence of a Material Change. In such case, Employee shall be
entitled to receive, and the Successor shall be obligated to pay, the Severance
Amount.
(b) The Company, the Bank or 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 her by the Successor; or (ii) Employee's willful
misconduct or gross negligence in the performance of her employment duties; or
(iii) Employee's breach of her 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 her from serving as an officer or employee of the
Bank.
(c) Her employment terminates by reason of Employee's death,
total disability, or normal retirement at or after age 65.
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 her
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.
-15-
<PAGE> 3
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 her 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 her 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.
SKANEATELES BANCORP, INC.
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
-16-
<PAGE> 1
Exhibit 10.4
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 25th day of March,
1998, by and among SKANEATELES BANCORP, INC., 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, New York 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
under certain circumstances in connection with a change of control, if one
should occur.
2. 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) "Material Change" means any action by the Successor or the
Company during the Transition Period, without Employee's express written
consent, that has the effect of: (i) downgrading Employee's title, or reducing
the nature or scope of Employee's authority and prerogative, or materially
increasing the nature or scope of his responsibilities and duties, from those
applicable to him immediately prior thereto; or (ii) reducing the base salary
payable to Employee from that payable to him by the Company immediately prior
thereto; or (iii) failing to provide Employee with a package of fringe benefits
that, though one or more elements may vary from those in effect immediately
prior thereto, is substantially comparable to such fringe benefits; or (iv)
changing the location of Employee's principal place of employment to a location
that is outside the general metropolitan area of Syracuse, New York.
(c) "Severance Amount" means the obligation of the Successor to
pay and continue Employee's full salary, bonus and benefits set forth in Section
3 hereof.
-17-
<PAGE> 2
(d) "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.
(e) "Transition Period" means the time period beginning with the
agreement for or announcement of a proposed Change in Control and ending
eighteen (18) months following the effective date of any Change in Control.
3. 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, and during the Transition
Period Employee's employment with the Successor terminates for any reason, then,
subject to the qualifications set forth in Section 4 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 eighteen (18) months following
the effective date of termination of employment.
(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.
4. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 3 hereof,
Employee shall not be entitled to receive, and the Successor shall have no
obligation to pay, the Severance Amount if, during the Transition Period:
(a) Employee voluntary terminates his employment with the
Company, the Bank or 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 Employee's employment
terminates in consequence of a Material Change. In such case, Employee shall be
entitled to receive, and the Successor shall be obligated to pay, the Severance
Amount.
(b) The Company, the Bank or 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.
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.
-18-
<PAGE> 3
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 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.
SKANEATELES BANCORP, INC.
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
-19-
<PAGE> 1
Exhibit 10.5
AGREEMENT FOR SEVERANCE UPON CHANGE IN CONTROL
THIS AGREEMENT is made and entered into as of the 25th day of March,
1998, by and among SKANEATELES BANCORP, INC., 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 Street, 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
under certain circumstances in connection with a change of control, if one
should occur.
2. 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) "Material Change" means any action by the Successor or the
Company during the Transition Period, without Employee's express written
consent, that has the effect of: (i) downgrading Employee's title, or reducing
the nature or scope of Employee's authority and prerogative, or materially
increasing the nature or scope of his responsibilities and duties, from those
applicable to him immediately prior thereto; or (ii) reducing the base salary
payable to Employee from that payable to him by the Company immediately prior
thereto; or (iii) failing to provide Employee with a package of fringe benefits
that, though one or more elements may vary from those in effect immediately
prior thereto, is substantially comparable to such fringe benefits; or (iv)
changing the location of Employee's principal place of employment to a location
that is outside the general metropolitan area of Syracuse, New York.
(c) "Severance Amount" means the obligation of the Successor to
pay and continue Employee's full salary, bonus and benefits set forth in Section
3 hereof.
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<PAGE> 2
(d) "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.
(e) "Transition Period" means the time period beginning with the
agreement for or announcement of a proposed Change in Control and ending
eighteen (18) months following the effective date of any Change in Control.
3. 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, and during the Transition
Period Employee's employment with the Successor terminates for any reason, then,
subject to the qualifications set forth in Section 4 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 eighteen (18) months following
the effective date of termination of employment.
(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.
4. EFFECT OF CERTAIN TERMINATIONS. Notwithstanding Section 3 hereof,
Employee shall not be entitled to receive, and the Successor shall have no
obligation to pay, the Severance Amount if, during the Transition Period:
(a) Employee voluntary terminates his employment with the
Company, the Bank or 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 Employee's employment
terminates in consequence of a Material Change. In such case, Employee shall be
entitled to receive, and the Successor shall be obligated to pay, the Severance
Amount.
(b) The Company, the Bank or 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.
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.
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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 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.
SKANEATELES BANCORP, INC.
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
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<PAGE> 1
Exhibit 10.6
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 1, 1998, by and
among Skaneateles Bancorp, Inc., 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:
1. The Executive is presently employed by the Company and the Bank
pursuant to an Employment Agreement also dated January 1, 1998 (the "Employment
Agreement"). This Agreement is referred to in Section 8 of the Employment
Agreement and deals solely with the supplemental retirement benefit matters set
forth herein.
2. (a) Pursuant to the Employment Agreement and a trust agreement
dated January 1, 1998 (the "Trust Agreement"), the Company and the Bank, jointly
and severally, have agreed to pay into a trust fund (the "Trust Fund") such
amounts and at such times as are set forth in the Employment Agreement to
measure a supplemental retirement benefit (the "Supplemental Benefit") as
further defined pursuant to this Agreement. The obligation of the Bank to pay
the Supplemental Benefit pursuant to this Agreement, the Trust Agreement, and/or
the Employment Agreement shall survive the expiration of the Employment
Agreement and Executive's employment thereunder, except as otherwise provided in
Section 9 of the Employment Agreement.
(b) The Bank shall establish and maintain the Trust Fund for the
purpose of retaining and investing the assets set aside by the Bank pursuant to
the Employment Agreement in order to measure the payment of the benefits payable
pursuant to this Agreement and the Employment Agreement. The Trust Agreement
shall govern the terms of the investment of the amounts held in the Trust Fund.
The Trust Fund shall be subject to the claims of general creditors of the Bank
in the event the Bank becomes Insolvent, as such term is defined in the Trust
Agreement. Title to and beneficial ownership of any amounts, whether cash or
investments, which shall be contributed to the Trust Fund, shall at all times
remain in the Bank and the Executive and his designated beneficiary shall not
have any property interest whatsoever in any specific assets of the Bank.
3. The Executive shall have a fully vested interest in the Supplemental
Benefit. The Supplemental Benefit shall be paid by the Bank to the Executive in
a single installment on May 1, 2004, or, if later, the first anniversary of the
termination of the Employment Agreement and the Executive's employment
thereunder. The Supplemental Benefit shall be paid by the Bank and measured by
the amount in the Trust Fund.
(a) If the Executive dies before the entire Supplemental Benefit
has been paid to him, the balance of the Supplemental Benefit shall be paid to
the Executive's beneficiary designated by the Executive in writing and delivered
to the Bank prior to death. If the Executive has not designated a beneficiary,
or if no designated beneficiary is living on the date of payment, then,
notwithstanding any provision herein to the contrary, such amounts shall be paid
to such Executive's estate.
(b) Notwithstanding the above, the Board of Directors of the Bank
(the "Board"), as it deems advisable or upon a written request delivered to the
Board by the Executive, his designated beneficiary, or his estate, may, in its
sole discretion, accelerate the payment of the Supplemental Benefit by paying to
the Executive an amount equal to the then total balance in the Trust Fund, and
upon such payment the Bank shall be completely discharged from any further
obligations under this Agreement.
4. Any payment of the Supplemental Benefit under this Agreement shall be
paid from the general assets of the Bank. The Trustee of the Trust Fund shall,
as soon as administratively practicable after each such payment, cause an amount
equivalent to such payment to be distributed from the Trust Fund to the Bank.
5. Nothing contained in this Agreement and no action taken pursuant to
the provisions of this Agreement shall create or be construed to create a
fiduciary relationship between the Company, the Bank and the Executive, his
designated beneficiary or any other person. Any funds which may be invested
under the provisions of this Agreement or the Trust Agreement shall
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<PAGE> 2
continue for all purposes to be a part of the general funds of the Bank and no
person other than the Bank shall by virtue of the provisions of this Agreement
have any interest in such funds. The Agreement at all times shall be considered
entirely unfunded both for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended. To the extent that
any person acquires a right to receive payments from the Bank under this
Agreement, such right shall be no greater than the right of any unsecured
general creditor of the Bank.
6. Any amounts held in the Trust Fund pursuant to this Agreement or the
Trust Agreement and any benefit which may be payable pursuant to this Agreement
or the Trust Agreement are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Executive or the Executive's beneficiary. The
Agreement constitutes a mere promise by the Bank to make benefit payments in the
future. No interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
7. If the Board shall find that any person to whom any payment is
payable under this Agreement is unable to care for his affairs because of
illness or accident, or is a minor, any payment due (unless a prior claim
therefor shall have been made by a duly appointed guardian, committee or other
legal representative) may be paid to the spouse, a child, a parent, or a brother
or sister, or to any person deemed by the Board to have incurred expense for
such person otherwise entitled to payment, in such manner and proportions as the
Board may determine. Any such payment shall be a complete discharge of the
liabilities of the Bank under this Agreement.
8. Any amounts payable under this Agreement shall not be deemed salary
or other compensation to the Executive for the purpose of computing benefits to
which he may be entitled under any pension plan or other arrangement of the
Company and/or Bank for the benefit of its employees.
9. The Board shall have full power and authority to interpret, construe,
and administer this Agreement and the Board's interpretations and construction
thereof, and actions thereunder, including the determination of the amount or
recipient of any payments to be made pursuant to this Agreement, shall be
binding and conclusive on all persons for all purposes. No member of the Board
shall be liable to any person for any action taken or omitted in connection with
the interpretation and administration of this Agreement unless attributable to
his own willful misconduct or lack of good faith.
10. Expenses of administration shall be paid by the Bank. The Board
shall be entitled to rely on all tables, valuations, certificates, opinions,
data and reports furnished by any actuary, accountant, controller, counsel or
other person employed or retained by the Bank with respect to the Agreement.
11. The Board shall furnish or cause to be furnished individual annual
statements of accrued benefits to the Executive, or current beneficiary, in such
form as determined by the Board or as required by law.
12. This Agreement shall be binding upon and inure to the benefit of the
Bank, its successors and assigns, and the Executive and his heirs, executors,
administrators, and legal representatives. The Agreement shall be continued
after a sale of assets of the Bank, or a merger or consolidation of the Bank
into another company or entity.
13. The Executive shall keep the Bank informed of his current address
and the current address of his designated beneficiary. The Bank shall not be
obligated to search for any person. If such person is not located within three
(3) years after the date on which payment of the Executive's benefits payable
under this Agreement may first be made, payment may be made as though the
Executive or his beneficiary had died at the end of such three year period.
14. This Agreement shall be construed in accordance with and governed by
the law of the State of New York.
15. To the extent that the Bank may be unable to perform any of its
duties and obligations under this Agreement, the Company agrees to perform any
such duties and obligations.
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<PAGE> 3
IN WITNESS WHEREOF, the Company and Bank have caused this Agreement to
be executed by their duly authorized officers and the Executive has hereunto set
his hand as of the date first above written.
SKANEATELES BANCORP, INC.
By: /s/ John Bernard Henry
----------------------------
John Bernard Henry
Chairman of Personnel &
Compensation Committee for
the Board of Directors of
the Company and the Bank
SKANEATELES SAVINGS BANK
By: /s/ John Bernard Henry
----------------------------
John Bernard Henry
Chairman of Personnel &
Compensation Committee for
the Board of Directors of
the Company and the Bank
/s/ John P. Driscoll
----------------------------
John P. Driscoll
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<PAGE> 1
Exhibit 10.7
TRUST
UNDER SUPPLEMENTAL RETIREMENT AGREEMENT
DATED JANUARY 1, 1998
THIS AGREEMENT made as of the 1st day of January, 1998, by and among
Skaneateles Bancorp, Inc. (the "Company"), its wholly-owned subsidiary,
Skaneateles Savings Bank (the "Bank"), and Philip A. Mazza (the "Trustee");
WHEREAS, the Company and the Bank entered into a certain Employment
Agreement dated January 1, 1998 (the "Employment Agreement") with John P.
Driscoll (the "Executive"), and a certain Supplemental Retirement Agreement
dated January 1, 1998 (the "Supplemental Agreement"), for the benefit of
Executive;
WHEREAS, the Bank has incurred or expects to incur liability under the
terms of such Supplemental Agreement with respect to Executive.
WHEREAS, the Bank wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Bank's creditors in the event of the Bank's
Insolvency, as herein defined, until returned to the Bank or paid to Executive
and/or his beneficiaries in such manner and at such times as specified in the
Supplemental Agreement;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Supplemental Agreement as an unfunded plan maintained for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974;
WHEREAS, it is the intention of the Bank to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Supplemental Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
(a) The Bank shall deposit with Trustee in trust in such amounts and at
such times as provided for in Section 9 of the Employment Agreement, which
deposits shall become the principal of the Trust to be held, administered and
disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Bank is
the grantor, within the meaning of subpart E, part I subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Bank and shall be used exclusively
for the uses and purposes of paying benefits under the Supplemental Agreement
and general creditors as herein set forth. Executive and his beneficiaries shall
have no preferred claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Supplemental Agreement and this Trust
Agreement shall be mere unsecured contractual rights of Executive and his
beneficiaries against the Bank. Any assets held by the Trust will be subject to
the claims of the Bank's general creditors under federal and state law in the
event of Insolvency.
(e) The Bank, in its sole discretion or pursuant to the Supplemental
Agreement, may at any time, or from time to time, make additional deposits of
cash or other property in trust with Trustee to augment the principal to be
held, administered and disposed of by Trustee as provided in this Trust
Agreement.
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<PAGE> 2
SECTION 2. PAYMENTS TO EXECUTIVE AND HIS BENEFICIARIES.
(a) The Bank shall generally make payment of benefits directly to
Executive or his beneficiaries as they become due under the terms of the
Supplemental Agreement, and shall be promptly reimbursed by the Trustee
therefore. The Bank shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to Executive or his
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Supplemental Agreement, the Bank shall make the balance of each
such payment as it falls due. Trustee shall notify the Bank when principal and
earnings are not sufficient.
(b) The Bank shall deliver to Trustee a copy of the Supplemental
Agreement and the Employment Agreement or other instructions acceptable to
Trustee for determining the amounts payable, the form in which such amount is to
be paid, and the time for payment of such amounts. Except as otherwise provided
herein, Trustee shall make payments to Executive and his beneficiaries only to
the extent the Bank fails to do so, and shall otherwise pay directly to the Bank
in reimbursement of amounts so paid, all in accordance with the Supplemental
Agreement. The Trustee shall make provision for the reporting and withholding of
any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Supplemental
Agreement and shall pay amounts withheld to the appropriate taxing authorities
or determine that such amounts have been reported, withheld and paid by the
Bank.
(c) The entitlement of Executive or his beneficiaries to benefits shall
be determined by the Supplemental Agreement.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN
THE BANK IS INSOLVENT.
(a) Trustee shall cease payment of benefits to Executive and his
beneficiaries if the Bank is Insolvent. The Bank shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Bank is unable to pay its debts
as they become due, or (ii) the Bank is subject to a pending insolvency or
receivership proceeding as a debtor under any applicable law.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Bank under federal and state law as set forth
below.
(i) The Board of Directors of the Bank shall have the duty to
inform Trustee in writing of the Bank's Insolvency. If a person claiming
to be a creditor of the Bank alleges in writing to Trustee that the Bank
has become Insolvent, Trustee shall determine whether the Bank is
Insolvent and, pending such determination, Trustee shall discontinue
payment of benefits to Executive or his beneficiaries.
(ii) Unless Trustee has actual knowledge of the Bank's
Insolvency, or has received notice from the Bank or a person claiming to
be a creditor alleging that the Bank is Insolvent, Trustee shall have no
duty to inquire whether the Bank is Insolvent. Trustee may in all events
rely on such evidence concerning the Bank's solvency as may be furnished
to Trustee and that provides Trustee with a reasonable basis for making
a determination concerning the Bank's solvency.
(iii) If at any time Trustee has determined that the Bank is
Insolvent, Trustee shall discontinue payments to Executive or his
beneficiaries and shall hold the assets of the Trust for the benefit of
the Bank's general creditors. Nothing in this Trust Agreement shall in
any way diminish any rights of Executive or his beneficiaries to pursue
their rights as general creditors of the Bank with respect to benefits
due under the Supplemental Agreement or otherwise.
(iv) If the payment of benefits to Executive or his beneficiaries
is at any time suspended in accordance with this Section 3, they may be
resumed only after Trustee has determined that the Bank is not Insolvent
(or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Executive or his beneficiaries under the terms of the Supplemental Agreement for
the period of such discontinuance, less the aggregate amount of any payments
made to Executive or his beneficiaries by the Bank in lieu of the payments
provided for hereunder during any such period of discontinuance.
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<PAGE> 3
SECTION 4. PAYMENTS TO THE BANK.
Except as provided in Sections 2 and 3 hereof, the Bank shall have no
right or power to direct Trustee to return to the Bank or to divert to others
any of the Trust assets before all payment of benefits have been made to
Executive and his beneficiaries pursuant to the terms of the Supplemental
Agreement.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Bank, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with assets of the Trust shall be exercised by Trustee or the
person designated by Trustee, and shall in no event be exercisable by or rest
with Executive.
(b) Trustee may appoint an independent investment manager or the Board
of Directors of the Bank to manage and decide the investment of the assets of
the Trust. Once the last contribution to the Trust has been made pursuant to the
Supplemental Agreement, the assets of the Trust shall be invested in a
conservative investment vehicle designed primarily to preserve principal.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Bank and the Trustee. Within 90 days following the close of each calendar year
and within 90 days after the removal or resignation of Trustee, Trustee shall
deliver to the Bank a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by the Bank which is contemplated by, and in conformity with,
the terms of the Supplemental Agreement or this Trust and is given in writing by
the Bank. In the event of a dispute between the Bank and a party, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, the Bank agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Bank does not pay such costs, expenses and liabilities in
a reasonably timely manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
the Bank generally) with respect to any of his duties or obligations hereunder.
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<PAGE> 4
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist him in
performing any of his duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Bank shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to the Bank, which
shall be effective 90 days after receipt of such notice unless the Bank and
Trustee agree otherwise.
(b) Trustee may be removed by the Bank on 30 days notice or upon shorter
notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Bank extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If Trustee resigns or is removed in accordance with Section 10(a) or
(b) hereof, the Bank may appoint any third party, including a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Bank or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for, and
the Bank shall indemnify and defend the successor Trustee from, any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
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SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee, Company and the Bank. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Supplemental Agreement or shall
make the Trust revocable.
(b) The Trust shall not terminate until the date on which Executive and
his beneficiaries are no longer entitled to benefits pursuant to the terms of
the Supplemental Agreement. Upon termination of the Trust any assets remaining
in the Trust shall be returned to the Bank.
(c) Upon written approval of Executive, the Bank may terminate this
Trust prior to the time all benefit payments under the Supplemental Agreement
have been made. All assets in the Trust at termination shall be returned to the
Bank.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Executive and his beneficiaries under this Trust
Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be January 1, 1998.
SKANEATELES BANCORP, INC.
By: /s/ John Bernard Henry
---------------------------------
John Bernard Henry
Chairman of Personnel &
Compensation Committee for
the Board of Directors of
the Company and the Bank
SKANEATELES SAVINGS BANK
By:/s/ John Bernard Henry
---------------------------------
John Bernard Henry
Chairman of Personnel &
Compensation Committee for
the Board of Directors of
the Company and the Bank
-30-
<PAGE> 6
/s/ Philip A. Mazza
---------------------------------------
Philip A. Mazza
-31-
<PAGE> 1
Exhibit 10.8
Amendment to
Long Term Incentive And Capital Accumulation Plan
Pursuant to Article X of the Skaneateles Savings Bank Long Term
Incentive and Capital Accumulation Plan adopted as of May 30, 1986 ("the 1987
Plan") and resolutions of the Board of Directors of Skaneateles Bancorp, Inc.
(the "Company") adopted on October 28, 1997 authorizing an anti-dilution
adjustment to the 1987 Plan in connection with a split-up of the Company's
common stock, par value $.01 per share (the "Common Stock"), to be paid to
shareholders of record as of November 12, 1997 (the "Effective Date") in the
form of the dividend of one share of Common Stock for each two shares held,
Section 6.01 of the 1987 Plan is hereby amended as of the Effective Date to read
in its entirety as follows:
6.01 Option Shares.
The aggregate number of shares of Common Stock for which Options
may be granted under the Plan shall be 76,765 shares, subject to
adjustment as provided in Article X. None of such shares shall be
the subject of more than one Option at any time, but if an Option
as to any shares is surrendered before exercise (including
surrender in connection with exercise of a Stock Appreciation
Right), or expires or terminates for any reason without having
been exercised in full, or for any other reason ceases to be
exercisable, the number of unpurchased shares covered thereby
shall become available for regrant under the Plan as if no
Options had been previously granted with respect to such shares.
IN WITNESS WHEREOF, the Company has caused this amendment to the 1987
Plan to be executed as of the 28 day of October, 1997.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
---------------------
John P. Driscoll
Chairman of the Board, President and CEO
-32-
<PAGE> 1
Exhibit 10.9
Amendment to
Long Term Incentive And Capital Accumulation Plan
Pursuant to Section 17 of the Center Banks Incorporated 1991 Long Term
Incentive and Capital Accumulation Plan ("the 1991 Plan") and resolutions of the
Board of Directors of Skaneateles Bancorp, Inc. (the "Company") adopted on
October 28, 1997 authorizing an anti-dilution adjustment to the 1991 Plan in
connection with a split-up of the Company's common stock, par value $.01 per
share (the "Common Stock"), to be paid to shareholders of record as of November
12, 1997 (the "Effective Date") in the form of the dividend of one share of
Common Stock for each two shares held, Section 3 of the 1991 Plan is hereby
amended as of the Effective Date to read in its entirety as follows:
3. STOCK
The stock that may be issued pursuant to Options granted under
the Plan shall be shares of Common Stock, par value $.01 per
share, of the Corporation (the"Stock"), which shares may be
treasury shares or authorized but unissued shares. The number of
shares of Stock that may be issued pursuant to Options granted
under the Plan shall not exceed in the aggregate 69,349 shares,
which number of shares is subject to adjustment as hereinafter
provided in Section 17 below. If any Option expires, terminates,
or is terminated for any reason prior to exercise in full, the
shares of Stock that were subject to the unexercised portion of
such Option shall be available for future Options granted under
the Plan.
IN WITNESS WHEREOF, the Company has caused this amendment to the 1991
Plan to be executed as of the 28 day of October 28, 1997.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
--------------------
John P. Driscoll
Chairman of the Board, President and CEO
-33-
<PAGE> 1
Exhibit 10.10
Amendment to
1995 Non-Employee Directors Stock Plan
Pursuant to Section 2B of the Center Banks Incorporated 1995
Non-Employee Directors Stock Plan (the "Plan") and resolutions of the Board of
Directors of Skaneateles Bancorp, Inc. (the "Company") adopted on October 28,
1997 authorizing an anti-dilution adjustment to the Plan in connection with a
split-up of the Company's common stock, par value $.01 per share (the "Common
Stock"), to be paid to shareholders of record as of November 12, 1997 (the
"Effective Date") in the form of the dividend of one share of Common Stock for
each two shares held, Section 2A of the Plan is hereby amended as of the
Effective Date to read in its entirety as follows:
2. Shares Available.
A. Number of Shares Available
The total number of Shares that may be awarded pursuant hereunder
shall not exceed 37,500. Shares awarded hereunder may be
authorized but unissued shares, treasury shares, or shares
purchased on the open market.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan to
be executed as of the 28 day of October, 1997.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
--------------------
John P. Driscoll
Chairman of the Board, President and CEO
-34-
<PAGE> 1
Exhibit 10.11
Amendment to
1995 Non-Employee Directors Warrant Plan
Pursuant to Section 2B of the Center Banks Incorporated 1995
Non-Employee Directors Warrant Plan ("the Plan") and resolutions of the Board of
Directors of Skaneateles Bancorp, Inc. (the "Company") adopted on October 28,
1997 authorizing an anti-dilution adjustment to the Plan in connection with a
split-up of the Company's common stock, par value $.01 per share (the "Common
Stock"), to be paid to shareholders of record as of November 12, 1997 (the
"Effective Date") in the form of the dividend of one share of Common Stock for
each two shares held, Section 3A of the Plan is hereby amended as of the
Effective Date to read in its entirety as follows:
3. Shares Available
A. Number of Shares Available.
The total number of Shares that may be issued pursuant to
Warrants granted hereunder shall not exceed 112,500. Shares
subject to Warrants granted hereunder 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.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan
to be executed as of the 28 day of October, 1997.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
--------------------
John P. Driscoll
Chairman of the Board, President and CEO
-35-
<PAGE> 1
Exhibit 10.12
Amendment to
Center Banks Incorporated Employee Stock Purchase Plan
Pursuant to Section 15 of the Center Banks Incorporated Employee Stock
Purchase Plan ("the Plan") and resolutions of the Board of Directors of
Skaneateles Bancorp, Inc. (the "Company") adopted on October 28, 1997
authorizing an anti-dilution adjustment to the Plan in connection with a
split-up of the Company's common stock, par value $.01 per share (the "Common
Stock") to be paid to shareholders of record as of November 12, 1997 (the
"Effective Date") in the form of the dividend of one share of Common Stock for
each two shares held, the number of shares of Common Stock covered by the Plan
is increased to 75,000.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan to
be executed as of the 28 day of October, 1997.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
--------------------
John P. Driscoll
Chairman of the Board, President and CEO
-36-
<PAGE> 1
Exhibit 10.13
Amendment to
Center Banks Incorporated Dividend Reinvestment Plan
Pursuant to Item 23 of the Center Banks Incorporated Dividend
Reinvestment Plan ("the Plan") and resolutions of the Board of Directors of
Skaneateles Bancorp, Inc. (the "Company") adopted on October 28, 1997
authorizing an anti-dilution adjustment to the Plan in connection with a
split-up of the Company's common stock, par value $.01 per share (the "Common
Stock") to be paid to shareholders of record as of November 12, 1997 (the
"Effective Date") in the form of the dividend of one share of Common Stock for
each two shares held, the number of shares of Common Stock covered by the Plan
is increased to 112,500.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan
to be executed as of the 28 day of October, 1997.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
----------------------------------------
John P. Driscoll
Chairman of the Board, President and CEO
-37-
<PAGE> 1
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
-38-
<PAGE> 2
Exhibit 13
Annual Report to Shareholders for the year ended December 31, 1997
Item 5. Market For The Registrant's Common Stock And Related Stockholder Matters
The common stock of Skaneateles Bancorp, Inc. trades on the NASDAQ National
Market System under the ticker symbol "SKAN".
The following table shows the range of high and low closing stock prices for
each quarter of 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
Quarter High Low High Low
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
Fourth $22.13 18.00 11.17 9.17
Third 19.67 13.59 9.33 8.75
Second 14.00 12.25 9.83 9.00
First 13.33 10.67 10.17 9.17
</TABLE>
Cash dividends totaling $.27 and $.19 per share were declared in 1997 and 1996,
respectively.
On February 20,1998, there were 1,439,084 shares of Common Stock issued and
outstanding, held of record by 603 shareholders.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total assets $ 256,101 242,182 210,647 201,841 174,558
Net loans 212,462 204,830 168,967 163,921 140,224
Securities 16,121 16,902 21,457 21,871 24,329
Federal funds sold 6,700 3,800 3,400 1,200 0
Deposits, including escrow 218,018 205,029 179,119 170,696 149,173
Borrowings 18,057 18,181 14,386 13,984 11,120
Stockholders' equity 17,671 16,230 14,939 13,791 13,286
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE> 3
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Operations Data:
Total interest income $ 18,965 17,162 15,871 12,940 11,844
Total interest expense 9,435 9,111 8,608 6,349 5,988
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 9,530 8,051 7,263 6,591 5,856
Provision for loan losses 500 175 235 360 600
Other operating income 1,849 1,116 587 509 907
Other operating expenses 8,308 7,418 6,211 5,580 5,373
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,662 1,481 1,052 983 803
- -------------------------------------------------------------------------------------------------------------------------------
Share data:
Net income - basic $ 1.16 1.05 .76 .71 .58
Net income - diluted 1.13 1.03 .74 .70 .58
Dividends declared .27 .19 .13 .08 0
Book value 12.31 11.41 10.70 9.93 9.58
Shares outstanding 1,435,992 1,422,138 1,396,379 1,388,616 1,387,004
- -------------------------------------------------------------------------------------------------------------------------------
Selected other data:
Tier I Capital (to average assets) 6.91% 6.46% 7.09% 7.16% 7.69%
Total Capital (to risk weighted assets) 11.31% 11.23% 12.68% 12.17% 12.56%
Nonperforming assets to total assets 1.90% 1.61% 1.20% 2.10% 2.63%
Net loans charged off to average loans 0.03% 0.62% 0.36% 0.17% 0.41%
Loan loss allowance to nonperforming loans 65% 67% 125% 94% 106%
Earning asset yield 8.17% 8.01% 8.07% 7.31% 7.28%
Cost of interest bearing liabilities 4.51% 4.63% 4.71% 3.90% 3.99%
Interest rate spread 3.66% 3.38% 3.36% 3.41% 3.29%
Net interest margin 4.11% 3.76% 3.69% 3.72% 3.60%
Full service banking offices 9 8 7 5 3
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All share data has been retroactively adjusted to reflect the
three-for-two stock split.
Item 7. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations
FINANCIAL CONDITION
General
- -------
Skaneateles Bancorp, Inc. (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.
Certain statements in this discussion are forward-looking. These may be
identified by the use of forward-looking words or phrases, such as "believe,"
"expect," "anticipate," "should," "planned," "estimated," and "potential." These
forward-looking statements are based on the Company's current expectations. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
such statements. To comply with the terms of the safe harbor, the Company notes
that a variety of factors could
-40-
<PAGE> 4
cause actual results and experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements.
Among the risks and uncertainties that may affect the operations, performance
and results of the business of the Company and the Bank are prevailing market
rates of interest for both loans and deposits, loan prepayments by, and the
financial health of, the Bank's borrowers, general economic conditions in the
Bank's designated lending area, and competition from banks and other financial
institutions with greater resources operating in the Bank's marketplace.
Total assets were $256.1 million at December 31, 1997, compared with $242.2
million at December 31, 1996, an increase of $13.9 million, or 5.7%. Net loans
increased $7.6 million and cash and federal funds sold increased $6.8 million in
1997.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets (Millions of Dollars) $ 175 202 211 242 256
</TABLE>
Loans
- -----
Net loans were $212.5 million at December 31, 1997, an increase of $7.6 million,
or 3.7% from December 31, 1996. Loan originations for 1997 totaled $50 million,
a decrease of 7.7% from 1996's originations of $54.2 million. Substantial
increases in both consumer and commercial loan originations were offset by a
decrease in residential lending.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Loans (Millions of Dollars) $ 140 164 169 205 212
</TABLE>
Residential mortgage originations were $9.7 million in 1997, a decrease of 68.3%
from 1996's originations. Residential mortgages represented 19.3% of 1997's
total loan originations, down from 56.1% in 1996. As a result of increasing
competition in mortgage lending, which squeezed margins and profitability, the
Bank shifted its lending focus late in 1996, placing more emphasis on consumer
and commercial loans. To that end, the Bank effectively suspended the use of
mortgage brokers, who had been used to supplement the Bank's direct
originations, especially outside of the Bank's designated lending area.
Accordingly, as expected, residential mortgage originations dropped
significantly in 1997.
Approximately $7.9 million, or 81.4% of the residential loans originated in 1997
were for fixed rates of interest, compared with $15.2 million and 50%,
respectively, in 1996. Prior to January, 1998, fixed rate mortgages with terms
of 15 years or less were originated for portfolio. Beginning in January, 1998,
the Bank began selling all conforming fixed rate mortgages at the time of
origination due to the relatively low interest rate environment and the
resulting increased interest rate risk associated with long term fixed rate
assets.
Consumer loan originations were $20.8 million, or 41.6% of total loan
originations in 1997, compared with $10.5 million, or 19.4% in 1996. The Bank
has seen a substantial increase in deposit customers through its Checking
Account Marketing Program ("CHAMP"). Cross-sales of consumer loan products to
these new customers was a significant factor behind the loan growth in 1997. The
CHAMP program is a long-term marketing program, and cross-selling to new
customers obtained through the program is expected to be an important component
of consumer loan growth in future years.
Also contributing to the increase in consumer loan originations is the Bank's
indirect lending program, begun in January, 1997, along with its dealer floor
plan program. Through the indirect program, the Bank receives consumer loan
applications from Bank-approved automobile, boat and recreational vehicle
dealerships on behalf of their customers to finance their purchases. These
applications are subject to the Bank's normal consumer loan underwriting
criteria. Indirect consumer loans accounted for approximately 33.5% of the
Bank's total consumer loan originations in 1997.
Commercial loan and mortgage originations were $19.6 million, or 39.1% of total
loan originations in 1997, up from $13.3 million, or 24.5% in 1996. The increase
resulted largely from the Bank's dealer floor plan program begun in January,
1997. Through the program, the Bank provides lines of credit to local boat,
automobile, and recreational vehicle dealers to finance inventory purchases. At
December 31, 1997, total outstanding balances on dealer floor plans was $4.7
million.
-41-
<PAGE> 5
Deposits
- --------
Deposit growth was the primary source of funds for the Bank in 1997. Total
deposits, including escrow, were $218 million at December 31, 1997, an increase
of $13 million, or 6.3% from the end of 1996. The Bank experienced an increase
of $6.1 million in December 1997 alone, at least half of which were short-term
increases in personal and commercial demand accounts which were withdrawn in
January 1998.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Deposits (Millions of Dollars) $ 147 169 177 203 216
</TABLE>
The Bank's strategy for deposit growth is focused on savings and checking
accounts, which carry lower rates of interest than time accounts and tend to be
less sensitive to changes in interest rates. The Bank offers seven checking
account products, each targeted to specific demographic groups and supported by
an active direct mail marketing campaign (CHAMP). Total checking account
balances increased $9.5 million, or 27.1% in 1997, on top of a $7.8 million or
33.4% increase in 1996 (excluding accounts acquired from Cicero Bank). The Bank
opened more than 6,400 new checking accounts in 1997 as a result of the CHAMP
program.
Savings account balances increased $3.8 million, or 9.7% in 1997, compared with
an increase of $2.9 million or 8.9% in 1996 (excluding accounts acquired from
Cicero Bank). The gains resulted primarily from cross-sales to new checking
account customers.
The CHAMP program will be a key part of the Bank's deposit growth strategy for
the foreseeable future. In addition to the lower interest cost of these
deposits, the accounts generate fee income which will provide a stable source of
revenue regardless of fluctuations in interest rates. Also, the increase in
checking account customers provides a significant opportunity to cross-sell
other deposit and loan products.
Time certificates of deposit totaled $105.1 million at December 31, 1997,
compared with $107.4 million at the end of 1996. The Bank generally kept its
rates on time certificates at or slightly above the average rates in its market
area during 1997. The Bank expects to continue this practice in 1998. Premium
rates may be offered from time to time for specific branch promotions or in the
event loan demand so justifies.
ASSET QUALITY
Nonperforming assets are comprised of nonaccrual loans and other real estate
owned (REO). 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
uncollectible. The Bank'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 $4.9 million, or 1.9% of total assets at December
31, 1997, compared with $3.9 million, or 1.6% of total assets at December 31,
1996. Included in nonperforming assets at December 31, 1997 were nonaccrual
loans of $3.9 million, or 1.8% of gross loans, compared with $3.2 million, or
1.5% of gross loans at December 31, 1996.
The allowance for loan losses was $2.6 million at December 31, 1997 compared
with $2.1 million at December 31, 1996. The ratio of the allowance to
nonperforming loans was 65% at December 31, 1997, compared with 67% at the end
of 1996. Loan loss provisions totaled $500,000 in 1997, compared with $175,000
in 1996. The loan loss provision was increased to reflect the higher credit risk
inherent in consumer and commercial lending. Charge-offs, net of recoveries
amounted to $54,000 in 1997, compared with $1.2 million in 1996. The Bank
charged off $863,000 on one commercial loan in 1996. In 1997, the Bank accepted
approximately $400,000 in full settlement of this debt, of which $311,000 was
recorded as a recovery to the allowance for loan losses.
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 Bank 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 proportionate to the perceived risk for each
-42-
<PAGE> 6
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.
Generally, all commercial mortgage loans and commercial loans in a delinquent
payment status (90 days or more delinquent) are considered impaired. The Bank
estimates losses on impaired loans based on the present value of expected future
cash flows (discounted at the loan's effective interest rate) or the fair value
of the underlying collateral if the loan is collateral dependent. An impairment
loss exists if the recorded investment in a loan exceeds the value of the loan
as measured by the aforementioned methods. A loan is considered impaired when it
is probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Residential mortgage loans,
consumer loans, home equity lines of credit and education loans, respectively,
are evaluated collectively since they are homogenous and generally carry smaller
individual balances.
As with any financial institution, poor economic conditions, high interest
rates, high unemployment and other matters outside of the Bank'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 function to audit for adherence to established Bank controls
and to review the quality and anticipated collectibility of the portfolio. Loan
review reports are presented 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.
Management believes the allowance for loan losses as of December 31, 1997 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.
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). The Company uses three methods to measure its interest rate risk: 1) gap,
2) income simulation, and 3) market value of equity analysis. Gap analysis
measures the difference between assets and liabilities which reprice and/or
mature within a given time frame, typically the cumulative one-year horizon. An
asset-sensitive gap position could lead to an increase in net interest income in
a rising rate environment, and a decrease in net interest income in a falling
rate environment, as assets reprice or mature quicker than liabilities.
Conversely, a liability-sensitive gap position could lead to a decrease in net
interest income in a rising rate environment and an increase in net interest
income in a falling rate environment. Income simulation measures the potential
impact on net interest income of hypothetical changes in interest rates. Market
value of equity analysis measures the potential impact on stockholders' equity
of hypothetical changes in interest rates.
In February 1996, the Bank purchased an interest rate floor with a notional
amount of $18 million, to hedge a portion of its prime-based loan portfolio.
Under the agreement, which expires in February 1999, the Bank will receive
payments on a quarterly basis if the prime rate drops below 8.25% (the "strike
rate"). Payments are equal to the amount by which the prime rate falls below the
strike rate multiplied by the notional amount of the floor. The fee paid for the
floor is included in other assets and is being amortized to interest income
using the interest method over the life of the floor.
The Company's cumulative one-year ratio of rate sensitive assets to rate
sensitive liabilities (one-year gap) was 1.04 at December 31, 1997.
STOCKHOLDERS' EQUITY
Stockholders' equity totaled $17.7 million at December 31, 1997, compared with
$16.2 million at December 31, 1996. The change is the result of 1) net income of
$1.7 million, 2) proceeds of $142,000 from issuance of stock under stock plans,
3) cash dividends of $381,000, and 4) a $22,000 increase in the fair value of
securities, net of taxes.
The Company's and Bank's Tier I capital to average assets ratio was 6.91% at
December 31, 1997 compared with 6.46% at December 31, 1996. Total capital to
risk-weighted assets was 11.31% and 11.23%, respectively, at December 31, 1997
and 1996. Both capital measurements exceed the regulatory requirements of 5% and
10%, respectively, to be classified as a well-capitalized institution.
LIQUIDITY AND CAPITAL RESOURCES
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<PAGE> 7
The purpose of liquidity management is to assure 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 and interest collections on loans and
mortgage-backed securities, deposits and borrowing facilities from correspondent
banks. The Bank has overnight line of credit facilities with the Federal Home
Loan Bank of New York ("FHLB") totaling $24 million which can be used to meet
the Bank's daily cash needs. In addition, the Bank can borrow additional amounts
on a term basis from the FHLB.
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. At the end of 1997, the Bank's approved commitments
to extend credit amounted to $20.5 million. Further information on commitments
is in note 10 of Notes to Consolidated Financial Statements. The Company's
liquidity is considered adequate to meet all of its cash flow requirements.
RESULTS OF OPERATIONS
Year Ended December 31, 1997
Compared to Year Ended December 31, 1996
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. All earnings per share information reflects a
three-for-two stock split on November 28, 1997, and is calculated assuming
dilution pursuant to Statement of Financial Accounting Standards No. 128,
"Earnings Per Share."
Net income was $1.66 million, or $1.13 per diluted share in 1997, compared with
$1.48 million, or $1.03 per diluted share in 1996. A $1.48 million increase in
net interest income and a $733,000 increase in other operating income was
partially offset by a $325,000 increase in loan loss provisions and a $890,000
increase in other expenses. Income taxes increased $816,000.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income (Thousands of Dollars) $ 803 983 1,052 1,481 1,662
</TABLE>
Net Interest Income
- -------------------
Net interest income is affected by the difference between the yield earned on
interest earning assets and the 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 $9.53 million in 1997, an increase of $1.48 million, or
18.4% from 1996. Interest income increased $1.8 million, or 10.5% in 1997 due to
a $17.8 million increase in average interest earning assets and a 16 basis point
increase in the yield on those assets. Total average loans increased $21.5
million, or 11.4% while securities and federal funds sold decreased $3.7
million, or 14.4%.
The yield on loans was 8.36% in 1997, compared with 8.22% in 1996. The increase
was due mainly to a $16.8 million, or 46.6% increase in the average balance of
other loans (consumer and commercial), which yielded 9.22% in 1997.
Interest rates were, on average, little changed between 1997 and 1996. The
Bank's prime rate, which is directly impacted by movements in short term rates
by the Federal Reserve, averaged 8.44% in 1997, compared with 8.27% in 1996.
Treasury yields on maturities of 5 years or less increased on average less than
20 basis points, while yields were down slightly on longer maturities.
Interest expense increased $324,000 or 3.6% in 1997 due to a $12.7 million
increase in average interest-bearing liabilities partially offset by a 12 basis
point decrease in the cost of funds. The Bank's deposit mix continued to change
in 1997 due to the Bank's strategy of emphasizing and promoting savings and
checking accounts. Average transaction accounts (savings, demand and NOW
accounts) as a percentage of total average deposits (including escrow) were
38.9% in 1997, compared with 34.7% in 1996. The average cost of transaction
accounts was 2.02% in 1997, while the average cost of time deposits was 5.53%.
Market interest rates alone do not dictate the rates the Bank pays for its
funds, although they are an important factor. Other factors that impact the
Bank's cost of funds include liquidity needs, the desired mix of deposits and
borrowings, local market competition and asset growth objectives.
-44-
<PAGE> 8
The net interest margin, which is computed by dividing net interest income by
average interest earning assets, increased to 4.11% in 1997, compared with 3.76%
in 1996.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Margin 3.60% 3.72% 3.69% 3.76% 4.11%
</TABLE>
The Company's net interest margin is expected to come under pressure in 1998 due
to the flattening of the Treasury market yield curve. Like any financial
institution, the Bank experiences some level of prepayments in its loan
portfolio each year, particularly in its mortgage portfolio. However, the
historically low level of long-term rates will likely result in an increase in
prepayments due to loan refinancings in 1998, which could result in lower yields
to the Bank on the amount of loans refinanced.
-45-
<PAGE> 9
Analysis of Net Interest Income
The following table sets forth, for the periods indicated, information regarding
(1) the total dollar amount of interest income from interest-earning assets and
the resulting average yields; (2) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost; (3) net interest
income; (4) interest rate spread; (5) net interest-earning assets; (6) net yield
on interest-earning assets; and (7) ratio of interest-earning assets to
interest-bearing liabilities. Nonaccruing loans, which are immaterial, have been
included in interest-earning assets. No tax equivalent adjustments were made.
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
------------------------------ ----------------------------- ---------------------------
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 $ 157,177 12,681 8.07% 152,455 12,156 7.97% 141,802 11,252 7.94%
Other loans 52,836 4,872 9.22% 36,053 3,346 9.28% 27,702 2,816 10.17%
- -------------------------------------------------------------------------------------- ---------------------------- -------
Total loans 210,013 17,553 8.36% 188,508 15,502 8.22% 169,504 14,068 8.30%
- -------------------------------------------------------------------------------------- ---------------------------- -------
Securities 18,537 1,198 6.46% 22,166 1,461 6.59% 24,459 1,643 6.72%
Federal funds sold 3,524 214 6.07% 3,591 199 5.54% 2,619 160 6.11%
- -------------------------------------------------------------------------------------- ---------------------------- -------
Total interest-earning assets 232,074 18,965 8.17% 214,265 17,162 8.01% 196,582 15,871 8.07%
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 13,417 0 12,998 0 10,176 0
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 245,491 18,965 227,263 17,162 206,758 15,871
===========================================================================================================================
Interest-bearing liabilities:
Deposits:
Savings and club accounts $ 41,004 1,169 2.85% 36,576 1,040 2.84% 33,133 937 2.83%
Time certificates 104,447 5,774 5.53% 104,023 5,908 5.68% 97,596 5,598 5.74%
Money market accounts 22,551 821 3.64% 21,919 730 3.33% 23,000 765 3.33%
Now and escrow accounts 22,911 480 2.10% 18,007 392 2.18% 14,575 329 2.26%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 190,913 8,244 4.32% 180,525 8,070 4.47% 168,304 7,629 4.53%
- ---------------------------------------------------------------------------------------------------------------------------
Borrowings 18,406 1,191 6.47% 16,054 1,041 6.48% 14,618 979 6.70%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 209,319 9,435 4.51% 196,579 9,111 4.63% 182,922 8,608 4.71%
Non-interest-bearing deposits 16,892 0 12,310 0 8,470 0
Non-interest-bearing liabilities 2,067 0 2,665 0 835 0
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 228,278 9,435 211,554 9,111 192,227 8,608
Stockholders' equity 17,213 0 15,709 0 14,531 0
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 245,491 9,435 227,263 9,111 206,758 8,608
===========================================================================================================================
Net interest income/
interest rate spread 9,530 3.66% 8,051 3.38% 7,263 3.36%
===========================================================================================================================
Net interest-earning assets/net
yield on interest-earning assets $ 22,755 4.11% 17,686 3.76% 13,660 3.69%
===========================================================================================================================
Ratio of interest-earning assets
to interest-bearing liabilities 1.11 1.09 1.07
===========================================================================================================================
</TABLE>
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 1997 was $1.8
million, compared with $1.1 million in 1996, an increase of $733,000 or 65.7%.
Much of the
-46-
<PAGE> 10
increase is attributable to higher service charges on deposits, which increased
$655,000 or 88.6% in 1997.This is a direct result of the growth in the Company's
checking accounts.
Other Operating Expenses
- ------------------------
Other operating expenses were $8.3 million in 1997, compared with $7.4 million
in 1996, an increase of $890,000 or 12%. The increase in expenses was primarily
growth related.
Salaries and employee benefits expense was $3.7 million in 1997, compared with
$3.2 million in 1996, an increase of $408,000 or 12.6%. Most of the increase is
attributable to a full year of salary expense in 1997 for employees of the
Cicero Bank branch that was acquired on July 1, 1996, and the hiring of 6 new
full-time equivalent employees to staff the new North Medical branch, which
opened in September, 1997. The remainder of the increase resulted primarily from
salary adjustments and incentive bonuses.
Building, occupancy and equipment expense increased $73,000 or 6.1% due
primarily to a full year of depreciation and maintenance in 1997 on the branch
acquired from Cicero Bank and to four months of expense on the North Medical
branch.
Data processing and correspondent bank fees increased a combined $238,000 or
38.3% in 1997 due primarily to transaction processing costs on the Bank's larger
deposit base.
Deposit insurance was $24,000 in 1997, compared with $7,000 in 1996. The Bank is
classified as a well-capitalized institution by the Federal Deposit Insurance
Corporation (FDIC), and as such paid the statutory minimum of $2,000 in 1997. In
addition, the Bank paid a $22,000 Financing Corporation (FICO) assessment in
1997 which was applicable to all insured institutions as of January 1, 1997, in
accordance with the Deposit Insurance Act of 1996.
Real estate owned expense was $83,000 in 1997, compared with $2,000 in 1996. The
Bank recorded a provision totaling $50,000 in the fourth quarter of 1997 on
certain commercial properties. The Bank is more actively marketing its real
estate owned, and for this reason expects that additional losses may be incurred
in 1998 in order to facilitate a quicker disposal of the properties.
The Company's efficiency ratio was 71.5% in 1997, down from 81% in 1996. The
efficiency ratio is equal to total operating expenses (net of real estate owned
expense and amortization of intangibles) divided by net interest income plus
other operating income. The improvement in the efficiency ratio was driven by
growth in net interest income and other operating income exceeding the increase
in operating expenses.
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 because a valuation allowance was provided on the
deferred tax asset. The Company generated sufficient earnings from 1994 through
1996 to enable it to reduce the valuation allowance through credits to the
income tax provision in 1996, which resulted in an effective tax rate less than
the statutory rates for 1996. The Company recorded income tax expense of
$909,000 in 1997, compared with $93,000 in 1996. The Company's effective tax
rate is projected to be approximately 35% in 1998.
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
General
- -------
Net income was $1.48 million, or $1.03 per diluted share in 1996, compared with
$1.05 million or $.74 per diluted share in 1995. A $788,000 increase in net
interest income and a $529,000 increase in other operating income was partially
offset by a $1.2 million increase in other expenses. Income taxes decreased
$259,000.
-47-
<PAGE> 11
Net Interest Income
- -------------------
Net interest income was $8.1 million in 1996, an increase of $788,000, or 10.8%
from 1995. Interest income increased $1.3 million, or 8.1% in 1996 due to a
$17.7 million increase in average interest earning assets, partially offset by a
6 basis point decrease in the yield on those assets. Loans acquired from Cicero
Bank, consisting primarily of consumer and commercial loans, accounted for
approximately $7 million of the increase in average balances. The rest of the
increase in average interest earning assets resulted from new loan originations
during the year.
Asset yields were generally down in 1996 due to a slightly lower interest rate
environment compared with 1995, as well as to competitive pressures in the
Bank's local lending area. Yields on other loans are heavily influenced by home
equity lines of credit and commercial loans which 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
averaged 8.27% in 1996, compared with 8.83% in 1995.
Interest expense increased $503,000 or 5.8% in 1996 due to a $13.7 million
increase in average interest-bearing liabilities partially offset by an 8 basis
point decrease in the cost of funds. Deposits assumed from Cicero Bank accounted
for approximately $9.5 million of the increase in average interest-bearing
deposits. Of this amount, approximately $4.9 million were time accounts. Average
transaction accounts (savings, demand and NOW accounts) as a percentage of total
average deposits (including escrow) were 34.7% in 1996 compared with 31.8% in
1995. The average cost of transaction accounts was 2.16% in 1996, while the
average cost of time deposits was 5.66%.
The net interest margin increased to 3.76% in 1996, compared with 3.69% in 1995.
Other Operating Income
- ----------------------
Other operating income in 1996 was $1.1 million, compared with $587,000 in 1995,
an increase of $529,000, or 90.1%. Much of the increase is attributable to
higher service charges on deposits, which increased $361,000, or 95.5% in 1996.
This is a direct result of the growth in the Company's savings and checking
accounts.
Other Operating Expenses
- ------------------------
Other operating expenses were $7.4 million in 1996, compared with $6.2 million
in 1995, an increase of $1.2 million, or 19.4%.
Salaries and employee benefits expense was $3.2 million in 1996, compared with
$2.7 million in 1995, an increase of $545,000, or 20.2%. Salaries and benefits
of employees hired from Cicero Bank accounted for approximately 35% of the
increase, with the remainder of the increase resulting primarily from salary
adjustments and incentive bonuses.
Correspondent bank fees were $250,000 in 1996, compared with $147,000 in 1995,
an increase of $103,000, or 70.1%. The increase resulted primarily from fees
associated with servicing the Company's larger deposit base.
Postage and delivery expense was $517,000 in 1996, compared with $181,000 in
1995, an increase of $336,000, or 185.6%. The cost of the Bank's direct mail
marketing program for its checking account products is the primary reason for
the increase. As was noted previously, this program contributed to significant
growth in the Company's lower costing checking and savings accounts, and to a
sharp increase in fee income.
Deposit insurance was $7,000 in 1996, compared with $197,000 in 1995, a decrease
of $190,000, or 96.4%. The Bank's cost of FDIC insurance dropped from $.04 per
$100 of insured deposits to the statutory minimum rate of $2,000 per year in
1996.
Real estate owned expense was $2,000 in 1996, compared with $273,000 in 1995, a
decrease of $271,000, or 99.3%. In 1995, the Company wrote down a number of
properties to their fair value less estimated selling costs. The types of
foreclosed properties owned by the Company in 1996 presented a significantly
lower risk of loss to the Company than in 1995.
Other expenses were $1.3 million in 1996, compared with $1.0 million in 1995, an
increase of $337,000, or 33.6%. One-time expenses in 1996 amounted to
approximately $127,000, or 37.7% of the increase in other expenses. Amortization
of goodwill from the Cicero Bank acquisition added approximately $29,000 of
expense in 1996. Other increases in this category were directly related to the
growth in the size of the Company in 1996.
The Company's efficiency ratio was 81% in 1996, compared with 74.4% in 1995.
Income Taxes
- ------------
-48-
<PAGE> 12
A $572,000 reduction in the valuation allowance for deferred tax assets in 1996
contributed to an effective rate lower than the expected statutory Federal and
State combined rates of 40%.
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
Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," except for
those transactions governed by SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." The statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on a consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 127 deferred for one year the effective date of SFAS No.
125 as it relates to transfers of financial assets and secured borrowing and
collateral. The adoption of SFAS No. 125, as amended by SFAS No. 127, did not
have a material effect on the Company's 1997 consolidated financial statements.
On December 31, 1997, the Company adopted the provisions of Statement No. 128,
"Earnings Per Share." The statement establishes standards for computing and
presenting earnings per share (EPS) for entities with publicly held common stock
and common stock equivalents. All prior period EPS amounts included in the
consolidated financial statements and in the Company's 1997 Annual Report have
been restated to conform with the provisions of Statement No. 128.
In June 1997, the FASB issued Statement No. 130 entitled "Reporting
Comprehensive Income." The statement establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from nonowner sources. Statement 130, which is
effective for fiscal years beginning after December 15, 1997, requires
reclassification of financial statements for earlier periods provided for
comparative purposes. The Company has not yet determined the impact of Statement
130 on its financial statements.
In June 1997, the FASB also issued Statement No. 131 entitled "Disclosures about
Segments of an Enterprise and Related Information." The statement requires
publicly-held companies to report financial and other information about
operating segments. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. Statement 131 is
effective for financial statements for periods beginning after December 15, 1997
and comparative information for earlier years is to be restated. At the present
time, the effect of adopting the statement, if any, has not been determined.
-49-
<PAGE> 13
YEAR 2000 ISSUE
The Year 2000 issue stems from date coding practices in both software and
hardware. Specifically, hardware and software developers have often used
two-digit numbers rather than four-digit numbers to represent years. This was
done in a conscious effort to provide cost-effective and efficient business
solutions, given resource constraints and requirements in the past.
Consequently, when the year turns to 2000, the software may calculate the date
as 1900 because the century has not been defined.
Management has initiated an enterprise-wide program to prepare the Company's
computer systems and applications for the year 2000. The Company expects to
incur internal staffing costs as well as consulting and other expenses related
to infrastructure and facilities enhancements necessary to prepare the systems
for the year 2000. The Company is expending significant resources to assure that
its computer systems are reprogrammed in time to effectively deal with
transactions in the year 2000 and beyond. We expect to spend as much as $900,000
in order to get the Bank's systems ready for processing in the year 2000. Much
of this outlay will be for new computer equipment and a new core data processing
system, which will be capitalized and amortized over three years. The core
system being considered is a state-of-the-art, in-house, client/server-based
system. In addition to being Year 2000 ready, the new processing system will
result in immediate cost savings compared with our existing outsourced legacy
system. The Company does not expect the amounts required to be expensed over the
next two years to have a material effect on its financial position or results of
operations. Cost savings from the new system are expected to completely offset
the entire $900,000 expenditure within 5 years. The amount expensed in 1997 was
immaterial.
The Year 2000 problem creates risk for the Company from both unforeseen problems
in its own computer systems and from problems in the computer systems of third
parties with whom the Company deals on financial transactions. Failures of the
Company's and/or third parties' computer systems could have a material adverse
impact on the Company's ability to conduct its business.
The Company expects its Year 2000 date conversion project to be completed on a
timely basis. However, there can be no assurance that the systems of other
companies on which the Company's systems rely also will be timely converted or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems.
STATEMENT OF MANAGEMENT RESPONSIBILITY
Management of Skaneateles Bancorp, Inc. 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 Skaneateles Bancorp, Inc., in conformance
with generally accepted accounting principles.
-50-
<PAGE> 14
Item 8. Financial Statements And Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Skaneateles Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Skaneateles
Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, 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, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 Skaneateles Bancorp,
Inc. and subsidiary at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/S/ KPMG PEAT MARWICK LLP
Syracuse, New York
January 12, 1998
-51-
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1997 1996
- -----------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
Cash and due from banks $ 9,658
5,726
Federal funds sold 6,700
3,800
Securities available-for-sale, at fair value 8,416
6,009
Securities held-to-maturity, fair value of
$7,935 in 1997 and $11,138 in 1996 7,705 10,893
Federal Home Loan Bank stock, at cost 1,561 1,410
Loans, net of deferred costs 215,022 206,944
Allowance for loan losses (2,560) (2,114)
- -----------------------------------------------------------------------------------------------------
Net loans 212,462 204,830
Premises and equipment, net 6,155 6,195
Real estate owned, net 951 717
Accrued interest receivable 1,372 1,271
Other assets 1,121 1,331
- -----------------------------------------------------------------------------------------------------
$ 256,101 242,182
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits $ 196,213 188,424
Demand deposits 20,236 14,861
- -----------------------------------------------------------------------------------------------------
Total deposits 216,449 203,285
Advance payments by borrowers for property
taxes and insurance 1,569 1,744
Borrowings 18,057 18,181
Other liabilities 2,355 2,742
- -----------------------------------------------------------------------------------------------------
Total liabilities 238,430 225,952
- -----------------------------------------------------------------------------------------------------
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
</TABLE>
-52-
<PAGE> 16
<TABLE>
<S> <C> <C>
2,500,000 shares, 1,435,992 and 1,422,138
shares issued in 1997 and 1996, respectively 14 9
Additional paid-in capital 9,119 8,978
Retained earnings 8,573 7,300
Net unrealized loss on securities, net of taxes (35) (57)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,671 16,230
- -------------------------------------------------------------------------------------------------------
$ 256,101 242,182
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-53-
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C> <C>
Interest income:
Mortgage loans $ 12,681 12,156 11,252
Other loans 4,872 3,346 2,816
Securities 1,198 1,461 1,643
Federal funds sold 214 199 160
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 18,965 17,162 15,871
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 8,244 8,070 7,629
Borrowings 1,191 1,041 979
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 9,435 9,111 8,608
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 9,530 8,051 7,263
Provision for loan losses 500 175 235
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 9,030 7,876 7,028
- ---------------------------------------------------------------------------------------------------------------------------
Other operating income:
Net gain (loss) on security transactions 0 77 (99)
Net gain on sale of loans 81 34 14
Service charges 1,394 739 378
Other 374 266 294
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating income 1,849
1,116 587
- ---------------------------------------------------------------------------------------------------------------------------
10,879 8,992 7,615
- ---------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 3,655 3,247 2,702
Building, occupancy and equipment 1,278 1,205 1,091
Data processing 433 372 292
Correspondent bank fees 427 250 147
Advertising and promotions 225 262 152
Postage and delivery 546 517 181
Stationery and supplies 206 216 174
Deposit insurance 24 7 197
</TABLE>
-54-
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Real estate owned, net 83 2 273
Other 1,431 1,340 1,002
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 8,308 7,418 6,211
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 2,571 1,574 1,404
Income tax expense 909 93 352
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1,662 1,481 1,052
===========================================================================================================================
Net income per common share - basic $ 1.16 1.05 0.76
Net income per common share - diluted 1.13 1.03 0.74
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-55-
<PAGE> 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
(Dollars In Thousands, Except Share and Per-Share Data)
<TABLE>
<CAPTION>
Net
Additional unrealized
Common paid-in- Retained gain (loss) on Treasury
stock capital earnings securities stock Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 10 9,475 5,206 (187) (713) 13,791
Net income 0 0 1,052 0 0 1,052
Sale of 5,790 shares under option 0 32 0 0 0 32
Issuance of 1,973 shares of stock under
1995 Non-employee Director's Stock Plan 0 19 0 0 0 19
Cash dividend declared on
Common stock ($.13 per share) 0 0 (175) 0 0 (175)
Change in net unrealized
gain on securities, net of
tax effect of $163 0 0 0 220 0 220
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 10 9,526 6,083 33 (713) 14,939
=======================================================================================================================
Net income 0 0 1,481 0 0 1,481
Sale of 20,775 shares under option 0 117 0 0 0 117
Issuance of 4,985 shares of stock under
1995 Non-employee Director's Stock Plan 0 47 0 0 0 47
Cash dividend declared on
Common stock ($.19 per share) 0 0 (264) 0 0 (264)
Retirement of 154,050 shares of treasury (1) (712) 0 0 713 0
Change in net unrealized
gain on securities, net of
tax effect of $60 0 0 0 (90) 0 (90)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 9 8,978 7,300 (57) 0 16,230
=======================================================================================================================
Net income 0 0 1,662 0 0 1,662
</TABLE>
-56-
<PAGE> 20
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sale of 7,350 shares under option 1 46 0 0 0 47
Issuance of 3,473 shares of stock under
1995 Non-employee Director's Stock Plan 0 47 0 0 0 47
Issuance of 2,688 shares of stock under
Dividend Reinvestment Plan 0 36 0 0 0 36
Issuance of 728 shares of stock under
1997 Employee Stock Purchase Plan 0 12 0 0 0 12
Cash dividend declared on
Common stock ($.27 per share) 0 0 (381) 0 0 (381)
3-for-2 stock split 4 0 (4) 0 0 0
Cash paid for fractional shares on stock split 0 0 (4) 0 0 (4)
Change in net unrealized
gain on securities, net of
tax effect of $14 0 0 0 22 0 22
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 14 9,119 8,573 (35) 0 17,671
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-57-
<PAGE> 21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Operating activities
Net Income $ 1,662 1,481 1,052
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 500 175 235
Provision for losses on real estate owned 50 0 240
Depreciation and amortization 692 628 557
Mortgage loans originated for sale (3,363) (4,454) (2,565)
Proceeds from sale of mortgage loans originated for sale 4,090 4,861 2,060
Net (gain) loss on security transactions 0 (77) 99
Net increase in interest receivable (101) (16) (94)
Net increase (decrease) in other liabilities (387) 549 (1,253)
Receipt of balance due from Nationar 0 1,057 0
Other, net (132) (105) (607)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,349 2,618 (1,328)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 3,011 4,099 (276)
Investing activities
Proceeds from maturities of securities available for sale 3,000 3,004 6,020
Proceeds from sale of securities available for sale 0 2,462 0
Proceeds from maturities of securities held to maturity 2,490 6,175 4,526
Purchase of securities held to maturity 0 (5,135) (7,981)
Purchase of securities available for sale (5,756) (3,096) (2,978)
Principal collected on asset-backed securities 1,113 1,110 1,244
Purchase of Federal Home Loan Bank stock (151) (107) (103)
Net increase in loans made to customers (9,063) (22,698) (5,017)
Net cash received from acquired bank 0 4,024 0
Proceeds from sale of real estate owned 164 196 714
Purchase of property and equipment, net (602) (298) (829)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,805) (14,363) (4,404)
Financing activities
Net increase (decrease) in time certificates (2,357) (1,913) 13,565
Net increase (decrease) in other deposits 15,346 8,719 (5,142)
Increase (decrease) in overnight borrowings (312) 865 422
Increase in long-term borrowings 2,500 4,000 1,000
Repayment of long-term borrowings (2,312) (1,070) (1,020)
Proceeds from issuance of stock pursuant to stock plans 142 164 51
Dividends paid (381) (264) (175)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,626 10,501 8,701
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,832 237 4,021
Reclassification of balance due from Nationar to other assets 0 0 (1,057)
Cash and cash equivalents at beginning of period 9,526 9,289 6,325
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 16,358 9,526 9,289
===========================================================================================================================
Interest paid $ 9,433 9,116 8,607
===========================================================================================================================
Income taxes paid $ 1,075 92 269
===============================================
</TABLE>
-58-
<PAGE> 22
<TABLE>
===========================================================================================================================
<S> <C> <C> <C>
Supplemental schedule of noncash investing activities:
Transfer of securities from available for sale to held to maturity $ 0 0 8,334
Transfer of securities from held to maturity to available for sale 0 0 2,471
Mortgage loans foreclosed and transferred to real estate owned 452 515 358
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-59-
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
Business
Skaneateles Bancorp, Inc. (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 consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. Certain prior year amounts have been
reclassified to conform to current year classifications. A description of the
significant accounting policies is presented below. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ from
those estimates.
(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, as the Company does not hold any securities considered to be
trading. 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. 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 until realized. The unrealized gains
or losses included in the separate component of equity for securities
transferred from available-for-sale to held-to-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 to yield using the interest method. Interest income is
recognized when earned. Purchases and sales are recorded on a trade date basis
with settlement occurring shortly thereafter. Realized gains and losses on
securities sold are derived using the specific identification method for
determining the cost of securities sold.
(c) Loans
Loans are reported at the principal amount outstanding, net of deferred fees and
costs. Accrual of interest on a loan, including impaired loans, is discontinued
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 deferredas 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.
(d) Allowance for Loan Losses
-60-
<PAGE> 24
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 estimates losses on impaired loans based on the present value of
expected future cash flows (discounted at the loan's effective interest rate) or
the fair value of the underlying collateral if the loan is collateral dependent.
An impairment loss exists if the recorded investment in a loan exceeds the value
of the loan as measured by the aforementioned methods. A loan is considered
impaired when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Generally,
all commercial mortgage loans and commercial loans in a delinquent payment
status (90 days or more delinquent) are considered impaired. Residential
mortgage loans, consumer loans, home equity lines of credit and education loans
are evaluated collectively since they are homogenous and generally carry smaller
individual balances. Impairment losses are included as a component of the
allowance for loan losses. 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.
(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 the
impaired loan balance at the date of acquisition or fair value less selling
expenses of the property received. 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, or the
establishment of allowances are charged to other operating expenses.
(g) Other Assets
On July 1, 1996, the Bank acquired substantially all the assets and assumed the
deposit liabilities of Cicero Bank. The excess of the purchase price over the
fair value of assets acquired ("goodwill") amounted to $494,000 and is included
in other assets. Goodwill is being amortized over the expected useful life of
seven years on a straight line basis. The amortization period is monitored to
determine if events and circumstances require the estimated useful life to be
reduced. Periodically, the Company reviews the goodwill for events or changes in
circumstances that may indicate the carrying amount of the goodwill is impaired.
(h) 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.
(i) Per Common Share Data
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
statement supersedes Accounting Principles Board Opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS) for entities with publicly held common stock. It
requires dual presentation of "Basic EPS" and "Diluted EPS" on the face of the
income statement for all entities with complex capital structures. All prior
period EPS data has been restated to conform to the provisions of this
statement.
Basic earnings per share is calculated by dividing net income available to
common shareholders by the weighted average number of shares outstanding during
the year. Diluted earnings per share includes the maximum dilutive effect of
stock issuable upon conversion of stock options and warrants.
In October, 1997, the Company declared a three-for-two stock split, effected by
means of a stock dividend paid November 28, 1997. All share and per share data
included in the consolidated financial statements and in the related notes
thereto have been retroactively adjusted to reflect the stock split.
-61-
<PAGE> 25
(j) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash,
amounts due from banks and federal funds sold.
(k) Stock-Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant. Alternatively, SFAS No. 123 also
allows the Company to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the fair value
based method defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(l) Off-Balance Sheet Instruments
The Company entered into an interest rate floor in 1996 as part of its interest
rate risk management strategy. Interest rate floors are used to hedge exposure
to falling interest rates and are accounted for at amortized cost. Fees related
to interest rate floors are amortized using the interest method over the life of
the floor. Income and expense are recorded in the same category as that of the
related balance sheet item.
(2) Securities
Securities available for sale at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and federal agency obligations $6,013 13 0 6,026
Mortgage-backed securities-FNMA 733 19 0 752
Asset-backed securities 1,630 10 (2) 1,638
- --------------------------------------------------------------------------------------------------------
$8,376 42 (2) 8,416
========================================================================================================
<CAPTION>
1996
----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency obligations $4,996 31 0 5,027
Mortgage-backed securities-FHLMC 989 0 (7) 982
- --------------------------------------------------------------------------------------------------------
$5,985 31 (7) 6,009
========================================================================================================
</TABLE>
-62-
<PAGE> 26
Securities held to maturity at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency obligations $3,007 10 0 3,017
Mortgage-backed securities:
FNMA 130 4 0 134
FHLMC 2,998 168 0 3,166
Obligations of states and political subdivisions 1,470 48 0 1,518
Corporate bonds, notes and debentures 100 0 0 100
- --------------------------------------------------------------------------------------------------------
$7,705 230 0 7,935
========================================================================================================
<CAPTION>
1996
-----------------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and Federal agency obligations $4,992 15 0 5,007
Mortgage-backed securities:
FNMA 145 3 0 148
FHLMC 3,674 175 0 3,849
Obligations of states and political subdivisions 1,782 53 (2) 1,833
Corporate bonds, notes and debentures 300 1 0 301
- --------------------------------------------------------------------------------------------------------
$10,893 247 (2) 11,138
========================================================================================================
</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) published "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.
Effective November 1995, the Company transferred securities with an amortized
cost of $2,471,000, having fair values of $2,517,000 from the held-to-maturity
portfolio to the available-for-sale category. The $46,000 net unrealized gain on
the securities was excluded from earnings and recorded in the separate component
of stockholders' equity, net of related taxes, at the time of transfer.
As required by the Guide, financial statements prior to adoption were not
restated.
There were no realized gains or losses in 1997. Gross realized gains on the sale
of securities were approximately $77,000 in 1996. Losses of $99,000 were
recognized in 1995 due to other than temporary impairment of the Bank's equity
investment in Nationar.
-63-
<PAGE> 27
The contractual maturity distribution of securities at December 31, 1997 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 obligations $3,005 3,008 0 0 6,013
Mortgage-backed securities:
FNMA 0 0 0 733 733
Asset-backed securities 0 643 987 0 1,630
- ----------------------------------------------------------------------------------------------------------------------------
$3,005 3,651 987 733 8,376
============================================================================================================================
Fair value $3,011 3,655 997 753 8,416
============================================================================================================================
Weighted average yield of securities 6.19% 5.87% 6.55% 6.43% 6.11%
============================================================================================================================
Securities held to maturity:
U.S. government and Federal agency obligations $2,010 997 0 0 3,007
Mortgage-backed securities:
FNMA 0 0 0 130 130
FHLMC 0 0 233 2,765 2,998
Obligations of states and political subdivisions 65 15 435 955 1,470
Corporate bonds, notes and debentures 100 0 0 0 100
- ----------------------------------------------------------------------------------------------------------------------------
$2,175 1,012 668 3,850 7,705
============================================================================================================================
Fair value $2,180 1,019 714 4,022 7,935
============================================================================================================================
Weighted average yield of securities 6.09% 6.11% 7.09% 7.41% 6.83%
============================================================================================================================
</TABLE>
Securities carried at $6,381,000 at December 31, 1997 were pledged for
borrowings and other purposes required by law.
Accrued interest receivable on securities was $177,000 and $191,000 at December
31, 1997 and 1996, respectively.
(3) Loans
Major categories of loans at December 31, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Loans secured by first mortgages on real estate:
Residential $119,350 129,651
Commercial 33,962 31,728
- --------------------------------------------------------------------------------
153,312 161,379
- --------------------------------------------------------------------------------
Other loans:
Business 22,995 18,861
Guaranteed student 1,059 882
Home equity and improvement 20,624 17,599
Other consumer 16,565 7,924
</TABLE>
-64-
<PAGE> 28
<TABLE>
<S> <C> <C>
61,243 45,266
- --------------------------------------------------------------------------------
214,555 206,645
Net deferred costs 467 299
- --------------------------------------------------------------------------------
$ 215,022 206,944
================================================================================
</TABLE>
-65-
<PAGE> 29
Changes in the allowance for loan losses for the years ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 2,114 2,667 3,040
Provision charged to operations 500 175 235
Recoveries 519 126 124
Loans charged off (573) (1,301) (732)
Allowance of acquired bank 0 447 0
- ------------------------------------------------------------------------------
Balance at December 31 $ 2,560 2,114 2,667
================================================================================
</TABLE>
The principal balances of loans not accruing interest amounted to approximately
$3,917,000 and $3,171,000 at December 31, 1997 and 1996, respectively. The
effect of non-accrual loans on interest income for 1997, 1996 and 1995 was
approximately $274,000, $283,000 and $155,000, respectively.
Impaired loans, which included troubled debt restructured loans, were $2,079,000
and $1,929,000 at December 31, 1997 and 1996, respectively. Included in these
amounts are $1,911,000 and $832,000 of impaired loans for which the related
allowance for loan losses is $219,000 and $216,000, respectively. In addition,
included in the total impaired loans at December 31, 1997 and 1996 are $168,000
and $1,097,000 of impaired loans for which no allowance is recorded due to the
adequacy of collateral values in accordance with SFAS 114. The average recorded
investment in impaired loans during 1997, 1996 and 1995 was approximately
$1,480,000, $2,923,000, and $3,859,000, respectively. The amount of interest
income recognized on impaired loans in 1997, 1996 and 1995 was approximately
$84,000, $166,000, and $281,000, respectively. The Bank is not committed to lend
additional funds to these borrowers.
Accrued interest receivable on loans was $1,194,000 and $1,080,000 at December
31, 1997 and 1996, respectively.
The Bank serviced loans for others aggregating approximately $25,487,000,
$23,820,000 and $21,796,000 at December 31, 1997, 1996 and 1995, respectively.
From time to time, 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>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 1,172 1,123
Increases 113 117
Decreases (268) (68)
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31 $ 1,017 1,172
================================================================================
</TABLE>
4) Premises and Equipment
A summary of premises and equipment at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 532 532
Buildings and improvements 5,146 5,144
Furniture and equipment 3,539 3,153
</TABLE>
-66-
<PAGE> 30
<TABLE>
Leasehold improvements 1,796 1,602
- --------------------------------------------------------------------------------
<S> <C> <C>
11,013 10,431
Less accumulated depreciation and amortization 4,858 4,236
- --------------------------------------------------------------------------------
$ 6,155 6,195
================================================================================
</TABLE>
Depreciation and amortization of premises and equipment included in building,
occupancy and equipment expense amounted to $632,000, $584,000 and $557,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
(5) Deposits
Deposits at December 31 are summarized as follows (in thousands):
1997 1996
- --------------------------------------------------------------------------------
Savings and club accounts $ 42,451 38,690
Time certificates 105,072 107,429
Money market accounts 24,234 21,991
NOW accounts 24,456 20,314
Demand accounts 20,236 14,861
- --------------------------------------------------------------------------------
$216,449 203,285
================================================================================
At December 31, 1997 and 1996, the aggregate amounts of time deposits in
denominations of $100,000 or more were approximately $13,427,000 and
$13,065,000, respectively.
The following table presents the amount of certificate accounts at December 31,
1997 which mature during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Maturing
--------------------------------------------------------------------------------------
Within After
One Year Two Years Three Years Four Years Five Years Five Years Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$61,699 17,555 11,840 3,712 8,436 1,830 105,072
=================================================================================================================
</TABLE>
Interest expense on deposits for the years ended December 31 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings and club accounts $1,169 1,040 937
Time certificates 5,774 5,908 5,598
Money market accounts 821 730 765
NOW and escrow accounts 480 392 329
- --------------------------------------------------------------------------------
$8,244 8,070 7,629
================================================================================
</TABLE>
-67-
<PAGE> 31
(6) Borrowings
Borrowings at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------- -------------------------
Amount Rate Amount Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities sold under repurchase agreements $ 2,204 4.76% 2,516 4.48%
Advances from the FHLB of New York,
due 1997 2,000 6.15-7.79
0
due 1998 7,000 5.45-6.45 7,000 5.45-6.15
due 1999 3,000 6.63 3,000 6.63
due 2000 2,000 6.26-6.31 0
0
due 2002 2,000 10.51 2,000 10.51
due 2007 486 7.08 0
0
Municipal securities sold with put options 1,367 6.25 1,665 6.32
$18,057 18,181
=============================================================================================================
</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, 1997, the Bank pledged
U.S. Treasury Notes totaling $3,500,000 as collateral for the repurchase
agreements.
At December 31, 1997, Federal Home Loan Bank of New York (the "FHLB") advances
are collateralized by the investment in stock of the FHLB of $1,561,000 and
residential mortgage loans with a carrying value approximating $15,935,000.
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, 1997 of $1,367,000. 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 $1,351,000 of municipal bonds and U.S. Treasury Notes of
approximately $995,000. 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 two lines of credit with the FHLB of New York. Borrowings
under the lines bear interest at .125% above the federal funds rate. The total
amount available under the lines was $24,223,000 at December 31, 1997. The
amount of each line is equal to 5% of the Bank's total assets and is set each
year at March 31, the renewal date of the lines.
(7) Income Taxes
Total income taxes for the year ended December 31 were allocated as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from operations $909 93 352
Stockholders' equity, for change in unrealized
gain (loss) on securities 14 (60) 163
- -----------------------------------------------------------------------------------
$923 33 515
===================================================================================
</TABLE>
-68-
<PAGE> 32
Actual income taxes applicable to operations differ from expected taxes,
computed by applying the Federal corporate tax rate of 34% to income before
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax expense $ 874 535 477
Non-deductible expenses 0 0 101
State income taxes, net of Federal benefit 105 42 99
Change in valuation allowance for deferred tax assets 0 (572) (464)
Other (70) 88 139
- ----------------------------------------------------------------------------------------------
Income tax expense $ 909 93 352
==============================================================================================
</TABLE>
The components of income tax expense applicable to operations are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 817 72 406
State (7) 14 150
- -----------------------------------------------------------------------------------------------
810 86 556
- -----------------------------------------------------------------------------------------------
Deferred:
Federal (67) 179 (204)
State 166 (172) 0
- -----------------------------------------------------------------------------------------------
99 7 (204)
- -----------------------------------------------------------------------------------------------
$ 909 93 352
- -----------------------------------------------------------------------------------------------
Deferred tax expense (exclusive of the change in valuation allowance) $ 0 579 260
Change in valuation allowance 0 (572) (464)
- -----------------------------------------------------------------------------------------------
$ 0 7 (204)
===============================================================================================
</TABLE>
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).
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $948 844
Unrealized loss on securities available for sale 24 38
Alternative minimum tax credit carryforwards 0 143
Unrealized gain on securities available for sale for tax purposes 20 10
</TABLE>
-69-
<PAGE> 33
<TABLE>
<CAPTION>
<S> <C> <C>
Other 66 144
- --------------------------------------------------------------------------------------
Total deferred tax assets 1,058 1,179
- --------------------------------------------------------------------------------------
Deferred tax liabilities:
Increase in tax bad debt reserve over base year 322 380
Accumulated depreciation 168 162
Other 221 176
- --------------------------------------------------------------------------------------
Total deferred tax liabilities 711 718
- --------------------------------------------------------------------------------------
Net deferred tax asset $ 347 461
- --------------------------------------------------------------------------------------
</TABLE>
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities and the level of historical taxable
income. The Company generated sufficient earnings in 1996 to fully recognize the
deferred tax assets.
Included in retained earnings at December 31, 1997 is approximately $987,000
representing aggregate provisions for loan losses taken under the Internal
Revenue Code. Use of these reserves to pay dividends in excess of earnings and
profits or to redeem stock, or the failure of the institution to qualify as a
bank for Federal income tax purposes, 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 and Regulatory Matters
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. Under the regulations, the Bank has
approximately $3,678,000 available for payment of dividends to the Company at
December 31, 1997.
FDIC regulations require banks to maintain minimum levels of regulatory capital.
Under the regulations in effect at December 31, 1997, the Bank was required to
maintain a minimum Tier I capital (as defined in the regulations) to average
assets ratio of 4%, and minimum ratios of Tier I capital and total capital to
risk weighted assets (as defined) of 4% and 8%, respectively.
Under its prompt corrective action regulations, the FDIC is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an undercapitalized institution. Such actions could have a direct
material effect on an institution's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well-capitalized, adequately-capitalized, under-capitalized,
significantly under-capitalized and critically under-capitalized. Generally, an
institution is considered well-capitalized if it has a Tier I capital ratio (to
average assets) of at least 5%, a Tier I capital ratio (to risk weighted assets)
of at least 6%, and a total capital ratio (to risk weighted assets) of at least
10%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the FDIC about capital components, risk
weighting and other factors.
Management believes that as of December 31, 1997, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent FDIC
notification categorized the Bank as a well-capitalized institution under the
prompt corrective action regulations. There have been no conditions or events
since the notification that management believes have changed the Bank's capital
classification.
-70-
<PAGE> 34
The following is a summary of the Bank's actual capital amounts and ratios as of
December 31, compared with the FDIC minimum capital adequacy requirements and
the FDIC requirements for classification as a well-capitalized institution:
<TABLE>
<CAPTION>
For Classification
Actual Minimum Adequacy As Well-Capitalized
------------------ ---------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1997
- ----------------------------------------
Tier I Capital (to average assets) $17,173 6.91% 10,223 4.00% 12,779 5.00%
Tier I Capital (to risk weighted assets) 17,173 10.06% 6,830 4.00% 10,246 6.00%
Total Capital (to risk weighted assets) 19,319 11.31% 13,661 8.00% 17,076 10.00%
1996
- ----------------------------------------
Tier I Capital (to average assets) 15,610 6.46% 9,664 4.00% 12,080 5.00%
Tier I Capital (to risk weighted assets) 15,610 9.98% 6,257 4.00% 9,386 6.00%
Total Capital (to risk weighted assets) 17,574 11.23% 12,514 8.00% 15,643 10.00%
</TABLE>
The Company's capital amounts and ratios as of December 31, 1997 and 1996 were
not materially different than those of the Bank.
(9) Employee Benefits and Stock Plans
The Company adopted a Stock Option Plan which was approved by the stockholders
in 1987 (the "1987 Plan"). Under the 1987 Plan, 76,765 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. All options available under the plan have been
granted.
To supplement the 1987 Plan, the Company adopted an additional Stock Option Plan
which was approved by the shareholders in 1991 (the "1991 Plan"). Under the 1991
Plan, 69,350 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. At December 31, 1997, there were 11,037 options available for
grant.
The 1995 Non-Employee Directors Warrant Plan (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
112,500. 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 that is granted vests and becomes exercisable over a
three-year period in increments of one-third on each anniversary of the grant
date. In 1997, 13,500 warrants were issued at an exercise price of $12.83. There
were no warrants issued in 1996 or 1995. At December 31, 1997, 99,000 warrants
were available for award.
-71-
<PAGE> 35
The fair value of the stock options and warrants granted was arrived at using
the Black Scholes option-pricing model. The results and the assumptions used for
the options and warrants granted during 1997, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average fair value $ 3.56 2.38 2.95
Expected dividend yield 1.32% 2.55% 1.40%
Risk free interest rate 5.70% 6.10% 5.38%
Expected life (years) 5 5 5
Volatility ratio 26.61% 25.42% 26.37%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its option and warrant
plans, and accordingly, no compensation cost has been recognized for stock
options and warrants in the accompanying consolidated financial statements. Had
the Company determined compensation cost based on the fair value of its stock
options and warrants at the grant date under SFAS 123, the Company's net income
and earnings per share would have been reduced to pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in thousands):
As reported $ 1,662 1,481 1,052
Pro forma 1,599 1,431 1,035
Earnings per share:
Basic
As reported $ 1.16 1.05 0.76
Pro forma 1.12 1.01 0.74
Diluted
As reported 1.13 1.03 0.74
Pro forma 1.08 0.99 0.73
</TABLE>
The full impact of calculating compensation for stock options and warrants under
SFAS No. 123 is reflected in the pro forma net income amounts because options
and warrants are generally granted based upon past service.
Stock option and warrant activity during the periods indicated is summarized as
follows:
<TABLE>
<CAPTION>
Number of
Shares Wtd Avg
Under Exercise
Option Price
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Outstanding, December 31, 1994 88,838 $ 5.98
Granted 7,500 10.17
Exercised (5,790) 5.51
Forfeited (2,498) 5.46
- ---------------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 88,050 6.39
- ---------------------------------------------------------------------------------------------------
Granted 22,000 9.17
Exercised (20,775) 5.65
- ---------------------------------------------------------------------------------------------------
Outstanding, December 31, 1996 89,275 7.24
- ---------------------------------------------------------------------------------------------------
Granted 27,300 11.82
</TABLE>
-72-
<PAGE> 36
<TABLE>
<S> <C> <C>
Exercised (7,350) 6.24
Forfeited (6,375) 8.27
- ---------------------------------------------------------------------------------------------------
Outstanding, December 31, 1997 102,850 $ 8.46
===================================================================================================
</TABLE>
-73-
<PAGE> 37
The range of exercise price and weighted average remaining contractual life of
outstanding options and warrants at December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Exercise Wtd Ave Wtd Ave
Number of Shares Price Exercise Contractual
Under Option Range Price Life (Years)
- --------------------------------------------------------------------------
<S> <C> <C>
4,125 $ 3.50 $ 3.50 2.95
46,125 5.66 - 7.33 6.39 6.06
39,100 9.16 - 10.83 9.92 8.46
13,500 12.83 12.83 9.25
</TABLE>
At December 31, 1997, 47,720 options were exercisable, and the weighted-average
exercise price of those options was $6.48.
The Company maintains an Employee Stock Ownership Plan (the "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. The Company pays all administrative expenses
associated with the ESOP. In 1997, the Company contributed $25,000 to the ESOP
trust. No contributions were made by the Company in 1996 and 1995. At December
31, 1997, all 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 1997, 1996 and 1995 was approximately $113,000, $109,000 and
$89,000, 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 37,500. 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 1997, 1996 and 1995, 3,473, 4,985 and 1,973 shares were
awarded, respectively. At December 31, 1997, 27,069 shares were available for
award. The cost of shares issued in lieu of cash payments under the Plan was
47,000, $47,000 and $19,000 in 1997, 1996 and 1995, respectively.
(10) Commitments
The Bank occupies six branches and other office space under noncancellable
operating leases with remaining terms through 2010. A summary of future minimum
rental commitments under the terms of such leases at December 31, 1997 follows
(in thousands):
<TABLE>
<CAPTION>
Year Amount
- ----------------------------------------------
<S> <C>
1998 $ 396
1999 396
2000 417
2001 380
2002 387
Subsequent years 1,712
- ----------------------------------------------
$ 3,688
- ----------------------------------------------
</TABLE>
Rent expense amounted to approximately $349,000, $371,000, and $321,000 for
1997, 1996 and 1995, respectively.
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 an interest rate floor.
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 obligated 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 risk that future changes in market prices make
a financial instrument less valuable.
-74-
<PAGE> 38
Commitments to fund loans (including lines of credit) and outstanding letters of
credit at December 31, 1997 and 1996 were approximately $20,479,000 and
$168,000, and $16,082,000 and $279,000, respectively. Approximately $2,980,000
of the loan commitments at December 31, 1997 were for fixed rates of interest.
The Bank has an interest rate floor outstanding on $18,000,000 of prime-based
loans at December 31, 1997. Interest rate floors require the payment of a fee
for the right to receive interest payments on the contract notional amount when
a floating rate (typically prime) falls below a strike rate. The original term
of the floor was three years with an expiration date of February 1999. Under the
agreement, the Bank will receive payments on a quarterly basis if the prime rate
drops below 8.25% (the strike rate). Payments are equal to the amount by which
the prime rate falls below the strike rate multiplied by the notional amount of
the floor. The impact on net interest income is the excess of the strike rate
over the floating rate less the periodic amortization of the fee paid.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments 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. 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.
(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. Other than general economic risks, management is
not aware of any material concentrations of credit risk to any industry or
individual borrower.
(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: 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 (i.e. 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 (i.e. commercial real estate,
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 quality. 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 and an interest rate
floor contract) 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, and interest rate
floor contracts were estimated based on an analysis of the interest rates, fees
currently charged and market quotes, if available, for similar transactions.
These fair values were not significantly different from the carrying amounts,
which were not material, at December 31, 1997 and 1996, respectively.
Deposit Liabilities: The fair values disclosed for demand deposits (interest and
non-interest checking, savings 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 time certificates 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 of the time deposits.
-75-
<PAGE> 39
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.
The following is a summary of the carrying values and estimated fair values of
the Company's financial instruments at December 31, 1997 and 1996, respectively
(in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 16,358 16,358 9,526 9,526
Securities available for sale 8,416 8,416 6,009 6,009
Securities held to maturity 7,705 7,935 10,893 11,138
Federal Home Loan Bank stock 1,561 1,561 1,410 1,410
Loans 212,462 213,736 204,830 206,785
Financial liabilities:
Demand, NOW, Savings and money market accounts 111,377 111,377 95,856 95,856
Time certificates 105,072 105,565 107,429 108,123
Borrowings 18,057 18,607 18,181 18,524
Advance payments by borrowers for property
taxes and insurance 1,569 1,569 1,744 1,744
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
-76-
<PAGE> 40
(13) Parent Company Financial Information
The following presents the condensed balance sheets of the Company (parent only)
as of December 31, 1997 and 1996 and its condensed statements of operations and
cash flows for the years ended December 31, 1997, 1996 and 1995 (in thousands):
Condensed Balance Sheets
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 56 109
Investment in subsidiary 17,615 16,121
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 17,671 16,230
=============================================================================================================
Stockholders' equity $ 17,671 16,230
=============================================================================================================
<CAPTION>
Condensed Statements of Operations
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
Income:
Dividends from subsidiary $ 190 151 175
Equity in undistributed income of subsidiary 1,472 1,330 877
- -------------------------------------------------------------------------------------------------------------
Net income $ 1,662 1,481 1,052
=============================================================================================================
<CAPTION>
Condensed Statements of Cash Flows
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,662 1,481 1,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiary (1,472) (1,330) (877)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 190 151 175
- -------------------------------------------------------------------------------------------------------------
Financing activities:
Cash dividends paid on common stock (385) (264) (175)
Proceeds from issuance of stock pursuant to stock option plans and
Non-Employee Director's Stock Plan 142 164 51
- -------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (243) (100) (124)
- -------------------------------------------------------------------------------------------------------------
Cash at beginning of year 109 58 7
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $ 56 109 58
=============================================================================================================
</TABLE>
-77-
<PAGE> 41
(14) Earnings Per Share
The following table presents a reconciliation of the numerator and denominator
of the earnings per share computations (in thousands except share and per-share
amounts):
<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
---------------- ----------------- -----------------
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 1,662 1,430,177 $ 1.16
Effect of assumed exercise of stock options and warrants 0 45,647
Diluted earnings per share:
Income available to common shareholders
---------------- ----------------- -----------------
and assumed exercise of stock options and warrants $ 1,662 1,475,824 $ 1.13
====================================================
<CAPTION>
Year ended December 31, 1996
----------------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
---------------- ----------------- -----------------
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 1,481 1,411,565 $ 1.05
Effect of assumed exercise of stock options 0 33,322
Diluted earnings per share:
Income available to common shareholders
---------------- ----------------- -----------------
and assumed exercise of stock options $ 1,481 1,444,887 $ 1.03
====================================================
<CAPTION>
Year ended December 31, 1995
----------------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
---------------- ----------------- -----------------
Basic earnings per share:
<S> <C> <C> <C>
Net income $ 1,052 1,391,073 $ .76
Effect of assumed exercise of stock options 0 30,129
Diluted earnings per share:
Income available to common shareholders
---------------- ----------------- -----------------
and assumed exercise of stock options $ 1,052 1,421,202 $ .74
====================================================
</TABLE>
-78-
<PAGE> 42
(15) Selected Quarterly Financial Data (Unaudited)
The following table sets forth selected quarterly data for the years ended
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 Quarter Ended
Total
- --------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $4,572 4,710 4,853 4,830 18,965
Total interest expense 2,330 2,330 2,381 2,394 9,435
- -----------------------------------------------------------------------------------------------------------
Net interest income 2,242 2,380 2,472 2,436 9,530
Provision for loan losses 100 100 200 100 500
- -----------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,142 2,280 2,272 2,336 9,030
- -----------------------------------------------------------------------------------------------------------
Net gain on sale of loans 50 15 8 8 81
Other operating income 371 434 457 506 1,768
Other operating expense 1,939 2,035 2,076 2,258 8,308
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 624 694 661 592 2,571
Income tax expense 222 247 231 209 909
- -----------------------------------------------------------------------------------------------------------
Net income $ 402 447 430 383 1,662
===========================================================================================================
Net income per common share - basic .28 .31 .30 .27 1.16
Net income per common share - diluted .28 .30 .29 .26 1.13
===========================================================================================================
<CAPTION>
1996 Quarter Ended
Total
- --------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
Year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $3,972 4,045 4,552 4,593 17,162
Total interest expense 2,173 2,170 2,367 2,401 9,111
- -----------------------------------------------------------------------------------------------------------
Net interest income 1,799 1,875 2,185 2,192 8,051
Provision for loan losses 25 25 50 75 175
- -----------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,774 1,850 2,135 2,117 7,876
- -----------------------------------------------------------------------------------------------------------
Net loss on security transactions 77 0 0 0 77
Net gain on sale of loans 7 11 6 10 34
Other operating income 181 220 271 333 1,005
Other operating expense 1,620 1,803 1,982 2,013 7,418
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 419 278 430 447 1,574
Income tax expense 24 16 25 28 93
- -----------------------------------------------------------------------------------------------------------
Net income $ 395 262 405 419 1,481
===========================================================================================================
Net income per common share - basic .28 .19 .29 .29 1.05
Net income per common share - diluted .28 .18 .28 .29 1.03
===========================================================================================================
</TABLE>
Note: All share and per-share data have been retroactively adjusted to reflect
the three-for-two stock split.
-79-
<PAGE> 43
<TABLE>
<CAPTION>
DIRECTORS OF SKANEATELES BANCORP, INC.
<S> <C>
John P. Driscoll Chairman, President and Chief Executive Officer
Clifford C. Abrams Retired, formerly President of Clifford C. Abrams, Inc.
Israel Berkman Retired, formerly Examining Officer of the Federal Reserve Bank of
New York
David E. Blackwell Retired, formerly President of Auburn Steel Company, Inc.
Walter D. Copeland Retired, formerly President of 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
Howard J. Miller Retired, formerly Vice President, Distribution, Crucible Service Centers
Anne E. O'Connor Corporate Secretary, Kopp Billing Agency, Inc.
Raymond C. Traver, Jr., MD President, Raymond C. Traver, Jr., M.D., P.C.
Directors Emeritus
B. Burdette Lee
Frederick R. Platt
OFFICERS OF SKANEATELES BANCORP, INC.
John P. Driscoll Chairman, President and Chief Executive Officer
J. David Hammond Executive Vice President and Secretary
J. Daniel Mohr Treasurer
William J. Welch Assistant Secretary and Assistant Treasurer
OFFICERS OF SKANEATELES SAVINGS BANK
John P. Driscoll Chairman, President and Chief Executive Officer
J. David Hammond Executive Vice President and Secretary
Karen E. Lockwood Vice President
J. Daniel Mohr Vice President, Treasurer and Chief Financial Officer
William J. Welch Vice President, Assistant Secretary and Assistant Treasurer
Calvin L. Corriders Syracuse Urban Business Development Officer
John C. Daly Commercial Loan Officer
James E. Dove Branch Administrator
James J. Frawley Commercial Loan Officer
Donald G. Kaczmarek Commercial Loan Officer
Richard M. Lambrecht, Jr. Controller
Philip A. Mazza Human Resources Officer
</TABLE>
-80-
<PAGE> 44
Beth H. Meyers Operations Officer
Donna L. Rouse Loan Operations Officer
Joan M. Rozycko Community Banking Officer
-81-
<PAGE> 45
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
Director Directly or Indirectly
Position with the Company and Principal of Bank as of February 20, 1998
Name Age Occupation During the Past Five Years Since (1) ------------------------------
Amount Percent (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walter D. Copeland 64 Director; Retired, President, Walter D. 1994 1,742(3)
Copeland Organization, Inc., a real estate
consulting firm.
John P. Driscoll 58 Chairman, President and Chief Executive 1992 31,931(4) 2.16
Officer of the Company.
Carl W. Gerst, Jr. 60 Director; Executive Vice President, Chief 1982 6,048
Operating Officer and Director of Anaren
Microwave, Inc., a manufacturer of microwave
and electronic subsystems for commercial and
defense applications.
John Bernard Henry 69 Director; Professor of pathology and former 1989 3,750(5)
President of the State University of New
York Health Science Center at Syracuse.
David E. Blackwell 59 Director; Retired, President, Auburn Steel 1993 2,555
Company, Inc.
Howard J. Miller 65 Director; Retired, Vice President, 1993 3,558(6)
Distribution
Crucible Service Centers.
Raymond C. Traver, Jr., M.D. 55 Director; Orthopedic Surgeon. 1990 11,517(7)
Israel Berkman 69 Director; Retired, Examining Officer of the 1992(8) 3,041
Federal Reserve Bank of New York.
Ann G. Higbee 55 Director; Managing Partner, Public Relations 1993 6,100
Services, Eric Mower and Associates.
Anne E. O'Connor 62 Director; Corporate Secretary, Kopp Billing 1995 52,416(9) 3.64
Agency, a medical billing agency.
<FN>
(1) Includes terms as Trustee prior to the Bank's conversion from a 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) 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.
(4) Includes vested options to purchase 28,400 shares.
(5) All shares held jointly with Mr. Henry's wife, with whom Mr. Henry has
shared voting and investment power.
(6) Includes 750 shares held by Mr. Miller's wife.
(7) Includes 6,075 shares held in trust under an employee defined contribution
pension plan and 786 shares held by Dr. Traver as custodian for his
children.
(8) Mr. Berkman is a director of the Company, but not the Bank.
(9) Shares owned by Mrs. O'Connor's husband.
</TABLE>
-82-
<PAGE> 46
Item 11. Executive Compensation
Since the formation of Skaneateles Bancorp, Inc., 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 of
Securities
Name and Principal Position Other Annual Underlying All Other
Year Salary (1) Bonus Compensation Options (#) Compensation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John P. Driscoll 1997 $ 143,691 $ 34,588(2) $ 11,635(3) 5,700 $ 21,233(4)
Chairman, President & CEO
1996 141,969 30,670 17,936 4,667 18,475
1995 124,547 17,406 10,113 0 26,417
J. David Hammond 1997 94,248 13,436(2) 0 3,000 6,165(5)
Executive Vice President & 1996 92,777 9,170 0 1,500 1,492
Secretary 1995 22,332 0 0 5,000 0
<FN>
(1) Includes the cost of shares allocated under the Company's Employee Stock
Ownership Plan. Mr. Hammond joined the Company in September 1995.
(2) Bonuses were paid in February 1998.
(3) Comprised entirely of country club dues.
(4) Includes contributions to the Company's 401(k) plan totaling $14,106 and
premium payments on an individual flexible premium deferred variable
annuity totaling $7,127.
(5) Comprised entirely of contributions to the Company's 401(k) plan.
</TABLE>
-83-
<PAGE> 47
OPTION GRANTS IN 1997
The following table sets forth stock options granted to the Company's
Chairman, President and Chief Executive Officer and named executive officers
during 1997.
<TABLE>
<CAPTION>
Individual Grants
- -----------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees in
Options Granted 1997 Exercise Price Expiration Grant Date Present
Name (1) Per Share Date Value (2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John P. Driscoll 5,700 41.3 $ 10.83 January 2007 $ 18,582
J. David Hammond 3,000 21.7 10.83 January 2007 9,780
<FN>
(1) Options were granted on January 21, 1997 under the Company's 1991 Long Term
Incentive and Capital Accumulation Plan, and are exercisable 50% per year
after date of grant.
(2) The Black-Scholes option pricing model was used to calculate the grant date
present value. Significant assumptions are as follows:
- expected stock price volatility 26.61%
- risk-free rate of return 5.70%
- expected dividend yield 1.32%
- Expected time of exercise 5 years
</TABLE>
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR END OPTION VALUES
The following table sets forth information with respect to the Chief
Executive Officer and named executive officers, concerning exercises of stock
options during 1997 and the number and value of unexercised options held at
December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at December
Shares at December 31, 1997 31, 1997 (2)
Acquired Value -------------------------------- ----------------------------------
Name on Exercise (#) Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John P. Driscoll 0 0 28,400 16,100 $ 394,640 182,255
J. David Hammond 0 0 450 4,800 5,047 48,822
<FN>
(1) Market value of underlying securities at exercise, minus the exercise
price.
(2) Market value of underlying securities at December 31, 1997, minus the
exercise price.
</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.
The 1995 Non-Employee Directors Warrant Plan (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. Under the Warrant Plan, those outside
directors receive warrants (or options) to purchase shares of Common Stock only
if the Company achieves specified performance levels. The total number of shares
that may be issued pursuant to warrants granted under the Warrant Plan shall not
exceed 75,000. Each warrant that is granted vests and becomes exercisable over a
three-year period in increments of one-third on each anniversary of the grant
date. In April 1997, 13,500 warrants were granted at an exercise price of $12.83
per share.
-84-
<PAGE> 48
Employment Agreements
- ---------------------
Mr. Driscoll has an employment agreement with the Company and the Bank
which provides for an annual adjustment in Mr. Driscoll's salary as determined
by the Board of Directors based upon an annual review of his compensation. The
Board of Directors has set Mr. Driscoll's base salary for 1998 at $138,000. Mr.
Driscoll is also entitled to receive cash bonuses based on the Company's
attainment of specific levels of earnings per share, and as the Board, in its
discretion, may award.
Under his agreement, Mr. Driscoll will receive a continuation of his
salary and benefits for three 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 also entered into agreements with J. David
Hammond, Executive Vice President, and William Welch, J. Daniel Mohr and Karen
Lockwood, Vice Presidents, pursuant to which they will receive a continuation of
their respective salaries and benefits for eighteen months (twenty-four in the
case of Mr. Hammond) if a "change in control" of the Company occurs.
The named executive officers, like all eligible employees of the Bank,
are entitled to receive a bonus tied to specified target levels of the Company's
earnings per share, as well as to individual and departmental goals.
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, 1992 and reinvestment of
all dividends. The following graph 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 Skaneateles Bancorp NASDAQ US NASDAQ Banks
.......................................................................
<S> <C> <C> <C>
1992 100 100 100
1993 100 115 114
1994 120 112 114
1995 156 159 169
1996 183 195 223
1997 381 240 377
</TABLE>
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, as amended) 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>
Amount and Nature of Beneficial Percent of
Name and Address of Beneficial Owner Ownership (1) Class
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey L. Gendell 132,300 (2) 9.19
Tontine Partners, L.P.
31 West 52nd Street, 17th Floor
New York, NY 10019
</TABLE>
-85
<PAGE> 49
<TABLE>
<S> <C> <C>
Dimensional Fund Advisors 90,000 (3) 6.25
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All current directors and executive officers as a
group (13 persons)
145,074 9.82
</TABLE>
(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 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 20, 1998. 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 Employee Stock Option
and Director's Warrant Plans. As of February 20, 1998, executive officers
as a group held vested options to purchase 38,675 shares. There were no
vested warrants as of this date. See "Compensation of Executive Officers."
(2) As reported by Jeffrey L. Gendell and Tontine Financial 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 132,300 shares
reported above, Mr. Gendell reported sole dispositive powers as to 52,500
shares, and both Mr. Gendell and Tontine reported shared voting and
dispositive powers as to 79,800 shares.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 90,000 shares of Common
Stock as of December 31, 1997, 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 Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
Sole Voting Power: 49,950 shares*
Shared Voting Power: 0
Sole Dispositive Power: 90,000
Shared Dispositive Power: 0
* Persons who are officers of Dimensional Fund Advisors Inc. also serve as
officers of DFA Investment Dimensions Group Inc., (the "Fund") and the DFA
Investment Trust Company (the "Trust"), each an open-end management
investment company registered under the Investment Company Act of 1940. In
their capacity as officers of the Fund and the Trust, these persons vote
25,200 additional shares which are owned by the Fund and 14,850 shares which
are owned by the trust (both included in "Sole Dispositive Power" above).
Item 13. Certain Relationships and Related Transactions
Indebtedness of Management
Skaneateles may make loans to directors and any executive officers of
the Company to the extent permitted by banking law. Any extensions of credit,
whether past or future, to directors or executive officers of the Company are
made in the ordinary course of business on substantially the same terms,
including interest rates, collateral and repayment terms, as those prevailing at
the time for comparable transactions with other persons, and do not involve more
than the normal risk of collectibility or present other unfavorable features.
-86-
<PAGE> 1
Exhibit 21
LIST OF REGISTRANT'S SUBSIDIARIES
-87-
<PAGE> 2
Exhibit 21
List of Registrant's Subsidiaries
- ---------------------------------
Skaneateles Savings Bank, New York State-chartered.
-88-
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-89-
<PAGE> 2
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Skaneateles Bancorp, Inc.:
We consent to incorporation by reference in the registration statement Nos.
33-37281, 33-37282, 33-92198 and 333-20445 on Form S-8 and 333-18287 on Form
S-3 of Skaneateles Bancorp, Inc. of our report dated January 12, 1998,
relating to the consolidated balance sheets of Skaneateles Bancorp, Inc. and
subsidiary as of December 31, 1997 and 1996, 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, 1997, which report has been
incorporated by reference in the December 31, 1997 annual report on Form 10-K
of Skaneateles Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
Syracuse, New York
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM FINANCIAL STATEMENTS
INCLUDED WITHIN THE COMPANY'S 1997 ANNUAL REPORT TO THE STOCKHOLDERS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,658
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,416
<INVESTMENTS-CARRYING> 7,705
<INVESTMENTS-MARKET> 7,935
<LOANS> 215,022
<ALLOWANCE> 2,560
<TOTAL-ASSETS> 256,101
<DEPOSITS> 218,018
<SHORT-TERM> 9,204
<LIABILITIES-OTHER> 2,355
<LONG-TERM> 8,853
0
0
<COMMON> 14
<OTHER-SE> 17,657
<TOTAL-LIABILITIES-AND-EQUITY> 256,101
<INTEREST-LOAN> 17,553
<INTEREST-INVEST> 1,198
<INTEREST-OTHER> 214
<INTEREST-TOTAL> 18,965
<INTEREST-DEPOSIT> 8,244
<INTEREST-EXPENSE> 9,435
<INTEREST-INCOME-NET> 9,530
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,308
<INCOME-PRETAX> 2,571
<INCOME-PRE-EXTRAORDINARY> 2,571
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,662
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.11
<LOANS-NON> 3,917
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 779
<ALLOWANCE-OPEN> 2,114
<CHARGE-OFFS> 573
<RECOVERIES> 519
<ALLOWANCE-CLOSE> 2,560
<ALLOWANCE-DOMESTIC> 2,560
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
