<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
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Commission File Number 0-18513
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SKANEATELES BANCORP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1368745
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 E. Genesee St., Skaneateles, New York, 13152
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(Address of principal executive offices-Zip code)
Registrant's telephone number, including area code 315-685-2265
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
----- -----
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 11, 1998
---------------------------------
Common Stock (par value $.01 per share) 1,442,614 Shares
1
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PART I. FINANCIAL INFORMATION Page
- ----------------------------- ----
Item 1. Consolidated Financial Statements
------
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
------- Market Risk 17
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 18
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Item 2. Changes in Securities 18
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Item 3. Defaults Upon Senior Securities 18
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Item 4. Submission of Matters to a Vote of Security Holders 18
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Item 5. Other Information 19
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Item 6. Exhibits and Reports on Form 8-K 19
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SIGNATURES 20
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2
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<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
Cash and due from banks $ 6,815 9,658
Federal funds sold 12,700 6,700
Securities available for sale, at fair value 7,347 8,416
Securities held to maturity, fair value of
$7,790 in 1998 and $7,935 in 1997 7,571 7,705
Federal Home Loan Bank stock, at cost 1,561 1,561
Mortgage loans 149,099 153,312
Other loans and leases 65,085 61,243
- -----------------------------------------------------------------------------------------------------------
214,184 214,555
Net deferred costs 475 467
Allowance for loan losses (2,589) (2,560)
- -----------------------------------------------------------------------------------------------------------
Loans, net 212,070 212,462
Premises and equipment, net 6,153 6,155
Real estate owned, net 892 951
Accrued interest receivable 1,273 1,372
Other assets 1,223 1,121
- -----------------------------------------------------------------------------------------------------------
$ 257,605 256,101
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Liabilities:
Interest bearing deposits $ 197,450 196,213
Demand deposits 20,897 20,236
- -----------------------------------------------------------------------------------------------------------
Total deposits 218,347 216,449
Advance payments by borrowers for property taxes and insurance 1,081 1,569
Borrowings 18,286 18,057
Accrued expenses and other liabilities 1,920 2,355
- -----------------------------------------------------------------------------------------------------------
Total liabilities 239,634 238,430
- -----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 500,000 shares, none issued 0 0
Common stock, par value $.01 per share, authorized 2,500,000 shares,
1,440,122 and 1,435,992 shares issued in 1998 and 1997, respectively
14 14
Additional paid-in capital 9,170 9,119
Retained earnings 8,819 8,573
Accumulated other comprehensive income (32) (35)
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,971 17,671
- -----------------------------------------------------------------------------------------------------------
$ 257,605 256,101
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended March 31,
1998 1997
- ----------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
Interest income:
<S> <C> <C>
Mortgage loans $2,988 3,227
Other loans 1,493 1,005
Securities 279 294
Federal funds sold 124 46
- ----------------------------------------------------------------------------------------
Total interest income 4,884 4,572
- ----------------------------------------------------------------------------------------
Interest expense:
Deposits 2,086 2,040
Borrowings 290 290
- ----------------------------------------------------------------------------------------
Total interest expense 2,376 2,330
- ----------------------------------------------------------------------------------------
Net interest income 2,508 2,242
Provision for loan losses 100 100
- ----------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2,408 2,142
- ----------------------------------------------------------------------------------------
Other operating income :
Net gain on sale of loans 21 50
Service charges 365 297
Other 84 74
- ----------------------------------------------------------------------------------------
Total other operating income 470 421
- ----------------------------------------------------------------------------------------
2,878 2,563
- ----------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 949 886
Building, occupancy and equipment 397 305
Data processing 134 81
Correspondent bank fees 129 91
Advertising and promotions 68 47
Postage and delivery 130 147
Stationery and supplies 63 49
Deposit insurance 5 6
Real estate owned, net 34 7
Other 432 320
- ----------------------------------------------------------------------------------------
Total other operating expenses 2,341 1,939
- ----------------------------------------------------------------------------------------
Income before income taxes 537 624
Income tax 190 222
- ----------------------------------------------------------------------------------------
Net income $ 347 402
- ----------------------------------------------------------------------------------------
Net income per common share - basic $ 0.24 0.28
Net income per common share - diluted $ 0.23 0.28
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Additional other
Common paid-in- Retained comprehensive
stock capital earnings income Total
- ---------------------------------------------------------------------------------------------------
(In Thousands)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 9 8,978 7,300 (57) 16,230
Comprehensive Income:
Net income 0 0 402 0 402
Change in net unrealized gain on securities,
net of tax effect of $2 0 0 0 (7) (7)
- --------------------------------------------------------------------------------------------------
Total comprehensive income 0 0 402 (7) 395
Sale of 4,200 shares under option 1 24 0 0 25
Issuance of 996 shares of stock under
1995 Non-employee Director's Stock Plan 0 11 0 0 11
Issuance of 742 shares of stock under
Dividend Reinvestment Plan 0 9 0 0 9
Cash dividend declared on
Common stock ($.07 per share) 0 0 (95) 0 (95)
- --------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ 10 9,022 7,607 (64) 16,575
===================================================================================================
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 14 9,119 8,573 (35) 17,671
Comprehensive Income:
Net income 0 0 347 0 347
Change in net unrealized gain on securities,
net of tax effect of $2 0 0 0 3 3
- --------------------------------------------------------------------------------------------------
Total comprehensive income 0 0 347 3 350
Sale of 2,605 shares under option 0 21 0 0 21
Issuance of 685 shares of stock under
1995 Non-employee Director's Stock Plan 0 15 0 0 15
Issuance of 482 shares of stock under
Dividend Reinvestment Plan 0 9 0 0 9
Issuance of 358 shares of stock under
1997 Employee Stock Purchase Plan 0 6 0 0 6
Cash dividend declared on
Common stock ($.07 per share) 0 0 (101) 0 (101)
- --------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $ 14 9,170 8,819 (32) 17,971
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
1998 1997
- --------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Operating activities
Net Income $ 347 402
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 100 100
Provision for losses on real estate owned 30 0
Depreciation and amortization 197 160
Mortgage loans originated for sale (2,637) (888)
Proceeds from sale of loans originated for sale 2,547 1,440
Net (increase) decrease in interest receivable 99 (74)
Net decrease in other liabilities (436) (756)
Loss on disposal of computer equipment 38 0
Other, net (217) (279)
- --------------------------------------------------------------------------------------------------
Total adjustments (279) (297)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 68 105
Investing activities
Proceeds from maturities of securities available for sale 1,000 4
Proceeds from maturities of securities held to maturity 30 262
Principal collected on asset-backed securities 239 364
Purchase of Federal Home Loan Bank stock 0 (151)
Net increase in loans made to customers 357 (1,161)
Proceeds from sale of real estate owned 54 0
Purchase of property and equipment, net (180) (48)
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,500 (730)
Financing activities:
Net decrease in time certificates (682) (2,885)
Net increase in other deposits 2,092 2,549
Increase (decrease) in overnight borrowings 234 (254)
Increase in long-term borrowings 0 500
Repayment of long-term borrowings (5) (260)
Proceeds from issuance of stock pursuant to stock plans 51 45
Dividends paid (101) (95)
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,589 (400)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,157 (1,025)
Cash and cash equivalents at beginning of period 16,358 9,526
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 19,515 8,501
==================================================================================================
Interest paid 2,370 2,324
Income taxes paid 14 3
Supplemental schedule of noncash investing activities:
Mortgage loans foreclosed and transferred to real estate owned 25 0
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
SKANEATELES BANCORP, INC.
Notes to Consolidated Financial Statements
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 preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
The data in the consolidated balance sheet for December 31, 1997 was derived
from the Company's 1997 Annual Report to Stockholders. That data, along with the
other interim financial information presented in the consolidated balance
sheets, statements of income, statements of stockholders' equity and cash flows
should be read in conjunction with the consolidated financial statements,
including the notes thereto, contained in the 1997 Annual Report to
Stockholders.
Opinion of Management
The interim financial statements of the Company included in this Report reflect
all adjustments which are, in the opinion of management, necessary to present a
fair statement of the financial condition of the Company. All adjustments made
to the interim financial statements were of a normal recurring nature.
The following summarizes the significant accounting policies of the Company:
a) Basis of Presentation
The consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany balances and transactions are eliminated
in consolidation.
b) Securities
The Company classifies its debt securities as either available-for-sale or
held-to-maturity. Equity securities are classified as available-for-sale.
Held-to-maturity securities are those debt securities that the Company has the
ability and intent to hold until maturity. All other securities not included as
held-to-maturity are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized gains or losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity. The unrealized gains or losses
included in the separate component of equity for securities transferred from
available-for-sale to held-for-maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment of yield using the effective interest method. Interest
income is recognized when earned. Purchases and sales are recorded on a trade
date basis with settlement occurring shortly thereafter. Realized gains and
losses on securities sold are derived using the specific identification method
for determining the cost of securities sold.
7
<PAGE> 8
1. Summary of Significant Accounting Policies, cont.
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 deferred as an adjustment of loan principal and
amortized over the life of the related loan as an adjustment of yield using the
interest method.
The Bank originates some mortgage loans with the intent to sell. These loans are
carried at the lower of aggregate cost or fair value. Gains or losses on sales
of mortgages are recorded equal to the difference between sales proceeds and the
carrying value of the loans. The Bank typically retains the servicing rights to
mortgages sold.
d) Allowance for Loan Losses
The allowance for loan losses consists of the provision charged to operations
based upon past loan loss experience, management's evaluation of the loan
portfolio under current economic conditions and such other factors that require
current recognition in estimating loan losses. Loan losses and recoveries of
loans previously written-off are charged or credited to the allowance as
incurred or realized, respectively.
Management believes that the allowance for loan losses is adequate. Management
uses presently available information to recognize losses on loans; however,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses and may require the Company to recognize additions to the allowance based
on their judgment of information available to them at the time of their
examination.
The Company 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.
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. Troubled debt restructurings involving a modification
of terms are recorded at fair value as of the date of the transaction. The
Company recognizes interest income on impaired loans using the cash basis of
income recognition. Cash receipts on impaired loans are generally applied
according to the terms of the loan agreement, or as a reduction of principal,
based upon management judgment and the related factors discussed above.
8
<PAGE> 9
1. Summary of Significant Accounting Policies, cont.
e) 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.
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>
Quarter ended March 31, 1998
----------------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
---------------- ----------------- -----------------
Basic earnings per share:
<S> <C> <C> <C>
Net income $ 347 1,438,344 $ .24
Effect of assumed exercise of stock options and warrants 0 58,001
Diluted earnings per share:
Income available to common shareholders
---------------- ----------------- -----------------
and assumed exercise of stock options and warrants $ 347 1,496,345 $ .23
================ ================= =================
</TABLE>
<TABLE>
<CAPTION>
Quarter ended March 31, 1997
----------------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
---------------- ----------------- -----------------
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 402 1,424,792 $ .28
Effect of assumed exercise of stock options 0 34,554
Diluted earnings per share:
Income available to common shareholders
---------------- ----------------- -----------------
and assumed exercise of stock options $ 402 1,459,346 $ .28
================ ================= =================
</TABLE>
f) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash,
amounts due from banks and federal funds sold.
g) Reclassifications
Certain reclassifications have been made to prior period amounts for consistency
in reporting.
h) New Accounting Pronouncements
Effective January 1, 1998, the Company adopted the remaining provisions of
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which relate to the accounting for securities lending, repurchase agreements,
and other secured financing activities. These provisions, which were delayed for
implementation by SFAS No. 127, are not expected to have a material impact on
the Company. In addition, the FASB is considering certain amendments and
interpretations of SFAS No. 125 which, if enacted in the future, could affect
the accounting for transactions within their scope.
9
<PAGE> 10
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the mark to market
adjustment on securities available for sale, foreign currency items and minimum
pension liability adjustments. At the Company, comprehensive income represents
net income plus other comprehensive income, which consists of the net change in
unrealized gains or losses on securities available for sale for the period.
Accumulated other comprehensive income represents the net unrealized gains or
losses on securities available for sale as of the balance sheet dates.
Comprehensive income for the three-month periods ended March 31, 1998 and 1997
was $350,000 and $395,000, respectively. The components of comprehensive income
for the quarters ended March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income 347 402
Other comprehensive income:
Unrealized holding gain (loss)
on securities, before tax 5 (9)
Income tax (expense) benefit (2) 2
- -------------------------------------------------------------------------------------------
Other comprehensive income, net of tax 3 (7)
- -------------------------------------------------------------------------------------------
Comprehensive Income $ 350 395
- -------------------------------------------------------------------------------------------
</TABLE>
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 key
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific information to
be reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. 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. The new standard is not expected to result in significant
changes in the Company's reporting.
10
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION &
-------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
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 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
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.
The Company reported in its 1997 Annual Report to Stockholders that it expected
to spend as much as $900,000 in order to get the Bank's systems ready for
processing in the year 2000. That estimate was based on management's assumption
that the Bank's core data processing system would need to be replaced. It now
appears, based on statements and representations made by the vendor, that the
Bank's existing system can be remediated such that it will be able to process
transactions properly in the year 2000. Testing of the remediated software is
scheduled for the third quarter of 1998. If successful, the Company's estimated
expense associated with the entire Year 2000 project is now reduced to
approximately 956646917$400,000. Included in this amount is approximately
956646918$280,000 that has already been expended to date, $180,000 of which was
to purchase new computer equipment. If the Bank's testing reveals the software
is in fact not Year 2000 ready, the Company's Year 2000 costs will likely rise
to the original $900,000 estimate.
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.
11
<PAGE> 12
Changes in Financial Condition from
-----------------------------------
December 31, 1997 to March 31, 1998
-----------------------------------
ASSETS
- ------
Consolidated assets of the Company were $257.6 million at March 31, 1998, a $1.5
million or .6% increase from December 31, 1997.
LOANS
- -----
Gross loans were $214.2 million at March 31, 1998, a decrease of $371,000 from
December 31, 1997. Residential mortgages outstanding decreased $3.9 million in
the first quarter, while commercial loans and mortgages increased $2.7 million
and consumer loans increased $868,000.
Total loan closings (including undisbursed funds) were $16.1 million in the
first quarter, compared with $10.8 million in the year ago quarter, an
increase of 48.7%. Commercial loan originations increased 94.1%, to $8 million
in the first quarter of 1998 compared with the year ago quarter. Residential
mortgage originations increased $1.9 million or 71%, due in part to an increase
in refinancings. Consumer loan originations decreased $448,000 or 10.9% to $3.7
million in the first quarter.
Total loans outstanding were down slightly from year-end due to an increase in
prepayments and refinances of residential mortgages, which exceeded $5 million
during the quarter, and to the sale of fixed rate mortgages. Fixed rate
residential mortgage originations totaled $4 million in the first quarter. The
Company generally sells fixed rate mortgages on the secondary market when rates
are low to control its interest rate risk. The Bank in most cases retains the
servicing on sold loans.
The increase in commercial loan activity is a direct result of the Bank's
efforts to expand its commercial portfolio. The Bank sees its market niche for
commercial loans as being small to mid sized businesses in central New York,
including corporations, partnerships and sole proprietorships, and has been
actively focusing its sales efforts to this piece of the market.
The decrease in consumer lending compared with the year ago quarter is a matter
of timing and does not reflect a trend. The Bank's direct marketing and
cross-selling program and its indirect lending program continue to yield
positive results. At March 31, 1998 the pipeline of consumer loan applications
in process was $2.6 million, compared with $1.1 million at March 31, 1997.
The results of the first quarter are indicative of what may occur throughout
1998 if interest rates remain low. The increase in mortgage prepayments and
refinancings, coupled with the overwhelming demand for fixed rate mortgages over
adjustable rates, is likely to continue absent an increase in rates. As a
result, the accelerated runoff in the Bank's residential mortgage portfolio will
hamper overall portfolio growth.
The following table sets forth the composition of Skaneateles' loan portfolio by
loan type as of the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------- --------------------- -------------------- ----------------------
1998 1997 1997 1996
----------------------------- --------------------- -------------------- ----------------------
Amount % Amount % Amount % Amount %
----------------------------- --------------------- -------------------- ----------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by first mortgages
on real estate:
Residential $115,402 53.88% 127,956 57.11% 119,350 55.63% 129,651 67.80%
Commercial 33,697 15.73% 32,515 15.46% 33,962 15.83% 31,728 15.94%
Other loans:
Commercial loans & leases 25,969 12.13% 18,460 9.89% 22,995 10.72% 18,861 6.20%
Home equity and improvement 19,410 9.06% 18,244 9.34% 20,624 9.61% 17,599 8.50%
Guaranteed student 1,140 0.53% 921 0.45% 1,059 0.49% 882 0.50%
Other consumer 18,566 8.67% 9,103 7.75% 16,565 7.72% 7,924 1.06%
- ------------------------------------------------------------------------------------------------------------------------------
Total $214,184 100.00% 207,199 100.00% 214,555 100.00% 206,645 100.00%
==============================================================================================================================
</TABLE>
The allowance for loan losses was $2.6 million at March 31, 1998. Loan loss
provisions of $100,000 in the first quarter of 1998 were partially offset by net
charge-offs totaling $71,000.
12
<PAGE> 13
The following table sets forth the activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- --------------------------------
1998 1997 1997 1996 1995
---------- ------ -------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 2,560 2,114 2,114 2,667 3,040
Provision
100 100 500 175 235
Charge-offs
- -----------
Residential mortgages (16) 0 (92) (74) 0
Commercial mortgages 0 (188) (237) (168) (569)
Business (36) (12) (137) (999) (153)
Other consumer (31) (70) (107) (60) (10)
- -----------------------------------------------------------------------------------------------
(83) (270) (573) (1,301) (732)
- -----------------------------------------------------------------------------------------------
Recoveries
- ----------
Residential mortgages 0 0 2 0 0
Commercial mortgages 0 3 5 0 0
Business 5 6 496 118 118
Other consumer 7 6 16 8 6
- -----------------------------------------------------------------------------------------------
12 15 519 126 124
- -----------------------------------------------------------------------------------------------
Net Charge-offs (71) (255) (54) (1,175) (608)
- -----------------------------------------------------------------------------------------------
Allowance of Cicero Bank
at time of acquisition 0 0 0 447 0
- -----------------------------------------------------------------------------------------------
Ending Balance $ 2,589 1,959 2,560 2,114 2,667
================================================================================================
Ratio of net charge-offs
to average loans outstanding 0.03% 0.12% 0.03% 0.62% 0.36%
- -----------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
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>
March 31, December 31,
-----------------------------------------------
1998 1997 1997 1996 1995
------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Residential real estate mortgages $ 1,122 1,379 1,091 1,359 271
Commercial (1) 2,926 1,401 2,573 1,626 1,757
Consumer 249 171 253 186 110
- -----------------------------------------------------------------------------------------------------------
Total $ 4,297 2,951 3,917 3,171 2,138
===========================================================================================================
Other loans past due 90 days or more and still accruing:
Consumer (2) 0 42 0 29 1
Commercial (1) 0 266 0 370 0
- -----------------------------------------------------------------------------------------------------------
Total $ 0 308 0 399 1
===========================================================================================================
Restructured loans, not included above 0 0 0 0 1,125
===========================================================================================================
Real estate owned, net 892 717 951 717 397
===========================================================================================================
Total assets containing specific risk elements $5,189 3,976 4,868 4,287 3,661
===========================================================================================================
Ratio of total loans past due
90 days or more to gross loans 2.01% 1.57% 1.83% 1.73% 1.25%
===========================================================================================================
Ratio of assets containing specific
risk elements to total assets 2.01% 1.65% 1.90% 1.77% 1.74%
===========================================================================================================
</TABLE>
(1) Includes commercial real estate loans
(2) Consists primarily of Guaranteed Student
Loans
Nonperforming assets (nonaccrual loans and real estate owned) totaled $5.2
million, or 2.0% of total assets at March 31, 1998, compared with $4.9 million,
or 1.9% of total assets at December 31, 1997, and $3.7 million, or 1.5% at March
31, 1997. Included in nonperforming assets at March 31, 1998 were nonaccrual
loans of $4.3 million or 2.0% of gross loans, compared with $3.9 million or 1.8%
at December 31, 1997 and $3.0 million or 1.4% at March 31, 1997.
At March 31, 1998, nonaccrual loans were comprised of 26% residential mortgages,
68% commercial loans and mortgages and 6% consumer loans. Approximately $1.7
million of the commercial nonaccrual loans are secured by real estate, and
another $261,000 in commercial nonaccrual loans are guaranteed 75% by the Small
Business Administration.
The allowance for loan losses covered 60% of nonaccrual loans at March 31, 1998,
compared with coverage of 65% at December 31, 1997 and 66% at March 31, 1997.
Impaired loans, which included troubled debt restructured loans, were
$2.4 million and $839,000 at March 31, 1998 and 1997, respectively. Included in
these amounts are $1.5 million and $443,000 of impaired loans for which the
related allowance for loan losses is $357,000 and $83,000, respectively. In
addition, included in the total impaired loans at March 31, 1998 and 1997 are
$927,000 and $396,000, respectively, 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 the first quarter of
1998 and 1997 was approximately $2.2 million and $1.1 million, respectively.
14
<PAGE> 15
The amount of interest income recognized on impaired loans for the three months
ended March 31, 1998 was approximately $4,000. The Company did not recognize any
interest income on impaired loans in the first quarter of 1997. The Bank is not
committed to lend additional funds to these borrowers.
Potential problem loans at March 31, 1998 amounted to $994,000. "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 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.
DEPOSITS
- --------
Total deposits (including advance payments by borrowers for property taxes and
insurance) were $219.4 million at March 31, 1998, compared with $218 million at
December 31, 1997 and $204.7 million at March 31, 1997.
The Bank's deposit strategy has focused on growing its low cost transaction
account base (savings, checking and NOW accounts), while reducing its reliance
on time certificates. An ongoing direct mail marketing program that was
implemented in February 1996 supports this strategy. Transaction accounts
(including escrow) comprised 41.1% of total deposits at March 31, 1998, up from
40.1% at December 31, 1997 and 38.1% at March 31, 1997. The direct mail program
is an integral part of the Bank's plan to increase its lower costing
transaction account base and reduce its dependence on higher costing time
deposits. In addition to reducing the Bank's cost of funds, transaction accounts
provide a more stable funding source than time accounts and the Bank earns
service fee income on most transaction accounts.
The following table sets forth deposits by type of account as of the dates
indicated.
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------------------------- ------------------------------------------
1998 1997 1997 1996
---------------------- --------------------- --------------------- --------------------
Percent Percent Percent Percent
of total of total of total of total
Amount deposits Amount deposits Amount deposits Amount deposits
---------------------- --------------------- --------------------- --------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and club accounts $ 43,890 20.00% 40,407 19.74% 42,451 19.47% 38,690 18.87%
Time certificates 104,390 47.58% 104,544 51.08% 105,072 48.19% 107,429 52.39%
Money market accounts 24,914 11.36% 22,115 10.80% 24,234 11.12% 21,991 10.73%
NOW accounts 24,256 11.05% 21,354 10.43% 24,456 11.22% 20,314 9.91%
Demand accounts 20,897 9.52% 15,230 7.44% 20,236 9.28% 14,861 7.25%
Escrow accounts 1,081 0.49% 1,043 0.51% 1,569 0.72% 1,744 0.85%
- ----------------------------- -------------------------------------------------------------------------------------
Total $219,428 100.00% 204,693 100.00% 218,018 100.00% 205,029 100.00%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
STOCKHOLDERS' EQUITY
- --------------------
Stockholders' equity at March 31, 1998 was $18.0 million, or $12.48 per share,
compared with $17.7 million or $12.31 per share at December 31, 1997 and $16.6
million or $11.61 at March 31, 1997. At March 31, 1998, the Bank's leverage
capital ratio was 6.78% and its risk-based capital ratio was 11.35%. Both
capital measurements were in excess of regulatory requirements.
In April 1998 the Company declared a dividend of $.07 per share payable on May
19, 1997 to shareholders of record on May 5.
15
<PAGE> 16
COMPARISON OF THE RESULTS OF OPERATIONS
---------------------------------------
GENERAL
- -------
Net income was $347,000 or $.23 per diluted share for the first quarter of 1998,
compared with $402,000 or $.28 per diluted share for the same period in 1997. A
$266,000 increase in net interest income and a $49,000 increase in other
operating income was offset by an increase in other operating expenses of
$402,000.
NET INTEREST INCOME
- -------------------
Net interest income is affected by the difference between the yield earned on
interest earning assets and rates paid on interest bearing deposits and
borrowings. The relative amounts of interest earning assets, interest bearing
deposits, and borrowings also impact net interest income levels.
The following table sets forth, for the three months ended March 31, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resulting average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost;
(iii) net interest income; (iv) interest rate spread; (v) net interest-earning
assets; (vi) net yield on interest-earning assets; and (vii) ratio of
interest-earning assets to interest-bearing liabilities. Nonaccruing loans,
which are immaterial, have been included in interest earning-assets. No tax
equivalent adjustments were made.
<TABLE>
<CAPTION>
1998 1997
------------------------------------ -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------------------------------ -----------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $ 151,293 2,988 7.90% 160,538 3,227 8.04%
Other loans 63,260 1,493 9.57% 45,321 1,005 8.99%
- --------------------------------------------------------------------------------------------------------------------
Total loans 214,553 4,481 8.39% 205,859 4,232 8.25%
- --------------------------------------------------------------------------------------------------------------------
Securities 17,500 279 6.47% 18,075 294 6.60%
Federal funds sold 9,043 124 5.56% 2,550 46 7.32%
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 241,096 4,884 8.15% 226,484 4,572 8.11%
- --------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 13,936 0 13,421 0
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 255,032 4,884 239,905 4,572
====================================================================================================================
Interest-bearing liabilities:
Deposits:
Savings and club accounts $ 42,798 303 2.87% 39,018 274 2.85%
Time certificates 104,944 1,431 5.53% 106,998 1,476 5.59%
Money market accounts 24,614 228 3.76% 21,382 180 3.41%
Now and escrow accounts 24,372 124 2.06% 21,146 110 2.11%
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 196,728 2,086 4.30% 188,544 2,040 4.39%
- --------------------------------------------------------------------------------------------------------------------
Borrowings 18,407 290 6.39% 18,062 290 6.51%
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 215,135 2,376 4.48% 206,606 2,330 4.57%
Non-interest-bearing deposits 19,398 0 15,190 0
Non-interest-bearing liabilities 2,501 0 1,470 0
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 237,034 2,376 223,266 2,330
Stockholders' equity 17,998 0 16,639 0
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 255,032 2,376 239,905 2,330
=====================================================================================================================
Net interest income/
interest rate spread 2,508 3.67% 2,242 3.54%
=====================================================================================================================
Net interest-earning assets/
net yield on interest-earning
assets $ 25,961 4.16% 19,878 3.96%
=====================================================================================================================
Ratio of interest-earning assets
to interest-bearing liabilities 1.12 1.10
=====================================================================================================================
</TABLE>
Net interest income was $2.5 million for the three months ended March 31, 1998
compared with $2.2 million for the same period in 1997. The increase is
attributable to a $14.6 million increase in average earning assets combined with
a 20 basis point increase in the net interest margin.
16
<PAGE> 17
Average loans outstanding in the first quarter were $214.6 million, compared
with $205.9 million in the year ago quarter. All of this growth was in the
Bank's consumer and commercial loan portfolios, which increased a combined $20.2
million.
The Company's earning-asset yield was 8.15% in the first quarter of 1998,
compared with 8.11% in the year ago quarter.
The average cost of interest-bearing liabilities decreased 9 basis points due
mainly to a change in the mix of interest bearing deposits, and to a lower cost
of time certificates. Savings and NOW accounts, which are the Company's lowest
costing source of funds, grew to 34.1% of average interest bearing deposits in
the first quarter of 1998, from 31.9% in the year ago quarter.
The net interest margin, which is equal to net interest income divided by
average interest-earning assets, was 4.16% for the first quarter of 1998, up
from 3.96% in the year ago quarter.
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) income simulation; and iii) 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 1.05 at March 31, 1998.
OTHER OPERATING INCOME
- ----------------------
Total other operating income was $470,000 in the first quarter of 1998, an
increase of $49,000 or 11.6% from the first quarter of 1997. Gains on loan sales
decreased $42,000 or 84% as the first quarter of 1997 was benefited by an
infrequent sale of commercial loans. Service charges and other operating income
increased $91,000 or 24.5% due mainly to fee income generated by the growth in
the Company's checking and savings accounts.
OTHER OPERATING EXPENSES
- ------------------------
Total other operating expenses were $2.3 million for the quarter ended March 31,
1998, compared with $1.9 million for the same period in 1997. Costs relating to
the Company's Year 2000 project and other technology improvements added
approximately $100,000 of expense in the first quarter of 1998. Other increases
in operating expenses were due to higher customer transaction volume and the
costs of operating the North Medical branch, which opened in September 1997.
17
<PAGE> 18
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
------- Not applicable
ITEM 2. Changes in Securities
------- Not applicable
ITEM 3. Defaults Upon Senior Securities
------- Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders a) The
------- annual meeting of stockholders was held April 21, 1998.
b) The following four directors were elected: Walter D.
Copeland, John P. Driscoll, Carl W. Gerst, Jr., and
John Bernard Henry. The following directors have
continued their term of office: Israel Berkman, David
E. Blackwell, Ann G. Higbee, Howard J. Miller,
Raymond C. Traver, Jr., Anne E. O'Connor.
c) The following table summarizes the votes cast for
each matter voted upon:
<TABLE>
<CAPTION>
1. Election of Directors.
For Against/Withheld
--- ----------------
<S> <C> <C>
Walter D. Copeland 1,077,049 195,172
John P. Driscoll 1,077,649 194,572
Carl W. Gerst, Jr. 1,077,489 194,732
John Bernard Henry 1,077,649 194,572
<CAPTION>
2. Proposal to ratify the appointment by the Board of
Directors of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1998.
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
1,169,378 99,831 3,012
<CAPTION>
3. Proposal to amend the Company's certificate of
incorporation to increase the number of shares of
Common Stock, par value $.01 per share, which the
Corporation has authority to issue, from 2,500,000 to
4,000,000.
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
971,329 277,277 8,698
4. To ratify and approve the 1998 Stock Option Plan
<CAPTION>
For Against Abstain Broker non-vote
--- ------- ------- ---------------
<S> <C> <C> <C> <C>
752,106 265,494 16,130 238,491
5. To ratify and approve the 1998 Non-Employee Director Warrant Plan
<CAPTION>
For Against Abstain Broker non-vote
--- ------- ------- ---------------
<S> <C> <C> <C> <C>
702,883 313,294 17,853 238,191
</TABLE>
18
<PAGE> 19
ITEM 5. Other Information
On April 14, 1998, the Company declared a cash dividend of
$.07 per share, payable on May 19, 1998 to shareholders of
record on May 5.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
No. Exhibit
--- -------
3 (i) Certificate of Amendment of Certificate of
Incorporation of Skaneateles Bancorp, Inc.
3 (ii) Restated Certificate of Incorporation of
Skaneateles Bancorp, Inc.
27 Financial Data Schedule
b. On January 30, the Company filed a Form 8-K announcing the
location and time of its Annual Meeting of stockholders.
No financial statements were filed as parts of this
report.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKANEATELES BANCORP, INC.
-------------------------
(Registrant)
By: /s/ John P. Driscoll Date: May 12, 1998
-------------------------- ------------
John P. Driscoll
Chairman, President and Chief
Executive Officer
By: /s/ J. Daniel Mohr Date: May 12, 1998
-------------------------- ------------
J. Daniel Mohr
Chief Financial Officer
and Treasurer
20
<PAGE> 1
EXHIBIT 3 (i)
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SKANEATELES
BANCORP, INC.
21
<PAGE> 2
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
SKANEATELES BANCORP, INC.
Skaneateles Bancorp, Inc. (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 February 10, 1998, the Board of Directors of the
Corporation duly adopted a resolution to amend the Certificate of Incorporation
of the Corporation to increase the number of shares of common stock, par value
$.01 per share, which the Corporation has authority to issue, from 2,500,000 to
4,000,000. To effect such amendment, Article 4 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 4. CAPITAL STOCK. The total number of shares
of all classes of the capital stock which the Corporation has
authority to issue is four million five hundred thousand
(4,500,000), of which four million (4,000,000) shall be common
stock, par value $.01 per share and five hundred thousand
(500,000) shall be serial preferred stock, par value $.01 per
share. The shares may be issued by the Corporation from time
to time as approved by its board of directors without the
approval of its shareholders. The consideration for the
issuance of the shares shall be paid in full before their
issuance and shall not be less than the par value per share.
Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of the shares of the
Corporation. The consideration for the shares shall be cash,
services actually performed for the Corporation, personal
property, real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud
in the transaction, the value of such property, labor or
services, as determined by the board of directors of the
Corporation, shall be conclusive. Upon payment of such
consideration such shares shall be deemed to be fully paid and
nonassessable.
A description of the different classes and series of the
Corporation's capital stock and a statement of the
designations, and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the shares of
each class of and series of capital stock are as follows:
A. COMMON STOCK. Except as provided in this
Article 4 (or in any resolution or resolutions
adopted by the board of directors pursuant hereto),
the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of
common stock shall be entitled to one vote for each
share held by such holder, including the election of
directors. There shall be no cumulative voting rights
in the election of directors.
22
<PAGE> 3
Whenever there shall have been paid, or declared and
set aside for payment, to the holders of the
outstanding shares of any class of stock having
preference over the common stock as to the payment of
dividends, the full amount of dividends and of
sinking fund or retirement fund or other retirement
payments, if any, to which such holders are
respectively entitled in preference to the common
stock, then dividends may be paid on the common stock
and on any class or series of stock entitled to
participate therewith as to dividends, out of any
assets legally available for the payment of
dividends; but only when and as declared by the board
of directors
In the event of any liquidation, dissolution or
winding up of the Corporation, after there shall have
been paid to or set aside for the holders of any
class having preferences over the common stock in the
event of liquidation, dissolution or winding up of
the full preferential amounts of which they are
respectively entitled, the holders of the common
stock, and of any class or series of stock entitled
to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled after
payment or provision for payment of all debts and
liabilities of the Corporation, to receive the
remaining assets of the Corporation available for
distribution, in cash or in kind.
B. SERIAL PREFERRED STOCK. Except as
provided in this Section 4, the board of directors of
the Corporation is authorized by resolution or
resolutions from time to time adopted and by filing a
certificate pursuant to the applicable law of the
State of Delaware, to provide for the issuance of
serial preferred stock in series and to fix and state
the voting powers, full or limited, multiple,
fractional or no voting powers, and such
designations, preferences and relative,
participating, optional or other special rights of
the shares of each such series and the qualifications
limitations and restrictions thereof."
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 the date of filing.
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 21st day of April, 1998.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
------------------------------------------------
23
<PAGE> 1
EXHIBIT 3 (ii)
RESTATED CERTIFICATE OF INCORPORATION OF SKANEATELES BANCORP, INC.
25
<PAGE> 2
STATE OF DELAWARE
RESTATED CERTIFICATE OF INCORPORATION
OF
SKANEATELES BANCORP, INC.
The undersigned, being the Chairman of the Board, President and Chief Executive
Officer of Skaneateles Bancorp, Inc., formerly called Center Banks Incorporated
as evidenced by a Certificate of Incorporation dated December 8, 1987 and filed
with the Secretary of State on January 7, 1988, does hereby certify that the
following Restated Certificate of Incorporation was duly adopted by its board of
directors pursuant to Section 245 of the Delaware General Corporation Law:
Article 1. CORPORATE TITLE. The name of the corporation is Skaneateles
Bancorp, Inc. (the "Corporation").
Article 2. DURATION. The duration of the Corporation is perpetual.
Article 3. PURPOSE. The purpose or purposes for which the Corporation
is organized are to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
Article 4. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Corporation has authority to issue is four million
five hundred thousand (4,500,000), of which four million (4,000,000) shall be
common stock, par value $.01 per share and five hundred thousand (500,000) shall
be serial preferred stock, par value $.01 per share. The shares may be issued by
the Corporation from time to time as approved by its board of directors without
the approval of its shareholders. The consideration for the issuance of the
shares shall be paid in full before their issuance and shall not be less than
the par value per share. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of the shares of the
Corporation. The consideration for the shares shall be cash, services actually
performed for the Corporation, personal property, real property, leases of real
property or any combination of the foregoing. In the absence of actual fraud in
the transaction, the value of such property, labor or services, as determined by
the board of directors of the Corporation, shall be conclusive. Upon payment of
such consideration such shares shall be deemed to be fully paid and
nonassessable.
A description of the different classes and series of the Corporation's
capital stock and a statement of the designations, and the powers, preferences
and rights, and the qualifications, limitations and restrictions of the shares
of each class of and series of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Article 4 (or in any
resolution or resolutions adopted by the board of directors pursuant
hereto), the holders of the common stock shall exclusively possess all
voting power. Each holder of shares of common stock shall be entitled to
one vote for each share held by such holder, including the election of
directors. There shall be no cumulative voting rights in the election of
directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends, the
full amount of dividends and of sinking fund or retirement fund or other
retirement payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may be
26
<PAGE> 3
paid on the common stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available
for the payment of dividends; but only when and as declared by the board
of directors
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the
holders of any class having preferences over the common stock in the event
of liquidation, dissolution or winding up of the full preferential amounts
of which they are respectively entitled, the holders of the common stock,
and of any class or series of stock entitled to participate therewith, in
whole or in part, as to distribution of assets, shall be entitled after
payment or provision for payment of all debts and liabilities of the
Corporation, to receive the remaining assets of the Corporation available
for distribution, in cash or in kind.
B. SERIAL PREFERRED STOCK. Except as provided in this Section 4, the
board of directors of the Corporation is authorized by resolution or
resolutions from time to time adopted and by filing a certificate pursuant
to the applicable law of the State of Delaware, to provide for the issuance
of serial preferred stock in series and to fix and state the voting powers,
full or limited, multiple, fractional or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights of the shares of each such series and the qualifications
limitations and restrictions thereof.
Article 5. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Corporation shall not be entitled to preemptive rights with respect to any
shares or other securities of the Corporation which may be issued.
Article 6. DIRECTORS. The Corporation shall be under the direction of a
board of directors. The board of directors shall consist of not less than seven
directors nor more than 15 directors. The number of directors within this range
shall be as provided in the Corporation's bylaws, as may be amended from time to
time, and shall initially consist of ten directors. The board of directors shall
divide the directors into three classes and, when the number of directors is
changed, shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided, that the directors
in each class shall be as nearly equal in number as possible; provided, further,
that no decrease in the number of directors shall affect the term of any
director then in office.
The classification shall be such that the term of one class shall
expire each succeeding year. The Corporation's board of directors shall
initially be divided into three classes named Class I, Class II and Class III,
with Class I, II and III initially consisting of 4 directors, 3 directors and 3
directors, respectively. The terms, classifications, qualifications and election
of the board of directors and the filling of vacancies thereon shall be as
provided herein and in the bylaws.
Subject to the foregoing, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified.
Any vacancy occurring in the board of directors, including any vacancy
created by reason of an increase in the number of directors, shall be filled for
the unexpired term by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
No director may be removed except for cause and then only by an
affirmative vote of at least two-thirds of the total votes eligible to be voted
by shareholders at a duly constituted meeting of shareholders called for such
purpose.
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<PAGE> 4
At least 30 days prior to such meeting of shareholders, written notice
shall be sent to the director or directors whose removal will be considered at
such meeting. The term "cause" shall mean (i) conduct as a director of the
Corporation or any subsidiary involving willful material misconduct, breach of
material fiduciary duty involving personal profit, or gross negligence as to
material duties or (ii) conduct, whether or not as a director of the Corporation
or any subsidiary, involving dishonesty or breach of trust which is punishable
by imprisonment for a term exceeding one year under state or federal law.
No director shall be personally liable to the Corporation or its
shareholders for monetary damages for any breach of fiduciary duty by such
director as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware for approval of an unlawful dividend or an unlawful stock purchase
or redemption, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of this paragraph by the
shareholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation for acts or omissions occurring prior to the effective date of such
repeal or modification.
Article 7. BYLAWS. The board of directors or the shareholders may from
time to time amend the bylaws of the Corporation. Such action by the board of
directors shall require the affirmative vote of at least two-thirds of the
directors then in office at a duly constituted meeting of the board of directors
called for such purpose. Such action by the shareholders shall require the
affirmative vote of at least two-thirds of the total votes eligible to be voted
at a duly constituted meeting of shareholders called for such purpose.
Article 8. SPECIAL MEETINGS. Special meetings of shareholders may be
called at any time but only by the chairman of the board or the president of the
Corporation or by the board of directors of the Corporation or by the holders of
at least two-thirds of the outstanding shares of Voting Stock (as defined in
Subsection 5 of Article 10 hereof).
Article 9. REGISTERED OFFICE. The street address of the Corporation's
initial registered office in the State of Delaware is 1209 Orange Street, City
of Wilmington, County of New Castle, and the name of its initial registered
agent at such address is The Corporation Trust Company.
Article 10. APPROVAL FOR ACQUISITIONS OF CONTROL AND OFFERS TO ACQUIRE
CONTROL. The provisions of this Article 10 shall become effective upon the
consummation of the merger of Skaneateles Savings Bank (the "Bank"), a New York
chartered savings bank, and Skaneateles Interim Savings Bank, a New York
chartered savings bank, such that the Bank, as the resulting savings bank of
that merger, is a wholly-owned subsidiary of the Corporation. In the event that
thereafter the Bank (or any successor institution) ceases to be a majority-owned
subsidiary of the Corporation, this Article 10 shall thereupon cease to be
effective.
SUBSECTION 1. Three-Year Prohibition on Acquisitions of Control and Offers
to Acquire Control.
For the period ending three years after the consummation of the
conversion of the Bank from a mutual to a capital stock savings bank, such
period to expire on May 30, 1989, no Person shall acquire Control of the
Corporation, or make any Offer to acquire Control of the Corporation, unless
both such acquisition and Offer shall have been approved by at least two-thirds
of the directors then in office at a duly constituted meeting of the board of
directors of the Corporation called for such purpose. The terms "Person",
"Control" and "Offer" as used in this Article 10 are defined in subsection 5
hereof.
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<PAGE> 5
SUBSECTION 2. Shareholder Vote and Regulatory Approval Required for
------------- Acquisition of Control at Any Time.
No Person shall acquire Control of the Corporation at any time, unless
such acquisition has been approved prior to its consummation by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Voting
Stock (as defined in Subsection 5 hereof) at a duly constituted meeting of
shareholders called for such purpose. In addition, no Person shall acquire
Control of the Corporation at any time without obtaining prior thereto all
federal and state regulatory approvals, including any such approvals that may be
required under the Change in Bank Control Act (the "Control Act"), the Bank
Holding Company Act of 1956, as amended (the "Holding Company Act") and the
Banking Law of the State of New York (the "Banking Law"), or any successor
provisions of law, and in the manner provided by all applicable regulations of
the Federal Deposit Insurance Corporation (the "FDIC"), the Board of Governors
of the Federal Reserve (the "Federal Reserve Board") and the Banking Board of
the State of New York (the "Board"). In the event that Control is acquired
without obtaining all such regulatory approvals, such acquisition shall
constitute a violation of this Article 10 and the Corporation shall be entitled
to institute a private right of action to enforce such statutory and regulatory
provisions.
SUBSECTION 3. Excess Shares.
------------
In the event that Control of the Corporation is acquired in violation
of this Article 10, all shares of Voting Stock owned by the Person so acquiring
Control in excess of the number of shares the beneficial ownership of which is
deemed under subsection 5 hereof to confer Control of the Corporation shall be
considered from and after the date of their acquisition by such Person to be
"excess shares" for purposes of this Article 10. Such excess shares shall
thereafter no longer (i) be entitled to vote on any matter, (ii) be entitled to
take other shareholder action, (iii) be entitled to be counted in determining
the total number of outstanding shares for purposes of any matter involving
shareholder action, or (iv) be transferable except with the approval of the
board of directors or by an independent trustee appointed by the board of
directors for the purpose of having such excess shares sold on the open market
or otherwise. The proceeds from the sale by the trustee of such excess shares
shall be paid (i) first, to the trustee in an amount equal to the trustee's
reasonable fees and expenses, (ii) second, to the "beneficial owner" (as defined
in Article 12, Subsection 3, paragraph B hereof) of such excess shares in an
amount up to such owner's federal income tax basis in such excess shares, and
(iii) third, to the Corporation as to any remaining balance.
SUBSECTION 4. Approval Required for Offers to Acquire Control after
------------- Three Years.
After three years from the consummation of the conversion of the Bank
from a mutual to a capital stock savings bank, or after May 30, 1989, no Person
shall make any Offer to acquire Control of the Corporation, if the common stock
is then traded on a national securities exchange or quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System, unless such
Person has received prior approval to make such Offer by complying with either
of the following procedures:
A. The Offer shall have been approved by at least two-thirds of the
directors then in office at a duly constituted meeting of the board of directors
of the Corporation called for such purpose; or
B. The Person proposing to make such Offer shall have obtained
approval, as applicable, from the Federal Reserve Board, the FDIC, the Board and
the Superintendent of Banks of the State of New York, pursuant to the Control
Act, the Holding Company Act, the Banking Law or any other or successor
provisions of law, to acquire control of the Corporation.
SUBSECTION 5. Certain Definitions.
-------------
29
<PAGE> 6
For purposes of this Article 10:
A. "Control" means the sole or shared power to vote or to direct the
voting of, or to dispose or to direct the disposition of, 10 percent or more of
the Voting Stock; provided, that the solicitation, holding and voting of proxies
obtained by the board of directors of the Corporation pursuant to a solicitation
under Regulation 14A of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") shall not constitute
"Control."
B. "Group Acting in Concert" includes Persons seeking to combine or
pool their voting or other interests in the Voting Stock for a common purpose,
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise; provided, that a "Group Acting in
Concert" shall not include the board of directors of the Corporation in its
solicitation, holding and voting of proxies obtained by it pursuant to a
solicitation under Regulation 14A of the General Rules and Regulations under the
Exchange Act.
C. "Offer" means every offer to buy or acquire, solicitation of an
offer to sell, tender offer for, or request or invitation for tender of, Voting
Stock.
D. "Person" means any individual, firm, corporation or other entity
including a Group Acting in Concert.
E. "Voting Stock" means the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors.
SUBSECTION 6. Inapplicability to Public Offering or Employee Benefit
------------- Plans.
This Article 10 shall not apply to an acquisition or offer to acquire
securities of the Corporation (i) by underwriters in connection with a public
offering of such securities or (ii) by any employee stock purchase plan, pension
plan, profit sharing plan or other employee benefit plan of the Corporation or
any of its subsidiaries.
SUBSECTION 7. References to FDIC.
------------
In the event that the accounts of the Bank (or any successor
institution) or any other subsidiary financial institution of the Corporation
are insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"), all
references in this Article 10 to the FDIC shall be deemed to refer to the FDIC
or the FSLIC, as applicable, and related references to the Control Act, the
Holding Company Act and federal and state regulatory agencies shall be deemed to
be references to applicable statutes and federal and state regulatory agencies
relating to financial institutions, the accounts of which are insured by the
FSLIC.
Article 11. CRITERIA FOR EVALUATING CERTAIN OFFERS. The board of
directors of the Corporation, when evaluating any offer to (i) make a tender or
exchange offer for the common stock of the Corporation, (ii) merge or
consolidate the Corporation with another institution, or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of the
Corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration to all relevant factors, including without
limitation the economic effects of acceptance of such offer on (a) depositors,
borrowers and employees of the insured institution subsidiary or subsidiaries of
the Corporation, and on the communities in which such subsidiary or subsidiaries
operate or are located and (b) the ability of such subsidiary or subsidiaries to
fulfill the objectives of an insured institution under applicable federal
statutes and regulations.
30
<PAGE> 7
Article 12. CERTAIN BUSINESS COMBINATIONS. The votes of shareholders
and directors required to approve any Business Combination shall be as set forth
in this Article 12. The term "Business Combination" is used as defined in
subsection 1 of this Article 12. All other capitalized terms not otherwise
defined in this Article 12 or elsewhere in this Certificate of Incorporation are
used as defined in subsection 3 of this Article 12.
SUBSECTION 1. Vote Required for Certain Business Combinations.
-------------
A. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to any
affirmative vote required by law or this Certificate of Incorporation, and
except as otherwise expressly provided in subsection 2 of this Article 12:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (a) any Interested Shareholder or
(b) any other corporation (whether or not itself an Interested
Shareholder) which is, or after the merger, consolidation or share
exchange would be, an Affiliate or Associate of such Interested
Shareholder prior to the transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition other than in the usual and regular course of
business (in one transaction or a series of transactions in any
12-month period) to any Interested Shareholder or any Affiliate or
Associate of such Interested Shareholder, other than the Corporation or
any of its Subsidiaries, of any assets of the Corporation or any
Subsidiary that have an aggregate book value as of the end of the
Corporation's most recent fiscal quarter of 10 percent or more of the
total Market Value of the outstanding shares of the Corporation or of
its net worth as of the end of its most recent fiscal quarter, measured
at the time the transaction (or transactions) is(are) approved by the
board of directors of the Corporation;
(iii) any issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
equity securities of the Corporation or any Subsidiary having an
aggregate Market Value of five percent or more of the total Market
Value of the outstanding shares of the Corporation to any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder, other than the Corporation or any of its Subsidiaries,
except pursuant to the exercise of warrants, rights or options to
subscribe for or purchase securities offered, issued or granted pro
rata to all holders of the Voting Stock of the Corporation or any other
method affording substantially proportionate treatment to the holders
of Voting Stock;
(iv) any adoption of any plan or proposal for the liquidation
or dissolution of the Corporation or any Subsidiary proposed by or on
behalf of an Interested Shareholder or any Affiliate or Associate of
such Interested Shareholder, other than the Corporation or any of its
Subsidiaries; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Shareholder) which has the effect, directly or
indirectly, in one transaction or a series of transactions, of
increasing the proportionate amount of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder, other than the Corporation or any of its Subsidiaries;
shall be approved by affirmative vote of the holders of at least 80 percent of
the total number of outstanding shares of Voting Stock. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be specified, by law or this Certificate of
Incorporation.
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<PAGE> 8
B. DEFINITION OF "BUSINESS COMBINATION." The term "Business
Combination" as used in this Article 12 shall mean any transaction which is
referred to in any one or more of clauses (i) through (v) of paragraph A of this
subsection 1.
SUBSECTION 2. When Higher Vote Is Not Required.
-------------
The provisions of subsection 1 of this Article 12 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation, if the conditions specified in
both paragraphs A and B are met:
A. APPROVAL BY CONTINUING DIRECTORS. The Business Combination shall
have been approved by at least two-thirds of the Continuing Directors then in
office at a duly constituted meeting of the board of directors of the
Corporation called for such purpose.
B. PRICE AND PROCEDURE REQUIREMENTS. All of the following conditions
shall have been met:
(i) The aggregate amount of the cash and of the Market Value
as of the Valuation Date of consideration other than cash to be
received per share by holders of common stock in such Business
Combination shall be at least equal to the highest of the following:
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of
common stock acquired by it (1) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date")
or (2) in the transaction in which it became an Interested
Shareholder, whichever is higher;
(b) the Market Value per share of common stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (such latter date
is referred to in this Article 12 as the "Determination
Date"), whichever is higher or
(c) the price per share equal to the Market Value per
share of common stock determined pursuant to subdivision
(i)(b) hereof, multiplied by the fraction of (1) the highest
per share price including brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the Interested
Shareholder for any shares of common stock of the same class
or series acquired by it within the two-year period
immediately prior to the Announcement Date, over (2) the
Market Value per share of common stock of the same class or
series on the first day in such two-year period on which the
Interested Shareholder acquired shares of common stock.
(ii) The aggregate amount of the cash and the Market Value as
of the Valuation Date of consideration other than cash to be received
per share by holders of shares of any class or series of outstanding
Voting Stock, other than common stock, shall be at least equal to the
highest of the following (it being intended that the requirements of
this paragraph B(ii) shall be required to be met with respect to every
class of outstanding Voting Stock, other than common stock, whether or
not the Interested Shareholder has previously acquired any shares of a
particular class of Voting Stock):
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of
such class or series of Voting Stock acquired by it: (1)
within the two-year period immediately prior to the
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<PAGE> 9
Announcement Date or (2) in the transaction in which it became
an Interested Shareholder, whichever is higher;
(b) the highest preferential amount per share to
which the holders of shares of such class or series of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, or in the event of any call of such class or
series of Voting Stock;
(c) the Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; or
(d) the price per share equal to the Market Value per
share of such class or series of stock determined pursuant to
subdivision (ii)(c) hereof, multiplied by the fraction of (1)
the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by the Interested Shareholder for any shares of any class or
series of Voting Stock acquired by it within the two-year
period immediately prior to the Announcement Date over (2) the
Market Value per share of the same class or series of Voting
Stock on the first day in such two-year period on which the
Interested Shareholder acquired any shares of the same class
or series of Voting Stock.
(iii) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock shall be in cash
or in the same form, and on the same terms, as the Interested
Shareholder has previously paid for shares of such class or series of
Voting Stock. If the interested Shareholder has paid for shares of any
class or series of Voting Stock with varying forms of consideration, on
varying terms, the form and terms of consideration for such class or
series of Voting Stock shall be either cash or the form and terms used
to acquire the largest number of shares of such class or series of
Voting Stock previously acquired by it.
(iv) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such Business
Combination: (a) there shall have been no failure to declare and pay at
the regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding preferred stock of the Corporation; (b)
there shall have been (1) no reduction in the annual rate of dividends
paid on any class or series of the capital stock of the Corporation,
(except as necessary to reflect any subdivision of the capital stock),
and (2) an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of common
stock; and (c) such Interested Shareholder shall not have become the
beneficial owner of any additional shares of capital stock except as
part of the transaction which results in such Interested Shareholder
becoming an Interested Shareholder or by virtue of proportionate stock
splits or stock dividends.
The provisions of subdivisions (iv)(a) and (iv)(b) of this
subsection do not apply if the Interested Shareholder or any Affiliate
or Associate of the Interested Shareholder voted as a director of the
Corporation in a manner consistent with such subdivisions, and the
Interested Shareholder, within 10 days after any act or failure to act
by or on behalf of the Corporation, which act or failure to act is
inconsistent with such subdivisions, notifies the board of directors of
the Corporation in writing that the Interested Shareholder disapproves
thereof and requests in good faith that the board of directors rectify
such act or failure to act.
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<PAGE> 10
(v) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation or any of its Subsidiaries (whether in
anticipation of or in connection with such Business Combination or
otherwise).
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Exchange Act and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall
be mailed to public shareholders of the Corporation at least 20 days
prior to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
SUBSECTION 3. Certain Definitions.
-------------
For the purposes of this Article 12:
A. "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary or any employee stock purchase plan, pension plan,
profit sharing plan or other employee benefit plan of the Corporation or any
Subsidiary) that:
(i) is the beneficial owner, directly or indirectly, of five
percent or more of the voting power of the then outstanding Voting
Stock; or
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of five percent or more of
the voting power of the then outstanding Voting Stock.
B. "Beneficial owner," when used with respect to any Voting Stock,
means any person that:
(i) individually or with any of its Affiliates or Associates,
beneficially owns Voting Stock directly or indirectly;
(ii) individually or with any of its Affiliates or Associates,
has (a) the right to acquire Voting Stock (whether such right is
exercisable immediately or only after passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
(b) the right to vote or direct the voting of Voting Stock pursuant to
any agreement, arrangement or understanding; or (c) the right to
dispose of or to direct the disposition of Voting Stock pursuant to any
agreement, arrangement or understanding; or
(iii) individually or with any of its Affiliates or
Associates, has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of Voting Stock with
any other person that beneficially owns, or whose Affiliates or
Associates beneficially own, directly or indirectly, such shares of
Voting Stock.
C. For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph A of this subsection 3, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned
through application of paragraph B of this subsection 3 but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
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<PAGE> 11
D. "Affiliate" means a person that directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, a specified person.
E. "Associate," when used to indicate a relationship with any person,
means: (1) any domestic or foreign corporation or organization, other than the
Corporation or a subsidiary of the Corporation, of which such person is an
officer, director or partner or is, directly or indirectly, the beneficial owner
of 10 percent or more of any class of equity securities; (2) any trust or other
estate, other than an employee stock purchase plan, pension plan, profit sharing
plan or other employee benefit plan of the Corporation or any Subsidiary, in
which such person has a substantial beneficial interest or as to which such
person serves as a trustee or in a similar fiduciary capacity; and (3) any
relative or spouse of such person, or any relative of such spouse who has the
same home as such person or who is a director or officer of the Corporation or
any of its Affiliates.
F. "Subsidiary" means any corporation of which Voting Stock having a
majority of the votes entitled to be cast is owned, directly or indirectly, by
the Corporation.
G. "Continuing Director" means any member of the board of directors of
the Corporation who is unaffiliated with the Interested Shareholder and was a
member of the board of directors of the Corporation prior to the time that the
Interested Shareholder (including any Affiliate or Associate of such Interested
Shareholder) became an Interested Shareholder, and any successor of a Continuing
Director who is unaffiliated with the Interested Shareholder and is recommended
to succeed a Continuing Director by a majority of Continuing Directors then on
the board of directors of the Corporation.
H. "Market Value" means:
(i) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of
a share of such stock on the composite tape for New York Stock
Exchange-listed stocks, or, if such stock is not quoted on the
composite tape for the New York Stock Exchange, or, if such stock is
not listed on such exchange, the principal United States securities
exchange registered under the Exchange Act on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing sales price or bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated
Quotation System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share
of such stock as determined by the board of directors of the
Corporation in good faith; and
(ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as
determined by a majority of the board of directors of the Corporation
in good faith.
I. "Valuation Date" means: (A) For a Business Combination voted on by
shareholders, the latter of the day prior to the date of the shareholders' vote
or the date 10 days prior to the consummation of the Business Combination; and
(B) for a Business Combination not voted upon by the shareholders, the date of
the consummation of the Business Combination.
J. "Voting Stock" means the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors.
K. In the event of any Business Combination in which the Corporation is
the surviving corporation, the phrase "consideration other than cash to be
received" as used in paragraphs B(i) and B(ii) of Section 2 of this Article 12
35
<PAGE> 12
shall include the shares of common stock and/or the shares of any other class or
series of outstanding Voting Stock retained by the holders of such shares.
SUBSECTION 4. Powers of the Board of Directors.
-------------
A majority of the Corporation's directors then in office shall have the
power and duty to determine for the purposes of this Article 12, on the basis of
information known to them after reasonable inquiry, (A) whether a person is an
Interested Shareholder, (B) the number of shares of Voting Stock beneficially
owned by any person, (C) whether a person is an Affiliate or Associate of
another, and (D) whether the requirements of paragraph B of Section 2 have been
met with respect to any Business Combination; and the good faith determination
of a majority of the board of directors on such matters shall be conclusive and
binding for all the purposes of this Article 12.
SUBSECTION 5. No Effect on Fiduciary Obligations of Interested
------------- Shareholders.
Nothing contained in this Article 12 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
Article 13. ANTI-GREENMAIL. Any direct or indirect purchase or other
acquisition by the Corporation of any Voting Stock (as defined in Article 12
hereof) from any Significant Shareholder (as hereinafter defined) who has been
the beneficial owner (as defined in Article 12 hereof) of such Voting Stock for
less than two years prior to the date of such purchase or other acquisition
shall, except as hereinafter expressly provided, require the affirmative vote of
the holders of at least a majority of the total number of outstanding shares of
Voting Stock, excluding in calculating such affirmative vote and the total
number of outstanding shares all Voting Stock beneficially owned by such
Significant Shareholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage may be
specified, by law, but no such affirmative vote shall be required (i) with
respect to any purchase or other acquisition of Voting Stock made as part of a
tender or exchange offer by the Corporation to purchase Voting Stock on the same
terms from all holders of the same class of Voting Stock and complying with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder or (ii) with respect to any purchase of Voting Stock, where the Board
of Directors has determined that the purchase price per share of the Voting
Stock does not exceed the fair market value of the Voting Stock. Such fair
market value shall be equal to the average closing price or the mean of the bid
and asked prices of a share of Voting Stock for the 20 trading days immediately
preceding the execution of a definitive agreement to purchase the Voting Stock
from a Significant Shareholder.
For the purposes of this Article 13, "Significant Shareholder" shall
mean any person (other than the Corporation or any corporation of which a
majority of any class of Voting Stock is owned, directly or indirectly, by the
Corporation) that is the beneficial owner, directly or indirectly, of five
percent or more of the voting power of the outstanding Voting Stock.
Article 14. SHAREHOLDER ACTION. Any action required or permitted to be
taken by the shareholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any consent
in writing by such holders, unless such consent is unanimous.
Article 15. AMENDMENT OF CERTIFICATE OF INCORPORATION. Except as set
forth in this Article 15 or as otherwise specifically required by law, no
amendment of any provision of this Certificate of Incorporation shall be made
unless such amendment has been first proposed by the board of directors of the
Corporation upon the affirmative vote of at least two-thirds of the directors
then in office at a duly constituted meeting of the board of directors called
for such purpose and thereafter approved by the shareholders of the Corporation
by the affirmative vote of the holders of at least a majority of the shares
entitled to vote thereon at a duly called annual or special meeting;
36
<PAGE> 13
provided, however, that if such amendment is to the provisions set forth in this
clause of Article 15 or in Article 6, 7, 8, 10, 11, 13 or 14 hereof, such
amendment must be approved by the affirmative vote of the holders of at least
two-thirds of the shares entitled to vote thereon rather than a majority;
provided, further, that if such amendment is to the provisions set forth in this
clause of Article 15 or in Article 12 hereof, such amendment must be approved by
the affirmative vote of the holders of at least 80 percent of the shares
entitled to vote thereon rather than a majority.
IN WITNESS WHEREOF, THE UNDERSIGNED, being the Chairman of the Board,
President, and Chief Executive Officer of the Corporation and pursuant to the
General Corporation Law of the State of Delaware, does make this certificate,
hereby declaring and certifying that this is the act and deed of the Board of
Directors of the Corporation and the facts herein stated are true, and
accordingly have hereunto set my hand as of this 21st day of April, 1998.
SKANEATELES BANCORP, INC.
By: /s/ John P. Driscoll
------------------------------------------------
John P. Driscoll
Chairman, President and Chief Executive Officer
37
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED WITHIN THE COMPANY'S MARCH 31, 1997
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,501
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,757
<INVESTMENTS-CARRYING> 10,512
<INVESTMENTS-MARKET> 10,699
<LOANS> 207,199
<ALLOWANCE> 1,959
<TOTAL-ASSETS> 241,425
<DEPOSITS> 204,693
<SHORT-TERM> 2,262
<LIABILITIES-OTHER> 1,990
<LONG-TERM> 15,905
0
0
<COMMON> 10
<OTHER-SE> 16,565
<TOTAL-LIABILITIES-AND-EQUITY> 241,425
<INTEREST-LOAN> 4,232
<INTEREST-INVEST> 294
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 4,572
<INTEREST-DEPOSIT> 2,040
<INTEREST-EXPENSE> 2,330
<INTEREST-INCOME-NET> 2,242
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,939
<INCOME-PRETAX> 624
<INCOME-PRE-EXTRAORDINARY> 624
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 3.96
<LOANS-NON> 2,951
<LOANS-PAST> 308
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,500
<ALLOWANCE-OPEN> 2,114
<CHARGE-OFFS> 270
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,959
<ALLOWANCE-DOMESTIC> 1,959
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED WITHIN THE COMPANY'S MARCH 31, 1998
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,815
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,347
<INVESTMENTS-CARRYING> 7,571
<INVESTMENTS-MARKET> 7,790
<LOANS> 214,184
<ALLOWANCE> 2,589
<TOTAL-ASSETS> 257,605
<DEPOSITS> 219,428
<SHORT-TERM> 2,438
<LIABILITIES-OTHER> 1,920
<LONG-TERM> 15,848
0
0
<COMMON> 14
<OTHER-SE> 17,957
<TOTAL-LIABILITIES-AND-EQUITY> 257,605
<INTEREST-LOAN> 4,481
<INTEREST-INVEST> 279
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 4,884
<INTEREST-DEPOSIT> 2,086
<INTEREST-EXPENSE> 2,376
<INTEREST-INCOME-NET> 2,508
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,341
<INCOME-PRETAX> 537
<INCOME-PRE-EXTRAORDINARY> 537
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
<YIELD-ACTUAL> 4.16
<LOANS-NON> 4,297
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 994
<ALLOWANCE-OPEN> 2,560
<CHARGE-OFFS> 83
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 2,589
<ALLOWANCE-DOMESTIC> 2,589
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
