<PAGE>
This statement is intended to satisfy the requirements for an annual disclosure
statement as contained in Section 350.4(a) of the Federal Deposit Insurance
Corporation regulations. This statement has not been reviewed, or confirmed for
accuracy or relevance, by the Federal Deposit Insurance Corporation.
================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number: 0-17177
BSB BANCORP, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1327860
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58-68 Exchange Street, Binghamton, New York 13902
------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 779-2492
Securities registered pursuant to Section 12(b) of the Act:
Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, ($0.01 par value per share)
-----------------------------------------
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference of Part III of this
Form 10-K or any amendment to this Form 10-K. Yes [X] No [ ]
As of March 6 1996, the aggregate value of the 6,198,837 shares of Common Stock
of the Registrant issued and outstanding on such date, excluding 1,089,328
shares held by all affiliates of the Registrant, was approximately $158,070,344.
This figure is based on the closing sales price of $25.50 per share of the
Registrant's Common Stock on March 6, 1996.
Number of shares of Common Stock outstanding as of March 6, 1996 - 6,198,837
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part
of the Form 10-K into which the document is incorporated:
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1995 are incorporated by reference into Part II, Items 5 - 8
of this Form 10-K.
(2) Portions of the definitive Proxy Statement for the Registrant's Annual
Meeting of Shareholders to be held on April 22, 1996 are incorporated by
reference into Part III, Items 10 - 13 of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1995
BSB BANCORP, INC.
Page
-----
PART I
Item 1. Business 1
Item 2. Properties 26
Item 3. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of
Security Holders 27
PART II
Item 5. Market for the Registrants Common Equity and
Related Stockholder Matters 27
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the
Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial
Owners and Management 27
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 28-29
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
BSB BANCORP, INC.
BSB Bancorp, Inc. (the "Company") is the Delaware-chartered bank holding
company for BSB Bank & Trust Company ("BSB Bank & Trust" or the "Bank"). Until
1995, the Bank was known as Binghamton Savings Bank. The Bank's new name
reflects the change in charter from that of a savings bank to a commercial bank
and trust company. The Company was organized in February 1988 as part of the
Bank's holding company reorganization (the "Reorganization"), which was
completed in October 1988. The Company owns 100% of the issued and outstanding
common stock, $1.00 par value, of the Bank, which is the primary asset of the
Company. The business of the Company is the business of the Bank. The Company's
and the Bank's principal executive offices are located at 58-68 Exchange Street,
Binghamton, New York 13902, telephone (607) 779-2492.
On a consolidated basis, at December 31, 1995, the Company had total assets of
$1.2 billion and total shareholders' equity of $116.8 million or $18.70 per
share based on 6,243,397 shares of common stock, $.01 par value per share
("Common Stock"). The Company had a ratio of shareholders' equity to assets of
9.44% at December 31, 1995. The Company had net income of $12.6 million for the
year ended December 31, 1995.
The Company, as a bank holding company, and the Bank, are subject to
regulation, examination, and supervision by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation ("FDIC") and the New York State Banking Department
("Banking Department"). Unless the context otherwise requires, all references to
the Company herein are intended to include the activities of the Bank.
BSB BANK & TRUST COMPANY
The Bank was incorporated as a New York-chartered mutual savings bank in 1867
and converted to a New York-chartered stock savings bank in 1985. In 1995, the
Bank changed its charter to a New York-chartered commercial bank and trust
company to more accurately reflect the nature of the Bank's existing activities
and to further expand its product offerings into such areas as municipal
services. Also as a result of the charter change, the Bank no longer is
permitted to engage in savings bank life insurance activities. Accordingly, in
the first quarter of 1995 the Bank transferred all of its savings bank life
insurance business to an out-of-market savings bank.
Deposit accounts in the Bank are insured to applicable limits by the
Bank Insurance Fund ("BIF"), as administered by the FDIC. The Bank is
headquartered in Binghamton, New York and conducts business in Broome, Tioga,
Chenango and Chemung counties and adjacent areas of New York State. BSB Bank &
Trust serves its customers from twelve full-service banking offices and six off-
premise automatic teller machines (MachineTeller(R)) at the two largest
hospitals in the area, at the Binghamton Regional County Airport, Town Square
Mall, Martin Marietta, and at Broome Community College. The Bank also serves its
customers at twelve proprietary banking service locations (StoreTeller(R))
situated in the area's largest supermarket chain.
The primary market area of the Bank is Broome, Tioga, Chenango, and Chemung
Counties with a combined population of 421,370 according to the 1990 United
States Census. The Bank is the leader in total deposits in Broome County. In the
past decade, BSB Bank & Trust has changed from a traditional thrift institution
to a diversified financial service organization providing a broad range of
deposit and loan products to area businesses and consumers. In particular, the
Bank has become a major provider of banking services to the business community.
It has also dramatically expanded all phases of consumer lending, including both
direct and indirect automobile financing and credit card lending. A full-service
Trust Department was established in 1991.
Banks are subject to extensive supervision and regulation. As a New York-
chartered, FDIC-insured bank, the Bank is subject to regulation and supervision
by the Banking Department and the FDIC, and as to certain matters by the Federal
Reserve Board. The Bank is also a member of the Federal Home Loan Bank of New
York ("FHLBNY").
LENDING ACTIVITIES
1
<PAGE>
LOAN PORTFOLIO COMPOSITION
BSB Bank & Trust's portfolio of net loans totalled $909.9 million at December
31, 1995, representing 73.58% of the Bank's total assets at that date. A portion
of the Bank's loan portfolio is comprised of loans secured by first mortgages on
one- to four-family residences. These loans are primarily long-term and are
either conventional (not insured or guaranteed by a federal agency) or insured
by the Federal Housing Administration ("FHA") or partially guaranteed by the
Veterans Administration ("VA"). In recent years, residential mortgage loan
originations have predominantly been made at fixed rates of interest, however,
as interest rates continued to increase throughout 1994 and the beginning of
1995, the emphasis on residential mortgage loan originations began to change
from fixed-rate loans to adjustable-rate loans. This is evidenced by noting
40.6% of residential mortgage loan originations were adjustable in 1995
compared to 18.8% in 1994. The remainder of the Bank's loan portfolio consists
of adjustable-rate residential mortgage loans and mortgage loans on multi-family
residential dwellings and loans on income-producing commercial real estate as
well as commercial loans and consumer loans, including secured and unsecured
personal loans, credit card loans, automobile and home improvement loans and
student loans. Consistent with management's objectives of developing improved
portfolio diversification and increasing rate sensitivity to changes in cost of
funds, the Bank has continued to place an emphasis on the origination of
adjustable-rate commercial real estate, commercial and consumer loan products.
Adjustable-rate residential mortgages are usually retained while fixed-rate
residential loans are originated primarily for sale or securitization.
The following table sets forth the composition of the Bank's loan portfolio by
loan type as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Commercial $455,444 49.13% $386,875 44.72% $339,555 42.02% $293,599 38.30% $279,689
Consumer:
Student 8,940 0.96% 12,404 1.43% 11,485 1.42% 13,434 1.75% 12,421
Personal 155,522 16.78% 151,415 17.50% 123,905 15.33% 87,796 11.46% 78,326
Savings account 423 0.04% 632 0.07% 781 0.10% 1,228 0.16% 1,908
Overdraft checking 836 0.09% 614 0.07% 623 0.08% 685 0.09% 967
Home equity 25,133 2.71% 26,233 3.03% 28,691 3.55% 28,463 3.72% 25,641
Credit card 9,692 1.05% 9,565 1.11% 10,771 1.33% 9,005 1.17% 10,525
- ---------------------------------------------------------------------------------------------------------------------
Total consumer loans 200,546 21.63% 200,863 23.21% 176,256 21.81% 140,611 18.35% 129,788
- ---------------------------------------------------------------------------------------------------------------------
Real estate
Fixed-rate:
Residential 37,071 4.00% 38,340 4.43% 54,948 6.80% 84,360 11.00% 65,518
FHA & VA 16,810 1.81% 20,309 2.35% 25,709 3.18% 32,119 4.19% 38,247
Commercial 3,011 0.33% 3,218 0.37% 3,348 0.41% 3,781 0.49% 4,159
Commercial FHA 214 0.02% 219 0.03% 224 0.03% 228 0.03% 232
- ---------------------------------------------------------------------------------------------------------------------
Total fixed-rate 57,106 6.16% 62,086 7.18% 84,229 10.42% 120,488 15.71% 108,156
- ---------------------------------------------------------------------------------------------------------------------
Adjustable-rate:
Residential 82,470 8.90% 81,200 9.39% 77,678 9.61% 86,289 11.26% 101,700
Commercial 131,450 14.18% 134,058 15.50% 130,383 16.14% 125,482 16.38% 121,946
- ---------------------------------------------------------------------------------------------------------------------
Total adjustable-rate 213,920 23.08% 215,258 24.89% 208,061 25.75% 211,771 27.64% 223,646
- ---------------------------------------------------------------------------------------------------------------------
Total real estate 271,026 29.24% 277,344 32.07% 292,290 36.17% 332,259 43.35% 331,802
- ---------------------------------------------------------------------------------------------------------------------
$927,016 100.00% $865,082 100.00% $808,101 100.00% $766,469 100.00% $741,279
=====================================================================================================================
</TABLE>
The following table sets forth scheduled contractual amortization of loans in
the Bank's portfolio at December 31, 1995. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdraft loans are reported
as due in one year or less, and student loans in the interim status are reported
as due beyond five years. The following table also sets forth the dollar amount
of loans which are scheduled to mature after one year which have fixed and
adjustable interest rates.
2
<PAGE>
<TABLE>
<CAPTION>
Residential Commercial Commercial
Real Estate Real Estate Business Consumer
Loans Loans Loans Loans Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars In Thousands)
Amounts due:
Within one year $ 6,771 $ 19,345 $381,917 $ 85,963 $493,996
After one year through five years 27,921 52,965 54,457 92,900 228,243
Beyond five years 101,659 62,365 19,070 21,683 204,777
- ----------------------------------------------------------------------------------------------
Total $136,351 $134,675 $455,444 $200,546 $927,016
==============================================================================================
Amounts due after one year:
Fixed $ 49,576 $ 1,995 $ 73,527 $114,583 $239,681
- ----------------------------------------------------------------------------------------------
Adjustable $ 80,004 $113,335 $ - $ - $193,339
==============================================================================================
</TABLE>
Contractual maturities of loans do not necessarily reflect the actual term of
loans in the Bank's portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments and
enforcement of due-on-sale clauses, which give the Bank the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase, however, when
current mortgage rates substantially exceed rates on existing mortgages.
Interest rates charged by the Bank on loans are affected principally by the
demand for such loans and the supply of funds available for lending purposes.
These factors are in turn affected by general economic conditions, monetary
policies of the federal government, including the Federal Reserve Board,
legislative tax policies and governmental budgetary matters.
LOAN UNDERWRITING POLICIES
The Board of Directors of the Bank has granted certain senior loan officers
individual authority of up to $350,000, or combined authority up to $500,000, to
approve commercial loans and real estate loans originated or purchased by the
Bank to any one borrower and related entity. Such loans in excess of $500,000
with principal balances up to $750,000 must be approved by the Commercial Loan
Committee, which is comprised of the President and the Senior Loan Officers of
the Bank. Such loans in amounts exceeding $750,000 must be approved by the
Directors' Loan Committee, which is comprised of a minimum of five Board members
of the Bank, four members serving for a period of one year and the fifth member
serving on a rotation basis for two months.
The Board of Directors of the Bank has granted certain officers and staff
members the authority to approve one- to four-family residential loan
originations and purchases in amounts up to $150,000. Such loans in excess of
$150,000 with principal balances up to $300,000 must be approved by the
Residential Mortgage Loan Committee, which is comprised of the Bank's Senior
Residential Mortgage Officer and the other Residential Mortgage Loan Officers of
the Bank. Such loans in amounts exceeding $300,000 must be approved by the
Directors' Loan Committee, which is described above.
The Board of Directors of the Bank has granted certain officers and staff
members the authority to approve both secured and unsecured consumer loan
originations in amounts up to $75,000 to any one borrower and related entity.
Consumer loans in excess of $75,000 must be approved by the Consumer Loan
Committee, which is comprised of the Bank's Senior Consumer Loan Officer and the
other Consumer Loan Officers of the Bank.
Commercial loan decisions are based upon the evaluation of the borrower's
ability to repay from the normal operations of the business and, if deemed
necessary, by collateral, such as accounts receivable, equipment and/or
inventory, as a secondary source of repayment. The Bank's staff periodically
reviews the financial condition of all borrowers. All commercial loans
delinquent for more than 30 days are reported monthly to the Board of Directors
of the Bank. Any commercial loan on which payment is past due for more than 90
days is placed on a non-accrual status.
3
<PAGE>
Commercial real estate loan decisions are generally based upon the financial
strength of the borrower, revenue stream from the property, quality of tenants,
and lease terms and appraised value of the real estate collateral. All
commercial real estate is inspected by an officer of the Bank's Commercial Real
Estate Loan Department and, in addition, appraisals are made by an approved
appraiser. Loan-to-value ratios on commercial real estate loans originated or
purchased by the Bank generally do not exceed 80%.
Residential mortgage and consumer loans are based upon an analysis of the
borrower's ability to repay, employment stability, which includes a review of
the adequacy and source of income and the borrower's past and current credit
history. Residential mortgage loans are advanced on one- to four-unit
residential properties in amounts up to 95% of appraised value for owner-
occupied residences. The Bank generally requires all conventional mortgage loans
with loan-to-value ratios in excess of 80% to carry private mortgage insurance.
ORIGINATION, SECURITIZATION AND SALE OF LOANS
Residential loan originations are attributable to referrals from real estate
brokers and builders, depositors and walk-in customers, as well as the loan
solicitors of BSB Mortgage Corporation ("BSB Mortgage"), the Bank's wholly-owned
subsidiary, and mortgage brokers. Since 1983, BSB Mortgage has compensated its
sales employees on an incentive basis to solicit residential real estate loan
applications in the Bank's local lending area. These applications are centrally
underwritten by the Bank. Commercial real estate loan originations have been
obtained primarily by direct solicitation. Consumer loan originations are
primarily attributable to walk-in customers who have been made aware of the
Bank's programs by advertising, and, with respect to automobile and mobile home
loans, through indirect financing programs in participation with various
automobile dealers and mobile home service companies operating throughout the
Bank's market area. Commercial loan originations have been obtained primarily as
a result of direct solicitations and walk-in customers.
4
<PAGE>
The following table shows the loans originated, securitized, sold and repaid
during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Gross loans receivable at
beginning of period $ 866,864 $815,459 $774,783
Mortgage loan originations:
Conventional
One- to four-family dwellings
Fixed-rate 50,881 62,144 80,125
Adjustable-rate 34,829 14,467 5,396
Commercial real estate 9,992 15,465 14,986
FHA/VA - 308 280
- -----------------------------------------------------------------------------------
Total mortgage loans originated 95,702 92,384 100,787
- -----------------------------------------------------------------------------------
Commercial loan originations 122,490 143,292 109,380
Consumer loan originations:
Student loans 4,755 5,927 5,058
Personal loans 67,585 83,740 85,158
Home improvement loans 1,382 1,654 1,459
Savings account loans 232 381 607
Overdraft checking 2,385 1,794 1,526
Equity lines of credit 9,636 7,490 9,997
Credit card 11,617 11,080 14,205
- -----------------------------------------------------------------------------------
Total consumer loans originated 97,592 112,066 118,010
- -----------------------------------------------------------------------------------
Total loans originated 315,784 347,742 328,177
- -----------------------------------------------------------------------------------
Commercial loan-credit advances 1,111,224 663,497 434,640
Principal repayments 1,288,797 881,217 615,812
Loans securitized:
FNMA-fixed - 17,194 48,640
FNMA-adjustable 21,875 - -
- -----------------------------------------------------------------------------------
Total loans securitized 21,875 17,194 48,640
- -----------------------------------------------------------------------------------
Loan sales:
Student loans 6,968 3,623 5,486
Fixed-rate residential mortgages 47,936 57,800 52,203
- -----------------------------------------------------------------------------------
Total loan sales 54,904 61,423 57,689
- -----------------------------------------------------------------------------------
Net loan activity 61,432 51,405 40,676
- -----------------------------------------------------------------------------------
Gross loans receivable and mortgages
held for sale at end of period 928,296 866,864 815,459
Mortgages held for sale (1,280) (1,782) (7,358)
- -----------------------------------------------------------------------------------
Gross loans receivable at the end of the period 927,016 865,082 808,101
Allowance for possible credit losses (16,560) (15,847) (15,234)
Total net discounts and premiums (605) (1,218) (1,256)
- -----------------------------------------------------------------------------------
Net loans receivable at the end of period $ 909,851 $848,017 $791,611
===================================================================================
</TABLE>
5
<PAGE>
RESIDENTIAL REAL ESTATE LENDING
The Bank historically has been, and continues to be, a leading originator of
residential real estate loans in its market area. At December 31, 1995, $136.4
million, or 14.7% of the Bank's total loan portfolio consisted of residential
mortgage loans. In 1995 and 1994, residential mortgage loan originations
amounted to $85.7 million and $76.9 million, respectively, which represented
approximately 27.14% and 22.12%, respectively, of the Bank's total loan
originations.
Increased mortgage activity in recent years has resulted in a substantial
increase in the Bank's serviced mortgage loan portfolio. The serviced mortgage
loan portfolio, a source of non-interest income, increased from $263.3 million
at December 31, 1994 to $311.3 million at December 31, 1995.
The Bank's residential mortgage loan originations are primarily conventional.
Residential loans made on one- to four-family residential properties have been
predominantly originated in amounts up to 95% of appraised value for owner-
occupied residences. The Bank requires all conventional loans with loan to value
ratios in excess of 80% carry private mortgage insurance. Although the initial
contractual loan payment period for residential loans historically ranges from
15 to 30 years, the Bank's experience indicates that residential loans remain
outstanding for significantly shorter periods than their contractual terms.
Borrowers may refinance or repay loans at their option without prepayment
penalties.
The Bank's conventional fixed-rate first mortgage loans customarily include
due-on-sale clauses giving the Bank the right to declare a loan immediately due
and payable in the event, among other things, that the borrower sells or
otherwise disposes of the property subject to the mortgage and the loan is not
repaid. The Bank has enforced due-on-sale clauses in its mortgage contracts for
the purpose of increasing its loan portfolio yield, often through the
authorization of assumptions of existing loans at higher rates of interest
and/or the imposition of assumption fees.
The adjustable-rate loans currently offered by BSB Bank & Trust have up to 30-
year terms and annual interest rate adjustments, which are based upon an index
of United States Treasury Securities for a comparable term plus a margin. The
Bank predominantly utilizes either a 1% or 2% cap on any increase or decrease in
the interest rate at each adjustment period and a 6% limit on any increase or
decrease in the annual interest rate over the life of the loan. In conjunction
with the change in charter during 1995 to a commercial bank which allowed the
Bank to enter the area of municipal services, $21.9 million of adjustable-rate
mortgages were securitized to be pledged against municipal deposits.
The Bank continues to offer one- to four-family residential loans with fixed
rates of interest, but all such loans are made under terms, conditions and
documentation which permit their sale in the secondary market. Since 1982,
management has implemented a program of securitizing and selling its
conventional fixed-rate residential mortgages. The Bank securitized or sold
$100.8 million, $75.0 million and $47.9 million of such loans in 1993, 1994, and
1995, respectively. Many of the fixed-rate residential loans that remain in the
Bank's portfolio are at or below present market rates and, if liquidated, the
market value would be less than carrying value.
The Bank requires fire and casualty insurance coverage and title insurance in
connection with the origination of all residential mortgage loans. The cost of
this insurance coverage is paid by the borrower.
COMMERCIAL REAL ESTATE LENDING
In 1995, the Bank continued to originate loans secured by income-producing
commercial real estate, including multi-family (over four units) and commercial
properties, such as apartment complexes, retail buildings, office buildings and
shopping centers ("commercial real estate"). The Bank originated $10.0 million
in commercial real estate loans in 1995 compared to $15.5 million in 1994 and
$15.0 million in 1993. These amounts represented 3.16%, 4.45% and 4.57% of total
loan originations during fiscal 1995, 1994 and 1993, respectively. At December
31, 1995, the Bank had $134.7 million of commercial real estate loans
outstanding, representing approximately 14.5% of the Bank's total loan
portfolio. Adjustable-rate commercial real estate loans represent 97.6% of the
total commercial real estate loan portfolio at December 31, 1995.
6
<PAGE>
The commercial real estate loans offered by the Bank are being underwritten
with terms of up to 20 years and with interest rate adjustment periods of three
or five years. In setting interest rates and origination fees on new loans and
extensions, management considers both current market conditions and its analyses
of the risk associated with the particular project. The weighted average yield
on commercial real estate adjustable-rate loans for 1995 was 9.06% and 8.69% in
1994. The largest single commercial real estate loan advanced during 1995 was
$0.6 million.
Commercial real estate lending entails significant additional risks as
compared with single-family residential property lending. Commercial real estate
loans typically involve large loan balances to single borrowers or groups of
related borrowers. The payment experience on such loans is typically dependent
on the successful operation of the real estate project. The success of such
projects is sensitive to changes in supply and demand conditions in the market
for commercial real estate as well as economic conditions generally.
The Bank usually does not engage in construction lending unless there is a
commitment in connection with the permanent financing of the property from the
Bank or another lender.
COMMERCIAL LENDING
The commercial loan portfolio has become a significant part of the Bank's
asset base. As of December 31, 1995, commercial loans amounted to $455.4
million, or 49.13% of the Bank's total loans as compared with $386.9 million, or
44.72% as of December 31, 1994. Under New York law, the Bank generally may not
lend to any one entity more than 15% of the bank's capital stock, surplus and
undivided profits. The Bank is permitted to extend a loan up to 25% of the
Bank's capital stock, surplus and undivided profits, provided that at least the
amount of such loan between 15% and 25% of the Bank's capital stock, surplus and
undivided profits is secured. The Bank's policy, however, restricts loans to
any borrower and related entities to 15% of shareholders' equity. Loan
relationships approaching 15% of the Bank's shareholders' equity generally
require diversification in both repayment source and collateral. At December 31,
1995, 2 loan relationships each had outstanding loans and commitments exceeding
10% of shareholders' equity. However, also at December 31, 1995, there were no
loan relationships with outstanding loans and commitments exceeding 15% of
shareholders' equity. The Bank offers a variety of commercial loan services,
including term loans and revolving lines of credit, as well as letters of
credit. Commercial lending involves somewhat greater credit risks to the Bank
than most other types of lending. See "Loan Underwriting Policies".
At December 31, 1995, there were $158.3 million in commitments outstanding and
the portfolio consisted of loans with an average outstanding balance of
$178,605. Management continues to emphasize commercial loan originations, which
amounted to $143.3 million, or 41.21% of total loans originated in 1994 compared
to $122.5 million, or 38.79% of total loans originated in 1995.
The commercial loan portfolio is diversified by industry, type and size, and
the loans have been made primarily to small- and medium-sized businesses in the
local market. Approximately 80% of the Bank's commercial loans bear floating
interest rates tied to the Bank's prime rate ("Prime Rate"). The average yield
on the commercial loan portfolio was 8.64% in 1994 and 10.08% in 1995. The Prime
Rate was 8.5% on December 31, 1995 and 1994. Commercial loans are made on both a
secured and unsecured basis, and include secured lines of credit. Although many
have shorter terms, the maximum term of a non-real estate secured commercial
loan is ten years. The largest single extension of credit as of December 31,
1995 was in the amount of $15.0 million and as of that date, there was $11.2
million outstanding on that credit. As of December 31, 1995, the Bank had 46
other borrowers with outstanding loans and commitments exceeding $2.5 million.
In addition to the various types of lending services, the Bank also offers to
commercial customers a range of depository and related services, including
commercial demand deposit accounts, cash management, payroll and direct deposit
to employees' accounts.
7
<PAGE>
CONSUMER LENDING
The Bank engages in a variety of consumer lending activities. As of December
31, 1995, a total of $200.5 million of consumer loans was outstanding as
compared to $200.9 million and $176.3 million at December 31, 1994 and 1993,
respectively. The total consumer loan portfolio at December 31, 1995 was made
up of $8.9 million in student loans, $155.9 million in personal loans (which
includes indirect loans) and savings account loans, $0.8 million in unsecured
revolving credit loans, $25.1 million in home equity loans and $9.7 million in
credit card loans. Consumer loans generally involve more risk of collectibility
than mortgage loans because of the type and nature of the collateral, and, in
certain cases, the absence of collateral. As a result, consumer lending
collections are dependent on the borrowers' continuing financial stability,
and thus are more likely to be adversely affected by job loss, divorce, personal
bankruptcy and by adverse economic conditions.
Of the $155.9 million in personal loans outstanding at December 31, 1995,
$29.2 million represented the Bank's portfolio of direct consumer loans
originated by the Bank's lending staff and $126.7 million represented the
indirect consumer loan portfolio originated through relationships with
automobile, mobile home service companies, and other retail dealers. All
personal loans originated for the Bank are advanced at fixed interest rates,
with a high percentage of the loans offering repayment terms up to 60 months.
The Bank began offering indirect financing through local auto dealerships in
early 1986. The lending and support staff and data processing system have since
been enhanced as the portfolio has grown. Given the past performance of the
indirect loan portfolio and the opportunities for geographic and product
diversification provided by growth in the indirect portfolio, the Bank began
during 1992 and 1993 to emphasize the origination of indirect consumer loan
contracts at competitive rates. In 1995, the Bank originated $53.7 million of
indirect consumer loan contracts compared with $71.6 million of such consumer
loans in 1994.
The mix of indirect loans, the geographic distribution of indirect loan
originations and the mix of products financed, which resulted from the growth of
the indirect loan portfolio during 1994 were more varied than during prior
years. Prior to 1993, the Bank originated indirect loans largely through auto
dealers operating within its immediate market area. During 1995, the Bank
originated indirect financing totalling $3.6 million or 6.71% of total indirect
consumer loans for mobile homes and $1.3 million or 2.51% of total indirect
consumer loans for recreational vehicles and boats. These indirect consumer
contracts were originated through service companies with dealer relationships
which extend throughout New York State and are supported by recourse agreements
against significant reserve account balances.
The remainder of the indirect consumer originations experienced during 1994
were the direct result of the Bank's earlier efforts to expand the geographic
markets served by its auto dealership base. In particular, during 1992, the Bank
expanded its market for indirect consumer lending into the Central New York
Region, including the Syracuse metropolitan area.
The home equity lines of credit are primarily an adjustable-rate consumer
loan product with a term of 20 years, and are generally secured by the
borrower's primary residence, when the loan to value ratio, taking into account
the first mortgage loan, does not exceed 75%. During the fourth quarter of 1994,
the Bank began offering home equity lines of credit with a term of 30 years. As
of December 31, 1995, there were total home equity lines of credit available of
$44.8 million with an outstanding balance of $25.1 million. Interest rates on
home equity lines of credit are adjusted monthly to reflect changes in the Prime
Rate.
In 1993, the Bank introduced an adjustable-rate MasterCard program to
complement its fixed-rate Visa credit card program. As of December 31, 1995,
there were total credit card lines available of $32.0 million with an
outstanding balance of $9.7 million as compared to $28.9 million and $9.6
million, respectively, at December 31, 1994.
The significant growth in consumer lending, with its short-term
characteristics, contributed to the improvement of the Bank's overall interest
rate sensitivity because of its more rapid amortization compared to residential
and commercial real estate loans.
The Bank participates in various community development programs in an effort
to meet its responsibilities under the Community Reinvestment Act ("CRA"). These
programs reflect the Bank's continuing commitment and obligation
8
<PAGE>
to serve the convenience and needs of the communities in which it does business.
Among other things, the Bank's CRA lending activities include housing and
related loan programs, business and economic programs for the small business,
minority and women's business communities, and refined underwriting standards,
extensive staff training, enhanced marketing programs and individualized
counseling for potential qualified borrowers. In January 1995, the Bank entered
into an agreement with the Broome County CRA Coalition ("Coalition"), which
consists of a number of community development and related organizations in the
Bank's market area. Under that agreement, and through a CRA oversight committee
to be formed by the Bank, Coalition members will provide the Bank, among other
things, ongoing information and other reports in connection with the Bank's
effort to fulfill its commitment to serve the convenience and needs of its
communities.
NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED ("ORE")
When a borrower fails to make a scheduled payment on a loan, the Bank attempts
to cure the deficiency by contacting the borrower and seeking payment. Contacts
are generally made within five business days after the expiration of the payment
grace period, set forth in the loan contract. In most cases, deficiencies are
cured promptly. If delinquency extends beyond 60 days, the loan and payment
history is reviewed and legal proceedings may be instituted to remedy the
default. While the Bank generally prefers to work with borrowers to resolve such
problems, the Bank does initiate foreclosure proceedings or pursues other legal
collection procedures, as necessary, to minimize any potential loss.
Loans are placed on a non-accrual status when, in the judgment of management,
the probability of collection of principal or interest is deemed to be
insufficient to warrant further accrual. Such loans include potential problem
loans where known information about possible credit problems of borrowers has
caused management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Company does not accrue interest on loans greater than 90 days past due
unless the estimated fair value of the collateral and active collection efforts
insure full recovery.
The following table sets forth information regarding non-accrual (non-
performing) loans, accruing loans which are 90 days or more overdue and other
real estate owned held by the Bank at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Residential real estate loans:
Non-accrual loans $ 1,920 $1,037 $ 694 $ 603 $ 945
Commercial real estate loans:
Non-accrual loans 2,764 2,286 4,081 3,275 1,381
Commercial loans:
Non-accrual loans 8,032 4,449 5,779 8,370 8,306
Consumer loans:
Accruing loans 90 days overdue 96 109 107 68 178
- ---------------------------------------------------------------------------------------------------------
Total non-performing loans and
accruing loans 90 days overdue $12,812 $7,881 $10,661 $12,316 $10,810
=========================================================================================================
Total non-performing loans to
total loans 1.38% 0.91% 1.32% 1.61% 1.46%
=========================================================================================================
Total real estate acquired in settlement of
loans at lower of cost or fair value $ 2,468 $3,234 $ 826 $ 1,006 $ 1,028
=========================================================================================================
Total non-performing loans and
real estate acquired in settlement of loans
at net realizable value to total assets 1.24% 0.96% 1.05% 1.31% 1.18%
=========================================================================================================
</TABLE>
During, 1991, 1992, 1993, 1994, and 1995, approximately $320,000, $823,000,
$843,000, $405,000 and $986,000 of additional interest income would have been
recorded on loans accounted for on a non-accrual basis as of the end of
9
<PAGE>
each period if such loans had been current. These amounts were not included in
the Bank's interest and dividend income for the respective periods.
During 1991, 1992, 1993, 1994 and 1995, $649,000, $406,000, $364,000, $365,000
and $241,000 respectively, of interest income on non-accrual loans was
recognized during the periods as loans were paid to a current status or paid in
full.
The Company has no troubled debt restructuring except as included in non-
accruing commercial loans. Total non-performing loans and other real estate
owned increased to $15.3 million, or 1.24% of total assets at December 31, 1995,
compared to $11.1 million, or 0.96% of total assets at December 31, 1994.
At December 31, 1994, 30 non-performing residential real estate loans totaled
$1.0 million. At December 31, 1995, non-performing residential real estate loans
totaled $1.9 million and included 49 loans. This increase in non-performing
residential real estate loans reflects the recent softening in the Broome County
economy due to reductions in defense spending and corporate downsizing. A high
percentage of the loans in this group are "seasoned loans", which reduces the
risk of loss. Loan loss reserves have been established that are deemed adequate
by management.
At December 31, 1994, non-performing commercial real estate loans totaled $2.3
million, and included 5 loans ranging in size from $100,000 to $1.4 million. At
December 31, 1995, non-performing commercial real estate loans increased to $2.8
million and consisted of 6 loans ranging in size from $62,000 to $1.6 million.
All six loans were put in a nonaccrual status during 1995.
Non-performing commercial loans at December 31, 1994 totaled $4.4 million and
included 40 individual loans ranging in size from $1,000 to $1.6 million. At
December 31, 1995, non-performing commercial loans increased to $8.0 million and
consisted of 35 individual loans ranging in size from $5,500 to $2.2 million.
This increase primarily reflects the remaining balance of $2.2 million on a real
estate secured loan which was classified as non-performing by management after
recognition of a partial charge-off in the amount of $0.9 million taken during
1995, and the addition of three loans to a local manufacturing firm for an
aggregate $2.3 million. These loans and all other non-performing loans have been
internally risk-rated and loan loss reserves have been established that are
deemed adequate by management.
The adoption of SFAS No. 114 as of January 1, 1995 did not have a material
effect on the Bank's assessment of the estimated loss on the loans ultimately
deemed impaired. The Bank's non-accrual loans increased from $7.9 million at
December 31, 1994 to $12.8 million at December 31, 1995. At the same time, the
total risk-rated loans have reflected a significant decrease over the same
period. Both the increase in the non-accrual loans and the decrease in the
overall risk-rated loans have been incorporated in the Bank's overall allowance
and provision for possible credit losses. At December 31, 1995, the recorded
investment in loans for which impairment has been recognized in accordance with
SFAS No. 114 totaled $11.6 million with a corresponding valuation allowance of
$3.8 million, and $600,000 for which there is no valuation allowance as the
loans have been written down to fair value.
At December 31, 1994, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totalled $3.2 million, which
consisted of 18 single-family residential properties with a book value totalling
$1.3 million and 8 local commercial real estate properties with a book value
totalling $1.9 million. At December 31, 1995, ORE totalled $2.5 million and
consisted of 7 single-family residential properties with a book value totalling
$400,000 and 12 local commercial real estate properties with a book value
totalling $2.1 million.
During 1995, 17 single-family residential properties with a book value of $1.2
million were sold. From 1994, 1 single-family residential property remained in
the ORE portfolio, and this property had its book value written down by a total
of $15,000. During 1995, 6 single-family residential properties with a book
value of $0.3 million were added to the ORE portfolio.
During 1995, 1 local commercial real estate property with a book value of
$110,000 was sold, and 1 local commercial real estate property with a book value
of $100,000 was charged off. During 1995, 8 local commercial real estate
properties with a book value totalling $1.0 million were added to the portfolio.
Due to declining commercial real
10
<PAGE>
estate values, 3 local commercial real estate ORE properties were reduced by
$450,000 and charged to other real estate expenses. All real estate carried in
the Company's ORE portfolio are supported by recent independent appraisals.
ALLOWANCE FOR POSSIBLE CREDIT LOSSES. Management reviews the adequacy of the
allowance at least quarterly. Prior to 1995, the allowance was assessed by
applying projected loss ratios to the risk-ratings (i.e. "classification") of
loans both individually and by category. The projected loss ratios incorporate
such factors as recent loss experience, current economic conditions and trends,
trends in past due and non-accrual amounts, the risk characteristics of various
"classifications" and concentrations of loans, transfer risks and other
pertinent factors.
During 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan". Under the new standard, a loan is
considered impaired, based on current information and events, if it is probable
that the Bank will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based upon the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. Loans not deemed impaired continue to be
classified to their risk-rating and general reserves are maintained accordingly.
The following table summarizes activity in the Bank's allowance for possible
credit losses during the periods indicated. Management considers the allowance
for possible credit losses (reserves) of $16.6 million at December 31, 1995
adequate to cover potential credit losses.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Average total loans outstanding $914,988 $828,739 $796,696 $747,736 $715,038
==============================================================================================
Allowance at beginning of period $ 15,847 $ 15,234 $ 12,916 $ 9,995 $ 8,282
Charge-offs:
Residential real estate loans 81 54 66 92 126
Commercial real estate loans 2,185 306 109 118 711
Consumer loans 1,123 850 707 1,207 1,152
Commercial loans 3,944 3,104 3,197 3,277 3,944
- ----------------------------------------------------------------------------------------------
Total loans charged-off 7,333 4,314 4,079 4,694 5,933
Recoveries
Residential real estate loans 18 0 57 0 3
Commercial real estate loans 26 36 93 19 6
Consumer loans 358 344 311 318 346
Commercial loans 311 830 356 308 399
- ----------------------------------------------------------------------------------------------
Total recoveries 713 1,210 817 645 754
- ----------------------------------------------------------------------------------------------
Net charge-offs 6,620 3,104 3,262 4,049 5,179
- ----------------------------------------------------------------------------------------------
Provision for credit losses charged to
operating expenses 7,333 3,717 5,580 6,970 6,892
- ----------------------------------------------------------------------------------------------
Allowance at end of period $ 16,560 $ 15,847 $ 15,234 $ 12,916 $ 9,995
==============================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of net charge-offs to:
Average total loans outstanding 0.72% 0.37% 0.41% 0.54% 0.72%
Ratio of allowance to:
Non-performing loans 129.25% 201.08% 142.89% 104.87% 92.46%
Year-end total loans outstanding 1.79% 1.83% 1.89% 1.69% 1.35%
</TABLE>
The provision for credit losses was $3.7 million in 1994 and $7.3 million in
1995. The allowance for possible credit losses increased to $16.6 million, or
1.79% of total loans at December 31, 1995, from $15.8 million, or 1.83% at year-
end 1994 to reflect the continued growth in the commercial and consumer loan
portfolios relative to other loan assets and letters of credit. Net charge-offs
in 1995 amounted to $6.6 million, or 0.72% of average total loans outstanding,
compared with $3.1 million, or 0.37% in 1994. Non-performing loans at December
31, 1995 were $12.8 million, or 1.38% of total loans outstanding, up from $7.9
million, or 0.91% at December 31, 1994.
The following table indicates the allowance for possible credit losses by the
following categories of loans for the following periods:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
Amount % (1) Amount % (1) Amount % (1) Amount % (1) Amount % (1)
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 4,195 14.53% $ 3,953 15.89% $ 3,863 16.58% $ 2,457 16.90% $4,115 17.04%
Residential 175 14.71 175 16.17 175 19.59 175 26.45 200 27.72
Commercial 10,890 49.13 10,419 44.72 9,946 42.02 9,094 38.30 4,500 37.73
Consumer 1,300 21.63 1,300 23.22 1,250 21.81 1,190 18.35 1,180 17.51
- ------------------------------------------------------------------------------------------------------------------------
$16,560 100.00% $15,847 100.00% $15,234 100.00% $12,916 100.00% $9,995 100.00%
========================================================================================================================
</TABLE>
(1) Percent of loans in each category to total loans at the dates indicated.
12
<PAGE>
MORTGAGE-BACKED SECURITIES
The Bank engages in the purchase and sale of various types of mortgage-backed
securities deemed prudent by management. The types include collateralized
mortgage obligations ("CMO") that consist of pools of mortgages divided into
classes (or "tranches"). Returned principal is then directed in a predetermined
order, as received, into each class until it is paid off. The vast majority of
CMOS purchased by the Bank are issued by the Federal Home Loan Mortgage
Corporation ("FHLMC"). The Bank owns and occasionally buys private user CMOS.
The Bank purchases mostly senior tranches that have been rated in the top two
categories by major rating services such as Moody's and Standard and Poor's. The
Bank also purchases and sells participation certificates that consist primarily
of certificates issued by the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"). The Bank's portfolio of
mortgage-backed securities also includes securities guaranteed by the Government
National Mortgage Association ("GNMA"). At December 31, 1995, the Bank's gross
mortgage-backed securities portfolio of $143.7 million included $85.3 million of
CMOs, $1.9 million in GNMA securities and $56.5 million in participation
certificates.
There also is significant uncertainty as to the timing of repayments from
mortgage-backed securities because borrowers whose mortgages are pooled into
mortgage-backed securities have the option to prepay their loans any time. This
option can affect the returns the Bank hopes to earn by investing in these
securities. When interest rates fall as they did during 1993, borrowers tend to
refinance their mortgages resulting in accelerated prepayments of the mortgages
underlying mortgage-backed securities and thereby adversely limiting the return
the Bank can earn.
Market values are also affected by the borrowers option to prepay. In falling
rate environments, the increased possibility of prepayments limits the degree to
which mortgage-backed securities can appreciate. Conversely, rising rates reduce
the probability of prepayment. This increases the average time in which
principal is repaid and can increase the impact that rising rates have on the
market value.
The following table sets forth the carrying value of the Bank's gross
mortgage-backed securities portfolio as of the dates indicated. (Also, see Note
3 of the Consolidated Financial Statements included in the 1995 Annual Report to
Shareholders):
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Collateralized mortgage obligations $ 85,344 $ 84,351 $ 72,865 $ 53,509 $ 67,729
GNMA securities 1,886 2,512 3,105 3,957 4,595
Participation certificates 56,469 63,049 79,533 94,509 111,344
- --------------------------------------------------------------------------------------------------
143,699 149,912 155,503 151,975 183,668
- --------------------------------------------------------------------------------------------------
Net (discounts) and premiums (383) (159) 861 320 429
Unrealized appreciation (depreciation) 662 (6,576) 3,208 --- ---
- --------------------------------------------------------------------------------------------------
$143,978 (1) $143,177 $159,572 $152,295 $184,097
==================================================================================================
</TABLE>
(1) The book value of mortgage-backed securities at December 31, 1995 include
approximately $25.4 million pledged under various agreements, principally lines
of credit and Municipal Option Put Securities.
13
<PAGE>
The following table shows the Bank's activity in mortgage-backed securities
during the years indicated:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning of
year (gross) $149,912 $155,503 $151,975
Purchases:
Collateralized mortgage obligations 22,296 52,194 46,381
Participation certificates 0 28,553 19,679
- -----------------------------------------------------------------------------------
Total purchases 22,296 80,747 66,060
- -----------------------------------------------------------------------------------
Securitizations:
Participation certificates 21,875 17,194 48,640
- -----------------------------------------------------------------------------------
Sales
Collateralized mortgage obligations 6,513 16,010 8,850
Participation certificates 21,027 39,432 45,499
- -----------------------------------------------------------------------------------
Total sales 27,540 55,442 54,349
- -----------------------------------------------------------------------------------
Principal repayments:
GNMA securities 626 593 852
Collateralized mortgage obligations 14,790 24,698 23,320
Participation certificates 7,428 22,799 32,651
- -----------------------------------------------------------------------------------
Total principal repayments 22,844 48,090 56,823
- -----------------------------------------------------------------------------------
Net change in principal (6,213) (5,591) 3,528
- -----------------------------------------------------------------------------------
Mortgage-backed securities at end of year (gross) 143,699 149,912 155,503
- -----------------------------------------------------------------------------------
Net (discounts) and premiums (383) (159) 861
Unrealized appreciation (depreciation) 662 (6,576) 3,208
- -----------------------------------------------------------------------------------
Net mortgage-backed securities at end of year $143,978 $143,177 $159,572
===================================================================================
</TABLE>
INVESTMENT ACTIVITIES
The Bank has authority to purchase and sell a wide range of investment
securities deemed to be prudent by management and the Board of Directors,
subject to various restrictions which have not been material to the Bank's
investment activities. As of December 31, 1995, the Bank's investment securities
portfolio of $103.1 million constituted 8.34% of its total assets. Such
securities consisted primarily of corporate bonds and United States Government
agency securities.
The Bank's investment strategy is set by the Asset and Liability Committee
("ALCO Committee"), which is comprised of officers of the Bank, and policies are
reviewed by the ALCO Committee at least quarterly. While it is generally the
intent of the Bank to hold assets originated or acquired to maturity in order to
earn interest income, the ALCO Committee will make strategic changes primarily
to increase liquidity and/or reduce interest rate risk.
14
<PAGE>
The following table sets forth the Bank's investment portfolio at carrying
value at the dates indicated:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Bond investments:
U.S. Government obligations $60,567 $48,841 $21,161
Municipal obligations 9,312 7,832 5,356
Corporate obligations 18,557 18,208 8,705
Other 170 3,220 59
- ----------------------------------------------------------------------------------------------
Total bond investments 88,606 78,101 35,281
- ----------------------------------------------------------------------------------------------
Stock investments:
Marketable equity securities 3 3 1,004
Preferred sinking fund stocks 3,680 6,359 6,029
Other securities 11,197 5,165 5,197
- ----------------------------------------------------------------------------------------------
Total stock investments 14,880 11,527 12,230
- ----------------------------------------------------------------------------------------------
Commercial paper 0 0 28,933
- ----------------------------------------------------------------------------------------------
Total investment securities at book value 103,486 89,628 76,444
- ----------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) (372) (2,942) 844
- ----------------------------------------------------------------------------------------------
Total investment securities $103,114 $86,686 $77,288
==============================================================================================
</TABLE>
15
<PAGE>
The following table presents the maturities of and the weighted average yield on
the Bank's investment portfolio at December 31, 1995. At this date, the Bank had
no securities which exceeded 10% of stockholders' equity. No tax equivalent
adjustments have been made.
<TABLE>
<CAPTION>
Maturing After Five Years
After One Year Through Five Years Through Ten Years
--------------------------------- ----------------------
In one Fixed Variable Fixed Variable Fixed
Year Interest
or less
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
U.S. Treasury and U.S.
government agencies
and corporations $11,005 4.56% $31,019 6.21% $ 3,998 5.03% $14,545 4.98% $ --- ---% $ -- ---%
Obligations of states and
political subdivisions 4,231 5.11 2,678 5.74 --- --- 73 5.15 --- --- 2,330 7.40
Corporate bonds:
Domestic --- --- 4,498 5.26 11,927 6.87 --- --- --- --- 1,394 8.15
Corporate stocks --- --- --- --- --- --- --- --- --- --- 2,594 5.27
Other securities --- --- --- --- --- --- --- --- --- --- 11,197 6.84
- ----------------------------------------------------------------------------------------------------------------------
Total net investments
and other securities $15,236 4.71% $38,195 6.07% $15,925 6.41% $14,618 4.98% $ --- ---% $17,515 6.79%
======================================================================================================================
<CAPTION>
After Ten Years
---------------
Variable Total
Amount Rate Amount Rate
- -------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities
U.S. Treasury and U.S.
government agencies
and corporations $ --- ---% $ 60,567 5.54%
Obligations of states and
political subdivisions --- --- 9,312 5.86
Corporate bonds:
Domestic 908 3.33 18,727 6.41
Corporate stocks 1,089 9.13 3,683 6.41
Other securities --- --- 11,197 6.84
- --------------------------------------------------------------------
Total net investments
and other securities $1,997 6.49% $103,486 5.90%
====================================================================
</TABLE>
16
<PAGE>
DEPOSITS
At December 31, 1995, the Bank had $1,006.5 million in total deposits
(including escrow funds). Deposits are attracted principally from within the
Bank's primary market area through the offering of a broad selection of deposit
instruments, including commercial savings and demand deposits, negotiable order
of withdrawal ("NOW") accounts, money market deposit accounts, passbook and
statement savings accounts, term accounts and pension accounts for both
individuals and small businesses. Of these deposit instruments, $534.6 million,
or 53.11% of all deposits consisted of term accounts, $223.4 million, or 22.19%
consisted of money market deposit accounts, $143.3 million, or 14.24% consisted
of passbook and statement savings accounts, $59.7 million, or 5.93% consisted of
NOW accounts and $45.5 million, or 4.52% consisted of commercial checking
accounts, with the balance being comprised of escrow deposits.
The Bank generally does not actively solicit or advertise for deposits outside
of its primary market area. However, beginning in 1993, the Bank began accepting
brokered deposits. At December 31, 1995, the brokered deposits totalled $40.0
million with original maturities of one to five years. The variety of deposit
accounts offered by the Bank has allowed it to be competitive with other
financial institutions; however, the threat of disintermediation (the flow of
funds away from banking institutions into direct investment vehicles such as
government and corporate securities) still exists.
Since 1979, the Bank has offered state-of-the-art electronic delivery systems.
Since such date, the Bank's ATM network (MachineTeller(R)) and point-of-sale
network (StoreTeller(R)) have processed over 16.3 million transactions for the
Bank's depositors. During the 1980s, the Bank derived an increasing amount of
its deposits from short-term accounts (money market and certificates of deposit
of two years or less in maturity) rather than longer maturity, fixed-rate,
fixed-term certificates that previously were the Bank's primary source of
deposits prior to 1978.
Deposit accounts in the Bank are insured to the maximum permissible amounts by
the BIF, as administered by the FDIC. Accordingly, the Bank is subject to rules,
regulations and examinations of the FDIC.
The following table shows the distribution of the deposit accounts in the Bank
by type of deposits as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Interest Interest Interest
Amount % Rate Amount % Rate Amount % Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and statement $ 139,203 13.83% 3.00% $163,505 16.98% 3.00% $161,188 18.02% 3.00%
NOW accounts 59,740 5.93 1.54 58,943 6.12 1.54 59,355 6.64 1.54
Money market deposit accounts 223,357 22.19 4.57 212,302 22.05 4.84 154,303 17.25 2.98
Commercial checking accounts 45,496 4.52 ---- 45,507 4.73 ---- 43,996 4.92 ----
One to two year certificates (1) 188,867 18.77 5.78 160,317 16.65 5.44 127,694 14.28 3.75
Two to three year certificates (1) 102,787 10.21 6.07 117,423 12.20 6.02 146,648 16.40 4.42
Other certificates (1) 242,914 24.14 5.89 200,730 20.85 5.38 196,666 21.99 5.38
Escrow 4,101 0.41 2.00 4,053 0.42 2.00 4,443 0.50 2.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits at end of period $1,006,465 100.00% 4.65% $962,780 100.00% 4.40% $894,293 100.00% 3.50%
=================================================================================================================================
</TABLE>
(1) Minimum balance required to earn interest, depending upon type of
certificate, ranges from $500 to $100,000.
The Bank attempts to manage the flow of deposits by pricing its accounts to
remain generally competitive with other financial institutions in its market
area. The Bank has used its pricing policies to moderate deposit inflow to
control its cost of funds in view, among other considerations, of its capital
adequacy requirements. Management believes that this action does not have an
adverse effect on its ability to acquire deposits.
17
<PAGE>
The following table presents, by various interest rate categories, the amounts
of certificate accounts at December 31, 1994 and December 31, 1995, which mature
during the periods indicated:
<TABLE>
<CAPTION>
Amounts at December 31, 1995
Maturing Within
December 31, One Two Three
1994 1995 Year Years Years Thereafter
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2% to 3.99% $ 51,464 $ 1,620 $ 1,459 $ 123 $ 16 $ 22
4% to 5.99% 204,156 375,337 280,544 43,969 34,755 16,069
6% to 7.99% 216,623 154,078 61,580 40,062 17,230 35,206
8% to 9.99% 3,970 1,774 184 374 193 1,023
10% to 11.99% 2,257 1,759 1,042 0 416 301
- ------------------------------------------------------------------------------------------------------------------------------------
Total certificate accounts $478,470 $534,568 $344,809 $84,528 $52,610 $52,621
====================================================================================================================================
</TABLE>
The following table sets forth deposit activity for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited $ (570) $ 33,402 (1) $41,860
Interest credited 44,255 35,085 30,318
- ----------------------------------------------------------------------------------------------------
Net deposit increase $43,685 $68,487 $72,178
====================================================================================================
</TABLE>
(1) Includes approximately $40.0 million of deposits acquired from Columbia
Banking FSA in 1994.
The following table sets forth the deposits and the changes in dollar amount
of deposits in the various programs offered by the Bank for the periods
indicated. The net increase (decrease) in deposits during the period is
inclusive of the effects of interest credited.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Deposits at beginning of period $ 962,780 $894,293 $822,115
Increase (decrease) in:
Passbook accounts (24,302) 2,317 11,248
NOW accounts 797 (412) (995)
Money market deposit accounts 11,055 57,999 (421)
Commercial checking accounts (11) 1,511 13,343
One to two year certificates 28,550 32,623 21,353
Two to three year certificates (14,636) (29,225) 10,351
Other certificates 42,184 4,064 17,844
Escrow 48 (390) (545)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in deposits during the period 43,685 68,487 72,178
- -----------------------------------------------------------------------------------------
Deposits at end of period $1,006,465 $962,780 $894,293
=========================================================================================
</TABLE>
18
<PAGE>
The following table presents, by various interest rate categories, the amounts
of certificate accounts of $100,000 or more at December 31, 1995, which mature
during the periods indicated:
<TABLE>
<CAPTION>
`
Amounts at December 31, 1995
- --------------------------------------------------------------------------------------
Maturing Within
Over Over
Three Six to
December 31, Three to Six Twelve
1995 Months Months Months Thereafter
(Dollars In Thousands)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2% to 3.99% $ 108 $ 0 $ 108 $ 0 $ 0
4% to 5.99% 72,662 53,114 6,867 9,222 3,459
6% to 7.99% 18,392 3,445 4,859 1,790 8,298
8% to 9.99% 0 0 0 0 0
10% to 11.99% 111 0 0 0 111
- --------------------------------------------------------------------------------------
Total $91,273 $56,559 $11,834 $11,012 $11,868
======================================================================================
</TABLE>
BORROWINGS
The Bank has available a number of borrowing sources of funds. The Bank's
principal borrowings are the Municipal Option Put Securities ("MOPS") program
and advances from the FHLBNY. The primary purpose of the MOPS program is to
redeploy funds from fixed-rate, longer-term, municipal securities to lending
activities which have greater rate sensitivity. Under the MOPS program,
initiated in 1984, the Bank, together with other financial institutions, sold
certain securities held in their investment portfolios (primarily long-term,
fixed-rate public bond issues) to investors with a commitment to repurchase the
debt obligations on each anniversary date of the sale (September 14 of each
year), if a "put" option held by the investors is exercised by them. The
commitment to repurchase is backed by mortgage-backed securities.
The Bank may obtain advances from the FHLBNY upon the security of the capital
stock of the FHLBNY it owns and certain of its home mortgages, mortgage-backed
securities and other types of securities, provided that certain standards
related to creditworthiness have been met. Such advances are made pursuant to
several different credit programs. Each credit program has its own interest rate
and range of maturities. See Notes 9 and 10 of Notes to Consolidated Financial
Statements included in the 1995 Annual Report to Shareholders.
At December 31, 1995, the Bank had $98.9 million in aggregate borrowings. This
was comprised of $2.2 million in MOPS and $96.7 million in FHLBNY advances.
The following table sets forth the borrowings of the Bank's as of the dates
indicated:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term borrowings:
Municipal option put securities $ 2,199 $ 2,228 $ 2,563
Federal Home Loan Bank advances 95,150 75,000 0
Current portion of long-term advance from Federal Home Loan Bank 1,600 200 75,200
- ----------------------------------------------------------------------------------------------
98,949 77,428 77,763
Long-term borrowings:
Long-term advance from Federal Home Loan
Bank bearing interest at rates from 7.8% to 7.9% 0 1,600 1,800
- ----------------------------------------------------------------------------------------------
$98,949 $79,028 $79,563
==============================================================================================
</TABLE>
19
<PAGE>
The following table sets forth information related to short-term borrowings of
the Bank as of the dates indicated:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding balance at end of year $ 98,949 $ 77,428 $ 77,763
Average interest rate 5.88% 6.14% 3.63%
Maximum outstanding at any month end $126,098 $102,818 $125,212
Average amount outstanding during year $103,520 $ 82,890 $ 82,921
Average interest rate during year 5.91% 4.46% 3.23%
- --------------------------------------------------------------------------------
</TABLE>
(1) Average amounts outstanding and average interest rates are computed using
weighted monthly averages.
TRUST POWERS
The Bank received approval of its application for full trust powers in May of
1991. The Bank provides full trust services to individuals, corporations and
non-profit organizations including executor of estates, trustee under wills and
living trust agreements, custodian services, investment management services and
acts as trustee of qualified retirement plans. At December 31, 1995, the Bank
managed $159.9 million in trust assets.
The Bank also acts as a trustee of individual retirement accounts ("IRAs") and
of Simplified Employee Pension Plans ("SEPs") where investments are limited to
savings and time deposits of the Bank.
The Pension Services Department also markets a Defined Contribution Plan
consisting of a profit-sharing and/or money purchase plan which is available to
self-employed individuals as well as corporations. Employers are able to direct
the investment of such plan's funds into deposit account, securities and life
insurance contracts.
INVESTMENT IN SUBSIDIARIES
At December 31, 1995, the Bank is the only direct subsidiary of the Company.
BSB Bank & Trust has an investment, at cost, in two wholly owned subsidiaries
aggregating $292,000 at December 31, 1995. B-Save Corporation was incorporated
in 1982 for the purpose of engaging in a real estate development joint venture.
BSB Credit was incorporated in 1983 to solicit mortgage loan applications for
BSB Bank & Trust. During 1992, the name was changed to BSB Mortgage
Corporation.
In December 1995, the Bank formed a new wholly-owned subsidiary, BSB Financial
Services, Inc. to conduct the Bank's brokerage services.
PERSONNEL
The Company has no employees who are not also employees of the Bank. As of
December 31, 1995, BSB Bank & Trust, on a consolidated basis, had 303 full-time
and 88 part-time employees. The employees are not represented by any collective
bargaining unit, and BSB Bank & Trust considers its relationship with its
employees to be good.
DATA PROCESSING EQUIPMENT
BSB Bank & Trust has a data processing function which handles selected
services for BSB Bank & Trust. Since May 1992, this data processing function has
been serviced by Newtrend of Orlando, Florida.
20
<PAGE>
COMPETITION
BSB Bank & Trust faces significant competition in attracting deposits and
loans. Its most direct competition for deposits has historically come from
commercial banks, thrift institutions and credit unions located in its market
area. BSB Bank & Trust also faces additional significant competition for
investors' funds from short-term money market mutual funds and issuers of
corporate and government securities. BSB Bank & Trust competes for deposits
principally by offering depositors a wide variety of deposit programs,
convenient branch locations and banking hours, tax-deferred retirement programs
and other services. BSB Bank & Trust also utilizes newspaper, radio, television
and other media to advertise its deposit and loan services. BSB Bank & Trust
does not rely upon any individual group or entity for a material portion of its
deposits.
BSB Bank & Trust's competition for loans comes principally from thrift
institutions, credit unions, mortgage banking companies and commercial banks.
BSB Bank & Trust competes for loan originations primarily through the interest
rates and loan fees it charges, and the efficiency and quality of services it
provides consumers and commercial borrowers, real estate brokers, automobile
dealers, builders, and regional mortgage correspondent originators. The Bank
also relies on the residential mortgage origination efforts of BSB Mortgage
Corporation, a wholly-owned subsidiary. Factors which affect competition include
the general availability of lendable funds and credit, general and local
economic conditions, current interest rate levels and volatility in the lending
markets.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA") authorizes the acquisition of banks in any state by bank holding
companies, subject to compliance with federal and state antitrust laws, the
Community Reinvestment Act (the "CRA") and specific deposit concentration
limits. The IBBEA removes most state law barriers to interstate acquisitions of
banks and ultimately will permit multi-state banking operations to merge into a
single bank. New York law currently provides that an out-of-state depository
institution may establish branches in New York or acquire a banking organization
in New York with the prior approval of the Superintendent of Banking Department
("Superintendent"), provided that the out-of-state depository institution is
located in a state that has reciprocal legislation in effect on substantially
the same terms and conditions as provided by New York law. In addition, such
out-of-state laws cannot affect the powers or privileges of the New York banking
institution. Additionally, federally chartered savings associations have
nationwide branching authority.
The company is unable to predict what impact, if any, New York or federal
interstate banking law will have on its operations. These regulatory provisions
and changes may increase the opportunities of the Company and the Bank to expand
into additional markets. However, they also may increase the number and the size
of financial institutions competing in the Bank's general market area.
21
<PAGE>
REGULATION
GENERAL
The Company, as a bank holding company, is subject to regulation, supervision
and examination by the Federal Reserve Board. The Bank, as a New York-chartered
bank and trust company, is subject to regulation, supervision and examination by
the FDIC as its primary federal regulator and by the Superintendent as its state
regulator. The Bank also is subject to regulation, supervision and examination
as to certain matters by the Federal Reserve Board.
The Bank's deposits are insured to applicable limits by the Bank Insurance
Fund ("BIF"), as administered by the FDIC. Savings associations generally are
insured by the Savings Association Insurance Fund ("SAIF"), also administered by
the FDIC. During May 1995, the BIF reached its statutorily-required designated
reserve ratio ("DRR") of $1.25 per $100 of insured deposits. Action by the FDIC
last fall lowered BIF premiums such that well capitalized institutions such as
the Bank currently pay only a statutory minimum of $2,000 per year. The deposit
insurance premiums imposed by the FDIC are subject to change.
As a bank holding company, the Company is required to maintain qualifying
capital, half of which must be leverage or Tier 1 capital, equal to 8% of its
risk-weighted assets and off-balance sheet items. In 1990, the Federal Reserve
Board amended its capital regulation to establish a new minimum leverage ratio
of 3% Tier 1 capital to total assets for the highest rated bank holding
companies with an additional cushion of approximately 100 to 200 basis points
for all other bank holding companies. At December 31, 1995, the Company's Tier 1
or leverage capital-to-assets ratio, as defined in the risk-based capital
regulation equaled 11.64% of adjusted total assets or $114.1 million, which
exceeds the current minimum requirements for the Company by $74.9 million. At
December 31, 1995, its total capital to risk-weighted assets ratio, calculated
under the Federal Reserve Board risk-based capital requirement, was 12.89%.
As an FDIC insured institution, the Bank is required to maintain specified
levels of minimum capital, including: (I) core or Tier 1 capital in an amount
not less than 3% of total assets (plus an additional cushion of at least 100 to
200 basis points for all but the most highly rated banks) and (ii) "risk-based"
Capital (one-half of which must be core capital) not less than 8% of risk-
weighted assets. During 1994, the federal bank regulatory agencies revised the
method for calculating risk-based capital such that the Bank now must identify
the concentration of credit risk and the risks arising from nontraditional
activities, as well as the Bank's ability to manage such risks. The FDIC also
has adopted a prompt corrective action ("PCA") regulation that classifies any
bank with a core capital ratio of less than 4% (3% for the most highly rated
institutions) a risk-based capital ratio of less than 8% as "under-capitalized".
At December 31, 1995, the Bank met the requirements for a "well-capitalized"
institution. At December 31, 1995, the Bank had a ratio of Tier 1 or core
capital to total average assets of 9.53%, which exceeded the 4% minimum by $78.2
million. At December 31, 1995, the Bank's ratio of total capital to total risk-
weighted assets was approximately 12.89%, which exceeded the 8% minimum by $48.0
million and its ratio of Tier 1 capital to total risk-weighted assets was
approximately 11.64%, which exceeded the 4% minimum by $74.9 million.
During 1995, the FDIC, along with the other federal banking agencies, adopted
safety and soundness guidelines relating to (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate exposure; (v) asset growth and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. Such guidelines set out standards that the agencies
will use to identify and address problems at institutions before capital becomes
impaired. Pursuant to such guidelines the Bank is required to establish and
maintain a system to identify problem assets and prevent deterioration of those
assets in a manner commensurate with its size and the nature and scope of its
operations. The Bank also must establish and maintain a system to evaluate and
monitor earnings and ensure that earnings are sufficient to maintain adequate
capital and reserves in a manner commensurate with its size and the nature and
scope of its operations.
If the Bank does not meet one or more of the safety and soundness standards
set forth in the guidelines, it is required to file a compliance plan with the
FDIC. In the event that the Bank fails to submit an acceptable compliance plan
or fails in any material respect to implement an accepted compliance plan within
the time allowed by the FDIC, the Bank would be required to correct the
deficiency and the FDIC would be authorized to: (i) restrict the Bank's asset
growth; (2) require the Bank to increase its ratio of tangible equity to assets;
(3) restrict the rates of interest that the Bank may pay; or (4) take any other
action that would better carry out the purpose of the corrective action. The
Bank believes it currently is in compliance with the safety and soundness
standards set forth by the FDIC.
During 1995, in accordance with changes mandated by the Community Development
and Regulatory Improvement Act of 1994 (the "Community Development Act"), the
FDIC and the other federal banking agencies, proposed certain amendments to the
regulations implementing the Depository Institutions Management Interlocks Act
(the "Interlocks Act"), which restricts management interlocks in order to foster
competition between unaffiliated institutions. The proposed amendments would
narrow the circumstances under which an exception to the prohibitions of the
Interlocks Act could be granted by agency order and would clarify certain
language as used within regulations. Management officials at the Company and
the Bank are in full compliance with the Interlocks Act.
The Community Development Act also requires that each banking egency implement
a comprehensive review of its regulations to eliminate duplicative, unduly
burdensome and unnecessary regulations. During 1995, the FDIC issued a notice
of opportunity for comment with respect to its review of all of its regulations
and written policies.
Under the Community Reinvestment Act (the "CRA") and the implementing FDIC
regulations, which were amended in 1995 to provide for a performance-based
evaluation system, a banking institution has a continuing and affirmative
obligation to help meet the credit needs of its local communities, including low
and moderate-income neighborhoods, consistent with the safe and sound operation
of the institution. The CRA requires the board of directors of savings
institutions, such as the Bank, to adopt a CRA statement for each assessment
area that, among other things, describes its efforts to help meet community
credit needs and the specific types of credit that the institution is willing
to extend. In connection with its examination of a savings institution, the FDIC
is required to take into account the institution's record of meeting the credit
needs of its community in determining whether to grant approval for certain
types of applications including mergers and acquisitions. The Bank's CRA rating
is 1.
-
22
<PAGE>
During 1994, the federal bank regulatory agencies jointly issued proposed
changes to the rules and regulations implementing the CRA that could impact how
the Bank's CRA performance is measured. Pursuant to the CRA, the Bank is
required to demonstrate how its deposit facilities serve the convenience and
needs of the communities in which it is chartered to do business, including the
credit needs of low- and moderate-income populations with such communities. The
Bank's CRA rating is a factor reviewed in connection with mergers, acquisitions,
and in connection with other regulatory applications. For example, the Bank's
pending change to a commercial bank and trust company charter has been delayed
significantly as regulatory authorities have reviewed carefully the Bank's
current CRA rating of 1 in light of challenges raised by various community
groups. The proposed revisions to the rules and regulations implementing the CRA
would adopt a performance-based evaluation system, measuring the Bank's lending,
investment and service to its delineated lending community, in lieu of the
current process-based system of evaluation. The Bank believes that its current
rating is appropriate and that it can continue to receive comparable CRA ratings
if the new evaluation system is adopted as proposed.
Legislation has been introduced in the Congress to create the new Federal
Banking Agency as the primary federal regulator for institutions such as the
Bank, as well as savings institutions and National banks. There can be no
assurance that this legislation or similar legislation will be enacted, or the
impact on the Bank and the Company of such legislation.
23
<PAGE>
TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank file a consolidated tax return. The Company
and the Bank currently report their income and expenses under the accrual basis
of accounting and use a tax year ending December 31 for filing its federal
income tax return. The following discussion of federal taxation is a summary of
certain pertinent federal income tax matters.
BAD DEBTS. The Bank is currently taxed as a commercial institution. A bank
is treated as a "large" bank if its average total assets exceed $500.0 million.
As a "large" bank, the Bank may only deduct specific wholly or partially
worthless debts pursuant to Section 166 of the Code.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. At December 31, 1995, the Company and the Bank
had no net operating loss carryforward for federal income tax purposes.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net
capital gains are taxed at a maximum tax rate of 35%. The dividends-received
deduction is 70.0% of the dividends received from less than 20.0% owned
corporations. However, certain dividend payments between members of an
"affiliated group" of corporations, such as the Company, are eligible for a
100.0% deduction.
OTHER MATTERS. In addition to the changes in the income tax laws that affect
the Bank's federal income tax liability, the 1986 Act instituted other changes
in the system of federal income taxation that could affect the bank's business.
The most significant of these changes include the phased-in disallowance of any
interest deduction to individuals with respect to interest incurred for consumer
loans, such as automobile loans and education loans. Interest would continue to
be deductible for home equity loans secured by the principal or secondary
residence of a taxpayer provided the aggregate amount of such indebtedness is
not more than $100,000 in excess of the indebtedness incurred to acquire or
substantially improve such residences. Other limitations would apply to the
deduction of interest incurred with respect to certain passive investments.
The Bank's federal income tax returns for its tax years beginning in 1993 are
open under the statute of limitations and are subject to review by the IRS.
NEW YORK STATE TAXATION
The Company and the Bank are subject to an annual New York State Franchise
tax equal to the greater of a regular tax (the "State Regular Tax"), an
alternative minimum tax (the "State Alternative Minimum Tax"), a tax based on
the combined taxable assets of the Company and the Bank, or a fixed minimum tax
of $250, plus a tax surcharge.
The State Regular Tax is computed at the rate of 9% on the Company's and the
Bank's entire net income, allocated to New York State, calculated on a
consolidated return basis.
The State Alternative Minimum Tax is computed at the rate of 3% on the
Company's and the Bank's alternative entire net income allocable to New York
State for the taxable year. The Company and the Bank's alternative entire net
income consists of their entire net income, increased by certain deductions,
primarily interest on obligations of New York State or the United State
government, taken in computing entire taxable income that are not allowed in
computing alternative entire taxable income.
The tax based on combined taxable assets consists of the Company's and the
Bank's combined average assets. The tax is computed at the rate of one-tenth of
a million per dollar of taxable assets, but lower rates apply for banks with at
least 33% of their assets in mortgages and that have a "net worth ratio" of less
than 5%.
New York State imposes a tax surcharge on New York State Franchise tax,
before tax credits. In 1995, the tax surcharge was 7.5% of taxable income after
deducting tax credits. The surcharge is scheduled to be reduced to 2.5% for 1996
and eliminated in 1997.
24
<PAGE>
The New York State Franchise tax paid by the Company is deductible for
Federal income tax purposes.
The Company's and the Bank's New York State income tax returns for the tax
years beginning in 1994 are open and subject to review by New York State.
DELAWARE STATE TAXATION
The Company is subject to an annual Delaware State Franchise Tax. The
Franchise Tax provides that every corporation incorporated under the laws of the
State of Delaware "shall pay an annual tax . . . by way of license" for its
corporate franchise. See Del. Code. Ann. Tit. 8, Sec. 501. Two methods are
provided for calculating the Franchise Tax and the lesser amount calculated
under either method is the tax payable. The first method, which is called the
"authorized shares method," is based on the authorized number of shares of
capital stock and is calculated according to the following formula: where the
authorized capital stock does not exceed 3,000 shares, $30; where the authorized
capital stock exceeds 3,000 shares but is not more than 5,000 shares, $35; where
the authorized capital stock exceeds 5,000 shares but is not more than 10,000
shares, $70; and the further sum of $35 on each 10,000 shares or part thereof.
Under the formula, the Company, with its authorized capital of 10,000,000
shares of common stock, with a one cent par value, and 5,000,000 shares of
preferred stock, with a one cent par value, pays an annual franchise tax of
approximately $63,000. This is a lesser amount than would be due if the
Franchise Tax were calculated under the second method, which is referred to as
the "assumed par value capital method". The second method is calculated by
dividing the corporation's total gross assets by its total number of outstanding
shares and multiplying the quotient by the total number or authorized shares.
The product equals the capitalization for assessment of the franchise tax which
is assessed at a rate of $140 per $1 million of capitalization.
25
<PAGE>
ITEM 2. PROPERTIES
The Company does not own or lease any property, other than that owned or
leased by the Bank and its subsidiary. BSB Bank & Trust conducts its business
from its executive office and twelve full-service offices located in Broome,
Tioga, Chenango, and Chemung counties in the southern tier of Upstate New York.
The following table sets forth certain information relating to each of BSB Bank
& Trust's offices as of December 31, 1995.
<TABLE>
<CAPTION>
Lease Net Book
Owned Expiration Value at
or Including December 31,
Office Location Leased Options 1995
- -----------------------------------------------------------------------------------------------
($ In Thousands)
<S> <C> <C> <C> <C>
Main Office 56-68 Exchange St. Owned N/A $ 959
Binghamton
Annex 58 Exchange St. Owned N/A 1,244
Binghamton
99 Hawley St. 99 Hawley St. Owned(1) N/A 359
Binghamton
92 Hawley St. 92 Hawley St. Leased 2/28/99 0
Binghamton
Endwell Office 540 Hooper Rd., Endwell Owned N/A 327
Vestal Plaza Office Vestal Plaza, Vestal Leased 11/09/11 152
Tioga County Office Fifth Ave., Owego Leased 3/08/13 57
Oakdale Mall Office Reynolds Rd. Leased 7/31/15 68
Johnson City
Norwich Office North Plaza, Norwich Leased 7/21/15 41
Northgate Plaza Office 1250 Front St., Binghamton Leased 4/30/17 104
Binghamton
West Side Office 273 Main St., Binghamton Leased 10/31/12 47
Binghamton
Endicott Office 43 Washington Ave. Owned N/A 756
Endicott
Eastside Office 160 Robinson St. Leased 8/01/21 561
Binghamton
Elmira Office 352 North Main St. Elmira Owned N/A 427
Elmira Heights 2075 Upper Lake Rd. Leased 8/26/09 64
Office Elmira Heights
BSB Mortgage Corp. Valley Plaza Johnson City Leased 4/30/99 4
</TABLE>
(1) Subject to a mortgage of $55,000.
BSB Bank & Trust also operates 18 ATMs (MachineTeller(R)), the most extensive
system in its market area, which provides 24-hour banking services, and the Bank
operates 12 proprietary bank service locations (StoreTeller(R)) situated in the
area's largest supermarket chain. BSB Bank & Trust issued approximately 50,000
plastic cards which allow depositors to use the ATMs and in-store facilities.
26
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation other than that arising in the
ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required herein is incorporated by reference from under the
sections captioned "Market Prices and Related Shareholder Matters" on page 28 of
the Company's Annual Report to Shareholders for the year ended December 31, 1995
which is included herein as Exhibit 13 ("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference from the table
captioned "Selected Financial and Other Data" on page 11 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required herein is incorporated by reference from the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 12 to 27 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required is incorporated by
reference from pages 29 to 46 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference from pages 2 to
8 of the Company's definitive Proxy Statement filed with the SEC on March 21,
1996 (other than the sections entitled "Company Compensation Committee and Bank
salary and Personnel Administration Committee Report on Executive Compensation"
and "Comparative Company Performance," and hereinafter called the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is incorporated by reference from the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference from the Proxy
Statement.
27
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS
The information required herein is incorporated by reference from the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are incorporated by reference
from Item 8 hereof:
Consolidated Statements of Condition at December 31, 1995 and 1994
Consolidated Statements of Income For Each of the Three Years in the
Period Ended December 31, 1995
Consolidated Statements of Shareholders' Equity For Each of the
Three Years in the Period Ended December 31, 1995
Consolidated Statements of Cash Flows For Each of the Three Years in
the Period Ended December 31, 1995
Notes to Consolidated Financial Statements
Independent Auditor's Report
(a)(2) There are no financial statement schedules which are required to be
filed as part of this form since they are not applicable.
(a)(3) See (c) below for all exhibits filed herewith and the Exhibit Index.
(b) Reports on Form 8-K. N/A
(c) Exhibits. The following exhibits are either filed as part of this
annual report on Form 10-K, or are incorporated herein by reference:
<TABLE>
<CAPTION>
No. Exhibit Page
- ------------ ------------------------------------------------------------------ ----
<S> <C> <C>
3.1 Certificate of Incorporation *
3.2 Bylaws *
4.1 Specimen stock certificate *
10.1 Long Term Incentive and Capital Accumulation Plan *
10.2 Employment Contract with William H. Rincker **
10.3 Change of Control Severance Agreement with Arthur C. Smith E-
10.4 Amendment to Employment Contract with Alex S. DePersis E-
10.5 Amendment to Change of Control Severance Agreement
with Edward R. Andrejko E-
10.6 Amendment to Change of Control Severance Agreement
with Larry Denniston E-
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.7 Amendment to Change of Control Severance Agreement with Warren O. Hill E-
10.8 Amendment to Change of Control Severance Agreement with Douglas R. Johnson E-
10.9 Amendment to Change of Control Severance Agreement with Fielding Simmons III E-
10.10 Amendment to Change of Control Severance Agreement with Glenn R. Small E-
13 Annual Report to Shareholders for the Year Ended December 31, 1995
21 List of Registrant's Subsidiary E-
23 Consent of Independent Public Accountants E-
</TABLE>
(d) There are no other financial statements and financial statement schedules
which were excluded from the Annual Report which are required to be
included herein.
____________________
* Exhibit is incorporated herein by reference to the identically numbered
exhibit to the Form S-4 Registration Statement filed by the Company with the SEC
on March 2, 1988.
** Exhibit is incorporated herein by reference to the identically numbered
exhibit to the Company's Annual Report on Form 10-K filed by the Company with
the SEC on March 26, 1991.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, BSB Bancorp, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BSB BANCORP, INC.
- -----------------
(Registrant)
By:/s/ William H. Rincker Date: March 29, 1996
-------------------------- ---------------
William H. Rincker
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/ William H. Rincker
--------------------------
William H. Rincker Date: March 29, 1996
Chairman and Chief Executive Officer --------------
By:/s/ Edward R. Andrejko
--------------------------
Edward R. Andrejko Date: March 29, 1996
Senior Vice President and Chief Financial --------------
Officer (Principal Accounting Officer)
By:/s/ Ferris G. Akel
--------------------------
Ferris G. Akel Date: March 29, 1996
Director --------------
By:/s/ Robert W. Allen
--------------------------
Robert W. Allen Date: March 29, 1996
Director --------------
By:/s/ William C. Craine
--------------------------
William C. Craine Date: March 29, 1996
Director --------------
By:/s/ John J. Consey
--------------------------
John J. Consey Date: March 29, 1996
Director --------------
By:/s/ Helen A. Gamble
--------------------------
Helen A. Gamble Date: March 29, 1996
Director --------------
By:/s/ Thomas F. Kelly
--------------------------
Thomas F. Kelly , Ph.D. Date: March 29, 1996
Director --------------
30
<PAGE>
By:/s/ Herbert R. Levine
--------------------------
Herbert R. Levine Date: March 29, 1996
Director --------------
By:/s/ David A. Niermeyer
--------------------------
David A. Niermeyer Date: March 29, 1996
Director --------------
By:/s/ Mark T. O'Neil, Jr.
--------------------------
Mark T. O'Neil, Jr. Date: March 29, 1996
Director --------------
By:/s/ John V. Sponyoe
--------------------------
John V. Sponyoe Date: March 29, 1996
Director --------------
By:/s/ Thomas L. Thorn
--------------------------
Thomas L. Thorn Date: March 29, 1996
Director --------------
31
<PAGE>
EXHIBIT 10.3
CHANGE OF CONTROL SEVERANCE
This Change of Control Severance Agreement ("Agreement") is entered
into as of January 22, 1996, by and between BSB BANCORP, INC. (the
"Corporation"), a Delaware corporation, and its wholly owned subsidiary BSB BANK
& TRUST COMPANY ("Employer"), a New York stock commercial bank, and ARTHUR C.
SMITH ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by Employer as a Senior Vice
President; and
WHEREAS, Employer desires to provide certain security to Executive in
connection with Executive's employment with Employer; and
WHEREAS, Executive and Employer desire to enter into this Agreement
pertaining to the terms of the security Employer is providing to Executive with
respect to his employment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Term. The initial term of this Agreement shall be a period of three
----
years from the date first above written, provided that the term of the Agreement
shall be extended automatically for an additional one year on each annual
anniversary date of this Agreement, unless either the Board of Directors of the
Employer or the Executive provide contrary written notice to the other not less
than 180 days in advance of any such anniversary date. In the event either the
Employer or the Executive provide such written notice, then the term hereof
shall not be extended, but the then current term shall continue for the period
remaining thereunder. Notwithstanding the foregoing, this Agreement shall
automatically expire and terminate on the Executive's normal retirement date at
age sixty-five (65) or on the Executive's early retirement under the Special
Service Retirement provision of the Employer's pension plan if the Executive
elects to take such early retirement.
2. Benefits Upon Termination of Employment.
---------------------------------------
(a) If, at any time during the twelve-month period following a Change
in Control, (1) the employment of Executive with Employer is terminated by
Employer for any reason other than Good Cause, or (2) Executive terminates his
employment with Employer for Good Reason, Employer shall, during the Severance
Period, continue to pay Executive an amount equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or
other installments, similar to those being received by Executive at the date of
the Change in Control, and will commence as soon as practicable following the
date of termination of employment. Executive shall receive any and all benefits
accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans.
(b) If upon the date of termination of Executive's employment,
Executive holds any options with respect to stock of Corporation, all such
options will immediately become exercisable upon such date and will be
exercisable for 90 days thereafter. To the extent such acceleration of exercise
of such options is not permissible under the terms of any plan pursuant to which
the options were granted, Employer will pay to Executive, in a lump sum, within
90 days after termination of employment, an amount equal to the excess, if any,
of the aggregate fair market value of all stock of Corporation subject to such
options, determined on the date of termination of
<PAGE>
employment, over the aggregate option price of such stock, and Executive will
surrender all such options unexercised. For the purposes of this Agreement, the
fair market value of the stock of Corporation shall be an amount equal to the
average of the bid and asked prices of the stock of the Corporation at the close
of the five business days preceding the date of Executive's termination of
employment.
(c) During the Severance Period, Executive and his spouse will
continue to be covered by all Welfare Plans, maintained by Employer in which he
or his spouse were participating immediately prior to the date of his
termination as if he continued to be an employee of Employer; provided that, if
participation in any one or more of such Welfare Plans is not possible under the
terms thereof, Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer during the Severance
Period, such coverage shall be provided only to the extent that the coverage
exceeds the coverage of any substantially similar plans provided by his new
employer.
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
between Executive and the Corporation or Employer (or any subsidiary or
affiliate of either of them), except an agreement, contract, or understanding
hereafter entered into that expressly modifies or excludes application of this
paragraph (the "Other Agreements"), and notwithstanding any formal or informal
plan or other arrangement heretofore or hereafter adopted by the Corporation or
Employer (or any subsidiary or affiliate of either of them) for the direct or
indirect provision of compensation to Executive (including groups or classes of
participants or beneficiaries of which Executive is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for Executive (a "Benefit Plan"), Executive shall not have any right to receive
any payment or other benefit under this Agreement, any Other Agreement, or any
Benefit Plan if such payment or benefit, taking into account all other payments
or benefits to or for Executive under this Agreement, all Other Agreements, and
all Benefit Plans, would cause any payment to Executive under this Agreement to
be considered a "parachute payment" within the meaning of Section 28OG(b)(2) of
the Internal Revenue Code of 1986, as amended (a "Parachute Payment"). In the
event that the receipt of any such payment or benefit under this Agreement, any
Other Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive shall
have the right, in Executive's sole discretion, to designate those payments or
benefits under this Agreement, any Other Agreements, and/or any Benefit Plans,
which should be reduced or eliminated so as to avoid having the payment to
Executive under this Agreement be deemed to be a Parachute Payment.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c).
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the
Severance Period, be covered under all Welfare Plans made available by Employer
to Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
<PAGE>
5. Termination for Good Cause or Without Good Reason. If the
-------------------------------------------------
employment of Executive with Employer is terminated (a) for any reason prior to
a Change in Control, or (b) after a Change in Control by Employer for Good
Cause, or by the voluntary action of Executive without Good Reason, Executive's
Base Salary (at the rate in effect on the date of termination) shall be paid
through the date of termination, and Employer shall have no further obligation
to Executive or his spouse under this Agreement, except for benefits accrued
under Incentive Plans pursuant to subsection 2 (a) above.
6. Definitions. For purposes of this Agreement:
-----------
(a) "Base Salary" shall mean the higher of Executive's annual base
salary at the rate in effect on the date of a Change in Control or the rate in
effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if there has
been a change of control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or such item
thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections (13 (d) and 14
(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation or the Employer representing
twenty-five percent (25%) or more of the combined voting power of the
Corporation's then outstanding securities, or (ii) during any period of two (2)
consecutive years, individuals who at the beginning of such period constituted
the Boards of Directors of the Corporation and the Employer cease for any reason
to constitute at least a majority thereof unless the election of each Director,
who was not a Director at the beginning of the period, was approved by a vote of
at least two-thirds of the Directors then still in office who were Directors at
the beginning of the period, or (iii) the Corporation shall cease to be a
publicly owned corporation, or (iv) any merger or consolidation of the
Corporation with or into another entity shall occur as a result of which the
stockholders of the Corporation do not retain or acquire seventy-five (75%) or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if:
(1) Executive engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation or intentional wrongdoing or malfeasance; (2)
Executive is convicted of a criminal violation involving fraud or dishonesty; or
(3) Executive materially breaches the Agreement (other than by engaging in acts
or omissions enumerated in paragraphs (1) and (2) above), or materially fails to
satisfy the conditions and requirements of his employment with Employer, and
such breach or failure by its nature is incapable of being cured, or such breach
or failure remains uncured for more than 30 days following receipt by Executive
of written notice from Employer specifying the nature of the breach of this
paragraph (3), inattention by Executive to his duties shall be deemed a breach
or failure capable of cure.
Without limiting the generality of the foregoing, the following shall not
constitute Good Cause: any personal or policy disagreement between Executive and
Employer or any member of the Board of Directors of Employer; or any action
taken by Executive in connection with his duties if Executive acted in good
faith and in a manner he reasonably believed to be in, and not opposed to, the
best interest of Employer and had no reasonable cause to believe his conduct was
unlawful.
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least thirty (30) days prior written notice to Executive
specifying in detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
<PAGE>
(1) there is a significant change in the nature or the scope of Executive's
authority;
(2) there is a reduction in Executive's rate of Base Salary;
(3) Employer changes the principal location in which Executive is required
to perform services to one which is more than fifty miles from his current
location;
(4) there is a reasonable determination by Executive that, as a result of a
change in circumstances significantly affecting his position, he is unable to
exercise the authority, powers, function or duties attached to his position;
(e) "Incentive Plans" shall mean any incentive, bonus deferred
compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or supplemental defined
benefit retirement plan or defined contribution retirement plan, currently or
hereinafter made available by Corporation or Employer in which Executive is
eligible to participate.
(g) "Severance Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 2 and ending on the first to occur of: (1) the date 24 months
thereafter, or (2) the date Executive attains or would have attained age 65.
(h) "Welfare Plan" shall mean any health and dental plan, disability plan,
survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
7. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other beneficiary shall have any interest in or
rights against any specific assets of Corporation or Employer, and Executive and
his spouse or other beneficiary shall have only the rights of a general
unsecured creditor of Employer.
8. Litigation Expense. Employer shall pay Executive's out-of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if the Executive is successful in
such litigation.
9. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
10. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by the
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between the
Corporation, Employer and the Executive regarding payments to the Executive in
the event of a change in control of the Corporation or the Employer. During the
term of this Agreement, Executive shall not participate in or benefit from any
other change of control severance plan or policy which may be adopted
<PAGE>
by the Corporation or Employer, provided that thereafter the Executive shall
participate in such plan or policy if one has been established by the
Corporation or Employer.
11. No Employment Contract. Nothing contained in this Agreement shall be
----------------------
construed to be an employment contract between Executive and Employer.
Executive is employed at will and Employer may terminate his employment at any
time, with or without cause.
12. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
13. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
14. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
15. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: William H. Rincker
--------------
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13902
If to Executive:
---------------
Arthur C. Smith
48 Margaret Street
Johnson City, New York 13790
<PAGE>
16. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this Agreement on its behalf.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and the Employer have caused this agreement to be executed in their
name and on their behalf, all as of the day and year first above written.
BBB BANCORP, INC.
BSB BANK & TRUST COMPANY
By: William H. Rincker
----------------------------------------
William H. Rincker
Chairman and Chief Executive Officer
By: Arthur C. Smith
------------------------------------------
Arthur C. Smith
Senior Vice President
<PAGE>
EXHIBIT 10.4
AMENDMENT TO EMPLOYMENT CONTRACT
This Amendment to Employment Contract by and among ALEX S.DePERSIS
(the "Executive"), BSB BANCORP, INC. (the "Corporation"), a Delaware-chartered
bank holding company, and BSB BANK & TRUST COMPANY, as successor to Binghamton
Savings Bank (the "Bank"), is entered into as of December 29, 1995.
WHEREAS, the parties have entered into an Employment Contract dated as
of November 2, 1990 (the "Employment Contract");
WHEREAS, effective October 23, 1995, the Boards of Directors of the
Corporation and the Bank (collectively, the "Employers") elected the Executive
to the positions of President and Chief Operating Officer of the Employers; and
WHEREAS, the parties desire to amend the Employment Contract to
provide for changes in the Executive's title and duties with the Employers;
NOW, THEREFORE, the Employers and the Executive hereby agree that the
Employment Contract shall be amended as follows:
1. Section 3 -is amended so that references therein to "Executive Vice
President" shall be deemed to be references to Executive Vice President or
any other more senior title(s) or position(s) to which the Executive may be
elected during the term of the Employment Contract.
2. Sections 11(ii)(a)(1) and 11(ii)(a)(11) of the Employment Contract
are amended to read as follows:
... (i) are materially different from the Executive's duties immediately
prior to the Change of Control and which are not appropriate for an officer
of the Employers serving in the position(s) held by the Executive
immediately prior to the Change of Control, or (11) result in the Executive
having significantly less authority and/or responsibility than he had as an
officer of the Employers serving in the position(s) held by the Executive
immediately prior to the Change of Control...
3. References in the Employment Contract to "Binghamton Savings Bank"
or the "Savings Bank" shall be deemed to be references to "Binghamton Bank
& Trust Company" or the "Bank."
<PAGE>
4. In all other respects, the Employment Contract shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
to Employment Contract effective as of the date first above written.
BSB BANCORP, INC.
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
EXECUTIVE
Alex S. DePersis
----------------
Alex S. DePersis
-2-
<PAGE>
EXHIBIT 10.5
AMENDMENT TO CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Amendment to Change of Control Severance Agreement ("Amendment")
is entered into as of December 29, 1995, by and among BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, its wholly-owned subsidiary BSB Bank &
Trust Company, as successor to Binghamton Savings Bank ("Employer"), and EDWARD
ANDREJKO, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore
entered into a Change of Control Severance Agreement (the "Agreement") dated as
of November 2, 1990; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. A new Subsection (d) is added at the end of Section 2 of the
Agreement, to read as follows:
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered
into between Executive and the Corporation or Employer (or any subsidiary
or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Corporation or Employer (or any subsidiary or affiliate of
either of them) for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for Executive (a "Benefit
Plan"), Executive shall not have any right to receive any payment or other
benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits
to or for Executive under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any
payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (a "Parachute Payment"). In the event that the
receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive
shall have the right, in Executive's sole discretion, to designate those
payments or benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to Executive under this Agreement be deemed to be a Parachute
Payment.
2. References in the Agreement to "Binghamton Savings Bank" shall be
deemed to be references to "BSB Bank & Trust Company."
<PAGE>
3. In all other respects, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and Employer have caused this Amendment to be executed in their
names and on their behalves, all as of the day and year first above written.
BSB BANCORP, INC.
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
EXECUTIVE
ER Andrejko
------------------
Edward R. Andrejko
-2-
<PAGE>
EXHIBIT 10.6
AMENDMENT TO CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Amendment to Change of Control Severance Agreement ("Amendment")
is entered into as of December 29, 1995, by and among BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, its wholly-owned subsidiary BSB Bank &
Trust Company, as successor to Binghamton Savings Bank ("Employer"), and LARRY
G. DENNISTON, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore
entered into a Change of Control Severance Agreement (the "Agreement") dated as
of November 2, 1990; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. A new Subsection (d) is added at the end of Section 2 of the
Agreement, to read as follows:
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered
into between Executive and the Corporation or Employer (or any subsidiary
or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Corporation or Employer (or any subsidiary or affiliate of
either of them) for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for Executive (a "Benefit
Plan"), Executive shall not have any right to receive any payment or other
benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits
to or for Executive under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any
payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (a "Parachute Payment"). In the event that the
receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive
shall have the right, in Executive's sole discretion, to designate those
payments or benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to Executive under this Agreement be deemed to be a Parachute
Payment.
2. References in the Agreement to "Binghamton Savings Bank" shall be
deemed to be references to "BSB Bank & Trust Company."
<PAGE>
3. In all other respects, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and Employer have caused this Amendment to be executed in their
names and on their behalves, all as of the day and year first above written.
BSB BANCORP, INC.
ATTEST: Cynthia A. Hicks By: William H. Rincker
---------------- ------------------
(Assistant Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Cynthia A. Hicks By: William H. Rincker
---------------- ------------------
(Assistant Secretary) (Chief Executive Officer)
EXECUTIVE
Larry G. Denniston
-------------------------
Larry G. Denniston
-2-
<PAGE>
EXHIBIT 10.7
AMENDMENT TO CHANGE OF
SEVERANCE AGREEMENT
This Amendment to Change of Control Severance Agreement ("Amendment")
is entered into as of December 29, 1995, by and among BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, its wholly-owned subsidiary BSB Bank &
Trust Company, as successor to Binghamton Savings Bank ("Employer"), and WARREN
O. HILL, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore
entered into a Change of Control Severance Agreement (the "Agreement") dated as
of November 2, 1990; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. A new Subsection (d) is added at the end of Section 2 of the
Agreement, to read as follows:
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered
into between Executive and the Corporation or Employer (or any subsidiary
or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Corporation or Employer (or any subsidiary or affiliate of
either of them) for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for Executive (a "Benefit
Plan"), Executive shall not have any right to receive any payment or other
benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits
to or for Executive under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any
payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (a "Parachute Payment"). In the event that the
receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive
shall have the right, in Executive's sole discretion, to designate those
payments or benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to Executive under this Agreement be deemed to be a Parachute
Payment.
2. References in the Agreement to "Binghamton Savings Bank" shall be
deemed to be references to "BSB Bank & Trust Company."
<PAGE>
3. In all other respects, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and Employer have caused this Amendment to be executed in their
names and on their behalves, all as of the day and year first above written.
BSB BANCORP, INC.
ATTEST: Cynthia A. Hicks By: William H. Rincker
---------------- ------------------
(Assistant Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Cynthia A. Hicks By: William H. Rincker
---------------- ------------------
(Assistant Secretary) (Chief Executive Officer)
EXECUTIVE
Warren O. Hill
-------------------------
Warren O. Hill
-2-
<PAGE>
EXHIBIT 10.8
AMENDMENT TO CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Amendment to Change of Control Severance Agreement ("Amendment")
is entered into as of December 29, 1995, by and among BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, its wholly-owned subsidiary BSB Bank &
Trust Company, as successor to Binghamton Savings Bank ("Employer"), and DOUGLAS
R. JOHNSON, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore
entered into a Change of Control Severance Agreement (the "Agreement") dated as
of November 2, 1990; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. A new Subsection (d) is added at the end of Section 2 of the
Agreement, to read as follows:
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered
into between Executive and the Corporation or Employer (or any subsidiary
or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Corporation or Employer (or any subsidiary or affiliate of
either of them) for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for Executive (a "Benefit
Plan"), Executive shall not have any right to receive any payment or other
benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits
to or for Executive under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any
payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (a "Parachute Payment"). In the event that the
receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive
shall have the right, in Executive's sole discretion, to designate those
payments or benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to Executive under this Agreement be deemed to be a Parachute
Payment.
2. References in the Agreement to "Binghamton Savings Bank" shall be
deemed to be references to "BSB Bank & Trust Company."
<PAGE>
3. In all other respects, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and Employer have caused this Amendment to be executed in their
names and on their behalves, all as of the day and year first above written.
BSB BANCORP, INC.
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
EXECUTIVE
Douglas R. Johnson
-------------------------
Douglas R. Johnson
-2-
<PAGE>
EXHIBIT 10.9
AMENDMENT TO CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Amendment to Change of Control Severance Agreement ("Amendment")
is entered into as of December 29, 1995, by and among BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, its wholly-owned subsidiary BSB Bank &
Trust Company, as successor to Binghamton Savings Bank ("Employer"), and
FIELDING SIMMONS, III, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore
entered into a Change of Control Severance Agreement (the "Agreement") dated as
of November 2, 1990; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. A new Subsection (d) is added at the end of Section 2 of the
Agreement, to read as follows:
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered
into between Executive and the Corporation or Employer (or any subsidiary
or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Corporation or Employer (or any subsidiary or affiliate of
either of them) for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for Executive (a "Benefit
Plan"), Executive shall not have any right to receive any payment or other
benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits
to or for Executive under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any
payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (a "Parachute Payment"). In the event that the
receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive
shall have the right, in Executive's sole discretion, to designate those
payments or benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to Executive under this Agreement be deemed to be a Parachute
Payment.
2. References in the Agreement to "Binghamton Savings Bank" shall be
deemed to be references to "BSB Bank & Trust Company."
<PAGE>
3. In all other respects, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and Employer have caused this Amendment to be executed in their
names and on their behalves, all as of the day and year first above written.
BSB BANCORP, INC.
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
EXECUTIVE
Fielding Simmons, III
----------------------------
Fielding Simmons, III
-2-
<PAGE>
EXHIBIT 10.10
AMENDMENT TO CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Amendment to Change of Control Severance Agreement ("Amendment")
is entered into as of December 29, 1995, by and among BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, its wholly-owned subsidiary BSB Bank &
Trust Company, as successor to Binghamton Savings Bank ("Employer"), and GLENN
R. SMALL, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore
entered into a Change of Control Severance Agreement (the "Agreement") dated as
of November 2, 1990; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. A new Subsection (d) is added at the end of Section 2 of the
Agreement, to read as follows:
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered
into between Executive and the Corporation or Employer (or any subsidiary
or affiliate of either of them), except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Corporation or Employer (or any subsidiary or affiliate of
either of them) for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for Executive (a "Benefit
Plan"), Executive shall not have any right to receive any payment or other
benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits
to or for Executive under this
Agreement, all Other Agreements, and all Benefit Plans, would cause any
payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (a "Parachute Payment"). In the event that the
receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause Executive to be considered to
have received a Parachute Payment under this Agreement, then Executive
shall have the right, in Executive's sole discretion, to designate those
payments or benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having
the payment to Executive under this Agreement be deemed to be a Parachute
Payment.
2. References in the Agreement to "Binghamton Savings Bank" shall be
deemed to be references to "BSB Bank & Trust Company."
<PAGE>
3. In all other respects, the Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and Employer have caused this Amendment to be executed in their
names and on their behalves, all as of the day and year first above written.
BSB BANCORP, INC.
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
BSB BANK & TRUST COMPANY
ATTEST: Larry G. Denniston By: William H. Rincker
------------------ ------------------
(Secretary) (Chief Executive Officer)
EXECUTIVE
Glenn R. Small
---------------------
Glenn R. Small
-2-
<PAGE>
BSB BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands - Except Per Share Amounts)
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERFORMANCE Net interest income $ 48,613 $ 45,723 $ 45,593
Non-interest income 6,672 5,501 4,465
Provision for credit losses 7,333 3,717 5,580
Net income 12,594 12,871 13,396
Return on average assets 1.06% 1.16% 1.28%
Return on average equity 10.89% 11.59% 13.14%
- ----------------------------------------------------------------------------------------------
SELECTED Interest rate spread 4.04% 4.06% 4.27%
FINANCIAL Interest rate margin 4.31 4.31 4.52
DATA Dividend payout ratio 32.25 26.93 21.61
Efficiency ratio 49.27 50.27 47.85
- ----------------------------------------------------------------------------------------------
PER SHARE Earnings $ 1.98 $ 1.95 $ 2.03
Book value 18.70 16.60 16.45
Dividends declared 0.65 0.54 0.44
- ----------------------------------------------------------------------------------------------
FINANCIAL Assets $1,236,541 $1,159,408 $1,090,958
CONDITION Net loans 909,851 848,017 791,611
DATA Deposits 1,006,465 962,780 894,293
(at December 31) Municipal deposits 31,395
Shareholders' Equity 116,774 106,870 109,186
Allowance for possible credit losses 16,560 15,847 15,234
Non-performing assets 15,280 11,115 11,487
- ----------------------------------------------------------------------------------------------
OFF-BALANCE Mortgage loan servicing $ 311,309 $ 263,276 $ 221,641
SHEET Trust assets 159,942 132,238 117,867
(at December 31) Interest rate swaps 30,000 50,000
==============================================================================================
</TABLE>
<PAGE>
Company Profile
BSB Bancorp, Inc., a Delaware corporation, is the bank holding company for BSB
Bank & Trust Company. BSB Bancorp, Inc. had 6,243,397 shares of common stock
outstanding at December 31, 1995. The stock is traded over the counter and is
listed on The Nasdaq Stock Market National Market System under the symbol BSBN.
BSB Bancorp, Inc. is subject to regulation by the Federal Reserve Board. BSB
Bank & Trust is the only direct subsidiary of BSB Bancorp, Inc.
Incorporated as a state-chartered mutual savings bank in 1867, BSB Bank &
Trust was converted to a state-chartered stock savings bank in 1985, and in 1995
completed a charter change to that of a state-chartered commercial bank. It is
headquartered in Binghamton, New York and conducts business in Broome, Tioga,
Chenango, and Chemung Counties, and adjacent areas in New York State.
BSB Bank & Trust is a diversified financial services institution providing a
broad range of deposit and loan products to area businesses and consumers. In
particular, BSB Bank & Trust has become a major provider of banking services to
the business community.
Deposits of BSB Bank & Trust are insured by the Federal Deposit Insurance
Corporation. The Bank is subject to supervision and regulation by the Federal
Deposit Insurance Corporation and the Banking Department of the State of New
York. BSB Bank & Trust is also a member of the Federal Home Loan Bank System.
William H. Rincker
Chairman of the Board and Chief Executive Officer
In 1995, your company enhanced its position as a major provider of financial
products in the southern tier of New York State. BSB Bank & Trust is now a
recognized leader in commercial bank services, emphasizing relationships with
small- and medium-size businesses in the Bank's primary service area of Broome,
Tioga, Chenango, and Chemung counties. The Bank has also built banking ties to
similar businesses in Rochester, Syracuse, and Ithaca, New York.
The Company's financial performance continued to be favorable in 1995 with net
income in 1995 of $12,594,000, compared to $12,871,000 for 1994. Earnings per
share were $1.98 for 1995, compared to $1.95 for 1994. The return on average
assets was 1.06% in 1995 and 1.16% in 1994.
Earnings in 1995 were adversely affected by the increase in the provision for
credit loss expense from $3,717,000 in 1994 to $7,333,000. This increase was
necessary to cover loan losses and add modestly to reserve levels in light of
the growth in non-performing loans, which increased from $7,881,000 to
$12,812,000. The loan portfolios are affected by continued softness in the local
economy and the impact on real estate values. This contributed significantly to
the increase in loan losses and non-performing assets. In addition to the loan
loss reserve, the Bank's strong equity position provides protection against
unforeseen problems. Shareholders' equity grew from $106,870,000 at December 31,
1994 to $116,774,000 at December 31, 1995, which substantially exceeds all
regulatory requirements. The return on average equity was 10.89% in 1995 and
11.59% in 1994.
Recognizing the Bank's past success and evaluating its future prospects, the
Board of Directors took actions that benefited our shareholders. In October, the
Board of Directors of BSB Bancorp, Inc. announced a 36% increase in the
quarterly cash dividend. Also in October, the Company declared a three-for-two
stock split. The stock split and the increase in the quarterly cash dividend
reflect the Board of Directors' confidence in BSB Bancorp's continued favorable
financial performance.
2
<PAGE>
During 1995, BSB Bancorp, Inc. purchased 234,900 shares of its stock in the
open market. The average number of shares outstanding for 1995 was 6,360,664,
compared to 6,591,401 for 1994.
By action of the Board of Directors at its October meeting, Alex S. DePersis
was promoted to President and Chief Operating Officer. He holds this same
respective position at the Bank. Mr. DePersis joined BSB in January of 1985 and
most recently served as Executive Vice President. The Board of Directors
recognizes the experience and talent of Mr. DePersis and acknowledges his
commitment to the communities which BSB services. We are all confident his
leadership capability and experience will be influential in maintaining BSB as a
strong and innovative competitor. Prior to joining BSB Bank & Trust he had 16
years of commercial banking experience in Broome County.
On April 24, 1995, John V. Smith retired from the Board of Directors. He had
served as a Director of BSB Bancorp, Inc. since its formation and as a Director
of the Bank for 26 years. The Board of Directors and the management team wish to
express their appreciation to Mr. Smith for his significant contribution. He has
been of great value to the Board of Directors and now takes his place with our
Directors Emeriti. At its September 1995 meeting, the Board of Directors of the
Corporation announced the election of Thomas L. Thorn to the position of
Director for both BSB Bancorp, Inc. and BSB Bank & Trust. Mr. Thorn is Executive
Vice President and co-founder of Diamond Page Leasing, a computer leasing
company based in Syracuse, New York.
August 1, 1995 began an exciting new era for our Bank. With approval from the
Federal Deposit Insurance Corporation, we officially converted from a state-
chartered savings bank to a state-chartered commercial bank. Along with the
change in charter, the Bank began operating under its new name, BSB Bank & Trust
Company.
Our transformation into a community based commercial bank has been developing
for the past several years. We provide a broad range of deposit and loan
products to area businesses and consumers, alike, and we offer a full range of
trust and pension services. As we move forward, BSB Bank & Trust will continue
to expand product and service offerings to meet the needs of our customers.
On behalf of the Board of Directors, management and staff, I want to express
our appreciation for your continued confidence in BSB Bancorp, Inc.
Alex S. DePersis
President and Chief Operating Officer
We look to the future with a sense of excitement. Given the rapidly changing
world around us, we see many new challenges and exciting opportunities. BSB is
preparing for this future by developing new ways to better serve our customers,
communities and shareholders. We are building on our fundamental
strengths....responsive and high quality customer service, a full range of
financial products and cost effective operations.
We have grown to $1.2 billion in assets by remaining focused on the needs of
our customers and delivering value to them. As we approach the 21st century,
technology is changing the nature of delivery systems for financial services.
Providing high quality customer service during this time of change will continue
to be an imperative for us as we work to maintain our growth and improve our
profitability. As we apply this technology, we will take advantage of
opportunities to improve our already strong operating efficiency.
3
<PAGE>
The key to meeting these challenges rests in our talented and dedicated
employees. At BSB, developing our human resources is at the heart of our
planning. We are committed to providing our employees with challenging and
rewarding career opportunities and to fostering an ongoing spirit of teamwork.
BSB takes great pride in its commitment to the communities we serve. We
believe that tremendous opportunities exist for us to further enhance our
already strong position in existing markets and selectively enter new markets.
We will aggressively pursue the expansion of our market area by seeking out
strategic acquisitions that will enlarge our deposit and customer base, reduce
our reliance on any one regional economy and provide additional opportunities
for revenue and asset growth.
With a strong sense of past accomplishment, and complete confidence in our
officers and staff, I look forward to 1996 with optimism and enthusiasm. We will
continue to stress growth in our direct loan portfolios and retail deposit base
to improve net interest income and to enhance fee income through growth in our
mortgage banking, credit card, trust, and financial service operations.
The year holds great promise for improved operating performance. I believe that
those elements that contributed to our past achievements will help ensure our
future success
Asset Liability Management
Managing the Bank's exposure to loss of net interest income resulting from
changes in market interest rates is a major focus of management's activities.
The Asset and Liability Committee meets weekly to review the changing
composition of the balance sheet, the current and forecasted interest rate
environment and policy issues that impact on the asset and liability structure
of the Bank.
Interest rates rose sharply in 1994 through mid-1995, then began to turn
downward. This decline in rates offered an attractive opportunity for customers
to refinance their loans at lower rates. Despite these pressures, the Bank's
interest rate margin remained unchanged.
Net interest income was $48.6 million for 1995, compared to $45.7 million for
1994. Management is committed to maximizing net interest income opportunities by
focusing on growth in the Bank's direct loan portfolio and retail deposit base.
Banking Operations
In 1995, the Bank continued the expansion of its electronic services with the
introduction of TelephoneTeller on July 1st. This automated telephone system
allows our customers to receive account balance and transaction information,
transfer funds between accounts and obtain current deposit and loan rates, 24
hours a day, 7 days a week. TelephoneTeller has been well received - over
200,000 calls are expected in 1996 - and will soon be enhanced with a telephone-
based bill payer service.
Consistent with our commitment to customer convenience, Broome Community
College (BCC) recently became the site of our eighteenth MachineTeller
installation. From its central location in BCC's Business Building, our newest
ATM permits faculty, students and staff to enjoy the benefits of on-campus
banking.
In the first quarter of 1996, MachineTeller service will be extended to
Airport Corporate Center on Lewis Road in the Town of Union. This multi-function
ATM will provide on-site banking service to the many employee groups located at
that facility. In coming months additional drive-up ATMs and new
4
<PAGE>
lobby ATMs will be added to several of our branch banking offices. Along with
our StoreTeller service at Giant Markets, these electronic enhancements to our
traditional delivery system are helping us to add value to existing banking
relationships, attract new business, and manage costs.
Quality customer service has always been the foundation of the Bank's success.
In 1995, we continued to make a substantial investment in training customer
contact and support personnel in those skills that will enable us to build long-
term relationships with our customers.
Commercial Lending
Today, more and more businesses are turning to BSB Bank & Trust for their
business banking. They are attracted by our full range of services and the
expertise to meet their financial needs. Our Commercial Loan Department provides
a wide variety of financing options to local and regional businesses, as well as
to business owners and executives.
Much of the success of our commercial lending program is attributable to the
fact that all loan decisions are made locally. In addition, our familiarity with
the market enables us to tailor loan products to meet the individual needs of
our customers, and helps us compete with the larger commercial banks represented
in our area.
The growth of the commercial loan portfolio is the result of BSB's continued
dedication to serving small- and medium-size businesses in its prime market
area. Originations in 1995 were $122.5 million. The commercial loan portfolio
grew from $386.9 million at December 31, 1994 to $455.4 million at December 31,
1995, an increase of $68.5 million, or 17.7%.
BSB has successfully introduced an accounts receivable management program for
businesses, called Business Manager. This is a proven cash flow management and
receivables billing program that can be of assistance in helping businesses
increase their profit margins, while reducing the problems and expenses of
billing.
In addition to new products, BSB continues to aggressively expand its
commercial lending area to include nearby urban markets. Our success in
commercial lending is a direct result of the Bank's commitment to quality growth
and expansion.
The Commercial Real Estate Department continues to seek quality commercial
real estate lending opportunities within our upstate New York markets.
Businesses rely on us to assist with many types of real estate financing
including construction loans with permanent financing. Our goal is to provide
the financing necessary to make any creditworthy project a reality. Commercial
real estate loans outstanding at December 31, 1995 were $134.7 million.
Consumer Lending
Direct loan originations increased 11.2% in 1995. Aggressive marketing efforts
encouraging customers to utilize our branch networks for lending needs
contributed to increased loan activity at the branch level. Throughout 1995, the
branches participated in promotions for various consumer loan products including
Direct Installment Loans, Home Equity Lines of Credit, and Credit Cards.
An expanded network of automobile dealers and finance companies continues to
assist us in expanding our service area. This expansion helps to geographically
diversify the loan portfolio.
The Bank continued to concentrate on growing its merchant credit card program.
As a result we realized an increase in merchant credit card deposit
5
<PAGE>
volume from $95.5 million in 1994 to $144.8 million in 1995. This growth
resulted in record high non-interest credit card income of $2.6 million.
Looking forward to 1996, the Consumer Loan Department is committed to managing
growth in our direct consumer loan portfolios including Auto and Home
Improvement, Home Equity Lines of Credit, and Credit Card Loans.
Residential Real Estate Lending
Affordable housing in local areas contributed to strong residential mortgage
activity in 1995 with originations of $85.7 million. The major portion of this
volume, 77.5%, originated from our mortgage correspondent relationships in local
and newly established markets. Adjustable-rate mortgages accounted for 40.6 % of
these originations, however, most of this activity occurred during the first
half of the year. As interest rates fell during the second half of 1995,
customer preference shifted to fixed-rate loans.
In 1995, the Bank sold or securitized $69.8 million in residential real estate
loans including $21.9 million in adjustable-rate mortgages. As a result, the
serviced loan portfolio increased by 18.2% from $263.3 million at December 31,
1994 to $311.3 million at December 31, 1995. As a result of this increase in the
serviced loan portfolio, mortgage servicing income reached a record $927,000.
Financial Services
Many consumers are seeking alternatives to traditional banking products. The
Bank's Financial Services group was organized to meet those needs and delivers
brokerage services through INVEST Financial Corporation. Professional registered
representatives offer investors a broad range of financial products including:
mutual funds, individual stocks and bonds, as well as annuity products.
Sales and redemptions of mutual funds and individual securities accounted for
69.0% of overall revenue through INVEST, while 31.0% of gross revenue was
derived from the sale of fixed and variable annuities. Total non-interest income
of $336,000 was generated in 1995 from the sale and delivery of financial
services and products.
The Bank has formed a new wholly owned subsidiary, BSB Financial Services,
Inc. During 1996, this Company will become the focal point for marketing
brokerage services. Plans are currently under way to add new financial services
to our product mix to better serve the non-traditional banking customer.
Municipal Services
One of the most significant effects of our charter conversion is the Bank's
ability to offer municipal banking services which will provide funding for loan
growth. Since its introduction in August of 1995, the Municipal Services
Department has been aggressively pursuing deposits and providing financing to
municipalities in our market. This segment consists primarily of local
governments, school districts, and fire districts that are created by the State
of New York and have fiduciary responsibility for managing public funds.
The success of our efforts is reflected in the total municipal deposits and
accounts we have acquired since August of 1995. At December 31, 1995, the Bank
had 54 municipal accounts totaling $31.4 million in deposits. These new deposits
provide a new source of funding for loan growth. Another measure of our success
is the level of support provided to local municipalities through our lending
activities. At December 31, 1995, we held $7.1 million of public debt in our
municipal portfolio.
6
<PAGE>
Municipal customers require a variety of complex products and services. Over a
short period of time, the Municipal Services Department has developed its
products and services to meet these needs. As the Bank expands its presence in
the municipal banking market, we are confident in our ability to grow deposits
and loans in this market.
Trust
Our Trust Department provides full trust services to individuals, corporations
and non-profit organizations. These services include: estate administration,
trustee under wills and living trust agreements, custody and investment
management services. Our staff of experienced trust officers delivers high
quality professional and personal service to our customers. The satisfaction of
our customers' need for high quality local trust service has resulted in
significant growth of our trust assets. Assets under management reached record
levels and totaled $159.9 million at December 31, 1995, an increase of 21.0%
from 1994. Fees for trust services, an important source of non-interest income,
also reached a record high and increased 15.8% from $476,000 in 1994 to $551,000
in 1995.
The prospects for future growth of trust services remain good. The customer
base of the Bank continues to be a strong source of referral business and local
individuals, corporations and non-profit organizations have responded well to
the Bank's marketing efforts.
7
<PAGE>
BSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER DATA
(Dollars in Thousands-Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL Total assets $1,236,541 $1,159,408 $1,090,958 $1,020,756 $1,006,022
CONDITION Net loans 909,851 848,017 791,611 752,293 729,844
DATA Mortgage-backed securities 143,978 143,177 159,572 152,295 184,097
Investment securities 103,114 86,686 77,288 56,983 54,881
Deposits 1,006,465 962,780 894,293 822,115 835,005
Borrowings 98,949 79,028 79,563 99,479 80,842
Shareholders' equity 116,774 106,870 109,186 95,629 86,854
Allowance for possible credit losses 16,560 15,847 15,234 12,916 9,995
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS Total interest income $ 99,034 $ 84,924 $ 80,854 $ 84,004 $ 92,540
DATA Total interest expense 50,421 39,201 35,261 43,785 57,714
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 48,613 45,723 45,593 40,219 34,826
Provision for credit losses 7,333 3,717 5,580 6,970 6,892
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 41,280 42,006 40,013 33,249 27,934
Gains (losses) on sale of securities 97 355 1,421 (74) 171
Gains (losses) on sale of mortgages (41) (952) 129 897 258
Non-interest income 6,672 5,501 4,465 3,842 2,815
Non-interest expense 27,239 25,752 23,952 21,579 18,891
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 20,769 21,158 22,076 16,335 12,287
Income tax expense 8,175 8,287 8,680 6,126 4,495
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 12,594 $ 12,871 $ 13,396 $ 10,209 $ 7,792
==================================================================================================================================
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED Weighted average yield of all
FINANCIAL interest-earning assets 8.79% 8.00% 8.02% 8.64% 9.80%
AND OTHER Weighted average cost of all
DATA interest-bearing liabilities 4.75 3.94 3.75 4.79 6.50
Interest rate spread during the period 4.04 4.06 4.27 3.85 3.30
Interest rate margin during the period 4.31 4.31 4.52 4.13 3.69
Return on average assets 1.06 1.16 1.28 1.01 0.80
Return on average equity 10.89 11.59 13.14 11.21 9.22
Average equity to average assets 9.73 9.97 9.71 9.02 8.66
Dividend payout ratio 32.25 26.93 21.61 20.98 26.67
Efficiency ratio 49.27 50.27 47.85 48.98 50.19
Book value per share $ 18.70 $ 16.60 $ 16.45 $ 14.55 $ 13.37
Earnings per share $ 1.98 $ 1.95 $ 2.03 $ 1.57 $ 1.20
</TABLE>
All share and per share amounts have been adjusted to reflect the three-for-two
stock split effective on December 8, 1995.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Review
- --------------------------------------------------------------------------------
BSB Bancorp, Inc. (the "Company") is the bank holding company of BSB Bank &
Trust Company, Binghamton, New York (the "Bank"). Until 1995, the Bank was known
as Binghamton Savings Bank. The Bank's new name reflects its change in charter
from that of a savings bank to a commercial bank and trust company. The Company
changed the Bank's charter to more accurately reflect the nature of the Bank's
existing activities and allow the Bank to further expand its product offerings
into such areas as municipal services. The Bank provides diversified financial
services to individuals and businesses throughout Broome County and surrounding
areas of New York State. Unless otherwise specified, references to the Company
are intended also to include the activities of the Bank.
In 1995, the Company attained net income of $12.6 million, or $1.98 per share,
as compared to 1994 net income of $12.9 million, or $1.95 per share. All per
share information has been adjusted to reflect a three-for-two stock split
effective in December 1995. The return on average assets decreased from 1.16% in
1994 to 1.06% in 1995. The return on average equity also decreased from 11.59%
in 1994 to 10.89% in 1995.
Net interest income in 1995 was $48.6 million compared to $45.7 million in
1994, an increase of 6.3%. The interest rate margin remained at 4.31% for both
1994 and 1995. Non-interest income increased from $5.5 million in 1994 to $6.7
million in 1995, an increase of 21.3%. Net gains and losses on the sale of
securities and mortgages produced a gain of $56,000 in 1995, compared to a loss
of $597,000 in 1994. The provision for credit losses increased from $3.7 million
in 1994 to $7.3 million in 1995. Net charge-offs increased from $3.1 million in
1994 to $6.6 million in 1995. Non-interest expense increased 5.8% from $25.8
million in 1994 to $27.2 million in 1995. The Company's ratio of operating
expenses to average assets decreased from 2.31% in 1994 to 2.29% in 1995.
Total assets remained constant at $1.2 billion. Total loans increased 7.2%
from $865.1 million at December 31, 1994 to $927.0 million at December 31, 1995.
This growth was due to the Company's ability to originate real estate, consumer,
and commercial loans mainly in its local lending area. The Company's management
strategy is designed to accommodate earning asset growth while controlling
overall risk to the institution. Both liquidity and interest rate sensitivity
are constantly monitored. The Company's loan originations were $347.7 million in
1994 and $315.8 million in 1995. Loan sales and securitizations decreased from
$78.6 million in 1994 to $76.8 million in 1995. The allowance for possible
credit losses (reserves) increased from $15.8 million at December 31, 1994 to
$16.6 million at December 31, 1995. Deposits increased 4.5% from $962.8 million
in 1994 to $1,006.5 million in 1995. Borrowings increased from $79.0 million in
1994 to $98.9 million in 1995, an increase of 25.2%. Shareholders' equity
increased 9.3% from $106.9 million in 1994 to $116.8 million in 1995. During
1995, the Company purchased 234,900 shares of its stock in the open market for
$4.8 million.
In October 1995, the Company announced a three-for-two stock split, thereby
increasing the total number of shares outstanding to 6.2 million. The Board also
announced a 36% increase in the quarterly cash dividend to $0.20 per share
payable December 8, 1995, to shareholders of record at the close of business on
November 22, 1995. As a result, cash dividends paid to stockholders totalled
$4.1 million in 1995, compared to $3.5 million in 1994.
By action of the Board of Directors of BSB Bancorp, Inc. at its October
meeting, William H. Rincker was elected Chairman of the Board and Chief
Executive Officer and Alex S. DePersis was promoted to President and Chief
Operating Officer. Mr. Rincker and Mr. DePersis hold the same respective
positions at the Bank.
9
<PAGE>
Financial Condition
- --------------------------------------------------------------------------------
The Company collects and lends funds primarily in its local market area. The
following table sets forth, information regarding the Company's sources and uses
of funds by showing, for the periods indicated, average balances of the
Company's assets and liabilities, and shareholders' equity, as well as changes
in such amounts from period to period.
<TABLE>
<CAPTION>
1995 1994 1993
Average Increase (Decrease) Average Increase (Decrease) Average
Balance Amount % Balance Amount % Balance
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (Dollars in Thousands)
Commercial loans $ 410,072 $ 58,365 16.6% $ 351,707 $ 37,089 11.8% $ 314,618
Consumer loans
Passbook 524 (167) (24.2) 691 (318) (31.5) 1,009
Overdraft checking 685 83 13.8 602 (36) (5.6) 638
Credit cards 8,774 (423) (4.6) 9,197 (285) (3.0) 9,482
Personal 153,098 15,357 11.1 137,741 33,311 31.9 104,430
Home Equity Line of Credit 26,109 (1,298) (4.7) 27,407 (1,600) (5.5) 29,007
Student 12,142 586 5.1 11,556 (747) (6.1) 12,303
- --------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 201,332 14,138 7.6 187,194 30,325 19.3 156,869
- --------------------------------------------------------------------------------------------------------------------------------
Mortgage loans
Residential-fixed 57,112 (8,606) (13.1) 65,718 (31,516) (32.4) 97,234
Commercial-fixed 3,330 (157) (4.5) 3,487 (307) (8.1) 3,794
Residential-adjustable 98,272 21,499 28.0 76,773 (4,819) (5.9) 81,592
Commercial-adjustable 128,091 1,373 1.1 126,718 (155) (0.1) 126,873
- --------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 286,805 14,109 5.2 272,696 (36,797) (11.9) 309,493
- --------------------------------------------------------------------------------------------------------------------------------
Investment securities 91,067 16,503 22.1 74,564 27,174 57.3 47,390
Mortgage-backed securities 135,384 (20,495) (13.1) 155,879 (12,316) (7.3) 168,195
Mortgages held for sale 1,991 (1,649) (45.3) 3,640 (2,337) (39.1) 5,977
Other interest-earning assets 442 (15,680) (97.3) 16,122 10,986 213.9 5,136
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,127,093 65,291 6.1 1,061,802 54,124 5.4 1,007,678
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 61,265 9,044 17.3 52,221 10,550 25.3 41,671
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $1,188,358 $ 74,335 6.7% $1,114,023 $ 64,674 6.2% $1,049,349
================================================================================================================================
Interest-bearing liabilities:
Deposits
Savings $ 151,809 $(22,889) (13.1)% $ 174,698 $ 15,654 9.8% $ 159,044
Money market 216,848 51,355 31.0 165,493 21,445 14.9 144,048
Certificates of deposit 495,802 21,038 4.4 474,764 36,473 8.3 438,291
NOW 57,431 (1,728) (2.9) 59,159 2,860 5.1 56,299
Commercial checking 39,371 2,627 7.1 36,744 4,191 12.9 32,553
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 961,261 50,403 5.5 910,858 80,623 9.7 830,235
Borrowings 99,324 16,002 19.2 83,322 (27,652) (24.9) 110,974
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,060,585 66,405 6.7 994,180 52,971 5.6 941,209
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 12,116 3,297 37.4 8,819 2,589 41.6 6,230
Shareholders' equity 115,657 4,633 4.2 111,024 9,114 8.9 101,910
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,188,358 $ 74,335 6.7% $1,114,023 $ 64,674 6.2% $ 1,049,349
================================================================================================================================
</TABLE>
Uses of Funds
- --------------------------------------------------------------------------------
The Company's principal use of funds is originating loans, primarily to
individuals and small- and medium-sized companies in its local lending area.
Commercial loans tend to increase the interest rate sensitivity of the loan
portfolio, because interest rates on these loans are generally tied to the
Company's Prime Rate (the "Prime Rate"). Commercial loan originations decreased
from $143.3 million in 1994 to $122.5 million in 1995. The average balance of
commercial loans increased from $351.7 million in 1994 to $410.1 million in
1995, an increase of $58.4 million, or 16.6%.
10
<PAGE>
Consumer loan originations were $112.1 million in 1994 and $97.6 million in
1995. The average balance of consumer loans increased from $187.2 million in
1994 to $201.3 million in 1995, an increase of $14.1 million, or 7.6%. This
increase resulted mainly from the Company's continuing efforts to expand
indirect financing through local and surrounding area automobile dealers as well
as increasing its indirect mobile home financing.
The Company originated adjustable-rate residential mortgage loans of $14.5
million in 1994 and $34.8 million in 1995, an increase of 140.0%. The Company
originated $50.9 million in fixed-rate mortgages during 1995 as compared to
$62.5 million in 1994.
The Company's policy of selling or securitizing fixed-rate residential
mortgages to improve the liquidity of the portfolio resulted in sales and
securitizations of $75.0 million in 1994. In 1995, $47.9 million of fixed-rate
residential mortgages were sold and an additional $21.9 million of adjustable-
rate residential mortgages were securitized to aid in managing liquidity and
collateral needs. The average balance of fixed-rate residential mortgage loans
decreased from $65.7 million in 1994 to $57.1 million in 1995, a reduction of
13.1%. The average balance of adjustable-rate residential mortgage loans
increased from $76.8 million in 1994 to $98.3 million in 1995, an increase of
28.0%. The average balance of adjustable-rate commercial real estate loans
increased from $126.7 million in 1994 to $128.1 million in 1995. The average
balance of mortgages held for sale decreased from $3.6 million in 1994 to $2.0
million in 1995.
The Company has authority to invest in a wide range of investment securities,
including corporate and municipal bonds, and a limited amount of common and
preferred stock. The practice of the Company has been to reduce fixed-rate,
long-term investments and to acquire assets with shorter maturities or shorter
estimated lives. The average balance of investment securities increased from
$74.6 million in 1994 to $91.1 million in 1995.
In 1994 and 1995, respectively, the Company purchased $80.7 million and $22.3
million of mortgage-backed securities with amortization characteristics which
will result in final maturities and estimated average lives that are shorter
than those typically found on a newly issued 30-year mortgage. The Company
securitized $17.2 million of its fixed-rate residential mortgages in 1994 and
$21.9 million of its adjustable-rate residential mortgages in 1995, making these
mortgages marketable in the secondary market. Sales of mortgage-backed
securities decreased from $55.4 million in 1994 to $27.5 million in 1995, while
principal repayments decreased from $48.1 million in 1994 to $22.8 million in
1995.
The average balance of other interest-earning assets, which includes money
market assets, deposits in other banks, and federal funds sold, decreased from
$16.1 million in 1994 to $0.4 million in 1995. These short-term investments
provide the Company with liquidity.
Sources of Funds
- --------------------------------------------------------------------------------
Funding for the Company's assets is derived primarily from demand and time
deposits and long- and short-term borrowings. The average balance of all
deposits increased from $910.9 million in 1994 to $961.3 million in 1995. The
average balance of all borrowings increased 19.2%, from $83.3 million in 1994 to
$99.3 million in 1995.
Asset Quality
- --------------------------------------------------------------------------------
The Company has maintained its focus on sound credit quality in the loan
portfolio, reflected by conservative lending practices and accounting policies.
The Company utilizes a loan rating system to rate substantially all of its loans
based on their respective risks. This assists management in determining and
maintaining the desired blend of assets with varying risks within the loan
portfolio, and helps in assessing the adequacy of the allowance for possible
credit losses. Loan ratings are continually reviewed to determine the propriety
of the respective ratings.
Allowance for Possible Credit Losses
Management reviews the adequacy of the allowance at least quarterly. Prior to
1995, the allowance was assessed by applying projected loss ratios to the risk-
ratings (i.e. "classification") of loans both individually and by category. The
projected loss ratios incorporate such factors as recent loss experience,
current economic conditions, trends in past due and non-accrual amounts, the
risk characteristics of various "classifications" and concentrations of loans,
transfer risks and other pertinent factors.
11
<PAGE>
During 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". Under the new standard, a loan is considered impaired,
based on current information and events, if it is probable that the Bank will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement of
impaired loans is generally based upon the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. Loans not deemed impaired continue to be classified to their
risk-rating and general reserves are maintained accordingly.
The following table summarizes activity in the Company's allowance for possible
credit losses during the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(Dollars in Thousands)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Average total loans outstanding $914,988 $828,739 $796,696
=============================================================================
Allowance at beginning of period $ 15,847 $ 15,234 $ 12,916
Charge-offs:
Commercial loans 3,944 3,104 3,197
Consumer loans 1,123 850 707
Residential real estate loans 81 54 66
Commercial real estate loans 2,185 306 109
- -----------------------------------------------------------------------------
Total loans charged-off 7,333 4,314 4,079
Recoveries:
Commercial loans 311 830 356
Consumer loans 358 344 311
Residential real estate loans 18 57
Commercial real estate loans 26 36 93
- -----------------------------------------------------------------------------
Total recoveries 713 1,210 817
- -----------------------------------------------------------------------------
Net charge-offs 6,620 3,104 3,262
- -----------------------------------------------------------------------------
Provision for credit losses charged to
operating expenses 7,333 3,717 5,580
- -----------------------------------------------------------------------------
Allowance at end of period $ 16,560 $ 15,847 $ 15,234
=============================================================================
Ratio of net charge-offs to:
Average total loans outstanding 0.72% 0.37% 0.41%
- -----------------------------------------------------------------------------
Ratio of allowance to:
Non-performing loans 129.25% 201.08% 142.89%
- -----------------------------------------------------------------------------
Year-end total loans outstanding 1.79% 1.83% 1.89%
=============================================================================
</TABLE>
The provision for credit losses increased from $3.7 million in 1994 to $7.3
million in 1995. The allowance for possible credit losses increased to $16.6
million, or 1.79% of total loans at December 31, 1995, from $15.8 million, or
1.83% at year-end 1994. Net charge-offs in 1995 amounted to $6.6 million, or
0.72% of average total loans outstanding, compared with $3.1 million, or 0.37%
in 1994. Non-performing loans at December 31, 1995 were $12.8 million, or 1.38%
of total loans outstanding, up from $7.9 million, or 0.91% at December 31, 1994.
Non-Performing Assets
The Company's accounting and classification policies regarding non-accrual loans
reflect the importance of recognizing problems early.
Loans are placed on a non-accrual status when, in the judgment of management,
the probability of collection of principal or interest is deemed to be
insufficient to warrant further accrual. Such loans include potential problem
loans where known information about possible credit problems of borrowers has
caused management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Company does
12
<PAGE>
not accrue interest on loans greater than 90 days past due unless the estimated
fair value of the collateral and active collection efforts insure full recovery.
At December 31, 1995, the Company had $96,000 of consumer loans greater than
90 days past due on which it was accruing interest, as compared to $109,000 and
$107,000 at December 31, 1994 and 1993, respectively. At each such date,
consumer loans were the only accruing loans 90 days or more past due.
The following table sets forth information regarding non-accrual loans, loans
which are 90 days or more overdue and other real estate owned held by the
Company at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars In Thousands)
Commercial loans:
Non-accrual loans $ 8,032 $ 4,449 $ 5,779
- ------------------------------------------------------------------------------
Consumer loans:
Accruing loans 90 days overdue 96 109 107
- ------------------------------------------------------------------------------
Residential real estate loans:
Non-accrual loans 1,920 1,037 694
- ------------------------------------------------------------------------------
Commercial real estate loans:
Non-accrual loans 2,764 2,286 4,081
- ------------------------------------------------------------------------------
Total non-performing loans and accruing
loans 90 days overdue $12,812 $7,881 $10,661
==============================================================================
Total non-performing loans to total loans 1.38% 0.91% 1.32%
- ------------------------------------------------------------------------------
Total real estate acquired in settlement
of loans at lower of cost or fair value $ 2,468 $3,234 $ 826
- ------------------------------------------------------------------------------
Total non-performing loans and real estate
acquired in settlement of loans at fair
value to total assets 1.24% 0.96% 1.05%
==============================================================================
</TABLE>
The Company has no troubled debt restructuring except as included in non-
accruing commercial loans. Total non-performing loans and other real estate
owned increased to $15.3 million, or 1.24% of total assets at December 31, 1995,
compared to $11.1 million, or 0.96% of total assets at December 31, 1994.
At December 31, 1994, 30 non-performing residential real estate loans totaled
$1.0 million. At December 31, 1995, non-performing residential real estate loans
totaled $1.9 million and included 49 loans. This increase in non-performing
residential real estate loans reflects the recent softening in the Broome County
economy due to reductions in defense spending and corporate downsizing. A high
percentage of the loans in this group are "seasoned loans", which reduces the
risk of loss. Loan loss reserves have been established that are deemed adequate
by management.
At December 31, 1994, non-performing commercial real estate loans totaled $2.3
million, and included 5 loans ranging in size from $100,000 to $1.4 million. At
December 31, 1995, non-performing commercial real estate loans increased to $2.8
million and consisted of 6 loans ranging in size from $62,000 to $1.6 million.
All six loans were put in a nonaccrual status during 1995.
Non-performing commercial loans at December 31, 1994 totaled $4.4 million and
included 40 individual loans ranging in size from $1,000 to $1.6 million. At
December 31, 1995, non-performing commercial loans increased to $8.0 million and
consisted of 35 individual loans ranging in size from $5,500 to $2.2 million.
This increase primarily reflects the remaining balance of $2.2 million on a real
estate secured loan which was classified as non-performing by management after
recognition of a partial charge-off in the amount of $0.9 million taken during
1995, and the addition of three loans to a local manufacturing firm for an
aggregate $2.3 million. These loans and all other non-performing loans have been
internally risk-rated, and loan loss reserves have been established that are
deemed adequate by management.
The adoption of SFAS No. 114 as of January 1, 1995 did not have a material
effect on the Bank's assessment of the estimated loss on the loans ultimately
deemed impaired. The Bank's non-accrual loans increased from $7.9 million at
December 31, 1994 to $12.8 million at December 31, 1995. At the same time, the
total risk-rated loans have reflected a significant decrease over the same
period. Both the increase in the non-accrual loans and the decrease in the
overall risk-rated loans have been incorporated in the Bank's overall allowance
and provision for possible credit losses. At December 31, 1995, the recorded
investment in loans for which impairment has been recognized in accordance with
SFAS No. 114 totaled $11.6 million with a corresponding valuation allowance of
13
<PAGE>
$3.8 million, and $600,000 for which there is no valuation allowance as the
loans have been written down to fair value.
At December 31, 1994, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totalled $3.2 million, which
consisted of 18 single-family residential properties with a book value totalling
$1.3 million and 8 local commercial real estate properties with a book value
totalling $1.9 million. At December 31, 1995, ORE totalled $2.5 million and
consisted of 7 single-family residential properties with a book value totalling
$400,000 and 12 local commercial real estate properties with a book value
totalling $2.1 million.
During 1995, 17 single-family residential properties with a book value of $1.2
million were sold. From 1994, 1 single-family residential property remained in
the ORE portfolio, and this property had its book value written down by a total
of $15,000. During 1995, 6 single-family residential properties with a book
value of $0.3 million were added to the ORE portfolio.
During 1995, 1 local commercial real estate property with a book value of
$110,000 was sold, and 1 local commercial real estate property with a book value
of $100,000 was charged off. During 1995, 8 local commercial real estate
properties with a book value totalling $1.0 million were added to the portfolio.
Due to declining commercial real estate values, 3 local commercial real estate
ORE properties were reduced by $450,000 and charged to other real estate
expenses. All real estate carried in the Company's ORE portfolio are supported
by recent independent appraisals.
Liquidity
- --------------------------------------------------------------------------------
A fundamental objective of the Company is effective management of its liquidity.
Prudent liquidity management insures that the Company can meet all of its
contractual obligations, meet its customers' loan demands, fund all of its
operations and minimize the effects of interest rate fluctuations on earnings.
The major factor which determines the exposure of the Company's earnings to
interest rate risk is the relationship between the maturities and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
The management of the Company continues to employ strategies designed to achieve
a favorable match between those assets and liabilities. The Asset and Liability
Management Committee (the "Committee") of the Company determines the sources and
uses of the Company's cash flow, and establishes the pricing of its products.
The Committee's primary goal is to structure the Company's assets and
liabilities in a manner that produces a favorable interest rate spread and also
provides protection against significant volatility in the general level of
interest rates.
Accordingly, the Committee focuses on effectively managing the Bank's gap,
which is a measure of any mismatch between the dollar amount of the Company's
interest-earning assets and interest-bearing liabilities which mature or reprice
within certain time frames. If those assets exceed the liabilities within a
prescribed time period, a "positive" gap results. This could tend to have a
favorable impact on earnings during a period of rising interest rates and could
have an unfavorable impact during a period of declining rates. Conversely, if
those liabilities exceed the assets during the time period in question, a
"negative" gap results, in which case a rise in the general level of interest
rates could have an unfavorable impact on earnings, while a decline in rates
could have a favorable influence on earnings.
The conversion of the Bank to a state-chartered commercial bank has allowed
the Company to seek deposits from local municipalities. This has produced $29.9
million of the $56.1 million increase in certificates of deposit from December
31, 1994 to December 31, 1995. The other large growth in deposits has been an
$11.1 million increase in money market deposit accounts to $223.4 million at
December 31, 1995.
14
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1995, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown:
<TABLE>
<CAPTION>
More More More More More
than than than than than More
3 mos 3 mos to 1 yr to 3 yrs to 5 yrs to 10 yrs than
or less 12 mos 3 yrs 5 yrs 10 yrs to 20 yrs 20 yrs Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Interest-earning assets:
Other loans $374,489 $ 74,199 $ 76,826 $59,105 $44,279 $19,286 $ 7,806 $ 655,990
Mortgage loans 26,141 95,471 67,695 32,949 41,853 7,407 790 272,306
Mortgage-backed securities 47,724 46,377 25,654 14,503 8,069 989 143,316
Investment securities 31,594 33,250 2,887 12,843 5,702 2,328 14,882 103,486
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 479,948 249,297 173,062 119,400 99,903 30,010 23,478 1,175,098
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Money market accounts 223,357 223,357
Savings accounts 143,304 143,304
Demand and NOW accounts 10,523 9,734 4,473 8,051 36,233 18,111 18,111 105,236
Certificate accounts 135,887 219,013 125,731 50,089 3,849 534,569
FHLB advances 95,150 1,600 96,750
Borrowed funds 2,199 2,199
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 610,420 230,347 130,204 58,140 40,082 18,111 18,111 1,105,415
- -----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap
per period $(130,472) $ 18,950 $ 42,858 $ 61,260 $59,821 $11,899 $ 5,367 $ 69,683
===================================================================================================================================
Cumulative interest
sensitivity gap $(130,472) $(111,522) $(68,664) $(7,404) $52,417 $64,316 $69,683
===================================================================================================================================
Cumulative interest sensitivity gap
as a percentage of total
assets (10.55)% (9.02)% (5.55)% (0.60)% 4.24% 5.20% 5.64%
===================================================================================================================================
</TABLE>
With the exception of certain categories described below, the amounts of assets
and liabilities shown which reprice or mature during a particular period were
determined in accordance with their contractual terms. All assets and
liabilities are placed in time periods which represent the earlier of their next
repricing or scheduled maturity. Adjustable-rate loans, for example, are placed
in the time periods which correspond to their next scheduled rate change.
Prepayment assumptions are made to indicate the rate at which these loans prepay
in excess of scheduled amortization. Prepayment assumptions for fixed-rate one-
to four-family residential mortgage loans are at annual rates of 1.00% to
18.00%.
Money market accounts, which increased from $212.3 million December 31, 1994
to $223.4 million at December 31, 1995, and savings accounts, which declined
from $167.6 million at December 31, 1994 to $143.3 million at December 31, 1995,
are included in interest-bearing liabilities anticipated to reprice within three
months. Demand and NOW accounts, which grew from $104.4 million at December 31,
1994 to $105.2 million at December 31, 1995, are assumed to be withdrawn at
rates of approximately 19.50% in the next twelve months and 1.00% to 18.00% per
year in the years which follow. These assumed withdrawal rates are based upon
management's estimate of the impact of a substantial and sustained rise in
interest rates. At December 31, 1995, the Company had outstanding $96.8 million
of borrowings from the Federal Home Loan Bank of New York (the "FHLB"), an
increase of $20.0 million from December 31, 1994.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods of repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict the magnitude of changes in interest rates on a short-
term basis and over the life of the asset. Further, in the event of changes in
interest rate, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, should
interest rates increase, the ability of borrowers to service their debt may
decrease.
15
<PAGE>
The Company's primary sources of funds have consisted of deposits,
amortization and prepayments of outstanding loans and mortgage-backed
securities, bond maturities, and such other sources as long- and short-term
borrowings, sales of investment securities, loans, and mortgage-backed
securities. Scheduled maturities of borrowings during 1996 are $98.9 million. Of
these borrowings, $96.8 million are advances from the Federal Home Loan Bank
which are anticipated to be renewed. Savings certificates which are scheduled to
mature during 1996 total $344.8 million. Management expects that a substantial
portion of these maturing certificates will remain on deposit with the Company.
At December 31, 1995, the Company had no long-term borrowings. See Note 9 of
Notes to Consolidated Financial Statements for details.
The liquidity of the Company's operations, measured by the ratio of cash and
cash equivalents (not committed, pledged or required to liquidate specific
liabilities) to the sum of net withdrawable deposits and borrowings payable
within one year, averaged 7.63% in 1993, 8.91% in 1994, and 8.03% in 1995.
The primary source of cash and cash equivalent resources for the Company on an
unconsolidated basis is dividends from the Bank. The Company's policy generally
is not to maintain cash reserves at the holding company level beyond those
necessary for current operations, including dividends. At December 31, 1995, on
an unconsolidated basis, the Company had $207,000 of cash and cash equivalents.
During 1995, the Bank paid $8.9 million of dividends to the Company. The payment
of such dividends by the Bank is subject to various regulatory and other
restrictions.
Capital
- --------------------------------------------------------------------------------
Shareholders' equity increased from $106.9 million in 1994 to $116.8 million in
1995. The 1995 net income of $12.6 million and the increase of $5.7 million
required under SFAS No. 115, were offset by the cash dividends paid on common
stock of $4.1 million and the purchase of $4.8 million in treasury stock. At
year-end 1993, 1994, and 1995, the Company's book value per common share was
$16.45, $16.60, and $18.70, respectively.
Capital adequacy is an important indicator of financial stability and
performance. Overall, the Company's capital position remains strong with a ratio
of total shareholders' equity to total assets of 9.44% at December 31, 1995, up
from 9.22% at December 31, 1994.
Banking industry regulators define minimum capital ratios for bank holding
companies and their bank subsidiaries. The Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation (the "FDIC") also
have adopted regulations which group holding companies and banks into five broad
categories based on certain capital ratios. The five categories are "well
capitalized," "adequately capitalized," "under capitalized," "significantly
undercapitalized," and "critically undercapitalized." The Company and the Bank
meet the requirements for "well capitalized" at December 31, 1995. Under the
capital rules, the Company's Tier I and total capital to risk-adjusted assets
ratios at December 31, 1995 were 11.64% and 12.89%, respectively. These compare
favorably with the minimum requirements of 4.00% for Tier I and 8.00% for total
capital. At December 31, 1995, the Company's leverage ratio was 9.53%,
substantially higher than the minimum requirement of 3%.
16
<PAGE>
The following table presents the Company's capital position at the dates
indicated based on the current capital guidelines:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
Tier I:
Common Shareholders' Equity $ 116,774 $ 106,870 $109,186
Adjusted for FASB No. 115 (169) 5,547 (2,362)
Adjusted for unamortized goodwill (2,483) (2,778)
- -----------------------------------------------------------------------------------------------
Total Tier I capital 114,122 109,639 106,824
- -----------------------------------------------------------------------------------------------
Tier II:
Allowable portion of reserve for
possible credit losses 12,312 11,658 11,150
- -----------------------------------------------------------------------------------------------
Total Tier II capital 12,312 11,658 11,150
- -----------------------------------------------------------------------------------------------
Total risk-based capital $ 126,434 $ 121,297 $117,974
===============================================================================================
Risk-adjusted assets $ 980,739 $ 928,765 $ 888,050
- -----------------------------------------------------------------------------------------------
Total average assets $1,197,869 $1,141,132 $1,086,485
- -----------------------------------------------------------------------------------------------
Amount by which capital exceeds minimum requirements:
Tier I capital/risk-adjusted assets $ 74,892 $ 72,488 $ 71,302
- -----------------------------------------------------------------------------------------------
Total risk-based capital/risk-adjusted assets 47,975 46,996 46,930
- -----------------------------------------------------------------------------------------------
Tier I capital/total average assets (leverage ratio) 78,186 75,405 74,229
- -----------------------------------------------------------------------------------------------
<CAPTION>
Capital Ratios
Regulatory Years Ended December 31,
Minimums 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I capital/risk-adjusted assets 4.0% 11.64% 11.80% 12.03%
- -----------------------------------------------------------------------------------------------------------
Total risk-based capital/risk-adjusted assets 8.0 12.89 13.06 13.28
- -----------------------------------------------------------------------------------------------------------
Tier I capital/total average assets (leverage ratio) 3.0 to 5.0 9.53 9.61 9.83
===========================================================================================================
</TABLE>
Earnings Performance
- --------------------------------------------------------------------------------
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, mainly loans and investments, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. The Company's operating results
also are affected by credit loss requirements, operating expenses, the level of
other income, including gains or losses on sale of mortgages and securities, and
other fees.
The following table sets forth, for and at the periods indicated, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resulting average yields, (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost,
(iii) net interest income, (iv) interest rate spread, (v) net earning assets,
(vi) interest rate margin, and (vii) ratio of interest-earning assets to
interest-bearing liabilities. No tax equivalent adjustments were made.
17
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
Interest Yield/Rate Interest Yield/Rate Interest Yield/Rate
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $41,346 10.08% $30,390 8.64% $24,517 7.79%
Consumer loans:
Passbook 58 11.07 73 10.56 115 11.40
Overdraft checking 133 19.42 116 19.27 116 18.18
Credit cards 1,368 15.59 1,376 14.96 1,431 15.09
Personal 13,306 8.69 11,995 8.71 10,559 10.11
Home Equity Line of Credit 2,656 10.17 2,377 8.67 2,230 7.69
Student 965 7.95 863 7.47 907 7.37
- -------------------------------------------------------------------------------------------------------
Total consumer loans 18,486 9.18 16,800 8.97 15,358 9.79
- -------------------------------------------------------------------------------------------------------
Mortgage loans:
Residential-fixed 4,753 8.32 5,660 8.61 8,198 8.43
Commercial-fixed 302 9.07 344 9.87 374 9.86
Residential-adjustable 7,095 7.22 4,985 6.49 5,366 6.58
Commercial-adjustable 11,602 9.06 11,013 8.69 11,275 8.89
- -------------------------------------------------------------------------------------------------------
Total mortgage loans 23,752 8.28 22,002 8.07 25,213 8.15
- -------------------------------------------------------------------------------------------------------
Investment securities 5,692 6.25 4,681 6.28 3,266 6.89
Mortgage-backed securities 9,512 7.03 10,239 6.57 11,874 7.06
Mortgages held for sale 216 10.85 169 4.64 460 7.70
Other interest-earning assets 30 6.79 643 3.99 166 3.23
- -------------------------------------------------------------------------------------------------------
Total interest-earning assets $99,034 8.79% $84,924 8.00% $80,854 8.02%
- -------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Savings $ 4,376 2.88% $ 5,126 2.93% $ 4,824 3.03%
Money market 10,491 4.84 6,346 3.83 4,257 2.96
Certificates of deposit 28,625 5.77 22,817 4.81 20,283 4.63
NOW 763 1.33 796 1.35 954 1.69
- -------------------------------------------------------------------------------------------------------
Total deposits $44,255 4.60% $35,085 3.85% $30,318 3.65%
- -------------------------------------------------------------------------------------------------------
Borrowings 6,166 6.21 4,116 4.94 4,943 4.45
- -------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 50,421 4.75 39,201 3.94 35,261 3.75
- -------------------------------------------------------------------------------------------------------
Net interest income $48,613 $45,723 $45,593
=======================================================================================================
Interest rate spread 4.04% 4.06% 4.27%
=======================================================================================================
Interest rate margin 4.31 4.31 4.52
=======================================================================================================
Ratio of interest-earning assets
to interest-bearing liabilities 1.06x 1.07x 1.07x
=======================================================================================================
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Increase (Decrease)
Volume Rate Net Volume Rate Net
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Interest income on interest-earning assets:
Commercial loans $ 5,466 $5,490 $10,956 $ 3,050 $ 2,823 $ 5,873
Consumer loans 1,287 399 1,686 2,801 (1,359) 1,442
Mortgage loans 1,164 586 1,750 (2,966) (245) (3,211)
Investment securities 1,033 (22) 1,011 1,727 (312) 1,415
Mortgage-backed securities (1,410) 683 (727) (839) (796) (1,635)
Other interest-earning assets (1,102) 536 (566) 389 (203) 186
- ------------------------------------------------------------------------------------------------------------------------
Total 6,438 7,672 14,110 4,162 (92) 4,070
- ------------------------------------------------------------------------------------------------------------------------
Interest expense on interest-bearing liabilities:
Savings (664) (86) (750) 464 (162) 302
Money market 2,241 1,904 4,145 702 1,387 2,089
Certificates of deposit 1,055 4,753 5,808 1,727 807 2,534
NOW (22) (11) (33) 45 (203) (158)
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 2,610 6,560 9,170 2,938 1,829 4,767
Borrowings 877 1,173 2,050 (1,328) 501 (827)
- ------------------------------------------------------------------------------------------------------------------------
Total 3,487 7,733 11,220 1,610 2,330 3,940
- ------------------------------------------------------------------------------------------------------------------------
Net interest income $ 2,951 $ (61) $ 2,890 $ 2,552 $(2,422) $ 130
========================================================================================================================
</TABLE>
The above table presents changes in interest income and interest expense
attributable to (i) changes in volume (change in volume multiplied by old rate),
and (ii) changes in rate (change in rate multiplied by old volume). The net
change attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
Net Interest Income
Net interest income is determined by the difference between rates earned on
interest-earning assets and the rates paid on interest-bearing liabilities
(interest rate spread), and the relative amounts of interest-earning assets and
interest-bearing liabilities. The interest income and the cost of funds of
financial institutions are significantly affected by general economic
conditions, policies of regulatory authorities, and other factors.
The Company earned net interest income of $45.6 million, $45.7 million, and
$48.6 million in 1993, 1994, and 1995, respectively. The Company's interest rate
spread decreased from 4.27% in 1993 to 4.06% in 1994. In 1995, the interest rate
spread decreased to 4.04%.
Interest on Mortgage Loans
Interest on mortgage loans consists of interest on fixed- and adjustable-rate
residential mortgages and fixed- and adjustable-rate commercial real estate
mortgages.
As interest rates started to increase during 1994, fixed-rate residential
mortgage originations were $62.5 million. The Company sold and securitized $75.0
million of these loans in 1994. As a result, the average balance of fixed-rate
residential mortgages decreased to $65.7 million in 1994 from $97.2 million in
1993. This decrease in the average balance, offset partially by an increase in
the yield to 8.61% from 8.43% in 1993, resulted in a decrease in interest on
fixed-rate residential mortgages from $8.2 million in 1993 to $5.7 million in
1994. The average balance on these loans continued to decline in 1995 to $57.1
million from $65.7 million in 1994. Originations of fixed-rate residential
mortgages declined in 1995 to $50.9 million. Sales and securitizations also
declined from $75.0 million for 1994 to $47.9 million for 1995. These
activities, coupled with principal amortization, continued to bring the average
balance lower during 1995. The yield on these loans declined from 8.61% in 1994
to 8.32% in 1995. The decline in the average balance and yield resulted in
income on fixed-rate residential mortgages of $5.7 million in 1994 and $4.8
million in 1995.
The average balance of adjustable-rate residential mortgages decreased from
$81.6 million in 1993 to $76.8 million in 1994, and rose to $98.3 million in
1995. Adjustable-rate residential
19
<PAGE>
mortgage originations were $5.4 million in 1993, $14.5 million in 1994, and
$34.8 million in 1995. The yield on adjustable-rate residential mortgages was
6.58% in 1993, 6.49% in 1994, and 7.22% in 1995. The changes in yield are
primarily due to the repricing of these loans each year and the addition of new
loans.
The average balance of adjustable-rate commercial real estate loans decreased
from $126.9 million in 1993, to $126.7 million in 1994. The yields on these
loans decreased from 8.89% in 1993, to 8.69% in 1994. This resulted in a
decrease in interest income from these loans from $11.3 million in 1993 to $11.0
million in 1994. The average balance of adjustable-rate commercial real estate
loans increased to $128.1 million in 1995 and the average yield increased to
9.06% resulting in an increase in interest income to $11.6 million for the year.
Interest on Consumer Loans
Interest on consumer loans consists of interest on passbook, personal and
student loans, credit cards, overdraft checking and Home Equity Line of Credit.
The consumer loan portfolio has continued to grow and has continued to be
among the highest yielding assets of the Company. Average balances for the years
1993, 1994, and 1995 were $156.9 million, $187.2 million, and $201.3 million,
respectively. Yields on all consumer loans for 1993, 1994, and 1995 were 9.79%,
8.97%, and 9.18%, respectively. Though yields had declined in 1994, interest
income on all these loans continued to increase for the three year period 1993
through 1995 with income of $15.4 million in 1993, $16.8 million in 1994, and
$18.5 million in 1995.
The largest single growth has come in personal loans. With the expansion into
other markets through branch acquisition and continued penetration into
surrounding markets, the indirect lending for auto and mobile homes has caused
the personal loans average balances to increase from $104.4 million in 1993, to
$137.7 million in 1994, and $153.1 million in 1995. Yields on these loans
declined from 10.11% in 1993 to 8.71% in 1994, but remained steady at 8.69% in
1995. Interest income on personal loans had steadily increased from $10.6
million in 1993 to $12.0 million in 1994, and to $13.3 million in 1995.
Interest on Commercial Loans
Increased growth in commercial lending continued in 1995 with the average
balance of commercial loans increasing from $314.6 million in 1993, to $351.7
million in 1994, and $410.1 million in 1995. The yields increased from 7.79% in
1993, to 8.64% in 1994, and 10.08% in 1995. The Prime Rate increased steadily
from 6.0% to 8.5% throughout 1993 and 1994, rose briefly to 9.0%, and fell to
8.5% toward the end of 1995. During this three year period, the interest on
commercial loans was $24.5 million, $30.4 million, and $41.3 million,
respectively.
Interest and Dividends on Investments
The practice of the Company has been to reduce fixed-rate, long-term investments
and to acquire assets with shorter maturities or shorter estimated lives. In
1995, the Company reduced its position in fixed-rate, long-term investments and
replaced them with securities having maturities of five years or less, floating
rate instruments, and tax-free municipal securities. The average balance of
investments was $47.4 million in 1993, $74.6 million in 1994, and $91.1 million
in 1995. Interest and dividends on investments was $3.3 million in 1993, $4.7
million in 1994, and $5.7 million in 1995. The yields on these assets declined
from 6.89% in 1993, to 6.28% in 1994, to 6.25% in 1995.
Interest on Mortgage-Backed Securities
In 1993, 1994, and 1995, the proceeds from the sale of long-term, fixed-rate
mortgages and long-term, fixed-rate investments were primarily invested in
mortgage-backed securities with shorter maturities or shorter average lives. The
average balance of mortgage-backed securities has declined from $168.2 million
in 1993, to $155.9 million in 1994, to $135.4 million in 1995. Precipitating
much of the decline in balances is the prepayment of the underlying loans.
Principal repayments were $56.8 million in 1993, $48.1 million in 1994, and
$22.8 million in 1995. The repayment speed of the underlying loans is influenced
by the interest rate environment; as rates rose in 1993 and into 1994,
prepayments increased, and as rates started to fall, prepayments slowed to
normal levels in 1995. Interest income declined from $11.9 million in 1993 to
$10.2 million in 1994 because of the decline in average balances and a decline
in the yield on the portfolio. Interest income continued to decline in 1995 to
$9.5 million mainly because balances continued to decline.
20
<PAGE>
Interest on Other Interest-Earning Assets
The average balance of other interest-earning assets (short-term money market
assets) was $5.1 million in 1993 and $16.1 million in 1994. The average balance
on these assets dropped to $0.4 million in 1995 as these short-term assets were
used to fund loan growth. The yield on these assets was 3.23% in 1993, 3.99% in
1994, and 6.79% in 1995. Interest earned on these assets was $0.2 million, $0.6
million, and $30 thousand in 1993, 1994, and 1995, respectively.
Interest on Deposits
Deposit balances continued to rise. In 1993, the average balance of all deposits
was $830.2 million, rising to $910.9 million in 1994. In 1995, average balances
rose $50.4 million to $961.3 million. Customer preference fuels changes in the
rise of all of deposit balances. From 1993 to 1994, average balance of savings
deposits grew $15.7 million to $174.7 million; average balance of money market
deposits grew $21.4 million to $165.5 million and average balance of
certificates of deposit grew $36.5 million to $474.8 million. From 1994 to 1995,
the average balance of money market accounts grew from $165.5 million to $216.8
million, a rise of 31%. This large increase caused interest expense on money
market accounts to rise from $6.3 million to $10.5 million. Interest expense was
further increased by a rise in the rates of these accounts from an average rate
of 3.83% in 1994 to 4.84% in 1995. Customer preference leaned toward the
variable rates of the money market accounts as savings and NOW account deposits
average balances declined from $233.9 million in 1994 to $209.2 million in 1995.
Yields stayed consistent during this time period at 2.53% in 1994 and 2.46% in
1995. The growth in the certificates of deposit balances and the rise in rates
from 4.81% in 1994 to 5.77% in 1995, caused the interest expense on these
products to rise from $22.8 million in 1994 to $28.6 million in 1995.
Interest on Borrowings
The average balance of borrowings decreased from $111.0 million in 1993 to $83.3
million in 1994 as a result of the branch deposit purchase . The cost of
borrowings increased from 4.45% in 1993 to 4.94% in 1994. The interest paid on
borrowings declined from $4.9 million in 1993 to $4.1 million in 1994. The
average balance of borrowings during 1995 increased to $99.3 million, and
coupled with an increase in the average interest rate paid on borrowings to
6.21%, caused interest paid on borrowings to increase to $6.2 million.
Provision for Credit Losses
The provision for credit losses was $5.6 million, $3.7 million, and $7.3 million
for the years 1993, 1994, and 1995, respectively. During 1994, this provision
declined as a result of a significant increase in recoveries on prior years
credit losses which allowed management to reduce its 1994 provision. As the
general economic climate remained relatively weak and the growth in the
commercial and consumer loan portfolio continued, management increased the
allowance for possible credit losses to $15.8 million. As the relatively weak
local economy persisted during 1995, net charge-offs increased from $3.1 million
in 1994 to $6.6 million in 1995. As the commercial and consumer loan portfolios
continued to increase, management increased the allowance for possible credit
losses to $16.6 million. The allowance for possible credit losses was 1.79% of
gross loans at December 31, 1995. Management considers this level of reserves
adequate to cover potential credit losses.
Gains (Losses) on Sale of Investments
The practice of the Company has been to reduce fixed-rate, long-term investments
and to acquire assets with shorter maturities or shorter estimated lives. As a
result of this practice, securities were sold at a net gain of $1.4 million in
1993. In order to minimize the fluctuation to shareholders' equity that the
market value of securities might have as a result of adopting SFAS No. 115, the
Company restructured its investment portfolio, shortening its duration and
reducing its interest rate sensitivity. As a result of such sales, the Company
had net security gains of $0.4 million in 1994. During 1995, the Company had net
security gains of $0.1 million.
21
<PAGE>
Gains (Losses) on Sale of Mortgages
The practice of the Company has been to sell or securitize long-term, fixed-rate
residential mortgage loans. As a result of this practice, the gains on the sale
of mortgages was $0.1 million in 1993 and losses of $1.0 million in 1994. These
gains were principally the result of the Company selling and securitizing
mortgages and retaining the servicing rights. As interest rates rose in 1994,
customers exercised their options to lock in rates at the time of application,
and as a result, these loans were sold at a loss. During 1995, the loss on sale
of mortgages was $41,000. As in 1995 future gains are anticipated to be rather
nominal as the Company has implemented certain hedging techniques intended to
limit future losses on the sale of mortgage loans.
Non-interest Income
As seen in the chart below, non-interest income increased from $4.5 million in
1993 to $5.5 million in 1994 to $6.7 million in 1995. This growth was due to
increased volume in the merchant credit card business, growth in the trust and
mortgage servicing business, and increased service charges on deposit accounts.
<TABLE>
<CAPTION>
Analysis of Non-Interest Income
(Dollars In Thousands)
Percent Change
1995 1994 1993 1994-95 1993-94
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $1,609 $1,393 $1,218 15.5% 14.4%
Credit card fees 2,560 1,689 900 51.6 87.7
Mortgage servicing fees 927 851 690 8.9 23.3
Fees and commissions-brokerage services 336 329 382 2.1 (13.9)
Trust fees 551 476 411 15.8 15.8
Other charges, commissions, and fees 689 763 864 (9.7) (11.7)
- -----------------------------------------------------------------------------------------
$6,672 $5,501 $4,465 21.3% 23.2%
=========================================================================================
</TABLE>
Operating Expenses
Operating expenses increased from $24.0 million in 1993 to $25.8 million in
1994 and $27.2 million in 1995. In 1994, the increase in operating expenses was
the result of the cost associated with the acquisition in June 1994 of two
branches of Columbia Banking F.S.A., located in Elmira and Elmira Heights,
purchased at auction conducted by the RTC (including salary, benefits,
occupancy, goodwill amortization and other expenses), increased processing fees
incurred in the merchant credit card program, as well as other increases in
operating expenses. In 1995, the increase in operating expenses was the result
of the costs associated with processing fees related to the merchant credit card
program, other real estate expenses, as well as other increases in operating
expenses. These increases were partially offset by a reduction of $0.9 million
in FDIC insurance premiums.
Since a substantial portion of operating expenses relates directly to income
generation, an effective measurement of the control of operating expenses is the
Efficiency Ratio. This ratio consists of operating expenses divided by recurring
revenues (net interest income and non-interest income) on a pre-tax basis. The
Efficiency Ratio for the Company was 47.85%, 50.27%, and 49.27% for 1993, 1994,
and 1995, respectively. The Company's excellent achievement of a 49.27%
Efficiency Ratio ranks as one of the best in the country.
The Company's ratio of operating expenses to average assets was 2.28% in 1993,
2.31% in 1994, and 2.29% in 1995.
Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach to recognizing the
tax effects of temporary differences between tax and financial reporting. In
prior years, the Company accounted for the tax effects of timing differences
between tax and financial reporting using Accounting Principles Board Opinion
No. 11. This change had no significant effect on the 1994 or 1995 financial
statements. See Note 13 of Notes to Consolidated Financial Statements for
details.
The Company is subject to New York State and Delaware franchise taxes. State
taxes amounted to $2.2 million in 1993, $2.0 million in 1994, and $1.9 million
in 1995.
22
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services.
Other Matters
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
". The adoption of this Statement is not expected to have a material effect on
the financial statements of the Company.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights". This pronouncement will allow the Bank to recognize, when a loan is
sold, income and a separate asset, resulting from the allocation of loan
origination or purchase costs to the mortgage servicing rights. The amount of
the effect of this pronouncement on 1996 earnings, which is expected to increase
earnings in the year a loan is originated and sold and reduce future servicing
revenue, will depend upon the amount of mortgage banking activity of the
Company. However, it is not expected that this will have a significant effect on
the Company's earnings.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This Statement establishes a fair value based method of
accounting for stock-based compensation plans. The Company is currently
accounting for its stock-based plans under Accounting Principles Board Opinion
No. 25. At the present time, the Company has not made a determination as to
which method it will elect. If the Company elects to continue to apply Opinion
No. 25, the effect of this new pronouncement will require disclosure in the
notes to the financial statements only.
The Bank is a stockholder of Nationar, a trust company jointly owned by over
60 savings banks throughout New York State. The Bank also used Nationar as its
primary depository, check processor, and trust depository. In February 1995, the
Superintendent of Banks of New York State took possession and assumed the
operations of Nationar due to financial instability. The Company has charged off
its equity and debenture investments in Nationar ($218,000), and the Bank has
filed claims with the Banking Department to settle its demand deposit account
($1.3 million) and to retrieve certain securities held by Nationar in connection
with an overdraft line of credit ($1.0 million). Management does not believe the
final resolution of the claims will have a material impact upon the financial
statements of the Company.
Market Prices and Related Shareholder Matters
The common stock of the Company is traded over-the-counter and is listed on The
Nasdaq Stock Market National Market System. As of December 31, 1995, the Company
had 1,706 shareholders of record and 6,243,397 shares of common stock issued and
outstanding. The number of shareholders does not reflect persons or entities who
hold their stock in nominee or "street" name through various brokerage firms.
Payment of dividends on the Company's common stock is subject to various
restrictions and limitations which may affect the Company's ability to pay cash
dividends in the future. See Note 1 of Notes to Consolidated Financial
Statements.
The following table sets forth the market price information for the common stock
and the cash dividends paid per share:
<TABLE>
<CAPTION>
1995 Cash
Price Range Dividends
High Low Per Share
- -------------------------------------------
<S> <C> <C> <C>
First Quarter $19.83 $18.00 $0.15
Second Quarter 20.67 18.00 0.15
Third Quarter 21.33 20.00 0.15
Fourth Quarter 26.00 20.67 0.20
</TABLE>
<TABLE>
<CAPTION>
1994 Cash
Price Range Dividends
High Low Per Share
- -------------------------------------------
<S> <C> <C> <C>
First Quarter $16.67 $14.67 $0.13
Second Quarter 19.33 14.33 0.13
Third Quarter 19.67 17.83 0.13
Fourth Quarter 19.33 17.67 0.15
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
BSB BANCORP, INC.
BINGHAMTON, NEW YORK
We have audited the accompanying consolidated statements of condition of BSB
Bancorp, Inc. (the "Company") and Subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BSB Bancorp, Inc.
and Subsidiary as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As further discussed in the notes to consolidated financial statements, the
Company changed its accounting for impaired loans in 1995.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
January 25, 1996
24
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
1995 1994
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ASSETS Cash and due from banks $ 43,825,565 $ 28,198,939
Federal funds sold 10,500,000
-----------------------------------------------------------------------------------------------
Total cash and cash equivalents 43,825,565 38,698,939
Investment securities (market value $103,611,323 and
$86,674,143) (Note 2) 103,113,635 86,685,621
Mortgage-backed securities (market value
$144,271,769 and $143,047,796) (Notes 3 and 9) 143,977,811 143,177,415
Mortgages held for sale 1,279,802 1,782,141
Loans (Notes 4, 5, and 6):
Commercial 455,443,997 386,875,514
Consumer 200,546,061 200,862,839
Real estate 271,026,326 277,343,756
-----------------------------------------------------------------------------------------------
Total loans 927,016,384 865,082,109
Less: Unearned discounts 605,479 1,218,104
Allowance for possible credit losses 16,560,000 15,847,359
-----------------------------------------------------------------------------------------------
Net loans 909,850,905 848,016,646
Bank premises and equipment (Note 7) 7,288,524 7,135,591
Accrued interest receivable 8,486,094 7,697,303
Other real estate 2,467,880 3,234,044
Intangible assets 2,482,916 2,777,916
Other assets 13,767,397 20,202,593
-----------------------------------------------------------------------------------------------
$1,236,540,529 $1,159,408,209
===============================================================================================
LIABILITIES Due to depositors (Note 8) $1,006,465,180 $962,780,262
AND Borrowings (Note 9) 98,948,728 79,028,336
SHAREHOLDERS' Other liabilities 14,352,975 10,729,852
EQUITY Commitments (Note 12)
Shareholders' Equity (Note 14):
Preferred stock, par value $.01 per share;
2,500,000 shares authorized; none issued
Common stock, par value $.01 per share;
10,000,000 shares authorized; 7,270,925 and
4,820,617 shares issued 72,709 48,206
Additional paid-in capital 26,861,407 26,436,429
Undivided profits 101,518,771 92,986,281
Unrealized (depreciation) appreciation in securities
available for sale, net (Notes 2 and 3) 168,878 (5,546,725)
Treasury stock, at cost; 1,027,528 and 528,419 shares (11,848,119) (7,054,432)
-----------------------------------------------------------------------------------------------
Total Shareholders' Equity 116,773,646 106,869,759
-----------------------------------------------------------------------------------------------
$1,236,540,529 $1,159,408,209
===============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $83,584,018 $69,191,993 $65,087,665
Interest on mortgage-backed securities 9,512,523 10,238,787 11,873,783
Interest on mortgages held for sale 215,758 169,414 459,609
Interest on federal funds sold and
interest-bearing deposits 30,289 642,665 167,364
Interest and dividends on investment securities:
U.S. Government obligations 3,104,837 2,228,350 591,050
State and municipal obligations 447,363 493,022 320,227
Other debt obligations 1,329,542 1,150,551 1,269,174
Corporate stocks 810,095 809,600 1,085,566
- ------------------------------------------------------------------------------------------------
Total interest income 99,034,425 84,924,382 80,854,438
- ------------------------------------------------------------------------------------------------
Interest expense:
Interest on savings deposits 4,376,740 5,126,801 4,824,209
Interest on time accounts 28,624,637 22,817,648 20,283,145
Interest on money market deposit accounts 10,490,989 6,345,394 4,257,203
Interest on NOW accounts 762,544 795,577 953,933
Interest on borrowed funds 6,166,894 4,116,348 4,943,423
- ------------------------------------------------------------------------------------------------
Total interest expense 50,421,804 39,201,768 35,261,913
- ------------------------------------------------------------------------------------------------
Net interest income 48,612,621 45,722,614 45,592,525
Provision for credit losses (Note 5) 7,332,612 3,717,184 5,580,417
- ------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 41,280,009 42,005,430 40,012,108
Gains (losses) on sale of securities 97,165 355,383 1,421,016
Gains (losses) on sale of mortgages (41,280) (951,656) 129,108
Non-interest income:
Service charges on deposit accounts 1,609,229 1,393,435 1,218,258
Credit card fees 2,559,668 1,688,471 899,619
Mortgage servicing fees 927,420 850,985 690,040
Fees and commissions-brokerage services 335,655 328,914 382,460
Trust fees 550,990 475,755 410,944
Other charges, commissions, and fees 689,596 763,227 864,934
- ------------------------------------------------------------------------------------------------
Total non-interest income 6,672,558 5,500,787 4,466,255
- ------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries, pensions, and other employee benefits 12,023,425 12,158,078 11,677,083
Building occupancy 2,302,189 2,180,724 2,074,000
Computer service fees 858,628 724,397 652,732
Services 2,073,155 1,809,870 1,336,621
FDIC insurance 1,145,297 2,017,209 1,847,394
Goodwill 295,000 172,084
Interchange fees 1,896,288 1,318,173 645,796
Other real estate 1,097,340 313,990 395,119
Other expenses 5,547,784 5,057,070 5,323,088
- ------------------------------------------------------------------------------------------------
Total non-interest expense 27,239,106 25,751,595 23,951,833
- ------------------------------------------------------------------------------------------------
Income before income taxes 20,769,346 21,158,349 22,076,654
Provision for income taxes (Note 13) 8,175,255 8,287,008 8,680,245
- ------------------------------------------------------------------------------------------------
NET INCOME $12,594,091 $12,871,341 $13,396,409
================================================================================================
Earnings per share (a) $1.98 $1.95 $2.03
================================================================================================
</TABLE>
(a) Earnings per share is based on 6,360,664, 6,591,401, and 6,603,398 weighted
average shares outstanding, after adjustment to reflect the three-for-two stock
split effective on December 8, 1995, for the years ended December 31, 1995,
1994, and 1993, respectively. The assumed exercise of stock options is not
materially dilutive.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Additional Appreciation
Common Paid-In Undivided Treasury (Depreciation)
Stock Capital Profits Stock In Securities Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $31,687 $25,388,435 $ 73,078,937 $ (2,869,632) $ 95,629,427
Net income 13,396,409 13,396,409
Unrealized appreciation in
available for sale securities, net $ 2,361,748 2,361,748
Effect of three-for-two stock split 15,844 (15,844)
Stock options exercised (Note 14) 440 444,173 444,613
Tax benefit on stock options 248,117 248,117
Cash dividend paid on common
stock ($.44 per share) (2,894,440) (2,894,440)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 47,971 26,064,881 83,580,906 (2,869,632) 2,361,748 109,185,874
Net income 12,871,341 12,871,341
Unrealized depreciation in
available for sale securities, net (7,908,473) (7,908,473)
Stock options exercised (Note 14) 235 323,338 323,573
Tax benefit on stock options 48,210 48,210
Cash dividend paid on common
stock ($.54 per share) (3,465,966) (3,465,966)
Treasury stock purchased (4,184,800) (4,184,800)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 48,206 26,436,429 92,986,281 (7,054,432) (5,546,725) 106,869,759
Net income 12,594,091 12,594,091
Unrealized appreciation in
available for sale securities, net 5,715,603 5,715,603
Effect of three-for-two stock split 24,103 (24,103)
Stock options exercised (Note 14) 400 398,993 399,393
Tax benefit on stock options 50,088 50,088
Cash dividend paid on common
stock ($.65 per share) (4,061,601) (4,061,601)
Treasury stock purchased (4,793,687) (4,793,687)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $72,709 $26,861,407 $101,518,771 $(11,848,119) $ 168,878 $116,773,646
========================================================================================================================
</TABLE>
THE ACCOMPANYING STATEMENTS ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 12,594,091 $ 12,871,341 $ 13,396,409
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred taxes (524,035) (591,343) (1,446,604)
Provision for credit losses 7,332,612 3,717,184 5,580,417
Realized gains on available for sale investment securities 189,964 (133,612) (587,262)
Realized gains on available for sale mortgage-backed securities (287,129) (221,771) (833,754)
(Gains) losses on sale of mortgages 41,280 951,656 (129,108)
Gains on sales and disposition of premises and equipment (8,110) (26,690) (7,442)
Depreciation and amortization 1,354,022 1,225,688 972,951
Net amortization of premiums and discounts on investment securities (111,766) 46,776 128,276
Net amortization of premiums and discounts on mortgage-backed securities 222,596 121,207 490,779
Net accretion of premiums and discounts on loans (612,625) (38,479) (3,359)
Sales of loans originated for sale 37,775,736 46,292,029 44,578,711
Net increase in loans originated for sale (37,366,884) (41,506,376) (45,074,283)
Increase in other assets and liabilities 6,233,373 (2,135,249) 2,075,508
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,833,125 20,572,361 19,141,239
- -----------------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 450,137 58,728
Purchases of held to maturity investment securities (4,130,684) (2,686,840)
Principal collected on held to maturity investment securities 78,842 158,377
Proceeds from calls of held to maturity mortgage-backed securities 50,068 184,700
Purchases of held to maturity mortgage-backed securities (3,777,619)
Principal collected on held to maturity mortgage-backed securities 2,771,744 4,957,625
Proceeds from sales of available for sale investment securities 55,064,467 81,821,700 28,870,844
Purchases of available for sale investment securities (67,859,702) (94,366,540) (51,992,718)
Principal collected on available for sale investment securities 100,939 1,917,258 420,401
Proceeds from sales of available for sale mortgage-backed securities 25,630,888 55,489,963 55,250,556
Purchases of available for sale mortgage-backed securities (17,743,091) (76,045,009) (63,458,841)
Principal collected on available for sale mortgage-backed securities 20,027,565 43,094,555 56,823,271
Net increase in longer-term loans (107,463,109) (91,620,309) (105,372,195)
Proceeds from sales of loans 17,086,227 14,179,997 13,239,378
Proceeds from acquisition of branches 37,246,997
Other (1,203,846) (1,489,962) (690,388)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (77,139,555) (30,876,379) (66,909,692)
- -----------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts (net of deposits acquired) (12,224,196) 41,738,074 22,557,017
Net increase (decrease) in time deposits (net of deposits acquired) 56,192,755 (14,381,929) 49,572,998
Net increase (decrease) in short-term borrowings 20,150,000 75,000,000 (13,692,000)
Proceeds from long-term borrowings 50,000,000
Repayment of long-term borrowings (229,608) (75,534,330) (56,224,803)
Proceeds from exercise of stock options 399,393 323,573 444,613
Purchases of treasury stock (4,793,687) (4,184,800)
Dividends paid (4,061,601) (3,465,966) (2,894,440)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 55,433,056 19,494,622 49,763,385
- -----------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 5,126,626 9,190,604 1,994,932
Cash and cash equivalents at beginning of year 38,698,939 29,508,335 27,513,403
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 43,825,565 $ 38,698,939 $ 29,508,335
=============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 51,032,462 $ 40,937,581 $ 37,840,467
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes $ 9,541,095 $ 9,171,266 $ 9,326,559
- -----------------------------------------------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate $ 21,108,679 $ 19,601,435 $ 48,640,361
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) in securities $ 9,808,405 $(13,571,709) $ 4,053,111
=============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<PAGE>
BSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Nature of Operations
BSB Bancorp, Inc. (the "Company") operates 12 branches in Broome, Tioga,
Chenango, and Chemung Counties of New York State. In 1995, BSB Bank & Trust
Company (the "Bank") converted from a New York-chartered stock savings bank to
a New York-chartered stock commercial bank and trust company. This conversion
more properly reflects the institution as a diversified financial service
organization providing a broad range of deposit and loan products to area
businesses and consumers.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Bank, its wholly owned subsidiary, after elimination of intercompany accounts
and transactions.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Investment and Mortgage-Backed Securities
The Bank has classified its investment and mortgage-backed securities as held to
maturity or available for sale. Held to maturity securities are those for which
the Bank has the positive intent and ability to hold to maturity, and are
reported at cost, adjusted for amortization of premiums and accretion of
discounts. Securities not classified as held to maturity are classified as
available for sale and reported at market value, with net unrealized gains and
losses reflected as a separate component of shareholders' equity, net of the
applicable income tax effect. None of the Bank's securities have been classified
as trading securities.
Purchases and sales of securities are recorded as of the settlement date.
Premiums and discounts on securities are amortized and accreted, respectively,
on a systematic basis over the period to maturity, estimated life, or earliest
call date of the related security. Gains or losses on securities sold are
computed based on identified cost.
Mortgages Held For Sale
Mortgages held for sale are carried at the lower of cost or market. Market value
is determined in the aggregate.
Banking Premises and Equipment
Banking premises and equipment are stated at cost and depreciated on a straight-
line basis over the estimated useful lives of the related assets (15-50 years
for bank premises and 3-10 years for furniture and equipment). Maintenance and
repairs are charged to operating expenses as incurred.
Unearned Discounts and Origination Fees
Nonrefundable loan fees and related direct costs are deferred and amortized over
the life of the loan as an adjustment of loan yield.
29
<PAGE>
Allowance for Possible Credit Losses
The allowance for possible credit losses is maintained at a level considered
adequate to provide for potential credit losses related to lending activities.
The allowance is increased by provisions charged to expense. The level of the
allowance is based upon management's evaluation of potential losses relating to
outstanding loans and letters of credit, as well as prevailing economic
conditions. Loans are charged against the allowance for possible credit losses
when management believes that the collectibility of principal is unlikely.
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", on January 1, 1995. Under the new standard, a loan is considered
impaired, based on current information and events if it is probable that the
Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based upon the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. The financial statement impact of adopting
SFAS No. 114 was not significant.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days. While a loan is classified as nonaccrual and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and principal are generally applied as a reduction to principal outstanding.
When future collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis.
Intangible Asset
Intangible asset represents the premium paid in connection with the June 1994
acquisition of 2 branches of the Columbia Banking F.S.A. at an auction conducted
by the RTC. The premium of $2,950,000, less accumulated amortization of $467,084
is being amortized over a ten-year period.
Other Real Estate
Other real estate is comprised of real estate acquired through foreclosure and
is recorded at the lower of cost or fair value (net of estimated costs to sell)
at the date of acquisition.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statements of
condition for cash and short-term instruments approximate those assets' fair
value.
Investment and mortgage-backed securities: Fair values for investment and
mortgage-backed securities are based on quoted market prices or dealer quotes.
Loans: Fair values for loans are estimated using discounted cash flow
analysis, based on interest rates approximating those currently being offered
for loans with similar terms and credit quality. The fair value of accrued
interest approximates carrying value.
Deposits: The fair values disclosed for non-interest bearing accounts and
accounts with no stated maturities are, by definition, equal to the amount
payable on demand at the reporting date. The fair value of time deposits was
estimated by discounting expected monthly maturities at interest rates
approximating those currently being offered on time deposits of similar terms.
The fair value of accrued interest approximates carrying value.
Borrowings: The carrying amounts of repurchase agreements and other short-term
borrowings approximate their fair values. Fair values of long-term borrowings
are estimated using discounted cash flows, based on current market rates for
similar borrowings.
Off-balance sheet instruments: Off-balance sheet financial instruments consist
of letters of credit, commitments to extend credit, and interest rate swaps.
Such instruments are fair valued based on fees currently charged to enter into
agreements with similar terms and credit quality.
30
<PAGE>
Reclassifications
With the change of converting from a state-chartered savings bank to a state-
chartered commercial bank and trust company., the surplus fund, as required
under the savings bank charter, was no longer needed.
Certain data for prior years has been reclassified to conform to the current
year's presentation. These reclassifications had no effect on net income.
NOTE 2-INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The carrying value and market value of the investment securities portfolio at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995
- -------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity portfolio:
Bond investments:
Municipal obligations $ 8,311,212 $515,384 $ 17,696 $ 8,808,900
- -------------------------------------------------------------------------------------
Total held to maturity 8,311,212 515,384 17,696 8,808,900
- -------------------------------------------------------------------------------------
Available for sale
portfolio:
Bond investments:
U.S. Government Agencies 60,566,607 302,747 716,207 60,153,147
Municipal obligations 1,000,430 51,299 1,051,729
Other bonds 18,556,757 25,256 66,608 18,515,405
Common and preferred stocks 3,683,477 31,298 3,714,775
- -------------------------------------------------------------------------------------
83,807,271 $410,600 $ 782,815 83,435,056
- -------------------------------------------------------------------------------------
Unrealized depreciation (372,215)
- -------------------------------------------------------------------------------------
Total available for sale 83,435,056 83,435,056
- -------------------------------------------------------------------------------------
Non-marketable investments:
Non-marketable investments 11,367,367 11,367,367
- -------------------------------------------------------------------------------------
$103,113,635 $103,611,323
=====================================================================================
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
1994
- ----------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity portfolio:
Bond investments:
U.S. Government Agencies $ 328,665 $ 19,720 $ 348,385
Municipal obligations 2,457,946 $ 31,198 2,426,748
- ----------------------------------------------------------------------------------
Total held to maturity 2,786,611 19,720 31,198 2,775,133
- ----------------------------------------------------------------------------------
Available for sale portfolio:
Bond investments:
U.S. Government Agencies 48,512,246 2,937,987 45,574,259
Municipal obligations 5,373,557 96,412 42,597 5,427,372
Other bonds 21,208,034 38,347 144,485 21,101,896
Common and preferred stocks 6,362,877 90,635 42,750 6,410,762
- ----------------------------------------------------------------------------------
81,456,714 $225,394 $3,167,819 78,514,289
- ----------------------------------------------------------------------------------
Unrealized depreciation (2,942,425)
- ----------------------------------------------------------------------------------
Total available for sale 78,514,289 78,514,289
- ----------------------------------------------------------------------------------
Non-marketable investments:
Non-marketable investments 5,384,721 5,384,721
- ----------------------------------------------------------------------------------
$86,685,621 $86,674,143
==================================================================================
</TABLE>
The carrying value and market value of bond investments at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
certain obligations with or without penalties.
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------------------------
Held to Maturity Available for Sale
- ------------------------------------------------------------------------------------------
Carrying Market Carrying Market
Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $4,130,244 $4,116,027 $11,105,806 $11,064,191
Due after one year through five years 1,927,943 1,963,007 52,191,320 52,337,985
Due after five years through ten years 73,025 74,606 14,544,420 14,006,145
Due after ten years 2,180,000 2,655,260 2,282,248 2,293,466
- ------------------------------------------------------------------------------------------
$8,311,212 $8,808,900 $80,123,794 $79,701,787
==========================================================================================
</TABLE>
Gross gains of $53,112 and $141,102 and gross losses of $43,076 and $7,490 were
realized on sales of available for sale securities in 1995 and 1994,
respectively. Gross gains of $368,297 were realized on bond investment sales in
1993.
Net realized gains or losses resulting from sales of marketable equity
securities for 1993 amounted to a gain of $75,000. Investment securities at
December 31, 1995 and 1994 include market values of approximately $2,655,000 and
$2,278,000, respectively, of securities which are held by a unit investment
trust, subject to certain put options held by the trust (see Note 9).
Investment securities at December 31, 1995 and 1994 include approximately
$35,130,000 and $10,188,000, respectively, pledged under various agreements,
principally letters of credit, lines of credit, and municipal option put
securities and interest rate swaps.
32
<PAGE>
NOTE 3-MORTGAGE-BACKED SECURITIES
- --------------------------------------------------------------------------------
The carrying value and market values of mortgage-backed securities at December
31 are as follows:
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity portfolio:
Collateralized mortgage
obligations $ 3,340,954 $ 36,248 $ 3,377,202
Government National Mortgage
Association securities 1,862,754 96,728 1,959,482
Participation certificates 5,292,861 160,982 5,453,843
- ------------------------------------------------------------------------------------
Total held to maturity 10,496,569 293,958 10,790,527
- ------------------------------------------------------------------------------------
Available for sale portfolio:
Collateralized mortgage
obligations 81,539,826 722,749 $ 325,296 81,937,279
Government National Mortgage
Association securities
Participation certificates 51,279,394 691,299 426,730 51,543,963
- ------------------------------------------------------------------------------------
132,819,220 $1,414,048 $ 752,026 133,481,242
- ------------------------------------------------------------------------------------
Unrealized appreciation 662,022
- ------------------------------------------------------------------------------------
Total available for sale 133,481,242 133,481,242
- ------------------------------------------------------------------------------------
$143,977,811 $144,271,769
====================================================================================
1994
- ------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
- ------------------------------------------------------------------------------------
Held to maturity portfolio:
Collateralized mortgage
obligations $ 3,577,703 $ 10,233 $ 146,508 $ 3,441,428
Government National Mortgage
Association securities 2,471,639 5,727 50,542 2,426,824
Participation certificates 6,941,259 76,985 25,514 6,992,730
- ------------------------------------------------------------------------------------
Total held to maturity 12,990,601 92,945 222,564 12,860,982
- ------------------------------------------------------------------------------------
Available for sale portfolio:
Collateralized mortgage
obligations 80,590,795 80,910 3,850,164 76,821,541
Government National Mortgage
Association securities
Participation certificates 56,172,192 6,233 2,813,152 53,365,273
- ------------------------------------------------------------------------------------
136,762,987 $ 87,143 $6,663,316 130,186,814
- ------------------------------------------------------------------------------------
Unrealized depreciation (6,576,173)
- ------------------------------------------------------------------------------------
Total available for sale 130,186,814 130,186,814
- ------------------------------------------------------------------------------------
$143,177,415 $143,047,796
====================================================================================
</TABLE>
Gross gains of $409,307 and $356,494 and gross losses of $122,178 and $134,723
were realized on the sale of securities in the available for sale portfolio in
1995 and 1994, respectively. Gross gains of $932,915 and gross losses of
$99,161 were realized on mortgage-backed security sales in 1993, respectively.
33
<PAGE>
Mortgage-backed securities at December 31, 1995 and 1994 include approximately
$25,393,000 and $15,006,000, respectively, pledged under various agreements,
principally letters of credit, lines of credit, and municipal option put
securities and interest rate swaps.
NOTE 4-LOANS
- --------------------------------------------------------------------------------
Substantially all of the Bank's loans are granted to borrowers concentrated
within Broome County and other communities located in upstate New York.
NOTE 5-ALLOWANCE FOR POSSIBLE CREDIT LOSSES
- --------------------------------------------------------------------------------
Changes in the allowance for possible credit losses at December 31 are presented
in the following summary:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $15,847,359 $15,234,002 $12,916,404
Recoveries credited 712,553 1,210,348 816,877
Provision for credit losses 7,332,612 3,717,184 5,580,417
Loans charged off 7,332,524 4,314,175 4,079,696
- ---------------------------------------------------------------------
Balance at end of year $16,560,000 $15,847,359 $15,234,002
=====================================================================
</TABLE>
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $12,218,125, of which
$599,897 related to loans with no valuation allowance because the loans have
been partially written down through charge-offs and $11,618,228 related to loans
with a corresponding valuation allowance of $3,781,295. For the year ended
December 31, 1995, the average recorded investment in impaired loans was
approximately $6,347,926. The Bank recognized, on the cash basis, $31,905 of
interest on impaired loans (during the portion of the year they were impaired).
NOTE 6-LOANS TO RELATED PARTIES
- --------------------------------------------------------------------------------
At December 31, 1995, loans to directors and officers or to entities (or other
shareholders of such entities) which owned or controlled 10% or more of the
voting stock were not significant.
NOTE 7-BANK PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
A summary of bank premises and equipment at December 31 is shown as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Land $ 1,166,327 $ 1,122,805
Banking premises 9,649,855 9,059,047
Furniture and equipment 8,558,317 8,066,620
- ----------------------------------------------------------
19,374,499 18,248,472
Less: Accumulated depreciation 12,085,975 11,112,881
- ----------------------------------------------------------
$ 7,288,524 $ 7,135,591
==========================================================
</TABLE>
NOTE 8-DUE TO DEPOSITORS
- --------------------------------------------------------------------------------
A summary of amounts due to depositors at December 31 is shown as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Savings accounts $ 143,303,795 $167,557,945
Money market deposit accounts 223,356,746 212,302,081
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Certificates of deposit 534,568,547 478,470,441
NOW accounts 59,740,319 58,943,023
Commercial checking deposits 45,495,773 45,506,772
- -------------------------------------------------------------
$1,006,465,180 $962,780,262
=============================================================
</TABLE>
Time deposits with balances in excess of $100,000 amounted to approximately
$91,273,000 and $44,442,000 at December 31, 1995 and 1994, respectively. The
approximate maturity of time deposits follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------
Year of Maturity Amount Percent Amount Percent
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $344,810,510 64.5% $335,028,905 70.0%
2 84,528,376 15.8 60,728,008 12.7
3 52,609,687 9.8 40,496,300 8.5
4 32,026,969 6.0 26,977,451 5.6
5 and over 20,593,005 3.9 15,239,777 3.2
- -----------------------------------------------------------------
$534,568,547 100.0% $478,470,441 100.0%
=================================================================
</TABLE>
NOTE 9-BORROWINGS
- --------------------------------------------------------------------------------
The following is a summary of borrowings at December 31:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings:
Municipal option put securities $ 2,198,728 $ 2,228,336
Federal Home Loan Bank advances 95,150,000 75,000,000
Current portion of long-term advance from Federal Home Loan Bank 1,600,000 200,000
- ---------------------------------------------------------------------------------------------
98,948,728 77,428,336
Long-term borrowings:
Long-term advance from Federal Home Loan
Bank bearing interest at rates from 7.8% to 7.9% 1,600,000
- ---------------------------------------------------------------------------------------------
$98,948,728 $79,028,336
=============================================================================================
</TABLE>
Information related to short-term borrowings at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding balance at end of year $ 98,948,728 $ 77,428,336 $ 77,762,666
Average interest rate 5.88% 6.14% 3.63%
Maximum outstanding at any month end $126,098,081 $102,817,666 $125,211,666
Average amount outstanding during year $103,520,474 $ 82,889,931 $ 82,921,158
Average interest rate during year 5.91% 4.46% 3.23%
====================================================================================
</TABLE>
Average amounts outstanding and average interest rates are computed using
weighted monthly averages.
The collateral agent requires that the market value of the collateral for the
municipal option put securities must be maintained at 150% of the outstanding
balance of the agreements. The Bank has assigned mortgage-backed securities as
collateral for the agreements. Such securities have a market value aggregating
$4,751,000, and $4,843,000 at December 31, 1995 and 1994, respectively.
As of December 31, 1995, the long-term borrowings of $1,600,000 matures in
1996.
At December 31, 1995, the Bank had available a line of credit with the Federal
Home Loan Bank of New York subject to the limitations of the New York State
Banking Department regulations, of which $96,750,000 is outstanding as of
December 31, 1995. This outstanding balance is collateralized by certain
mortgage loans, mortgage-backed securities, and other investment securities
under a blanket pledge agreement with the Federal Home Loan Bank of New York.
35
<PAGE>
NOTE 10-INTEREST RATE SWAPS
- --------------------------------------------------------------------------------
The Bank had interest rate swap agreements to partially hedge the interest rate
exposure on a floating rate liability. The swap agreements, which expired in
1995, consisted of $30,000,000 in notional amounts whereby interest income was
received on a floating basis and interest expense was paid on a fixed basis. The
net amount of such interest paid or received was treated as an adjustment of
interest expense. The underlying notional amounts were not exchanged and were
not subject to loss.
NOTE 11-EMPLOYEE BENEFITS
- --------------------------------------------------------------------------------
The Bank has a noncontributory qualified defined benefit pension plan covering
substantially all employees. Under the plan, retirement benefits are primarily a
function of both the years of service and the level of compensation. The Bank's
policy is to fund the plan in amounts sufficient to pay liabilities.
The net periodic pension cost for the years ended December 31, 1995, 1994, and
1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the year $ 493,306 $ 519,688 $ 442,886
Interest cost on projected benefit obligations 963,427 815,787 794,856
Actual return on plan assets (2,429,552) (80,145) (1,328,255)
Net amortization and deferral 1,221,199 (1,007,239) 301,404
- -----------------------------------------------------------------------------------------
Net periodic pension expense $ 248,380 $ 248,091 $ 210,891
=========================================================================================
</TABLE>
Plan assets consist primarily of listed stocks, governmental securities and cash
equivalents. The following table represents a reconciliation of the funded
status of the plan at October 1, 1995 and 1994 (date of the most recent
actuarial studies):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $14,386,300 $11,869,700
- --------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 10,667,300 8,761,800
Nonvested benefits 828,200 825,500
- --------------------------------------------------------------------------------------------------
Accumulated benefit obligation 11,495,500 9,587,300
Effect of future salary increases 2,401,800 2,059,400
- --------------------------------------------------------------------------------------------------
Projected benefit obligation 13,897,300 11,646,700
- --------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 489,000 223,000
Unrecognized net loss 1,194,200 1,201,100
Unrecognized past service liability (218,300) (229,500)
Unrecognized asset at date of adoption being recognized over 12 years (504,600) (671,200)
- --------------------------------------------------------------------------------------------------
Prepaid pension cost reflected in statements of condition $ 960,300 $ 523,400
==================================================================================================
</TABLE>
36
<PAGE>
The actuarial present value of the projected benefit obligation shown in the
above table is based on a discount rate of 7.50% and 8.25% for 1995 and 1994 and
an assumed rate of increase in future compensation levels of 5.50% and 6.00% for
1995 and 1994. The expected long-term rate of return on assets was 8.75% for
1995 and 1994.
The Bank has a defined contribution employee savings 401(k) plan. Full-time
salaried employees, age twenty-one and older who have completed one year of
service, are eligible to join the 401(k) plan. The Bank matches 100% of basic
contributions up to 2.0% of each participant's annual contribution and 50% of
contributions over 2.0% but not in excess of 3.0%. Contributions associated with
the plan amounted to $201,526 in 1995, $186,345 in 1994, and $182,739 in 1993.
The Bank currently provides certain life and health insurance benefits to
substantially all employees.
The net postretirement benefit cost for the years ended December 31, 1995, 1994,
and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Service cost benefits earned during the year $107,725 $117,614 $ 79,333
Interest cost on benefit obligations 351,650 307,214 284,200
Net amortization and deferral 173,200 192,005 173,200
- ----------------------------------------------------------------------------
$632,575 $616,833 $536,733
============================================================================
</TABLE>
The following sets forth a reconciliation of the plan's status at October 1,
1995 and 1994 (date of most recent actuarial studies):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Retirees $(2,958,100) $(2,776,338)
Fully eligible active plan participants (1,278,562) (971,404)
Other active plan participants (662,238) (503,145)
- ----------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (4,898,900) (4,250,887)
Plan assets at fair value
Unrecognized transition obligation being
recognized over 20 years 2,944,200 3,117,400
Unrecognized net loss 696,900 312,001
- ----------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation included in other liabilities $(1,257,800) $ (821,486)
====================================================================================================
</TABLE>
Medical costs were assumed to increase 10.0% in 1996 grading to 5.5% in 2005,
and thereafter. The actuarial present value of the accumulated postretirement
benefit obligation shown in the above table is based on a discount rate of 7.5%
and 8.25% for 1995 and 1994, respectively. Increasing the assumed medical cost
trend rate by 1.0% would increase the accumulated postretirement benefit
obligation at October 1, 1995 by $188,973 and would not have a material effect
on service cost.
NOTE 12-COMMITMENTS
- --------------------------------------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist primarily of commitments to extend credit and
letters of credit, which involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the consolidated statements of condition. The
contract amount of those commitments and letters of credit reflects the extent
of involvement the Bank has in those particular classes of financial
instruments. The Bank's exposure to credit loss in the event of nonperformance
by the counterparty to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of the
instruments. The Bank uses the same credit policies in making commitments and
letters of credit as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $212,880,009 $192,422,164
Letters of credit 20,534,002 18,864,123
</TABLE>
37
<PAGE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitment amounts are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby and other letters of credit written are conditional commitments issued
by the Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Since some of the letters of credit
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
For both commitments to extend credit and letters of credit, the amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral held
varies, but includes residential and commercial real estate. Outstanding loans
sold with recourse approximated $997,000 as of December 31, 1995.
As required by certain letters of credit agreements, the Bank has pledged as
collateral, mortgage-backed securities having a market value of approximately
$9,233,000 at December 31, 1995.
The Bank rents facilities under leases expiring at various dates through 2016.
Rent expense totaled approximately $382,000 in 1995, $373,000 in 1994, and
$340,000 in 1993.
Approximate minimum rental commitments under existing noncancelable leases with
remaining terms of one year or more are presented below:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 341,988
1997 335,422
1998 340,822
1999 292,620
2000 263,703
Later years 1,372,478
- ---------------------------------------------
Total minimum lease payment $2,947,033
=============================================
</TABLE>
NOTE 13-INCOME TAXES
- --------------------------------------------------------------------------------
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes" which requires an asset and liability approach to recognizing the
tax effects of temporary differences between tax and financial reporting. In
prior years, the Company accounted for the tax effects of timing differences
between tax and financial reporting using Accounting Principles Board Opinion
No. 11. This change had no significant effect on the 1993 financial statements.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $8,699,290 $8,878,351 $10,126,849
Deferred (benefit) (524,035) (591,343) (1,346,634)
Tax rate increase to deferred tax asset (benefit) (99,970)
- ------------------------------------------------------------------------------------------
$8,175,255 $8,287,008 $ 8,680,245
==========================================================================================
</TABLE>
38
<PAGE>
The components of deferred income taxes at December 31, which are included in
other assets are:
<TABLE>
<CAPTION>
1995 1994
===============================================================
<S> <C> <C>
Assets:
Investments $ 3,971,873
Allowance for possible credit losses $6,788,979 6,435,917
Deferred loan fees 140,324 426,698
Postretirement benefits 515,651 336,809
Non-accrual interest 379,897 145,583
Other 150,850
- ----------------------------------------------------------------
7,975,701 11,316,880
- ----------------------------------------------------------------
Liabilities:
Depreciation 423,325 408,418
Pension benefits 364,731 214,594
Investments 202,099 101,468
Other 37,909 46,413
Leases 191,878 243,116
- ----------------------------------------------------------------
1,219,942 1,014,009
- ----------------------------------------------------------------
Net Deferred Tax Asset $6,755,759 $10,302,871
================================================================
</TABLE>
A reconciliation between the federal statutory income tax rate and the effective
income tax rate at December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
Tax-exempt interest income (1.0) (0.7) (0.7)
Dividends received deduction (0.3) (0.6) (0.8)
Other (0.6) (0.9) (1.0)
- ------------------------------------------------------------
Effective federal income tax rate 33.1% 32.8% 32.5%
============================================================
</TABLE>
NOTE 14-OPTIONS AND SHAREHOLDERS' RIGHTS
- --------------------------------------------------------------------------------
The Company had adopted a Long-Term Incentive and Capital Accumulation Plan (the
"Incentive Plan") for the benefit of officers and certain other employees of the
Company and its subsidiary. Four kinds of rights were contained in the Incentive
Plan and were available for grant: incentive stock options, non-statutory
options, stock appreciation rights, and performance share awards. Only,
incentive options have been granted under the Incentive Plan. As of September
19,1995, this Plan expired and no further options are available for grant.
Under the Directors' Stock Option Plan (the "Directors' Plan"), as approved by
shareholders at the 1994 Annual Meeting of Shareholders, 262,500 shares of
authorized but unissued common stock are reserved for issuance to incumbent and
future non-employee directors of the Company, of which 75,000 shares have been
granted. At December 31, 1995, 187,500 shares are available for future grant
under the Directors' Plan. All options granted under the Directors' Plan are
intended to be non-qualified options.
To the extent shares remain available for grant, upon initial election or
appointment as a director, new non-employee directors of the Company will each
receive a grant of an option for 4,500 shares of common stock. Furthermore, in
January of each year, each non-employee director, including any director who
becomes a non-employee director prior to such anniversary, shall be granted an
option to purchase 1,500 shares of common stock.
39
<PAGE>
Activity in the Plans during 1995, 1994, and 1993 was as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share Aggregate
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Outstanding options at December 31, 1992 103,049 $8.75-$17.50 $1,438,261
1993: Effect of three-for-two stock split 51,518
Options forfeited (6,187) 5.83-11.67 (63,119)
Options exercised (44,000) 5.83-21.00 (444,613)
Options granted 58,875 21.00 1,236,375
- ----------------------------------------------------------------------------------------
Outstanding options at December 31, 1993 163,255 5.83-21.00 2,166,904
1994: Options forfeited (500) 22.88 (11,438)
Options exercised (23,532) 5.83-24.00 (323,573)
Options granted 74,000 22.88-29.00 1,746,750
- ----------------------------------------------------------------------------------------
Outstanding options at December 31, 1994 213,223 5.83-29.00 3,578,643
1995: Effect of three-for-two stock split 106,591
Options forfeited (1,875) 15.25-18.25 (33,091)
Options exercised (40,000) 3.89-18.50 (399,393)
Options granted 79,125 18.25-20.67 1,459,031
- ----------------------------------------------------------------------------------------
Outstanding options at December 31, 1995 357,064 $3.89-$20.67 $4,605,190
========================================================================================
</TABLE>
Since the option price per share at the date of grant approximates the fair
market value of the shares on the grant date, no expense is recognized as the
stock options are exercised.
During 1989, the Company adopted a shareholders' rights plan. Pursuant to the
plan, the Company's Board of Directors declared a dividend of one right for each
outstanding share of common stock. These rights will also be attached to common
stock issued subsequent to the adoption of the plan. The rights can only be
exercised when an individual or group intends to acquire or has acquired a
defined amount of the Company's outstanding common shares. Each right will
entitle the holder to receive common stock having a market value equivalent to
two times the exercise price (as defined). The rights expire on June 1, 1999 and
may be redeemed by the Company in whole at a price of $.01 per right.
NOTE 15-SELECTED QUARTERLY FINANCIAL DATA
Summarized quarterly financial information (in thousands of dollars) for the
years ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
3/31/95 6/30/95 9/30/95 12/31/95 3/31/94 6/30/94 9/30/94 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 23,853 $ 24,510 $ 25,413 $ 25,259 $ 19,817 $ 20,595 $ 21,841 $ 22,672
Total interest expense 12,088 12,615 12,734 12,985 8,627 9,291 10,112 11,171
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 11,765 11,895 12,679 12,274 11,190 11,304 11,729 11,501
Provision for credit losses 1,360 1,305 1,431 3,237 948 982 853 935
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 10,405 10,590 11,248 9,037 10,242 10,322 10,876 10,566
Gains (losses) on sale of securities (17) (175) 104 185 117 45 193 1
Gains (losses) on sale of mortgages 37 25 (189) 86 (330) (465) (23) (134)
Non-interest income 1,459 1,456 1,600 2,157 1,181 1,437 1,374 1,507
Operating expenses 6,898 6,924 6,742 6,674 5,750 6,308 6,620 7,073
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,986 4,972 6,021 4,791 5,460 5,031 5,800 4,867
Income taxes 2,003 2,008 2,394 1,771 2,198 1,972 2,285 1,831
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,983 $ 2,964 $ 3,627 $ 3,020 $ 3,262 $ 3,059 $ 3,515 $ 3,036
==============================================================================================================================
Earnings per share (a):
Net income $0.46 $0.46 $0.57 $0.48 $0.49 $0.46 $0.53 $0.47
==============================================================================================================================
</TABLE>
(a) Adjusted to reflect the three-for-two stock split effective on December 8,
1995.
40
<PAGE>
NOTE 16-FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," became
effective for the Bank for the year ended December 31, 1992. This standard
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of condition, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Bank. The fair
value of off-balance-sheet financial instruments is not significant.
The net carrying amount and fair values of financial instruments (in thousands
of dollars) at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 43,826 $ 43,826 $ 38,699 $ 38,699
Investment securities 103,114 103,611 86,686 86,674
Mortgage-backed securities 143,978 144,272 143,177 143,048
Loans 927,016 931,170 863,864 860,428
Allowance for possible credit losses (16,560) (16,560) (15,847)
- --------------------------------------------------------------------------------------------
Net loans 910,456 914,610 848,017 860,428
Other financial assets 1,280 1,280 1,782 1,782
- --------------------------------------------------------------------------------------------
Total financial assets $1,202,654 $1,207,599 $1,118,361 $1,130,631
============================================================================================
Financial Liabilities:
Deposits $1,006,465 $1,010,204 $ 962,780 $ 960,072
Borrowings 98,949 98,138 79,028 79,109
- --------------------------------------------------------------------------------------------
Total financial liabilities $1,105,414 $1,108,342 $1,041,808 $1,039,181
============================================================================================
</TABLE>
41
<PAGE>
NOTE 17-FINANCIAL INFORMATION-PARENT COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION
December 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ASSETS Cash and due from banks $ 206,672 $ 278,347
Investment in Bank, at equity 116,566,974 106,591,412
- -----------------------------------------------------------------------------------------------------------------------
$116,773,646 $106,869,759
=======================================================================================================================
LIABILITIES AND Shareholders' Equity:
SHAREHOLDERS' Preferred stock, par value $.01 per share; 2,500,000
EQUITY shares authorized; none issued
Common stock, par value $.01 per share; 10,000,000
shares authorized; 7,270,925 shares and 4,820,617
shares issued $ 72,709 $ 48,206
Additional paid-in capital 26,861,407 26,436,429
Undivided profits 101,518,771 92,986,281
Unrealized appreciation (depreciation) in securities
available for sale, net 168,878 (5,546,725)
Treasury stock at cost; 1,027,528 and 528,419 shares (11,848,119) (7,054,432)
- -----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 116,773,646 106,869,759
- -----------------------------------------------------------------------------------------------------------------------
$116,773,646 $106,869,759
=======================================================================================================================
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INCOME Dividends from Bank $ 8,855,288 $ 7,294,673 $ 2,894,440
Equity in undistributed net income of
Bank, net of dividends 4,208,871 5,834,141 10,721,917
- -------------------------------------------------------------------------------------------------------------------------
Total income 13,064,159 13,128,814 13,616,357
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES Total expense 470,068 257,473 219,948
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $12,594,091 $12,871,341 $13,396,409
=========================================================================================================================
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OPERATING Net income $12,594,091 $12,871,341 $ 13,396,409
ACTIVITIES Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income
of Bank, net of dividends (4,208,871) (5,834,141) (10,721,917)
Increase (decrease) in other payables (49)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,385,220 7,037,200 2,674,443
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING Dividends paid to shareholders (4,061,601) (3,465,966) (2,894,440)
ACTIVITIES Purchases of treasury stock (4,793,687) (4,184,800)
Investment in subsidiary (1,000)
Proceeds from exercise of stock options 399,393 323,573 444,613
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (8,456,895) (7,327,193) (2,449,827)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (71,675) (289,993) 224,616
Cash and cash equivalents at beginning of year 278,347 568,340 343,724
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 206,672 $ 278,347 $ 568,340
===========================================================================================================================
</TABLE>
43
<PAGE>
BSB BOARD OF DIRECTORS
FERRIS G. AKEL: President: Binghamton Giant Markets, Inc.
ROBERT W. ALLEN: Consultant
JOHN J. CONSEY: Executive Vice President, Retired: BSB Bancorp, Inc.
WILLIAM C. CRAINE: President & Chief Executive Officer: Craine & Mirabito
Insurance and Mang Group, Inc.
HELEN A. GAMBLE: Community Volunteer
THOMAS F. KELLY, PH.D.: Vice President: Binghamton University State University
of New York
HERBERT R. LEVINE: Chairman of the Board: Van Cott Jeweler, Ltd.
DAVID A. NIERMEYER: President & Chief Executive Officer: Stakmore Co., Inc.
MARK T. O'NEIL, JR.: President & Chief Executive Officer: United Health
Services, Inc.
WILLIAM H. RINCKER: Chairman & Chief Executive Officer
JOHN V. SPONYOE: President: Loral Federal Systems, Owego
THOMAS L. THORN: Executive Vice President & Treasurer: Diamond Page
International Corporation
The membership of the Board of Directors of BSB Bancorp, Inc. and BSB Bank &
Trust Company is identical. All members serve on both boards.
OFFICERS
WILLIAM H. RINCKER: Chairman & Chief Executive Officer ALEX S. DEPERSIS:
President & Chief Operating Officer
EDWARD R. ANDREJKO: Senior Vice President & Chief Financial Officer
FIELDING SIMMONS III: Senior Vice President & Treasurer GLENN R. SMALL: Senior
Vice President
ARTHUR C. SMITH: Senior Vice President LARRY G. DENNISTON: Vice President &
Secretary
DIRECTORS EMERITI
AUBREY S. BOWEN CHARLES G. BRINK
VINCENT J. EARLEY FLOYD H. LAWSON, JR.
ROBERT J. NASH DR. WILLIAM L. ROBERTS
EDGAR E. SEVERSON JOHN V. SMITH
DR. J. GLEZEN WATTS
44
<PAGE>
BSB BANK & TRUST COMPANY (Subsidiary of BSB Bancorp, Inc.)
EXECUTIVE
William H. Rincker, Chairman of the Board and Chief Executive Officer
Alex S. DePersis, President and Chief Operating Officer
Larry G. Denniston, Vice President and Secretary
Cynthia A. Hicks, Assistant Secretary
BANKING OPERATIONS
Arthur C. Smith, Senior Vice President
Branch Administration
Michael V. Radicchi, Vice President, Branch Administrator
Jacqueline L. Michalek, Assistant Vice President and Assistant
Branch Administrator
Elizabeth 1. Donahue, Senior Branch Officer
Laura Kur-Radicchi, Senior Branch Officer
Margaret J. Murray, Senior Branch Officer
Karen L. Thurber, Senior Branch Officer
Patricia A. Blair, Branch Officer President
Denise G. Mughetti, Branch Officer
Lucille E. Roberts, Branch Officer
Rebecca L. Van Wie, Branch Officer
Julia G. Kamishlian, Vice President - Banking Support Services
Dana L. Lutsic, Business Development Officer
Lori A. Micha, Pensions Services Officer
Glenn H. Cashel, Records and Research Officer
Thomas J. Lamphere, Risk Management Officer
Patrick M. Gleason, Training Officer
James H. DiMascio, Facilities and Services Officer
Systems
Donald C. DePugh, Vice President
Matthew W. Schaefer, Assistant Vice President
ACCOUNTING
Edward R. Andrejko, Senior Vice President and Chief Financial Officer
Rexford C. Decker, Vice President and Controller
Donald R. Schmitt, Assistant Vice President
Kevin P. Harty, Financial Information Officer
TRUST
Douglas R. Johnson, Senior Vice President and Senior Trust Officer
Leslie J. Distin, Vice President and Trust Officer
John P. Riesbeck, Vice President and Trust Investment Officer
FINANCIAL SERVICES
Pamela A. Kelley, Vice President
HUMAN RESOURCES
Patricia A. Phelps, Vice President
Roy W. Brock, Human Resources Officer
OFFICERS
LENDING OPERATIONS
Commercial Lending
Glenn R. Small, Senior Vice President
Edward P. Bahrenburg, Vice President
Marvin F. Mastrangelo, Vice President
Lawrence E. Stack, Vice President
John B. Westcott, Vice President
Susan A. Burtis, Assistant Vice President
Kevin P. O'Hara, Assistant Vice President
Ann Marie F. Smith, Commercial Credit Officer
Melody A. Gardner, Commercial Loan Operations Officer
Commercial Real Estate
Gary K. Hart, Vice President
Warren 0. Hill, Vice President
William B. Meredith, Assistant Vice President
Consumer Lending
Joseph W. Thornton, Vice President
William T. Slote, Assistant Vice President
M. Peter Brady, Assistant Vice President
Joseph Diorio, Assistant Vice President-Business Development
Mildred V. Truesdell, Assistant Vice President, Consumer Loan
Operations Officer
Residential Mortgage Lending
Gary T. Drabo, Vice President
Rose M. Colvson, Assistant Vice President
Allen E. Fuller, Assistant Vice President
Mary Ann Neylan, Assistant Vice President
John J. Saraceno, Assistant Vice President-Business Development
Robert L. Anderson, Jr., Mortgage Servicing Officer
INVESTMENTS
Fielding Simmons III, Senior Vice President and Treasurer
Lawrence M. Harris, Municipal Development Officer
AUDITING
Bruce R. Hayes, Vice President and Auditor
Penne M. Gaeta, Assistant Auditor
LOAN REVIEW
Phyllis K. Gilroy, Assistant Vice President
MARKETING
Stephanie Garrison, Marketing Director
45
<PAGE>
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS: MAILING ADDRESS:
BSB Bancorp, Inc. P.O. Box 1056
58-68 Exchange Street Binghamton, New York 13902
Binghamton, New York 13902
ANNUAL MEETING:
The Annual Meeting of Shareholders of BSB Bancorp, Inc. will be held at 10:00
A.M. on April 22, 1996, in the Sears Harkness Hall at the Roberson Center for
the Arts and Sciences, 30 Front Street, Binghamton, New York.
FORM 10-K ANNUAL REPORT:
A copy of BSB Bancorp, Inc. Form 10-K Annual Report may be obtained without
charge upon written request to Larry G. Denniston, Vice President & Secretary,
Shareholder Relations Department, BSB Bancorp. Inc., 58-68 Exchange Street,
Binghamton, New York 13902.
REGISTRAR AND TRANSFER AGENT:
American Stock Transfer and Trust Company
40 Wall Street-46th Floor
New York, New York 10005
STOCK LISTING:
BSB Bancorp, Inc. common stock is traded over the counter and is listed on The
Nasdaq Stock Market National Market System under the symbol BSBN. High, low, and
closing prices and daily trading volume are reported in most major newspapers as
"BSB Bcp."
AUDITORS: GENERAL COUNSEL:
Coopers & Lybrand L.L.P. Hinman, Howard & Kattell, L.L.P.
One Lincoln Center Security Mutual Building
Syracuse, New York 13202 Binghamton, New York 13901
SPECIAL COUNSEL: SHAREHOLDER RELATIONS DEPARTMENT:
Hogan & Hartson L.L.P. BSB Bancorp, Inc.
Columbia Square 58-68 Exchange Street
555 13th Street, N.W. Binghamton, New York 13902
Washington, D.C. 20004 (607) 779-2492
46
<PAGE>
EXHIBIT 21
BSB Bank & Trust Company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------
We consent to the incorporation by reference in the registration statement of
BSB Bancorp, Inc. on Form S-8 (File No. 33-24714) of our report dated January
25, 1996, on our audits of the consolidated financial statements of BSB Bancorp,
Inc. as of December 31, 1995 and 1994 and for the years ended December 31, 1995,
1994, 1993, which report is included in the Annual Report on Form 10-K.
COOPERS & LYBRAND, L.L.P.
Syracuse, N.Y.
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 43826
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 228,283
<INVESTMENTS-CARRYING> 18,808
<INVESTMENTS-MARKET> 247,091
<LOANS> 928296
<ALLOWANCE> 16560
<TOTAL-ASSETS> 1236541
<DEPOSITS> 1006465
<SHORT-TERM> 98949
<LIABILITIES-OTHER> 14353
<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 116701
<TOTAL-LIABILITIES-AND-EQUITY> 1,236,541
<INTEREST-LOAN> 83800
<INTEREST-INVEST> 15204
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 99034
<INTEREST-DEPOSIT> 44254
<INTEREST-EXPENSE> 6167
<INTEREST-INCOME-NET> 48613
<LOAN-LOSSES> 7333
<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 27239
<INCOME-PRETAX> 20769
<INCOME-PRE-EXTRAORDINARY> 20769
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12594
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
<YIELD-ACTUAL> 8.79
<LOANS-NON> 12716
<LOANS-PAST> 96
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15847
<CHARGE-OFFS> 7333
<RECOVERIES> 713
<ALLOWANCE-CLOSE> 16560
<ALLOWANCE-DOMESTIC> 16560
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
