<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 relevancy Lou BushHP CustomerThis 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, 1997
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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)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 5, 1998, the aggregate value of the 8,588,378 shares of Common
Stock of the Registrant issued and outstanding on such date, excluding 912,674
shares held by all affiliates of the Registrant, was approximately $244,183,334.
This figure is based on the closing sales price of $31.8125 per share of the
Registrant's Common Stock on March 5, 1998. For purposes of this calculation,
the shares held by directors and executive officers of the registrant have been
excluded because such persons may be deemed to be affiliates. This reference to
affiliate status is not necessarily a conclusive determination for other
purposes.
Number of shares of Common Stock outstanding as of March 5, 1998 - 8,588,378
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, 1997 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 27, 1998 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, 1997
BSB BANCORP, INC.
Page
----
PART I
Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of
Security Holders 22
PART II
Item 5. Market for the Registrants Common Equity and
Related Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management 22
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 23-26
<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 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.
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 is headquartered in Binghamton, New York and conducts business in
Broome, Tioga, Chenango, Onondaga, and Chemung Counties, and adjacent areas of
New York State. BSB Bank & Trust serves its customers from thirteen full-service
banking offices, and twenty off-premise automatic teller machines
(MachineTeller(R)) at the two largest hospitals in the area, the Binghamton
Regional Airport, Town Square Mall, Martin Marietta, Airport Corporate Center,
Dick's Sporting Goods in Horseheads, all area Giant Food Markets, and Broome
Community College. The Bank also serves its customers at twelve proprietary
banking service locations (StoreTeller(R)) situated in a large area supermarket
chain.
The primary market area of the Bank is Broome, Tioga, Chenango, Onondaga, and
Chemung Counties with a combined population of 880,433 according to the 1990
United States Census. The Bank is the leader in total deposits in Broome County.
Over 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, as well as offering banking services to school districts and
cooperative education centers, cities, towns, villages, and numerous municipal
agencies. It has also 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.
LENDING ACTIVITIES
Loan Portfolio Composition
BSB Bank & Trust's portfolio of net loans totaled $1.2 billion at December 31,
1997, representing 76.0% of the Bank's total assets at that date, compared to
$1.0 billion, and 72.7% of the Bank's total assets at December 31, 1996.
Commercial loans continued to comprise a significant portion of the loan
portfolio, increasing to $654.2 million, or 54.26% of all loans at December 31,
1997. These loans, being generally tied to the Company's Prime Rate, tend to
increase the interest rate sensitivity of the loan portfolio. The consumer loan
share of the portfolio increased from 21.53% of all loans at December 31, 1996
to 24.82%, or $299.3 million at December 31, 1997. The Company's continued
efforts to increase this portfolio via expanded indirect financing through local
and surrounding area automobile dealers has produced significant results.
Originations of all consumer loans was $205.6 million for 1997, compared to
$132.2 million for 1996. Results from this focus on originating consumer loans
has increased the balance of the indirect new and used auto loan portfolios to
$161.6 million at December 31, 1997 from $112.2 million at December 31, 1996,
and direct consumer loans from $35.6 million at December 31, 1996 to $46.9
million at December 31, 1997.
1
<PAGE>
The balance of mobile home loans increased to $45.5 million at December 31, 1997
from $27.7 million at December 31, 1996.
The Company's policy of selling or securitizing fixed-rate residential
mortgages to improve the liquidity of the portfolio, reduce interest rate risk,
and to build servicing portfolio income resulted in sales and securitizations of
$59.7 million in 1996, with an additional $15.7 million of adjustable-rate
residential mortgages securitized. In 1997, $79.5 million of fixed-rate
residential mortgages were sold or securitized to aid in managing liquidity and
collateral needs. The Company had originations of fixed-rate residential
mortgages of $94.1 million for 1997 compared to $53.8 million in 1996.
Management remains committed to originating adjustable-rate residential loans
and holding these loans, either in whole loan or securitized form, due to their
attractive yield and responsiveness to rate changes over time.
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,
1997 1996 1995 1994 1993
Amount Percent Amount Percent Amount Percent Amount Percent Amount
---------- -------- ----------- -------- ---------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 654,243 54.26% $ 536,779 53.22% $455,444 49.13% $386,875 44.72% $339,555
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer:
Student 3,012 0.25% 1,569 0.16% 8,940 0.96% 12,404 1.43% 11,485
Personal direct 46,883 3.89% 35,552 3.53% 28,867 3.10% 28,282 3.27% 26,718
Personal indirect-Used Auto 112,103 9.30% 67,336 6.68% 50,487 5.45% 43,606 5.04% 37,199
Personal indirect-New Auto 49,475 4.10% 44,843 4.45% 48,556 5.24% 53,594 6.21% 38,878
Personal indirect-Mobil Homes 45,506 3.77% 27,728 2.75% 23,002 2.48% 22,572 2.61% 17,426
Personal indirect-Others 3,807 0.32% 4,374 0.43% 4,610 0.50% 3,361 0.39% 3,684
Savings account 229 0.02% 340 0.03% 423 0.05% 632 0.07% 781
Overdraft checking 1,841 0.15% 940 0.09% 836 0.09% 614 0.07% 623
Home equity 24,991 2.07% 24,278 2.41% 25,133 2.71% 26,233 3.03% 28,691
Debit card 1,277 0.11% 628 0.06%
Credit card 10,183 0.84% 9,480 0.94% 9,692 1.05% 9,565 1.11% 10,771
- ----------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 299,307 24.82% 217,068 21.53% 200,546 21.63% 200,863 23.22% 176,256
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate
Fixed-rate:
Residential 37,213 3.09% 24,598 2.44% 37,071 4.00% 38,340 4.43% 54,948
FHA & VA 10,390 0.86% 13,390 1.33% 16,810 1.81% 20,309 2.35% 25,709
Commercial 4,426 0.37% 4,912 0.49% 3,011 0.32% 3,218 0.37% 3,348
Commercial FHA 202 0.02% 208 0.02% 214 0.02% 219 0.03% 224
- ----------------------------------------------------------------------------------------------------------------------------------
Total fixed-rate 52,231 4.33% 43,108 4.27% 57,106 6.16% 62,086 7.18% 84,229
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustable-rate:
Residential 64,208 5.32% 73,648 7.30% 82,470 8.90% 81,200 9.38% 77,678
Commercial 135,808 11.26% 137,937 13.68% 131,450 14.18% 134,058 15.50% 130,383
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustable-rate 200,016 16.58% 211,585 20.98% 213,920 23.08% 215,258 24.88% 208,061
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate 252,247 20.92% 254,693 25.25% 271,026 29.24% 277,344 32.06% 292,290
- ----------------------------------------------------------------------------------------------------------------------------------
$1,205,797 100.00% $1,008,540 100.00% $927,016 100.00% $865,082 100.00% $808,101
==================================================================================================================================
</TABLE>
2
<PAGE>
The following table sets forth scheduled contractual amortization of loans in
the Bank's portfolio at December 31, 1997. 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. 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.
<TABLE>
<CAPTION>
Residential Commercial Commercial
Real Estate Real Estate Business Consumer
Loans Loans Loans Loans Total
- ------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 123 $ 14,071 $278,272 $ 35,800 $ 328,266
After one year through five years 3,566 62,579 277,450 188,057 531,652
Beyond five years 108,122 63,786 98,521 75,450 345,879
- ------------------------------------------------------------------------------------------------
Total $111,811 $140,436 $654,243 $299,307 $1,205,797
================================================================================================
Amounts due after one year:
Fixed $ 41,913 $ 4,853 $151,549 $263,507 $ 461,822
================================================================================================
Adjustable $ 69,775 $121,512 $224,422 $ 415,709
================================================================================================
</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.
3
<PAGE>
ORIGINATION, SECURITIZATION, AND SALE OF LOANS
The following table shows the loans originated, securitized, sold, and repaid
during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Gross loans receivable at beginning of period $1,010,107 $ 928,296 $ 866,864
Mortgage loan originations:
Conventional
One- to four-family dwellings
Fixed-rate 89,916 52,445 50,881
Adjustable-rate 6,771 17,165 34,829
Commercial real estate 25,547 23,745 9,992
FHA/VA 4,188 1,385
- ----------------------------------------------------------------------------------------
Total mortgage loans originated 126,422 94,740 95,702
- ----------------------------------------------------------------------------------------
Commercial loan originations 244,165 159,834 122,490
Consumer loan originations:
Student loans 3,151 3,535 4,755
Personal direct loans 30,234 20,529 13,908
Personal indirect used auto loans 85,406 47,078 30,334
Personal indirect new auto loans 29,655 22,592 18,393
Personal indirect mobile home loans 22,867 8,862 3,604
Personal indirect other loans 1,181 1,913 1,346
Home improvement loans 19 1,610 1,382
Savings account loans 231 168 232
Commercial line of credit loans 1,149
Overdraft checking 2,552 3,199 2,385
Debit card 2,822 1,086
Equity lines of credit 10,602 8,503 9,636
Credit card 15,721 13,169 11,617
- ----------------------------------------------------------------------------------------
Total consumer loans originated 205,590 132,244 97,592
- ----------------------------------------------------------------------------------------
Total loans originated 576,177 386,818 315,784
- ----------------------------------------------------------------------------------------
Commercial loan-credit advances 984,800 1,116,506 1,111,224
Principal repayments 1,276,644 1,335,588 1,288,797
Loans securitized:
FNMA-fixed 1,620 11,099
FNMA-adjustable - 15,724 21,875
- ----------------------------------------------------------------------------------------
Total loans securitized 1,620 26,823 21,875
- ----------------------------------------------------------------------------------------
Loan sales:
Student loans 1,708 10,491 6,968
Residential mortgages 77,856 48,611 47,936
- ----------------------------------------------------------------------------------------
Total loan sales 79,564 59,102 54,904
- ----------------------------------------------------------------------------------------
Net loan activity 203,149 81,811 61,432
- ----------------------------------------------------------------------------------------
Gross loans receivable and loans
held for sale at end of period 1,213,256 1,010,107 928,296
Loans held for sale (7,459) (1,567) (1,280)
- ----------------------------------------------------------------------------------------
Gross loans receivable at the end of the period 1,205,797 1,008,540 927,016
Allowance for possible credit losses (19,207) (17,054) (14,065)
Total net discounts and premiums (595) (594) (605)
- ----------------------------------------------------------------------------------------
Net loans receivable at the end of period $1,185,995 $ 990,892 $ 912,346
========================================================================================
</TABLE>
4
<PAGE>
COMMERCIAL LENDING
The commercial loan portfolio has become a significant part of the Bank's
asset base. As of December 31, 1997, commercial loans amounted to $654.2
million, or 54.26% of the Bank's total loans as compared with $536.8 million, or
53.22% as of December 31, 1996. 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. However, 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,
1997, 18 loan relationships had outstanding loans and commitments exceeding 10%
of shareholders' equity. Also at December 31, 1997, there were two loan
relationships with outstanding loans and commitments exceeding 15% of
shareholders' equity. Each of these relationships have a well diversified source
of repayment with adequate collateral, and each of the loans were approved by
the Board Loan Committee as an exception to policy. 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, 1997, there were $266.0 million in commitments outstanding and
the portfolio consisted of loans with an average outstanding balance of
$225,922. Management continues to emphasize commercial loan originations, which
amounted to $159.8 million, or 41.3% of total loans originated in 1996 compared
to $244.2 million, or 42.4% of total loans originated in 1997.
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
regional market. Approximately 72% 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 9.79% in 1997 and 9.63% in 1996. The Bank's
average Prime Rate was 8.44% in 1997 and 8.27% in 1996. Commercial loans are
made on both a secured and unsecured basis, and include secured lines of credit.
Although most have shorter terms, the maximum term of a non-real estate secured
commercial loan is ten years. The largest single extension of credit at December
31, 1997 was in the amount of $15.0 million and, as of that date, there was $4.6
million outstanding on that credit. As of December 31, 1997, the Bank had 29
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.
CONSUMER LENDING
The Bank engages in a variety of consumer lending activities. As of December
31, 1997, a total of $299.3 million of consumer loans was outstanding as
compared to $217.1 million and $200.5 million at December 31, 1996 and 1995,
respectively. As seen in the table on page 2, the majority of the consumer loans
are comprised of $258.0 million in personal loans (which includes indirect loans
and savings account loans), $25.0 million in home equity loans, and $11.5
million in credit and debit 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 $258.0 million in personal loans outstanding at December 31, 1997,
$46.9 million represented the Bank's portfolio of direct consumer loans
originated by the Bank's lending staff and $210.9 million represented the
indirect consumer loan portfolio originated through relationships with mobile
home service companies, and automobile and other retail dealers. Of the indirect
originations in 1997, $22.9 million or 16.4% financed mobile homes, and $1.2
million or 0.8% financed recreational vehicles. Mobile home loans are
originated through service companies and are supported by recourse agreements
against significant reserve account balances. 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.
5
<PAGE>
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 place greater emphasis on the origination of indirect
consumer loans. In 1997, the Bank originated $139.1 million of indirect consumer
loan contracts compared with $80.4 million of such consumer loans in 1996.
The remainder of the indirect consumer originations experienced during 1997
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.
Home equity lines of credit are primarily an adjustable-rate consumer loan
product with a term of 20 or 30 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, 1997, there were total home equity lines of credit available of
$43.1 million with an outstanding balance of $25.0 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, 1997,
there were total credit card lines available of $33.8 million with an
outstanding balance of $10.2 million as compared to $33.9 million and $9.5
million, respectively, at December 31, 1996.
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.
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, 1997, $111.8
million, or 9.3% of the Bank's total loan portfolio consisted of residential
mortgage loans. In 1997 and 1996, residential mortgage loan originations
amounted to $100.9 million and $71.0 million, respectively, which represented
approximately 17.5% and 18.4%, respectively, of the Bank's total loan
originations.
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 $351.3 million at
December 31, 1996 to $392.0 million at December 31, 1997. This increase in
serviced loans from December 31, 1996 to December 31, 1997 was facilitated by an
increase in the sales of residential mortgages from $48.6 million in 1996 to
$77.9 million in 1997.
COMMERCIAL REAL ESTATE LENDING
In 1996, 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. The Bank originated $25.5 million in commercial real estate
loans in 1997 compared to $23.7 million in 1996 and $10.0 million in 1995. At
December 31, 1997, the Bank had $140.4 million of commercial real estate loans
outstanding, representing approximately 11.6% of the Bank's total loan
portfolio. Adjustable-rate commercial real estate loans, with rates adjusting
every one, three, or five years, represent 96.7% of the total commercial real
estate loan portfolio at December 31, 1997.
The commercial real estate loans offered by the Bank are being underwritten
with terms of up to 25 years. In setting interest rates and origination fees on
new loans and extensions, management considers both current market conditions
and its analysis of the risk associated with the particular project. The
weighted average yield on commercial real estate adjustable-rate loans for 1997
was 9.13% and 9.05% in 1996. The largest single commercial real estate loan
advanced during 1997 was $4.0 million.
6
<PAGE>
Non-performing Loans and Other Real Estate Owned ("ORE")
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>
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial loans:
Non-accrual loans $10,542 $ 6,130 $ 8,032 $4,449 $ 5,779
Consumer loans:
Accruing loans 90 days overdue 304 236 96 109 107
Residential real estate loans:
Non-accrual loans 1,309 1,556 1,920 1,037 694
Commercial real estate loans:
Non-accrual loans 821 4,295 2,764 2,286 4,081
- ----------------------------------------------------------------------------------------------------------------
Total non-performing loans and accruing
loans 90 days overdue $12,976 $12,217 $12,812 $7,881 $10,661
- ----------------------------------------------------------------------------------------------------------------
Total non-performing loans to total loans 1.08% 1.21% 1.38% 0.91% 1.32%
Total real estate acquired in settlement of loans at lower of
cost or fair value $ 2,784 $ 1,393 $ 2,468 $3,234 $ 826
- ----------------------------------------------------------------------------------------------------------------
Total non-performing loans and real estate acquired in
settlement of loans at fair value to total assets 1.01% 1.00% 1.23% 0.96% 1.05%
================================================================================================================
</TABLE>
During 1997, 1996, 1995, 1994, and 1993, approximately $728,000, $808,000,
$986,000, $405,000 and $843,000 of additional interest income would have been
recorded on loans accounted for on a non-accrual basis as of the end of 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 1997, 1996, 1995, 1994, and 1993, $598,000, $276,000, $241,000,
$365,000 and $364,000 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 $15.8 million, or 1.01% of total assets at December 31, 1997,
compared to $13.6 million, or 1.00% of total assets at December 31, 1996.
At December 31, 1996, 36 non-performing residential real estate loans totaled
$1.6 million. At December 31, 1997, non-performing residential real estate loans
totaled $1.3 million and included 28 loans. Loan loss reserves have been
established that are deemed adequate by management.
At December 31, 1996, non-performing commercial real estate loans totaled $4.3
million, and included eight loans ranging in size from $62,000 to $1.8 million.
Of these loans, two local commercial real estate loans that had a combined
balance of $2.9 million at December 31, 1996 were written down to $1.8 million
and transferred to ORE during 1997 and remained there at year end 1997. At
December 31, 1997, non-performing commercial real estate loans decreased to $0.8
million and consisted of three loans ranging in size from $78,000 to $594,000.
Non-performing commercial loans at December 31, 1996 totaled $6.1 million and
included 41 individual loans ranging in size from $600 to $1.6 million. At
December 31, 1997, non-performing commercial loans increased to $10.5 million
and consisted of 35 individual loans ranging in size from $5,000 to $1.3
million. The increase from December 31, 1996 to December 31, 1997 is mainly due
to four loans totaling $3.5 million being added to non-performing assets in the
fourth quarter of 1997. These loans were to a company which leases vehicles to
non-personal entities such as schools, rehabilitation centers, and similar
businesses. These loans and all other non-performing loans have been internally
risk-rated.
The Bank's non-accrual loans increased from $12.2 million at December 31, 1996
to $13.0 million at December 31, 1997. At December 31, 1996, the recorded
investment in loans for which impairment has been recognized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 114 totaled $8.5
million with a
7
<PAGE>
valuation allowance aggregating $3.2 million. For the twelve months ended
December 31, 1996, the average recorded investment in impaired loans was
approximately $8.8 million. The Company recognized, on a cash basis, $146,000 of
interest on impaired loans during the portion of the year they were impaired. At
December 31, 1997, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $12.0 million with a
valuation allowance aggregating $4.3 million. For the twelve months ended
December 31, 1997, the average recorded investment in impaired loans was
approximately $8.9 million. The Company recognized, on a cash basis, $272,000 of
interest on impaired loans during the portion of the year they were impaired.
At December 31, 1996, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totaled $1.4 million, which
consisted of 12 single-family residential properties with a book value totaling
$712,000 and seven local commercial real estate properties with a book value
totaling $681,000. At December 31, 1997, ORE totaled $2.8 million and consisted
of 10 single-family residential properties with a book value totaling $474,000
and nine local commercial real estate properties with a book value totaling $2.3
million. The cause of the increase in ORE is the addition of two local
commercial real estate properties moved from non-performing loans to ORE in the
fourth quarter of 1997 as mentioned above.
During 1997, 14 single-family residential properties with a book value
totaling $753,000 were sold. From 1996, two single-family residential properties
remained in the ORE portfolio, and this property had a book value of $62,000.
During 1997, 12 single-family residential properties with a book value of
$800,000 were added to the ORE portfolio.
During 1997, four local commercial real estate properties with a book value of
$600,000 were sold, and 14 local commercial real estate properties with a book
value totaling $1.9 million were charged off, and six commercial real estate
properties valued at $1.3 million were partially charged off. During 1997, seven
local commercial real estate properties with a book value totaling $2.9 million
were added to the portfolio. Due to declining commercial real estate values,
three local commercial real estate ORE properties were reduced by $628,000 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 $19.2 million at December 31, 1997 adequate to cover
potential credit losses.
8
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average total loans outstanding $1,103,563 $970,060 $914,988 $828,739 $796,696
=====================================================================================================
Allowance at beginning of period $ 17,054 $ 14,065 $ 13,354 $ 12,756 $ 11,764
Charge-offs:
Commercial loans 5,178 5,800 3,944 3,104 3,197
Consumer loans 2,137 1,714 1,123 850 707
Residential real estate loans 83 116 81 54 66
Commercial real estate loans 2,480 1,184 2,185 306 109
- -----------------------------------------------------------------------------------------------------
Total loans charged-off 9,878 8,814 7,333 4,314 4,079
Recoveries:
Commercial loans 852 1,114 311 830 356
Consumer loans 572 550 358 344 311
Residential real estate loans 12 18 57
Commercial real estate loans 293 156 24 21 93
- -----------------------------------------------------------------------------------------------------
Total recoveries 1,717 1,832 711 1,195 817
- -----------------------------------------------------------------------------------------------------
Net charge-offs 8,161 6,982 6,622 3,119 3,262
- -----------------------------------------------------------------------------------------------------
Provision for credit losses charged to
operating expenses 10,314 9,971 7,333 3,717 4,254
- -----------------------------------------------------------------------------------------------------
Allowance at end of period $ 19,207 $ 17,054 $ 14,065 $ 13,354 $ 12,756
=====================================================================================================
Ratio of net charge-offs to:
Average total loans outstanding 0.74% 0.72% 0.72% 0.38% 0.41%
Ratio of allowance to:
Non-performing loans 148.02% 139.59% 109.78% 169.45% 119.65%
Year-end total loans outstanding 1.59% 1.69% 1.52% 1.54% 1.58%
</TABLE>
The provision for credit losses was $10.3 million in 1997 and $10.0 million in
1996. The allowance for possible credit losses increased to $19.2 million, or
1.59% of total loans at December 31, 1997, from $17.1 million, or 1.69% at year-
end 1996 to reflect the continued growth in the commercial and consumer loan
portfolios relative to other loan assets. Net charge-offs in 1997 amounted to
$8.2 million, or 0.74% of average total loans outstanding, compared with $7.0
million, or 0.72% in 1996. Non-performing loans at December 31, 1997 were $13.0
million, or 1.08% of total loans outstanding, up from $12.2 million, or 1.21% at
December 31, 1996.
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,
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Amount % (1) Amount % (1) Amount % (1) Amount % (1) Amount % (1)
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
Commercial $ 3,130 11.65% $ 2,915 14.18% $ 1,700 14.53% $ 1,460 15.89% $ 1,385 16.58%
Residential 175 9.27 175 11.07 175 14.71 175 16.17 175 19.59
Commercial 13,662 54.26 12,584 53.23 10,890 49.13 10,419 44.72 9,946 42.02
Consumer 2,240 24.82 1,380 21.52 1,300 21.63 1,300 23.22 1,250 21.81
- -----------------------------------------------------------------------------------------------------------------------
$19,207 100.00% $17,054 100.00% $14,065 100.00% $13,354 100.00% $12,756 100.00%
=======================================================================================================================
</TABLE>
(1) Percent of loans in each category to total loans at the dates indicated.
9
<PAGE>
INVESTMENT ACTIVITIES
As of December 31, 1997, the Bank's investment securities portfolio of $285.0
million constituted 18.3% of its total assets. Such securities consist of
United States Government agency securities, mortgage-backed securities,
collateralized mortgage obligations ("CMO"), obligations of state and local
governments, and corporate debt and equity securities.
Collateralized mortgage obligations consist of pools of mortgages divided into
classes (or "tranches"). Principal amortization and prepayments 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") and Fannie Mae. The Bank owns and occasionally
buys private issuer 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. All CMOs purchased by the Bank must pass a test to
determine that they are not "high risk securities", as defined by the Federal
Financial Institutions Examining Council ("FFIEC"), prior to purchase.
The Bank also purchases and sells mortgage participation certificates that
consist primarily of certificates issued by Fannie Mae and the FHLMC. The Bank's
portfolio of mortgage-backed securities also includes securities guaranteed by
the Government National Mortgage Association ("GNMA"). At December 31, 1997, the
Bank's gross mortgage-backed securities portfolio of $81.2 million included
$58.0 million of CMOs, $1.2 million in GNMA securities, and $22.0 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 1997, 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
2 of the Consolidated Financial Statements included in the 1997 Annual Report to
Shareholders):
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Collateralized mortgage obligations $ 57,988 $108,780 $ 85,344 $ 84,351 $ 72,865
GNMA securities 1,204 1,495 1,886 2,512 3,105
Participation certificates 21,962 48,989 56,469 63,049 79,533
- -------------------------------------------------------------------------------------------------
81,154 159,264 143,699 149,912 155,503
- -------------------------------------------------------------------------------------------------
Net (discounts) and premiums (253) 47 (383) (159) 861
Unrealized appreciation (depreciation) (1,292) (523) 662 (6,576) 3,208
- -------------------------------------------------------------------------------------------------
$79,609(1) $158,788 $143,978 $143,177 $159,572
=================================================================================================
</TABLE>
(1) The book value of mortgage-backed securities at December 31, 1997 include
approximately $63.2 million pledged under various agreements, principally
lines of credit and Municipal Option Put Securities.
The U.S. Government Obligations of the Bank's investment securities consist
primarily of securities callable by the issuing agencies. The calls range from
immediately callable out to four years. The call features limit the
appreciation potential of the securities as the possibility of them being called
on the call date rises as interest rates decline.
The following table shows the Bank's activity in mortgage-backed securities
during the years indicated:
10
<PAGE>
December 31,
1997 1996 1995
- -------------------------------------------------------------------------
(Dollars in Thousands)
Mortgage-backed securities at $159,264 $143,699 $149,912
beginning of year (gross)
Purchases:
Collateralized mortgage obligations 29,184 78,900 22,296
Participation certificates 1,100
- -------------------------------------------------------------------------
Total purchases 29,184 80,000 22,296
- -------------------------------------------------------------------------
Securitizations:
Participation certificates 1,620 26,823 21,875
- -------------------------------------------------------------------------
Sales:
Collateralized mortgage obligations 66,338 39,974 6,513
Participation certificates 19,867 26,837 21,027
- -------------------------------------------------------------------------
Total sales 86,205 66,811 27,540
Principal repayments:
GNMA securities 291 391 626
Collateralized mortgage obligations 13,638 15,490 14,790
Participation certificates 8,780 8,566 7,428
- -------------------------------------------------------------------------
Total principal repayments 22,709 24,447 22,844
- -------------------------------------------------------------------------
Net change in principal (78,110) 15,565 (6,213)
- -------------------------------------------------------------------------
Mortgage-backed securities at end of
year (gross) 81,154 159,264 143,699
- -------------------------------------------------------------------------
Net (discounts) and premiums (253) 47 (383)
Unrealized appreciation (depreciation) (1,292) (523) 662
- -------------------------------------------------------------------------
Net mortgage-backed securities at
end of year $ 79,609 $158,788 $143,978
=========================================================================
The primary reason for the decline in the outstanding balances of
collateralized mortgage obligations and participation certificates is
restructuring of the investment portfolio. These classes of securities have been
sold and replaced with U.S. Government obligations. The primary purpose was to
reduce prepayment risk associated with mortgage backed securities.
11
<PAGE>
The following table sets forth the Bank's investment portfolio at carrying
value at the dates indicated:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Bond investments:
U.S. Government obligations $174,593 $ 91,014 $ 60,567
Municipal obligations 9,680 18,959 9,312
Corporate obligations 5,025 1,997 18,557
Other 727 597 170
- ----------------------------------------------------------------------------
Total bond investments 190,025 112,567 88,606
- ----------------------------------------------------------------------------
Stock investments:
Marketable equity securities 22 3 3
Preferred sinking fund stocks 591 2,591 3,680
Other securities 14,708 14,698 11,197
- ----------------------------------------------------------------------------
Total stock investments 15,321 17,292 14,880
- ----------------------------------------------------------------------------
Total investment securities at book value 205,346 129,859 103,486
- ----------------------------------------------------------------------------
Unrealized appreciation (depreciation) 34 (981) (372)
- ----------------------------------------------------------------------------
Total investment securities $205,380 $128,878 $103,114
============================================================================
</TABLE>
12
<PAGE>
The following table presents the maturities of and the weighted average yield
on the Bank's investment portfolio at December 31, 1997. 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
Year Interest
or less
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
U.S. Treasury and U.S.
government agencies
and corporations $ 3,980 5.42% $32,493 6.43% $1,085 4.91% $115,082 7.01% ---$ ---%
Obligations of states and
political subdivisions 6,002 4.30 622 4.93 --- --- 869 6.81 --- ---
Corporate bonds:
Domestic 271 3.90 17 8.00 --- --- --- --- --- ---
Corporate stocks --- --- --- --- --- --- --- --- --- ---
Other securities --- --- --- --- --- --- --- --- --- ---
- --------------------------- ------- ---- ------- ---- ------ ---- -------- ---- ------ ----
Total net investments
and other securities $10,253 4.72% $33,132 6.40% $1,085 4.91% $115,951 7.01% ---$ ---%
=========================== ======= ==== ======= ==== ====== ==== ======== ==== ====== ====
</TABLE>
<2>
<TABLE>
<CAPTION>
After Ten Years Total
- -----------------------------------------------------------------------------
Fixed Variable
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities
U.S. Treasury and U.S.
government agencies
and corporations $21,953 7.34% $ --- ---% $174,593 6.89%
Obligations of states and
political subdivisions 2,187 7.01 --- --- 9,680 5.18
Corporate bonds:
Domestic 439 7.35 5,025 6.79 5,752 6.70
Corporate stocks 613 6.14 --- --- 613 6.14
Other securities 14,708 6.54 --- --- 14,708 6.54
- -----------------------------------------------------------------------------
Total net investments
and other securities $39,900 7.01% $5,025 6.79% $205,346 6.78%
=============================================================================
</TABLE>
13
<PAGE>
DEPOSITS
At December 31, 1997, the Bank had $1,239.5 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, $697.7 million,
or 56.29% of all deposits consisted of term accounts, $263.3 million, or 21.25%
consisted of money market deposit accounts, $135.0 million, or 10.90% consisted
of passbook, escrow, and statement savings accounts, $67.3 million, or 5.43%
consisted of NOW accounts and $76.2 million, or 6.14% consisted of commercial
checking accounts.
In the second half of 1997, the Company established a money desk to attract
larger wholesale deposits primarily from institutional investors. This attracted
$49.1 million as of December 31, 1997.
At December 31, 1997, brokered deposits totaled $89.9 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 19.5 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.
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,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
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 $132,007 10.65% 3.00% $ 132,732 11.87% 3.00% $ 139,203 13.83% 3.00%
NOW accounts 67,250 5.43 1.53 61,326 5.49 1.53 59,740 5.93 1.54
Money market deposit
accounts 263,345 21.25 4.76 249,322 22.30 4.43 223,357 22.19 4.57
Commercial checking
accounts 76,159 6.14 57,007 5.10 45,496 4.52
One to two year
certificates (1) 193,208 15.59 5.69 161,528 14.45 5.29 188,867 18.77 5.78
Two to three year
certificates (1) 143,680 11.59 5.93 125,342 11.21 6.04 102,787 10.21 6.07
Other certificates (1) 360,819 29.10 5.81 327,873 29.32 5.47 242,914 24.14 5.89
Escrow 3,040 0.25 2.00 2,922 0.26 2.00 4,101 0.41 2.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits at end of
period $1,239,508 100.00% 4.68% $1,118,052 100.00% 4.48% $1,006,465 100.00% 4.65%
===================================================================================================================================
</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.
14
<PAGE>
The following table presents, by various interest rate categories, the amounts
of certificate accounts at December 31, 1996 and December 31, 1997, which mature
during the periods indicated:
<TABLE>
<CAPTION>
Amounts at December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Maturing Within
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, One Two Three
1996 1997 Year Years Years Thereafter
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2% to 3.99% $ 1,284 $ 2,599 $ 2,570 $ 21 $ 4 $ 4
4% to 5.99% 516,355 592,493 451,029 100,846 32,421 8,197
6% to 7.99% 94,607 100,428 33,240 47,923 15,051 4,214
8% to 9.99% 1,708 1,319 209 123 360 627
10% to 11.99% 789 869 508 172 189
- ----------------------------------------------------------------------------------------------------------------------------------
Total certificate accounts $614,743 $697,708 $487,556 $149,085 $ 47,836 $13,231
===================================================================================================================================
</TABLE>
The following table sets forth deposit activity for
the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Net increase (decrease) before
interest credited $ 69,520 $ 64,263 $ (570)
Interest credited 51,936 47,324 44,255
- -----------------------------------------------------------------------------------------------------------------------------------
Net deposit increase $121,456 $111,587 $43,685
===================================================================================================================================
</TABLE>
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,
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits at beginning of period $1,118,052 $1,006,465 $ 962,780
Increase (decrease) in:
Passbook accounts (725) (6,471) (24,302)
NOW accounts 5,924 1,586 797
Money market deposit accounts 14,023 25,965 11,055
Commercial checking accounts 19,152 11,511 (11)
One to two year certificates 31,680 (27,339) 28,550
Two to three year certificates 18,338 22,555 (14,636)
Other certificates 32,946 84,959 42,184
Escrow 118 (1,179) 48
- -----------------------------------------------------------------------------------
Net increase in deposits during the period 121,456 111,587 43,685
- -----------------------------------------------------------------------------------
Deposits at end of period $1,239,508 $1,118,052 $1,006,465
===================================================================================
</TABLE>
15
<PAGE>
The following table presents, by various interest rate categories, the amounts
of certificate accounts of $100,000 or more at December 31, 1997, which mature
during the periods indicated:
<TABLE>
<CAPTION>
Maturing Within
Over Over
Three Six to
December 31, Three to Six Twelve
1997 Months Months Months Thereafter
- ---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
2% to 3.99% $ 2,522 $ 322 $ 2,200
4% to 5.99% 145,361 97,602 23,498 $18,011 $ 6,250
6% to 7.99% 20,144 383 2,473 10,021 7,267
10% to 11.99% 134 134
- ---------------------------------------------------------------------
Total $168,161 $98,307 $28,171 $28,032 $13,651
=====================================================================
</TABLE>
BORROWINGS
The Bank has available a number of borrowing sources of funds. The Bank's
principal borrowings are the securities sold under repurchase agreements,
advances from the FHLBNY, and the Municipal Option Put Securities ("MOPS")
program. See Note 9 of Notes to Consolidated Financial Statements included in
the 1997 Annual Report to Shareholders.
The following table sets forth the borrowings of the Bank's as of the dates
indicated:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term borrowings:
Municipal option put securities $ 1,893 $ 1,999 $ 2,199
Federal Home Loan Bank advances 153,000 113,000 95,150
Current portion of long-term advance from Federal Home Loan Bank 1,600
Securities Sold - Repurchase 23,751 5,503
- -----------------------------------------------------------------------------------------------------------------------------------
$178,644 $120,502 $ 98,949
===================================================================================================================================
The following table sets forth information related to short-term borrowings of the Bank as of
the dates indicated:
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding balance at end of year $178,644 $120,502 $ 98,949
Average interest rate 6.13% 6.44% 5.88%
Maximum outstanding at any month end $225,972 $127,656 $126,098
- ----------------------------------------------------------------------------------------------------------------------------------
Average amount outstanding during year $177,392 $ 91,605 $103,520
Average interest rate during year 5.68% 5.62% 5.91%
==================================================================================================================================
</TABLE>
(1) Average amounts outstanding and average interest rates are computed using
weighted monthly averages.
TRUST POWERS
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, 1997, the Bank
managed $243.4 million in trust assets.
INVESTMENT IN SUBSIDIARIES
At December 31, 1997, the Bank is the only direct subsidiary of the Company.
BSB Bank & Trust has an investment, at cost, in four wholly-owned subsidiaries
aggregating $298,000 at December 31, 1997. B-Save Corporation was incorporated
in 1982 and performs investment management services for the Bank.
16
<PAGE>
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.
During 1996, the Bank formed a wholly-owned subsidiary, BSB Financial
Services, Inc. This Company became the focal point for marketing brokerage
services. Plans are currently under way to add new financial services to the
Bank's product mix to better serve the non-traditional banking customer. BSB
NEWPRO was incorporated in 1997 and acquires, holds, maintains, and disposes of
property acquired through foreclosure for the Bank
PERSONNEL
As of December 31, 1997, the Company, on a consolidated basis, had 330 full-
time and 96 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.
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.
17
<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. 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, 1997, the Company's Tier 1
or leverage capital-to-total average assets ratio, as defined in the risk-based
capital regulation equaled 7.79% of total average assets or $118.7 million,
which exceeds the current minimum requirements for the Company by $73.0 million.
At December 31, 1997, its total capital to risk-weighted assets ratio,
calculated under the Federal Reserve Board risk-based capital requirement, was
10.44%. 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. At December 31, 1996, the Bank met the requirements for a
"well-capitalized" institution. At December 31, 1997, the Bank had a ratio of
Tier 1 or core capital to total average assets of 7.79%, which exceeded the 3%
minimum by $73.0 million. At December 31, 1997, the Bank's ratio of total
capital to total risk-weighted assets was approximately 10.44%, which exceeded
the 8% minimum by $31.5 million and its ratio of Tier 1 capital to total risk-
weighted assets was approximately 9.18%, which exceeded the 4% minimum by $67.0
million.
Legislation was enacted in 1996 to combine the BIF and SAIF insurance funds
of the FDIC. As a condition to the combined insurance fund, however, the 1996
legislation contemplates that no insured depository institution would be
chartered as a savings association. Several proposals for abolishing the
federal thrift charter were introduced in Congress during 1997 in bills
addressing financial services modernization, including a proposal from the
Treasury department developed pursuant to requirements of the 1996 legislation.
While no legislation was passed in 1997, financial modernization legislation
continues to be discussed by Congress.
Various proposals were introduced in Congress in 1997 to permit the payment
of interest on required reserve balances, and to permit savings institutions and
other regulated financial institutions to pay interest on business demand
accounts. While this legislation appears to have strong support from many
constituencies, the Company is unable to predict whether such legislation will
be enacted.
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.
18
<PAGE>
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, 1997, 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% of the dividends received from less than 20% owned
corporations. However, certain dividend payments between members of an
"affiliated group" of corporations, such as the Company, are eligible for a 100%
deduction.
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%.
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.
19
<PAGE>
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, (S) 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, $50; where
the authorized capital stock exceeds 5,000 shares but is not more than 10,000
shares, $90; and the further sum of $50 on each 10,000 shares or part thereof.
Under the formula, the Company, with its authorized capital of 30,000,000
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 $150,000. 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 $1 million of capitalization.
20
<PAGE>
ITEM 2. PROPERTIES
The Company does not own or lease any property, other than that owned or
leased by the Bank and its subsidiary. BSB Bank & Trust conducts its business
from its executive office and thirteen full-service offices located in Broome,
Tioga, Chenango, Onondaga, and Chemung counties in the southern tier of Upstate
New York. The following table sets forth certain information relating to each of
BSB Bank & Trust's offices as of December 31, 1997:
<TABLE>
<CAPTION>
Lease Net Book
Owned Expiration Value at
or Including December 31,
Office Location Leased Options 1997
- ------------------------------------------------------------------------------------------
($ in Thousands)
<S> <C> <C> <C> <C>
Main Office 56-68 Exchange St. Owned N/A $ 939
Binghamton
Annex 58 Exchange St. Owned N/A 1,112
Binghamton
99 Hawley St. 99 Hawley St. Owned N/A 375
Binghamton
92 Hawley St. 92 Hawley St. Owned N/A 768
Binghamton
Endwell Office 540 Hooper Rd., Endwell Owned N/A 317
Vestal Plaza Office Vestal Plaza, Vestal Leased 11/09/11 148
Tioga County Office Fifth Ave., Owego Leased 3/08/13 62
Oakdale Mall Office Reynolds Rd. Leased 7/31/15 40
Johnson City
Norwich Office North Plaza, Norwich Leased 7/21/15 52
Northgate Plaza Office 1250 Front St., Leased 4/30/17 79
Binghamton
West Side Office 273 Main St. Leased 10/31/12 39
Binghamton
Endicott Office 43 Washington Ave. Owned N/A 927
Endicott
Eastside Office 160 Robinson St. Leased 8/01/21 517
Binghamton
Elmira Office 352 North Main St., Elmira Owned N/A 431
Elmira Heights 2075 Upper Lake Rd. Leased 8/26/09 65
Office Elmira Heights
Syracuse Office 100 Clinton Square Leased 10/31/01 6
Syracuse
BSB Mortgage Corp. Valley Plaza, Johnson City Leased 4/30/99 2
</TABLE>
BSB Bank & Trust also operates 35 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 a
large area supermarket chain. BSB Bank & Trust issued approximately 50,000
plastic cards which allow depositors to use the ATMs and in-store facilities.
21
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to its business, to which the Company or
any of its subsidiaries is a party or of which any of their property
is the subject.
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 31 of the Company's Annual Report to Shareholders for
the year ended December 31, 1997 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 14 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 15 to 31 of the Annual
Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the 1997 Annual Report to
Shareholders and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required is
incorporated by reference from pages 32 to 50 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 25, 1998 (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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference from the
Proxy Statement.
22
<PAGE>
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, 1997 and
1996
Consolidated Statements of Income For Each of the Three Years
in the Period Ended December 31, 1997
Consolidated Statements of Changes In Shareholders' Equity
For Each of the Three Years in the Period Ended December 31,
1997
Consolidated Statements of Cash Flows For Each of the Three
Years in the Period Ended December 31, 1997
Notes to Consolidated Financial Statements
Report of Independent Auditor
(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:
23
<PAGE>
EXHIBIT TABLE
-------------
No. Exhibit
- --- -------
3.1 Certificate of Incorporation, as amended by the Certificate of Amendment
dated May 24, 1993 and the Certificate of Amendment dated April 22, 1996
(incorporated by reference from Exhibit 3.1 to the Quarterly Report on
Form 10-Q of BSB Bancorp, Inc. (the "Company") for the Quarter Ended March
31, 1996).
3.2 Form of Certificate of Designation (incorporated by reference from Exhibit
A to the Rights Agreement, Exhibit 1 to the Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission (the "SEC") on
June 1, 1989).
3.3 Bylaws (incorporated by reference from Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1994).
4.1 Specimen stock certificate (incorporated by reference from Exhibit 4 to
the Company's Registration Statement on Form S-4, filed with the SEC on
March 2, 1988).
4.2 Rights Agreement, dated as of May 22, 1989, between the Company and Chase
Lincoln First Bank, N.A. (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K, filed with the SEC on June 1, 1989).
4.3 Amendment No. 1 to Rights Agreement, entered into January 29, 1996, by and
between the Company and American Stock Transfer and Trust Company
(incorporated by reference to Exhibit 4 to the Company's Current Report on
Form 8-K, filed with the SEC on February 6, 1996).
10.1 Long-Term Incentive and Capital Accumulation Plan (incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
S-4, filed with the SEC on March 2, 1998.
10.2 1996 Long-Term Incentive and Capital Accumulation Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement for the 1996
Annual Meeting of Shareholders).
10.3 Directors' Stock Option Plan (incorporated by reference to Exhibit A to
the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders).
10.4 Change of Control Severance Agreement, entered into as of January 22,
1996, by and between the Company, BSB Bank & Trust Company (the "Bank")
and Arthur C. Smith (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
10.5 Employment Contract, entered into as of November 2, 1990, by and between
the Company, the Bank and Alex S. DePersis (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1992).
10.6 Amendment to Employment Contract, entered into as of December 29, 1995, by
and among Alex S. DePersis, the Company and the Bank (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1995).
10.7 Amendment to Employment Contract, entered into as of December 30, 1996, by
and among the Company, the Bank and Alex S. DePersis (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1996).
10.8 Amendment to Employment Contract, entered into as of December 29, 1997, by
and among the Company, the Bank and Alex S. DePersis.
24
<PAGE>
10.9 Change of Control Severance Agreement, entered into as of November 2,
1990, by and between the Company, the Bank and Edward R. Andrejko
(incorporated by reference to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the Year Ended December 31, 1990).
10.10 Amendment to Change of Control Severance Agreement, entered into as of
December 29, 1995, by and among the Company, the Bank and Edward R.
Andrejko (incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the Year Ended December 31, 1995).
10.11 Change of Control Severance Agreement, entered into as of November 2,
1990, by and between the Company, the Bank and Larry G. Denniston
(incorporated by reference to Schedule 10.3 to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1990).
10.12 Amendment to Change of Control Severance Agreement, entered into as of
December 29, 1995, by and among the Company, the Bank and Larry G.
Denniston (incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the Year Ended December 31, 1995).
10.13 Change of Control Severance Agreement, entered into as of November 2,
1990, by and between the Company, the Bank and Douglas R. Johnson
(incorporated by reference to Schedule 10.3 to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1990).
10.14 Amendment to Change of Control Severance Agreement, entered into as of
December 29, 1995, by and among the Company, the Bank and Douglas R.
Johnson (incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1995).
10.15 Change of Control Severance Agreement, entered into as of November 2,
1990, by and between the Company, the Bank and Fielding Simmons III
(incorporated by reference to Schedule 10.3 to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1990).
10.16 Amendment to Change of Control Severance Agreement, entered into as of
December 29, 1995, by and among the Company, the Bank and Fielding Simmons
III (incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1995).
10.17 Change of Control Severance Agreement, entered into as of November 2,
1990, by and between the Company, the Bank and Glenn R. Small
(incorporated by reference to Schedule 10.3 to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
10.18 Amendment to Change of Control Severance Agreement, entered into as of
December 29, 1995, by and among the Company, the Bank and Glenn R. Small
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the Year Ended December 31, 1995).
13 Annual Report to Shareholders for the Year Ended December 31, 1997
21 List of the Company's Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
(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.
25
<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/ Alex S. DePersis Date: March 30, 1998
------------------------- ---------------
Alex S. DePersis
Director 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/ Edward R. Andrejko
----------------------
Edward R. Andrejko Date: March 30, 1998
Senior Vice President and Chief Financial --------------
Officer (Principal Accounting Officer)
By:/s/ Ferris G. Akel
------------------------ Date: March 30, 1998
Ferris G. Akel --------------
Director
By:/s/ Robert W. Allen
------------------------ Date: March 30, 1998
Robert W. Allen --------------
Director
By:/s/ William C. Craine
------------------------ Date: March 30, 1998
William C. Craine --------------
Director
By:/s/ Alex S. DePersis
------------------------ Date: March 30, 1998
Alex S. DePersis --------------
Director
By:/s/ Helen A. Gamble
------------------------ Date: March 30, 1998
Helen A. Gamble --------------
Director
By:/s/ Thomas F. Kelly
------------------------ Date: March 30, 1998
Thomas F. Kelly , Ph.D. --------------
Director
By:/s/ Herbert R. Levine
------------------------ Date: March 30, 1998
Herbert R. Levine --------------
Director
By:/s/ David A. Niermeyer
------------------------ Date: March 30, 1998
David A. Niermeyer --------------
Director
By:/s/ Mark T. O'Neil, Jr.
------------------------ Date: March 30, 1998
Mark T. O'Neil, Jr. --------------
Director
By:/s/ William H. Rincker
-----------------------------
26
<PAGE>
Date: March 30, 1998
--------------
William H. Rincker
Director
By:/s/ John V. Sponyoe
------------------------ Date: March 30, 1998
John V. Sponyoe --------------
Director
By:/s/ Thomas L. Thorn
------------------------ Date: March 30, 1998
Thomas L. Thorn --------------
Director
27
<PAGE>
EXHIBIT INDEX
-------------
No. EXHIBIT
- --- -------
3.1 Certificate of Incorporation, as amended by the Certificate of Amendment
dated May 24, 1993 and the Certificate of Amendment dated April 22, 1996
(incorporated by reference from Exhibit 3.1 to the Quarterly Report on
Form 10-Q of BSB Bancorp, Inc. (the "Company") for the Quarter Ended March
31, 1996).
3.2 Form of Certificate of Designation (incorporated by reference from Exhibit
A to the Rights Agreement, Exhibit 1 to the Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission (the "SEC") on
June 1, 1989).
3.3 Bylaws (incorporated by reference from Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1994).
4.1 Specimen stock certificate (incorporated by reference from Exhibit 4 to
the Company's Registration Statement on Form S-4, filed with the SEC on
March 2, 1988).
4.2 Rights Agreement, dated as of May 22, 1989, between the Company and Chase
Lincoln First Bank, N.A. (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K, filed with the SEC on June 1, 1989).
4.3 Amendment No. 1 to Rights Agreement, entered into January 29, 1996, by and
between the Company and American Stock Transfer and Trust Company
(incorporated by reference to Exhibit 4 to the Company's Current Report on
Form 8-K, filed with the SEC on February 6, 1996).
10.1 Long-Term Incentive and Capital Accumulation Plan (incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
S-4, filed with the SEC on March 2, 1998.
10.2 1996 Long-Term Incentive and Capital Accumulation Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement for the 1996
Annual Meeting of Shareholders).
10.3 Directors' Stock Option Plan (incorporated by reference to Exhibit A to
the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders).
10.4 Change of Control Severance Agreement, entered into as of January 22,
1996, by and between the Company, BSB Bank & Trust Company (the "Bank")
and Arthur C. Smith (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
10.5 Employment Contract, entered into as of November 2, 1990, by and between
the Company, the Bank and Alex S. DePersis (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1992).
10.6 Amendment to Employment Contract, entered into as of December 29, 1995, by
and among Alex S. DePersis, the Company and the Bank (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1995).
10.7 Amendment to Employment Contract, entered into as of December 30, 1996, by
and among the Company, the Bank and Alex S. DePersis (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1996).
10.8 Amendment to Employment Contract, entered into as of December 29, 1997, by
and among the Company, the Bank and Alex S. DePersis.
<PAGE>
10.9 Change of Control Severance Agreement, entered into as of November
2, 1990, by and between the Company, the Bank and Edward R. Andrejko
(incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1990).
10.10 Amendment to Change of Control Severance Agreement, entered into as
of December 29, 1995, by and among the Company, the Bank and Edward
R. Andrejko (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
10.11 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and between the Company, the Bank and Larry G.
Denniston (incorporated by reference to Schedule 10.3 to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1990).
10.12 Amendment to Change of Control Severance Agreement, entered into
as of December 29, 1995, by and among the Company, the Bank and
Larry G. Denniston (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
10.13 Change of Control Severance Agreement, entered into as of November
2, 1990, by and between the Company, the Bank and Douglas R. Johnson
(incorporated by reference to Schedule 10.3 to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1990).
10.14 Amendment to Change of Control Severance Agreement, entered into
as of December 29, 1995, by and among the Company, the Bank and
Douglas R. Johnson (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
10.15 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and between the Company, the Bank and Fielding
Simmons III (incorporated by reference to Schedule 10.3 to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1990).
10.16 Amendment to Change of Control Severance Agreement, entered into
as of December 29, 1995, by and among the Company, the Bank and
Fielding Simmons III (incorporated by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the Year Ended December
31, 1995).
10.17 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and between the Company, the Bank and Glenn R.
Small (incorporated by reference to Schedule 10.3 to Exhibit 10.3 to
the Company's Annual Report on Form 10-K for the Year Ended December
31, 1995).
10.18 Amendment to Change of Control Severance Agreement, entered into
as of December 29, 1995, by and among the Company, the Bank and
Glenn R. Small (incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the Year Ended December 31,
1995).
13 Annual Report to Shareholders for the Year Ended December 31, 1997
21 List of the Company's Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
(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.
<PAGE>
EXHIBIT 10.8
AMENDMENT TO EMPLOYMENT CONTRACT
This Amendment Number Three to Employment Contract ("Amendment") is
entered into as of December 29, 1997, 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 ALEX S.
DEPERSIS, ("Executive").
WITNESSETH:
WHEREAS, the Corporation, Employer and Executive have heretofore entered
into an Employment Contract (the "Employment Contract"), dated as of November 2,
1990; and
WHEREAS, the parties desire to amend the Agreement; and
WHEREAS, the parties desire to amend the Employment Contract to provide
for a change in the Termination Provisions of the Employment Contract;
NOW, THEREFORE, the Employers and the Executive hereby agree that the
Employment Contract shall be amended as follows:
1. Section 12(ii)(a) of the Agreement, is amended to read as
follows:
(a) On or before the Executive's last day of employment with the
Employers, the Employers shall pay to the Executive as compensation for
services rendered to the Employers, a lump sum cash amount (subject to
any applicable payroll or other taxes required to be withheld) equal to
2.99 times the highest annual compensation paid to the Executive by the
Employers for any of the three calendar years ending with the year of
the Executive's termination, provided that, at the option of the
Executive, the cash amount required to be paid hereby shall be paid by
the Employers in equal monthly installments over the thirty (30) months
succeeding the Date of Termination, payable on the first day of each
such month. For purposes of this paragraph 12(ii)(a), highest annual
compensation shall consist of only Executive's base salary and any
performance incentive plan award, provided that, if no performance
incentive plan award has been granted since the Change of Control, then,
for the purposes of calculating the payments required by this paragraph
12(ii), it shall be assumed that the Executive earned a performance
incentive plan award in each of the three calendar years ending with the
year of the Executive's termination equal to the average of the
performance incentive plan awards earned for each of the three fiscal
years preceding the Change of Control.
2. 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: /s/ Larry G. Denniston By: /s/ Glenn R. Small
---------------------- --------------------------
(Corporate Secretary) Glenn R. Small
Executive Vice President
BSB BANK & TRUST COMPANY
ATTEST: /s/ Larry G. Denniston By: /s/ Glenn R. Small
---------------------- --------------------------
(Corporate Secretary) Glenn R. Small
Executive Vice President
EXECUTIVE
/s/ Alex S. DePersis
--------------------------
Alex S. DePersis
<PAGE>
BSB BANCORP, INC. COMPANY PROFILE
BSB Bancorp, Inc., a Delaware corporation, is the bank holding company for BSB
Bank & Trust Company. BSB Bancorp, Inc. had 8,557,232 shares of common stock
outstanding at December 31, 1997. The stock is traded over-the-counter and is
listed on The Nasdaq Stock Market 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, Onondaga, 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 is a major provider of banking services to the
business community, as well as offering banking services to school districts and
cooperative education centers, cities, towns, villages, and numerous municipal
agencies.
Deposits at 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.
BSB BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands - Except Per Share Amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 % Change
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERFORMANCE Net interest income $ 60,364 $ 53,781 12.2%
Net income 16,986 15,204 11.7
Return on average equity 14.65% 13.49% 8.6
Diluted earnings per share $ 1.93 $ 1.67 15.6
- -----------------------------------------------------------------------------------------------
SELECTED Interest rate margin 4.39% 4.46% (1.6)
FINANCIAL Dividend payout ratio 37.81 34.58 9.3
DATA Efficiency ratio 42.95 45.29 (5.2)
- -----------------------------------------------------------------------------------------------
PER SHARE Book value $ 14.12 $ 12.92 9.3
Dividends declared 0.76 0.59 28.8
- -----------------------------------------------------------------------------------------------
FINANCIAL Total assets $1,560,571 $1,363,120 14.5
CONDITION Total loans 1,205,797 1,008,540 19.6
DATA Deposits 1,239,508 1,118,052 10.9
(at December 31) Shareholders' Equity 120,866 108,729 11.2
Allowance for possible credit losses 19,207 17,054 12.6
Non-performing loans to total loans 1.08% 1.21% (10.7)
- -----------------------------------------------------------------------------------------------
OFF-BALANCE Mortgage serviced loans $ 392,020 $ 351,296 11.6
SHEET Trust assets 243,432 194,901 24.9
(at December 31,)
</TABLE>
1
<PAGE>
Message to Shareholders
Strong Earnings and Asset Growth Lead the Way to Another Record Performance
It is my pleasure to report BSB Bancorp, Inc. had a highly successful 1997,
achieving record levels of performance. The year was characterized by record
earnings, strong asset growth, and continued excellence in operating efficiency.
The financial performance of your Company was enhanced by further market
penetration, the introduction of new services, an improving New York State
economy, and the cost-effective use of technology.
In 1997, net income increased to $17.0 million, an increase of 11.7% over 1996
results. Diluted earnings per share, adjusted for the 3-for-2 stock split,
increased 15.6%, to $1.93 in 1997, compared to $1.67 in 1996. This improvement
in earnings was driven by growth in assets of 14.5%, loan originations of $576.2
million, and success in managing the Company's interest rate margin. Return on
average equity increased significantly in 1997, following a substantial increase
in 1996, to 14.65%, compared to 13.49% in 1996. Return on average assets
stabilized at 1.17% in 1997, compared to 1.19% in 1996.
Your Company's improving operating performance caught the attention of the
investment community during 1997. The resulting appreciation in share price and
the encouraging trend of earnings momentum allowed the Board of Directors to
approve a 3-for-2 stock split which was payable to shareholders on September 10,
1997. This was the third stock split since the Company went public in 1985. Your
Company's solid operating performance also allowed your Board of Directors to
raise cash dividends twice during 1997. Dividends paid in 1997 rose to $6.4
million, compared to $5.3 million in 1996, an increase of 20.8%. These actions
reflect the Board's confidence in our favorable financial performance.
Shareholders have been the direct beneficiaries of these activities. The growth
in assets, deposits, and earnings produced in 1997 has allowed our shareholders
to benefit from an outstanding level of appreciation in the market price of BSB
common shares. In addition, our shareholders continue to enjoy a substantial
dividend yield.
During the past year, we were successful in expanding our service area.
Significant loan and deposit growth was produced from our newest branch
locations in Onondaga and Chemung counties. We continue to be one of the highest
volume providers of residential mortgage and auto financing in our traditional
market area. We have also added several new relationships with auto dealers in
the Rome/Utica market area and with mortgage bankers in the Buffalo and Hudson
Valley market areas. Supported by these initiatives, we ended 1997 with record
growth in our consumer loan portfolio. In 1997, our mortgage and serviced
mortgage loan portfolios exceeded $500 million. Continuing our efforts toward
serving the business community, our commercial loan portfolio increased to
$654.2 million, an increase of 21.9% over 1996.
In 1997, we expanded our electronic delivery systems by adding 12 ATMs,
bringing the total number of ATMs to 35. We also introduced "BSB BankIt," a
personal interactive banking service via personal computer and "BSB PayIt," an
electronic method for consumers to pay their bills. In addition, both our BSB
TelephoneTeller phone-banking service and BSB Cash Manager, our PC-based cash
management product for commercial clients, received significant enhancements.
The introduction of these new electronic services and the enhancement of our
existing electronic delivery systems allowed us to increase customer access by
delivering customer service 24 hours a day from several new off-site locations.
These services allow BSB to reach more customers and markets more cost
effectively. The future of electronic banking is here today at BSB.
In 1997, we purchased a modern office building adjacent to our downtown
Binghamton headquarters. This building provides the space necessary to
restructure our current loan operations. The restructuring, which is expected to
be completed by the third quarter of 1998, in conjunction with the planned
conversion to a new data processing platform, will support both further loan
asset growth and continued cost effectiveness.
A key factor in our success is the quality, dedication, and professionalism of
our staff. Their performance ensures that customers' needs are well served, and
existing and potential customer relationships are fostered and developed. During
1997, for example, we opened more checking accounts and processed more loan
applications than in any year in our history. In addition to this focus on
customer service, large numbers of our staff devote countless hours and energy
to support numerous civic, human service, and other service oriented community
organizations. We are proud of their accomplishments and their relentless
pursuit of excellence.
In April 1998, after 22 years of service, Helen A. Gamble will retire from the
Board of Directors. She has served as a Director/Trustee of the Bank since 1976
and of BSB Bancorp, Inc. since its formation in 1988. The Board of Directors and
the management team wish to express their appreciation to Mrs. Gamble for her
significant contributions. She brought unique and important insight to the
Board, reflecting her years of service to many organizations in our community
and at the national level, serving as a board member and Treasurer of the
National Board of the YWCA.
2
<PAGE>
We enter 1998 with high expectations for continued strong performance. With
our strong capital position, diversified asset base, funding and service mix,
talented and motivated staff, geographic market coverage, market share, and
technological resources, we believe we are well positioned to further improve
earnings.
On behalf of our Board of Directors, Officers and staff, we thank you for your
loyalty and continued support.
Alex S. DePersis
President and Chief Executive Officer
Lending Operations
Across-the-Board Growth for Loan Portfolio
By any measure, Lending Operations can report that 1997 was a very good year.
Much of our success was driven by the spread of interest earned on loan assets
versus the cost of funds. We also expect to achieve continued significant growth
of non-interest income in the year ahead.
Clearly, building on these positive results will require a strong effort, as
we anticipate increased levels of competitive pressure in every area of
traditional lending. But these pressures create opportunities as well as
challenges for BSB Bank & Trust. We will be challenged to operate efficiently
and to keep our customer base growing by offering superior, value-added loan
products to the marketplace. Opportunities will be created every time we meet
these challenges with a better effort than the competition, resulting in
strengthened differentiation and preference for BSB.
The numbers speak for themselves, but at the heart of the effort are the well-
trained, experienced, and innovative loan professionals who make it happen each
and every day. The Company will strive to achieve positive results across the
board in mortgage, consumer, and commercial lending by providing these value-
added elements of BSB's lending operation.
Consumer Lending
In 1997, the consumer lending area experienced a year of unprecedented growth,
with total outstanding loans growing 37.9%, or $82.2 million, which far
surpasses any previous year's performance. Growth occurred in every category of
consumer lending but was led by indirect auto loan contracts, financed through a
vast number of new and used car dealers throughout the market area. Direct
lending to customers through the branch system also reached record levels.
Especially satisfying is the large number of repeat customers, a tangible
indication of satisfaction with BSB. At the same time, it significantly lowers
acquisition costs for new loans.
As part of our ongoing "value-added" process, all consumer loan products are
reviewed continually for profitability and appropriateness relative to customer
demand. We believe that the array of loan products presently available through
the BSB branch system and through third party originators is without equal in
the marketplace. In addition, these products are delivered in an efficient and
"customer friendly" manner, consistent with our strong commitment to personal
service and our responsiveness to customer needs. Finally, it is important to
note that BSB's delinquency and loss experience in the consumer loan category
continues to compare favorably to industry peer groups.
Residential Mortgage Lending
Spurred by favorable interest rates through most of the year, residential
mortgage originations reached near record levels. These results were achieved
despite the high levels of pricing efficiency in mortgage lending, as BSB
continues to differentiate itself from the competition on the basis of customer
service and product delivery. With regard to loan quality, there is more good
news. As measured by delinquency and loss experience, loan quality has remained
consistently favorable.
In an effort to broaden our residential mortgage base, the Company has
developed a large network of mortgage originators in central New York. We can
report that this strategy has been very successful, as the network was
responsible for a sizable portion of all new loans generated in 1997. The
network approach will continue as management feels it is the most profitable way
to compete in the residential mortgage field.
We also look for continued growth in the Bank's portfolio of serviced loans,
where BSB collects payments and administers loans after they are sold into the
secondary market. In addition to being an excellent source of fee income, this
activity makes possible ongoing contact with borrowers and creates excellent
opportunities to cross-sell other Bank products and services.
BSB takes very seriously its responsibility to ensure that all qualified
individuals have access to home ownership through mortgage financing. As such,
the Company participates in several programs which provide financing equally to
all racial, ethnic, and income groups. Once again, in 1997, regulatory
authorities recognized the Bank for the quality of its efforts on this important
front.
3
<PAGE>
Commercial Lending
The presence of a fully staffed office in downtown Syracuse highlighted the
year for the Bank's commercial loan department. Our strengthened position in
Syracuse contributed significantly to a record year of growth as the commercial
loan portfolio increased by $117.5 million to $654.2 million. Management
believes that the key to success in Syracuse has been our ability to replicate
the fine reputation we have earned in our home market, particularly with regard
to our responsiveness and common sense approach to loan opportunities. We
anticipate further growth in this promising new market and project that
additional opportunities will result from continuing consolidation among
competitors which will lead business owners to seek alternative funding sources
such as BSB.
Critical to our success is our excellent staff of commercial lenders who have
built strong relationships with the customers they serve. The loyalty which has
resulted from our staff's commitment to superior service is highly beneficial in
terms of portfolio growth from repeat business and new business referrals. It
also serves to reduce business development expense for relatively high yielding
commercial loan products.
The Bank has been extremely diligent in building its loan loss reserve to a
very satisfactory level. BSB believes its capacity to provide financing for
virtually all the needs of small- and medium-sized businesses, working capital,
equipment, real estate, etc., will be a cornerstone of its success in the
future. We are also confident that it can be done in an efficient and profitable
manner, while providing high levels of perceived value to a rapidly growing
number of customers.
Retail Services
A Year of Accomplishment and Growth
1997 was a year of significant accomplishment and growth for retail banking at
BSB Bank & Trust. Through our extensive branch, electronic, and telephone
banking network we "interacted" with more customers than ever before and
exceeded our sales and service objectives.
Our thirteen full-service banking offices were successful in growing core
deposits and in achieving record volumes in consumer and small business lending.
While our commitment to service excellence continued, well-focused sales and
referral programs in the branches helped raise performance levels to new
heights. Sales training, setting specific goals, tracking results, and linking
pay to performance were major reasons for our success. The introduction of new
products and services such as Business Value Checking Account and Business Line-
of-Credit provided additional cross-selling opportunities and helped to attract
new customers. Extensive promotion of our Simply Checking Account and VISA Debit
Card assisted us in building our demand deposit account base and provided more
customers with nationwide, electronic access to their checking accounts.
The strong sales culture in our banking offices was augmented by outside
business development efforts in each market we serve. Branch Officers and
Regional Business Development Officers worked diligently in making personal
visits to current and potential business customers. These calls proved
invaluable in expanding existing relationships and bringing in new business.
Most importantly, they let bank representatives experience the customers'
business first hand and hear what was on their minds. Our banking offices have
continued to be our most effective platform for demonstrating our service
capabilities, developing new business, and featuring the products and services
of both the Bank and its subsidiary, BSB Financial Services, Inc.
Throughout the year, we continued to expand and enhance our electronic banking
capabilities. The mid-year extension of MachineTeller ATM service to the twelve
area Giant Food Markets was received as a welcome addition to our well
established StoreTeller service. Customer response was also favorable to the
expansion of our popular TelephoneTeller service to include BSB PayIt, our
telephone bill payer service. Our newest electronic banking service was created
with the introduction of BSB BankIt, our home-based PC banking service. For
those with Internet access, a visit to our home page at www.bsbbank.com is
proving to be informative and beneficial. Extensive information on the Bank,
featured products and services and interactive loan and financial services
information may be easily reviewed or downloaded for future reference. E-mail
service and Internet banking are both under development for 1998.
Our telephone-based Customer Service Call Center also enjoyed a banner year.
While assisting customers with their banking needs, our service representatives
actively promoted bank products and services and developed substantial new
business. Expanded hours-of-service and additional outbound calls in support of
marketing initiatives will increase the Call Center's effectiveness in 1998.
Our retail banking delivery system now includes a complete array of branch,
point-of-banking, ATM, telephone, and home banking delivery options. Customers
can visit us in person, do business with our StoreTeller and MachineTeller
banking partners, and reach us by phone, fax, or PC. We are available, on some
basis, 24 hours a day, 7 days a week. And, while an increasing number of
customers want to interact with us via a touch-tone phone or
4
<PAGE>
computer modem, the most popular methods are still voice-to-voice or face-to-
face. It is through this type of contact that we develop, and maintain the
broadest, deepest and most enduring relationships with our customers.
The unprecedented success we experienced in 1997 was due in large part to our
employees' ability to consistently meet and exceed the expectations of our
customers. In 1998, they will be assisted in that effort by the installation of
a new data processing system. Along with new features and functions will come
greater flexibility and more detailed information on customer relationships. We
firmly believe that we have the people, technology, and market presence to build
on our accomplishments and make 1998 a great year.
Municipal Services
BSB posts strong gains in Municipal Services
Our Municipal Services Department continues the aggressive pursuit of full-
service banking and lending relationships with our primary customer prospects.
They include counties, cities, towns, villages, school districts and cooperative
education centers, and numerous special municipal agencies, such as fire
districts. The Department continues to be an important component of funding
sources for the Bank.
In 1997, our main focus was to maintain current deposit levels while expanding
existing banking relationships. In the process, we placed considerable emphasis
on the development of demand deposit accounts, a tactic which will continue in
1998.
Total municipal deposits were $91.4 million at December 31, 1997. The total
number of municipal deposit accounts increased to 206 during 1997. Municipal
loans outstanding December 31, 1997 were $9.7 million.
We will continue to provide personalized service to our municipal customers.
This level of service is instrumental to our success in persuading customers to
consider BSB Bank & Trust for their primary banking relationships.
BSB Financial Services, Inc.
Continued Progress For BSB Financial Services
BSB Financial Services, Inc. recorded one of its best financial results ever
in 1997. This Bank subsidiary corporation was formed in 1996 to provide our
customers with expanded investment and insurance options. Individual investors
can choose from among mutual funds, annuities, long-term care insurance and many
other financial products, using a comprehensive, personal financial-planning
approach. Carefully designed financial plans help customers determine solutions
to attain their financial goals.
This Bank subsidiary also provides business owners with pension plan analysis
and retirement solutions for their businesses using a variety of investment and
insurance products.
BSB Financial Services provides individuals and businesses with investment and
insurance services through INVEST Financial Corporation. Professional
representatives are licensed and registered with the National Association of
Securities Dealers (NASD).
Trust Services
Trust Assets Reach Record Level...Again
Strong performance of the financial markets and continued new business growth
contributed to record results for our Trust Department in 1997.
Total trust assets reached record levels, totaling $243.4 million in 1997, an
increase of 24.9%. The emphasis on investment management, preservation of
assets, and planning for retirement provides opportunities for continued growth.
Referrals from our current customers, staff, and local professionals are
important sources of prospects for our trust services. Personal service
delivered by local trust professionals enables us to achieve our goal of
providing high-quality trust services to individuals, corporations, and non-
profit organizations in the communities we serve.
5
<PAGE>
BSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER DATA
(Dollars in Thousands-Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL Total assets $1,560,571 $1,363,120 $1,239,036 $1,161,901 $1,093,436
CONDITION Total loans 1,205,797 1,008,540 927,016 865,082 808,101
DATA Investment securities 284,988 287,665 247,092 229,863 236,860
Deposits 1,239,508 1,118,052 1,006,465 962,780 894,293
Borrowings 178,644 120,502 98,949 79,028 79,563
Shareholders' equity 120,866 108,729 116,774 106,870 109,186
Allowance for possible
credit losses 19,207 17,054 14,065 13,354 12,756
Years Ended December 31,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS Total interest income $ 122,380 $ 106,252 $ 99,034 $ 84,924 $ 80,854
DATA Total interest expense 62,016 52,471 50,421 39,201 35,261
--------------------------------------------------------------------------------------------------------------------
Net interest income 60,364 53,781 48,613 45,723 45,593
Provision for credit losses 10,314 9,971 7,333 3,717 5,580
--------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 50,050 43,810 41,280 42,006 40,013
Gains (losses) on sale of
securities 380 1,208 97 355 1,421
Gains (losses) on sale of
mortgages (377) (34) (41) (952) 129
Non-interest income 6,298 8,140 6,672 5,501 4,465
Non-interest expense 28,631 28,045 27,239 25,752 23,952
--------------------------------------------------------------------------------------------------------------------
Income before income taxes 27,720 25,079 20,769 21,158 22,076
Income tax expense 10,734 9,875 8,175 8,287 8,680
--------------------------------------------------------------------------------------------------------------------
Net income $ 16,986 $ 15,204 $ 12,594 $ 12,871 $ 13,396
====================================================================================================================
Years Ended December 31,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED Weighted average yield of all
FINANCIAL AND interest-earning assets 8.90% 8.80% 8.77% 7.98% 8.01%
OTHER DATA Weighted average cost of all
interest-bearing
liabilities 4.71 4.58 4.75 3.94 3.75
Interest rate spread
during the period 4.19 4.22 4.02 4.04 4.26
Interest rate margin
during the period 4.39 4.46 4.30 4.30 4.52
Return on average assets 1.17 1.19 1.06 1.15 1.27
Return on average equity 14.65 13.49 10.89 11.59 13.14
Average equity to average
assets 7.98 8.83 9.71 9.94 9.70
Dividend payout ratio 37.81 34.58 32.25 26.93 21.61
Efficiency ratio 42.95 45.29 49.27 50.27 47.85
Book value per share $ 14.12 $ 12.92 $ 12.47 $ 11.07 $ 10.97
Basic earnings per share $ 2.00 $ 1.72 $ 1.32 $ 1.30 $ 1.35
Diluted earnings per share $ 1.93 $ 1.67 $ 1.27 $ 1.26 $ 1.31
</TABLE>
6
<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"). The Bank, a New York-chartered
stock commercial bank and trust company, operates 13 branches in Broome, Tioga,
Chenango, Onondaga, and Chemung Counties of New York State. The Bank is in the
business of providing a wide variety of loan and deposit products to its
commercial and consumer customers. In addition, the Bank provides mortgage
banking, trust, municipal, and other related services. Unless otherwise
specified, references to the Company are intended also to include the activities
of the Bank.
In 1997, the Company attained record net income of $17.0 million, or diluted
earnings of $1.93 per share, as compared to 1996 net income of $15.2 million, or
diluted earnings of $1.67 per share. The return on average equity increased from
13.49% in 1996 to 14.65% in 1997, an increase of 8.6%. The return on average
assets decreased from 1.19% in 1996 to 1.17% in 1997.
Net interest income increased 12.2% in 1997 to $60.4 million from $53.8
million in 1996. The interest rate margin decreased from 4.46% in 1996 to 4.39%
in 1997. Non-interest income decreased from $8.1 million in 1996 to $6.3 million
in 1997. Net gains and losses on the sale of securities and loans produced a
gain of $3,000 in 1997, compared to a gain of $1.2 million in 1996. The
provision for credit losses increased from $10.0 million in 1996 to $10.3
million in 1997. Net charge-offs increased from $7.0 million in 1996 to $8.2
million in 1997. Non-interest expense increased 2.1% from $28.0 million in 1996
to $28.6 million in 1997. The Company's ratio of operating expenses to average
assets decreased from 2.20% in 1996 to 1.97% in 1997.
Total assets increased from $1.4 billion at December 31, 1996 to $1.6 billion
at December 31, 1997. Total loans increased 20.0% from $1.0 billion at December
31, 1996 to $1.2 billion at December 31, 1997. This growth was due primarily to
the Company's ability to originate commercial, consumer, and real estate loans
in its lending market. 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 increased 49.0%, from $386.8 million
in 1996 to $576.2 million in 1997. Commercial loan originations were up $84.4
million from $159.8 million in 1996 to $244.2 million in 1997. Consumer loan
originations increased 55.5% with originations of $205.6 million in 1997
compared to $132.2 million in 1996. Residential mortgage loans originated were
$71.0 million in 1996 and $100.9 million in 1997, an increase of 42.1%.Loan
sales and securitizations decreased from $85.9 million in 1996 to $81.2 million
in 1997. The allowance for possible credit losses (reserves) increased from
$17.1 million at December 31, 1996 to $19.2 million at December 31, 1997, an
increase of 12.6%. Deposits increased 10.9% from $1,118.1 million in 1996 to
$1,239.5 million in 1997. Borrowings increased from $120.5 million in 1996 to
$178.6 million in 1997, an increase of 48.2%. Shareholders' equity increased
11.2% from $108.7 million in 1996 to $120.9 million in 1997. During 1997, the
Company split its common stock three-for two and increased its cash dividend
twice. As a result, cash dividends paid to stockholders totaled $6.4 million in
1997, compared to $5.3 million in 1996.
The Company operates as an independent, community, commercial bank
specializing in the origination of commercial and consumer loans. The Company
provides a broad range of deposit and loan products to area businesses and
consumers through its Retail Branch network. In addition, the Company's Trust
Department provides full trust services to individuals, corporations and non-
profit organizations. The Bank's wholly owned subsidiary, BSB Financial
Services, Inc. markets brokerage services. The Company expects to continue its
independence and to focus on enhancing shareholder value through increasing
market share as well as developing new geographic market areas through
acquisitions and improved uses of technology. Emphasis will continue to center
on originating commercial and selected consumer loan products to grow and
further diversify loan asset portfolios.
The decline in the interest rates that began in the second quarter of 1997 is
expected to result in additional refinancing of fixed-rate residential mortgages
in 1998. Since the Company sells and retains servicing of a large portion of its
fixed-rate residential originations, the Company intends to take advantage of
its loan servicing portfolio by refinancing other bank's mortgages as well as to
aggressively market to its existing customer base in an effort to increase
mortgage servicing fee income.
In order to continue funding the current and anticipated future level of loan
growth, the Company has sought other sources of funding outside of its normal
retail deposits. In the past several years, the Company has expanded its market
area through the acquisition of branch offices in Chemung County, New York, and
the establishment of a branch office in Syracuse, New York, commenced a
municipal deposit program, and increased its borrowings through retail
repurchase agreements and other sources.
7
<PAGE>
To assist in managing the average cost of funds, the Company embarked on an
aggressive campaign in mid-year 1997 to produce new low cost checking and NOW
account deposits. This effort produced growth in average checking/NOW account
deposit levels by approximately 10% for the year 1997. The growth in these low
cost funding sources, coupled with the origination of higher yielding consumer
and commercial loan assets assisted the Company in producing an average interest
rate margin of 4.39% for the year 1997. The Company expects to continue its
efforts to manage interest rate margin.
As the evolution of the financial services industry continues, more and more
emphasis will be placed on the use of customer information and cost effective
use of technologies in new delivery and processing systems. In this regard, the
Company made significant inroads during 1997 in providing customers with new
services and accessibility to the Bank. Existing services, such as
TelephoneTeller and BSB Cash Manager, were enhanced during 1997. In addition,
the Company expanded its electronic delivery systems by adding 12 ATMs,
introduced BSB "BankIt", a personal interactive banking service via personal
computer, and "BSB PayIt", an electronic method for consumers to pay their
bills.
In 1998, the Company expects to convert to a new data processing provider
which will be in compliance with the Year 2000 issues. The Company anticipates
this action will enhance productivity, allow the Company to offer new services
and provide financial reporting and customer information not currently available
to management.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company started to address the issue in 1995 when technology upgrade plans
were approved by an internal Systems Application and Technology Planning
Committee. These upgrade plans and all subsequent reviews included Year 2000
compliance. In addition, an inventory of all systems, hardware, media,
transmissions, and networks were evaluated at that time. During 1995 and 1996,
these technology upgrades were installed throughout the branches and back office
areas to enhance the operating efficiencies within the Bank. An evaluation of
core banking systems was performed in 1997. A new vendor was selected to ensure
compliance with the Year 2000 issues. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company.
Because of the technology enhancements and efficiencies derived from making
the above described changes, specific costs to correct current and ongoing
systems have not been a material cost to the Company. Any further costs
pertaining to addressing the Year 2000 issue will be expensed currently.
This Annual Report, including certain statements made in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, may
include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Any statements with regard to the
Company's expectations as to its financial results, and other aspects of its
business, and general economic conditions, may constitute forward-looking
statements. Although the Company makes such statements based on assumptions
which it believes to be reasonable, there can be no assurance that actual
results will not differ materially from the Company's expectations. Accordingly,
the Company hereby identifies the following important factors, among others,
which could cause its results to differ from any results which might be
projected, forecasted, or estimated based on such forward-looking statements:
( i ) general economic and competitive conditions in the markets in which the
Company operates, and the risks inherent in its operations; ( ii ) the Company's
ability to continue to control its provision for credit losses and non-interest
expenses, increase earning assets and non-interest income, and maintain its
margin; and ( iii ) the level of consumer demand for new and existing products.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in the forward-looking statements. The Company does not intend
to update forward-looking statements.
8
<PAGE>
FINANCIAL CONDITION
- -------------------
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>
1997 1996 1995
Average Increase (Decrease) Average Increase (Decrease) Average
Balance Amount % Balance Amount % Balance
---------- ---------- -------- ---------- ----------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 577,000 $ 93,940 19.4 % $ 483,060 $ 72,988 17.8 % $ 410,072
Consumer loans
Passbook 271 (96) (26.2) 367 (157) (30.0) 524
Overdraft checking 953 45 5.0 908 223 32.6 685
Credit cards 9,101 286 3.2 8,815 41 0.5 8,774
Personal-direct 39,802 7,481 23.1 32,321 5,434 20.2 26,887
Personal-indirect-new auto 46,694 (386) (0.8) 47,080 (4,202) (8.2) 51,282
Personal-indirect-used auto 91,750 32,020 53.6 59,730 12,135 25.5 47,595
Personal-indirect-mobile homes 35,562 10,720 43.2 24,842 2,423 10.8 22,419
Personal-indirect-other 4,126 (510) (11.0) 4,636 (279) (5.7) 4,915
Home Equity Line of Credit 24,764 152 0.6 24,612 (1,497) (5.7) 26,109
Checkcard reserve 934 727 351.2 207 207 100.0
Student 2,670 (363) (12.0) 3,033 (9,109) (75.0) 12,142
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total consumer loans 256,627 50,076 24.2 206,551 5,219 2.6 201,332
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Mortgage loans
Residential-fixed 39,703 (12,194) (23.5) 51,897 (5,215) (9.1) 57,112
Commercial-fixed 4,800 984 25.8 3,816 486 14.6 3,330
Residential-adjustable 70,140 (7,759) (10.0) 77,899 (20,373) (20.7) 98,272
Commercial-adjustable 136,660 5,900 4.5 130,760 176 0.1 130,584
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total mortgage loans 251,303 (13,069) (4.9) 264,372 (24,926) (8.6) 289,298
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Investment securities 286,382 36,077 14.4 250,305 23,412 10.3 226,893
Mortgages held for sale 4,422 1,707 62.9 2,715 724 36.4 1,991
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total interest-earning assets 1,375,734 168,731 14.0 1,207,003 77,417 6.9 1,129,586
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Non-interest-earning assets 76,233 5,884 8.4 70,349 9,084 14.8 61,265
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total assets $1,451,967 $174,615 13.7 % $1,277,352 $ 86,501 7.3 % $1,190,851
===================================== ========== ======== ===== ========== ======== ===== ==========
Interest-bearing liabilities:
Deposits
Savings $ 134,775 $ (5,815) (4.1)% $ 140,590 $(11,219) (7.4)% $ 151,809
Money market 254,678 19,345 8.2 235,333 18,485 8.5 216,848
Certificates of deposit 632,470 59,593 10.4 572,877 77,075 15.5 495,802
NOW 60,202 (400) (0.7) 60,602 3,171 5.5 57,431
Commercial checking 57,094 11,284 24.6 45,810 6,439 16.4 39,371
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total deposits 1,139,219 84,007 8.0 1,055,212 93,951 9.8 961,261
Borrowings 177,392 85,787 93.6 91,605 (7,719) (7.8) 99,324
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total interest-bearing liabilities 1,316,611 169,794 14.8 1,146,817 86,232 8.1 1,060,585
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Non-interest-bearing liabilities 19,427 1,629 9.2 17,798 3,189 21.8 14,609
Shareholders' equity 115,929 3,192 2.8 112,737 (2,920) (2.5) 115,657
- ------------------------------------- ---------- -------- ----- ---------- -------- ----- ----------
Total liabilities and
shareholders' equity $1,451,967 $174,615 13.7 % $1,277,352 $ 86,501 7.3 % $1,190,851
===================================== ========== ======== ===== ========== ======== ===== ==========
</TABLE>
9
<PAGE>
USES OF FUNDS
- -------------
The Company's principal use of funds is originating loans, primarily to
individuals and small- and medium-sized companies in its 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 increased
from $159.8 million in 1996 to $244.2 million in 1997. The average balance of
commercial loans increased from $483.1 million in 1996 to $577.0 million in
1997, an increase of $93.9 million, or 19.4%. The increase in originations and
in portfolio size in 1997 over 1996 was due primarily to an increase in activity
in the Syracuse market where the Bank is gaining market share since the opening
of the full-service office at the end of 1996. This growth is expected to be
tempered somewhat in the future due to competition from bank and non-bank
lenders. In all relationships, the Bank's objective is to gain as much of a
customer's banking business as possible.
Consumer loan originations were $132.2 million in 1996 and $205.6 million in
1997. The average balance of consumer loans increased from $206.6 million in
1996 to $256.6 million in 1997, an increase of $50.0 million, or 24.2%. This
increase resulted mainly from the Company's continuing efforts to expand its
direct consumer lending as well as its indirect financing through local and
surrounding area automobile dealers as well as increasing its indirect mobile
home financing. These types of loans typically earn among the highest yields of
the Bank's assets, but also tend to have a higher credit risk. During 1997, the
Company increased its originations of most consumer loan products as compared to
1996. Direct loan originations increased from $22.1 million for 1996 to $30.2
million for 1997, an increase of $8.1 million, or 36.7%. Indirect used auto loan
originations increased 81.4%, increasing from $47.1 million in 1996 to $85.4
million in 1997. Indirect mobile home loan originations increased from $8.9
million in 1996 to $22.9 million in 1997. This increase of $14.0 million, or
157.3%, in indirect mobile home originations represents the Company expanding
and diversifying its geographic concentration in the Northeast to originating
indirect mobile home loans to include other regions of the country. The
originations of indirect new auto loans continued to increase from $22.6 million
in 1996 to $29.7 million in 1997.
The Company originated residential mortgage loans of $71.0 million in 1996 and
$100.9 million in 1997, an increase of 42.1%. Commercial real estate
originations increased from $23.7 million in 1996 to $25.5 million in 1997.
The Company's policy of selling or securitizing fixed-rate residential
mortgages to improve the liquidity of the portfolio and to build the servicing
income portfolio resulted in sales of $59.7 million in 1996. In 1997, $79.5
million of fixed-rate residential mortgages were sold or securitized to aid in
managing liquidity and collateral needs. The average balance of fixed-rate
residential mortgage loans decreased from $51.9 million in 1996 to $39.7 million
in 1997, a reduction of 23.5%. The average balance of adjustable-rate
residential mortgage loans decreased from $77.9 million in 1996 to $70.1 million
in 1997, a decrease of 10.0%. The average balance of adjustable-rate commercial
real estate loans increased from $130.8 million in 1996 to $136.7 million in
1997.
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 portfolio consists primarily of U.S. Government Agency
securities and mortgage-backed securities issued by U.S. Government agencies
such as the Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association. The average balance of investment securities increased from $250.3
million in 1996 to $286.4 million in 1997.
In 1996 and 1997, respectively, the Company purchased $80.0 million and $29.2
million of mortgage-backed securities. The Company securitized $15.7 million of
its adjustable-rate residential mortgages in 1996 (none in 1997), making these
mortgages marketable in the secondary market. An additional $1.6 million of
fixed-rate mortgages were also securitized in 1997. Sales of mortgage-backed
securities increased from $66.8 million in 1996 to $86.2 million in 1997, while
principal repayments decreased from $24.4 million in 1996 to $22.7 million in
1997.
SOURCES OF FUNDS
- ----------------
Funding for the Company's assets is derived primarily from deposits from
individuals, business customers, municipalities, and borrowings. In addition,
the Company established a money desk in the second half of 1997 to attract
larger wholesale deposits primarily from institutional investors. These
wholesale deposits were used to fund the growth in loans. In addition to the
above sources, the Bank used demand and time deposits and long- and short-term
borrowings. The average balance of all deposits increased from $1,055.2 million
in 1996 to $1,139.2 million in 1997. The average balance of all borrowings
increased 93.6%, from $91.6 million in 1996 to $177.4 million in 1997.
10
<PAGE>
ASSET QUALITY
- -------------
The Company has maintained its focus on sound credit quality in the loan
portfolio. The Company utilizes a 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
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 loans that have become collateral-dependent are
measured for impairment based on the fair value of the collateral. Loans not
deemed impaired continue to be classified based on their risk-rating and general
reserves are maintained accordingly. Management considers the current level of
reserves adequate to cover potential credit losses.
The following table summarizes activity in the Company's allowance for possible
credit losses during the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
----------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Average total loans outstanding $1,103,563 $970,060 $914,988
=========================================================== ========== ======== ========
Allowance at beginning of period $ 17,054 $ 14,065 $ 13,354
Charge-offs:
Commercial loans 5,178 5,800 3,944
Consumer loans 2,137 1,714 1,123
Residential real estate loans 83 116 81
Commercial real estate loans 2,480 1,184 2,185
- ----------------------------------------------------------- ---------- -------- --------
Total loans charged-off 9,878 8,814 7,333
Recoveries:
Commercial loans 852 1,114 311
Consumer loans 572 550 358
Residential real estate loans 12 18
Commercial real estate loans 293 156 24
- ----------------------------------------------------------- ---------- -------- --------
Total recoveries 1,717 1,832 711
- ----------------------------------------------------------- ---------- -------- --------
Net charge-offs 8,161 6,982 6,622
- ----------------------------------------------------------- ---------- -------- --------
Provision for credit losses charged to operating expenses 10,314 9,971 7,333
- ----------------------------------------------------------- ---------- -------- --------
Allowance at end of period $ 19,207 $ 17,054 $ 14,065
=========================================================== ========== ======== ========
Ratio of net charge-offs to:
Average total loans outstanding 0.74% 0.72% 0.72%
- ----------------------------------------------------------- ---------- -------- --------
Ratio of allowance to:
Non-performing loans 148.02% 139.59% 109.78%
- ----------------------------------------------------------- ---------- -------- --------
Year-end total loans outstanding 1.59% 1.69% 1.52%
=========================================================== ========== ======== ========
</TABLE>
The provision for credit losses increased from $10.0 million in 1996 to $10.3
million in 1997. The allowance for possible credit losses increased to $19.2
million, or 1.59% of total loans at December 31, 1997, from $17.1 million, or
1.69% at year-end 1996. Net charge-offs in 1997 amounted to $8.2 million, or
0.74% of average total loans outstanding, compared to $7.0 million, or 0.72% in
1996. Non-performing loans at December 31, 1997 were $13.0 million, or 1.08% of
total loans outstanding, up from $12.2 million, or 1.21% at December 31, 1996.
Non-Performing Assets
The Company's accounting and classification policies regarding non-accrual loans
reflect the importance of recognizing problems early.
11
<PAGE>
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 in a 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
are believed to be adequate to result in full recovery.
At December 31, 1997, the Company had $304,000 of consumer loans greater than
90 days past due on which it was accruing interest, as compared to $236,000 and
$96,000 at December 31, 1996 and 1995, 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,
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial loans:
Non-accrual loans $10,542 $ 6,130 $ 8,032
- --------------------------------------------------------------- ------- ------- -------
Consumer loans:
Accruing loans 90 days overdue 304 236 96
- --------------------------------------------------------------- ------- ------- -------
Residential real estate loans:
Non-accrual loans 1,309 1,556 1,920
- --------------------------------------------------------------- ------- ------- -------
Commercial real estate loans:
Non-accrual loans 821 4,295 2,764
- --------------------------------------------------------------- ------- ------- -------
Total non-performing loans and accruing
loans 90 days overdue $12,976 $12,217 $12,812
=============================================================== ======= ======= =======
Total non-performing loans to total loans 1.08% 1.21% 1.38%
Total real estate acquired in settlement of loans at lower of
cost or fair value $ 2,784 $ 1,393 $ 2,468
- --------------------------------------------------------------- ------- ------- -------
Total non-performing loans and real estate acquired in
settlement of loans at fair value to total assets 1.01% 1.00% 1.23%
=============================================================== ======= ======= =======
</TABLE>
The Company has no troubled debt restructurings except as included in non-
accruing commercial loans. Total non-performing loans and other real estate
owned increased to $15.8 million, or 1.01% of total assets at December 31, 1997,
compared to $13.6 million, or 1.00% of total assets at December 31, 1996.
At December 31, 1996, 36 non-performing residential real estate loans totaled
$1.6 million. At December 31, 1997, non-performing residential real estate loans
totaled $1.3 million and included 28 loans.
At December 31, 1996, non-performing commercial real estate loans totaled $4.3
million, and consisted of 8 loans ranging in size from $62,000 to $1.8 million.
At December 31, 1997, non-performing commercial real estate loans decreased to
$0.8 million, made up of 3 loans ranging in size from $78,000 to $594,000. The
large decline in these commercial real estate non-performing loans from December
31, 1996 to December 31, 1997 was largely due to transferring 2 loans which
totaled $2.9 million at December 31, 1996 to ORE. After write-downs, these
properties reside in ORE at December 31, 1997at $1.8 million. These properties
are local commercial real estate properties.
Non-performing commercial loans at December 31, 1996 totaled $6.1 million and
included 41 individual loans ranging in size from $600 to $1.6 million. At
December 31, 1997, non-performing commercial loans increased to $10.5 million
and consisted of 35 individual loans ranging in size from $5,000 to $1.3
million. In the last quarter of 1997, 4 commercial loans totaling $3.5 million
were added to non-performing assets. These loans were to a company which leases
vehicles to non-personal entities such as schools, rehabilitation centers, and
similar businesses. These loans and all other non-performing loans have been
internally risk-rated.
The Company's non-accrual loans increased from $12.2 million at December 31,
1996 to $13.0 million at December 31, 1997. At December 31, 1996, the recorded
investment in loans for which impairment has been recognized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 114 totaled $8.5
million with a valuation allowance aggregating $3.2 million. For the twelve
months ended December 31, 1996, the average recorded investment in impaired
loans was approximately $8.8 million. The Company recognized, on a cash basis,
$146,000 of interest on impaired loans during the portion of the year they were
impaired. At December 31, 1997, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled
12
<PAGE>
$12.0 million with a valuation allowance aggregating $4.3 million. For the
twelve months ended December 31, 1997, the average recorded investment in
impaired loans was approximately $8.9 million. The Company recognized, on a cash
basis, $272,000 of interest on impaired loans during the portion of the year
they were impaired.
At December 31, 1996, other real estate ("ORE"), which is defined to include
property acquired by foreclosure or by deed in lieu of foreclosure, totaled $1.4
million, which consisted of 12 single-family residential properties with a book
value totaling $712,000 and 7 local commercial real estate properties with a
book value totaling $681,000. At December 31, 1997, ORE totaled $2.8 million and
consisted of 10 single-family residential properties with a book value totaling
$474,000 and 9 local commercial real estate properties with a book value
totaling $2.3 million. The largest single property in ORE was removed from non-
performing commercial real estate loans during 1997 and placed in ORE with a
balance of $1.3 million at December 31, 1997.
During 1997, 14 single-family residential properties with a book value
totaling of $753,000 were sold. From 1996, 2 single-family residential
properties had a book value of $62,000 remained in the ORE portfolio. During
1997, 12 single-family residential properties with a book value totaling of $0.8
million were added to the ORE portfolio. In 1997, 15 residential real estate ORE
properties were written down by $333,000.
During 1997, 4 local commercial real estate properties with a book value
totaling $0.6 million were sold, 14 commercial real estate properties with a
book value of $1,915,000 were charged off, and 6 commercial real estate
properties valued at $1.3 million were partially charged off. During 1997, 7
local commercial real estate properties with a book value totaling $2,860,000
were added to the portfolio. During the year, 3 local commercial real estate ORE
properties were written down by $628,000. All ORE charge-offs are recorded as
other real estate expenses. All real estate carried in the Company's ORE
portfolio are supported by recent independent appraisals.
The Company has previously accrued $2.6 million for the credit risk associated
with certain off-balance sheet letters of credit. This amount has been
reclassified to other liabilities.
LIQUIDITY
- ---------
A fundamental objective of the Company is effective management of its liquidity.
The goal of liquidity management is to maintain the Company's ability to meet
its contractual obligations, to meet its customers' loan demands, fund all 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 Board authorizes the
Asset and Liability Management Committee (the "Committee") of the Company to
manage the sources and uses of the Company's cash flow, and establish 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 the 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.
To accommodate asset growth during 1997, deposits and borrowing balances
increased; the greatest of these was an increase of $83.0 million in
certificates of deposits. Of this increase, $49.9 million was attributable to
increased levels of brokered deposits. Non-interest-bearing deposits increased
$19.2 million to $76.2 million, and money market accounts increased $14.0
million to $263.3 million at December 31, 1997. The other primary source of
funding is borrowed funds which increased from $120.5 million at December 31,
1996 to $178.6 million at December 31, 1997. See Note 9 in Notes to Consolidated
Financial Statements for further discussion on borrowed funds.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown:
13
<PAGE>
<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 to than
or less 12 mos 3 yrs 5 yrs 10 yrs 20 yrs 20 yrs Total
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial and
consumer loans $ 526,543 $ 67,335 $ 158,841 $ 106,746 $ 68,050 $26,035 $ 953,550
Mortgage loans 18,194 105,069 108,223 12,359 11,926 $ 3,561 374 259,706
Mortgage-backed securities 26,048 2,216 5,817 5,102 10,527 12,273 18,918 80,901
Investment securities 2,183 10,245 2,803 30,165 79,510 55,626 24,813 205,345
- ------------------------------- --------- --------- --------- --------- -------- ------- ------- ----------
Total interest-earning
assets 572,968 184,865 275,684 154,372 170,013 71,460 70,140 1,499,502
- ------------------------------- --------- --------- --------- --------- -------- ------- ------- ----------
Interest-bearing liabilities:
Money market accounts 263,345 263,345
Savings accounts 135,047 135,047
Demand and NOW accounts 14,341 13,264 6,095 10,971 49,376 24,681 24,681 143,409
Certificate accounts 179,461 307,911 197,104 11,706 1,513 12 697,707
FHLB advances 153,000 153,000
Borrowed funds 25,644 25,644
- ------------------------------- --------- --------- --------- --------- -------- ------- ------- ----------
Total interest-bearing
liabilities 770,838 321,175 203,199 22,677 50,889 24,693 24,681 1,418,152
- ------------------------------- --------- --------- --------- --------- -------- ------- ------- ----------
Interest sensitivity gap
per period $(197,870) $(136,310) $ 72,485 $ 131,695 $119,124 $46,767 $45,459 $ 81,350
=============================== ========= ========= ========= ========= ======== ======= ======= ==========
Cumulative interest
sensitivity gap $(197,870) $(334,180) $(261,695) $(130,000) $(10,876) $35,891 $81,350
=============================== ========= ========= ========= ========= ======== ======= =======
Cumulative interest
sensitivity gap as a
percentage of total assets (12.68)% (21.41)% (16.77)% (8.33)% (0.70)% 2.30% 5.21%
=============================== ========= ========= ========= ========= ======== ======= =======
</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 $249.3 million at December 31,
1996 to $263.3 million at December 31, 1997, and savings accounts, which
declined from $135.7 million at December 31, 1996 to $135.0 million at December
31, 1997, are included in interest-bearing liabilities anticipated to reprice
within three months. Demand and NOW accounts, which grew from $118.3 million at
December 31, 1996 to $143.4 million at December 31, 1997, 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, 1997, the Company had outstanding $153.0
million of borrowings from the Federal Home Loan Bank of New York (the "FHLB"),
an increase of $40.0 million from December 31, 1996, and had $25.6 million in
other borrowings at December 31, 1997 compared to $7.5 million at December 31,
1996.
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.
At year end, the Bank conducted a rate shock test of all rate-sensitive assets
and liabilities. The test is a simulation of the impact an instantaneous change
in interest rates would have on the Bank's net interest income. The test is
conducted in two parts. First, all rates are raised 1 percent and annualized net
interest income is determined, then rates are lowered by 1 percent and net
interest income is again measured. The results are compared with anticipated
results when interest rates do not change. With rates raised 1 percent, the test
indicated a reduction in net income of $1.29 million. When rates were lowered 1
percent, the test indicated an increase in net interest income of
14
<PAGE>
$3.28 million. The test assumes that all categories of rates will move at the
same time and by the same amount. The test further assumes that depositor and
borrower preferences will not change, and therefore the composition of the
Company's balance sheet, will remain unchanged. There can be no assurance that
if interest rates did move by 1% that the Company's results of operations would
be impacted as indicated by these tests.
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, and sales of investment securities, loans, and mortgage-backed
securities. Scheduled maturities of borrowings during 1998 are $176.8 million.
Of these borrowings, $153.0 million are advances from the Federal Home Loan Bank
which are anticipated to be renewed. See Note 9 of Notes to Consolidated
Financial Statements for details. The remainder of borrowings are short-term in
nature, and the Company anticipates these to be renewed. Savings certificates
which are scheduled to mature during 1998 total $487.6 million. Management
expects that a substantial portion of these maturing certificates will remain on
deposit with the Company. At December 31, 1997, 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 8.03% in 1995, 8.42% in 1996, and 7.41% in 1997.
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. During 1997, the Bank
paid $6.4 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 $108.7 million in 1996 to $120.9 million in
1997. The 1997 net income of $17.0 million, the unrealized gain of $0.1 million
required under SFAS No. 115, and $1.4 million in new capital received as a
result of the exercise of stock options, were offset by the cash dividends paid
on common stock of $6.4 million.. At year-end 1995, 1996, and 1997, the
Company's book value per common share was $12.47, $12.92, and $14.12,
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 7.74% at December 31, 1997, and
7.98% at December 31, 1996.
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, 1997. Under the
capital rules, the Bank's Tier I and total capital to risk-adjusted assets
ratios at December 31, 1997 were 9.18% and 10.44%, respectively. These compare
favorably with the minimum requirements of 4.00% for Tier I and 8.00% for total
capital. At December 31, 1997, the Bank's leverage ratio was 7.79%,
substantially higher than the minimum requirement of 3%.
15
<PAGE>
The following table presents the Bank's capital position at the dates
indicated based on the current capital guidelines:
<TABLE>
<CAPTION>
Capital Analysis Years Ended December 31,
1997 1996 1995
------------ ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tier I:
Common Shareholders' Equity $ 119,823 $ 108,331 $ 116,567
Adjusted for FASB No. 115 733 877 (169)
Adjusted for unamortized goodwill (1,893) (2,188) (2,483)
---------- ---------- ----------
Total Tier I capital 118,663 107,020 113,915
---------- ---------- ----------
Tier II:
Allowable portion of reserve for 16,191 13,462 12,395
possible credit losses ---------- ---------- ----------
Total Tier II capital 16,191 13,462 12,395
---------- ---------- ----------
Total risk-based capital $ 134,854 $ 120,482 $ 126,310
---------- ---------- ----------
Risk-adjusted assets $1,292,251 $1,073,383 $ 989,961
---------- ---------- ----------
Total average assets $1,523,002 $1,327,570 $1,226,948
---------- ---------- ----------
Amount by which capital exceeds minimum
requirements:
Tier I capital/risk-adjusted assets $ 66,973 $ 64,085 $ 74,317
---------- ---------- ----------
Total risk-based capital/risk-adjusted
assets $ 31,474 $ 34,611 $ 47,113
---------- ---------- ----------
Tier I capital/total average assets
(leverage ratio) $ 72,973 $ 67,193 $ 77,107
---------- ---------- ----------
Capital Ratios Regulatory Years Ended December 31,
Minimums 1997 1996 1995
---------- ---------- ---------- ----------
Tier I capital/risk-adjusted assets 4.0% 9.18% 9.97% 11.51%
---------- ---------- ---------- ----------
Total risk-based capital/risk-adjusted
assets 8.0 10.44 11.22 12.76
---------- ---------- ---------- ----------
Tier I capital/total average assets 3.0 to 5.0 7.79 8.06 9.28
(leverage ratio) ========== ========== ========== ==========
</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 loans and securities, and
other fees.
16
<PAGE>
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) interest rate margin,
and (vi) ratio of interest-earning assets to interest-bearing liabilities. No
tax equivalent adjustments were made.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
Interest Yield/Rate Interest Yield/Rate Interest Yield/Rate
- --------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 56,504 9.79% $ 46,516 9.63% $41,346 10.08%
Consumer loans:
Passbook 33 12.18 38 10.35 58 11.07
Overdraft checking 183 19.20 179 19.71 133 19.42
Credit cards 1,416 15.56 1,377 15.62 1,368 15.59
Personal-direct 4,062 10.20 3,274 10.13 2,687 9.99
Personal-indirect-new auto 3,998 8.56 3,767 8.00 3,903 7.61
Personal-indirect-used auto 8,502 9.27 5,383 9.01 4,152 8.72
Personal-indirect-mobile
homes 3,393 9.54 2,377 9.57 2,091 9.33
Personal-indirect-other 403 9.78 484 10.45 473 9.62
Home Equity Line of Credit 2,330 9.41 2,355 9.57 2,656 10.17
Checkcard reserve 269 28.80 48 23.19
Student 89 3.33 322 10.62 965 7.95
- ------------------------------- -------- ------- -------- ------- ------- -----
Total consumer loans 24,678 9.62 19,604 9.49 18,486 9.18
- ------------------------------- -------- ------- -------- ------- ------- -----
Mortgage loans
Residential-fixed 3,283 8.27 4,274 8.24 4,753 8.32
Commercial-fixed 444 9.25 351 9.20 302 9.07
Residential-adjustable 5,460 7.78 5,727 7.35 7,095 7.22
Commercial-adjustable 12,475 9.13 11,833 9.05 11,602 8.88
- ------------------------------- -------- ------- -------- ------- ------- -----
Total mortgage loans 21,662 8.62 22,185 8.39 23,752 8.21
- ------------------------------- -------- ------- -------- ------- ------- -----
Investment securities 19,184 6.70 17,672 7.06 15,234 6.71
Mortgages held for sale 352 7.96 275 10.13 216 10.85
- ------------------------------- -------- ------- -------- ------- ------- -----
Total interest-earning assets $122,380 8.90% $106,252 8.80% $99,034 8.77%
- ------------------------------- -------- ------- -------- ------- ------- -----
Interest-bearing liabilities:
Deposits
Savings $ 3,867 2.87% $ 4,039 2.87% $ 4,376 2.88%
Money market 11,613 4.56 10,526 4.47 10,491 4.84
Certificates of deposit 35,652 5.64 31,961 5.58 28,625 5.77
NOW 804 1.34 799 1.32 763 1.33
- ------------------------------- -------- ------- -------- ------- ------- -----
Total deposits $ 51,936 4.56 $ 47,325 4.48 $44,255 4.60%
- ------------------------------- -------- ------- -------- ------- ------- -----
Borrowings 10,080 5.68 5,146 5.62 6,166 6.21
- ------------------------------- -------- ------- -------- ------- ------- -----
Total interest-bearing
liabilities 62,016 4.71 52,471 4.58 50,421 4.75
- ------------------------------- -------- ------- -------- ------- ------- -----
Net interest income $ 60,364 $ 53,781 $48,613
- ------------------------------- -------- ------- -------- ------- ------- -----
Interest rate spread 4.19% 4.22% 4.02%
=============================== ======= ======= =====
Interest rate margin 4.39 4.46 4.30
=============================== ======= ======= =====
Ratio of interest-earning
assets to interest-bearing
liabilities 1.04X 1.05x 1.07x
=============================== ======= ======= =====
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Increase (Decrease)
Volume Rate Net Volume Rate Net
----------- ---------- ----------- ---------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on interest-
earning assets:
Commercial loans $ 9,242 $ 746 $ 9,988 $ 7,084 $(1,914) $ 5,170
Consumer loans 4,803 271 5,074 486 632 1,118
Mortgage loans (1,119) 596 (523) (2,079) 512 (1,567)
Investment securities 2,593 (1,004) 1,589 1,680 817 2,497
- ------------------------------- ------- ------- ------- ------- ------- -------
Total 15,519 609 16,128 7,171 47 7,218
- ------------------------------- ------- ------- ------- ------- ------- -------
Interest expense on interest-
bearing liabilities:
Savings (172) (172) (322) (15) (337)
Money market 873 214 1,087 864 (829) 35
Certificates of deposit 3,345 346 3,691 4,308 (972) 3,336
NOW (6) 11 5 42 (6) 36
- ------------------------------- ------- ------- ------- ------- ------- -------
Total deposits 4,040 571 4,611 4,892 (1,822) 3,070
Borrowings 4,878 56 4,934 (459) (561) (1,020)
- ------------------------------- ------- ------- ------- ------- ------- -------
Total 8,918 627 9,545 4,433 (2,383) 2,050
- ------------------------------- ------- ------- ------- ------- ------- -------
Net interest income $ 6,601 $ (18) $ 6,583 $ 2,738 $ 2,430 $ 5,168
=============================== ======= ======= ======= ======= ======= =======
</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 $48.6 million, $53.8 million, and
$60.4 million in 1995, 1996, and 1997, respectively. The Company's interest rate
spread increased from 4.02% in 1995 to 4.22% in 1996. In 1997, the interest rate
spread decreased to 4.19%. The increase in the average balance in the commercial
and consumer loan portfolios was partially offset by the three basis point
decline in the spread from 1996 to 1997 which resulted from an increase of ten
basis points in the yield on interest-earning assets and a thirteen basis point
increase in the cost on interest-bearing liabilities.
Interest on Commercial Loans
Growth in commercial lending continued in 1997 with the average balance of
commercial loans increasing from $410.1 million in 1995, to $483.1 million in
1996, and $577.0 million in 1997. The yields on these loans decreased from
10.08% in 1995 to 9.63% in 1996, but increased to 9.79% in 1997. The Prime Rate
was 9.0% in the first quarters of 1995, fell to 8.5% toward the end of 1995,
declined further to 8.25% in 1996, and increased to 8.5% in 1997. During this
three year period, the interest on commercial loans was $41.3 million, $46.5
million, and $56.5 million, respectively, due to the steady growth in the
balance of this portfolio and these fluctuations in the Prime Rate. The yield on
approximately 80% of the commercial loan portfolio fluctuates with changes in
Prime. Yields on the balance of the portfolio are fixed for up to five years
with adjustments based on other market indices.
Interest on Consumer Loans
Interest on consumer loans consists of interest on passbook, personal, direct
and indirect auto and mobile home, and student loans, credit cards, overdraft
checking, checkcard reserve, 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
1995, 1996, and 1997 were $201.3 million, $206.6 million, and $256.6 million,
respectively. Yields on all consumer loans for 1995, 1996, and 1997 were 9.18%,
9.49%, and 9.62%,
18
<PAGE>
respectively. Interest income on all these loans continued to increase for the
three year period 1995 through 1997 with income of $18.5 million in 1995, $19.6
million in 1996, and $24.7 million in 1997.
The Company continues to emphasize the origination of direct and indirect auto
and mobile home loans. The biggest area of consumer loan growth has been in
indirect used auto loans. The average balance of these loans have grown from
$47.6 million in 1995, to $59.7 million in 1996, and $91.8 million in 1997. The
average rates paid on these loans has increased as well, providing yields of
8.72%, 9.01%, and 9.27% for the years 1995, 1996, and 1997, respectively.
Accordingly, income provided from these loans has also risen from $4.2 million
in 1995, $5.4 million in 1996, and finally $8.5 million in 1997. Indirect mobile
home loans has shown a 42.7% growth in interest income from 1996 to 1997. This
has resulted from an increase in average balance from $24.8 million in 1996 to
$35.6 million in 1997, despite a small decrease in the yield from 9.57% in 1996
to 9.54% in 1997. Direct personal loans have steadily increased for 1995, 1996,
and 1997. Average balances have increased from $26.9 million in 1995, to $32.3
million in 1996, and $39.8 million in 1997. This has generated interest income
of $2.7 million in 1995 with an average yield of 9.99%, $3.3 million in 1996
with an average yield of 10.13%, and $4.1 million in 1997 with an average yield
of 10.20%.
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.
Interest on mortgage loans declined $1.6 million from 1995 to 1996, and
declined $0.5 million from the twelve months ended December 31, 1996 to $21.7
million for the twelve months ended December 31, 1997. The average balance of
all mortgage loans declined from $289.3 million at December 31, 1995 to $264.4
million at December 31, 1996, to $251.3 million at December 31, 1997, and caused
the decline in the interest income earned on these loans. Yields on mortgage
loans rose from 8.21% for 1995 to 8.39% for 1996, and finally to 8.62% for the
twelve months ended December 31, 1997.
The average balance of adjustable-rate residential mortgages declined from
$98.3 million in 1995 to $77.9 million in 1996, and declined to $70.1 million in
1997. Adjustable-rate residential mortgage originations declined significantly,
from $34.8 million in 1995 to $17.2 million in 1996, and declined further to
$6.8 million in 1997. The fluctuation in origination levels is primarily a
result of changing consumer preferences for fixed- versus adjustable-rate loans
as changes occur from time to time in the rate differential between the two.
The average balance of adjustable-rate commercial real estate loans increased
from $130.6 million in 1995 to $130.8 million in 1996. The yields on these loans
increased from 8.88% in 1995 to 9.05% in 1996. This resulted in an increase in
interest income from these loans from $11.6 million in 1995 to $11.8 million in
1996. The average balance of adjustable-rate commercial real estate loans
increased to $136.7 million in 1997 and the average yield increased to 9.13%
resulting in an increase in interest income to $12.5 million for the year.
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, tax-free municipal securities, and securities that provided
advantageous tax benefits. The average balance of investment securities was
$226.9 million in 1995, $250.3 million in 1996, and $286.4 million in 1997.
Interest and dividends on investment securities was $15.2 million in 1995, $17.7
million in 1996, and $19.2 million in 1997. The yields on these assets increased
from 6.71% in 1995, to 7.06% in 1996, and decreased to 6.70% in 1997.
19
<PAGE>
Interest on Deposits
Deposit balances continued to rise. In 1995, the average balance of all deposits
was $961.3 million, rising to $1,055.2 million in 1996. In 1997, average
balances rose $84.0 million to $1,139.2 million. Customer preference fuels
changes in deposit balances; this is reflected in a steady decline in savings
account average balances from $151.8 million in 1995, to $140.6 million in 1996,
to $134.8 million in 1997, with virtually no change in the rates. Offsetting
this decline in savings average balances was a growth in the average balance of
money market deposits. Average balances for these deposits for the years 1995,
1996, and 1997 were $216.8 million, $235.3 million, and $254.7 million. This
increase in money market average balances was offset by a decline in the rates
from 4.84% in 1995 to 4.47% in 1996. This stabilized the interest expense at
$10.5 million for both years. With the rise in the average rate paid in 1997 to
4.56%, interest expense rose to $11.6 million for the year. The growth in the
certificates of deposit balances was the major reason why the interest expense
on these products rose from $32.0 million in 1996 and to $35.7 million in 1997.
Average balances of certificates of deposits have steadily increased from $495.8
million, $572.9 million, and $632.5 million in 1995, 1996, and 1997,
respectively. After a drop in the average rate of certificates of deposit from
5.77% in 1995 to 5.58% in 1996, the average rate rose to 5.64% in 1997.
Interest on Borrowings
The average balance of borrowings decreased from $99.3 million in 1995 to $91.6
million in 1996. The cost of borrowings decreased from 6.21% in 1995 to 5.62% in
1996, and interest paid on borrowings decreased from $6.2 million in 1995 to
$5.1 million in 1996. The average balance of borrowings during 1997 increased to
$177.4 million, and coupled with an increase in the average interest rate paid
on borrowings to 5.68%, caused interest paid on borrowings to increase to $10.1
million. This source of funding is used to supplement or enhance retail and
business deposits that in turn provide the funds for asset growth. See Note 9 in
Notes to Consolidated Financial Statements.
Provision for Credit Losses
The provision for credit losses was $7.3 million, $10.0 million, and $10.3
million for the years 1995, 1996, and 1997, respectively. The growth in the
commercial and consumer loan portfolio continued, and management increased the
allowance for possible credit losses in 1996 to $17.1 million. Net charge-offs
increased from $6.6 million in 1995, to $7.0 million in 1996, and $8.2 million
in 1997. In 1997, as the commercial and consumer loan portfolios continued to
increase, management increased the allowance for possible credit losses to $19.2
million.
Gains (Losses) on Sale of Investments
As a result of investment security sales, the Company had net security gains of
$100,000 in 1995. During 1996, the Company had net security gains of $1.2
million, and in 1997, had net gains of $400,000.
Gains (Losses) on Sale of Loans
The losses on the sale of mortgages were $41,000 in 1995 and $34,000 in 1996.
These losses were principally the result of the Company selling and securitizing
mortgages. During 1997, the loss on sale of mortgages was $377,000.
20
<PAGE>
Non-interest Income
As shown in the chart below, non-interest income increased from $6.7 million in
1995 to $8.1 million in 1996, and declined to $6.3 million in 1997. The growth
in 1996 was due to increased revenue from service charges on deposit accounts,
increased volume for most of the year in merchant credit card business and the
related charges, and increased fees for brokerage services. Mortgage servicing
fees, trust fees, and other fees and commissions also increased during 1996. The
decrease of non-interest income in 1997 was mainly as a result of the loss of
one large merchant credit card relationship. The reduction of income was
substantially offset by a reduction in the processing fee expenses associated
with that merchant. Trust fees, service charges on deposit accounts, and other
fees and commissions reflected significant increases for 1997. Mortgage
servicing fees continued to rise as the servicing portfolio continued to
increase. Fees and commissions from brokerage services declined as investors
using this service had less activity in the market in 1997.
<TABLE>
<CAPTION>
Analysis of Non-Interest Income
(Dollars in Thousands)
Percent Change
1997 1996 1995 1996-97 1995-96
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $2,296 $2,015 $1,609 13.9% 25.2%
Credit card fees 828 3,088 2,560 (73.2) 20.6
Mortgage servicing fees 1,071 1,020 927 5.0 10.0
Fees and commissions-brokerage services 407 670 336 (39.3) 99.4
Trust fees 709 595 551 19.2 8.0
Other charges, commissions, and fees 987 752 689 31.3 9.1
------ ------ ------ ------- ---------
$6,298 $8,140 $6,672 (22.6)% 22.0%
====== ====== ====== ======= =========
</TABLE>
Operating Expenses
Operating expenses increased from $27.2 million in 1995 to $28.0 million in
1996 and $28.6 million in 1997. The increase from 1995 to 1996 reflected
increased commissions paid to dealers for increased indirect lending of $0.7
million. This was a significant area of asset growth for the Bank for 1995,
1996, and 1997. As merchant credit card fee income grew in 1996, so also did the
servicing expense associated with it by $0.3 million. Offsetting the growth in
these expenses, 1996 reflected lower FDIC insurance premiums of $0.2 million,
down from $1.1 million in 1995. Costs associated with ORE properties declined
from $1.1 million in 1995 to $0.4 million in 1996. Dealer commission expense
continued to rise in 1997, increasing to $1.6 million as the portfolio of
indirect lending continued to increase. Building occupancy increased as our
Syracuse office opened in December of 1996, and a purchase of a building to
accommodate our expanded lending function increased this expense by $0.3 million
in 1997. Expenses pertaining to ORE properties rose to $0.9 million in 1997.
Offsetting these increases, was a reduction in our credit card service fee
expenses of $1.6 million to $0.6 million for the year.
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 49.27%, 45.29%, and 42.95% for 1995, 1996,
and 1997, respectively. The Company's excellent achievement of a 42.95%
Efficiency Ratio ranks as one of the best in the country. The Company's ratio of
operating expenses to average assets was 2.29% in 1995, 2.20% in 1996, and 1.97%
in 1997. Both ratios reflect the attention paid to expense control by management
and staff.
INCOME TAXES
- ------------
The Company utilizes 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. See Note 12 of Notes to
Consolidated Financial Statements for details.
The Company is subject to New York State and Delaware franchise taxes. State
taxes amounted to $1.9 million in 1995 and $2.3 million in 1996 and 1997.
21
<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
- -------------
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income". This Statement will require the Company
to report comprehensive income. For the Company, comprehensive income is
determined by adding unrealized investment holding gains or losses during the
period to net income.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". This Statement requires Company's to
disclose financial and descriptive information about its reportable business
segments. Management believes the Company only operates in one segment, which is
the banking segment. Therefore, disclosures required under this pronouncement
will not affect 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 under the symbol "BSBN". As of December 31, 1997, the
Company had 1,700 shareholders of record and 8,557,232 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.
The following table sets forth the market price information for the common stock
and the cash dividends paid per share, as adjusted for the three-for-two stock
split effective on September 10, 1997:
<TABLE>
<CAPTION>
1997
Price Range Cash Dividends
High Low Per Share
------ ------ --------------
<S> <C> <C> <C>
First Quarter $21.33 $17.17 $0.17
Second Quarter 26.00 19.50 0.17
Third Quarter 29.00 23.83 0.20
Fourth Quarter 37.25 25.75 0.22
1996
Price Range Cash Dividends
High Low Per Share
------ ------ --------------
First Quarter $17.67 $14.50 $0.13
Second Quarter 17.83 16.83 0.15
Third Quarter 17.50 16.50 0.15
Fourth Quarter 18.50 16.92 0.17
</TABLE>
22
<PAGE>
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, 1997 and 1996,
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, 1997. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
January 23, 1998
23
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------- ---------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 36,066,241 $ 46,427,178
Investment securities available for sale (Note 2) 271,120,484 263,602,142
Investment securities held to maturity (Note 2)
(Market value of $14,141,196 and $24,821,601) 13,867,971 24,062,374
Mortgages held for sale 7,459,397 1,566,649
Loans (Notes 3, 4, 5, and 6):
Commercial 654,243,259 536,778,911
Consumer 299,306,752 217,067,811
Real estate 252,246,799 254,693,421
------------------------------------------------------- -------------- --------------
Total loans 1,205,796,810 1,008,540,143
Less: Unearned discounts 594,544 594,226
Allowance for possible credit losses 19,207,473 17,053,647
------------------------------------------------------- -------------- --------------
Net loans 1,185,994,793 990,892,270
Bank premises and equipment (Note 7) 9,500,037 9,006,476
Accrued interest receivable 11,117,057 9,351,526
Other real estate 2,784,450 1,393,359
Intangible asset 1,892,916 2,187,916
Other assets 20,767,402 14,630,195
------------------------------------------------------- -------------- --------------
$1,560,570,748 $1,363,120,085
============== ==============
LIABILITIES Due to depositors (Note 8) $1,239,508,352 $1,118,052,301
AND Borrowings (Note 9) 178,643,518 120,501,962
SHAREHOLDERS' Other liabilities 21,552,504 15,836,827
EQUITY Commitments (Note 11)
Shareholders' Equity (Notes 14 and 15):
Preferred stock, par value $.01 per share;
2,500,000 shares authorized; none issued
Common stock, par value $.01 per share;
30,000,000 shares authorized; 11,159,924 and
7,344,427 shares issued 111,599 73,444
Additional paid-in capital 29,215,440 27,824,147
Undivided profits 122,029,557 111,465,208
Unrealized depreciation in securities
available for sale, net (Note 2) (733,065) (876,647)
Treasury stock, at cost; 2,602,692 and 1,735,128 shares (29,757,157) (29,757,157)
------------------------------------------------------- -------------- --------------
Total Shareholders' Equity 120,866,374 108,728,995
------------------------------------------------------- -------------- --------------
$1,560,570,748 $1,363,120,085
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $102,844,067 $ 88,304,418 $83,584,018
Interest on short-term investment securities 30,289
Interest on investment securities 19,184,116 17,672,004 15,204,360
Interest on mortgages held for sale 352,146 275,145 215,758
- ------------------------------------------------------- ------------ ------------ -----------
Total interest income 122,380,329 106,251,567 99,034,425
- ------------------------------------------------------- ------------ ------------ -----------
Interest expense:
Interest on savings deposits 3,866,917 4,038,946 4,376,740
Interest on time accounts 35,651,668 31,960,648 28,624,637
Interest on money market deposit accounts 11,613,153 10,525,401 10,490,989
Interest on NOW accounts 804,015 799,362 762,544
Interest on borrowed funds 10,080,235 5,146,385 6,166,894
- ------------------------------------------------------- ------------ ------------ -----------
Total interest expense 62,015,988 52,470,742 50,421,804
- ------------------------------------------------------- ------------ ------------ -----------
Net interest income 60,364,341 53,780,825 48,612,621
Provision for credit losses (Note 4) 10,314,484 9,971,256 7,332,612
- ------------------------------------------------------- ------------ ------------ -----------
Net interest income after provision for credit losses 50,049,857 43,809,569 41,280,009
Gains (losses) on sale of securities 380,382 1,207,767 97,165
Gains (losses) on sale of loans (377,494) (34,454) (41,280)
Non-interest income:
Service charges on deposit accounts 2,296,081 2,014,876 1,609,229
Credit card fees 827,940 3,088,327 2,559,668
Mortgage servicing fees 1,071,077 1,020,493 927,420
Fees and commissions-brokerage services 406,581 669,789 335,655
Trust fees 709,333 595,365 550,990
Other charges, commissions, and fees 986,782 751,391 689,596
- ------------------------------------------------------- ------------ ------------ -----------
Total non-interest income 6,297,794 8,140,241 6,672,558
- ------------------------------------------------------- ------------ ------------ -----------
Non-interest expense:
Salaries, pensions, and other employee benefits 13,466,108 12,618,628 12,023,425
Building occupancy 2,654,666 2,377,978 2,302,189
Dealer commission expense 1,626,361 985,037 296,380
Computer service fees 924,679 875,975 858,628
Services 2,309,118 2,450,229 2,073,155
FDIC insurance 138,904 246,955 1,145,297
Goodwill 295,000 295,000 295,000
Interchange fees 573,069 2,165,218 1,896,288
Other real estate 892,828 387,578 1,097,340
Other expenses 5,749,806 5,642,479 5,251,404
- ------------------------------------------------------- ------------ ------------ -----------
Total non-interest expense 28,630,539 28,045,077 27,239,106
- ------------------------------------------------------- ------------ ------------ -----------
Income before income taxes 27,720,000 25,078,046 20,769,346
Provision for income taxes (Note 12) 10,733,646 9,874,419 8,175,255
- ------------------------------------------------------- ------------ ------------ -----------
NET INCOME $ 16,986,354 $ 15,203,627 $12,594,091
======================================================= ============ ============ ===========
Earnings per share (Notes 1 and 13):
Basic $2.00 $1.72 $1.32
Diluted $1.93 $1.67 $1.27
======================================================= ============ ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<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, 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 ($.43 per share) (4,061,601) (4,061,601)
Treasury stock purchased (4,793,687) (4,793,687)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 72,709 26,861,407 101,518,771 (11,848,119) 168,878 116,773,646
Net income 15,203,627 15,203,627
Unrealized depreciation in
available for sale securities, net (1,045,525) (1,045,525)
Stock options exercised (Note 14) 735 788,143 788,878
Tax benefit on stock options 174,597 174,597
Cash dividend paid on common
stock ($.59 per share) (5,257,190) (5,257,190)
Treasury stock purchased (17,909,038) (17,909,038)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 73,444 27,824,147 111,465,208 (29,757,157) (876,647) 108,728,995
Net income 16,986,354 16,986,354
Unrealized appreciation in
available for sale securities, net 143,582 143,582
Effect of three-for-two stock split 37,142 (37,142)
Stock options exercised (Note 14) 1,013 1,290,022 1,291,035
Tax benefit on stock options 138,413 138,413
Cash dividend paid on common
stock ($.76 per share) (6,422,005) (6,422,005)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $111,599 $29,215,440 $122,029,557 $(29,757,157) $ (733,065) $ 120,866,374
========================================= ======== =========== ============ ============== ============== ===============
</TABLE>
THE ACCOMPANYING STATEMENTS ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Operating activities:
Net income $ 16,986,354 $ 15,203,627 $ 12,594,091
Adjustments to reconcile net income to
net cash provided by
operating activities:
Deferred taxes (728,241) (1,768,729) (524,035)
Realized gains on available for sale investment securities (380,382) (1,207,767) (97,165)
Provision for credit losses 10,314,484 9,971,256 7,332,612
Other gains (losses), net 139,789 (61,033) (52,736)
Depreciation and amortization 1,731,211 1,406,226 1,354,022
Net amortization of premiums and discounts on investment securities (194,045) (388,306) 110,830
Net accretion of premiums and discounts on loans 318 (11,254) (612,625)
Sales of loans originated for sale 44,060,371 27,460,903 37,775,736
Net increase in loans originated for sale (50,243,273) (27,896,736) (37,366,884)
Writedowns of other real estate 960,522 416,880 719,568
Increase (decrease) in other assets and liabilities (1,423,222) (47,376) 5,750,849
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,223,886 23,077,691 26,984,263
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 14,555,814 19,094,627 500,205
Purchases of held to maturity investment securities (6,159,504) (28,365,124) (4,130,684)
Principal collected on held to maturity investment securities 2,101,289 4,250,731 2,850,586
Proceeds from sales of available for sale investment securities 179,700,006 153,216,354 80,695,355
Purchases of available for sale investment securities (214,080,858) (183,856,490) (85,602,793)
Principal collected on available for sale investment securities 29,000,314 21,711,698 20,128,503
Net increase in longer-term loans (245,960,273) (148,199,145) (108,898,828)
Proceeds from sales of loans 35,126,205 31,606,144 17,086,227
Proceeds from sales of other real estate 1,583,116 2,125,775 1,568,222
Other (1,917,566) (2,823,653) (1,203,846)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (206,051,457) (131,239,083) (77,007,053)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in demand
deposits, NOW accounts, savings
accounts, and money market deposit accounts 38,491,476 31,394,965 (12,507,836)
Net increase (decrease) in time deposits 82,964,572 80,192,156 56,192,755
Net increase (decrease) in short-term borrowings 58,247,456 23,353,234 20,150,000
Repayment of long-term borrowings (105,900) (1,800,000) (229,608)
Proceeds from exercise of stock options 1,291,035 788,878 399,393
Purchases of treasury stock (17,909,038) (4,793,687)
Dividends paid (6,422,005) (5,257,190) (4,061,601)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 174,466,634 110,763,005 55,149,416
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (10,360,937) 2,601,613 5,126,626
Cash and cash equivalents at beginning of year 46,427,178 43,825,565 38,698,939
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 36,066,241 $ 46,427,178 $ 43,825,565
========================================= ============ ============== ===============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 60,861,267 $ 52,471,389 $ 51,032,462
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 10,580,441 $ 11,663,132 $ 9,541,095
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate $ 5,329,403 $ 28,131,143 $ 23,310,562
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) in securities $ 246,398 $ (1,794,198) $ 9,808,405
========================================================= ============ ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<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 13 branches in Broome, Tioga,
Chenango, Onondaga, and Chemung Counties of New York State. BSB Bank & Trust
Company (the "Bank") is a New York-chartered stock commercial bank and trust
company. The Bank is in the business of providing a wide variety of loan and
deposit products to its commercial and consumer customers. In addition, the Bank
provides mortgage banking, trust, municipal, and other related services.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Bank and the Bank's wholly owned subsidiaries, 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 Securities
The Bank has classified its investment 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.
28
<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, 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.
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.
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. from the RTC. The
premium of $2,950,000, less accumulated amortization of $1,057,084, 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.
Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share", as of December 31, 1997.
Under the new standard, basic and diluted earnings per share are presented for
each period in which an income statement is presented. Basic earnings per share
is based on the weighted average shares actually outstanding for the period.
Diluted earnings per share reflects the dilutive effect of stock options.
Per share information for all years prescribed has been adjusted to
reflect the 3-for-2 stock split effective on September 10, 1997.
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 securities: Fair values for investment 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.
29
<PAGE>
Off-balance sheet instruments: Off-balance sheet financial instruments
consist of letters of credit, commitments to extend credit. Such instruments are
fair valued based on fees and interest rates currently charged to enter into
agreements with similar terms and credit quality.
Reclassifications
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>
1997
- ------------------------------------------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale portfolio:
U.S. Government Agencies $174,290,580 $ 700,157 $ 792,719 $174,198,018
Corporate debt securities 5,024,961 23,439 5,048,400
Municipal obligations 931,849 54,243 986,092
Mortgage-backed securities 76,810,120 527,848 1,819,890 75,518,078
Equity securities 15,320,968 49,108 180 15,369,896
- ------------------------------------------------------------------------------------------------------------------------
$272,378,478 $1,354,795 $2,612,789 $271,120,484
- ------------------------------------------------------------------------------------------------------------------------
Held to maturity portfolio:
U.S. Government Agencies $ 302,047 $ 15 $ 302,062
Corporate debt securities 726,730 112,451 $ 1 839,180
Municipal obligations 8,748,339 123,113 130,825 8,740,627
Mortgage-backed securities 4,090,855 168,472 4,259,327
- ------------------------------------------------------------------------------------------------------------------------
$ 13,867,971 $ 404,051 $ 130,826 $ 14,141,196
========================================================================================================================
1996
- ------------------------------------------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
Available for sale portfolio:
U.S. Government Agencies $ 91,013,817 $ 132,715 $1,157,625 $ 89,988,907
Corporate debt securities 1,996,978 21,353 1,975,625
Municipal obligations 965,364 21,684 645 986,403
Mortgage-backed securities 153,838,179 1,403,588 1,926,578 153,315,189
Equity securities 17,292,195 43,823 17,336,018
- ------------------------------------------------------------------------------------------------------------------------
$265,106,533 $1,601,810 $3,106,201 $263,602,142
- ------------------------------------------------------------------------------------------------------------------------
Held to maturity portfolio:
Corporate debt securities $ 596,744 $ 596,744
Municipal obligations 17,993,155 $ 507,412 $ 2,376 18,498,191
Mortgage-backed securities 5,472,475 254,258 67 5,726,666
- ------------------------------------------------------------------------------------------------------------------------
$ 24,062,374 $ 761,670 $ 2,443 $ 24,821,601
========================================================================================================================
</TABLE>
30
<PAGE>
The carrying value and market value of debt securities at December 31, 1997, 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>
- ------------------------------------------------------------------------------------------------
Carrying Market
Value Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities available for sale:
Within one year $ 4,105,942 $ 4,100,855
After one year but within five years 34,560,397 34,503,317
After five years but within ten years 119,530,844 118,468,785
After ten years 98,860,327 98,677,631
- ------------------------------------------------------------------------------------------------
$257,057,510 $255,750,588
================================================================================================
Securities held to maturity:
Within one year $ 6,008,861 $ 5,885,209
After one year but within five years 2,626,548 2,688,878
After five years but within ten years 1,505,467 1,603,003
After ten years 3,727,095 3,964,106
- ------------------------------------------------------------------------------------------------
$ 13,867,971 $ 14,141,196
================================================================================================
The gross realized gains and gross realized losses on investment securities
transactions are summarized below:
Available Held to
Year ended December 31, 1997 for sale maturity
- ------------------------------------------------------------------------------------------------
Gross gains $1,159,456 $5,900
Gross losses 784,974
- ------------------------------------------------------------------------------------------------
Net gains $ 374,482 $5,900
================================================================================================
Year ended December 31, 1996
- ------------------------------------------------------------------------------------------------
Gross gains $1,456,991
Gross losses 249,224
- ------------------------------------------------------------------------------------------------
Net gains $1,207,767
================================================================================================
Year ended December 31, 1995
- ------------------------------------------------------------------------------------------------
Gross gains $ 462,419
Gross losses 365,254
- ------------------------------------------------------------------------------------------------
Net gains $ 97,165
================================================================================================
</TABLE>
Investment securities at December 31, 1997 and 1996 include market values of
approximately $1,982,000 and $2,640,000, 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, 1997 and 1996 include approximately
$230,225,000 and $202,041,000, respectively, pledged under various agreements,
principally municipal deposits, letters of credit, lines of credit, and
municipal option put securities.
NOTE 3-LOANS
- --------------------------------------------------------------------------------
Substantially all of the Bank's loans are granted to borrowers concentrated
primarily within Broome, Tioga, Chenango, Onondaga, and Chemung Counties, and
other communities located in upstate New York.
31
<PAGE>
NOTE 4-ALLOWANCE FOR POSSIBLE CREDIT LOSSES
- --------------------------------------------------------------------------------
Changes in the allowance for possible credit losses at December 31 are presented
in the following summary:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $17,053,647 $14,065,000 $13,354,163
Recoveries credited 1,717,734 1,831,990 710,749
Provision for credit losses 10,314,484 9,971,256 7,332,612
Loans charged off 9,878,392 8,814,599 7,332,524
- -----------------------------------------------------------------------------------------------------
Balance at end of year $19,207,473 $17,053,647 $14,065,000
=====================================================================================================
</TABLE>
At December 31, 1997 and 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled
$12,045,259 and $8,548,653, respectively. A valuation allowance aggregating
$4,302,507 and $3,229,314 was recorded against impaired loans at December 31,
1997 and 1996, respectively. The average recorded investment in impaired loans
was approximately $8,879,435 in 1997 and $8,837,230 in 1996. The Bank
recognized, on a cash basis, $272,374 and $146,403 of interest on impaired loans
during 1997 and 1996, respectively (during the portion of the year they were
impaired).
NOTE 5-LOAN SERVICING
- -------------------------------------------------------------------------------
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others was $392,019,810 and $351,295,935 at December
31, 1997 and 1996, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $5,126,360 and
$4,399,417 at December 31, 1997 and 1996, respectively.
Mortgage servicing rights capitalized and amortization recognized on those
rights was not significant.
NOTE 6-LOANS TO RELATED PARTIES
- -------------------------------------------------------------------------------
At December 31, 1997, loans to directors and officers or to entities (or other
shareholders of such entities) which owned or controlled 10% or more of the
Company's voting stock were $10,344,071. During 1997, new loans to such related
parties amounted to $5,378,229 and repayments amounted to $12,276,429.
NOTE 7-BANK PREMISES AND EQUIPMENT
- -------------------------------------------------------------------------------
A summary of bank premises and equipment at December 31 is shown as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,166,327 $ 1,166,327
Banking premises 11,133,105 10,014,417
Furniture and equipment 10,899,341 10,182,162
- -------------------------------------------------------------------------------------
23,198,773 21,362,906
Less: Accumulated depreciation 13,698,736 12,356,430
- -------------------------------------------------------------------------------------
$ 9,500,037 $ 9,006,476
=====================================================================================
</TABLE>
32
<PAGE>
NOTE 8-DUE TO DEPOSITORS
- -------------------------------------------------------------------------------
A summary of amounts due to depositors at December 31 is shown as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Savings accounts $ 135,047,208 $ 135,654,826
Money market deposit accounts 263,344,699 249,321,647
Certificates of deposit 697,707,822 614,743,002
NOW accounts 67,249,777 61,325,457
Non-interest bearing deposit accounts 76,158,846 57,007,369
- -------------------------------------------------------------------------------------------
$1,239,508,352 $1,118,052,301
===========================================================================================
</TABLE>
Time deposits with balances in excess of $100,000 amounted to approximately
$168,161,000 and $184,088,000 at December 31, 1997 and 1996, respectively. The
approximate maturity of time deposits follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------
Year of Maturity Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $487,555,677 69.9% $441,194,874 71.8%
2 149,085,074 21.3 87,975,176 14.3
3 47,836,197 6.9 60,183,608 9.8
4 7,789,886 1.1 18,691,645 3.0
5 and over 5,440,988 0.8 6,697,699 1.1
- ---------------------------------------------------------------------------------------------------------------
$697,707,822 100.0% $614,743,002 100.0%
================================================================================================================
</TABLE>
NOTE 9-BORROWINGS
- -------------------------------------------------------------------------------
The following is a summary of borrowings at December 31:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings:
Municipal option put securities $ 1,892,828 $ 1,998,728
Federal Home Loan Bank advances 153,000,000 113,000,000
Securities sold under repurchase agreements 23,750,690 5,503,234
- -------------------------------------------------------------------------------------------
$178,643,518 $120,501,962
===========================================================================================
</TABLE>
Information related to short-term borrowings at December 31 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding balance at end of year $178,643,518 $120,501,962 $ 98,948,728
Average interest rate 6.13% 6.44% 5.88%
Maximum outstanding at any month end $225,971,919 $127,656,192 $126,098,081
Average amount outstanding during year $177,391,880 $ 91,604,941 $103,520,474
Average interest rate during year 5.68% 5.62% 5.91%
============================================================================================================
</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 $7,925,000, and $6,094,000 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, the Bank had available a line of credit with the
Federal Home Loan Bank of New York subject to the amount of available
collateral, of which $153,000,000 is outstanding as of December 31, 1997. 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. The Bank also had available a
$15,000,000 unsecured line of credit with Corestates Bank, which requires daily
repayment.
33
<PAGE>
Securities sold under repurchase agreements represent the purchase of
interests in government securities by commercial checking customers which are
repurchased by the Bank on the following business day. The government securities
continue to be held by the Bank and the purchaser is precluded from engaging in
repurchase transactions or otherwise pledging or hypothecating these securities.
NOTE 10-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, 1997, 1996,
and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the year $ 557,928 $ 576,260 $ 493,306
Interest cost on projected benefit obligations 1,100,237 1,021,787 963,427
Actual return on plan assets (3,532,897) (1,980,796) (2,429,552)
Net amortization and deferral 2,009,444 709,533 1,221,199
- ----------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 134,712 $ 326,784 $ 248,380
==========================================================================================================
</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, 1997 and 1996 (date of the most recent
actuarial studies):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------------
Plan assets at fair value $19,126,716 $15,990,200
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits 13,071,802 11,129,652
Nonvested benefits 204,981 793,300
- --------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 13,276,783 11,922,952
Effect of future salary increases 3,557,958 2,576,400
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation 16,834,741 14,499,352
- --------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 2,291,975 1,490,848
Unrecognized net loss (1,094,452) (253,260)
Unrecognized past service liability (92,029) (193,500)
Unrecognized asset at date of adoption being recognized over 12 years (171,543) (338,100)
- --------------------------------------------------------------------------------------------------------------
Prepaid pension cost reflected in statements of condition $ 933,951 $ 705,988
==============================================================================================================
</TABLE>
The actuarial present value of the projected benefit obligation shown in the
above table is based on a discount rate of 7.25% and 7.75% for 1997 and 1996,
and an assumed rate of increase in future compensation levels of 5.00% and 5.50%
for 1997 and 1996, respectively. The expected long-term rate of return on assets
was 8.75% for 1997 and 1996.
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 to the plan
amounted to $215,350 in 1997, $197,593 in 1996, and $201,526 in 1995.
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, 1997, 1996,
and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the year $107,198 $114,013 $107,725
Interest cost on benefit obligations 231,915 292,213 351,650
Net amortization and deferral 97,329 173,200 173,200
- -------------------------------------------------------------------------------------------------------
$436,442 $579,426 $632,575
=======================================================================================================
</TABLE>
34
<PAGE>
The following sets forth a reconciliation of the plan's status at October 1,
1997 and 1996 (date of most recent actuarial studies):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $(1,665,058) $(2,234,600)
Fully eligible active plan participants (851,999) (584,600)
Other active plan participants (953,566) (1,160,600)
- ----------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (3,470,623) (3,979,800)
Plan assets at fair value
Unrecognized transition obligation being
recognized over 20 years 2,597,800 2,771,000
Unrecognized net loss (1,085,021) (435,800)
- ----------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation
included in other liabilities $(1,957,844) $(1,644,600)
==============================================================================================
</TABLE>
Medical costs were assumed to increase 7.5% in 1998 grading to 5.0% 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 7.25%
and 7.75% for 1997 and 1996, respectively. Increasing the assumed medical cost
trend rate by 1.0% would increase the accumulated postretirement benefit
obligation at October 1, 1997 by $76,592 and would not have a material effect on
service cost.
NOTE 11-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:
1997 1996
- -----------------------------------------------------------------
Commitments to extend credit $337,938,453 $303,146,996
Letters of credit 18,460,310 16,895,054
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. Most of these
guarantees extend for periods ranging from three months to five years. 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 drown upon, the total
commitment amounts do not necessarily represent future cash requirements.
35
<PAGE>
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 $23,925,000 as of December 31, 1997.
As required by certain letters of credit agreements, the Bank has pledged
as collateral, mortgage-backed securities having a market value of approximately
$13,598,000 at December 31, 1997. The Bank has previously accrued $2,570,000,
included in other liabilities, for the credit risk associated with a certain
off-balance sheet letter of credit.
The Bank rents facilities under leases expiring at various dates through
2016. Rent expense totaled approximately $388,000 in 1997, $423,000 in 1996, and
$382,000 in 1995.
Approximate minimum rental commitments under existing noncancelable leases with
remaining terms of one year or more are presented below:
Years ending December 31,
- ---------------------------------------------------------------
1998 $ 377,486
1999 368,819
2000 348,203
2001 317,364
2002 236,389
Later years 1,185,154
- ---------------------------------------------------------------
Total minimum lease payment $2,833,415
===============================================================
NOTE 12-INCOME TAXES
- -------------------------------------------------------------------------------
The Company provides for income taxes in accordance with 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.
The provision (benefit) for income taxes consists of the following:
1997 1996 1995
- ----------------------------------------------------------------------------
Current $11,461,887 $11,643,148 $8,699,290
Deferred (benefit) (728,241) (1,768,729) (524,035)
- ----------------------------------------------------------------------------
$10,733,646 $ 9,874,419 $8,175,255
============================================================================
36
<PAGE>
The components of deferred income taxes at December 31, which are included in
other assets are:
1997 1996
- -------------------------------------------------------------------------------
Assets:
Investments $ 524,929 $ 594,534
Allowance for possible credit losses 9,072,692 6,925,565
Deferred loan fees 24,103 231,896
Postretirement benefits 822,294 671,819
Non-accrual interest 288,889 378,542
Contingent liabilities 191,498 1,019,208
Other 430,139 522,054
- -------------------------------------------------------------------------------
11,354,544 10,343,618
- -------------------------------------------------------------------------------
Liabilities:
Depreciation 613,336 523,104
Pension benefits 392,259 288,396
Investments 220,896
Mortgage servicing rights 113,246 70,045
Leases 78,030 187,361
- -------------------------------------------------------------------------------
1,417,767 1,068,906
- -------------------------------------------------------------------------------
Net deferred tax asset $ 9,936,777 $ 9,274,712
===============================================================================
A reconciliation between the federal statutory income tax rate and the effective
income tax rate at December 31 follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Federal statutory income tax rate 35.0 % 35.0 % 35.0 %
Tax-exempt interest income (1.3) (1.1) (1.0)
Dividends received deduction (0.1) (0.2) (0.3)
Other (0.3) (0.2) (0.6)
- -------------------------------------------------------------------------------
Effective federal income tax rate 33.3 % 33.5 % 33.1 %
===============================================================================
NOTE 13-EARNINGS PER SHARE
- -------------------------------------------------------------------------------
Basic earnings per share is computed based on the weighted average shares
outstanding. Diluted earnings per share is computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options during the year. The following is a reconciliation of
basic earnings per share to diluted earnings per share for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Net Weighted Earnings
Income Average Shares Per Share
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995: Basic earnings per share $12,594,091 9,540,996 $1.32
Effect of stock options 386,508
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share $12,594,091 9,927,504 $1.27
=========================================================================================================
1996: Basic earnings per share $15,203,627 8,864,201 $1.72
Effect of stock options 224,667
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share $15,203,627 9,088,868 $1.67
=========================================================================================================
1997: Basic earnings per share $16,986,354 8,509,089 $2.00
Effect of stock options 286,983
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share $16,986,354 8,796,072 $1.93
=========================================================================================================
</TABLE>
37
<PAGE>
NOTE 14-OPTIONS AND SHAREHOLDER RIGHTS
- -------------------------------------------------------------------------------
The Company has 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. The Plan, as approved by shareholders at the 1996
Annual Meeting of Shareholders, provides for options to purchase a total of
450,000 shares of authorized common stock, of which options to purchase 234,349
shares have been granted as of December 31, 1997. At December 31, 1997, there
were 215,651 options to purchase shares available for future grant under the
Plan. Four kinds of rights are contained in the Incentive Plan and are 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. Options under this Plan have a 10 year term, and vest
and become exercisable at 25% per year at the end of each of the first four
years following the grant date. A similar incentive plan expired in September of
1995, with no further options available for grant.
The Directors' Stock Option Plan (the "Directors' Plan"), as approved by
shareholders at the 1994 Annual Meeting of Shareholders, provides for options to
purchase 393,750 shares of authorized but unissued common stock by incumbent and
future non-employee directors of the Company; 162,000 options to purchase shares
have been granted as of December 31, 1997. At December 31, 1997, 231,750 options
to purchase shares are available for future grant under the Directors' Plan. All
options granted under the Directors' Plan are intended to be non-qualified
options. Vesting occurs on the grant date, and options may be exercised six
months after the grant date. Options terminate on the expiration date of the
Directors' Plan in 2004. Under the Directors' Plan, to the extent options 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 to
purchase 6,750 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 2,250
shares of common stock.
Activity in the Plans during 1997, 1996, and 1995 was as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share Aggregate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
1996: Options forfeited (750) 25.75 (19,312)
Options exercised (73,502) 3.89-18.50 (788,878)
Options granted 85,500 22.63-25.75 2,149,805
- ---------------------------------------------------------------------------------------------------------------
Outstanding options at December 31, 1996 368,312 3.89-25.75 5,946,805
1997: Effect of three-for-two stock split 184,130
Options forfeited (750) 18.83 (14,123)
Options exercised (143,284) 4.52-18.83 (1,291,035)
Options granted 156,750 18.67-18.83 2,947,740
- ---------------------------------------------------------------------------------------------------------------
Outstanding options at December 31, 1997 565,158 $4.52-$18.83 $ 7,589,387
===============================================================================================================
</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.
38
<PAGE>
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-STOCK-BASED COMPENSATION
- -------------------------------------------------------------------------------
The Company has two stock-based compensation plans, as described in Note 14. The
Company has elected to follow APB Opinion No. 25 and related interpretations in
accounting for stock options granted under these plans. Under APB No. 25,
because the exercise price of the Company's stock options approximates the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Had compensation cost for these plans been determined
based on the fair value at the grant dates for awards under those plans, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1997 1996 1995
- ------------------------------------------------------------------------------
Net Income:
As reported $16,986,354 $15,203,627 $12,594,091
Pro forma 16,689,614 15,054,549 12,478,223
Earnings Per Share:
As reported:
Basic $2.00 $1.72 $1.32
Diluted 1.93 1.67 1.27
Pro forma:
Basic $1.96 $1.70 $1.31
Diluted 1.90 1.66 1.26
The weighted average fair value of options granted during 1997,1996, and 1995
was $7.51, $6.09, and $7.02, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996, and 1995, respectively: dividend
yield of 3.14% for 1997 and 3.25% for both 1996 and 1995; expected volatility of
25.1% for 1997 and 19.2% for both 1996 and 1995; risk-free interest rates of
6.5% for 1997, and ranging from 5.5% to 6.8% in 1996 and 6.2% to 7.8% in 1995;
and expected lives of 7.4 years in 1997 and 7.2 years for both 1996 and 1995.
Options exercisable under the plans at December 31, 1997, 1996, and 1995
amounted to 328,836, 399,327, and 408,048, respectively. The weighted average
exercise price of options exercisable at December 31, 1997, 1996, and 1995 were
$10.77, $9.09, and $7.64, respectively.
The following table summarizes information about options outstanding at December
31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.52 to $ 5.19 67,498 1.8 $ 4.76 67,498 $ 4.76
$ 9.33 to $12.89 227,664 6.3 $10.77 187,558 $10.67
$13.78 to $18.83 269,996 8.8 $17.86 73,780 $16.68
- --------------------------------------------------------------------------------------------------------------------------
565,158 328,836
==========================================================================================================================
</TABLE>
39
<PAGE>
NOTE 16-SELECTED QUARTERLY FINANCIAL DATA
- -------------------------------------------------------------------------------
Summarized quarterly financial information (in thousands of dollars) for the
years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
- --------------------------------------------------------------------------------- ----------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97 3/31/96 6/30/96 9/30/96 12/31/96
- --------------------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $28,691 $30,002 $31,082 $32,605 $25,268 $26,054 $26,864 $28,065
Total interest expense 14,369 15,248 15,859 16,539 12,682 12,746 13,326 13,715
- --------------------------------------------------------------------------------- ----------------------------------------------
Net interest income 14,322 14,754 15,223 16,066 12,586 13,308 13,538 14,350
Provision for credit losses 2,460 2,354 2,538 2,963 2,073 2,605 3,048 2,245
- --------------------------------------------------------------------------------- ----------------------------------------------
Net interest income after
provision for credit losses 11,862 12,400 12,685 13,103 10,513 10,703 10,490 12,105
Gains (losses) on sale of securities (4) (14) 126 273 35 314 951 (92)
Gains (losses) on sale of loans (1) (89) (94) (194) 156 (231) 20 20
Non-interest income 1,378 1,625 1,528 1,767 1,934 2,260 2,220 1,726
Operating expenses 6,617 7,222 7,162 7,630 6,702 7,208 7,246 6,889
- --------------------------------------------------------------------------------- ----------------------------------------------
Income before income taxes 6,618 6,700 7,083 7,319 5,936 5,838 6,435 6,870
Income taxes 2,609 2,582 2,705 2,838 2,363 2,229 2,585 2,698
- --------------------------------------------------------------------------------- ----------------------------------------------
Net income $ 4,009 $ 4,118 $ 4,378 $ 4,481 $ 3,573 $ 3,609 $ 3,850 $ 4,172
================================================================================ ===============================================
Earnings per share:
Basic $ 0.47 $ 0.48 $ 0.51 $ 0.52 $ 0.38 $ 0.40 $ 0.45 $ 0.50
================================================================================= ===============================================
Diluted $ 0.46 $ 0.47 $ 0.50 $ 0.50 $ 0.37 $ 0.39 $ 0.44 $ 0.48
================================================================================= ===============================================
</TABLE>
NOTE 17-FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
SFAS No. 107 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 certain 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>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 36,066 $ 36,066 $ 46,427 $ 46,427
Investment securities 205,380 205,485 128,877 129,409
Mortgage-backed securities 79,609 79,777 158,788 159,004
Loans 1,205,797 1,204,599 1,008,540 1,014,807
Allowance for possible credit losses (19,207) (17,054)
- -------------------------------------------------------------------------------------------------------------------
Net loans 1,186,590 1,204,599 991,486 1,014,807
Other financial assets 7,459 7,459 1,567 1,567
- -------------------------------------------------------------------------------------------------------------------
Total financial assets $ 1,515,104 $ 1,533,386 $ 1,327,145 $ 1,351,214
===================================================================================================================
Financial liabilities:
Deposits $ 1,239,508 $ 1,242,653 $ 1,118,052 $ 1,119,759
Borrowings 178,644 177,870 120,502 118,531
- -------------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 1,418,152 $ 1,420,523 $ 1,238,554 $ 1,238,290
===================================================================================================================
</TABLE>
40
<PAGE>
NOTE 18-REGULATORY MATTERS
- -------------------------------------------------------------------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes:
Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total capital/to risk-weighted assets $134,854 10.44% greater than or equal to $103,380 greater than or equal to 8.0%
Tier I capital/to risk-weighted assets $118,663 9.18% greater than or equal to $ 51,690 greater than or equal to 4.0%
Tier I capital/to average assets $118,663 7.79% greater than or equal to $ 45,690 greater than or equal to 3.0%
As of December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital/to risk-weighted assets $120,482 11.22% greater than or equal to $ 85,871 greater than or equal to 8.0%
Tier I capital/to risk-weighted assets $107,020 9.97% greater than or equal to $ 42,935 greater than or equal to 4.0%
Tier I capital/to average assets $107,020 8.06% greater than or equal to $ 39,827 greater than or equal to 3.0%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions:
Amount Ratio
- ------------------------------------------------------------------------------------------------------------------
As of December 31, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total capital/to risk-weighted assets greater than or equal to $ 129,225 greater than or equal to 10.0%
Tier I capital/to risk-weighted assets greater than or equal to $ 77,535 greater than or equal to 6.0%
Tier I capital/to average assets greater than or equal to $ 76,150 greater than or equal to 5.0%
As of December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
Total capital/to risk-weighted assets greater than or equal to $ 107,338 greater than or equal to 10.0%
Tier I capital/to risk-weighted assets greater than or equal to $ 64,403 greater than or equal to 6.0%
Tier I capital/to average assets greater than or equal to $ 66,379 greater than or equal to 5.0%
</TABLE>
41
<PAGE>
<TABLE>
NOTE 19-FINANCIAL INFORMATION-PARENT COMPANY
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CONDITION
<CAPTION>
December 31,
1997 1996
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 1,030,904 $ 411,242
Investment in Bank, at equity 119,823,282 108,331,403
Other assets 12,188 40,850
------------------------------------------------------------------------------------------------------------
$ 120,866,374 $ 108,783,495
============================================================================================================
LIABILITIES AND Other liabilities $ 54,500
SHAREHOLDERS' Shareholders' Equity:
EQUITY Preferred stock, par value $.01 per share; 2,500,000 shares authorized;
none issued
Common stock, par value $.01 per share; 30,000,000 shares authorized;
11,159,924 shares and 7,344,427 shares issued $ 111,599 73,444
Additional paid-in capital 29,215,440 27,824,147
Undivided profits 122,029,557 111,465,208
Unrealized depreciation in securities available for sale, net (733,065) (876,647)
Treasury stock at cost; 2,602,692 and 1,735,128 shares (29,757,157) (29,757,157)
------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 120,866,374 108,728,995
------------------------------------------------------------------------------------------------------------
$ 120,866,374 $ 108,783,495
============================================================================================================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME Dividends from Bank $ 6,422,005 $23,166,228 $ 8,855,288
Equity in undistributed net income of Bank,
net of dividends 11,209,884 (7,364,645) 4,208,871
------------------------------------------------------------------------------------------------------------
Total income 17,631,889 15,801,583 13,064,159
-----------------------------------------------------------------------------------------------------------
EXPENSES Total expense 645,535 597,956 470,068
------------------------------------------------------------------------------------------------------------
NET INCOME $16,986,354 $15,203,627 $12,594,091
============================================================================================================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Net income $16,986,354 $15,203,627 $12,594,091
ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of Bank,
net of dividends (11,209,884) 7,364,645 (4,208,871)
(Increase) decrease in other assets 28,662 (40,852)
Increase (decrease) in other payables (54,500) 54,500
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,750,632 22,581,920 8,385,220
------------------------------------------------------------------------------------------------------------
FINANCING Dividends paid to shareholders (6,422,005) (5,257,190) (4,061,601)
ACTIVITIES Purchases of treasury stock (17,909,038) (4,793,687)
Investment in subsidiary (1,000)
Proceeds from exercise of stock options 1,291,035 788,878 399,393
------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (5,130,970) (22,377,350) (8,456,895)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 619,662 204,570 (71,675)
Cash and cash equivalents at beginning of year 411,242 206,672 278,347
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,030,904 $ 411,242 $ 206,672
============================================================================================================
</TABLE>
42
<PAGE>
BSB Bank & Trust (Subsidiary of BSB Bancorp, Inc.) Officers
Executive
- ---------
Alex S. DePersis, President and Chief Executive Officer
Larry G. Denniston, Senior Vice President and Corporate Secretary
Cynthia A. Hicks, Assistant Corporate Secretary
Banking Operations
- ------------------
Arthur C. Smith, Executive Vice President-Retail Banking Officer
Branch Administration
Michael V. Radicchi, Administrative Vice President-Branch Administrator
Jacqueline L. Michalek, Assistant Vice President and Assistant Branch
Administrator
James A. Berry, Assistant Vice President-Regional Business Development Officer
Margaret J. Murray, Assistant Vice President-Regional Business
Development Officer
Elizabeth I. Donahue, Senior Branch Officer
Lori A. Micha, Senior Branch Officer
Marian M. Avery-Tierno, Branch Officer
Patricia A. Blair, Branch Officer
Jeanine M. Cianciosi, Branch Officer
Wendy K. McBride, Branch Officer
Denise G. Mughetti, Branch Officer
Lucille E. Roberts, Branch Officer
Dana L. Lutsic, Assistant Vice President-Banking Services Development Officer
Bank Operations
Julia G. Kamishlian, Vice President-Banking Support Services
Thomas J. Lamphere, Assistant Vice President-Risk Management
James H. DiMascio, Assistant Vice President-Facilities and Services
Glenn H. Cashel, Records and Research Officer
Janet L. McHenry, Special Services Officer
Systems
Matthew W. Schaefer, Vice President
Paul F. Santodonato, Technology Officer
Joyce E. Burke, Systems Officer
Accounting
- ----------
Edward R. Andrejko, Senior Vice President and Chief Financial Officer
Rexford C. Decker, Administrative Vice President and Controller
Donald R. Schmitt, Assistant Vice President-Assistant Controller
Kevin P. Harty, Assistant Vice President-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
Lending Operations
- ------------------
Glenn R. Small, Executive Vice President-Senior Credit Officer
43
<PAGE>
Commercial Lending
John B. Westcott, Administrative Vice President
Edward P. Bahrenburg, Vice President
Marvin F. Mastrangelo, Vice President
F. Mathew Zlomek, Vice President-Regional Loan Officer
Susan A. Burtis, Vice President
Edward P. Michalek, Vice President
Kevin P. O'Hara, Vice President
Kenneth J. Scott, Vice President
Ann Marie F. Smith, Assistant Vice President-Commercial Credit
Melody A. Gardner, Assistant Vice President-Commercial Loan Operations
Carl J. Speicher, Commercial Loan Officer
Commercial Real Estate
Gary K. Hart, Administrative Vice President
William B. Meredith, Vice President
Consumer Lending
William T. Slote, Vice President
M. Peter Brady, Assistant Vice President-Adjustments/Recovery
James W. Rowlands, Adjustments/Recovery Officer
Joseph Diorio, Assistant Vice President-Business Development
Joseph D. Dempsey, Assistant Vice President-Consumer Credit
Arthur L. Dunning, Assistant Vice President-Credit Card Officer
Karen L. Thurber, Assistant Vice President-Consumer Loans Operations
Louis M. Petrilli, Business Development Officer
Residential Mortgage Lending
Gary T. Drabo, Vice President
Christopher B. Loughridge, Assistant Vice President-Secondary Marketing
Allen E. Fuller, Assistant Vice President-Mortgage Servicing
John J. Saraceno, Assistant Vice President-Business Development
Robert L. Anderson, Jr., Assistant Vice President-Mortgage Processing
Investments
- -----------
Fielding Simmons III, Senior Vice President and Treasurer
Lawrence M. Harris, Assistant Vice President-Municipal Development Officer
Auditing
- --------
Bruce R. Hayes, Administrative Vice President and Auditor
Penne M. Gaeta, Assistant Vice President-Assistant Auditor
Human Resources
- ---------------
Patricia A. Phelps, Administrative Vice President
Roy W. Brock, Assistant Vice President
Patrick M. Gleason, Training Officer
Loan Review
- -----------
Phyllis K. Gilroy, Vice President
Marketing
- ---------
Stephanie Garrison, Vice President - Marketing Director
44
<PAGE>
Shareholder Information
<TABLE>
<S> <C> <C>
Corporate Headquarters: charge upon written request to Larry G. Auditors:
BSB Bancorp, Inc. Denniston, Senior Vice President and Coopers & Lybrand L.L.P.
58-68 Exchange Street Corporate Secretary, Shareholder Rela- One Lincoln Center
Binghamton, New York 13902 tions Department, BSB Bancorp, Inc., Syracuse, New York 13202
58-68 Exchange Street, Binghamton,
New York 13902.
Mailing Address: General Counsel:
P.O. Box 1056 Hinman, Howard & Kattell, L.L.P.
Binghamton, New York 13902 Registrar and Transfer Agent: Security Mutual Building
American Stock Transfer and Trust Binghamton, New York 13901
Annual Meeting: Company
The Annual Meeting of Shareholders of 40 Wall Street--46th Floor
BSB Bancorp, Inc. will be held at 10:00 New York, New York 10005 Special Counsel:
A.M. on April 27, 1998, in the Sears Hogan & Hartson L.L.P.
Harkness Hall at the Roberson Museum Columbia Square
& Science Center, 30 Front Street, Stock Listing: 555 13th Street, N.W.
Binghamton, New York BSB Bancorp, Inc. common stock is Washington, D.C. 20004
traded over the counter and is listed on
The Nasdaq Stock Market under the Shareholder Relations Department:
symbol BSBN. High, Low, and closing BSB Bancorp, Inc.
Form 10-K Annual Report: prices and daily trading volume are 58-68 Exchange Street
A copy of BSB Bancorp, Inc. Form 10-K reported in most major newspapers as Binghamton, New York 13902
Annual Report may be obtained without "BSB Bcp." (607) 779-2406
</TABLE>
45
<PAGE>
EXHIBIT 21
BSB Bank & Trust Company
<PAGE>
Exhibit 23
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. 339-2138) of our report dated
January 23, 1998, on our audits of the consolidated financial statements of
BSB Bancorp, Inc. as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996, 1995, which report is included in the Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Syracuse, N.Y.
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,066
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 271,120
<INVESTMENTS-CARRYING> 13,868
<INVESTMENTS-MARKET> 285,262
<LOANS> 1,213,256
<ALLOWANCE> 19,207
<TOTAL-ASSETS> 1,560,571
<DEPOSITS> 1,239,508
<SHORT-TERM> 178,644
<LIABILITIES-OTHER> 21,553
<LONG-TERM> 0
0
0
<COMMON> 112
<OTHER-SE> 120,755
<TOTAL-LIABILITIES-AND-EQUITY> 1,560,571
<INTEREST-LOAN> 103,196
<INTEREST-INVEST> 19,184
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 122,380
<INTEREST-DEPOSIT> 51,936
<INTEREST-EXPENSE> 10,080
<INTEREST-INCOME-NET> 60,364
<LOAN-LOSSES> 10,314
<SECURITIES-GAINS> 380
<EXPENSE-OTHER> 28,631
<INCOME-PRETAX> 27,720
<INCOME-PRE-EXTRAORDINARY> 27,720
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,986
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 8.90
<LOANS-NON> 12,672
<LOANS-PAST> 304
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,054
<CHARGE-OFFS> 9,878
<RECOVERIES> 1,717
<ALLOWANCE-CLOSE> 19,207
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46,427
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 263,602
<INVESTMENTS-CARRYING> 24,062
<INVESTMENTS-MARKET> 288,424
<LOANS> 1,010,107
<ALLOWANCE> 17,054
<TOTAL-ASSETS> 1,363,120
<DEPOSITS> 1,118,052
<SHORT-TERM> 120,502
<LIABILITIES-OTHER> 15,837
<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 108,656
<TOTAL-LIABILITIES-AND-EQUITY> 1,363,120
<INTEREST-LOAN> 88,580
<INTEREST-INVEST> 17,672
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 106,252
<INTEREST-DEPOSIT> 47,324
<INTEREST-EXPENSE> 5,146
<INTEREST-INCOME-NET> 53,782
<LOAN-LOSSES> 9,971
<SECURITIES-GAINS> 1,208
<EXPENSE-OTHER> 28,045
<INCOME-PRETAX> 25,079
<INCOME-PRE-EXTRAORDINARY> 25,079
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,204
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 8.80
<LOANS-NON> 11,981
<LOANS-PAST> 236
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,065
<CHARGE-OFFS> 8,815
<RECOVERIES> 1,832
<ALLOWANCE-CLOSE> 17,054
<ALLOWANCE-DOMESTIC> 17,054
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 31,178
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 257,463
<INVESTMENTS-CARRYING> 25,125
<INVESTMENTS-MARKET> 25,801
<LOANS> 1,076,272
<ALLOWANCE> 17,556
<TOTAL-ASSETS> 1,413,796
<DEPOSITS> 1,119,656
<SHORT-TERM> 165,695
<LIABILITIES-OTHER> 17,798
<LONG-TERM> 0
0
0
<COMMON> 74
<OTHER-SE> 110,573
<TOTAL-LIABILITIES-AND-EQUITY> 1,413,796
<INTEREST-LOAN> 23,633
<INTEREST-INVEST> 5,058
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 28,691
<INTEREST-DEPOSIT> 12,238
<INTEREST-EXPENSE> 14,369
<INTEREST-INCOME-NET> 14,322
<LOAN-LOSSES> 2,460
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 6,617
<INCOME-PRETAX> 6,618
<INCOME-PRE-EXTRAORDINARY> 6,618
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,009
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 8.73
<LOANS-NON> 11,821
<LOANS-PAST> 93
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,054
<CHARGE-OFFS> 2,228
<RECOVERIES> 270
<ALLOWANCE-CLOSE> 17,556
<ALLOWANCE-DOMESTIC> 17,556
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 35,421
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 226,602
<INVESTMENTS-CARRYING> 27,914
<INVESTMENTS-MARKET> 28,606
<LOANS> 938,750
<ALLOWANCE> 17,207
<TOTAL-ASSETS> 1,246,968
<DEPOSITS> 1,033,974
<SHORT-TERM> 81,299
<LIABILITIES-OTHER> 16,910
<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 114,712
<TOTAL-LIABILITIES-AND-EQUITY> 1,246,968
<INTEREST-LOAN> 21,014
<INTEREST-INVEST> 4,254
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 25,268
<INTEREST-DEPOSIT> 11,390
<INTEREST-EXPENSE> 12,682
<INTEREST-INCOME-NET> 12,586
<LOAN-LOSSES> 2,073
<SECURITIES-GAINS> 35
<EXPENSE-OTHER> 6,702
<INCOME-PRETAX> 5,936
<INCOME-PRE-EXTRAORDINARY> 5,936
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,573
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 8.69
<LOANS-NON> 13,344
<LOANS-PAST> 214
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<ALLOWANCE-OPEN> 16,560
<CHARGE-OFFS> 1,797
<RECOVERIES> 371
<ALLOWANCE-CLOSE> 17,207
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<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
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0
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<SECURITIES-GAINS> (18)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
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<RESTATED>
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<S> <C>
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<PERIOD-END> JUN-30-1996
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<INVESTMENTS-HELD-FOR-SALE> 218,660
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<LOANS> 979,513
<ALLOWANCE> 17,520
<TOTAL-ASSETS> 1,278,940
<DEPOSITS> 1,049,939
<SHORT-TERM> 106,889
<LIABILITIES-OTHER> 10,524
<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 111,515
<TOTAL-LIABILITIES-AND-EQUITY> 1,278,940
<INTEREST-LOAN> 42,880
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<INTEREST-OTHER> 0
<INTEREST-TOTAL> 51,322
<INTEREST-DEPOSIT> 23,093
<INTEREST-EXPENSE> 25,429
<INTEREST-INCOME-NET> 25,893
<LOAN-LOSSES> 4,678
<SECURITIES-GAINS> 348
<EXPENSE-OTHER> 13,909
<INCOME-PRETAX> 11,773
<INCOME-PRE-EXTRAORDINARY> 11,773
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,182
<EPS-PRIMARY> .78
<EPS-DILUTED> .76
<YIELD-ACTUAL> 8.73
<LOANS-NON> 10,069
<LOANS-PAST> 160
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,560
<CHARGE-OFFS> 4,279
<RECOVERIES> 561
<ALLOWANCE-CLOSE> 17,520
<ALLOWANCE-DOMESTIC> 17,520
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</TABLE>
<TABLE> <S> <C>
<PAGE>
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<RESTATED>
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<S> <C>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<INVESTMENTS-HELD-FOR-SALE> 262,828
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<DEPOSITS> 1,118,137
<SHORT-TERM> 225,972
<LIABILITIES-OTHER> 21,822
<LONG-TERM> 0
0
0
<COMMON> 111
<OTHER-SE> 118,360
<TOTAL-LIABILITIES-AND-EQUITY> 1,484,402
<INTEREST-LOAN> 75,342
<INTEREST-INVEST> 14,433
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 89,775
<INTEREST-DEPOSIT> 38,080
<INTEREST-EXPENSE> 7,397
<INTEREST-INCOME-NET> 44,298
<LOAN-LOSSES> 7,351
<SECURITIES-GAINS> 107
<EXPENSE-OTHER> 21,001
<INCOME-PRETAX> 20,401
<INCOME-PRE-EXTRAORDINARY> 20,401
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,506
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 8.83
<LOANS-NON> 9,929
<LOANS-PAST> 129
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<ALLOWANCE-OPEN> 17,054
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</TABLE>
<TABLE> <S> <C>
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<RESTATED>
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<S> <C>
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<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 32,741
<INT-BEARING-DEPOSITS> 0
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<INVESTMENTS-HELD-FOR-SALE> 224,729
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<DEPOSITS> 1,100,266
<SHORT-TERM> 81,999
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<LONG-TERM> 0
0
0
<COMMON> 73
<OTHER-SE> 104,833
<TOTAL-LIABILITIES-AND-EQUITY> 1,306,330
<INTEREST-LOAN> 65,449
<INTEREST-INVEST> 12,738
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 78,187
<INTEREST-DEPOSIT> 35,226
<INTEREST-EXPENSE> 38,755
<INTEREST-INCOME-NET> 39,432
<LOAN-LOSSES> 7,726
<SECURITIES-GAINS> 1,300
<EXPENSE-OTHER> 21,156
<INCOME-PRETAX> 18,209
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,032
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 8.74
<LOANS-NON> 14,286
<LOANS-PAST> 204
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,065
<CHARGE-OFFS> 6,463
<RECOVERIES> 838
<ALLOWANCE-CLOSE> 16,160
<ALLOWANCE-DOMESTIC> 16,160
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
