<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
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: O-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 Number)
incorporation or organization)
58-68 Exchange Street, Binghamton, New York 13901
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 779-2492
--------------
n/a
-------------------------------------
Former name, former address and former fiscal year, if changed since last report
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: [X] No: [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of August 2, 1999:
10,135,661 shares of common stock, $0.01 par value.
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1: Financial Statements
------
Consolidated Statements of Condition
June 30, 1999 and December 31, 1998........................................ 1
Consolidated Statements of Income Three Months and Six Months
Ended June 30, 1999 and June 30, 1998...................................... 2
Consolidated Statements of Comprehensive Income Three and Six Months
Months Ended June 30, 1999 and June 30, 1998............................... 3
Consolidated Statements of Cash Flows Six Months
Ended June 30, 1999 and June 30, 1998...................................... 4
Consolidated Statements of Changes in Shareholders' Equity Six
Months Ended June 30, 1998 and June 30, 1999............................... 5
Notes to Consolidated Financial Statements................................. 6-8
Item 2: Management's Discussion and Analysis of
------
Financial Condition and Results of Operations.............................. 9-21
Item 3: Quantitative and Qualitative Disclosures About Market Risk....................... 22
------
PART II. OTHER INFORMATION
- --------------------------
Items 1-6.................................................................. 23-24
Signature Page............................................................. 25
</TABLE>
<PAGE>
Item 1 - Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC. (Dollars In Thousands - Except Per Share Data)
CONSOLIDATED STATEMENTS OF CONDITION
- ---------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 48,923 $ 36,630
Investment securities available for sale 382,238 398,643
Investment securities held to maturity (market value $7,935
and $8,768) 8,102 8,522
Mortgages held for sale 6,597 16,806
Loans:
Commercial 892,474 772,793
Consumer 400,628 359,191
Real estate 222,541 230,901
- ----------------------------------------------------------------------------------------------------------------------------
Total loans 1,515,643 1,362,885
Less: Net deferred costs (395) (186)
Allowance for possible credit losses 23,998 22,168
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 1,492,040 1,340,903
Bank premises and equipment 10,874 10,101
Accrued interest receivable 12,903 14,818
Other real estate 753 2,122
Intangible assets 1,450 1,598
Other assets 31,270 28,936
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,995,150 $ 1,859,079
============================================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Due to depositors $ 1,561,136 $ 1,472,746
Borrowings 252,818 213,759
Other liabilities 15,110 7,583
Company obligated mandatorily redeemable preferred securities of subsidiary,
Capital Trust I, holding solely junior subordinated
debentures of the Company 30,000 30,000
Shareholders' Equity:
Preferred Stock, par value $0.01 per share;
authorized 2,500,000 shares; none issued
Common Stock, par value $0.01 per share;
authorized 30,000,000 shares; 11,291,394
and 11,237,470 shares issued 113 112
Additional paid-in capital 30,651 30,145
Undivided profits 140,406 134,066
Accumulated other comprehensive income (5,223) 454
Treasury stock, at cost: 2,606,532 shares and 2,603,587 shares (29,861) (29,786)
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 136,086 134,991
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,995,150 $ 1,859,079
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Dollars In Thousands-Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 32,778 $30,381 $ 63,461 $58,772
Interest on investment securities 5,824 5,649 12,358 10,612
Interest on mortgages held for sale 214 363 509 538
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 38,816 36,393 76,328 69,922
Interest expense:
Interest on savings deposits 887 982 1,729 1,915
Interest on time accounts 12,784 11,765 24,899 22,124
Interest on money market deposit accounts 2,774 3,094 5,485 6,118
Interest on NOW accounts 317 230 620 445
Interest on borrowed funds 2,511 2,766 5,163 5,480
Interest on mandatorily redeemable preferred
securities of subsidiary 616 1,240
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 19,889 18,837 39,136 36,082
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 18,927 17,556 37,192 33,840
Provision for credit losses 3,470 2,919 6,706 5,704
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 15,457 14,637 30,486 28,136
Gains (Losses) on sale of securities 185 (359) (211) (503)
Losses on sale of loans (339) (133) (383) (380)
Non-interest income:
Service charges on deposit accounts 772 667 1,460 1,276
Credit card fees 384 315 664 555
Mortgage servicing fees 322 294 665 573
Fees and commissions-brokerage services 176 167 324 250
Trust fees 293 242 544 473
Other charges, commissions, and fees 391 313 888 581
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,338 1,998 4,545 3,708
- ---------------------------------------------------------------------------------------------------------------------------
Operating expense:
Salaries, pensions, and other employee benefits 4,163 3,727 8,180 7,403
Building occupancy 753 690 1,494 1,370
Dealer commission expense 306 389 544 614
Computer service fees 381 293 715 549
Services 1,257 768 2,325 1,514
FDIC insurance 46 43 96 82
Goodwill 74 74 148 148
Interchange fees 311 231 523 399
Other real estate (100) 61 (84) 81
Other expenses 1,753 1,765 3,298 3,264
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expense 8,944 8,041 17,239 15,424
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,697 8,102 17,198 15,537
Provision for income taxes 3,294 3,098 6,519 6,023
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,403 $ 5,004 $ 10,679 $ 9,514
===========================================================================================================================
Earnings per share:
Basic $ 0.62 $ 0.58 $ 1.23 $ 1.11
Diluted $ 0.61 $ 0.56 $ 1.21 $ 1.07
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC. (Dollars In Thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 5,403 $5,004 $10,679 $ 9,514
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities,
net of reclassification adjustment (Note 3) (4,674) 1,024 (5,677) 1,194
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (4,674) 1,024 (5,677) 1,194
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 729 $6,028 $ 5,002 $10,708
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Item I - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC. (Dollars In Thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 10,679 $ 9,514
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 6,706 5,704
Realized losses on available for sale investment securities 211 503
Other losses, net 194 364
Depreciation and amortization 1,003 873
Net amortization of premiums and discounts on investment securities (294) (567)
Net amortization (accretion) of premiums and discounts on loans (208) (339)
Sales of loans originated for sale 35,468 28,057
Net increase in loans originated for sale (26,214) (44,245)
Writedowns of other real estate 416 475
Net change in other assets and liabilities 10,974 (3,833)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 38,935 (3,494)
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 2,743 4,679
Purchases of held to maturity investment securities (2,442) (2,446)
Principal collected on held to maturity investment securities 381 592
Proceeds from sales of available for sale investment securities 53,345 96,594
Purchases of available for sale investment securities (61,301) (155,904)
Principal collected on available for sale investment securities 14,639 15,414
Net increase in longer-term loans (203,426) (145,535)
Proceeds from sales of loans 46,223 20,030
Proceeds from sales of other real estate 1,283 435
Other (1,629) (749)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (150,184) (166,890)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts 20,652 19,234
Net increase in time deposits 67,738 153,054
Net increase (decrease) in short-term borrowings (90 days) 39,059 (18,457)
Proceeds from long-term borrowings 50,000
Proceeds from exercise of stock options 507 490
Purchases of treasury stock (75) (16)
Dividends paid (4,339) (3,782)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 123,542 200,523
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents 12,293 30,139
Cash and cash equivalents at beginning of year 36,630 36,066
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 48,923 $ 66,205
===========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 38,379 $ 36,022
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes $ 7,821 $ 7,434
- ---------------------------------------------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate $ 141 $ 38,166
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized (depreciation) appreciation in securities $ (9,743) $ 2,050
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Item 1 - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BSB BANCORP, INC. (Dollars In Thousands-Except Per Share Data)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
Six Months Ended Additional Other
June 30, Common Paid-In Undivided Treasury Comprehensive
1998 Stock Capital Profits Stock Income Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $112 $29,215 $122,029 $(29,757) $ (733) $120,866
Comprehensive income:
Net income 9,514 9,514
Other comprehensive income:
Unrealized appreciation in available
for sale securities, net of reclass-
ification amount (Note 3) 1,194 1,194
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income 9,514 1,194 10,708
Stock options exercised 490 490
Cash dividend paid on common
stock ($0.44 per share) (3,782) (3,782)
Treasury stock purchased (16) (16)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $112 $29,705 $127,761 $(29,773) $ 461 $128,266
===========================================================================================================================
Six Months Ended
June 30,
1999
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $112 $30,145 $134,066 $(29,786) $ 454 $134,991
Comprehensive income:
Net income 10,679 10,679
Other comprehensive income:
Unrealized appreciation in available
for sale securities, net
of reclassification amount (Note 3) (5,677) (5,677)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income 10,679 (5,677) 5,002
Stock options exercised 1 506 507
Cash dividend paid on common
stock ($0.50 per share) (4,339) (4,339)
Treasury stock purchased (75) (75)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 $113 $30,651 $140,406 $(29,861) $ (5,223) $136,086
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Item 1 - continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(1) In the opinion of management, the interim financial statements reflect all
adjustments which are of a normal recurring nature necessary to a fair
statement of the results for the interim periods presented. The December
31, 1998 data in the Consolidated Statements of Condition is derived from
the audited consolidated financial statements included in the Company's
1998 Annual Report to Shareholders. The accompanying unaudited interim
consolidated financial statements and related notes should be read in
conjunction with the audited consolidated financial statements and related
notes included in the Company's 1998 Annual Report to Shareholders.
(2) Basic earnings per share are computed based on the weighted average shares
outstanding. Diluted earnings per share are computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options during the period.
The following is a reconciliation of basic earnings per share to
diluted earnings per share for the quarters ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Quarters ended June 30, Net Income Weighted Average Shares Earnings Per Share
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Basic earnings per share $5,403,019 8,677,853 $0.62
Effect of stock options 157,582
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $5,403,019 8,835,435 $0.61
======================================================================================================================
1998
Basic earnings per share $5,004,532 8,599,060 $0.58
Effect of stock options 306,706
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $5,004,532 8,905,766 $0.56
======================================================================================================================
Six Months Ended June 30, Net Income Weighted Average Shares Earnings Per Share
----------------------------------------------------------------------------------------------------------------------
1999
Basic earnings per share $10,678,860 8,670,111 $1.23
Effect of stock options 181,060
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $10,678,860 8,851,171 $1.21
======================================================================================================================
1998
Basic earnings per share $ 9,513,598 8,590,157 $1.11
Effect of stock options 295,676
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 9,513,598 8,885,833 $1.07
======================================================================================================================
</TABLE>
6
<PAGE>
Item 1 - continued
(3) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement requires the Company to report the effects of unrealized
investment holding gains or losses on comprehensive income. The following
reflects the components of "Other Comprehensive Income" on a before and net
of tax basis:
<TABLE>
<CAPTION>
Before Tax Tax (Expense) Net of Tax
Quarters ended June 30, Amount or Benefit Amount
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
1999
Unrealized losses on securities:
Unrealized holding losses arising during period $(8,206) $ 3,424 $(4,782)
Less: Reclassification adjustment for losses realized in net income 185 (77) 108
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized losses (8,021) 3,347 (4,674)
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $(8,021) $ 3,347 $(4,674)
===========================================================================================================================
1998
Unrealized gains on securities:
Unrealized holding gains arising during period $ 2,117 $ (884) $ 1,233
Less: Reclassification adjustment for losses realized in net income (359) 150 (209)
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains 1,758 (734) 1,024
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $ 1,758 $ (734) $ 1,024
============================================================================================================================
Six months ended June 30,
1999
Unrealized losses on securities:
Unrealized holding losses arising during period $(9,532) $ 3,978 $(5,554)
Less: Reclassification adjustment for losses realized in net income (211) 88 (123)
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized losses (9,743) 4,066 (5,677)
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $(9,743) $ 4,066 $(5,677)
===========================================================================================================================
1998
Unrealized gains on securities:
Unrealized holding gains arising during period $ 2,553 $(1,066) $ 1,487
Less: Reclassification adjustment for losses realized in net income (503) 210 (293)
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains 2,050 (856) 1,194
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $ 2,050 $ (856) $ 1,194
============================================================================================================================
</TABLE>
4. On July 24, 1998, the Company placed $30 million of 30-year 8.125% capital
securities through BSB Capital Trust I (the "Trust"), a Delaware business
trust. The Trust was formed by the Company solely to invest the proceeds
from the sale of the capital securities in 8.125% junior subordinated
debentures issued by the Company with a principal amount of $30 million and
a maturity date of July 31, 2028. The junior subordinated debentures are
the sole assets of the Trust. The net proceeds from the sale of the capital
securities qualify as Tier I Capital for the Company.
7
<PAGE>
Item 1 - continued
5. On July 1, 1999, BSB Bancorp,, Inc. completed its acquisition of
Skaneateles Bancorp, Inc.. The following information is provided to show
operating results of Skaneateles Bancorp, Inc for the three and six months
ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Net interest income $ 2,812 $2,674 $5,629 $5,182
Non-interest income 662 549 1,253 1,019
Operating expense and loan loss provision 3,880 2,572 6,897 5,013
Taxes 213 233 343 423
----------------------------------------------------------------------------------------------------------------------
Net income $ (619) $ 418 $ (358) $ 765
======================================================================================================================
</TABLE>
Total assets of Skaneateles Bancorp, Inc. were $272.6 million and $266.7
million at June 30, 1999 and June 30, 1998. Shareholders' equity was $18.9
million and $18.3 million at June 30, 1999 and June 30, 1998.
8
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
BSB Bancorp, Inc. (the "Company"), the bank holding company for BSB Bank &
Trust Company (the "Bank"), earned net income of $5.4 million, or diluted
earnings per share of $0.61 for the quarter ended June 30, 1999, as compared to
net income of $5.0 million, or diluted earnings per share of $0.56 for the
quarter ended June 30, 1998. Net income for the first six months of 1999
totalled $10.7 million, or diluted earnings per share of $1.21, compared to $9.5
million, or $1.07 per share for the first six months of 1998.
On July 26, 1999, the Board of Directors announced a quarterly cash
dividend of $0.25 per share payable on September 10, 1999 to shareholders of
record at the close of business on August 24, 1999.
Financial Condition
- -------------------
Total assets of the Company increased from $1,859.1 million at December 31,
1998 to $1,995.2 million at June 30, 1999. During the first six months of 1999,
the Company originated $159.6 million of commercial loans, which contributed to
a net increase in the commercial loan portfolio of $119.7 million from $772.8
million at December 31, 1998 to $892.5 million at June 30, 1999. The interest
rates on these loans are generally tied to the Bank's Prime Rate. Consumer loans
increased from $359.2 million at December 31, 1998 to $400.6 million at June 30,
1999, and during this period the Company originated $128.5 million in consumer
loans. Real estate loans decreased from $230.9 million at December 31, 1998 to
$222.5 million at June 30, 1999. During the above mentioned period, the Company
originated $94.8 million of real estate loans, of which $82.1 million of
residential real estate loans were sold. Investment securities decreased from
$407.2 million at December 31, 1998 to $390.3 million at June 30, 1999.
Total deposits increased from $1,472.7 million at December 31, 1998 to
$1,561.1 million at June 30, 1999. This growth came mainly from certificates of
deposits originated both through the money desk which was established during the
second half of 1997 and through brokers. Money desk funds grew to $235.3 million
at June 30, 1999 from $199.1 million at December 31, 1998. Brokered certificates
of deposits grew from $97.8 million at December 31, 1998 to $154.3 million at
June 30, 1999. These sources provided the Bank with funds needed for growth in
assets. Interest credited to depositors and interest paid on borrowings totaled
$39.1 million during that six-month period, as compared to $36.1 million for the
first six months of 1998. The Company's borrowings increased from $213.8 million
at December 31, 1998 to $252.8 million at June 30, 1999. Borrowings at June 30,
1999 consisted of $100.0 million of Federal Home Loan Bank advances and $91.0
million of a Federal Home Loan Bank line of credit. Of the remaining $61.8
million, $59.9 million are securities sold under agreement to repurchase. These
borrowings are used to fund the Company's lending activities.
Shareholders' equity increased from $135.0 million to $136.1 million during
the first six months of 1999. This increase is a result of earnings of $10.7
million, $507,000 of stock options exercised during the period, and a $5.7
million decrease in unrealized appreciation in securities available for sale.
This increase in shareholders' equity was partially offset by cash dividends
paid to shareholders of $4.3 million.
Results of Operations
- ---------------------
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, primarily loans and investments, and interest expense on
interest-bearing liabilities, primarily deposits and borrowings. The Company's
operating results also are affected by credit losses and provisions for such
future losses, operating expenses, the level of other income, including gains or
losses on sale of loans and securities, and other fees.
9
<PAGE>
Item 2 - continued
The following tables set forth, for the periods indicated, information
regarding (i) the Company's average balance sheet, (ii) the total dollar amount
of interest income from interest-earning assets and the resulting average
yields, (iii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average cost, (iv) net interest income, (v)
interest rate margin and interest rate spread, (vi) net interest-earning assets,
(vii) net yield on interest-earning assets, and (viii) ratio of interest-earning
assets to interest-bearing liabilities. Average balances are based on daily or
month-end balances. No tax equivalent adjustments were made.
10
<PAGE>
Item 2 - continued
<TABLE>
<CAPTION>
Three Months Ended June 30,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 861,965 $18,936 8.79% $ 710,511 $17,521 9.86%
Consumer loans:
Passbook 129 3 9.30 187 5 10.70
Overdraft checking 554 29 20.94 743 36 19.38
Business line of credit 1,146 31 10.82 918 24 10.46
Credit cards 9,316 379 16.27 9,558 385 16.11
Personal-direct 56,991 1,403 9.85 50,585 1,291 10.21
Personal-indirect-new auto 54,809 1,134 8.28 48,123 1,047 8.70
Personal-indirect-used auto 171,349 4,034 9.42 130,832 3,121 9.54
Personal-indirect-mobile homes 58,300 1,515 10.39 47,858 1,149 9.60
Personal-indirect-other 3,203 79 9.87 3,747 91 9.71
Home equity line of credit 24,208 487 8.05 25,090 574 9.15
Checkcard reserve 1,753 166 37.88 1,360 112 32.94
Student 2,751 (20) (2.91) 3,860 17 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Total consumer loans 384,509 9,240 9.61 322,861 7,852 9.73
- ---------------------------------------------------------------------------------------------------------------------------
Real estate loans:
Residential-fixed 51,131 893 6.99 61,244 1,033 6.75
Commercial-fixed 4,417 103 9.33 4,555 105 9.22
Residential-adjustable 43,915 809 7.37 55,310 1,067 7.72
Commercial-adjustable 127,794 2,797 8.75 120,410 2,803 9.31
- ---------------------------------------------------------------------------------------------------------------------------
Total real estate loans 227,257 4,602 8.10 241,519 5,008 8.29
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities 392,348 5,824 5.94 338,165 5,649 6.68
Mortgages held for sale 6,483 214 13.20 19,933 363 7.28
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,872,562 $38,816 8.29% 1,632,989 $36,393 8.91%
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 102,206 90,452
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,974,768 $1,723,441
===========================================================================================================================
Interest-bearing liabilities:
Deposits:
Savings $ 138,369 $ 887 2.56% $ 138,794 $ 982 2.83%
Money market 277,463 2,774 4.00 273,971 3,094 4.52
Certificates of deposit 990,973 12,784 5.16 827,700 11,765 5.69
NOW 81,473 317 1.56 65,656 230 1.40
Commercial checking 92,961 66,902
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 1,581,239 16,762 4.24 1,373,023 16,071 4.68
- ---------------------------------------------------------------------------------------------------------------------------
Borrowings 206,991 2,511 4.85 202,469 2,766 5.46
Manditorily redeemable preferred securities 30,000 616 8.21
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,818,230 $19,889 4.38% 1,575,492 $18,837 4.78%
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 16,597 21,186
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,834,827 1,596,678
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 139,941 126,763
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,974,768 $1,723,441
===========================================================================================================================
Net interest income/net interest rate spread $18,927 3.91% $17,556 4.13%
===========================================================================================================================
Net earnings assets/net interest rate margin $54,332 4.04% $57,497 4.30%
===========================================================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 1.03X 1.04X
===========================================================================================================================
</TABLE>
11
<PAGE>
Item 2 - continued
<TABLE>
<CAPTION>
Six Months Ended June 30,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 828,093 $36,220 8.75% $ 683,959 $33,386 9.76%
Consumer loans:
Passbook 138 8 11.59 200 10 10.00
Overdraft checking 581 58 19.97 767 75 19.56
Business line of credit 1,031 55 10.67 930 47 10.11
Credit cards 9,442 762 16.14 9,480 756 15.95
Personal-direct 56,133 2,796 9.96 49,027 2,497 10.19
Personal-indirect-new auto 53,106 2,222 8.37 48,111 2,071 8.61
Personal-indirect-used auto 163,995 7,762 9.47 123,230 5,768 9.36
Personal-indirect-mobile homes 56,666 2,828 9.98 46,794 2,234 9.55
Personal-indirect-other 3,233 159 9.84 3,753 178 9.49
Home equity line of credit 24,420 1,006 8.24 25,159 1,152 9.16
Checkcard reserve 1,764 299 33.90 1,318 205 31.11
Student 2,623 21 1.60 4,015 93 4.63
- ---------------------------------------------------------------------------------------------------------------------------
Total consumer loans 373,132 17,976 9.64 312,784 15,086 9.65
- ---------------------------------------------------------------------------------------------------------------------------
Real estate loans:
Residential-fixed 50,888 1,795 7.05 56,322 2,036 7.23
Commercial-fixed 4,415 204 9.24 4,578 211 9.22
Residential-adjustable 45,119 1,668 7.39 58,359 2,224 7.62
Commercial-adjustable 128,426 5,598 8.72 125,377 5,829 9.30
- ---------------------------------------------------------------------------------------------------------------------------
Total real estate loans 228,848 9,265 8.10 244,636 10,300 8.42
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities 395,706 12,358 6.25 318,275 10,612 6.67
Mortgages held for sale 10,183 509 10.00 14,665 538 7.34
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,835,962 $76,328 8.31% 1,574,319 $69,922 8.88%
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 96,901 86,712
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,932,863 $1,661,031
===========================================================================================================================
Interest-bearing liabilities:
Deposits:
Savings $ 135,005 $ 1,729 2.56% $ 135,346 $ 1,915 2.83%
Money market 276,299 5,485 3.97 270,888 6,118 4.52
Certificates of deposit 956,824 24,899 5.20 781,068 22,124 5.67
NOW 80,141 620 1.55 64,029 445 1.39
Commercial checking 88,450 65,127
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 1,536,719 32,733 4.26 1,316,458 30,602 4.65
- ---------------------------------------------------------------------------------------------------------------------------
Borrowings 213,448 5,163 4.84 198,106 5,480 5.53
Manditorily redeemable preferred securities 30,000 1,240 8.27
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,780,167 $39,136 4.40% 1,514,564 $36,082 4.76%
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 14,801 21,413
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,794,968 1,535,977
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 137,895 125,054
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,932,863 $1,661,031
===========================================================================================================================
Net interest income/net interest rate spread $37,192 3.91% $33,840 4.12%
===========================================================================================================================
Net earnings assets/net interest rate margin $55,795 4.05% $59,755 4.30%
===========================================================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 1.03X 1.04X
===========================================================================================================================
</TABLE>
The following 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.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 Compared to 1998 1999 Compared to 1998
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 $11,013 $ (9,598) $1,415 $11,166 $ (8,332) $ 2,834
Consumer loans 2,031 (643) 1,388 2,936 (46) 2,890
Real estate loans (292) (114) (406) (651) (384) (1,035)
Investment securities 3,062 (2,887) 175 3,511 (1,765) 1,746
Mortgages held for sale (1,138) 989 (149) (370) 341 (29)
- ----------------------------------------------------------------------------------------------------------------------------------
Total $14,676 $(12,253) $2,423 $16,592 $(10,186) $ 6,406
==================================================================================================================================
Interest expense on interest-bearing liabilities:
Deposits $ 7,885 $ (7,194) $ 691 $ 8,259 $ (6,128) $ 2,131
Borrowings 913 (552) 361 1,642 (719) 923
- ----------------------------------------------------------------------------------------------------------------------------------
Total 8,798 (7,746) 1,052 9,901 (6,847) 3,054
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 5,878 $ (4,507) $1,371 $ 6,691 $ (3,339) $ 3,352
==================================================================================================================================
</TABLE>
Interest Income
- ---------------
The Company's interest income on interest-earning assets increased from
$36.4 million for the three months ended June 30, 1998 to $38.8 million for the
three months ended June 30, 1999, and from $69.9 million to $76.3 million for
the six months ended June 30, 1998 and 1999, respectively. These increases in
interest income were the result of increases in the average balance of
interest-earning assets from $1,633.0 million to $1,872.6 million for the three
months ended June 30, 1998 and June 30, 1999, respectively, and from $1,574.3
million to $1,836.0 million for the six months ended June 30, 1998 and June 30,
1999, respectively. The average yield on interest-earning assets decreased from
8.91% to 8.29% for the three months ended June 30, 1998 and 1999, respectively,
and the average yield on interest-earning assets decreased from 8.88% to 8.31%
for the six months ended June 30, 1998 and 1999, respectively. This reflected
three decreases in the Company's Prime Rate of 25 basis points each during the
4th quarter of 1998.
The increase in the average balance of the commercial loan portfolio was
the largest contributor to the increase in interest income. The average balance
of commercial loans increased $151.5 million from the second quarter of 1998 to
$862.0 million for the second quarter of 1999, and increased $144.1 million to
$828.1 million for the first six months of 1999 compared to the first six months
of 1998. The average yield on commercial loans decreased from 9.86% for the
second quarter of 1998 to 8.79% for the second quarter of 1999, and decreased
from 9.76% to $8.75% for the first six months of 1999 compared to the first six
months of 1998. The Prime Rate was 8.50% for all of the first quarter of 1998
and was 7.75% thru the first two quarters of 1999. Despite this decline in
rates, interest income on commercial loans rose to $36.2 million for the six
months ended June 30, 1999 from $33.4 million for the same period in 1998.
Despite high levels of competition in the Company's lending markets, the
average balance of consumer loans increased 19.1% to $384.5 million for the
three-month period ended June 30, 1999 compared to $322.9 million for the
three-month period ended June 30, 1998, and increased 19.3% to $373.1 million
for the six-month period ended June 30, 1999 compared to $312.8 million for the
six-month period ended June 30, 1998. This was accompanied by a decline in yield
on these assets to 9.61% from 9.73% for the second quarter of 1998, and a 1
basis point decline for the six-month period ended June 30, 1999 compared to
June 30, 1998. The Company continues to emphasize origination of indirect and
direct auto loans, which adds to the Company's market base for potential
business and provides some of the highest yielding assets for the Company. This
provided an increase in interest income to $9.2 million from $7.9 million in the
second quarter of 1998, and an increase to $18.0 million from $15.1 million for
the six months ended June 30, 1999 and 1998, respectively.
The average balance of real estate loans decreased $14.3 million to $227.3
million for the quarter ended June 30, 1999
13
<PAGE>
Item 2 - continued
compared to the quarter ended June 30, 1998. The quarter period reflected a
decrease in yield from 8.29% to 8.10%, and the reduced average balance resulted
in a net decline of $406,000 in interest income from real estate loans to $4.6
million. The average balance of real estate loans decreased $15.8 million to
$228.8 million for the six months ended June 30, 1999 compared to the six months
ended June 30, 1998. Although residential mortgage loans reflect a steadily
declining percentage of the Bank's total loan portfolio, the Bank continues to
originate a significant amount of fixed-rate residential mortgage loans for sale
in the secondary market, while retaining servicing rights for most of the sales
in order to generate fee income.
The average balance of investment securities increased from $338.2 million
for the second quarter of 1998 to $392.3 million for the second quarter of 1999.
Yields on investment securities decreased for this same period from 6.68% to
5.94%; the interest income on investment securities increased $175,000 for the
comparative quarters. The average balance of investment securities increased
from $318.3 million for the first six months of 1998 to $395.7 million for the
first six months of 1999. Yields on investment securities decreased for this
same period from 6.67% to 6.25%, but an increased average balance contributed to
increased interest income on investment securities of $1.7 million for the
comparative periods.
Interest Expense
- ----------------
Total interest expense increased by $1.1 million for the quarter ended June
30, 1999 as compared to the same period in 1998. The average balance of all
interest-bearing liabilities increased from $1,575.5 million for the quarter
ended June 30, 1998 to $1,818.2 million for the quarter ended June 30, 1999.
This increase accompanies a decrease in the average rate paid on all
interest-bearing liabilities from 4.78% to 4.38% during the respective period.
The average balance of deposits increased from $1,373.0 million during the three
months ended June 30, 1998 to $1,581.2 million during the same period in 1999.
The increase in the average balance of deposits was the major factor
contributing to an increase in interest paid on deposits from $16.1 million for
the second quarter of 1998 to $16.8 million for the second quarter of 1999.
Another component of the change in interest-bearing liabilities was the increase
in average balance of borrowings from $202.5 million for the three months ended
June 30, 1998 to $207.0 million for the three months ended June 30, 1999. This
increase was offset by a decrease in the rate paid on borrowings from 5.46% to
4.85% during the three-month period as borrowing costs declined to $2.5 million
for the three months ended June 30, 1999. A similar increase reflected average
balances rising from $198.1 million for the six-month period ended June 30, 1998
to $213.4 million for the six-month period June 30, 1999. The borrowing increase
in average balance was coupled with a decrease in the rate paid on borrowings
from 5.53% for the six months ended June 30, 1998 to 4.84% for the six months
ended June 30, 1999. The utilization of borrowings to fulfill the demand in loan
growth has contributed to higher interest expense. With generally higher costs
than retail deposits, borrowing costs have contributed to a narrowing of the
spread between the Company's interest-earning assets and interest-bearing
liabilities. Though the interest rate spread is narrowed by these higher costs,
this relationship provides continued growth in net interest income.
Provision for Credit Losses
- ---------------------------
The provision for credit losses increased from $2.9 million to $3.5 million
for the quarters ended June 30, 1998 and June 30, 1999, respectively, and
increased from $5.7 million to $6.7 million for the six months ended June 30,
1998 and June 30, 1999, respectively. The allowance for possible credit losses
increased to $24.0 million as of June 30, 1999, compared to $22.2 million as of
December 31, 1998. The increase in provisions reflects, in part, the Bank
maintaining an allowance to period ending loans at a level management, based on
its experience, deems adequate to cover potential credit losses. See "Non-
performing Loans and ORE". Management considers this level of reserves adequate
to cover potential credit losses.
14
<PAGE>
Item 2 - continued
Non-interest Income
- -------------------
Non-interest income increased 17.0% from $2.0 million to $2.3 million for
the three months ended June 30, 1998 to June 30, 1999, respectively, and
increased 21.6% from $3.7 million to $4.5 million for the six months ended June,
1998 to June 30, 1999, respectively. The factors attributing to the increase
comparing second quarter of 1998 to the same quarter of 1999 were a $105,000
increase in service charges on deposit accounts, $78,000 in miscellaneous other
charges, commissions, and fees, $69,000 in credit card fees, $51,000 in trust
fees, $28,000 in mortgage servicing fees, and a $9,000 increase in fees and
commissions on brokerage services. A non-recurring item for $146,000 occurred in
the first quarter of 1999 and a revised fee structure for ATM charges caused the
first six months of 1999 to exceed the same period in 1998 by 84.7%.
Gains (Losses) On Sale of Securities
- ------------------------------------
Gains on sale of securities were $185,000 for the second quarter of 1999
and losses were $211,000 for the six months ended June 30, 1999. This compares
to losses of $359,000 for the same quarter of 1998 and $503,000 for the six
months ended June 30, 1998. The Company's investment portfolio is used to
maintain its liquidity position; from time to time, securities are sold when
deemed prudent by management, to adjust the interest rate sensitivity of the
Company's balance sheet.
Gains (Losses) On Sale of Loans
- -------------------------------
The practice of the Company has been to sell or securitize long-term,
fixed-rate residential mortgage loans. This provides liquidity to fund shorter-
term, or more rate-sensitive assets, and collateral to provide borrowing for
lending activities. As a result of this practice, the Company sold or
securitized $35.2 million and $58.2 million for the second quarter of 1999 and
1998, respectively. This resulted in losses of $339,000 and $133,000 for the
same two periods, respectively. For the six-month period ended June 30, 1999 and
1998, the Bank securitized or sold $82.1 million and $85.4 million,
respectively, of residential mortgage loans. These sales generated losses of
$383,000 and $380,000 for the same six-month periods.
Operating Expense
- -----------------
Operating expense increased from $8.0 million for the quarter ended June
30, 1998 to $8.9 million for the quarter ended June 30, 1999. Several factors
contributed to this increase. Salaries, pensions, and other employee benefits
rose $436,000 from the second quarter of 1998 to the second quarter of 1999. Of
this increase, $155,000 was attributed to increased costs associated with
pension and health care benefits. Service expenses also increased for several
reasons. The largest factor was the outsourcing of check processing in the
fourth quarter of 1998 which caused an expense increase of $217,000 from the
second quarter of 1998 to the second quarter of 1999. Increased usage of
brokered deposits and the money desk caused all service expenses associated with
the treasury function to increase by $85,000 in the second quarter of 1999 from
the second quarter of 1998. Service expenses associated with credit card loans
increased $63,000 from the second quarter of 1998 to the second quarter of 1999.
Offsetting this increase in operating expense was a decrease in other real
estate owned (ORE) expenses of $161,000 for the quarter ended June 30, 1999
compared to the same quarter in 1998, and a decrease of $165,000 for the six
months ended for the same period as a recovery of an ORE property sold during
the second quarter generated a $177,000 gain on the sale.
Income Taxes
- ------------
The income tax expense was $3.1 million and $3.3 million for the quarters
ended June 30, 1998 and June 30, 1999, respectively, and $6.0 million and $6.5
million for the six-month periods ended June 30, 1998 and June 30, 1999,
respectively. These increases were mainly due to increased levels of taxable
income and changes in tax-exempt investment and loan portfolios.
15
<PAGE>
Item 2 - continued
Non-Performing Loans and ORE
- ----------------------------
When a borrower fails to make a scheduled payment on a loan, the Company
attempts to cure the deficiency by contacting the borrower and seeking payment.
Contacts are generally made within five business days after the expiration of
the payment grace period, set forth in the loan contract. In most cases,
deficiencies are cured promptly. If a delinquency extends beyond 60 days, the
loan and payment histories are reviewed and legal proceedings may be instituted
to remedy the default. While the Company generally prefers to work with
borrowers to resolve such problems, the Company does initiate foreclosure
proceedings or pursues other legal collection procedures, as necessary, to
minimize any potential loss. Once the Company takes legal title to the property,
it is classified as ORE on the Statement of Condition.
Loans are placed on a non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. Such loans include potential problem
loans where known information about possible credit problems of borrowers has
caused management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
Other than with respect to consumer loans, the Company does not accrue interest
on loans greater than 90 days or more past due for the payment of interest
unless the value of the collateral and active collection efforts ensure full
recovery. Consumer loans are charged-off before they become non-accrual.
The following table sets forth information regarding non-performing
loans which are 90 days or more overdue and ORE held by the Company at the dates
indicated.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Commercial loans:
Non-accrual loans $12,397 $11,423
Consumer loans:
Accruing loans 90 days overdue 910 513
Residential real estate loans:
Non-accrual loans 1,497 1,701
Commercial real estate loans:
Non-accrual loans 617 276
- -------------------------------------------------------------------------------------------------------------
Total non-performing loans and accruing loans 90 days overdue $15,421 $13,913
=============================================================================================================
Total non-performing loans to total gross loans 1.02% 1.02%
Total real estate acquired in settlement of
loans at net realizable value $ 753 $2,122
Total non-performing loans and real estate acquired in settlement
of loans at net realizable value to total assets 0.81% 0.86%
</TABLE>
Total non-performing loans and ORE, which is defined to include property
acquired by foreclosure or by deed in lieu of foreclosure, increased to $16.2
million, or 0.81% of total assets at June 30, 1999, compared to $16.0 million,
or 0.86% of total assets at December 31, 1998.
At December 31, 1998, 36 non-performing residential real estate loans
totalled $1.7 million. At June 30, 1999, non-performing residential real estate
loans totalled $1.5 million and included 30 loans.
At December 31, 1998, 2 non-performing commercial real estate loans
totalled $276,000. At June 30, 1999, non-performing commercial real estate loans
increased to $617,000 and consisted of 4 loans ranging in size from $18,000 to
$338,000.
Non-performing commercial loans at December 31, 1998 totalled $11.4 million
and included 62 individual loans ranging in size from $2,000 to $1.2 million. At
June 30, 1999, non-performing commercial loans increased to $12.4 million and
consisted of 65 individual loans ranging in size from $1,000 to $1.5 million.
The Company's policy is to charge-off all consumer loans before they become
non-accrual. At December 31, 1998, the Company had $513,000 of loans 90 days or
more past due on which it was accruing interest, as compared to $910,000 at June
30,
16
<PAGE>
Item 2 - continued
1999.
At June 30 1999, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totalled $9.6 million with a
corresponding valuation allowance of $3.3 million.
At December 31, 1998, ORE totalled $2.1 million, which consisted of 3
single-family residential properties with a book value totalling $77,000 and 8
commercial real estate properties with a book value totalling $2.0 million. At
June 30, 1999, ORE totalled $753,000, which consisted of 5 single-family
residential properties totalling $162,000 and 7 commercial real estate
properties with a book value of $591,000. One property was sold during the
second quarter with a gain of $177,000 realized on the sale.
Management reviews the adequacy of the allowance for possible credit losses
at least quarterly, applying projected loss ratios to the risk-ratings 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
categories and concentrations of loans, transfer risks and other pertinent
factors.
The following table summarizes activity in the Company's allowance for
possible credit losses during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Average gross loans outstanding $1,497,349 $1,295,754 $1,453,146 $1,262,035
=========================================================================================================================
Allowance at beginning of period $ 23,185 $ 19,854 $ 22,168 $ 19,207
Charge-offs:
Commercial loans 1,816 1,267 3,210 2,777
Consumer loans 1,286 722 2,084 1,605
Residential real estate loans 62 118 118
Commercial real estate loans 2 342 341 361
- -------------------------------------------------------------------------------------------------------------------------
Total loan charge-offs 3,104 2,393 5,753 4,861
Recoveries:
Commercial loans 202 136 486 281
Consumer loans 226 223 372 401
Residential real estate loans 19 19
Commercial real estate loans 7 14
- -------------------------------------------------------------------------------------------------------------------------
Total recoveries 447 366 877 696
- -------------------------------------------------------------------------------------------------------------------------
Net charge-offs 2,657 2,027 4,876 4,165
Provision for credit losses
charged to operating expenses 3,470 2,919 6,706 5,704
- -------------------------------------------------------------------------------------------------------------------------
Allowance at end of period $ 23,998 $ 20,746 $ 23,998 $ 20,746
=========================================================================================================================
Ratio of net charge-offs to:
Average gross loans
outstanding (annualized) 0.71% 0.63% 0.67% 0.66%
Ratio of allowance to:
Non-performing loans 155.62% 232.29% 155.62% 232.29%
Period-end loans outstanding 1.58% 1.60% 1.58% 1.60%
</TABLE>
17
<PAGE>
Item 2 - continued
Net charge-offs increased from $2.0 million for the second quarter of 1998
to $2.7 million for the same quarter in 1999. For the six-month period ended
June 30, 1998 compared to June 30, 1999, net charge-offs increased from $4.2
million to $4.9 million. Management continues to take an aggressive approach to
the charge-off of problem loans and continues to add to the level of reserves to
maintain a level of loan loss reserves that is considered adequate to cover
potential credit losses.
Sources of Funds
- ----------------
Funding for the Company's assets is derived primarily from demand and time
deposits and long and short-term borrowings. The competition for deposits
continues to be very strong in the market area and remains a focus of the Bank's
effort. The average balance of all interest-bearing liabilities increased from
$1,575.5 million for the three-month period ended June 30, 1998 to $1,818.2
million for the same period ended June 30, 1999, an increase of $242.7 million.
The most significant increase in interest-bearing liabilities for the quarter
ended June 30, 1998 compared to June 30, 1999, was an increase in the average
balance of certificates of deposit of $163.3 million from the second quarter of
1998 to the second quarter of 1999 from $827.7 million to $991.0 million,
respectively. To fund loan growth, the Bank looked to other areas to augment
retail deposits as a source of funds. Certificates of deposits from a money desk
have grown to an average balance of $255.7 million in the second quarter of 1999
from a $144.1 million average balance in the same quarter in 1998. These
deposits also grew from an average balance of $109.6 million for the first six
months of 1998 to $246.9 million for the first six months of 1999. Brokered
certificates of deposit additionally remain a source of funding for asset
growth. The average balance of these deposits grew from $80.0 million for the
second quarter of 1998 to $161.3 million for the second quarter of 1999. Average
balances for six months ended June 30, 1998 were $83.4 million and rose to
$129.4 million for the six months ended June 30, 1999. With the use of funds
that normally carry somewhat higher rates, the overall cost of funds for all
certificates of deposits declined from 5.69% to 5.16% from the second quarter of
1998 to the same period in 1999. Total borrowings increased from an average
balance of $202.5 million to $207.0 million for the quarter ended June 30, 1998
to the same quarter ended June 30, 1999. With a decrease in the average rate
paid on borrowings from 5.46% for the quarter ended June 30, 1998 to 4.85% for
the same quarter in 1999 offset by the increase in average balance, interest
expense on these borrowings decreased slightly from $2.8 million for the second
quarter of 1998 to $2.5 million for the second quarter of 1999.
Liquidity and Capital Resources
- -------------------------------
A fundamental objective of the Company is to manage its liquidity
effectively. Prudent liquidity management insures that the Company can meet all
of its contractual obligations, meet its customers' loan demands, fund all of
its operations and minimize the effects of interest rate fluctuation on
earnings. There were no material changes in the Company's liquidity or interest
rate sensitivity since December 31, 1998.
On July 24, 1998, the Company placed a $30 million of 30-year 8.125%
capital securities through BSB Capital Trust I, a Delaware business trust. The
Trust was formed by the Company to invest the proceeds from the sale of the
capital securities in 8.125% junior subordinated debentures issued by the
Company. The junior subordinated debentures, which have a principal amount of
$30.0 million and a maturity date of July 31, 2028, are the sole assets of the
Trust. The net proceeds from the sale of the capital securities qualify as Tier
I Capital for the Company.
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. At June 30, 1999, the total of approved loan commitments amounted to
$93.3 million. Long-term borrowings of $70.0 million are scheduled to mature in
2008. Savings certificates, which are scheduled to mature during the next 12
months, totalled $827.9 million. Management expects that a substantial portion
of these maturing certificates will remain on deposit with the Company.
At June 30, 1999, the Company's Tier I leverage ratio, as defined in
regulatory guidelines, was 7.68%, which exceeds the current requirements for the
Company. At June 30, 1999, the Company's total capital-to-risk-weighted assets
ratio, calculated
18
<PAGE>
Item 2 - continued
under the Federal Reserve Board's risk-based capital requirements, was 10.54%.
The Company's book value per common share increased from $15.64 at December
31, 1998 to $15.66 at June 30, 1999.
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 do 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
- -------------
On July 1, 1999, the BSB Bancorp, Inc. completed its acquisition of
Skaneateles Bancorp, Inc. The merger agreement with Skaneateles Bancorp was
overwhelmingly approved by Skaneateles' shareholders on June 29, 1999. The
merger was announced in January and received regulatory approvals earlier in
June. Under terms of the agreement, Skaneateles shareholders will receive .97
BSB shares for each share of Skaneateles stock.
Year 2000 Compliance
- --------------------
The Year 2000 brings with it potential issues to all organizations who use
computers in the conduct of their business or depend on business associates who
use computers. To the extent computer use is date-sensitive, hardware or
software that recognizes the year by the last two digits may erroneously
recognize "00" as 1900 rather than 2000, which could result in errors or system
failures.
The Company utilizes a number of computers and computer software (systems)
in the conduct of its business. Many systems are for specific business segments
and others have broader corporate-wide use. In 1995, the Company initiated
review of Year 2000 and its impact. With this review, a strategic plan to
address the issues and maintain the technological standards of the hardware and
software within the Company was incorporated. This plan was initiated and
approved by senior officers within the Company and is revisited at least
quarterly to ensure portions of the plan are completed as scheduled and progress
is continuing with any problems being addressed. This plan included the
following steps:
. Awareness: Since 1995, the Company has been aware of the Year 2000 problem
and increased the awareness of all staff, vendors, and customers to the
problem.
. Assessment: Inventories of all systems, hardware, media, interfaces,
internal programs and databases, vendor packages, and networks have been
made and are updated as needed. Communication with vendors to ascertain
their status, plan and upgrades for Year 2000 compliance was implemented.
. Renovation: Since 1995, the Company has formulated and completed two
initiatives to maintain high quality data processing on an on-going basis.
Year 2000 issues were addressed within the larger issue of maintaining the
highest quality data processing available. In 1995, a Branch Automation
Project was started and continued into 1996. In 1996, a Back Office
Automation Project was completed. This provided the Company with Year 2000
compliant back office hardware and most software to address the concerns of
both technology modernization and Year 2000 issues. In October 1998, the
Company converted to M&I Data Services, which provides data service to all
core processing and delivery systems. The M&I system is certified compliant
by the Information Technology Association of America.
. Validation: Testing of all hardware and software has been conducted on an
independent Local Area Network that has been established at the Company
solely for that purpose. All systems have been renovated and management
believes their
19
<PAGE>
Item 2 - continued
systems are Year 2000 operational including computer equipment and
peripherals, internal data processing and information systems, vendor
provided software, outsourced EDP solutions, business equipment, and
physical systems. The Company and its software vendors have tested all
systems for Year 2000 readiness. The Company's software vendors have tested
and have informed the Bank as to the readiness of all critical systems for
Year 2000 readiness. In addition, the Company has upgraded its Business
Recovery Plan and has developed a Year 2000 Contingency Plan.
. Implementation: Saturday, January 1, 2000 will be treated as a data
processing conversion. Contingency plans have been developed and much of
the testing has been completed. The Bank has tested its capability to
handle communication and power outages as well as auxiliary Bank software
systems malfunctions. The testing has been successful with the remainder to
be completed in 1999.
Significant vendors and commercial loan customers were contacted.
Commercial loan customers were asked to fill out a survey so assessment of their
status with regard to the complications of the upcoming Year 2000 issues and
their readiness for that time could be determined. Significant vendors were
queried as to their ability to continue to supply their product without delay
with the passing of Year 2000. Of course, the response of certain third parties
is beyond control of the Company.
Year 2000 compliance costs pertaining to internal staff incurred
cumulatively through June 30, 1999 have been approximately $100,000. An
additional $5,000 is expected in 1999 for these same costs. Direct capital
expenditures in their entirety have neared $100,000 through June 30, 1999 with
further nominal amounts expected in 1999. These costs do not include normal
ongoing costs for computer hardware (including ATM's) and software that have
been incurred or would be replaced in the next year even without the presence of
the Year 2000 Issue as these pertain to the ongoing programs for updating the
Company's delivery infrastructure.
Despite the Company's efforts in regards to the Year 2000 Issue, there can
be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software would not have a material adverse
effect upon the Company's business, financial condition, results of operations,
and business prospects.
Forward-Looking Statements
- --------------------------
Certain statements in Management's Discussion and Analysis are forward-
looking statements within the meaning of the Securities Act of 1933 as amended
and the Securities Exchange Act of 1934 as amended. Actual results, performance,
or developments may differ materially from those expressed or implied by such
forward-looking statements as a result of market uncertainties and other factors
related to Internet-based businesses. The financial services market generally,
and the market for the Company's products and services specifically, is
characterized by a high degree of competition and rapidly changing local,
national, and global market, financial and economic conditions. Such
developments, as well as unforeseen developments in the financial services
industry, could have an adverse impact on the Company's financial position and
results of operations.
20
<PAGE>
Item 2 - continued
Market Prices and Related Shareholder Matters
- ---------------------------------------------
The stock of the Company is listed on The Nasdaq Stock Market under the
symbol BSBN. As of June 30, 1999, the Company had 1,734 shareholders of record
and 8,684,862 shares of common stock outstanding. The number of shareholders
does not reflect persons or entities who hold their stock in nominee or "street"
name through various brokerage firms.
The following table sets forth the market price information as reported by
The Nasdaq Stock Market for the common stock.
Price Range Cash Dividends
1998 High Low Per Share
- ---------------------------------------------------------------------------
First Quarter $36.00 $28.00 $0.22
Second Quarter $35.25 $27.50 $0.22
Third Quarter $32.75 $25.63 $0.22
Fourth Quarter $33.00 $22.00 $0.25
1999
- ---------------------------------------------------------------------------
First Quarter $32.68 $24.25 $0.25
Second Quarter $28.00 $24.25 $0.25
21
<PAGE>
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's consolidated results of operations depend to a large extent
on the level of its net interest income, which is the difference between
interest income from interest-earnings assets (such as loans and investments)
and interest expense on interest-bearing liabilities (such as deposits and
borrowings). If interest-rate fluctuations cause the Company's cost of funds to
increase faster than the yield on its interest-bearing assets, net interest
income will decrease. In addition, the market values of most of its financial
assets are sensitive to fluctuations in market interest rates. The Company
measures and manages its interest-rate risk by focusing on the Company's "gap",
which is the 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.
Based on the Company's latest analysis of asset/liability mix (April 30,
1999), management's simulation analysis of the effects of changing interest
rates projected that a gradual 200 basis point increase in interest rates over
the 12 months ending April 30, 1999 would decrease net interest income for that
period by 4.59% or less and that a similar decrease in interest rates would
increase net interest income by 4.24% or less. The test is based on a number of
assumptions and there can be no assurance that if interest rates did move by two
percent that the Company's results of operations would be impacted as estimated.
Although the Company uses various monitors of interest-rate risk, the Company is
unable to predict future fluctuations in interest rates or the specific impact
thereof.
Changes in interest rates can also affect the amount of loans the Company
originates, as well as the value of its loans and other interest-earning assets
and its ability to realize gains on the sale of such assets and liabilities.
Prevailing interest rates also affect the extent to which borrowers prepay loans
owned by the Company. When interest rates increase, borrowers are less likely to
prepay their loans, and when interest rate decrease, borrowers are more likely
to prepay loans. Funds generated by prepayment might be invested at less
favorable interest rates. Prepayments may adversely affect the value of mortgage
loans, the levels of such assets that are retained in the Company's portfolio,
net interest income and loan servicing income. Similarly, prepayments on
mortgage-backed securities can adversely affect the value of such securities and
the interest income generated by them.
Increases in interest rates might cause depositors to shift funds from
accounts that have a comparatively lower cost (such as regular savings accounts)
to accounts with a higher cost (such as certificates of deposits). If the cost
of deposits increases at a rate greater than yields on interest-earning assets
increase, the interest-rate spread will be negatively affected. Changes in the
asset and liability mix also affect the Company's interest-rate risk.
The Company faces substantial competition for deposits and loans throughout
its market area both from local financial institutions and from out-of-state
financial institutions that either solicit deposits or maintain loan production
offices in the Company's market area. The Company competes for deposits and
loans primarily with other financial service providers such as savings
institutions, commercial banks, credit unions, money market funds, and other
investment alternatives. The Company believes that its ability to compete
effectively depends largely on its ability to compete with regard to interest
rates, as well as service fees, personalized services, quality and range of
financial products and services offered, convenience of office hours and
locations, and automated services.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
Not applicable
Item 2 - Changes in Securities
---------------------
Not applicable
Item 3 - Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
(a) On April 26, 1999, the Company held an Annual Meeting of
Shareholders (the "Annual Meeting") to elect three directors
for a term of three years, to amend the Company's 1996 Long-
Term Incentive and Capital Accumulation Plan, and to ratify
the appointment of the Company's independent auditors for
the fiscal year ended December 31, 1999.
(b) At the Annual Meeting, Mssrs. Robert W. Allen, Alex S.
DePersis, and Thomas F. Kelly were elected as directors.
Each of the following individual's term of office continued
after the Annual Meeting:
Ferris G. Akel Mark T. O'Neil, Jr.
Diana J. Bendz William H. Rincker
William C. Craine Thomas L. Thorn
David A. Niermeyer
(c) Set forth below is a description of each matter voted upon
at the Annual Meeting and the number of votes cast for,
against or withheld, as well as the number of abstentions
and broker non-votes as to each such matter.
1. Three directors were elected for a term of three years,
or until their successors have been elected and
qualified. A list of such directors, including the
votes for, withheld and abstentions, and broker non-
votes, is set forth below:
<TABLE>
<CAPTION>
Votes For Withheld Abstentions Broker Non-votes
<S> <C> <C> <C> <C>
Robert W. Allen 6,526,434 714,180 0 0
Alex S. DePersis 6,526,434 714,180 0 0
Thomas F. Kelly 6,526,414 714,200 0 0
</TABLE>
2. The Company's 1996 Long-Term Incentive and Capital
Accumulation Plan was amended to increase the number of
aggregate shares of Common Stock for which options,
stock appreciation rights and performance shares may be
granted under the Plan from 875,000 to 1,300,000 and to
increase the number of shares subject to options that
may be granted under the Plan to any employee in any
Plan Year to 100,000. There were 4,777,144 votes cast
for the proposal, and 2,260,065 votes against the
proposal, and 203,395 votes abstained. There were no
broker non-votes.
3. The appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year
ended December 31, 1999 was ratified. There were
7,172,894 votes cast for the proposal, 34,751 votes
against the proposal, and 32,968 votes abstained. There
were no broker non-votes.
Item 5 - Other Information
-----------------
Not applicable
23
<PAGE>
Part II - continued
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3 By-Laws
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K as filed with SEC on May 26,
1999
24
<PAGE>
Part II - continued
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BSB Bancorp, Inc.
Date: August 13, 1999 By: /s/ Alex S. DePersis
----------------------- ------------------------------
ALEX S. DEPERSIS
President
and Chief Executive Officer
Date: August 13, 1999 By: /s/ Rexford C. Decker
----------------------- ----------------------------------
REXFORD C. DECKER
Senior Vice President
and Chief Financial Officer
25
<PAGE>
Exhibit 3
BYLAWS OF BSB BANCORP, INC.
BSB BANCORP, INC.
ARTICLE I.
OFFICES
1.1 Registered Office and Registered Agent. The registered office of BSB
Bancorp, Inc. ("Corporation") shall be located in the State of Delaware at such
place as may be fixed from time to time by the Board of Directors upon filing of
such notices as may be required by law, and the registered agent shall have a
business office identical with such registered office.
1.2 Other Offices. The Corporation may have other offices within or
outside the State of Delaware at such place or places as the Board of Directors
may from time to time determine.
ARTICLE II.
SHAREHOLDERS' MEETINGS
2.1 Meeting Place. All meetings of the shareholders shall be held at the
principal place of business of the Corporation, or at such other place as shall
be determined from time to time by the Board of Directors, and the place at
which any such meeting shall be held shall be stated in the notice of the
meeting.
2.2 Annual Meeting Time. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the fourth Monday of
April at the hour of 10:00 a.m., if not a legal holiday, and if a legal holiday,
then on the day following, at the same hour, or at such other date and time as
may be determined by the Board of Directors.
2.3 Annual Meeting -- Order of Business. At the annual meeting of
shareholders, the order of business shall be as follows:
(a) Calling the meeting to order
(b) Proof of notice of meeting (or filing waiver)
(c) Election of Directors
(d) Old business
(e) New business
2.4 Special Meetings. Special meetings of the shareholders for any purpose
may be called at any time by the affirmative vote of a majority of the Board of
Directors and may not be called by shareholders of the Corporation.
2.5 Notice.
(a) Notice of the time and place of the annual meeting of shareholders
shall be given by delivering personally or by mailing a written or printed
notice of the same, at least ten days and not more than sixty days prior to the
meeting, to each shareholder of record entitled to vote at such meeting. When
any shareholders' meeting, either annual or special, is adjourned for thirty
days or more, or if a new record date is fixed for an adjourned meeting of
shareholders, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than thirty days or of the business
to be transacted thereat (unless a new record date is fixed therefor), other
than an announcement at the meeting at which such adjournment is taken.
26
<PAGE>
Exhibit 3 - continued
(b) At least ten days and not more than sixty days prior to the meeting, a
written or printed notice of each special meeting of shareholders, stating the
place, day and hour of such meeting, and the purpose or purposes for which the
meeting is called, shall be either delivered personally or mailed to each
shareholder of record entitled to vote at such meeting.
2.6 Voting Record. At least ten days before each meeting of shareholders,
a complete record of the shareholders entitled to vote at such meeting, or any
adjournment thereof, shall be made, arranged in alphabetical order, with the
address of and number of shares held by each, which record shall be kept on file
at the registered office of the Corporation for a period of ten days prior to
such meeting. The record shall be kept open at the time and place of such
meeting for the inspection of any shareholder.
2.7 Quorum. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of shareholders
shall consist of shareholders representing, either in person or by proxy, a
majority of the outstanding capital stock of the Corporation entitled to vote at
such meeting.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of shareholders at which a quorum,
as defined above, is present, shall be sufficient to transact business.
2.8 Voting of Shares. Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, each shareholder, on each matter
submitted to a vote at a meeting of shareholders, shall have on vote for each
share of stock registered in his or her name on the books of the Corporation.
2.9 Closing of Transfer Books and Fixing Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of any
dividend, the Board of Directors may provide that the stock transfer books shall
be closed for a stated period not to exceed sixty days nor be less than ten days
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than sixty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
2.10 Proxies. A shareholder may vote in person or by proxy executed in
writing by the shareholder or his or her duly authorized attorney-in-fact. A
shareholder may also authorize another person or persons to act for such
shareholder as proxy (a) by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided that any such
telegram, cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegraph, cablegram or other electronic transmission was authorized by the
shareholder, or (b) as otherwise permitted by law. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy.
2.11 Waiver of Notice. A waiver of any notice required to be given any
shareholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting, shall be equivalent to
the giving of such notice.
2.12 Action of Shareholders by Communications Equipment. Shareholders may
participate in a meeting of shareholders by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
2.13 Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, in the absence of written directions
to the Corporation to the contrary, at any meeting of the shareholders of the
Corporation any one or more of such shareholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt
is made to cast conflicting votes, in person or by proxy, by the several persons
in whose names shares of stock stand, the vote or votes to which those persons
are entitled shall be cast as directed by a majority of those holding such stock
and present in person or by proxy at such meeting, but no votes shall be cast
for such stock if a majority cannot agree.
2.14 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by an officer, agent or proxy as the Bylaws of
such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by
27
<PAGE>
Exhibit 3 - continued
him or her, either in person or by proxy, but no trustee shall be entitled to
vote shares held by him or her without a transfer of such shares into his or her
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority to
do so is contained in an appropriate order of the court or other public
authority by which such receiver was appointed. A shareholder whose shares are
pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
ARTICLE III.
CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each shareholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or the Treasurer, and may be
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of such officers may be facsimiles if the certificate is manually signed on
behalf of a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be an officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer on the date of
issue. Each certificate of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Delaware;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if
any, which such certificate represents; and
(d) the par value of each share represented by such certificate, or a
statement that such shares are without par value.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock transfer books of
the Corporation, kept at the registered office of the Corporation or at its
principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from the certificate, or by a written
power of attorney to sell, assign and transfer the same, signed by the holder of
said certificate. No shares of stock shall be transferred on the books of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation.
3.3 Registered Owner. Registered shareholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Delaware. The Board of Directors may adopt
by resolution a procedure whereby a shareholder of the Corporation may certify
in writing to the Corporation that all or a portion of the shares registered in
the name of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained therein;
(d) If the certification is with respect to a record date or closing of
the stock transfer books, the date within which the certification must be
received by the Corporation; and
28
<PAGE>
Exhibit 3 - continued
(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable.
Upon receipt by the Corporation of a certification complying with the above
requirements, the persons specified in the certification shall be deemed, for
the purpose or purposes set forth in the certification, to be the holders of
record of the number of shares specified in place of the shareholder making the
certification.
3.4 Mutilated, Lost or Destroyed Certificates. In case of any mutilation,
loss or destruction of any certificate of stock, another may be issued in its
place upon receipt of proof of such mutilation, loss or destruction. The Board
of Directors may impose conditions on such issuance and may require the giving
of a satisfactory bond or indemnity to the Corporation in such sum as they might
determine, or establish such other procedures as they deem necessary.
3.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 Shares of Another Corporation. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation, or the Designee of the
President.
ARTICLE IV.
BOARD OF DIRECTORS
4.1 Number and Powers. The management of all the affairs, property and
interest of the Corporation shall be vested in a Board of Directors. The Board
of Directors shall be divided into three classes as nearly equal in number as
possible. The initial Board of Directors shall consist of 14 persons whose
respective terms shall be as set forth in Article 7.1 of the Corporation's
Certificate of Incorporation. Thereafter, the members of each class shall be
elected for a term of three years and until their successors are elected and
qualified. One class shall be elected annually, either by ballot or voice vote,
as the presiding officer of the meeting may determine. Directors need not be
shareholders or residents of the State of Delaware. In addition to the powers
and authorities expressly conferred upon it by these Bylaws and the Certificate
of Incorporation, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
4.2 Change of Number. The number of directors may at any time be
increased or decreased in the manner provided in the Corporation's Certificate
of Incorporation, provided that no decrease shall have the effect of shortening
the term of any incumbent director except as provided in Sections 4.3 and 4.4
hereunder.
4.3 Vacancies. All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, shall be filled in the manner provided in the
Corporation's Certificate of Incorporation. A director elected to fill any
vacancy shall hold office for the unexpired term of his or her predecessor and
until his or her successor is elected and qualified. Any directorship to be
filled by reason of an increase in the number of directors may be filled by the
Board of Directors. A director elected to fill any vacancy shall hold office
until the next election of the class for which such director shall have been
chosen, and until his or her successor shall be elected and qualified.
4.4 Removal of Directors. Directors may be removed in the manner provided
in the Corporation's Certificate of Incorporation.
4.5 Regular Meeting. Regular meetings of the Board of Directors or any
committee may be held without notice at the principal place of business of the
Corporation or at such other place or places, either within or without the State
of Delaware, as the Board of Directors or such committee, as the case may be,
may from time to time designate. The annual meeting of the Board of Directors
shall be held without notice immediately after the adjournment of the annual
meeting of shareholders.
29
<PAGE>
Exhibit 3 - continued
4.6 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any time
by the Chairman, President or by a majority of the authorized number of
directors, to be held at the principal place of business of the Corporation or
at such other place or places as the Board of Directors or the person or persons
calling such meeting may from time to time designate. Notice of all special
meetings of the Board of Directors shall be given to each director by five days'
service of the same by telegram, by letter, or personally. Such notice need not
specify the business to be transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by such
person or persons and with such notice as shall be specified for such committee
by the Board of Directors, or in the absence of such specification, in the
manner and with the notice required for special meetings of the Board of
Directors.
4.7 Quorum. A majority of the whole Board of Directors shall be necessary
at all meetings to constitute a quorum for the transaction of business.
4.8 Waiver of Notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before or after the time stated for the meeting,
shall be equivalent to the giving of notice.
4.9 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his or her dissent shall be
entered in the minutes of the meeting, or unless he or she shall file his or her
written dissent to such action with the person acting as the secretary of the
meeting, before the adjournment thereof, or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
4.10 Executive and Other Committees. Standing or special committees may be
appointed from its own number by the Board of Directors from time to time and
the Board of Directors may from time to time invest such committees with such
powers as it may see fit, subject to such conditions as may be prescribed by the
Board. An Executive Committee may be appointed by resolution passed by a
majority of the full Board of Directors. It shall have and exercise all of the
authority of the Board of Directors, except in reference to amending the
Certificate of Incorporation, adopting a plan of merger or consolidation,
recommending the sale, lease or exchange or other dispositions of all or
substantially all of the property and assets of the Corporation otherwise than
in the usual and regular course of business, recommending a voluntary
dissolution or a revocation thereof, or amending these Bylaws. All committees
so appointed shall keep regular minutes of the transactions of their meetings
and shall cause them to be recorded in books kept for that purpose in the office
of the Corporation. The designation of any such committee, and the delegation
of authority thereto, shall not relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
4.11 Remuneration. No stated fee shall be paid directors, as such, for
their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board; provided, that nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
4.12 Action by Directors Without a Meeting. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
4.13 Action of Directors by Communications Equipment. Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time.
4.14 Age Limitation. No person all be eligible for election, reelection,
appointment or reappointment to the Board of Directors if such person is more
than 70 years of age. No director shall serve beyond the Annual Meeting of the
Corporation immediately following his or her attainment of 70 years of age.
30
<PAGE>
Exhibit 3 - continued
ARTICLE V.
OFFICERS
5.1 Positions. The Board of Directors may, at any regular or special
meeting, elect a Chairman of the Board and shall elect a President, one of whom
shall also be designated as chief executive officer. The Board of Directors
shall also elect one or more vice presidents, a secretary and a treasurer and
such other officers as it deems necessary. The Board of Directors may designate
one or more vice presidents as executive vice president or senior vice
president.
5.2 Powers and Duties. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
5.3 Delegation. In the case of absence or inability to act of any officer
of the Corporation and of any person herein authorized to act in his or her
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Other Officers. Directors may appoint such other officers and agents
as it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.6 Term -- Removal. The officers of the Corporation shall hold office
until their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
5.7 Bonds. The Board of Directors may, by resolution, require any and all
of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI.
DIVIDENDS AND FINANCE
6.1 Dividends. Dividends may be declared by the Board of Directors and
paid by the Corporation (1) out of the surplus of the Corporation, subject to
the conditions and limitations imposed by the State of Delaware, or (2) in case
there shall be no surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year. If the capital of the
Corporation, subject to the conditions and limitations imposed by the State of
Delaware, shall have been diminished by depreciation in the value of its
property, or by losses, or otherwise, to an amount less than the aggregate
amount of the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, the Board of
Directors shall not declare and pay out of such net profits any dividend upon
any shares of any classes of its capital stock until the deficiency in the
amount of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets shall have been repaired.
The stock transfer books may be closed for the payment of dividends during such
periods of not in excess of fifty days, as from time to time may be fixed by the
Board of Directors. The Board of Directors, however, without closing the books
of the Corporation, may declare dividends payable only to the holders of record
at the close of business on any business day not more than fifty days prior to
the date on which the dividend is paid.
6.2 Reserves. The Board of Directors, in their absolute discretion, may
set apart out of any of the funds of the Corporation available for dividends, a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
maintaining any property of the Corporation, or for any other proper purpose,
and may abolish any such reserve.
31
<PAGE>
Exhibit 3 - continued
6.3 Depositories. The monies of the Corporation shall be deposited in the
name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII.
INDEMNIFICATION OF DIRECTORS, OFFICERS
AND EMPLOYEES
Officers, directors, employees and agents of the Corporation, and former
directors and officers, shall be indemnified for that period in which they
provide service to the Corporation to the full extent, and in the manner
provided for, in the Corporation's Certificate of Incorporation.
ARTICLE VIII.
NOTICES
Except as may otherwise be required by law, any notice to any shareholder
or director may be delivered personally or by mail. If mailed, the notice shall
be deemed to have been delivered when deposited in the United States mail,
addressed to the addressee at his or her last known address in the records of
the Corporation, with sufficient postage thereon prepaid.
ARTICLE IX.
SEAL
The corporate seal of the Corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Corporation.
ARTICLE X.
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its shareholders and Board of
Directors meetings; and it shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its shareholders, giving the names and addresses of all shareholders and the
number and class of the shares held by each. Any books, records and minutes may
be in written form or any other form capable of being converted into written
form within a reasonable time.
ARTICLE XI.
AMENDMENTS
11.1 Amendments. These Bylaws may be altered, amended or repealed by the
affirmative vote of a majority of the votes cast by the Board of Directors or by
the affirmative vote of a majority of the votes cast by shareholders of the
Corporation at a regular or special meeting of the shareholders.
11.2 Emergency Bylaws. The Board of Directors may adopt emergency Bylaws,
subject to repeal or change or by action of the shareholders, which shall be
operative during any emergency in the conduct of the business of the Corporation
resulting from an attack on the United States or any nuclear or atomic disaster.
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 48,923
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 382,238
<INVESTMENTS-CARRYING> 8,102
<INVESTMENTS-MARKET> 7,935
<LOANS> 1,522,240
<ALLOWANCE> 23,998
<TOTAL-ASSETS> 1,995,150
<DEPOSITS> 1,561,136
<SHORT-TERM> 182,818
<LIABILITIES-OTHER> 15,110
<LONG-TERM> 100,000
113
0
<COMMON> 0
<OTHER-SE> 135,973
<TOTAL-LIABILITIES-AND-EQUITY> 1,995,150
<INTEREST-LOAN> 63,970
<INTEREST-INVEST> 12,358
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 76,328
<INTEREST-DEPOSIT> 32,733
<INTEREST-EXPENSE> 6,403
<INTEREST-INCOME-NET> 37,192
<LOAN-LOSSES> 6,706
<SECURITIES-GAINS> (211)
<EXPENSE-OTHER> 17,239
<INCOME-PRETAX> 17,198
<INCOME-PRE-EXTRAORDINARY> 17,198
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,679
<EPS-BASIC> 1.23
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 8.31
<LOANS-NON> 14,511
<LOANS-PAST> 910
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 22,168
<CHARGE-OFFS> 5,753
<RECOVERIES> 877
<ALLOWANCE-CLOSE> 23,998
<ALLOWANCE-DOMESTIC> 23,998
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
