<PAGE>
This statement is intended to satisfy the requirements for an annual disclosure
statement as contained in Section 350.4(a) of the Federal Deposit Insurance
Corporation regulations. This statement has not been reviewed, or confirmed for
accuracy or relevance, by the Federal Deposit Insurance Corporation.
- --------------------------------------------------------------------------------
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 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: 0-17177
BSB BANCORP, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1327860
--------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58-68 Exchange Street, Binghamton, New York 13901
------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 779-2492
Securities registered pursuant to Section 12(b) of the Act: Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, ($0.01 par value per share)
-----------------------------------------
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference of Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of March 6, 2000, the aggregate value of the 10,245,842 shares of Common
Stock of the Registrant issued and outstanding on such date, excluding 852,013
shares held by all affiliates of the Registrant, was approximately $159,695,093.
This figure is based on the closing sales price of $17.00 per share of the
Registrant's Common Stock on March 6, 2000. For purposes of this calculation,
the shares held by directors and executive officers of the registrant have been
excluded because such persons may be deemed to be affiliates. This reference to
affiliate status is not necessarily a conclusive determination for other
purposes.
Number of shares of Common Stock outstanding as of March 6, 2000 - 10,245,842
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated:
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1999 are incorporated by reference into Part II, Items 5 - 8
of this Form 10-K.
(2) Portions of the definitive Proxy Statement to be filed within 120 days
after the end of the fiscal year, covered by this Report for the Registrant's
Annual Meeting of Shareholders to be held on April 24, 2000 are incorporated by
reference into Part III, Items 10 - 13 of this Form 10-K.
Exhibit Index appears on numbered page 28
<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1999
BSB BANCORP, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for the Registrants Common Equity and Related
Stockholder Matters 21
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and Management 21
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22-25
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
BSB Bancorp, Inc.
BSB Bancorp, Inc. (the "Company") is the Delaware-chartered bank holding
company for BSB Bank & Trust Company ("BSB Bank & Trust" or the "Bank"). The
Company owns 100% of the issued and outstanding common stock, $1.00 par value,
of the Bank, which is the primary asset of the Company. The business of the
Company is the business of the Bank. The Company's and the Bank's principal
executive offices are located at 58-68 Exchange Street, Binghamton, New York
13901, telephone (607) 779-2492.
The Company, as a bank holding company, and the Bank, are subject to
regulation, examination, and supervision by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation ("FDIC") and the State of New York Banking Department
("Banking Department"). Unless the context otherwise requires, all references to
the Company herein are intended to include the activities of the Bank.
BSB Bank & Trust Company
The Bank is headquartered in Binghamton, New York and conducts business in
Broome, Chemung, Chenango, Onondaga, Oswego, and Tioga Counties, and adjacent
areas of New York State. BSB Bank & Trust serves its customers from 22 full-
service banking offices with 29 branch-based automatic teller machines
(MachineTeller(R)), and 21 off-premise automatic teller machines. The Bank also
serves its customers at twelve proprietary banking service locations
(StoreTeller(R)) situated in a large area supermarket chain.
The primary market area of the Bank is Broome, Chemung, Chenango, Onondaga,
Oswego, and Tioga Counties, with a combined population of 1,002,218 according to
the 1990 United States Census. The Bank is the leader in total deposits in
Broome County. Over the past decade, BSB Bank & Trust has changed from a
traditional thrift institution to a diversified financial service organization
providing a broad range of deposit and loan products to area businesses and
consumers. In particular, the Bank has become a major provider of banking
services to the business community, as well as offering banking services to
school districts and cooperative education centers, cities, towns, villages, and
numerous municipal agencies. It has also expanded all phases of consumer
lending, including both direct and indirect automobile financing and credit card
lending.
In July 1999, the Company completed its acquisition of Skaneateles Bancorp,
Inc. Pursuant to the terms of the merger, each share of Skaneateles Bancorp
common stock was exchanged for .97 shares of the Company's common stock.
LENDING ACTIVITIES
Loan Portfolio Composition
BSB Bank & Trust's portfolio of loans totaled $1.7 billion at December 31,
1999, representing 76.9% of the Bank's total assets at that date, compared to
$1.6 billion, and 73.9% of the Bank's total assets at December 31, 1998.
Commercial loans continued to comprise a significant portion of the loan
portfolio, increasing to $904.6 million, or 52.5% of all loans at December 31,
1999. These loans, being generally tied to the Company's Prime Rate, tend to
increase the interest rate sensitivity of the loan portfolio. The consumer loan
share of the portfolio increased from 26.0% of all loans at December 31, 1998 to
27.2%, or $468.0 million at December 31, 1999. Originations of all consumer
loans were $262.3 million for 1999, compared to $244.6 million for 1998. The
Company continues to increase this portfolio via indirect financing through
local and surrounding area automobile dealers. Strong competition from captive
finance companies has tempered originations, especially in the last half of
1999, to keep total originations for indirect used autos at $102.8 million for
1999 compared to $105.3 million for 1998. Indirect new auto loan originations
were up from 1998 originations of $29.3 million to $33.3 million in 1999.
Results from this focus on originating consumer loans has increased the balance
of the indirect new and used auto loan portfolios to $242.2 million at December
31, 1999 from $208.4 million at December 31, 1998. Direct consumer loans
increased from $80.1 million
1
<PAGE>
at December 31, 1998 to $82.6 million at December 31, 1999. The balance of
mobile home loans increased to $66.8 million at December 31, 1999 from $54.9
million at December 31, 1998.
The Company's policy of selling or securitizing fixed-rate residential
mortgages to improve the liquidity of the portfolio, reduce interest rate risk,
and to build servicing portfolio income resulted in sales and securitizations of
$179.9 million in 1998. In 1999, $111.7 million of fixed-rate residential
mortgages were sold to aid in managing liquidity and collateral needs. The
Company had originations of fixed-rate residential mortgages of $113.6 million
for 1999 compared to $193.9 million in 1998.
The following table sets forth the composition of the Bank's loan portfolio by
loan type as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in Thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 904,632 52.53% $ 802,474 50.86% $ 677,238 47.68% $ 555,640 45.73% $ 466,075
Consumer:
Student 1,665 0.10% 2,393 0.15% 4,071 0.29% 2,451 0.20% 9,798
Personal direct 82,579 4.79% 80,069 5.07% 67,244 4.74% 51,494 4.24% 35,248
Personal indirect-used auto 182,844 10.62% 156,606 9.92% 114,249 8.05% 67,336 5.54% 50,488
Personal indirect-new auto 59,354 3.45% 51,746 3.28% 49,475 3.48% 44,844 3.69% 48,556
Personal indirect-mobile homes 66,814 3.87% 54,867 3.48% 45,506 3.20% 27,728 2.28% 23,002
Personal indirect-others 27,039 1.57% 18,715 1.19% 8,864 0.62% 4,374 0.36% 4,610
Savings account 114 0.01% 153 0.01% 229 0.02% 340 0.03% 423
Overdraft checking 580 0.03% 1,231 0.08% 1,277 0.09% 1,270 0.10% 998
Business line of credit 1,612 0.09% 956 0.06% 1,025 0.07%
Home equity 32,125 1.87% 31,738 2.01% 34,081 2.40% 33,433 2.75% 34,988
Debit card 2,662 0.15% 1,814 0.11% 1,278 0.09% 628 0.05%
Credit card 10,598 0.62% 10,499 0.67% 10,255 0.72% 9,575 0.79% 9,692
- -----------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 467,986 27.17% 410,787 26.03% 337,554 23.77% 243,473 20.03% 217,803
- -----------------------------------------------------------------------------------------------------------------------------------
Real estate:
Fixed-rate:
Residential 96,446 5.60% 100,959 6.40% 101,656 7.16% 92,953 7.65% 100,340
FHA & VA 5,509 0.32% 7,910 0.50% 10,390 0.73% 13,390 1.10% 16,810
Commercial 11,516 0.67% 5,614 0.36% 6,845 0.48% 8,395 0.69% 6,202
Commercial FHA 186 0.01% 194 0.01% 202 0.01% 208 0.02% 214
- -----------------------------------------------------------------------------------------------------------------------------------
Total fixed-rate 113,657 6.60% 114,677 7.27% 119,093 8.38% 114,946 9.46% 123,566
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustable-rate:
Residential 74,481 4.32% 87,644 5.55% 119,115 8.39% 134,945 11.10% 135,522
Commercial 161,496 9.38% 162,327 10.29% 167,352 11.78% 166,181 13.68% 155,615
- -----------------------------------------------------------------------------------------------------------------------------------
Total adjustable-rate 235,977 13.70% 249,971 15.84% 286,467 20.17% 301,126 24.78% 291,137
- -----------------------------------------------------------------------------------------------------------------------------------
Total real estate 349,634 20.30% 364,648 23.11% 405,560 28.55% 416,072 34.24% 414,703
- -----------------------------------------------------------------------------------------------------------------------------------
$1,722,252 100.00% $1,577,909 100.00% $1,420,352 100.00% $1,215,185 100.00% $1,098,581
===================================================================================================================================
</TABLE>
The following table sets forth scheduled contractual amortization of loans in
the Bank's portfolio at December 31, 1999. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdraft loans are reported
as due in one year or less. The following table also sets forth the dollar
amount of loans which are scheduled to mature after one year which have fixed
and adjustable interest rates.
<TABLE>
<CAPTION>
Residential Commercial Commercial
Real Estate Real Estate Business Consumer
(Dollars in Thousands) Loans Loans Loans Loans Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 10,554 $ 15,896 $382,180 $110,468 $ 519,098
After one year through five years 41,691 53,819 379,474 248,120 723,104
Beyond five years 124,191 103,483 142,978 109,398 480,050
- ------------------------------------------------------------------------------------------------
Total $176,436 $173,198 $904,632 $467,986 $1,722,252
================================================================================================
Amounts due after one year:
Fixed $ 93,756 $ 10,830 $295,289 $325,429 $ 725,304
================================================================================================
Adjustable $ 72,126 $146,472 $227,163 $ 32,089 $ 477,850
================================================================================================
</TABLE>
Contractual maturities of loans do not necessarily reflect the actual term of
loans in the Bank's portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments and
2
<PAGE>
enforcement of due-on-sale clauses. These clauses give the Bank the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase, however,
when current mortgage rates substantially exceed rates on existing mortgages.
Interest rates charged by the Bank on loans are affected principally by the
demand for such loans and the supply of funds available for lending purposes.
These factors are in turn affected by general economic conditions, monetary
policies of the federal government, including the Federal Reserve Board,
legislative tax policies, and governmental budgetary matters.
3
<PAGE>
Origination, Securitization, and Sale of Loans
The following table shows the loans originated, securitized, sold, and repaid
during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross loans receivable at beginning of period $1,594,715 $1,427,811 $1,216,752
Mortgage loan originations:
Conventional
One- to four-family dwellings
Fixed-rate 112,024 191,096 97,816
Adjustable-rate 4,822 4,073 8,562
Commercial real estate 46,640 56,042 58,282
FHA/VA 1,588 2,795 4,188
- ---------------------------------------------------------------------------------------
Total mortgage loans originated 165,074 254,006 168,848
- ---------------------------------------------------------------------------------------
Commercial loan originations 285,999 346,881 259,412
Consumer loan originations:
Student loans 3,221 3,033 3,151
Personal direct loans 38,206 39,295 37,096
Personal indirect used auto loans 102,798 105,315 89,674
Personal indirect new auto loans 33,277 29,311 31,137
Personal indirect mobile home loans 22,431 20,428 24,010
Personal indirect other loans 15,352 2,460 1,240
Home improvement loans 82 19
Savings account loans 18 39 231
Business line of credit loans 4,144 2,998 1,149
Overdraft checking 1,857 2,137 2,552
Debit card 5,887 4,094 2,822
Equity lines of credit 15,567 17,899 17,570
Credit card 19,571 17,525 15,721
- ---------------------------------------------------------------------------------------
Total consumer loans originated 262,329 244,616 226,372
- ---------------------------------------------------------------------------------------
Total loans originated 713,402 845,503 654,632
- ---------------------------------------------------------------------------------------
Commercial loan-credit advances 1,048,761 927,898 992,642
Principal repayments 1,517,802 1,421,987 1,351,031
Loans securitized:
FNMA-fixed 43,761 1,620
FNMA-adjustable
- ---------------------------------------------------------------------------------------
Total loans securitized 43,761 1,620
- ---------------------------------------------------------------------------------------
Loan sales:
Student loans 3,056 4,562 1,708
Residential mortgages 111,683 136,187 81,856
- ---------------------------------------------------------------------------------------
Total loan sales 114,739 140,749 83,564
- ---------------------------------------------------------------------------------------
Net loan activity 129,622 166,904 211,059
- ---------------------------------------------------------------------------------------
Gross loans receivable and loans
held for sale at end of period 1,724,337 1,594,715 1,427,811
Loans held for sale (2,085) (16,806) (7,459)
- ---------------------------------------------------------------------------------------
Gross loans receivable at the end of the period 1,722,252 1,577,909 1,420,352
Allowance for possible credit losses (29,134) (25,030) (21,768)
Net deferred (fees) costs 636 507 (128)
- ---------------------------------------------------------------------------------------
Net loans receivable at the end of period $1,693,754 $1,553,386 $1,398,456
=======================================================================================
</TABLE>
4
<PAGE>
Commercial Lending
The commercial loan portfolio has become a significant part of the Bank's
asset base. As of December 31, 1999, commercial loans amounted to $904.6
million, or 52.5% of the Bank's total loans as compared with $802.5 million, or
50.9% as of December 31, 1998. Under New York law, the Bank generally may not
lend to any one entity more than 15% of the bank's capital stock, surplus, and
undivided profits. However, the Bank is permitted to extend a loan up to 25% of
the Bank's capital stock, surplus, and undivided profits, provided that at least
the amount of such loan between 15% and 25% of the Bank's capital stock,
surplus, and undivided profits is collateralized. The Bank's policy, however,
restricts loans to any borrower and related entities to 15% of shareholders'
equity. Loan relationships approaching 15% of the Bank's shareholders' equity
generally require diversification in both repayment source and collateral. At
December 31, 1999, 14 loan relationships had outstanding loans and commitments
exceeding 10% of shareholders' equity compared to 15 at December 31, 1998. Also
at December 31, 1999, there were 0 loan relationships with outstanding loans and
commitments exceeding 15% of shareholders' equity compared to 2 at December 31,
1998. Each of these relationships have a well diversified source of repayment
with adequate collateral, and any exception to policy must be approved by the
Board Loan Committee. The Bank offers a variety of commercial loan services,
including term loans and revolving lines of credit, as well as letters of
credit. Commercial lending involves somewhat greater credit risks to the Bank
than most other types of lending. See "Loan Underwriting Policies".
At December 31, 1999, there were $329.9 million in commitments outstanding and
the portfolio consisted of loans with an average outstanding balance of
$193,000. Management continues to emphasize commercial loan originations, which
amounted to $346.9 million, or 41.0% of total loans originated in 1998 compared
to $286.0 million, or 40.1% of total loans originated in 1999. Total loan
commitments to the 10 largest lending relationships ranged from $15.7 million to
$20.3 million at December 31, 1999. Outstanding loan balances for these 10
relationships ranged from $5.9 million to $17.4 million are made up of 7
individual loans. Each of these loans have varied sources of repayment and
collateral. The Bank continually reviews all larger group credits and often
sells participations in these credits to other banks to limit exposure.
The commercial loan portfolio is diversified by industry, type, and size, and
the loans have been made primarily to small- and medium-sized businesses in the
regional market. Approximately 62% of the Bank's commercial loans bear floating
interest rates tied to the Bank's prime rate ("Prime Rate"). The average yield
on the commercial loan portfolio was 9.03% in 1999 and 9.65% in 1998. The Bank's
average Prime Rate was 8.02% in 1999 and 8.38% in 1998. Commercial loans are
made on both a collateralized and uncollateralized basis, and include
collateralized lines of credit. Although most have shorter terms, the maximum
term of a non-real estate collateralized commercial loan is ten years. The
largest single extension of credit at December 31, 1999 was in the amount of
$20.3 million and, as of that date, the largest single loan outstanding was $2.0
million on that credit. As of December 31, 1999, the Bank had 25 other
relationships with outstanding loans and relationships exceeding $9.5 million.
The Bank monitors commercial loan and commercial real estate industry
stratifications at least twice a year and continues to require diversity
throughout its commercial loan and commercial real estate portfolios. At
December 31, 1999, the manufacturing industry made up 20.8% of the portfolio. At
that same date, the service industry was 20.1% of the portfolio,
finance/insurance/ real estate was 19.5% of the portfolio, loans to retail
businesses stood at 14.6%, and loans to wholesale trade businesses at 11.1%
rounded the top five. The order of these industrial classifications has not
changed from December 31, 1998 and the percentages remained constant, except
that loans to wholesale trades companies increased from 9.0% to 11.1%
representing the largest change. Geographic concentrations are also reviewed at
the same time as industry concentrations. Approximately 64% of commercial loans
are located in the Bank's primary market area of Broome, Chemung, Chenango,
Onondaga, Oswego, and Tioga Counties. The remaining 36% are spread through other
counties of New York State.
In addition to the various types of lending services, the Bank also offers to
commercial customers a range of depository and related services, including
commercial demand deposit accounts, cash management, payroll, and direct deposit
to employees' accounts.
Consumer Lending
The Bank engages in a variety of consumer lending activities. As of December
31, 1999, a total of $468.0 million of consumer loans was outstanding as
compared to $410.8 million and $337.6 million at December 31, 1998 and 1997,
respectively. As seen in the table on page 2, the majority of the consumer loans
is comprised of $418.7 million in personal loans (which includes indirect loans
and savings account loans), $32.1 million in home equity loans, and $13.3
million in credit and debit card loans. Consumer loans generally involve more
risk of collectibility than mortgage
5
<PAGE>
loans because of the type and nature of the collateral, and, in certain cases,
the absence of collateral. As a result, consumer lending collections are
dependent on the borrowers' continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, personal bankruptcy, and
by adverse economic conditions.
Of the $418.7 million in personal loans outstanding at December 31, 1999,
$82.7 million or 19.8% represented the Bank's portfolio of direct consumer loans
originated by the Bank's lending staff; the $336.0 million or 80.2% represented
the indirect consumer loan portfolio originated through relationships with
mobile home service companies, automobile, and other retail dealers. Indirect
originations in 1999 totaled $173.9 million or 66.3% of all consumer loan
originations. Of these indirect originations, used auto loans was the largest
source at $102.8 million. Mobile home loans are originated through service
companies and are supported by recourse agreements against significant reserve
account balances. All personal loans originated for the Bank are advanced at
fixed interest rates, with a high percentage of the loans offering repayment
terms up to 60 months.
The lending and support staff and data processing system have been enhanced as
the portfolio has grown. Given the past performance of the indirect loan
portfolio and the opportunities for geographic and product diversification
provided by growth in the indirect portfolio, the Bank places greater emphasis
on the origination of indirect consumer loans. In 1999, the Bank originated
$173.9 million of indirect consumer loan contracts compared with $157.5 million
of such consumer loans in 1998.
Home equity lines of credit are primarily an adjustable-rate consumer loan
product with a term of 20 or 30 years, and are generally collateralized by the
borrower's primary residence, when the loan to value ratio, taking into account
the first mortgage loan, does not exceed 75%. During the fourth quarter of 1994,
the Bank began offering home equity lines of credit with a term of 30 years. As
of December 31, 1999, there were total home equity lines of credit available of
$59.5 million with an outstanding balance of $32.1 million. Interest rates on
home equity lines of credit are adjusted monthly to reflect changes in the Prime
Rate.
In 1993, the Bank introduced an adjustable-rate MasterCard program to
complement its fixed-rate Visa credit card program. As of December 31, 1999,
there were total credit card lines available of $42.8 million with an
outstanding balance of $10.6 million as compared to $36.7 million and $10.5
million, respectively, at December 31, 1998.
The significant growth in consumer lending, with its short-term
characteristics, contributed to the improvement of the Bank's overall interest
rate sensitivity because of its more rapid amortization compared to residential
and commercial real estate loans.
Residential Real Estate Lending
The Bank historically has been, and continues to be, a leading originator of
residential real estate loans in its market area. At December 31, 1999, $176.4
million, or 10.2% of the Bank's total loan portfolio consisted of residential
mortgage loans. In 1999 and 1998, residential mortgage loan originations
amounted to $118.4 million and $198.0 million, respectively, which represented
approximately 16.6% and 23.4%, respectively, of the Bank's total loan
originations.
Mortgage activity in recent years has resulted in a substantial increase in
the Bank's serviced mortgage loan portfolio. The serviced mortgage loan
portfolio, a source of non-interest income, increased from $513.3 million at
December 31, 1998 to $559.9 million at December 31, 1999. This increase in
serviced loans from December 31, 1998 to December 31, 1999 was facilitated by
the sales of residential mortgages of $136.2 million in 1998 and $111.7 million
in 1999.
Commercial Real Estate Lending
The Bank originated $46.6 million in commercial real estate loans in 1999
compared to $56.0 million in 1998 and $58.3 million in 1997. At December 31,
1999, the Bank had $173.2 million of commercial real estate loans outstanding,
representing approximately 10.1% of the Bank's total loan portfolio. Adjustable-
rate commercial real estate loans, with rates adjusting every one, three, or
five years, represent 93.2% of the total commercial real estate loan portfolio
at December 31, 1999.
The commercial real estate loans offered by the Bank are being underwritten
with terms of up to 25 years. In setting interest rates and origination fees on
new loans and extensions, management considers both current market
6
<PAGE>
conditions and its analysis of the risk associated with the particular project.
The weighted average yield on commercial real estate adjustable-rate loans for
1999 was 8.80% and 9.21% in 1998. The largest single commercial real estate loan
advanced during 1999 was $4.2 million.
Non-performing Loans and Other Real Estate Owned ("ORE")
The following table sets forth information regarding non-accrual (non-
performing) loans, accruing loans which are 90 days or more overdue, and other
real estate owned held by the Bank at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans:
Non-accrual loans $ 8,448 $11,732 $11,037 $ 7,333 $ 8,928
Consumer loans:
Accruing loans 90 days overdue 945 818 557 451 206
Residential real estate loans:
Non-accrual loans 2,161 2,813 2,400 2,915 2,191
Commercial real estate loans:
Non-accrual loans 53 1,730 2,899 5,088 3,625
- ---------------------------------------------------------------------------------------------------------
Total non-performing loans and accruing
loans 90 days overdue $11,607 $17,093 $16,893 $15,787 $14,950
=========================================================================================================
Total non-performing loans to total loans 0.67% 1.08% 1.19% 1.30% 1.36%
=========================================================================================================
Total real estate acquired in settlement of loans at
lower of cost or fair value $ 910 $ 3,021 $ 3,735 $ 2,110 $ 3,045
=========================================================================================================
Total non-performing loans and real estate acquired in
settlement of loans at fair value to total assets 0.56% 0.94% 1.14% 1.11% 1.24%
=========================================================================================================
</TABLE>
During 1999, 1998, 1997, 1996, and 1995, approximately $806,000, $783,000,
$768,000, $882,000 and $1.0 million of additional interest income would have
been recorded on loans accounted for on a non-accrual basis as of the end of
each period if such loans had been current. These amounts were not included in
the Bank's interest and dividend income for the respective periods.
During 1999, 1998, 1997, 1996, and 1995, $119,000, $567,000, $682,000,
$442,000 and $522,000 respectively, of interest income on non-accrual loans was
recognized during the periods as loans were paid to a current status or paid in
full.
Total non-performing loans and other real estate owned decreased to $12.5
million, or 0.56% of total assets at December 31, 1999, compared to $20.1
million, or 0.94% of total assets at December 31, 1998.
At December 31, 1999, the recorded investment in loans for which impairment
has been recognized in accordance with the Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
totaled $5.5 million with a valuation allowance aggregating $1.8 million. For
the twelve months ended December 31, 1999, the average recorded investment in
impaired loans was approximately $10.1 million. The Company recognized, on a
cash basis, $151,000 of interest on impaired loans during the portion of the
year they were impaired. The Bank will work with borrowers to restructure or
modify terms of their loans if difficulties arise in repayment. If necessary, at
the time of modification, the loan will be written down to represent the balance
of future cash receipts. A non-performing loan that has been modified will stay
a non-performing loan for a period of 3 months and will be brought back to
performing status only if it has been current for those 3 months. Also the
repayment of all future contractual principal and interest must be deemed
collectible and the borrower must demonstrate the ability to sustain
performance. At December 31, 1999, the Bank had $13.1 million restructured
commercial loans with $6.6 million included in non-accrual. At December 31,
1998, the Bank had $11.9 million of restructured commercial loans with $6.4
million in non-accrual.
At December 31, 1999, non-performing residential real estate loans totaled
$2.2 million. At December 31, 1998, non-performing residential real estate loans
totaled $2.8 million. Loan loss reserves have been established that are deemed
adequate by management.
At December 31, 1998, non-performing commercial real estate loans totaled $1.7
million. At December 31, 1999, non-performing commercial real estate loans
decreased to $53,000. This decline resulted primarily from
7
<PAGE>
Skaneateles Bancorp loans that had matured by December 31, 1998, but had not
been renewed or paid off as of that date. At December 31, 1999, these loans had
paid off or been renewed and were currently performing.
Non-performing commercial loans at December 31, 1999 totaled $8.4 million and
included 34 individual loans ranging in size from $6,000 to $1.2 million. At
December 31, 1998, non-performing commercial loans were at $11.7 million. These
loans and all other non-performing loans have been internally risk-rated.
The Bank's non-accrual loans decreased from $17.1 million at December 31, 1998
to $11.6 million at December 31, 1999. At December 31, 1998, the recorded
investment in loans for which impairment has been recognized in accordance with
SFAS No. 114 totaled $12.1 million with a valuation allowance aggregating $4.4
million. For the twelve months ended December 31, 1998, the average recorded
investment in impaired loans was approximately $11.0 million. The Company
recognized, on a cash basis, $347,000 of interest on impaired loans during the
portion of the year they were impaired.
At December 31, 1999, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totaled $0.9 million and
consisted of 10 single-family residential properties with a book value totaling
$526,000 and 4 local commercial real estate properties with a book value
totaling $384,000. At December 31, 1998, ORE totaled $3.0 million, which
consisted of 8 single-family residential properties with a book value totaling
$271,000 and 13 commercial real estate properties with a book value totaling
$2.7 million.
During 1999, 8 single-family residential properties with a book value totaling
$247,000 were sold. During 1999, 17 single-family residential properties with a
book value of $864,000 were added to the ORE portfolio from 1998. In 1999, 13
residential real estate ORE properties were written down by $390,000.
During 1999, 7 commercial real estate properties with a book value of $1.5
million were sold, 3 local commercial real estate properties with a book value
totaling $167,000 were charged off, and 4 commercial real estate properties
valued at $1.1 million were partially charged off. During 1999, 2 commercial
real estate properties with a book value totaling $57,000 were added to the
portfolio. Due to declining commercial real estate values, 11 commercial real
estate ORE properties were reduced by $887,000 and charged to other real estate
expenses. All real estate carried in the Company's ORE portfolio are supported
by recent independent appraisals.
Allowance for Possible Credit Losses. Management reviews the adequacy of the
allowance at least quarterly. Prior to 1995, the allowance was assessed by
applying projected loss ratios to the risk-ratings (i.e. "classification") of
loans both individually and by category. The projected loss ratios incorporate
such factors as recent loss experience, current economic conditions and trends,
trends in past due and non-accrual amounts, the risk characteristics of various
"classifications" and concentrations of loans, transfer risks, and other
pertinent factors. The Bank added significantly to the allowance for possible
credit losses in the fourth quarter of 1999 to bring the ratio of the allowance
to total loans outstanding at December 31, 1999 to 1.69% from 1.59% at December
31, 1998. The ratio of allowance to non-performing loans was also raised to
251.0% at December 31, 1999 from 146.4% at December 31, 1998.
A loan is considered impaired, based on current information and events, if it
is probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based upon the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. Loans not deemed impaired
continue to be classified to their risk-rating and general reserves are
maintained accordingly. The following table summarizes activity in the Bank's
allowance for possible credit losses during the periods indicated. Management
considers the allowance for possible credit losses (reserves) of $29.1 million
at December 31, 1999 adequate to cover potential credit losses.
8
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans outstanding $1,699,850 $1,507,493 $1,313,576 $1,158,568 $1,084,492
========================================================================================================
Allowance at beginning of period $ 25,030 $ 21,768 $ 19,168 $ 17,179 $ 16,840
Charge-offs:
Commercial loans 11,635 6,389 5,314 6,799 4,097
Consumer loans 5,110 3,280 2,244 1,774 1,132
Residential real estate loans 267 238 175 190 81
Commercial real estate loans 381 1,083 2,718 1,352 2,754
- --------------------------------------------------------------------------------------------------------
Total loans charged-off 17,393 10,990 10,451 10,115 8,064
Recoveries
Commercial loans 1,173 456 1,348 1,232 427
Consumer loans 1,087 785 588 558 364
Residential real estate loans 83 9 2 12 18
Commercial real estate loans 17 71 299 156 26
- --------------------------------------------------------------------------------------------------------
Total recoveries 2,360 1,321 2,237 1,958 835
- --------------------------------------------------------------------------------------------------------
Net charge-offs 15,033 9,669 8,214 8,157 7,229
Provision for credit losses charged to
operating expenses 19,137 12,931 10,814 10,146 7,568
- --------------------------------------------------------------------------------------------------------
Allowance at end of period $ 29,134 $ 25,030 $ 21,768 $ 19,168 $ 17,179
========================================================================================================
Ratio of net charge-offs to:
Average total loans outstanding 0.88% 0.64% 0.63% 0.70% 0.67%
Ratio of allowance to:
Non-performing loans 251.00% 146.43% 128.86% 121.42% 114.91%
Year-end total loans outstanding 1.69% 1.59% 1.53% 1.58% 1.56%
</TABLE>
The provision for credit losses was $19.1 million in 1999 and $12.9 million in
1998. Both the increase in provision and net charge-offs were adversely affected
by a $3.3 million charge-off taken in the third quarter of 1999 on a single loan
as had been previously reported. The allowance for possible credit losses
increased to $29.1 million, or 1.69% of total loans at December 31, 1999, from
$25.0 million, or 1.59% at year-end 1998 to reflect the continued growth in the
commercial and consumer loan portfolios relative to other loan assets. Net
charge-offs in 1999 amounted to $15.0 million, or 0.88% of average total loans
outstanding, compared to $9.7 million, or 0.64% in 1998. Non-performing loans at
December 31, 1999 were $11.6 million, or 0.67% of total loans outstanding, down
from $17.1 million, or 1.08% at December 31, 1998.
The following table indicates the allowance for possible credit losses by the
following categories of loans for the following periods:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
Amount % (1) Amount % (1) Amount % (1) Amount % (1) Amount % (1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Real Estate:
Commercial $ 2,329 10.06% $ 2,873 10.66% $ 3,946 12.28% $ 3,644 14.38% $ 2,875 14.75%
Residential 240 10.24 444 12.45 268 16.27 289 19.86 258 23.00
Commercial 21,446 52.53 17,270 50.86 14,886 47.68 13,677 45.72 12,653 42.42
Consumer 5,119 27.17 4,443 26.03 2,668 23.77 1,558 20.04 1,393 19.83
- -----------------------------------------------------------------------------------------------------------------
$29,134 100.00% $25,030 100.00% $21,768 100.00% $19,168 100.00% $17,179 100.00%
=================================================================================================================
</TABLE>
(1) Percent of loans in each category to total loans at the dates indicated.
9
<PAGE>
INVESTMENT ACTIVITIES
As of December 31, 1999, the Bank's investment securities portfolio of $401.7
million constituted 17.9% of its total assets. Such securities consist of
United States Treasury securities, United States Government Agency securities,
mortgage-backed securities, collateralized mortgage obligations ("CMO"),
obligations of state and local governments, and corporate debt and equity
securities.
Collateralized mortgage obligations consist of pools of mortgages divided into
classes (or "traunches"). Principal amortization and prepayments are directed in
a predetermined order, as received, into each class until it is paid off. The
vast majority of CMOs purchased by the Bank are issued by the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA"). The Bank owns and occasionally buys private issuer CMOs. The Bank
purchases mostly senior traunches that have been rated in the top two categories
by major rating services such as Moody's and Standard and Poor's. The Bank
performs tests on CMOs at the time of purchase to determine that the issues
being considered for purchase fall within the risk parameters established by the
Bank's investment policy.
The Bank also purchases and sells mortgage participation certificates that
consist primarily of certificates issued by FNMA and the FHLMC. The Bank's
portfolio of mortgage-backed securities also includes securities guaranteed by
the Government National Mortgage Association ("GNMA"). At December 31, 1999, the
Bank's gross mortgage-backed securities portfolio of $165.8 million included
$111.6 million of CMOs, $9.6 million in GNMA securities, and $44.6 million in
participation certificates.
There also is significant uncertainty as to the timing of repayments from
mortgage-backed securities because borrowers whose mortgages are pooled into
mortgage-backed securities have the option to prepay their loans at any time.
This option can affect the returns the Bank hopes to earn by investing in these
securities. When interest rates fall as they did during 1997 and 1998, borrowers
tend to refinance their mortgages resulting in accelerated prepayments of the
mortgages underlying mortgage-backed securities and thereby adversely limiting
the return the Bank can earn.
Market values are also affected by the borrowers option to prepay. In falling
rate environments, the increased possibility of prepayments limits the degree to
which mortgage-backed securities can appreciate. Conversely, rising rates reduce
the probability of prepayment. This increases the average time in which
principal is repaid and can increase the impact that rising rates have on the
market value.
The following table sets forth the carrying value of the Bank's gross
mortgage-backed securities portfolio as of the dates indicated. (Also, see Note
2 of the Consolidated Financial Statements included in the 1999 Annual Report to
Shareholders):
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Collateralized mortgage obligations $111,613 $110,300 $57,988 $108,780 $ 85,344
GNMA securities 9,591 10,228 1,204 1,495 1,886
Participation certificates 44,628 51,033 27,453 53,797 63,603
- -----------------------------------------------------------------------------------------------
165,832 171,561 86,645 164,072 150,833
- -----------------------------------------------------------------------------------------------
Net (discounts) and premiums 844 486 (253) 47 (383)
Unrealized appreciation (depreciation) (6,931) 375 (1,265) (530) 738
- -----------------------------------------------------------------------------------------------
$159,745 (1) $172,422 $85,127 $163,589 $151,188
===============================================================================================
</TABLE>
(1) The book value of mortgage-backed securities at December 31, 1999 include
approximately $144.5 million pledged under various agreements, principally lines
of credit and Municipal Option Put Securities.
10
<PAGE>
The U.S. Government Agency Obligations in the Bank's investment portfolio
consist primarily of securities callable by the issuing agencies with calls
ranging out to four years. The call features limit the appreciation potential
of the securities as the possibility of them being called on the call date rises
as interest rates decline.
The following table shows the Bank's activity in mortgage-backed securities
during the years indicated:
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities at beginning of year (gross) $171,561 $ 86,645 $164,072
Purchases:
GNMA securities 9,989
Collateralized mortgage obligations 33,540 119,220 29,184
Participation certificates 1,621 683
- ------------------------------------------------------------------------------------------------
Total purchases 33,540 130,830 29,867
- ------------------------------------------------------------------------------------------------
Securitizations:
Participation certificates 43,761 1,620
- ------------------------------------------------------------------------------------------------
Sales:
GNMA securities 697
Collateralized mortgage obligations 10,101 46,831 66,338
Participation certificates 177 17,009 19,867
- ------------------------------------------------------------------------------------------------
Total sales 10,278 64,537 86,205
Principal repayments:
GNMA securities 637 268 291
Collateralized mortgage obligations 23,420 20,076 13,638
Participation certificates 4,934 4,794 8,780
- ------------------------------------------------------------------------------------------------
Total principal repayments 28,991 25,138 22,709
- ------------------------------------------------------------------------------------------------
Net change in principal (5,729) 84,916 (77,427)
- ------------------------------------------------------------------------------------------------
Mortgage-backed securities at end of year (gross) 165,832 171,561 86,645
- ------------------------------------------------------------------------------------------------
Net (discounts) and premiums 844 486 (253)
Unrealized appreciation (depreciation) (6,931) 375 (1,265)
- ------------------------------------------------------------------------------------------------
Net mortgage-backed securities at end of year $159,745 $172,422 $ 85,127
================================================================================================
</TABLE>
The following table sets forth the Bank's investment portfolio at carrying
value at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond investments:
U.S. Treasury and U. S. Government Agency obligations $202,906 $217,662 $183,613
Municipal obligations 22,482 17,513 11,150
Corporate obligations 5,125
Other 1,372 1,020 727
- ------------------------------------------------------------------------------------------------
Total bond investments 226,760 236,195 200,615
- ------------------------------------------------------------------------------------------------
Stock investments:
Marketable equity securities 20 22 22
Preferred stocks 3,591 591 591
Other 21,421 17,884 16,269
- ------------------------------------------------------------------------------------------------
Total stock investments 25,032 18,497 16,882
- ------------------------------------------------------------------------------------------------
Total investment securities at book value 251,792 254,692 217,497
- ------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) (9,814) 422 47
- ------------------------------------------------------------------------------------------------
Total investment securities $241,978 $255,114 $217,544
================================================================================================
</TABLE>
11
<PAGE>
The following table presents the maturities of and the weighted average yield
on the Bank's investment portfolio at December 31, 1999. At this date, the Bank
had no securities which exceeded 10% of stockholders' equity. No tax equivalent
adjustments have been made.
<TABLE>
<CAPTION>
Maturing After Five Years
After One Year Through Five Years Through Ten Years
- -----------------------------------------------------------------------------------------------------------------
In one
Year Fixed Variable Fixed Variable
or less Interest
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
U.S. Treasury and U.S.
government agencies
and corporations $ 4,024 5.79% $61,041 6.24% $ 144 6.38% $127,665 6.70% $ - ---%
Obligations of states and
political subdivisions 6,750 3.85 5,532 4.23 7,638 4.90
Corporate bonds:
Domestic 390 8.00
Corporate stocks
Other
- -----------------------------------------------------------------------------------------------------------------
Total net investments
and other securities $10,774 4.57% $66,963 6.08% $ 144 6.38% $135,303 6.59% $ - ---%
=================================================================================================================
<CAPTION>
After Ten Years Total
------------------------------------------------
Fixed Variable
Amount Rate Amount Rate Amount Rate
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment securities
U.S. Treasury and U.S.
government agencies
and corporations $10,032 7.00% $ - ---% $202,906 6.55%
Obligations of states and
political subdivisions 2,562 5.59 22,482 4.50
Corporate bonds:
Domestic 982 7.31 1,372 7.51
Corporate stocks 3,611 8.38 3,611 8.38
Other 21,421 7.67 21,421 7.67
- -----------------------------------------------------------------------------------
Total net investments
and other securities $38,608 7.42% $ - ---% $251,792 6.49%
===================================================================================
</TABLE>
12
<PAGE>
DEPOSITS
At December 31, 1999, the Bank had $1,901.2 million in total deposits
(including escrow funds). Deposits are attracted principally from within the
Bank's primary market area through the offering of a broad selection of deposit
instruments, including commercial savings and demand deposits, negotiable order
of withdrawal ("NOW") accounts, money market deposit accounts, passbook and
statement savings accounts, certificates of deposit, and pension accounts for
both individuals and small businesses. Of these deposit instruments, $1,111.3
million, or 58.5% of all deposits consisted of term accounts, $430.0 million, or
22.6% consisted of money market deposit accounts, $186.8 million, or 9.8%
consisted of passbook, escrow, and statement savings accounts, $31.2 million, or
1.6% consisted of NOW accounts and $141.9 million, or 7.5% consisted of
commercial checking accounts.
At December 31, 1999, brokered deposits totaled $231.9 million with original
maturities of one to five years. This compares to a balance of $97.8 million at
December 31, 1998. The variety of deposit accounts offered by the Bank has
allowed it to be competitive with other financial institutions; however, the
threat of disintermediation (the flow of funds away from banking institutions
into direct investment vehicles such as government and corporate securities)
still exists.
The Bank maintains a "sweep program" allowing balances to be "swept" from NOW
accounts into money market deposit accounts. At December 31, 1999, approximately
$89.2 million of the money market accounts were NOW balances being swept into
the account. With the success of commercial lending within the Bank comes an
increase in commercial checking account balances of $26.5 million from December
31, 1998 to $141.9 million at December 31, 1999.
Since 1979, the Bank has offered electronic delivery systems. Since such date,
the Bank's ATM network (MachineTeller(R)) and point-of-sale network
(StoreTeller(R)) have processed over 11.4 million transactions for the Bank's
depositors.
Deposit accounts in the Bank are insured to the maximum permissible amounts by
the Bank Insurance Fund ("BIF"), as administered by the FDIC. Accordingly, the
Bank is subject to rules, regulations and examinations of the FDIC.
The following table shows the distribution of the deposit accounts in the Bank
by type of deposits as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Interest Interest Interest
(Dollars in Thousands) Amount % Rate Amount % Rate Amount % Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and statement $ 182,264 9.59% 2.50% $ 183,883 10.75% 3.00% $ 174,458 11.97% 2.96%
NOW accounts 31,197 1.64 1.31 113,948 6.66 1.52 91,706 6.29 1.68
Money market deposit accounts 429,991 22.62 4.08 300,911 17.60 4.02 287,579 19.73 4.67
Commercial checking accounts 141,907 7.46 115,429 6.75 - 96,395 6.61 -
One to two year certificates (1) 283,068 14.89 5.04 249,699 14.60 5.44 233,031 15.99 5.67
Two to three year certificates (1) 110,971 5.84 5.52 146,848 8.59 5.78 155,734 10.68 5.91
Other certificates (1) 717,272 37.72 5.59 594,771 34.79 6.01 414,014 28.41 5.78
Escrow 4,534 0.24 2.00 4,371 0.26 2.00 4,609 0.32 2.03
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits at end of period $1,901,204 100.00% 4.37% $1,709,860 100.00% 4.52% $1,457,526 100.00% 4.57%
================================================================================================================================
</TABLE>
(1) Minimum balance required to earn interest, depending upon type of
certificate, ranges from $500 to $100,000.
The Bank attempts to manage the flow of deposits by pricing its accounts to
remain generally competitive with other financial institutions in its market
area. The Bank has used its pricing policies to moderate deposit inflow to
control its cost of funds in view, among other considerations, of its capital
adequacy requirements. Management believes that this action does not have an
adverse effect on its ability to acquire deposits.
13
<PAGE>
The following table presents, by various interest rate categories, the amounts
of certificate accounts at December 31, 1998 and December 31, 1999, which mature
during the periods indicated:
<TABLE>
<CAPTION>
Amounts at December 31, 1999
Maturing Within
-------------------------------------------
December 31, One Two Three
(Dollars in Thousands) 1998 1999 Year Years Years Thereafter
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2% to 3.99% $ 8,882 $ 5,586 $ 5,577 $ 4 $ 5
4% to 5.99% 891,640 909,851 799,815 $62,590 32,972 14,474
6% to 7.99% 88,873 194,349 175,884 9,686 6,827 1,952
8% to 9.99% 1,506 1,294 500 215 127 452
10% to 11.99% 416 230 230
- --------------------------------------------------------------------------------------------------------
Total certificate accounts $991,317 $1,111,310 $981,776 $72,721 $39,930 $16,883
========================================================================================================
</TABLE>
The following table sets forth deposit activity for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net increase before interest credited $115,802 $179,947 $ 74,265
Interest credited 75,542 72,387 60,180
- ----------------------------------------------------------------------------------
Net deposit increase $191,344 $252,334 $134,445
==================================================================================
</TABLE>
The following table sets forth the deposits and the changes in dollar amount
of deposits in the various programs offered by the Bank for the periods
indicated. The net increase (decrease) in deposits during the period is
inclusive of the effects of interest credited.
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits at beginning of period $1,709,860 $1,457,526 $1,323,081
Increase (decrease) in:
Passbook accounts (1,619) 9,425 3,035
NOW accounts (82,752) 22,243 10,067
Money market deposit accounts 129,080 13,332 16,266
Commercial checking accounts 26,478 19,035 24,527
One to two year certificates 33,369 16,669 36,781
Two to three year certificates (35,877) (8,887) 14,116
Other certificates 122,501 180,756 29,710
Escrow 164 (239) (57)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in deposits during the period 191,344 252,334 134,445
- ---------------------------------------------------------------------------------------------
Deposits at end of period $1,901,204 $1,709,860 $1,457,526
=============================================================================================
</TABLE>
14
<PAGE>
The following table presents, by various interest rate categories, the amounts
of certificate accounts of $100,000 or more at December 31, 1999, which mature
during the periods indicated:
<TABLE>
<CAPTION>
Maturing Within
Over Over
Three Six to
Three to Six Twelve
(Dollars in Thousands) Total Months Months Months Thereafter
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2% to 3.99% $ 5,379 $ 1,195 $ 1,763 $ 2,421
4% to 5.99% 226,464 135,910 40,211 40,726 $ 9,617
6% to 7.99% 73,783 9,712 34,692 26,187 3,192
10% to 11.99% 164 164
- -------------------------------------------------------------------------------
Total $305,790 $146,817 $76,666 $69,334 $12,973
===============================================================================
</TABLE>
BORROWINGS
The Bank has available a number of sources for borrowing funds. The Bank's
principal borrowings are securities sold under repurchase agreements, and
advances from the Federal Home Loan Bank of New York. See Note 9 of Notes to
Consolidated Financial Statements included in the 1999 Annual Report to
Shareholders.
The following table sets forth the borrowings of the Bank as of the dates
indicated:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank advances $ 90,538 $188,465
Mandatorily redeemable preferred securities 30,000 30,000
Securities sold under repurchase agreements 49,218 38,638
Other 2,289 2,633
- ------------------------------------------------------------------------
$172,045 $259,736
========================================================================
</TABLE>
Borrowings at December 31, 1999 have maturity dates as follows:
<TABLE>
<CAPTION>
Weighted
(Dollars in Thousands) Average Rate Amount
- -----------------------------------------------------------------------------------
<S> <C> <C>
Borrowings maturing or callable in 2000 5.45% $119,048
December 23, 2002 10.51 2,000
October 6, 2003 4.73 20,000
February 5, 2007 7.08 443
January 11, 2019 6.08 554
Mandatorily redeemable preferred securities - 2028 8.13 30,000
- -----------------------------------------------------------------------------------
5.90% $172,045
===================================================================================
</TABLE>
The following table sets forth information related to short-term borrowings of
the Bank as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding balance at end of year $119,048 $155,272 $189,215
Average interest rate 5.45% 5.00% 6.10%
Maximum outstanding at any month end $256,863 $187,758 $230,860
Average amount outstanding during year $179,499 $153,242 $182,990
Average interest rate during year 5.11% 5.48% 5.68%
</TABLE>
(1) Average amounts outstanding and average interest rates are computed using
weighted monthly averages.
15
<PAGE>
TRUST POWERS
The Bank provides full trust services to individuals, corporations, and non-
profit organizations including executor of estates, trustee under wills, living
trust agreements, custodian services, investment management services, and acts
as trustee of qualified retirement plans. At December 31, 1999, the Bank managed
$343.3 million in trust assets.
INVESTMENT IN SUBSIDIARIES
At December 31, 1999, the BSB Bank & Trust is the only banking subsidiary of
the Company. The Bank has an investment in 5 wholly owned subsidiaries
aggregating $294,000 at December 31, 1999. B-Save Corporation was incorporated
in 1982 and performs investment management services for the Bank.
On July 21, 1998, the Company formed a subsidiary business trust, BSB Capital
Trust I, L.L.C. (the "Trust"), for the purpose of issuing preferred securities
which qualify as Tier I capital. Concurrent with its formation, the Trust issued
$30.0 million at par value of 8.125% preferred securities in an exempt offering.
The preferred securities are non-voting, mandatorily redeemable in 2028, and
guaranteed by the Company. The entire net proceeds to the Trust from the
offering were invested in junior subordinated obligations of the Company. The
costs related to the issuance of these securities are capitalized and amortized
over the life of the period to redemption on a straightline basis. The net
proceeds were used to fund commercial and consumer loan growth.
BSB Credit was incorporated in 1983 to solicit mortgage loan applications for
BSB Bank & Trust. During 1992, the name was changed to BSB Mortgage Corporation.
During 1996, the Bank formed a wholly owned subsidiary, BSB Financial
Services, Inc. This Company became the focal point for marketing brokerage
services. Plans are currently under way to add new financial services to the
Bank's product mix to better serve the non-traditional banking customer. BSB
NEWPRO was incorporated in 1997 and acquires, holds, maintains, and disposes of
property acquired through foreclosure for the Bank.
As part of the acquisition of Skaneateles Bancorp, Inc., the Company acquired
a wholly owned real estate investment trust subsidiary. This company was formed
for the purpose of purchasing real estate secured loans originated by the Bank
from time to time.
PERSONNEL
As of December 31, 1999, the Company, on a consolidated basis, had 452 full-
time and 131 part-time employees. The employees are not represented by any
collective bargaining unit, and the Bank considers its relationship with its
employees to be good.
COMPETITION
BSB Bank & Trust faces significant competition in attracting deposits and
loans. Its most direct competition for deposits has historically come from
commercial banks, thrift institutions, and credit unions located in its market
area. BSB Bank & Trust also faces additional significant competition for
investors' funds from short-term money market mutual funds and issuers of
corporate and government securities. BSB Bank & Trust competes for deposits
principally by offering depositors a wide variety of deposit programs,
convenient branch locations and banking hours, tax-deferred retirement programs,
and other services. BSB Bank & Trust also utilizes newspaper, radio, television,
and other media to advertise its deposit and loan services. BSB Bank & Trust
does not rely upon any individual group or entity for a material portion of its
deposits.
BSB Bank & Trust's competition for loans comes principally from thrift
institutions, credit unions, mortgage banking companies, and commercial banks.
BSB Bank & Trust competes for loan originations primarily through the interest
rates and loan fees it charges, and the efficiency and quality of services it
provides consumers and commercial borrowers, real estate brokers, automobile
dealers, builders, and regional mortgage correspondent originators. The Bank
also relies on the residential mortgage origination efforts of BSB Mortgage
Corporation, a wholly owned subsidiary. Factors which affect competition include
the general availability of lendable funds and credit, general and local
economic conditions, current interest rate levels, and volatility in the lending
markets.
16
<PAGE>
REGULATION
General
The Company, as a bank holding company, is subject to regulation,
supervision, and examination by the Federal Reserve Board. The Bank, as a New
York-chartered bank and trust company, is subject to regulation, supervision,
and examination by the FDIC as its primary federal regulator and by the
Superintendent as its state regulator. The Bank also is subject to regulation,
supervision, and examination as to certain matters by the Federal Reserve Board.
The Bank's deposits are insured to applicable limits by the BIF, as
administered by the FDIC.
As a bank holding company, the Company is required to maintain qualifying
capital, half of which must be leverage or Tier 1 capital, equal to 8% of its
risk-weighted assets and off-balance sheet items. In 1990, the Federal Reserve
Board amended its capital regulation to establish a new minimum leverage ratio
of 3% Tier 1 capital to total average assets for the highest rated bank holding
companies with an additional cushion of approximately 100 to 200 basis points
for all other bank holding companies. At December 31, 1999, the Bank met the
requirements for a "well-capitalized" institution. At December 31, 1999, the
Company's Tier 1 or leverage capital-to-average assets ratio, as defined in the
risk-based capital regulation equaled 7.85% of average assets or $178.2 million,
which exceeds the current minimum requirements for the Company by $110.1
million. At December 31, 1999, its total capital to risk-adjusted assets ratio,
calculated under the Federal Reserve Board risk-based capital requirement, was
9.83%, which exceeded the 4% minimum by $105.7 million. As an FDIC insured
institution, the Bank is required to maintain specified levels of minimum
capital, including: (i) core or Tier 1 capital in an amount not less than 3% of
total assets (plus an additional cushion of at least 100 to 200 basis points for
all but the most highly rated banks) and (ii) "risk-based" Capital (one-half of
which must be core capital) not less than 8% of risk-weighted assets. At
December 31, 1999, the Bank's ratio of total capital to total risk-adjusted
assets was approximately 11.08%, which exceeded the 8% minimum by $55.9 million.
On November 12, 1999, President Clinton signed legislation to reform the U.S.
banking laws, including the Bank Holding Company Act (the "BHCA"). The changes
made to the BHCA by this legislation, referred to as the Gramm-Leach-Bliley Act,
became effective on March 11, 2000, and expanded the permissible activities of
bank holding companies like the Company. In order to engage in the expanded
activities, the Company would have to file a notice to become a financial
holding company. As a financial holding company, the Company would be permitted
to own and control depository institutions and to engage in activities that are
financial in nature or incidental to financial activities, or activities that
are complementary to a financial activity and do not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. The legislation identifies certain activities that are deemed to be
financial in nature, including nonbanking activities currently permissible for
bank holding companies to engage in both within and outside the United States,
as well as insurance and securities underwriting and merchant banking
activities. The Federal Reserve is authorized under the legislation to identify
additional activities that are permissible financial activities.
In order to become a financial holding company and take advantage of this new
authority, the Company's depository institution subsidiaries, currently the
Bank, must be well-capitalized and well-managed and have at least a satisfactory
record of performance under the Community Reinvestment Act. No prior notice to
the Federal Reserve would be required from a financial holding company to
acquire a company engaging in non-banking activities or to commence these
activities directly or indirectly through a subsidiary. The Company could not
currently qualify to become a financial holding company.
Provisions of the Gramm-Leach-Bliley Act permit national banks to establish
financial subsidiaries that may engage in the activities noted above that will
be permissible for financial holding companies, other than insurance
underwriting, merchant banking, and real estate development and investment
activities. In order to exercise this authority, a bank and its depository
institution affiliates must be well-capitalized, well-managed, and CRA ratings
of at least "satisfactory." For a state bank, such activities also must be
permissible under relevant state law.
The Gramm-Leach-Bliley Act imposes certain obligations on financial
institutions, including state-chartered banks like the Bank, to develop privacy
policies, restrict the sharing of nonpublic customer data with nonaffiliated
parties at the customer's request, and establish procedures and practices to
protect and secure customer data. There privacy provisions will be implemented
by regulations that will take effect on or after November 12, 2000.
17
<PAGE>
TAXATION
Federal Taxation
General. The Company and the Bank file a consolidated tax return. The Company
and the Bank currently report their income and expenses under the accrual basis
of accounting and use a tax year ending December 31 for filing its federal
income tax return. The following discussion of federal taxation is a summary of
certain pertinent federal income tax matters.
Bad Debts. The Bank is currently taxed as a commercial institution. A bank
is treated as a "large" bank if its average total assets exceed $500.0 million.
As a "large" bank, the Bank may only deduct specific wholly or partially
worthless debts pursuant to Section 166 of the Code.
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. At December 31, 1999, the Company and the Bank
had no net operating loss carryforward for federal income tax purposes.
Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are taxed at a maximum tax rate of 35%. The dividends-received
deduction is 70% of the dividends received from less than 20% owned
corporations. However, certain dividend payments between members of an
"affiliated group" of corporations, such as the Company, are eligible for a 100%
deduction.
The Bank's federal income tax returns for its tax years beginning in 1996 are
open under the statute of limitations and are subject to review by the IRS.
New York State Taxation
The Company and the Bank are subject to an annual New York State Franchise
tax equal to the greater of a regular tax (the "State Regular Tax"), an
alternative minimum tax (the "State Alternative Minimum Tax"), a tax based on
the combined taxable assets of the Company and the Bank, or a fixed minimum tax
of $250, plus a tax surcharge.
The State Regular Tax is computed at the rate of 9% on the Company's and the
Bank's entire net income, allocated to New York State, calculated on a
consolidated return basis.
The State Alternative Minimum Tax is computed at the rate of 3% on the
Company's and the Bank's alternative entire net income allocable to New York
State for the taxable year. The Company and the Bank's alternative entire net
income consists of their entire net income, increased by certain deductions,
primarily interest on obligations of New York State or the United State
government, taken in computing entire taxable income that are not allowed in
computing alternative entire taxable income.
The tax based on combined taxable assets consists of the Company's and the
Bank's combined average assets. The tax is computed at the rate of one-tenth of
a million per dollar of taxable assets, but lower rates apply for banks with at
least 33% of their assets in mortgages and that have a "net worth ratio" of less
than 5%.
The New York State Franchise tax paid by the Company is deductible for
Federal income tax purposes.
The Company's and the Bank's New York State income tax returns for the tax
years beginning in 1997 are open and subject to review by New York State.
18
<PAGE>
Delaware State Taxation
The Company is subject to an annual Delaware State Franchise Tax. The
Franchise Tax provides that every corporation incorporated under the laws of the
State of Delaware "shall pay an annual tax ..... by way of license" for its
corporate franchise. See Del. Code. Ann. Tit. 8, (S) 501. Two methods are
provided for calculating the Franchise Tax and the lesser amount calculated
under either method is the tax payable. The first method, which is referred to
as the "assumed par value capital method". The second method is calculated by
dividing the corporation's total gross assets by its total number of outstanding
shares and multiplying the quotient by the total number or authorized shares.
The product equals the capitalization for assessment of the franchise tax which
is assessed at a rate of $140 per $1 million of capitalization.
This is a lesser amount than would be due if the Franchise Tax were
calculated under the second method, which is called the "authorized shares
method," is based on the authorized number of shares of capital stock and is
calculated according to the following formula: where the authorized capital
stock does not exceed 3,000 shares, $30; where the authorized capital stock
exceeds 3,000 shares but is not more than 5,000 shares, $50; where the
authorized capital stock exceeds 5,000 shares but is not more than 10,000
shares, $90; and the further sum of $50 on each 10,000 shares or part thereof.
Under the first method, the Bank pays approximately $100,000 in annual
Franchise Tax.
19
<PAGE>
ITEM 2. PROPERTIES
The Company does not own or lease any property, other than that owned or
leased by the Bank and its subsidiary. BSB Bank & Trust conducts its business
from its executive office and 22 full-service offices located in Broome,
Chemung, Chenango, Onondaga, Chemung, Oswego, and Tioga Counties of upstate New
York. The following table sets forth certain information relating to each of BSB
Bank & Trust's offices as of December 31, 1999:
<TABLE>
<CAPTION>
Lease Net Book
Owned Expiration Value at
or Including December 31,
Office Location Leased Options 1999
- -----------------------------------------------------------------------------------------------------
($ In Thousands)
<S> <C> <C> <C> <C>
Main Office 56-68 Exchange St., Binghamton Owned N/A $1,478
Annex 58 Exchange St., Binghamton Owned N/A 1,029
99 Hawley St. 99 Hawley St., Binghamton Owned N/A 334
92 Hawley St. 92 Hawley St., Binghamton Owned N/A 805
Endwell Office 540 Hooper Rd., Endwell Owned N/A 381
Vestal Plaza Office Vestal Plaza, Vestal Leased 11/09/11 130
Tioga County Office Fifth Ave., Owego Leased 3/08/13 60
Oakdale Mall Office Reynolds Rd., Johnson City Leased 7/31/15 18
Norwich Office North Plaza, Norwich Leased 7/21/15 53
Northgate Plaza Office 1250 Front St., Binghamton Leased 4/30/17 84
West Side Office 273 Main St., Binghamton Leased 10/31/12 29
Endicott Office 43 Washington Ave., Endicott Owned N/A 923
Eastside Office 156 Robinson St., Binghamton Leased 8/01/21 471
Elmira Office 351 North Main St., Elmira Owned N/A 383
Elmira Heights Office 2075 Upper Lake Rd., Elmira Heights Leased 8/26/09 61
Syracuse Office 100 Clinton Square, Syracuse Leased 10/31/01
BSB Mortgage Corp. Valley Plaza Johnson City Leased 1/31/00
Skaneateles Office 33 E. Genesee Street, Skaneateles Owned N/A 427
Downtown Syracuse 431 E. Fayette Street, Syracuse Owned N/A 2,769
Rano Office 100 Rano Blvd., Vestal Leased 2019
Cicero 5791 East Seymour Street, Cicero Owned N/A 557
Camillus 100 Kasson Road, Camillus Leased 2000 20
Shop City Teall Avenue & Grant Blvd., Syracuse Leased 2004 125
Airport Plaza 3803 Brewton Road, N. Syracuse Leased 2009 152
PennCan 7785 Frontage Road, Cicero Leased 2010 150
Oswego 137 East State Road, Oswego Leased 2010 163
North Medical 5100 West Taft Road, Liverpool Leased 2007 157
Fennell Street Building 27 Fennell Street, Skaneateles Leased 2002 165
</TABLE>
BSB Bank & Trust also operates 50 ATMs (MachineTeller(R)), the most extensive
system in its market area, which provides 24-hour banking services, and the Bank
operates 15 proprietary bank service locations (StoreTeller(R)) situated in a
large area supermarket chain. BSB Bank & Trust issued approximately 50,000
plastic cards which allow depositors to use the ATMs and in-store facilities.
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to its business, to which the Company or
any of its subsidiaries is a party or of which any of their property
is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required herein is incorporated by reference from
under the sections captioned "Market Prices and Related Shareholder
Matters" on page 31 of the Company's Annual Report to Shareholders for
the year ended December 31, 1999 portions of which are included herein
as Exhibit 13 ("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference from the
table captioned "Selected Financial and Other Data" on page 14 of the
Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required herein is incorporated by reference from the
section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 15 to 31 of the Annual
Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the 1999 Annual Report to
Shareholders and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required are
incorporated by reference from pages 32 to 55 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the SEC within
120 days after the end of the fiscal year covered by this Report (the
"Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is incorporated by reference from the
Proxy Statement to be filed within 120 days after the end of the
fiscal year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference from the
Proxy Statement to be filed within 120 days after the end of the
fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference from the
Proxy Statement to be filed within 120 days after the end of the
fiscal year covered by this report.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are incorporated by
reference from Item 8 hereof:
Consolidated Statements of Condition at December 31, 1999
and 1998
Consolidated Statements of Income For Each of the Three
Years in the Period Ended December 31, 1999
Consolidated Statements of Changes In Shareholders' Equity
For Each of the Three Years in the Period Ended December 31,
1999
Consolidated Statements of Cash Flows For Each of the Three
Years in the Period Ended December 31, 1999
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) There are no financial statement schedules which are
required to be filed as part of this form since they are not
applicable.
(a)(3) See (c) below for all exhibits filed herewith and the
Exhibit Index.
(b) Reports on Form 8-K. N/A
(c) Exhibits. The following exhibits are either filed as part of
this annual report on Form 10-K, or are incorporated herein
by reference:
22
<PAGE>
Exhibit Table
-------------
No. Exhibit
--- -------
3.1 Certificate of Incorporation, as amended by the Certificate of
Amendment dated May 24, 1993 and the Certificate of Amendment
dated April 22, 1996 (incorporated by reference from Exhibit
3.1 to the Quarterly Report on Form 10-Q of BSB Bancorp, Inc.
(the "Company") for the Quarter Ended March 31, 1996).
3.2 Form of Amended Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock and
form of Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 99.2 to the Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission
(the "SEC") on May 26, 1999).
3.3 Bylaws, as amended (incorporated by reference from Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1999).
4.1 Specimen common stock certificate (incorporated herein by
reference from Exhibit 4 to the Company's Registration
Statement on Form S-4, filed with the SEC on March 2, 1988).
4.2 Rights Agreement, dated as of May 24, 1999, between the
Company and American Stock Transfer & Trust Company
(incorporated herein by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K, filed with the SEC on
May 26, 1999).
10.1 Long-Term Incentive and Capital Accumulation Plan, as amended
(incorporated herein by reference to Exhibit A to the
Company's Proxy Statement for the 1990 Annual Meeting of
Shareholders).
10.2 1996 Long-Term Incentive and Capital Accumulation Plan
(incorporated by reference to Exhibit A to the Company's Proxy
Statement for the 1996 Annual Meeting of Shareholders).
10.3 Amendment Number 1 to 1996 Long-Term Incentive and Capital
Accumulation Plan (incorporated herein by reference to Exhibit
10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.4 Amendment Number 2 to 1996 Long-Term Incentive and Capital
Accumulation Plan (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1999).
10.5 Directors' Stock Option Plan (incorporated herein by reference
to Exhibit A to the Company's Proxy Statement for the 1994
Annual Meeting of Shareholders).
10.6 Change of Control Severance Agreement, entered into as of
January 22, 1996, by and among the Company, BSB Bank & Trust
Company (the "Bank") and Arthur C. Smith (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.7 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Arthur C. Smith.
10.8 Employment Contract, entered into as of November 2, 1990, by
and among the Company, the Bank and Alex S. DePersis
(incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1992).
23
<PAGE>
10.9 Amendment to Employment Contract, entered into as of December
29, 1995, by and among Alex S. DePersis, the Company and the
Bank (incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.10 Amendment to Employment Contract, entered into as of December
30, 1996, by and among the Company, the Bank and Alex S.
DePersis (incorporated herein by reference to Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.11 Amendment to Employment Contract, entered into as of December
29, 1997, by and among the Company, the Bank and Alex S.
DePersis (incorporated herein by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.12 Amendment to Employment Contract, entered into as of June 28,
1999, by and among the Company, the Bank and Alex S. DePersis.
10.13 Employment Agreement, entered into as of January 25, 1999, by
and among the Company, the Bank and John P. Driscoll.
10.14 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and among the Company, the Bank and Larry
G. Denniston (incorporated herein by reference to Schedule
10.3 to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990).
10.15 Amendment to Change of Control Severance Agreement, entered
into as of December 29, 1995, by and among the Company, the
Bank and Larry G. Denniston (incorporated herein by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.16 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Larry G. Denniston.
10.17 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and among the Company, the Bank and
Douglas R. Johnson (incorporated herein by reference to
Schedule 10.3 to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990).
10.18 Amendment to Change of Control Severance Agreement, entered
into as of December 29, 1995, by and among the Company, the
Bank and Douglas R. Johnson (incorporated herein by reference
to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.19 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Douglas R. Johnson.
10.20 Change of Control Severance Agreement, entered into as of
February 22, 1999, by and among the Company, the Bank and
Rexford C. Decker.
10.21 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Rexford C. Decker.
10.22 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and among the Company, the Bank and Glenn
R. Small (incorporated herein by reference to Schedule 10.3 to
Exhibit 10.3 to the Company's Annual Report of Form 10-K for
the year ended December 31, 1990).
24
<PAGE>
10.23 Amendment to Change of Control Severance Agreement, entered
into as of December 29, 1995, by and among the Company, the
Bank and Glenn R. Small (incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.24 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Glenn R. Small.
10.25 Form of Junior Subordinated Indenture, dated as of July 24,
1998, between the company and Bankers Trust Company
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
SEC on September 25, 1998).
13 Annual Report to Shareholders for the Year Ended December 31,
1998
21 List of the Company's Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
(d) There are no other financial statements and financial statement
schedules which were excluded from the Annual Report which are
required to be included herein.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, BSB Bancorp, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BSB BANCORP, INC.
- -----------------
(Registrant)
By: /s/ Thomas L. Thorn Date: March 30, 2000
------------------------ --------------
Thomas L. Thorn
Acting Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Rexford C. Decker Date: March 30, 2000
-------------------- --------------
Rexford C. Decker
Senior Vice President and Chief Financial
Officer (Principal Accounting Officer)
By: /s/ Ferris G. Akel Date: March 30, 2000
-------------------------- --------------
Ferris G. Akel
Director
By: /s/ Robert W. Allen Date: March 30, 2000
-------------------------- --------------
Robert W. Allen
Director
By: /s/ Diana J. Bendz Date: March 30, 2000
-------------------------- --------------
Diana J. Bendz
Director
By: /s/ William C. Craine Date: March 30, 2000
-------------------------- --------------
William C. Craine
Director
By: /s/ John P. Driscoll Date: March 30, 2000
-------------------------- --------------
John P. Driscoll
Director
By: /s/ Thomas F. Kelly Date: March 30, 2000
-------------------------- --------------
Thomas F. Kelly, Ph.D.
Director
By: /s/ David A. Niermeyer Date: March 30, 2000
-------------------------- --------------
David A. Niermeyer
Director
By: /s/ Mark T. O'Neil, Jr. Date: March 30, 2000
-------------------------- --------------
Mark T. O'Neil, Jr.
Director
26
<PAGE>
By: /s/ William H. Rincker Date: March 30, 2000
-------------------------- --------------
William H. Rincker
Director
By: /s/ Thomas L. Thorn Date: March 30, 2000
-------------------------- --------------
Thomas L. Thorn
Director
27
<PAGE>
Exhibit Index
-------------
No. Exhibit
--- -------
3.1 Certificate of Incorporation, as amended by the Certificate of
Amendment dated May 24, 1993 and the Certificate of Amendment
dated April 22, 1996 (incorporated by reference from Exhibit
3.1 to the Quarterly Report on Form 10-Q of BSB Bancorp, Inc.
(the "Company") for the Quarter Ended March 31, 1996).
3.2 Form of Amended Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock and
form of Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 99.2 to the Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission
(the "SEC") on May 26, 1999).
3.3 Bylaws, as amended (incorporated by reference from Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1999).
4.1 Specimen common stock certificate (incorporated herein by
reference from Exhibit 4 to the Company's Registration
Statement on Form S-4, filed with the SEC on March 2, 1988).
4.2 Rights Agreement, dated as of May 24, 1999, between the
Company and American Stock Transfer & Trust Company
(incorporated herein by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K, filed with the SEC on
May 26, 1999).
10.1 Long-Term Incentive and Capital Accumulation Plan, as amended
(incorporated herein by reference to Exhibit A to the
Company's Proxy Statement for the 1990 Annual Meeting of
Shareholders).
10.2 1996 Long-Term Incentive and Capital Accumulation Plan
(incorporated by reference to Exhibit A to the Company's Proxy
Statement for the 1996 Annual Meeting of Shareholders).
10.3 Amendment Number 1 to 1996 Long-Term Incentive and Capital
Accumulation Plan (incorporated herein by reference to Exhibit
10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.4 Amendment Number 2 to 1996 Long-Term Incentive and Capital
Accumulation Plan (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1999).
10.5 Directors' Stock Option Plan (incorporated herein by reference
to Exhibit A to the Company's Proxy Statement for the 1994
Annual Meeting of Shareholders).
10.6 Change of Control Severance Agreement, entered into as of
January 22, 1996, by and among the Company, BSB Bank & Trust
Company (the "Bank") and Arthur C. Smith (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.7 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Arthur C. Smith.
10.8 Employment Contract, entered into as of November 2, 1990, by
and among the Company, the Bank and Alex S. DePersis
(incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1992).
<PAGE>
10.9 Amendment to Employment Contract, entered into as of December
29, 1995, by and among Alex S. DePersis, the Company and the
Bank (incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.10 Amendment to Employment Contract, entered into as of December
30, 1996, by and among the Company, the Bank and Alex S.
DePersis (incorporated herein by reference to Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.11 Amendment to Employment Contract, entered into as of December
29, 1997, by and among the Company, the Bank and Alex S.
DePersis (incorporated herein by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.12 Amendment to Employment Contract, entered into as of June 28,
1999, by and among the Company, the Bank and Alex S. DePersis.
10.13 Employment Agreement, entered into as of January 25, 1999, by
and among the Company, the Bank and John P. Driscoll.
10.14 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and among the Company, the Bank and Larry
G. Denniston (incorporated herein by reference to Schedule
10.3 to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990).
10.15 Amendment to Change of Control Severance Agreement, entered
into as of December 29, 1995, by and among the Company, the
Bank and Larry G. Denniston (incorporated herein by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.16 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Larry G. Denniston.
10.17 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and among the Company, the Bank and
Douglas R. Johnson (incorporated herein by reference to
Schedule 10.3 to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990).
10.18 Amendment to Change of Control Severance Agreement, entered
into as of December 29, 1995, by and among the Company, the
Bank and Douglas R. Johnson (incorporated herein by reference
to Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.19 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Douglas R. Johnson.
10.20 Change of Control Severance Agreement, entered into as of
February 22, 1999, by and among the Company, the Bank and
Rexford C. Decker.
10.21 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Rexford C. Decker.
10.22 Change of Control Severance Agreement, entered into as of
November 2, 1990, by and among the Company, the Bank and Glenn
R. Small (incorporated herein by reference to Schedule 10.3 to
Exhibit 10.3 to the Company's Annual Report of Form 10-K for
the year ended December 31, 1990).
<PAGE>
10.23 Amendment to Change of Control Severance Agreement, entered
into as of December 29, 1995, by and among the Company, the
Bank and Glenn R. Small (incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.24 Amendment to Change of Control Severance Agreement, entered
into as of June 28, 1999, by and among the Company, the Bank
and Glenn R. Small.
10.25 Form of Junior Subordinated Indenture, dated as of July 24,
1998, between the company and Bankers Trust Company
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
SEC on September 25, 1998).
13 Annual Report to Shareholders for the Year Ended December 31,
1998
21 List of the Company's Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
(d) There are no other financial statements and financial statement
schedules which were excluded from the Annual Report which are
required to be included herein.
<PAGE>
EXHIBIT 10.7
AMENDED & RESTATED
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Amended and Restated Change of Control Severance Agreement
("Agreement") dated June 28, 1999, is entered into by and between BSB Bancorp,
Inc., a Delaware corporation ("Corporation"), and its wholly-owned subsidiary
BSB Bank & Trust Company, as successor to Binghamton Savings Bank ("Employer"),
a New York stock savings bank, and Arthur C. Smith ("Executive"). This
Agreement amends and restates the Change of Control Severance Agreement dated as
of January 22, 1996, as amended, by and among the parties and such Agreement, as
amended, shall be of no further force or effect after the date of this
Agreement.
WITNESSETH:
Whereas, Executive is currently employed by Employer as an Executive
Vice President and Retail Banking Officer; and
Whereas, Corporation, Employer and Executive entered into a Change of
Control Severance Agreement as of January 22, 1996; and
Whereas, the parties desire to amend the agreement; and
Whereas, the parties desire to restate the full agreement;
Now, therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree to this Amendment and
Restatement as follows:
1. Term. The initial term of this Agreement extends for a period of
----
three years from the date of this Agreement, provided that the term of the
Agreement shall be extended automatically for one additional year on each annual
anniversary date of this Agreement, unless either the Board of Directors of
Employer or Executive provide contrary written notice to the other not less than
180 days in advance of any such anniversary date. In the event either Employer
or Executive provide such written notice, then the term hereof shall not be
extended, but the then current term shall continue for the period remaining
thereunder. Notwithstanding the foregoing, this Agreement shall automatically
expire and terminate on Executive's normal retirement date at age 65 or on
Executive's early retirement under the Special Service Retirement provision of
Employer's pension plan if Executive elects to take such early retirement. The
initial term of employment and all such renewed terms of employment under this
Agreement are collectively referred to herein as the "term of this Agreement."
2. Benefits Upon Termination of Employment. (a) If, before a Change in
---------------------------------------
Control at the request or direction of the acquiring party or at any time during
the 12-month period following a Change in Control, (1)the employment of
Executive with Employer is terminated by Employer for any reason other than Good
Cause, or (2) Executive terminates his employment with Employer for Good Reason,
Employer shall, during the Severance Period, continue to pay Executive an amount
equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or other
installments, similar to those being received by Executive at the date of the
Change in Control, and will commence as soon as practicable following the date
of termination of employment. Executive shall receive any and all vested
benefits accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans and
such benefits shall not be reduced by amounts payable under this Agreement.
(b) If upon the date of termination of Executive's employment, Executive
holds any options with respect to stock of Corporation, all such options will
immediately become exercisable upon such date and will be exercisable for not
less than 90 days thereafter. To the extent such acceleration of vesting or
exercisability of such options is not permissible under the terms of any plan
pursuant to which the options were granted, Employer will pay to Executive, in a
lump sum, within 90 days after termination of employment, an amount equal to the
excess, if any, of the aggregate fair market value of all stock of Corporation
subject to such options, determined on the date of termination of employment,
over the aggregate option price of such stock, and Executive will surrender all
such options unexercised. For the purposes of this Agreement, in the event that
such stock is listed on an established national or regional stock exchange, is
admitted to quotation on the National Association of Securities Dealers
Automated Quotation System, or is publicly traded in an established securities
market, in determining the fair market value of the stock, Employer shall use
the average of the closing prices of such stock on such exchange or System or in
such market (the highest such closing price if there is more than one such
exchange or market) on the five trading dates immediately before the date of
termination (or, if there is no such closing price, then the Board shall use the
mean between the highest bid and lowest asked prices or between the high and low
prices on such
32
<PAGE>
date), or, if no sale of the Stock has been made on one or more of such dates,
on the next preceding day on which any such sale shall have been made.
(c) During the Severance Period, Executive and his spouse will continue to
be covered by all Welfare Plans, maintained by Employer in which he or his
spouse were participating immediately prior to the date of his termination as if
he continued to be an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under the terms thereof,
Employer will provide substantially identical benefits. If, however, Executive
obtains employment with another employer during the Severance Period, such
coverage shall be provided only to the extent that the coverage exceeds the
coverage of any substantially similar plans provided by his new employer.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c) of this Agreement.
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the remainder
of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the Severance
Period, be covered under all Welfare Plans made available by Employer to
Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
5. Termination for Good Cause or Without Good Reason. If the employment
-------------------------------------------------
of Executive with Employer is terminated (a) for any reason prior to a Change in
Control other than at the request or direction of an acquiror in connection with
a Change in Control, or (b) after a Change in Control by Employer for Good
Cause, or by the voluntary action of Executive without Good Reason, Executive's
Base Salary (at the rate in effect on the date of termination) shall be paid
through the date of termination, and Employer shall have no further obligation
to Executive or his spouse under this Agreement, except for benefits accrued
under Incentive Plans pursuant to subsection 2(a) above.
6. Section 280G Gross-Up Payment.
-----------------------------
(i) Anything in this Agreement to the contrary notwithstanding and except
as set forth below in this Section 6(i), in the event it shall be determined
that any payment or distribution by Employer, or any other member of the
affiliated group (as determined for purposes of Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") of which Employer or
Corporation is a member, to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 6) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 6(i), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $10,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(ii) Subject to the provisions of Section 6(iii), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PriceWaterhouseCoopers LLP such other certified public accounting firm
reasonably acceptable to Employer as may be designated in writing by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to Employer and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Employer. In the event that the Accounting Firm
is serving as accountant or auditor
33
<PAGE>
for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm reasonably
acceptable to Employer to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by Employer. Any
Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
Employer to the Executive within five business days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Employer and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that the initial
Gross-Up Payments made by Employer will be inadequate and that additional Gross-
Up Payments by Employer should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Employer
exhaust its remedies pursuant to Section 6(iii) and the Executive thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Employer to or for the benefit of the
Executive.
(iii) The Executive shall notify Employer in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Employer of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive receives
written notice of such claim and shall apprise Employer of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of 30 days following the date
on which the Executive gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If Employer notifies the Executive in writing prior to the expiration of such
period that they desire to contest such claim, the Executive shall:
(a) give Employer any information reasonably requested by
Employer relating to such claim,
(b) take such action in connection with contesting such claim as
Employer shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by Employer and reasonably acceptable to the Executive,
(c) cooperate with Employer in good faith in order effectively
to contest such claim, and
(d) permit Employer to participate in any proceedings relating
to such claim; provided, however, that Employer shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 6(iii), Employer shall control all
proceedings taken in connection with such contest and, at their sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at their
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
Employer shall determine; provided, however, that if Employer directs the
Executive to pay such claim and sue for a refund, Employer shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, Employer's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced by
Employer pursuant to Section 6(iii), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to
Employer's continued compliance with the requirements of this Section 6)
promptly pay to Employer the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by Employer pursuant to Section 6(iii), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and Employer does not notify the Executive in writing
of their intent to contest such denial of refund prior to the expiration of 30
days after such determination (or if any such contest shall be finally
determined in a manner adverse to such refund being allowed), then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
34
<PAGE>
7. Definitions. For purposes of this Agreement:
-----------
(a) "Base Salary" shall mean the higher of Executive's annual
base salary at the rate in effect on the date of a Change in Control or the rate
in effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if
there has been a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), or such
item thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation or Employer representing 25% or more of
the combined voting power of Corporation's then outstanding securities, (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Boards of Directors of Corporation and Employer
cease for any reason to constitute at least a majority thereof unless the
election of each Director, who was not a Director at the beginning of the
period, was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of the period, (iii)
Corporation shall cease to be a publicly owned corporation, or (iv) any merger
or consolidation of Corporation with or into another entity shall occur as a
result of which the stockholders of Corporation do not retain or acquire 75% or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if: (1)
Executive engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation or intentional wrongdoing or malfeasance; (2)
Executive is convicted of a criminal violation involving fraud or dishonesty; or
(3) Executive materially breaches the Agreement (other than by engaging in acts
or omissions enumerated in paragraphs (1) and (2) above), or materially fails to
satisfy the conditions and requirements of his employment with Employer, and
such breach or failure by its nature is incapable of being cured, or such breach
or failure remains uncured for more than 30 days following receipt by Executive
of written notice from Employer specifying the nature of the breach of this
paragraph (3), inattention by Executive to his duties shall be deemed a breach
or failure capable of cure.
Without limiting the generality of the foregoing, the following
shall not constitute Good Cause: any personal or policy disagreement between
Executive and Employer or any member of the Board of Directors of Employer; or
any action taken by Executive in connection with his duties if Executive acted
in good faith and in a manner he reasonably believed to be in, and not opposed
to, the best interest of Employer and had no reasonable cause to believe his
conduct was unlawful.
Notwithstanding anything herein to the contrary, in the event
Employer shall terminate the employment of Executive for Good Cause hereunder,
Employer shall give at least 30 days prior written notice to Executive
specifying in detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
(1) there is a significant change in the nature or the
scope of Executive's authority;
(2) there is a reduction in Executive's base salary from
the rate in effect during the fiscal year before the Change in Control;
(3) Employer changes the principal location in which
Executive is required to perform services to one which is more than 50 miles
from his current location;
(4) there is a reasonable determination by Executive that,
as a result of a change in circumstances significantly affecting his position,
he is unable to exercise the authority, powers, function or duties attached to
his position;
(e) "Incentive Plans" shall mean any incentive, bonus
deferred compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or
supplemental defined benefit retirement plan or defined contribution retirement
plan, currently or hereinafter made available by Corporation or Employer in
which Executive is eligible to participate.
(g) "Severance Period" shall mean the period beginning on
the date Executive's employment with Employer terminates under circumstances
described in Section 2 above and ending on the first to occur of: (1) the date
24 months thereafter, or (2) the date Executive attains or would have attained
age 65.
(h) "Welfare Plan" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
8. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other
35
<PAGE>
beneficiary shall have any interest in or rights against any specific assets of
Corporation or Employer, and Executive and his spouse or other beneficiary shall
have only the rights of a general unsecured creditor of Employer.
9. Litigation Expense. Employer shall pay Executive's out of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if Executive is successful in such
litigation.
10. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
11. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between Corporation,
Employer and Executive regarding payments to Executive in the event of a change
in control of Corporation or Employer. During the term of this Agreement,
Executive shall not participate in or benefit from any other change of control
severance plan or policy which may be adopted by Corporation or Employer,
provided that thereafter Executive shall participate in such plan or policy if
one has been established by Corporation or Employer.
12. No Employment Contract. Nothing contained in this Agreement shall
----------------------
be construed to be an employment contract between Executive and Employer.
Executive is employed at will and Employer may terminate his employment at any
time, with or without cause.
13. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
14. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
15. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
16. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: Alex S. DePersis
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13902
If to Executive:
Larry G. Denniston
8 Devon Boulevard
Binghamton, New York 13903
17. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this 'Agreement on its behalf.
36
<PAGE>
In Witness Whereof, Executive has hereunto set his hand, and Corporation and
Employer have caused this agreement to be executed in their name and on their
behalf, all as of the day and year first above written.
BSB BANCORP INC.
BSB BANK & TRUST COMPANY
By: /s/ Alex S. DePersis
--------------------------------------
Alex S. DePersis
President and Chief Executive Officer
By: /s/ Larry G. Denniston
--------------------------------------
Larry G. Denniston
Vice President
37
<PAGE>
EXHIBIT 10.12
AMENDED & RESTATED
EMPLOYMENT CONTRACT
This Amended and Restated Employment Contract dated June 28, 1999, by and among
BSB Bancorp, Inc. (the "Corporation"), a Delaware-chartered bank holding
company, its wholly owned subsidiary BSB Bank & Trust Company, as successor to
Binghamton Savings Bank (the "Bank"), and Alex S. DePersis (the "Executive")
amends and restates the Employment Contract entered into as of November 2, 1990
and subsequently amended on December 29, 1995, December 30, 1996 and December
29, 1997 and such Employment Contract, as amended, shall be of no further force
or effect after the date of this Agreement. The Corporation and the Bank are
collectively referred to as the "Employers."
WITNESSETH:
WHEREAS, the Employers desire to retain the services of Executive on
the terms and conditions set forth herein and, for purpose of effecting the
same, the Boards of Directors of the Employers have approved this Employment
Agreement and authorized its execution and delivery on the Employers' behalf to
the Executive; and
WHEREAS, the Executive is presently a duly elected President and Chief
Executive Officer of the Employers, and as such, is a key executive officer of
the Employers whose dedication, availability, advice and counsel to the
Employers are deemed important to the Boards of Directors of the Employers and
their stockholders; and
WHEREAS, the services of the Executive, his experience and knowledge
of the affairs of the Employers, and his reputation and contacts in the industry
are extremely valuable to the Employers; and
WHEREAS, the Employers wish to attract and retain the executive and it
is in the best interests of the Employers and of the Executive to secure the
continued services of the Executive notwithstanding any change in control of the
Employers; and
WHEREAS, the Employers consider the establishment and maintenance of a
sound and vital management to be part of their overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Employers and
their stockholders; and
WHEREAS, the Executive previously entered into an Employment Contract
dated November 2, 1990 and amended December 29, 1995, December 30, 1996 and
December 30, 1997; and
WHEREAS, the Employers wish to provide security in the event of a
Change in Control and to reinforce and encourage the continued attention and
dedication of Executive to his assigned duties without distraction in
circumstance arising from the possibility of a Change in Control, and
WHEREAS, the parties desire to amend the Employment Contract to
provide for a change in the termination process of the Employment Contract; and
WHEREAS, the parties desire to restate the Employment Contract, as
amended;
NOW, THEREFORE, to assure the Employers of the Executive's dedication,
the availability of his advice and counsel to the Boards of Directors of the
Employers, and the availability of his management skills to the Employers, and
to induce the Executive to remain and continue in the employ of the Employers
and for other good and valuable consideration, the receipt and adequacy whereof
each party hereby acknowledges, the Employers and the Executive hereby agree to
this Amendment and Restatement as follows:
I. ARTICLE I
1. EMPLOYMENT: The Employers agree to, and do hereby, employ Executive
----------
and Executive agrees to, and does hereby, accept such employment, for the period
beginning as of the date of this Agreement and ending three years thereafter,
which period of employment shall be extended or terminated only upon the terms
and conditions hereinafter set forth.
39
<PAGE>
2. TERM: The initial term of employment under this Agreement shall be
----
for a period of three years from the date of this Agreement, provided that the
term of employment under this Agreement shall be extended automatically for one
additional year on each annual anniversary date, unless either the Boards of
Directors of the Employers or the Executive provides contrary written notice to
the other not less than 180 days in advance of any such anniversary date. In the
event either the Employers or the Executive provide such written notice, then
the term hereof shall not be extended, but the then current term shall continue
for the period remaining thereunder. Notwithstanding the foregoing, or the term
provided for in Article II hereof, this Agreement shall automatically expire and
terminate on the Executive's normal retirement date at age 65 or on the
Executive's early retirement under the Special Service Retirement provision of
the Bank's pension plan if the Executive elects to take such early retirement.
The initial term of employment and all such renewed terms of employment under
this Agreement are collectively referred to herein as the "term of this
Agreement."
3. EXECUTIVE DUTIES: Executive agrees that, during the term of his
----------------
employment under this Agreement and in his capacity as President and Chief
Executive Officer or any other title(s) or position(s) to which the Executive
may be elected during the term of the Employment contract, he will devote his
full business time and energy to the business, affairs and interests of the
Employers and serve them diligently and to the best of his ability. The duties
and responsibilities to be performed by Executive shall be those appropriate to
President and Chief Executive Officer of the Employers as in effect currently,
and from time to time hereafter specified by the Employers' by-laws or as
otherwise specified by the Employers' Boards of Directors.
4. COMPENSATION: The Employers agree to pay Executive, and Executive
------------
agrees to accept, as compensation for all services rendered by him to the
Employers: (i) salary at the annual rate of $255,000 which shall be payable in
weekly installments in conformity with Employers' policy relating to salaried
employees; (ii) participation in all performance and discretionary bonus plans
of the Employers that are applicable to executive officers of the Employers or
either of the Employers; and (iii) participation in the plans listed in
paragraph 5. Executive's salary shall be increased from time to time in the sole
and absolute discretion of the Employers' Boards of Directors or Committees
thereof duly authorized by the Boards to so act; provided, however, that after
being so increased, Executive's salary shall not be decreased during any year
term of this agreement without the prior written consent of the Executive.
5. PARTICIPATION BENEFIT PLANS, REIMBURSEMENT OF BUSINESS EXPENSES:
---------------------------------------------------------------
(i) During the term of employment under this agreement, Executive
shall be entitled to participate in any pension, group insurance,
hospitalization, travel accident deferred compensation or other benefit,
savings, or incentive plans of the Employers presently in effect or hereafter
adopted by the Employers and generally available to all employees of executive
status, and additionally, Executive shall be entitled to have the use of
Employers' facilities and executive benefits as are customarily made available
by the Employers to their executive officers.
(ii) During the term of this Agreement, to the extent that such
expenditures meet the requirements of the Internal Revenue Code of 1986, as
amended ("Code"), for deductibility by the Employers for federal income tax
purposes and are substantiated by the Executive as required by the Internal
Revenue Service ("IRS") and policies of the Employers, the Employers shall
reimburse the Executive promptly for all expenditures (including travel,
entertainment and business meetings) made in accordance with rules and policies
established from time to time by the Boards of Directors of the Employers in
pursuance and furtherance of the Employers' business and goodwill.
6. ILLNESS: In the event Executive is unable to perform his duties under
-------
this Agreement on a full-time basis for a period of six consecutive months by
reason of illness or other physical or mental disability, and at or before the
end of such period he does not return to work on a full-time basis, the
Employers may terminate this Agreement without further or additional
compensation payment being due the Executive from the Employers pursuant to this
Agreement, except as such compensation may accrue to the Executive under the
Bank's Disability Pay Policy for work-related or non-work related total
disability, and except for benefits accrued through the date of such termination
under employee benefit plans of the Employers. These benefits shall include
Disability Retirement, Group Life Insurance and other insurance or other
benefits then regularly provided by the Employers to disabled employees, as well
as any other insurance benefits so provided.
7. DEATH: In the event of Executive's death during the term of this
-----
Agreement, his estate, legal representatives or named beneficiaries (as directed
by Executive in writing) shall receive such payments as provided for under the
terms of the Bank's Pension Plan, Group Life Insurance, Travel Accident Plan and
other plans in effect, together with any entitlement under the Bank Vacation
Policy in effect at time of death.
8. TERMINATION BY EMPLOYERS: Notwithstanding the provisions of paragraph
------------------------
2 of this ARTICLE I, the Board of Directors of the Employers may, in its sole
discretion, terminate the Executive's employment under this Agreement at any
time in any lawful manner by not less than 30 days written notice to the
Executive and in such event, unless the Employers terminate the Executive's
employment for Cause in accordance with paragraph 9 of Article I of this
Agreement, the Executive shall be (i) paid, during the months following such
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termination at such times as payment was theretofore made, the salary that the
Executive would have been entitled to receive during the remaining term of this
Agreement had such termination not occurred; (ii) paid in cash, at the time
other participants receive a cash payment for that year, an amount equal to that
paid others under the provisions of any stock or other performance incentive
plan, cash bonus plan or such cash award programs as may be in effect at the
time of termination in accordance with the terms of those plans. Such payments
and benefits described in (i) and (ii) shall automatically cease at the earlier
of the end of the term of this Agreement or in the event that the Executive
shall become employed, directly or indirectly, by a financial institution or
holding company located within a 75 mile radius of the Bank's home office,
whichever shall occur first. For the purposes of this paragraph 8, the term
"financial institution" shall mean any state or federally chartered bank,
savings and loan association, credit union, trust company or other entity
directly competing with the Employers, or either of them, in the offering of
financial services. Notwithstanding the provisions of paragraph 2 above or this
paragraph 8, no termination of this Agreement shall be made pursuant to
paragraph 2 above or this paragraph 8 other than upon retirement as specified in
paragraph 2, (a) following a "Change of Control" of the Employers as defined in
paragraph 10 of Article II of this Agreement, or (b) during any period of time
when the Employers have knowledge that any person(s), concern or entity has
taken steps reasonably calculated to effect a Change in Control of the Employers
until, in the reasonable, good faith opinion of their Boards of Directors, the
person(s), concern or entity has abandoned or terminated his or its efforts to
effect a Change in Control. Any good faith determination by the Employers'
Boards of Directors that the person(s), concern or entity has abandoned or
terminated his or its efforts to effect a Change in Control shall be conclusive
and binding on the Executive. Such determination shall be promptly communicated
to the Executive in writing by the Employers' Secretary.
9. RESIGNATION - OTHER TERMINATION:
-------------------------------
(i) Notwithstanding the provisions of paragraph 2 of this Article I,
the Boards of Directors of the Employers may, in their sole discretion,
terminate the Executive's employment for Cause. For the purposes of this
Agreement, the Employers shall have "Cause" to terminate the Executive's
employment hereunder because of the Executive's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, willful failure
to perform stated duties, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or a final cease-and-desist
order issued by the Federal Deposit Insurance Corporation ("FDIC"), or material
breach of any provision of this Agreement. For purposes of this paragraph, no
act, or failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Employers; provided that any act or omission to act on the Executive's behalf in
reliance upon an opinion of counsel reasonably satisfactory to the Employers
shall not be deemed to be "willful". Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a certification by a majority
of the non-officer members of the Boards of Directors of the Employers finding
that, in the good faith opinion of such majority, the Executive was guilty of
conduct which is deemed to be of Cause within the meaning of the first sentence
of this paragraph and specifying the particulars thereof in detail, after
providing reasonable notice to the Executive and after an opportunity for him,
together with his counsel, to be heard before such majority.
(ii) In the event that Executive resigns from or otherwise voluntarily
terminates his employment by the Employers at any time, or if the Employers
terminate the Executive's employment for Cause in accordance with paragraph 9(i)
of ARTICLE I of this Agreement, this Agreement shall terminate upon the date of
such resignation or other termination of employment, and thereupon the Employers
shall have no obligation to make any further payments under this Agreement,
provided that the Executive shall be entitled to receive any benefits, insured
or otherwise, that he would otherwise be eligible to receive under any benefit
plans of the Employers.
ARTICLE II
10. CHANGE OF CONTROL: The provisions of ARTICLE II of this Agreement
-----------------
shall become operative only when and if there has been a "Change of Control" of
the Employers. A Change of Control of the Employers shall mean a change of
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"), or such item thereof which may
hereafter pertain to the same subject; provided that, and notwithstanding the
foregoing, a Change of Control shall be deemed to have occurred if (i) any
"person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of securities
of the Employer representing 25% or more of the combined voting power of the
Corporation's then outstanding securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Boards of Directors of the Employers cease for any reason to constitute at
least a majority thereof unless the election of each Director, who was not a
Director at the beginning
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of the period, was approved by a vote of at least two-thirds of the Directors
then still in office who were Directors at the beginning of the period, (iii)
the Corporation shall cease to be a publicly owned corporation, or (iv) any
merger or consolidation of the Corporation with or into another entity shall
occur as a result of which the stockholders of the Corporation do not retain or
acquire 75% or more of the capital stock of the resulting entity.
11. TERMINATION: If a Change of Control of the Employers shall have
-----------
occurred, this Agreement shall continue in full force and effect unless and
until either terminated in accordance with the provisions of this ARTICLE II, or
not extended in accordance with the provisions of paragraph 2 of Article I. If,
after such a Change of Control shall have occurred, the Executive's employment
is terminated, other than upon retirement as specified in paragraph 2 of Article
I, then the Executive shall be entitled to receive the payments specified in
this ARTICLE II in lieu of any payments specified in ARTICLE I of this Agreement
to be paid upon termination, provided that the benefits payable under this
Article II are larger than the benefits payable under Article I, unless such
termination is for Cause in which case the provisions of paragraph ll.(i) apply,
provided further, that if such termination is by reason of the disability or
death of the Executive, the provisions of paragraphs 5 or 6 of ARTICLE I shall
govern such termination, as applicable.
(i) The Employers may terminate the Executive's employment for Cause
in accordance with paragraph 9 of ARTICLE I of this Agreement.
(ii) The Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(a) The assignment of duties to the Executive by the Employers
which (i) are materially different from the Executive's duties during the fiscal
year immediately prior to the Change of Control and which are not appropriate
for an officer of the Employers serving in the position(s) held by the Executive
immediately prior to the Change in Control, or (ii) result in the Executive
having significant less authority and/or responsibility than he had as an
officer of the Employers serving in the position(s) held by the Executive during
the fiscal year immediately prior to the Change of Control, or (iii) require
Executive to engage in an excessive amount of travel or to move from Binghamton,
New York, without his express written consent;
(b) The removal of the Executive from or any failure to re-elect
him to the aforesaid positions(s), except in connection with a termination of
his employment by the Employers for Cause or by reason of the Executive's
disability;
(c) A reduction by the Employers of the Executive's base salary
as in effect on the date of the Change of Control or as the same may be
increased from time to time thereafter;
(d) A failure by the Corporation to continue the 1996 Long-Term
Incentive and Capital Accumulation Plan or any successor stock option plan or a
failure by the Employers to continue the Executive as a participant in such Plan
or any successor stock option plan on a basis comparable to the basis on which
he participated in such plan for the last full fiscal year prior to the Change
of Control or a termination or reduction of Executive's ability to participate
in any of the plans referred to in paragraph 5 hereof;
(e) The failure of the Employers to provide the Executive with
substantially the same fringe benefits (including paid vacations) that were
provided to him immediately prior to the Change of Control, or with a package of
fringe benefits that, though one or more of such benefits may vary from those in
effect immediately prior to such Change of Control, is substantially comparable
in all material respects to such fringe benefits taken as a whole; or
(f) The failure of the Employers to obtain the assumption of and
agreement to perform this Agreement by any successor as contemplated in
paragraph 14(iii) hereof.
(iii) Notwithstanding the provisions of paragraphs 11(i) and 11(ii)
above, following a Change of Control the Employers may terminate the Executive's
employment without Cause at any time in any otherwise lawful manner, subject to
the Employers' providing to the Executive the payments and benefits specified in
paragraph 12(ii).
(iv) The Executive may terminate his employment at any time after a
Change of Control, but if such termination is not for Good Reason, or Good
Reason is alleged but ultimately determined pursuant to paragraph 11(vi) not to
be justifiable, then upon and after such termination date Executive shall be
entitled to the payments and benefits from the Employers specified in paragraph
12(iii).
(v) Termination either by the Employers pursuant to paragraph 11(i)
or 11(iii) above, or by the Executive pursuant to paragraph 11(ii) or 11(iv)
above, shall be communicated by written Notice of Termination to the other party
hereto. For purposes of ARTICLE II of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provisions in
this Agreement relied upon and, except for a termination pursuant to paragraph
11(iii) or 11(iv) above, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under the
provision so indicated.
(vi) "Date of Termination" shall mean the date specified in the
Notice of Termination, which shall be not less than 30 nor more than 90 days
after such Notice of Termination is given; provided, that if within 30 days
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after any Notice of Termination is given pursuant to paragraph 11(i) or 11(ii)
above, the party receiving such Notice of Termination notified the other party
that a dispute exists concerning the termination, then pending the resolution of
any such dispute the Employers shall continue to pay the Executive the same base
salary as and when due and payable, and provide him the same or substantially
comparable fringe benefits that he was paid and provided immediately prior to
the delivery of the Notice of Termination. If a termination by the Employers
pursuant to paragraph 11(i) above is challenged by the Executive and the
termination is ultimately determined to be justified, or a termination by the
Executive pursuant to paragraph 11(ii) above is challenged by the Employers and
the termination is ultimately determined not to be justified, then all sums paid
by the Employers to the Executive pursuant to this paragraph 11(vi), plus the
cost to the Employers of providing the Executive such fringe benefits from the
date of such termination to the date of the resolution of such dispute, shall be
promptly repaid by the Executive to the Employers with interest at the prime
rate charged by the Savings Bank to its most substantial customers for unsecured
lines of credit; provided, however, that nothing herein shall be deemed to
relieve the Employers of their obligation to make payments to the Executive
pursuant to paragraph 12(iii) in the event that a termination by the Executive
pursuant to paragraph 11(ii) above is challenged by the Employers and the
termination is ultimately determined not to be justified. Should it ultimately
be determined that a termination by the Employers pursuant to paragraph 11(i)
above was not justified, or that a termination by the Executive pursuant to
paragraph 11(ii) above was justified, then the Executive shall be entitled to
retain all sums paid to him pending the resolution of such dispute and he shall
be entitled to receive in addition the payments and other benefits provided for
in paragraph 12(ii), and the Date of Termination shall be the date on which the
dispute is finally settled, either by mutual written agreement of the parties,
or by a final judgment, order or decree of a court of competent jurisdiction
(the time for appeal therefrom having expired and no appeal having been
perfected).
12. TERMINATION PROVISIONS: (i) If the Executive's employment shall be
----------------------
terminated for Cause pursuant to paragraph 9 of ARTICLE I of this Agreement, and
if such termination is challenged by the Executive and the challenge is resolved
in favor of the Employers, the Employers shall be obligated to the Executive
according to ARTICLE I only, and the Employers shall have no further obligation
to Executive under this ARTICLE II.
(ii) If within two years after a Change of Control of the Employers,
(1)the Employers shall terminate the Executive's employment other than in
accordance with the provisions of paragraph 9 of Article I or paragraph 11(i)
hereof, or (2) the Executive shall terminate his employment pursuant to
paragraph 11(ii) hereof at any time during the period beginning with a Change of
Control and ending two years after the Change of Control, then:
(a) On or before the Executive's last day of employment with the
Employers, the Employers shall pay to the Executive as compensation for services
rendered to the Employers a lump sum cash amount (subject to any applicable
payroll or other taxes required to be withheld) equal to 2.99 times the highest
annual cash compensation paid to the Executive by the Employers for any of the
three calendar years ending with the year of the Executive's termination,
provided that, at the option of the Executive, the cash amount required to be
paid hereby shall be paid by the Employers in equal monthly installments over
the 30 months succeeding the Date of Termination, payable on the first day of
each such month. For purposes of this paragraph 12(ii) (a), highest annual cash
compensation shall consist of only Executive's base salary and any performance
incentive plan award or other cash bonus paid or accrued, provided that, if no
performance incentive plan award or other cash bonus has been granted since the
Change of Control, then, for the purposes of calculating the payments required
by this paragraph 12(ii), it shall be assumed that the Executive earned a
performance incentive plan award or other cash bonus in each of the three
calendar years ending with the year of the Executive's termination equal to the
average of the performance incentive plan awards or other cash bonus earned for
each of the three fiscal years preceding the Change of Control.
(b) Any awards previously granted to the Executive under any
performance incentive or other cash bonus plan, actual payment of which was
deferred, shall immediately vest and be paid to the Executive within five days
of the Date of Termination, and the amount of such deferred payment will not be
calculated as a setoff to, or as an amount to be included in, the cash payment
due the Executive pursuant to paragraph 12(ii)(a). Concurrently therewith, the
Employers also shall distribute to the Executive all uninvested cash in
Executive's account which is attributable to prior performance incentive plan or
other cash bonus awards. There also shall be paid to the Executive in cash, at
the time other participants received a cash payment for that year, an amount
equal to a performance incentive plan award for the year during which such
termination occurred prorated from the first of the year through the Date of
Termination.
(c) In addition to the benefits to which the Executive is
entitled under the retirement plans or programs of the Employers in effect as of
the date first above written or any successor plans or programs in effect on the
Date of Termination of the Executive's employment, the Employers shall pay the
Executive at the Executive's normal retirement age, or early retirement age
should the Executive so elect, as defined in the aforementioned retirement plans
or programs or any successor plans or programs in effect on the Date of
Termination, a cash amount equal to the actuarial equivalent of the retirement
pension to which the Executive would have been entitled under the terms of such
retirement plans or programs, without regard to "vesting" thereunder, had the
Executive accumulated the
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lesser of two additional years of continuous service or the remaining number of
additional years of service Executive would have accumulated if he retired at
the age of 65 (after any termination pursuant to this Agreement) at the
Executive's base salary rate in effect on the Date of Termination under such
retirement plans or programs reduced by the single sum actuarial equivalent of
any amounts to which the Executive is entitled pursuant to the provisions of
said retirement plans and programs. For purposes of this paragraph 12(ii)(c),
"actuarial equivalent" shall be determined using the same methods and
assumptions utilized under the Employers' retirement plans and programs
immediately prior to the Change of Control. At the election of the Executive,
the Employers' obligations under this paragraph 12(ii)(c) shall be satisfied by
a lump sum payment of cash or by the purchase of an annuity contract from a life
insurance company designated by the Executive and reasonably acceptable to the
Employers, which contract shall be owned by and payable to the Executive and
shall provide for payments comparable to payments which the Executive would
receive pursuant to the aforementioned retirement plans or programs. If
applicable, the annuity contract shall be purchased and delivered to the
Executive within 30 days following termination.
(d) The Employers shall maintain in full force and effect, for the
continued benefit of the Executive for a two year period after the Date of
Termination, all employee welfare plans and programs or arrangements in which
the Executive was entitled to participate immediately prior to the Date of
Termination, provided that the Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Executive's participation in any such plan or program is barred, the
Employers shall arrange to provide the Executive with benefits substantially
similar to those which the Executive was entitled to receive under such plans
and programs.
(iii) In the event that the Executive terminates his employment
at any time after a Change of Control for other than Good Reason, or Good Reason
is alleged but ultimately determined pursuant to paragraph 11(vi) hereof to not
be justifiable, then
(a) On or before the Executive's last day of employment with the
Employers, the Employers shall pay to the Executive as compensation for services
rendered to the Employers a cash amount (subject to any applicable payroll or
other taxes required to be withheld) equal to the highest annual cash
compensation paid to the Executive by the Employers for any of the three
calendar years ending with the year of the Executive's termination, provided
that, at the option of the Executive, the cash amount required to be paid hereby
shall be paid in equal monthly installments over the 12 months succeeding the
Date of Termination, payable on the first day of each such month. For purposes
of this paragraph 12(iii), highest annual cash compensation shall include only
base salary and performance incentive plan awards or other cash bonus paid or
accrued, provided that, if no performance incentive plan award or other cash
bonus has been granted since the Change of Control, then, for purposes of
calculating the payments required by this paragraph 12(iii), it shall be assumed
that the Executive earned a performance incentive plan award or other cash bonus
in each of the three calendar years ending with the year of the Executive's
termination equal to the average of the performance incentive plan awards or
other cash bonus earned for each of the two fiscal years preceding the Change of
Control.
(b) Any awards previously granted to the Executive under any
performance incentive or other cash bonus plan, actual payment of which was
deferred, shall immediately vest in and be paid to the Executive within five
days of the Date of Termination, and the amount of such deferred payment will
not be calculated as a setoff to, or as an amount to be included in, the cash
payment due the Executive pursuant to paragraph 12(iii)(a). Concurrently
therewith, the Employers also shall distribute to the Executive all uninvested
cash in Executive's account which is attributable to prior performance incentive
plan or other cash bonus awards. There also shall be paid to the Executive in
cash, at the time other participants receive a cash payment for that year, an
amount equal to a performance incentive plan award or other cash bonus for the
year during which such termination occurred prorated from the first of the year
through the Date of Termination.
(c) In addition to the benefits to which the Executive is entitled
under the retirement plans or programs of the Employers in effect as of the date
first above written or any successor plans or programs in effect on the Date of
Termination of the Executive's employment, the Employers shall pay the Executive
at the Executive's normal retirement age, or early retirement age should the
Executive so elect, as defined in the aforementioned retirement plans or
programs or any successor plans or programs in effect on the Date of
Termination, a cash amount equal to the actuarial equivalent of the retirement
pension to which the Executive would have been entitled under the terms of such
retirement plans or programs, without regard to "vesting" thereunder, had the
Executive accumulated one (1) additional year of continuous service (after any
termination pursuant to this Agreement) at the Executive's base salary rate in
effect on the Date of Termination under such retirement plans or programs
reduced by the single sum actuarial equivalent of any amounts to which the
Executive is entitled pursuant to the provisions of said retirement plans and
programs. For purposes of this paragraph 12(iii)(c), "actuarial equivalent"
shall be determined using the same methods and assumptions utilized under the
Employers' retirement plans and programs
<PAGE>
immediately prior to the Change of Control. At the Executive's option, the
Employers' obligations under this paragraph 12(iii)(b) shall be satisfied by a
lump sum payment of cash or by the purchase of an annuity contract from a life
insurance company designated by the Executive and reasonably acceptable to the
Employers, which contract shall be owned by and payable to the Executive and
shall provide for payments comparable to payments which the Executive would
receive pursuant to the aforementioned retirement plans or programs. If
applicable, the annuity contract shall be purchased and delivered to the
Executive within 30 days following termination.
(d) The Employers shall maintain in full force and effect for the
continued benefit of the Executive, for a two year period after the Date of
Termination, all employee welfare plans and programs or arrangements in which
the Executive was entitled to immediately prior to the Date of Termination
provided that the Executive's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the Employers
shall arrange to provide the Executive with benefits substantially similar to
those which the Executive was entitled to receive under such plans and programs.
13. STOCK OPTIONS AND STOCK GRANTS: Upon a Change of Control, all stock
------------------------------
options granted to the Executive under the Employers' Long-Term Incentive and
Capital Accumulation Plan, or any successor thereto, shall become immediately
exercisable with respect to all or any portion of the shares covered thereby,
regardless whether such options are otherwise exercisable, and all service
period restrictions on stock grants awarded to the Executive under the same
program or any successor thereto shall lapse so as to permit the transfer of all
stock subject to such grants.
14. Section 280G Gross-Up Payment.
-----------------------------
(i) Anything in this Agreement to the contrary notwithstanding
and except as set forth below in this Section 14(i), in the event it shall be
determined that any payment or distribution by the Employers, or any other
member of the affiliated group (as determined for purposes of Sections 280G and
4999 of the Internal Revenue Code of 1986, as amended (the "Code") of which any
Employer is a member, to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 14) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 14(i), if it shall be determined that the Executive
is entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $10,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(ii) Subject to the provisions of Section 14(ii), all
determinations required to be made under this Section 14, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PriceWaterhouseCoopers LLP such other certified public accounting firm
reasonably acceptable to the Employers as may be designated in writing by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Employers and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Employers. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm reasonably acceptable to the Employers to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Employers. Any Gross-Up Payment, as determined
pursuant to this Section 14, shall be paid by the Employers to the Executive
within five business days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Employers and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that the initial Gross-Up Payments made by the
Employers will be inadequate and that additional Gross-Up Payments by the
Employers should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Employers
exhaust their remedies pursuant to Section 14(iii) and the Executive thereafter
are required
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to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Employers to or for the benefit of the Executive.
(iii) The Executive shall notify the Employers in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employers of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive
receives written notice of such claim and shall apprise the Employers of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of 30 days
following the date on which the Executive gives such notice to the Employers (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Employers notify the Executive in writing prior to
the expiration of such period that they desire to contest such claim, the
Executive shall:
(a) give the Employers any information reasonably requested by the
Employers relating to such claim,
(b) take such action in connection with contesting such claim as the
Employers shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Employers and reasonably acceptable to the
Executive,
(c) cooperate with the Employers in good faith in order effectively
to contest such claim, and
(d) permit the Employers to participate in any proceedings relating
to such claim; provided, however, that the Employers shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 14(iii), the Employers shall control all
proceedings taken in connection with such contest and, at their sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at their
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Employers shall determine; provided, however, that if the Employers direct the
Executive to pay such claim and sue for a refund, the Employers shall advance
the amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Employers' control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 14(iii), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Employers' continued compliance with the requirements of this
Section 14) promptly pay to the Employers the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Employers
pursuant to Section 14(iii), a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Employers do
not notify the Executive in writing of their intent to contest such denial of
refund prior to the expiration of 30 days after such determination (or if any
such contest shall be finally determined in a manner adverse to such refund
being allowed), then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of the Gross-Up Payment required to be paid.
15. LITIGATION - OBLIGATIONS - SUCCESSORS: (i) Notwithstanding the
-------------------------------------
requirements of paragraph 21 of Article III hereof, if litigation shall be
brought to challenge, enforce or interpret any provision contained in this
ARTICLE II, the Employers hereby agree to indemnify the Executive for his
reasonable attorney's fees and disbursements incurred in such litigation, and
hereby agree to pay post-judgment interest on any money judgment obtained by the
Executive calculated at the rate charged from time to time by the Bank to its
most substantial customers for unsecured lines of credit from the date that
payment(s) to him should have been made under the judgment to date of payment.
(ii) The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise.
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(iii) The Employers will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Employers, by agreement
in form and substance satisfactory to the Executive, to expressly assume and
agree to perform this Agreement in its entirety. Failure of the Employers to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive to compensation from
the Employers in the same amount and on the same terms as he would be entitled
under this ARTICLE II if he had terminated his employment for Good Reason
pursuant to subparagraph 11(ii) above, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this ARTICLE II, "Employers" shall
mean the Employers as hereinbefore defined and any successors to their
respective businesses and/or assets as aforesaid which execute and deliver the
Agreement provided for in this paragraph 15(iii) or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.
ARTICLE III
16. NOTICES: For purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Mr. Alex S. DePersis
1713 Campus Drive
Vestal, New York 13850
If to the Employers:
BSB Bancorp, Inc.
58-68 Exchange Street
Binghamton, New York 13902
or at such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
47
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17. ENTIRE AGREEMENT-MODIFICATION-WAIVERS-APPLICABLE LAW:
-----------------------------------------------------
(i) This Agreement contains the entire agreement of the parties
hereto relating to the subject matter hereof and supersedes in its entirety any
and all prior agreements, contracts, understandings or representations relating
to the employment relationship created hereunder.
(ii) Executive hereby waives the provisions of any prior employment
agreement, contract or understanding relating to Executive's employment by the
Bank and/or the Corporation, and specifically that Agreement dated February 18,
1986, between the Savings Bank and Executive.
(iv) No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing, signed by the Executive and on behalf of the Employers by such officers
as may be specifically designated by the Boards of Directors of the Employers.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
(v) No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York.
18. INVALIDITY-ENFORCEABILITY: The invalidity or unenforceability of any
-------------------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
19. SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and be
----------------
enforceable-by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. if
Executive should die while any amounts would still be payable to him under
either ARTICLE I or ARTICLE II of this Agreement, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
20. HEADINGS: Descriptive headings contained in this Agreement are for
--------
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
21. ARBITRATION: Any dispute, controversy or claim arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted in Binghamton, New York before a panel of three arbitrators in
accordance with the rules then in effect of the American Arbitration
Association. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. Unless otherwise provided in the rules of the American
Arbitration Association, the arbitrators shall, in their award, allocate between
the parties the costs of arbitration, which shall include reasonable attorneys'
fees and expenses of the parties, as well as the arbitrators' fees and expenses,
in such proportions as the arbitrators deem just.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
/s/ Alex S. DePersis
--------------------
Alex S. DePersis
BSB BANCORP INC.
By: /s/ Larry G. Denniston
----------------------
Title: Senior Vice President &
Corporate Secretary
BSB BANK & TRUST COMPANY
By: /s/ Larry G. Denniston
----------------------
Title: Senior Vice President &
Corporate Secretary
48
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EXHIBIT 10.13
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this 25th day of January, 1999, by and among BSB BANK
& TRUST COMPANY, a New York-chartered commercial bank and trust company having
its principal place of business in Binghamton, New York (the "Bank"), BSB
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("BSB Bancorp") (the Bank and BSB Bancorp,
collectively, the "Employers"), and John P. Driscoll, an individual residing in
Skaneateles, New York (the "Executive").
WHEREAS, the Executive has entered into an Employment Agreement dated as of
January 1, 1998 (the "Prior Agreement") with Skaneateles Bancorp, Inc., a
Delaware corporation ("Skaneateles Bancorp") and Skaneateles Savings Bank
("Skaneateles Bank");
WHEREAS, Skaneateles Bancorp is expected to enter into an Agreement and
Plan of Merger on the date hereof with BSB Bancorp pursuant to which, among
other things, Skaneateles Bancorp will be merged with and into BSB Bancorp and
immediately thereafter Skaneateles Bank will be merged with and into BSB Bank
(collectively, such mergers are referred to as the "Merger");
WHEREAS, the parties understand that, pursuant to the Prior Agreement, the
Executive may voluntarily terminate the Prior Agreement and his Employment
thereunder following a "Change in Control" (as defined in the Prior Agreement)
and, following such termination, the "Successor" (as defined in the Prior
Agreement) would be required to make certain payments to the Executive, subject
to the express terms and conditions of the Prior Agreement;
WHEREAS, the Employers and the Executive desire that the Executive be
employed as the Executive Vice President of the Bank and BSB Bancorp effective
as of the closing of the Merger;
WHEREAS, the parties understand that the Merger will constitute a "Change
in Control" (as defined in the Prior Agreement) and the Employers will be
"Successors" (as defined in the Prior Agreement);
WHEREAS, the Employers have agreed that solely for purposes of applying
certain provisions of the Prior Agreement, the Executive will be deemed to have
voluntarily terminated his employment thereunder immediately after the closing
of the Merger;
WHEREAS, the Boards of Directors of the Employers (collectively, the
"Boards"), have approved and authorized the Employers to enter into this
Agreement with the Executive; and
WHEREAS, the parties desire to enter into this Agreement, setting forth the
terms and conditions for the employment relationship of the Executive with the
Employers:
NOW, THEREFORE, it is AGREED as follows:
1. Employment. Subject to and immediately following the closing of the
----------
Merger, the Executive shall be employed as the Executive Vice President of the
Bank and BSB Bancorp and shall serve in such capacity during the Employment Term
(as defined in Section 5 below). As the Executive Vice President of the Bank
and BSB Bancorp, the Executive shall render executive, policy and other
management services to the Employers of the type customarily performed by
persons serving in a similar officer capacity and shall report to the Chief
Executive Officer(s) of the Employers, except as such Chief Executive Officer(s)
reasonably shall otherwise determine. The Executive shall also perform such
duties as the Chief Executive Officer(s) of the Employers or the Boards may from
time to time reasonably direct.
2. Compensation.
------------
(a) The Employers agree to pay the Executive during the Employment
Term (defined below) a salary at an annual rate not less than $147,660. The
Executive's salary shall be increased in the sole and absolute discretion of the
Boards or committees thereof duly authorized by the Boards to so act.
(b) The salary of the Executive shall not be decreased at any time
during the Employment Term from the amount then in effect, unless the Executive
otherwise agrees in writing. Participation in deferred compensation,
discretionary bonus, retirement and other employee benefit plans and in fringe
benefits, other than salary reduction programs in which the Executive elects to
participate, shall not reduce the salary payable to the Executive under this
Section 2. The salary under this Section 2 shall be payable to the Executive not
less frequently than monthly. The Executive shall not be entitled to receive
fees for serving as a director of the Employers or any of their subsidiaries or
for serving as a member of any committee of the Boards of Directors of the
Employers or any of their subsidiaries.
3. Business Expenses. The Employers shall pay or reimburse the Executive
-----------------
for the reasonable monthly cost, including dues, of maintaining his existing
memberships at the Skaneateles Country Club, Onondaga Country Club and Oak Hill
Country Club, up to $1,250 per month. The Bank shall furnish the Executive with
the use of a suitable vehicle (including maintenance) which, unless otherwise
agreed in writing by the parties, shall be the same vehicle as is provided to
the Executive by Skaneateles Bank on the date of this Agreement. To the extent
that the Employers authorize the Executive to incur other expenses, including
the reasonable costs of authorized
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business entertainment and travel, in connection with the performance of his
duties hereunder, the Employers shall reimburse the Executive for such
authorized expenses promptly upon periodic presentation by the Executive of an
itemized account of such expenses.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. During the Employment Term, the Executive shall be eligible to
participate in all incentive, bonus, management recognition, equity
compensation, retirement, deferred compensation, fringe benefit or welfare
benefit plans of the Employers that are applicable to executive employees
generally, including plans providing for stock options, restricted stock,
employee stock purchases, pension or retirement income, retirement savings,
employee stock ownership, deferred compensation and medical, prescription drug,
dental, disability, employee life, group life, accidental death and travel
accident insurance that the Employers may adopt or maintain for the benefit of
executive employees during the Employment Term, in accordance with the terms of
such plans. Subject to Section 11 below, the Executive shall be entitled to any
vested retirement benefit payable to him under the terms of benefit plans and
arrangements sponsored or maintained by Skaneateles Bancorp and Skaneateles
Bank, including, without limitation benefits payable to him under the
Supplemental Retirement Agreement entered into as of January 1, 1998 by and
among Skaneateles Bancorp, Skaneateles Bank and the Executive.
5. Term. The term of employment under this Agreement shall commence on
----
the date of the closing of the Merger and shall end on December 31, 2001 (the
"Employment Term"). The Employment Term may be extended by written agreement
executed by the Employers and the Executive.
6. Standards. The Executive shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards as may be
established from time to time by the Boards and communicated in writing to the
Executive. The reasonableness of such standards shall be measured against
standards for executive performance generally prevailing in the financial
institutions industry.
7. Voluntary Absences; Vacations. The Executive shall be entitled,
-----------------------------
without loss of pay, to absent himself voluntarily for reasonable periods of
time from the performance of his duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation time,
unless the Boards otherwise approve. The Executive shall be entitled to paid
vacation days totaling 20 business days per year. The timing of paid vacations
shall be scheduled in a reasonable manner by the Executive.
8. Termination of Employment.
-------------------------
(a) (i) Subject to the other provisions of this Agreement, the
Employers may terminate the Executive's employment at any time.
(ii) Except as specifically provided in Section 10 of the Prior
Agreement, the Executive shall have no right to receive compensation or other
benefits for any period after he voluntarily terminates of his employment
without "Good Reason" (as defined below) or the Employers involuntarily
terminate his employment for Cause. "Cause" shall mean the Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, willful failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order of the Federal Deposit Insurance Corporation ("FDIC") or
a material breach of any provisions of this Agreement. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Employers; provided that any act or omission to act on the
Executive's behalf in reliance upon an opinion of counsel satisfactory to the
Employers shall not be deemed to be willful.
(iii) The parties acknowledge and agree that damages that will
result to the Executive for involuntary termination without Cause shall be
extremely difficult or impossible to establish or prove, and agree that, subject
to Section 11 of this Agreement, unless such involuntary termination is for
Cause, the Employers shall be obligated, following such termination, to continue
to pay to the Executive compensation in accordance with Section 2 hereof for the
remaining term of this Agreement. The amounts payable to the Executive hereunder
following termination without Cause during the first 12 months of the Employment
Term shall be reduced to the extent of the Executive's earned income (within the
meaning of section 911(d)(2)(A) of the Internal Revenue Code of 1986, as amended
(the "Code")) during the period for which the Executive's compensation continues
to be paid hereunder and the Executive shall provide the Employers prompt
written notice of the amount of such earned income. In the event of termination
of the Executive's employment after the first 12 months of the Employment Term,
the amounts payable hereunder shall not be reduced by the Executive's earned
income (as defined above) after termination of his employment with the
Employers. The Executive agrees that, except for such other payments and
benefits to which the Executive may be entitled as expressly provided by the
terms of this Agreement and the Prior Agreement, the payments provided for under
this Section 8(a)(iii) shall constitute liquidated damages and shall be in
complete satisfaction of the Employers' obligations under this Agreement.
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<PAGE>
(iv) In addition to the liquidated damages above described that
are payable to the Executive, subject to Section 11 of this Agreement, in the
event of any such termination without Cause, during the period in which payments
are required to be made under Section 8(a)(iii) above, or such longer period as
may be provided by the terms of the appropriate plan, the Employers shall
continue in effect all medical, prescription drug, dental, disability, employee
life, group life and accidental death insurance and other employee welfare plans
for the benefit of the Executive and, if applicable, the Executive's family,
which would have been provided to them in accordance with Section 4 of this
Agreement if the Executive's employment had not been terminated; provided,
however, that if the Executive is eligible to receive medical, prescription drug
or dental benefits under an employee benefits plan sponsored by a subsequent
employer, the medical prescription drug and dental benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility.
(v) If the Executive voluntarily terminates his employment with
the Employers during the Employment Term for "Good Reason," such termination
shall be deemed to have been an involuntary termination by the Employers of the
Executive's employment without Cause. "Good Reason" shall mean:
(1) the assignment to the Executive by the Employers (or
either of them) of duties materially inconsistent with the Executive's position,
duties, responsibilities, and status as Executive Vice President of the
Employers, a material adverse change in the Executive's titles or offices, any
removal of the Executive from or any failure to reelect the Executive to any of
such officer positions, except in connection with the termination of his
employment for Cause, or any action that would have a material adverse effect on
the physical conditions in which or location at which the Executive performs his
employment duties;
(2) a reduction by the Employers in the Executive's salary
under Section 2(a) without the Executive's consent; or
(3) any other action or inaction that constitutes a
material breach by the Employers or either of them of this Agreement or the
Prior Agreement.
(b) The Executive shall have no right to terminate his employment
under this Agreement before the end of the Employment Term, unless (i) such
termination is approved by the Boards or (ii) such termination is with "Good
Reason" as defined above. In the event that the Executive violates this
provision, the Employers shall be entitled, in addition to their other legal
remedies, to enjoin the employment of the Executive with any significant
competitor of the Employers (or either of them) for a period of one year or the
then remaining Employment Term plus six months, whichever is less. The term
"significant competitor" shall mean any commercial bank, savings bank, savings
and loan association, mortgage banking company or a holding company affiliate of
any of the foregoing which, at the date of its employment of the Executive, has
an office out of which the Executive would be primarily based that is located
within 75 miles of the Bank's office located at 431 East Fayette Street,
Syracuse, New York. If any court or other tribunal having jurisdiction to
determine the validity or enforceability of this paragraph determines that,
strictly applied, it would be invalid or unenforceable, the definition of
"significant competitor" and the time provisions used shall be deemed modified
to the extent necessary (but only to that extent) so that the restrictions in
that subsection, as modified, will be valid and enforceable.
(c) In the event the employment of the Executive is terminated by the
Employers without Cause under Section 8(a) hereof and the Employers fail to make
timely payment of the amounts then owed to the Executive under this Agreement,
the Executive shall be entitled to reimbursement for all reasonable costs,
including attorneys' fees, incurred by the Executive in taking action to collect
such amounts or otherwise to enforce this Agreement, plus interest on such
amounts at the rate of one percent above the prime rate (defined as the base
rate on corporate loans at large U.S. money center commercial banks as published
by The Wall Street Journal), compounded monthly, for the period from the date of
employment termination until payment is made to the Executive. Such
reimbursement and interest shall be in addition to all rights which the
Executive is otherwise entitled to under this Agreement.
(d) In the event of the Executive's death during the Employment Term,
his estate shall be entitled to receive any unpaid salary or other compensation
owing to the Executive. This Agreement shall thereupon terminate, except that
any vested rights of the Executive shall then be exercised by his estate.
(e) In the event the Executive becomes disabled during the Employment
Term under circumstances that would entitle him to benefits under the Bank's
long-term disability plan and, as a result of such disability, he is unable to
perform his duties hereunder for an uninterrupted period of more than six
months, the Employers may terminate the Executive's employment without liability
under Section 8(a) hereof and this Agreement shall thereupon terminate. Any such
termination shall not affect the Executive's rights to benefits pursuant to any
applicable long-term disability plan of the Employers.
(f) Notwithstanding any other provision in this Agreement, (i) the
Employers may terminate or suspend this Agreement and the employment of the
Executive hereunder, as if such termination were for Cause under Section 8(a)
hereof, to the extent required by the applicable laws of the State of New York
related to banking,
52
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by applicable federal law relating to deposit insurance or bank holding
companies or by regulations or orders issued by the New York State Banking
Department, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation or other state or federal banking regulatory
agency having jurisdiction over BSB Bancorp or the Bank and (ii) no payment
shall be required to be made to or for the benefit of the Executive under this
Agreement to the extent such payment is prohibited by applicable law, regulation
or order issued by a banking agency or a court of competent jurisdiction;
provided, that it shall be the Employers' burden to prove that any such action
was so required.
9. Prior Agreement. The parties agree that, solely for purposes of
---------------
applying the Prior Agreement, the Executive shall be deemed to have voluntarily
terminated the Prior Agreement and his employment thereunder immediately after
the closing of the Merger, and that such voluntary termination of the Prior
Agreement shall not affect his entitlement to the payments and benefits
specified in Section 10 of the Prior Agreement, which payments and benefits
shall be made and provided to the Executive within 30 days after the closing of
the Merger. The Executive represents and warrants to the Employers that he has
provided to them true and correct copies of Wage and Tax Statements (Forms W-2)
reflecting his annual compensation from Skaneateles Bank that was includible in
his gross income for federal income tax purposes for his taxable years ended
December 31, 1994, 1995, 1996, 1997 and 1998. Based upon such compensation
amounts, the parties understand that the amount described in Section 10(c) of
the Prior Agreement is $435,089. Payments made and benefits provided in
accordance with the Prior Agreement are in addition to payments to be made and
benefits to be provided to the Executive under this Agreement; provided, however
that the Employers shall not be required to provide the Executive with any
"Benefits" (as defined in the Prior Agreement) that are duplicative of benefits
provided to the Executive under this Agreement. Except for their obligations as
"Successors" under Section 10 of the Prior Agreement, the Employers shall have
no liability to the Executive under the Prior Agreement after the Merger.
10. Confidential Information.
------------------------
(a) The Executive acknowledges that the information, observations and
data obtained by the Executive concerning the business and affairs of the
Employers during the course of the Executive's employment are the property of
the Employers, including information concerning acquisition opportunities in or
reasonably related to the business or industry of the Employers of which the
Executive becomes aware during such period. Therefore, the Executive agrees that
he will not at any time (whether during or after the Employment Term) disclose
to any unauthorized person or, directly or indirectly, use for the Executive's
own account, any of such information, observations or data without the consent
of the Boards, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a direct or
indirect result of the Executive's unauthorized acts or omissions to act or the
unauthorized acts or omissions to act of other employees of the Employers. The
Executive agrees to deliver to the Employers at the termination of the
Executive's employment, or at any other time the Employers may request in
writing (whether during or after the Employment Term), all memoranda, notes,
plans, records, reports and other documents, regardless of the format or media
(and copies thereof), relating to the business of the Employers and their
predecessors (including, without limitation, all acquisition prospects, lists
and contact information) which the Executive may then possess or have under the
Executive's control.
(b) The Executive acknowledges that the restrictions contained in
this Section 10 hereof are reasonable and necessary, in view of the nature of
the Employers' business, in order to protect the legitimate interests of the
Employers, and that any violation thereof would result in irreparable injury to
the Employers. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 10(a) hereof,
the Employers shall be entitled to obtain from any court of competent
jurisdiction, preliminary or permanent injunctive relief restraining the
Executive from disclosing or using any such confidential information. Nothing
herein shall be construed as prohibiting the Employers from pursuing any other
remedies available to them for such breach or threatened breach, including,
without limitation, recovery of damages from the Executive.
11. Parachute Payment Limitation. Notwithstanding any other provisions of
----------------------------
this Agreement, the Prior Agreement or any other agreement, contract, or
understanding heretofore or hereafter entered into by the Executive with
Skaneateles Bancorp, Skaneateles Bank, BSB Bancorp, the Bank, or any subsidiary
or affiliate of any of them (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
Skaneateles Bancorp, Skaneateles Bank, BSB Bancorp, the Bank or any such
subsidiary or affiliate for the direct or indirect provision of compensation to
the Executive (including groups or classes of participants or beneficiaries of
which the Executive is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for the Executive (a "Benefit
Plan"), the Executive shall not have any right to receive any payment or other
benefit under this Agreement, the Prior Agreement, any Other Agreement, or any
Benefit Plan if such payment or benefit, taking into account all other payments
or benefits to or
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for the Executive under this Agreement, the Prior Agreement, all Other
Agreements, and all Benefit Plans, would cause any such payment to the Executive
to be considered a "parachute payment" within the meaning of Section 280G(b)(2)
of the Code (a "Parachute Payment"). In the event that the receipt of any such
payment or benefit under this Agreement, the Prior Agreement, any Other
Agreement, or any Benefit Plan would cause the Executive to be considered to
have received a Parachute Payment, then the Executive shall have the right, in
the Executive's sole discretion, to designate those payments or benefits under
this Agreement, the Prior Agreement, any Other Agreements, and/or any Benefit
Plans, which should be reduced or eliminated so as to avoid having the payment
to the Executive under this Agreement be deemed to be a Parachute Payment. In
the event that there is a dispute between the parties as to whether, or the
extent to which, a reduction in such payments to the Executive is required to
prevent such payment from constituting a Parachute Payment, the parties agree
that they shall be bound by the determination of such matter by a national
accounting firm selected jointly by the Bank and the Executive (or, if they are
unable to agree, chosen by lot from among an equal number of nominees designated
by the Bank and the Executive); provided, however that the firm selected shall
not be the accounting firm that is then serving as the auditor of the Employers
unless the Executive consents in writing to such selection. In the event that
the Executive would otherwise be deemed to have received an amount that would
constitute a Parachute Payment, the amount paid to him that exceeds the maximum
amount permissible under this Section 11 shall be treated as a loan to him and
shall be repaid, with interest, to the extent necessary to reduce the amount
paid to the maximum permissible amount. Any such loan shall be repaid in full
six months after (a) the date on which the Bank notifies the Executive that a
loan relationship exists, if there is no dispute as to whether, or the extent to
which, a reduction is required, or (b) the date on which the Executive and the
Bank receive the written opinion of a national accounting firm (selected in the
manner described above), if there is such a dispute, and may be repaid by the
Executive without prepayment penalty at any time during such six month period.
12. Miscellaneous.
-------------
(a) No Assignment. This Agreement is personal to each of the parties
-------------
hereto. No party may assign or delegate any of his or its rights or obligations
hereunder without first obtaining the written consent of the other party hereto.
However, in the event of the death of the Executive, all of his rights to
receive payments hereunder shall become rights of his estate as provided in
Section 8(d) hereof.
(b) Other Contracts. The Executive shall not, during the Employment
---------------
Term, have any other paid employment other than with a subsidiary or affiliate
of the Employers, except with the prior written approval of the Boards.
(c) Amendments or Additions; Action by Boards. No amendments or
-----------------------------------------
additions to this Agreement shall be binding unless in writing and signed by all
parties hereto. The prior approval by a majority affirmative vote of the Boards
shall be required in order for the Employers to authorize any amendments or
additions to this Agreement or to give any consents or waivers of provisions of
this Agreement, or to terminate the Executive's employment with or without Cause
under Section 8(a) hereof.
(d) Section Headings. The section headings used in this Agreement
----------------
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(e) Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
(f) Governing Law. This Agreement shall be governed by the laws of
-------------
the United States, where applicable, and otherwise by the laws of the State of
New York other than the choice of law rules thereof.
(g) Notice. For the purposes of this Agreement, notices and all
------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed, if to the
Employers:
BSB BANK & TRUST COMPANY
58-68 Exchange Street
Binghamton, New York 13902
Attention: Chief Executive Officer
or if to the Executive: John P. Driscoll
4 West Lake Street
Skaneateles, New York 13152
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
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(h) Counterparts. This Agreement may be executed in several
------------
counterparts, for the convenience of the parties, but shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
or caused this Agreement to be duly executed on their behalf, as of the date and
year first above written.
Attest: BSB BANK & TRUST COMPANY
/s/ Larry G. Denniston By: /s/ Alex S. DePersis
- ---------------------- --------------------
Attest: BSB BANCORP, INC.
___________________________ By: /s/ Alex S. DePersis
--------------------
By: /s/ John P. Driscoll
--------------------
John P. Driscoll
Executive
55
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EXHIBIT 10.16
AMENDED & RESTATED
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Amended and Restated Change of Control Severance Agreement
("Agreement") dated June 28, 1999, is entered into by and between BSB Bancorp,
Inc., a Delaware corporation ("Corporation"), and its wholly-owned subsidiary
BSB Bank & Trust Company, as successor to Binghamton Savings Bank ("Employer"),
a New York stock savings bank, and Larry G. Denniston ("Executive"). This
Agreement amends and restates the Change of Control Severance Agreement dated as
of November 2, 1990, as amended, by and among the parties and such Agreement, as
amended, shall be of no further force or effect after the date of this
Agreement.
WITNESSETH:
Whereas, Executive is currently employed by Employer as a Senior Vice
President and Corporate Secretary; and
Whereas, Corporation, Employer and Executive entered into a Change of
Control Severance Agreement as of November 2, 1990; which was subsequently
amended on December 29, 1995; and
Whereas, the parties desire to amend the agreement; and
Whereas, the parties desire to restate the full agreement;
Now, therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree to this Amendment and
Restatement as follows:
1. Term. The initial term of this Agreement extends for a period of
----
three years from the date of this Agreement, provided that the term of the
Agreement shall be extended automatically for one additional year on each annual
anniversary date of this Agreement, unless either the Board of Directors of
Employer or Executive provide contrary written notice to the other not less than
180 days in advance of any such anniversary date. In the event either Employer
or Executive provide such written notice, then the term hereof shall not be
extended, but the then current term shall continue for the period remaining
thereunder. Notwithstanding the foregoing, this Agreement shall automatically
expire and terminate on Executive's normal retirement date at age 65 or on
Executive's early retirement under the Special Service Retirement provision of
Employer's pension plan if Executive elects to take such early retirement. The
initial term of employment and all such renewed terms of employment under this
Agreement are collectively referred to herein as the "term of this Agreement."
2. Benefits Upon Termination of Employment. (a) If, before a Change in
---------------------------------------
Control at the request or direction of the acquiring party or at any time during
the 12-month period following a Change in Control, (1)the employment of
Executive with Employer is terminated by Employer for any reason other than Good
Cause, or (2) Executive terminates his employment with Employer for Good Reason,
Employer shall, during the Severance Period, continue to pay Executive an amount
equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or other
installments, similar to those being received by Executive at the date of the
Change in Control, and will commence as soon as practicable following the date
of termination of employment. Executive shall receive any and all vested
benefits accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans and
such benefits shall not be reduced by amounts payable under this Agreement.
(b) If upon the date of termination of Executive's employment,
Executive holds any options with respect to stock of Corporation, all such
options will immediately become exercisable upon such date and will be
exercisable for not less than 90 days thereafter. To the extent such
acceleration of vesting or exercisability of such options is not permissible
under the terms of any plan pursuant to which the options were granted, Employer
will pay to Executive, in a lump sum, within 90 days after termination of
employment, an amount equal to the excess, if any, of the aggregate fair market
value of all stock of Corporation subject to such options, determined on the
date of termination of employment, over the aggregate option price of such
stock, and Executive will surrender all such options unexercised. For the
purposes of this Agreement, in the event that such stock is listed on an
established national or regional stock exchange, is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System, or is
publicly traded in an established securities market, in determining the fair
market value of the stock, Employer shall use the average of the closing prices
of such stock on such exchange or System or in such market (the highest such
closing price if there is more than one such exchange or market) on the five
trading dates immediately before the date of termination (or, if there is no
such closing price, then the Board shall use the mean between the highest bid
and lowest asked prices or between the high and low prices on such
57
<PAGE>
date), or, if no sale of the Stock has been made on one or more of such dates,
on the next preceding day on which any such sale shall have been made.
(c) During the Severance Period, Executive and his spouse will
continue to be covered by all Welfare Plans, maintained by Employer in which he
or his spouse were participating immediately prior to the date of his
termination as if he continued to be an employee of Employer; provided that, if
participation in any one or more of such Welfare Plans is not possible under the
terms thereof, Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer during the Severance
Period, such coverage shall be provided only to the extent that the coverage
exceeds the coverage of any substantially similar plans provided by his new
employer.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c) of this Agreement.
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the
Severance Period, be covered under all Welfare Plans made available by Employer
to Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
5. Termination for Good Cause or Without Good Reason. If the employment
-------------------------------------------------
of Executive with Employer is terminated (a) for any reason prior to a Change in
Control other than at the request or direction of an acquiror in connection with
a Change in Control, or (b) after a Change in Control by Employer for Good
Cause, or by the voluntary action of Executive without Good Reason, Executive's
Base Salary (at the rate in effect on the date of termination) shall be paid
through the date of termination, and Employer shall have no further obligation
to Executive or his spouse under this Agreement, except for benefits accrued
under Incentive Plans pursuant to subsection 2(a) above.
6. Section 280G Gross-Up Payment. (i) Anything in this Agreement to the
-----------------------------
contrary notwithstanding and except as set forth below in this Section 6(i), in
the event it shall be determined that any payment or distribution by Employer,
or any other member of the affiliated group (as determined for purposes of
Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") of which Employer or Corporation is a member, to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Section 6) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 6(i), if it
shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $10,000 (taking
into account both income taxes and any Excise Tax) as compared to the net after-
tax proceeds to the Executive resulting from an elimination of the Gross-Up
Payment and a reduction of the Payments, in the aggregate, to an amount (the
"Reduced Amount") such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of Section 6(iii), all
determinations required to be made under this Section 6, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PriceWaterhouseCoopers LLP such other certified public accounting firm
reasonably acceptable to Employer as may be designated in writing by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to Employer and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Employer. In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
58
<PAGE>
recognized accounting firm reasonably acceptable to Employer to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by Employer. Any Gross-Up Payment, as determined
pursuant to this Section 6, shall be paid by Employer to the Executive within
five business days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon Employer and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that the initial Gross-Up Payments made by Employer
will be inadequate and that additional Gross-Up Payments by Employer should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Employer exhaust its remedies pursuant to Section
6(iii) and the Executive thereafter are required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by Employer to or for
the benefit of the Executive.
(iii) The Executive shall notify Employer in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by Employer of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive receives
written notice of such claim and shall apprise Employer of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of 30 days following the date
on which the Executive gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If Employer notifies the Executive in writing prior to the expiration of such
period that they desire to contest such claim, the Executive shall:
(a) give Employer any information reasonably requested by
Employer relating to such claim,
(b) take such action in connection with contesting such
claim as Employer shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney selected by Employer and reasonably acceptable to the
Executive,
(c) cooperate with Employer in good faith in order
effectively to contest such claim, and
(d) permit Employer to participate in any proceedings
relating to such claim; provided,
however, that Employer shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this Section
6(iii), Employer shall control all proceedings taken in connection with such
contest and, at their sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at their sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Employer shall determine;
provided, however, that if Employer directs the Executive to pay such claim and
sue for a refund, Employer shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by Employer pursuant to Section 6(iii), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to Employer's continued compliance with the requirements of this Section 6)
promptly pay to Employer the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by Employer pursuant to Section 6(iii), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and Employer does not notify the Executive in writing
of their intent to contest such denial of refund prior to the expiration of 30
days after such determination (or if any such contest shall be finally
determined in a manner adverse to such refund being allowed), then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
7. Definitions. For purposes of this Agreement:
-----------
59
<PAGE>
(a) "Base Salary" shall mean the higher of Executive's annual
base salary at the rate in effect on the date of a Change in Control or the rate
in effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if
there has been a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), or such
item thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation or Employer representing 25% or more of
the combined voting power of Corporation's then outstanding securities, (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Boards of Directors of Corporation and Employer
cease for any reason to constitute at least a majority thereof unless the
election of each Director, who was not a Director at the beginning of the
period, was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of the period, (iii)
Corporation shall cease to be a publicly owned corporation, or (iv) any merger
or consolidation of Corporation with or into another entity shall occur as a
result of which the stockholders of Corporation do not retain or acquire 75% or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if: (1)
Executive engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation or intentional wrongdoing or malfeasance; (2)
Executive is convicted of a criminal violation involving fraud or dishonesty; or
(3) Executive materially breaches the Agreement (other than by engaging in acts
or omissions enumerated in paragraphs (1) and (2) above), or materially fails to
satisfy the conditions and requirements of his employment with Employer, and
such breach or failure by its nature is incapable of being cured, or such breach
or failure remains uncured for more than 30 days following receipt by Executive
of written notice from Employer specifying the nature of the breach of this
paragraph (3), inattention by Executive to his duties shall be deemed a breach
or failure capable of cure.
Without limiting the generality of the foregoing, the following
shall not constitute Good Cause: any personal or policy disagreement between
Executive and Employer or any member of the Board of Directors of Employer; or
any action taken by Executive in connection with his duties if Executive acted
in good faith and in a manner he reasonably believed to be in, and not opposed
to, the best interest of Employer and had no reasonable cause to believe his
conduct was unlawful.
Notwithstanding anything herein to the contrary, in the event
Employer shall terminate the employment of Executive for Good Cause hereunder,
Employer shall give at least 30 days prior written notice to Executive
specifying in detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
(1) there is a significant change in the nature or the scope
of Executive's authority;
(2) there is a reduction in Executive's base salary from the
rate in effect during the fiscal year before the Change in Control;
(3) Employer changes the principal location in which
Executive is required to perform services to one which is more than 50 miles
from his current location;
(4) there is a reasonable determination by Executive that,
as a result of a change in circumstances significantly affecting his position,
he is unable to exercise the authority, powers, function or duties attached to
his position;
(e) "Incentive Plans" shall mean any incentive, bonus deferred
compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or supplemental
defined benefit retirement plan or defined contribution retirement plan,
currently or hereinafter made available by Corporation or Employer in which
Executive is eligible to participate.
(g) "Severance Period" shall mean the period beginning on the
date Executive's employment with Employer terminates under circumstances
described in Section 2 above and ending on the first to occur of: (1) the date
24 months thereafter, or (2) the date Executive attains or would have attained
age 65.
(h) "Welfare Plan" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
8. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other
60
<PAGE>
beneficiary shall have any interest in or rights against any specific assets of
Corporation or Employer, and Executive and his spouse or other beneficiary shall
have only the rights of a general unsecured creditor of Employer.
9. Litigation Expense. Employer shall pay Executive's out of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if Executive is successful in such
litigation.
10. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
11. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between Corporation,
Employer and Executive regarding payments to Executive in the event of a change
in control of Corporation or Employer. During the term of this Agreement,
Executive shall not participate in or benefit from any other change of control
severance plan or policy which may be adopted by Corporation or Employer,
provided that thereafter Executive shall participate in such plan or policy if
one has been established by Corporation or Employer.
12. No Employment Contract. Nothing contained in this Agreement shall be
----------------------
construed to be an employment contract between Executive and Employer.
Executive is employed at will and Employer may terminate his employment at any
time, with or without cause.
13. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
14. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
15. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
16. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: Alex S. DePersis
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13902
If to Executive:
Larry G. Denniston
8 Devon Boulevard
Binghamton, New York 13903
17. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this 'Agreement on its behalf.
61
<PAGE>
In Witness Whereof, Executive has hereunto set his hand, and Corporation and
Employer have caused this agreement to be executed in their name and on their
behalf, all as of the day and year first above written.
BSB BANCORP INC.
BSB BANK & TRUST COMPANY
By: /s/ Alex S. DePersis
--------------------
Alex S. DePersis
President and Chief Executive Officer
By: /s/ Larry G. Denniston
----------------------
Larry G. Denniston
Vice President
62
<PAGE>
EXHIBIT 10.19
AMENDED & RESTATED
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Amended and Restated Change of Control Severance Agreement
("Agreement") dated June 28, 1999, is entered into by and between BSB Bancorp,
Inc., a Delaware corporation ("Corporation"), and its wholly-owned subsidiary
BSB Bank & Trust Company, as successor to Binghamton Savings Bank ("Employer"),
a New York stock savings bank, and Douglas R. Johnson ("Executive"). This
Agreement amends and restates the Change of Control Severance Agreement dated as
of November 2, 1990, as amended, by and among the parties and such Agreement, as
amended, shall be of no further force or effect after the date of this
Agreement.
WITNESSETH:
Whereas, Executive is currently employed by Employer as a Senior Vice
President and Senior Trust Officer; and
Whereas, Corporation, Employer and Executive entered into a Change of
Control Severance Agreement as of November 2, 1990; which was subsequently
amended on December 29, 1995; and
Whereas, the parties desire to amend the agreement; and
Whereas, the parties desire to restate the full agreement;
Now, therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree to this Amendment and
Restatement as follows:
1. Term. The initial term of this Agreement extends for a period of three
----
years from the date of this Agreement, provided that the term of the Agreement
shall be extended automatically for one additional year on each annual
anniversary date of this Agreement, unless either the Board of Directors of
Employer or Executive provide contrary written notice to the other not less than
180 days in advance of any such anniversary date. In the event either Employer
or Executive provide such written notice, then the term hereof shall not be
extended, but the then current term shall continue for the period remaining
thereunder. Notwithstanding the foregoing, this Agreement shall automatically
expire and terminate on Executive's normal retirement date at age 65 or on
Executive's early retirement under the Special Service Retirement provision of
Employer's pension plan if Executive elects to take such early retirement. The
initial term of employment and all such renewed terms of employment under this
Agreement are collectively referred to herein as the "term of this Agreement."
2. Benefits Upon Termination of Employment. (a) If, before a Change in
---------------------------------------
Control at the request or direction of the acquiring party or at any time during
the 12-month period following a Change in Control, (1)the employment of
Executive with Employer is terminated by Employer for any reason other than Good
Cause, or (2) Executive terminates his employment with Employer for Good Reason,
Employer shall, during the Severance Period, continue to pay Executive an amount
equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or other
installments, similar to those being received by Executive at the date of the
Change in Control, and will commence as soon as practicable following the date
of termination of employment. Executive shall receive any and all vested
benefits accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans and
such benefits shall not be reduced by amounts payable under this Agreement.
(b) If upon the date of termination of Executive's employment,
Executive holds any options with respect to stock of Corporation, all such
options will immediately become exercisable upon such date and will be
exercisable for not less than 90 days thereafter. To the extent such
acceleration of vesting or exercisability of such options is not permissible
under the terms of any plan pursuant to which the options were granted, Employer
will pay to Executive, in a lump sum, within 90 days after termination of
employment, an amount equal to the excess, if any, of the aggregate fair market
value of all stock of Corporation subject to such options, determined on the
date of termination of employment, over the aggregate option price of such
stock, and Executive will surrender all such options unexercised. For the
purposes of this Agreement, in the event that such stock is listed on an
established national or regional stock exchange, is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System, or is
publicly traded in an established securities market, in determining the fair
market value of the stock, Employer shall use the average of the closing prices
of such stock on such exchange or System or in such market (the highest such
closing price if there is more than one such exchange or market) on the five
trading dates immediately before the date of termination (or, if there is no
such closing price, then the Board shall use the mean between the highest bid
and lowest asked prices or between the high and low prices on such
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date), or, if no sale of the Stock has been made on one or more of such dates,
on the next preceding day on which any such sale shall have been made.
(c) During the Severance Period, Executive and his spouse will
continue to be covered by all Welfare Plans, maintained by Employer in which he
or his spouse were participating immediately prior to the date of his
termination as if he continued to be an employee of Employer; provided that, if
participation in any one or more of such Welfare Plans is not possible under the
terms thereof, Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer during the Severance
Period, such coverage shall be provided only to the extent that the coverage
exceeds the coverage of any substantially similar plans provided by his new
employer.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c) of this Agreement.
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the
Severance Period, be covered under all Welfare Plans made available by Employer
to Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any
other benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
5. Termination for Good Cause or Without Good Reason. If the employment
-------------------------------------------------
of Executive with Employer is terminated (a) for any reason prior to a Change in
Control other than at the request or direction of an acquiror in connection with
a Change in Control, or (b) after a Change in Control by Employer for Good
Cause, or by the voluntary action of Executive without Good Reason, Executive's
Base Salary (at the rate in effect on the date of termination) shall be paid
through the date of termination, and Employer shall have no further obligation
to Executive or his spouse under this Agreement, except for benefits accrued
under Incentive Plans pursuant to subsection 2(a) above.
6. Section 280G Gross-Up Payment.
-----------------------------
(i) Anything in this Agreement to the contrary notwithstanding and
except as set forth below in this Section 6(i), in the event it shall be
determined that any payment or distribution by Employer, or any other member of
the affiliated group (as determined for purposes of Sections 280G and 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") of which Employer or
Corporation is a member, to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 6) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 6(i), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $10,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(ii) Subject to the provisions of Section 6(iii), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PriceWaterhouseCoopers LLP such other certified public accounting firm
reasonably acceptable to Employer as may be designated in writing by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to Employer and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Employer. In the event that the Accounting Firm
is serving as accountant or auditor
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for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm reasonably
acceptable to Employer to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by Employer. Any
Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
Employer to the Executive within five business days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Employer and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that the initial
Gross-Up Payments made by Employer will be inadequate and that additional Gross-
Up Payments by Employer should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Employer
exhaust its remedies pursuant to Section 6(iii) and the Executive thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Employer to or for the benefit of the
Executive.
(iii) The Executive shall notify Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
Employer of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive receives
written notice of such claim and shall apprise Employer of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of 30 days following the date
on which the Executive gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If Employer notifies the Executive in writing prior to the expiration of such
period that they desire to contest such claim, the Executive shall:
(a) give Employer any information reasonably requested by
Employer relating to such claim,
(b) take such action in connection with contesting such claim as
Employer shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by Employer and reasonably acceptable to the Executive,
(c) cooperate with Employer in good faith in order effectively
to contest such claim, and
(d) permit Employer to participate in any proceedings relating
to such claim; provided, however, that Employer shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 6(iii), Employer shall control all
proceedings taken in connection with such contest and, at their sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at their
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
Employer shall determine; provided, however, that if Employer directs the
Executive to pay such claim and sue for a refund, Employer shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, Employer's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced by
Employer pursuant to Section 6(iii), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to
Employer's continued compliance with the requirements of this Section 6)
promptly pay to Employer the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by Employer pursuant to Section 6(iii), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and Employer does not notify the Executive in writing
of their intent to contest such denial of refund prior to the expiration of 30
days after such determination (or if any such contest shall be finally
determined in a manner adverse to such refund being allowed), then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
7. Definitions. For purposes of this Agreement:
-----------
<PAGE>
(a) "Base Salary" shall mean the higher of Executive's annual
base salary at the rate in effect on the date of a Change in Control or the rate
in effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if
there has been a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), or such
item thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation or Employer representing 25% or more of
the combined voting power of Corporation's then outstanding securities, (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Boards of Directors of Corporation and Employer
cease for any reason to constitute at least a majority thereof unless the
election of each Director, who was not a Director at the beginning of the
period, was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of the period, (iii)
Corporation shall cease to be a publicly owned corporation, or (iv) any merger
or consolidation of Corporation with or into another entity shall occur as a
result of which the stockholders of Corporation do not retain or acquire 75% or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if: (1)
Executive engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation or intentional wrongdoing or malfeasance; (2)
Executive is convicted of a criminal violation involving fraud or dishonesty; or
(3) Executive materially breaches the Agreement (other than by engaging in acts
or omissions enumerated in paragraphs (1) and (2) above), or materially fails to
satisfy the conditions and requirements of his employment with Employer, and
such breach or failure by its nature is incapable of being cured, or such breach
or failure remains uncured for more than 30 days following receipt by Executive
of written notice from Employer specifying the nature of the breach of this
paragraph (3), inattention by Executive to his duties shall be deemed a breach
or failure capable of cure.
Without limiting the generality of the foregoing, the following
shall not constitute Good Cause: any personal or policy disagreement between
Executive and Employer or any member of the Board of Directors of Employer; or
any action taken by Executive in connection with his duties if Executive acted
in good faith and in a manner he reasonably believed to be in, and not opposed
to, the best interest of Employer and had no reasonable cause to believe his
conduct was unlawful.
Notwithstanding anything herein to the contrary, in the event
Employer shall terminate the employment of Executive for Good Cause hereunder,
Employer shall give at least 30 days prior written notice to Executive
specifying in detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
(1) there is a significant change in the nature or the
scope of Executive's authority;
(2) there is a reduction in Executive's base salary from
the rate in effect during the fiscal year before the Change in Control;
(3) Employer changes the principal location in which
Executive is required to perform services to one which is more than 50 miles
from his current location;
(4) there is a reasonable determination by Executive that,
as a result of a change in circumstances significantly affecting his position,
he is unable to exercise the authority, powers, function or duties attached to
his position;
(e) "Incentive Plans" shall mean any incentive, bonus deferred
compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or supplemental
defined benefit retirement plan or defined contribution retirement plan,
currently or hereinafter made available by Corporation or Employer in which
Executive is eligible to participate.
(g) "Severance Period" shall mean the period beginning on the
date Executive's employment with Employer terminates under circumstances
described in Section 2 above and ending on the first to occur of: (1) the date
24 months thereafter, or (2) the date Executive attains or would have attained
age 65.
(h) "Welfare Plan" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
8. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other
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beneficiary shall have any interest in or rights against any specific assets of
Corporation or Employer, and Executive and his spouse or other beneficiary shall
have only the rights of a general unsecured creditor of Employer.
9. Litigation Expense. Employer shall pay Executive's out of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if Executive is successful in such
litigation.
10. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
11. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between Corporation,
Employer and Executive regarding payments to Executive in the event of a change
in control of Corporation or Employer. During the term of this Agreement,
Executive shall not participate in or benefit from any other change of control
severance plan or policy which may be adopted by Corporation or Employer,
provided that thereafter Executive shall participate in such plan or policy if
one has been established by Corporation or Employer.
12. No Employment Contract. Nothing contained in this Agreement shall be
----------------------
construed to be an employment contract between Executive and Employer.
Executive is employed at will and Employer may terminate his employment at any
time, with or without cause.
13. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
14. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
15. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
16. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: Alex S. DePersis
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13902
If to Executive:
Larry G. Denniston
8 Devon Boulevard
Binghamton, New York 13903
17. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this 'Agreement on its behalf.
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<PAGE>
In Witness Whereof, Executive has hereunto set his hand, and Corporation and
Employer have caused this agreement to be executed in their name and on their
behalf, all as of the day and year first above written.
BSB BANCORP INC.
BSB BANK & TRUST COMPANY
By: /s/ Alex S. DePersis
--------------------
Alex S. DePersis
President and Chief Executive Officer
By: /s/ Larry G. Denniston
----------------------
Larry G. Denniston
Vice President
69
<PAGE>
EXHIBIT 10.20
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement ("Agreement") is entered
into as of February 22, 1999, by and between BSB Bancorp, Inc. (the
"Corporation"), a Delaware corporation, and its wholly owned subsidiary BSB Bank
& Trust Company ("Employer"), a New York stock commercial bank, and Rexford C.
Decker ("Executive").
WITNESSETH:
Whereas, Executive is currently employed by Employer as a Senior Vice
President and Chief Financial Officer; and
Whereas, Employer desires to provide certain security to Executive in
connection with Executive's employment with Employer; and
Whereas, Executive and Employer desire to enter into this Agreement
pertaining to the terms of the security Employer is providing to Executive with
respect to his employment;
Now, Therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Term. The initial term of this Agreement shall be a period of three
----
years from the date first above written, provided that the term of the Agreement
shall be extended automatically for an additional one year on each annual
anniversary date of this Agreement, unless either the Board of Directors of the
Employer or the Executive provide contrary written notice to the other not less
than 180 days in advance of any such anniversary date. In the event either the
Employer or the Executive provide such written notice, then the term hereof
shall not be extended, but the then current term shall continue for the period
remaining thereunder. Notwithstanding the foregoing, this Agreement shall
automatically expire and terminate on the Executive's normal retirement date at
age sixty-five (65) or on the Executive's early retirement under the Special
Service Retirement provision of the Employer's pension plan if the Executive
elects to take such early retirement.
2. Benefits Upon Termination of Employment.
---------------------------------------
(a) If, at any time during the twelve-month period following a Change
in Control, (1) the employment of Executive with Employer is terminated by
Employer for any reason other than Good Cause, or (2) Executive terminates his
employment with Employer for Good Reason, Employer shall, during the Severance
Period, continue to pay Executive an amount equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or other
installments, similar to those being received by Executive at the date of the
Change in Control, and will commence as soon as practicable following the date
of termination of employment. Executive shall receive any and all benefits
accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans.
(b) If upon the date of termination of Executive's employment,
Executive holds any options with respect to stock of Corporation, all such
options will immediately become exercisable upon such date and will be
exercisable for 90 days thereafter. To the extent such acceleration of exercise
of such options is not permissible under the terms of any plan pursuant to which
the options were granted, Employer will pay to Executive, in a lump sum, within
90 days after termination of employment, an amount equal to the excess, if any,
of the aggregate fair market value of all stock of Corporation subject to such
options, determined on the date of termination of employment, over the aggregate
option price of such stock, and Executive will surrender all such options
unexercised. For the purposes of this Agreement, the fair market value of the
stock of Corporation shall be an amount equal to the average of the bid and
asked prices of the stock of the Corporation at the close of the five business
days preceding the date of Executive's termination of employment.
(c) During the Severance Period, Executive and his spouse will
continue to be covered by all Welfare Plans, maintained by Employer in which he
or his spouse were participating immediately prior to the date of his
termination as if he continued to be an employee of Employer; provided that, if
participation in any one or more of such Welfare Plans is not possible under the
terms thereof, Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer during the Severance
Period, such coverage shall be provided only to the extent that the coverage
exceeds the coverage of any substantially similar plans provided by his new
employer.
(d) Notwithstanding any other provision of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
between Executive and the Corporation or Employer (or any subsidiary or
affiliate of either of them), except an agreement, contract, or understanding
hereafter entered into that expressly modifies or excludes application of this
paragraph (the "Other Agreements"), and notwithstanding any formal
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<PAGE>
or informal plan or other arrangement heretofore or hereafter adopted by the
Corporation or Employer (or any subsidiary or affiliate of either of them) for
the direct or indirect provision of compensation to Executive (including groups
or classes of participants or beneficiaries of which Executive is a member),
whether or not such compensation is deferred, is in cash, or is in the form of a
benefit to or for Executive (a "Benefit Plan"), Executive shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for Executive under this Agreement, all
Other Agreements, and all Benefit Plans, would cause any payment to Executive
under this Agreement to be considered a "parachute payment" within the meaning
of Section 28OG(b)(2) of the Internal Revenue Code of 1986, as amended (a
"Parachute Payment"). In the event that the receipt of any such payment or
benefit under this Agreement, any Other Agreement, or any Benefit Plan would
cause Executive to be considered to have received a Parachute Payment under this
Agreement, then Executive shall have the right, in Executive's sole discretion,
to designate those payments or benefits under this Agreement, any Other
Agreements, and/or any Benefit Plans, which should be reduced or eliminated so
as to avoid having the payment to Executive under this Agreement be deemed to be
a Parachute Payment.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c).
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the
Severance Period, be covered under all Welfare Plans made available by Employer
to Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
5. Termination for Good Cause or Without Good Reason. If the employment
-------------------------------------------------
of Executive with Employer is terminated (a) for any reason prior to a Change in
Control, or (b) after a Change in Control by Employer for Good Cause, or by the
voluntary action of Executive without Good Reason, Executive's Base Salary (at
the rate in effect on the date of termination) shall be paid through the date of
termination, and Employer shall have no further obligation to Executive or his
spouse under this Agreement, except for benefits accrued under Incentive Plans
pursuant to subsection 2 (a) above.
6. Definitions. For purposes of this Agreement:
-----------
(a) "Base Salary" shall mean the higher of Executive's annual base
salary at the rate in effect on the date of a Change in Control or the rate in
effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if there has
been a change of control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or such item
thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections (13 (d) and 14
(d) (2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation or the Employer representing
twenty-five percent (25%) or more of the combined voting power of the
Corporation's then outstanding securities, or (ii) during any period of two (2)
consecutive years, individuals who at the beginning of such period constituted
the Boards of Directors of the Corporation and the Employer cease for any reason
to constitute at least a majority thereof unless the election of each Director,
who was not a Director at the beginning of the period, was approved by a vote of
at least two-thirds of the Directors then still in office who were Directors at
the beginning of the period, or (iii) the Corporation shall cease to be a
publicly owned corporation, or (iv) any merger or consolidation of the
Corporation with or into another entity shall occur as a result of which the
stockholders of the Corporation do not retain or acquire seventy-five (75%) or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if:
(1) Executive engages in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing
or malfeasance; (2) Executive is convicted of a criminal violation involving
fraud or dishonesty; or (3) Executive materially breaches the Agreement (other
than by engaging in acts or omissions enumerated in paragraphs (1) and (2)
above), or materially fails to satisfy the conditions and requirements of his
employment with Employer, and such breach or failure by its nature is incapable
of being cured, or such breach or failure remains uncured for more than 30 days
following receipt by Executive of written notice from Employer specifying the
nature of the breach of this paragraph (3), inattention by Executive to his
duties shall be deemed a breach or failure capable of cure.
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Without limiting the generality of the foregoing, the following shall
not constitute Good Cause: any personal or policy disagreement between Executive
and Employer or any member of the Board of Directors of Employer; or any action
taken by Executive in connection with his duties if Executive acted in good
faith and in a manner he reasonably believed to be in, and not opposed to, the
best interest of Employer and had no reasonable cause to believe his conduct was
unlawful.
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least thirty (30) days prior written notice to Executive
specifying in detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
(1) there is a significant change in the nature or the scope of
Executive's authority;
(2) there is a reduction in Executive's rate of Base Salary;
(3) Employer changes the principal location in which Executive
is required to perform services to one which is more than fifty miles from his
current location;
(4) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting his position, he is
unable to exercise the authority, powers, function or duties attached to his
position;
(e) "Incentive Plans" shall mean any incentive, bonus deferred
compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or supplemental
defined benefit retirement plan or defined contribution retirement plan,
currently or hereinafter made available by Corporation or Employer in which
Executive is eligible to participate.
(g) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates under circumstances
described in Section 2 and ending on the first to occur of: (1) the date 24
months thereafter, or (2) the date Executive attains or would have attained age
65.
(h) "Welfare Plan" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
7. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other beneficiary shall have any interest in or
rights against any specific assets of Corporation or Employer, and Executive and
his spouse or other beneficiary shall have only the rights of a general
unsecured creditor of Employer.
8. Litigation Expense. Employer shall pay Executive's out-of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if the Executive is successful in
such litigation.
9. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
10. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by the
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between the
Corporation, Employer and the Executive regarding payments to the Executive in
the event of a change in control of the Corporation or the Employer. During the
term of this Agreement, Executive shall not participate in or benefit from any
other change of control severance plan or policy which may be adopted by the
Corporation or Employer, provided that thereafter the Executive shall
participate in such plan or policy if one has been established by the
Corporation or Employer.
11. No Employment Contract. Nothing contained in this Agreement shall be
----------------------
construed to be an employment contract between Executive and Employer.
Executive is employed at will and Employer may terminate his employment at any
time, with or without cause.
12. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
13. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
14. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
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15. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: Alex S. DePersis
--------------
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13901
If to Executive:
---------------
Rexford C. Decker
30 Port Street
Port Crane, New York 13833
16. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this Agreement on its behalf.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and the
Corporation and the Employer have caused this agreement to be executed in their
name and on their behalf, all as of the day and year first above written.
BBB BANCORP, INC.
BSB BANK & TRUST COMPANY
By: /s/ Alex S. DePersis
--------------------
President and Chief Executive
Officer
By: /s/ Rexford C. Decker
---------------------
Rexford C. Decker
Senior Vice President and
Chief Financial Officer
74
<PAGE>
EXHIBIT 10.21
AMENDED & RESTATED
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Amended and Restated Change of Control Severance Agreement
("Agreement") dated June 28, 1999, is entered into by and between BSB Bancorp,
Inc., a Delaware corporation ("Corporation"), and its wholly-owned subsidiary
BSB Bank & Trust Company, as successor to Binghamton Savings Bank ("Employer"),
a New York stock savings bank, and Rexford C. Decker ("Executive"). This
Agreement amends and restates the Change of Control Severance Agreement dated as
of February 22, 1999, as amended, by and among the parties and such Agreement,
as amended, shall be of no further force or effect after the date of this
Agreement.
WITNESSETH:
Whereas, Executive is currently employed by Employer as a Senior Vice
President and Chief Financial Officer; and
Whereas, Corporation, Employer and Executive entered into a Change of
Control Severance Agreement as of February 22, 1999; and
Whereas, the parties desire to amend the agreement; and
Whereas, the parties desire to restate the full agreement;
Now, therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree to this Amendment and
Restatement as follows:
1. Term. The initial term of this Agreement extends for a period
----
of three years from the date of this Agreement, provided that the term of the
Agreement shall be extended automatically for one additional year on each annual
anniversary date of this Agreement, unless either the Board of Directors of
Employer or Executive provide contrary written notice to the other not less than
180 days in advance of any such anniversary date. In the event either Employer
or Executive provide such written notice, then the term hereof shall not be
extended, but the then current term shall continue for the period remaining
thereunder. Notwithstanding the foregoing, this Agreement shall automatically
expire and terminate on Executive's normal retirement date at age 65 or on
Executive's early retirement under the Special Service Retirement provision of
Employer's pension plan if Executive elects to take such early retirement. The
initial term of employment and all such renewed terms of employment under this
Agreement are collectively referred to herein as the "term of this Agreement."
2. Benefits Upon Termination of Employment. (a) If, before a Change
---------------------------------------
in Control at the request or direction of the acquiring party or at any time
during the 12-month period following a Change in Control, (1)the employment of
Executive with Employer is terminated by Employer for any reason other than Good
Cause, or (2) Executive terminates his employment with Employer for Good Reason,
Employer shall, during the Severance Period, continue to pay Executive an amount
equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or
other installments, similar to those being received by Executive at the date of
the Change in Control, and will commence as soon as practicable following the
date of termination of employment. Executive shall receive any and all vested
benefits accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans and
such benefits shall not be reduced by amounts payable under this Agreement.
(b) If upon the date of termination of Executive's employment,
Executive holds any options with respect to stock of Corporation, all such
options will immediately become exercisable upon such date and will be
exercisable for not less than 90 days thereafter. To the extent such
acceleration of vesting or exercisability of such options is not permissible
under the terms of any plan pursuant to which the options were granted, Employer
will pay to Executive, in a lump sum, within 90 days after termination of
employment, an amount equal to the excess, if any, of the aggregate fair market
value of all stock of Corporation subject to such options, determined on the
date of termination of employment, over the aggregate option price of such
stock, and Executive will surrender all such options unexercised. For the
purposes of this Agreement, in the event that such stock is listed on an
established national or regional stock exchange, is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System, or is
publicly traded in an established securities market, in determining the fair
market value of the stock, Employer shall use the average of the closing prices
of such stock on such exchange or System or in such market (the highest such
closing price if there is more than one such exchange or market) on the five
trading dates immediately before the date of termination (or, if there is no
such closing price, then the Board shall use the mean between the highest bid
and lowest asked prices or between the high and low prices on such
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<PAGE>
date), or, if no sale of the Stock has been made on one or more of such dates,
on the next preceding day on which any such sale shall have been made.
(c) During the Severance Period, Executive and his spouse will
continue to be covered by all Welfare Plans, maintained by Employer in which he
or his spouse were participating immediately prior to the date of his
termination as if he continued to be an employee of Employer; provided that, if
participation in any one or more of such Welfare Plans is not possible under the
terms thereof, Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer during the Severance
Period, such coverage shall be provided only to the extent that the coverage
exceeds the coverage of any substantially similar plans provided by his new
employer.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c) of this Agreement.
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the
Severance Period, be covered under all Welfare Plans made available by Employer
to Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
5. Termination for Good Cause or Without Good Reason. If the employment
-------------------------------------------------
of Executive with Employer is terminated (a) for any reason prior to a Change in
Control other than at the request or direction of an acquiror in connection with
a Change in Control, or (b) after a Change in Control by Employer for Good
Cause, or by the voluntary action of Executive without Good Reason, Executive's
Base Salary (at the rate in effect on the date of termination) shall be paid
through the date of termination, and Employer shall have no further obligation
to Executive or his spouse under this Agreement, except for benefits accrued
under Incentive Plans pursuant to subsection 2(a) above.
6. Section 280G Gross-Up Payment.
-----------------------------
(i) Anything in this Agreement to the contrary notwithstanding and
except as set forth below in this Section 6(i), in the event it shall be
determined that any payment or distribution by Employer, or any other member of
the affiliated group (as determined for purposes of Sections 280G and 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") of which Employer or
Corporation is a member, to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 6) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 6(i), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $10,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(ii) Subject to the provisions of Section 6(iii), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PriceWaterhouseCoopers LLP such other certified public accounting firm
reasonably acceptable to Employer as may be designated in writing by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to Employer and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Employer. In the event that the Accounting Firm
is serving as accountant or auditor
77
<PAGE>
for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm reasonably
acceptable to Employer to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by Employer. Any
Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
Employer to the Executive within five business days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Employer and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that the initial
Gross-Up Payments made by Employer will be inadequate and that additional Gross-
Up Payments by Employer should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Employer
exhaust its remedies pursuant to Section 6(iii) and the Executive thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Employer to or for the benefit of the
Executive.
(iii) The Executive shall notify Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
Employer of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive receives
written notice of such claim and shall apprise Employer of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of 30 days following the date
on which the Executive gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If Employer notifies the Executive in writing prior to the expiration of such
period that they desire to contest such claim, the Executive shall:
(a) give Employer any information reasonably requested by
Employer relating to such claim,
(b) take such action in connection with contesting such claim as
Employer shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by Employer and reasonably acceptable to the Executive,
(c) cooperate with Employer in good faith in order effectively
to contest such claim, and
(d) permit Employer to participate in any proceedings relating
to such claim; provided, however, that Employer shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 6(iii), Employer shall control all
proceedings taken in connection with such contest and, at their sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at their
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
Employer shall determine; provided, however, that if Employer directs the
Executive to pay such claim and sue for a refund, Employer shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, Employer's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced by
Employer pursuant to Section 6(iii), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to
Employer's continued compliance with the requirements of this Section 6)
promptly pay to Employer the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by Employer pursuant to Section 6(iii), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and Employer does not notify the Executive in writing
of their intent to contest such denial of refund prior to the expiration of 30
days after such determination (or if any such contest shall be finally
determined in a manner adverse to such refund being allowed), then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
7. Definitions. For purposes of this Agreement:
-----------
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<PAGE>
(a) "Base Salary" shall mean the higher of Executive's annual base
salary at the rate in effect on the date of a Change in Control or the rate in
effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if there has
been a change of control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or such item
thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation or Employer representing 25% or more of
the combined voting power of Corporation's then outstanding securities, (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Boards of Directors of Corporation and Employer
cease for any reason to constitute at least a majority thereof unless the
election of each Director, who was not a Director at the beginning of the
period, was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of the period, (iii)
Corporation shall cease to be a publicly owned corporation, or (iv) any merger
or consolidation of Corporation with or into another entity shall occur as a
result of which the stockholders of Corporation do not retain or acquire 75% or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if: (1)
Executive engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation or intentional wrongdoing or malfeasance; (2)
Executive is convicted of a criminal violation involving fraud or dishonesty; or
(3) Executive materially breaches the Agreement (other than by engaging in acts
or omissions enumerated in paragraphs (1) and (2) above), or materially fails to
satisfy the conditions and requirements of his employment with Employer, and
such breach or failure by its nature is incapable of being cured, or such breach
or failure remains uncured for more than 30 days following receipt by Executive
of written notice from Employer specifying the nature of the breach of this
paragraph (3), inattention by Executive to his duties shall be deemed a breach
or failure capable of cure.
Without limiting the generality of the foregoing, the following shall
not constitute Good Cause: any personal or policy disagreement between Executive
and Employer or any member of the Board of Directors of Employer; or any action
taken by Executive in connection with his duties if Executive acted in good
faith and in a manner he reasonably believed to be in, and not opposed to, the
best interest of Employer and had no reasonable cause to believe his conduct was
unlawful.
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
(1) there is a significant change in the nature or the scope of
Executive's authority;
(2) there is a reduction in Executive's base salary from the
rate in effect during the fiscal year before the Change in Control;
(3) Employer changes the principal location in which Executive
is required to perform services to one which is more than 50 miles from his
current location;
(4) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting his position, he is
unable to exercise the authority, powers, function or duties attached to his
position;
(e) "Incentive Plans" shall mean any incentive, bonus deferred
compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or supplemental
defined benefit retirement plan or defined contribution retirement plan,
currently or hereinafter made available by Corporation or Employer in which
Executive is eligible to participate.
(g) "Severance Period" shall mean the period beginning on the date
Executive's employment with Employer terminates under circumstances described in
Section 2 above and ending on the first to occur of: (1) the date 24 months
thereafter, or (2) the date Executive attains or would have attained age 65.
(h) "Welfare Plan" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
8. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other
79
<PAGE>
beneficiary shall have any interest in or rights against any specific assets of
Corporation or Employer, and Executive and his spouse or other beneficiary shall
have only the rights of a general unsecured creditor of Employer.
9. Litigation Expense. Employer shall pay Executive's out of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if Executive is successful in such
litigation.
10. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
11. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between Corporation,
Employer and Executive regarding payments to Executive in the event of a change
in control of Corporation or Employer. During the term of this Agreement,
Executive shall not participate in or benefit from any other change of control
severance plan or policy which may be adopted by Corporation or Employer,
provided that thereafter Executive shall participate in such plan or policy if
one has been established by Corporation or Employer.
12. No Employment Contract. Nothing contained in this Agreement shall
----------------------
be construed to be an employment contract between Executive and Employer.
Executive is employed at will and Employer may terminate his employment at any
time, with or without cause.
13. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
14. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
15. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
16. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: Alex S. DePersis
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13902
If to Executive:
Larry G. Denniston
8 Devon Boulevard
Binghamton, New York 13903
17. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this 'Agreement on its behalf.
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<PAGE>
In Witness Whereof, Executive has hereunto set his hand, and Corporation and
Employer have caused this agreement to be executed in their name and on their
behalf, all as of the day and year first above written.
BSB BANCORP INC.
BSB BANK & TRUST COMPANY
By: /s/ Alex S. DePersis
--------------------
Alex S. DePersis
President and Chief Executive Officer
By: /s/ Larry G. Denniston
----------------------
Larry G. Denniston
Vice President
81
<PAGE>
EXHIBIT 10.24
AMENDED & RESTATED
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Amended and Restated Change of Control Severance Agreement
("Agreement") dated June 28, 1999, is entered into by and between BSB Bancorp,
Inc., a Delaware corporation ("Corporation"), and its wholly-owned subsidiary
BSB Bank & Trust Company, as successor to Binghamton Savings Bank ("Employer"),
a New York stock savings bank, and Glenn R. Small ("Executive"). This Agreement
amends and restates the Change of Control Severance Agreement dated as of
November 2, 1990, as amended, by and among the parties and such Agreement, as
amended, shall be of no further force or effect after the date of this
Agreement.
WITNESSETH:
Whereas, Executive is currently employed by Employer as an Executive
Vice President and Senior Credit Officer; and
Whereas, Corporation, Employer and Executive entered into a Change of
Control Severance Agreement as of November 2, 1990; which was subsequently
amended on December 29, 1995; and
Whereas, the parties desire to amend the agreement; and
Whereas, the parties desire to restate the full agreement;
Now, therefore, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree to this Amendment and
Restatement as follows:
1. Term. The initial term of this Agreement extends for a period of
----
three years from the date of this Agreement, provided that the term of the
Agreement shall be extended automatically for one additional year on each annual
anniversary date of this Agreement, unless either the Board of Directors of
Employer or Executive provide contrary written notice to the other not less than
180 days in advance of any such anniversary date. In the event either Employer
or Executive provide such written notice, then the term hereof shall not be
extended, but the then current term shall continue for the period remaining
thereunder. Notwithstanding the foregoing, this Agreement shall automatically
expire and terminate on Executive's normal retirement date at age 65 or on
Executive's early retirement under the Special Service Retirement provision of
Employer's pension plan if Executive elects to take such early retirement. The
initial term of employment and all such renewed terms of employment under this
Agreement are collectively referred to herein as the "term of this Agreement."
2. Benefits Upon Termination of Employment. (a) If, before a Change in
---------------------------------------
Control at the request or direction of the acquiring party or at any time during
the 12-month period following a Change in Control, (1)the employment of
Executive with Employer is terminated by Employer for any reason other than Good
Cause, or (2) Executive terminates his employment with Employer for Good Reason,
Employer shall, during the Severance Period, continue to pay Executive an amount
equal to Executive's Base Salary.
Such amount will be paid during the Severance Period in monthly or
other installments, similar to those being received by Executive at the date of
the Change in Control, and will commence as soon as practicable following the
date of termination of employment. Executive shall receive any and all vested
benefits accrued under any Incentive Plans and Retirement Plans to the date of
termination of employment, the amount, form and time of payment of such benefits
to be determined by the terms of such Incentive Plans and Retirement Plans and
such benefits shall not be reduced by amounts payable under this Agreement.
(b) If upon the date of termination of Executive's employment,
Executive holds any options with respect to stock of Corporation, all such
options will immediately become exercisable upon such date and will be
exercisable for not less than 90 days thereafter. To the extent such
acceleration of vesting or exercisability of such options is not permissible
under the terms of any plan pursuant to which the options were granted, Employer
will pay to Executive, in a lump sum, within 90 days after termination of
employment, an amount equal to the excess, if any, of the aggregate fair market
value of all stock of Corporation subject to such options, determined on the
date of termination of employment, over the aggregate option price of such
stock, and Executive will surrender all such options unexercised. For the
purposes of this Agreement, in the event that such stock is listed on an
established national or regional stock exchange, is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System, or is
publicly traded in an established securities market, in determining the fair
market value of the stock, Employer shall use the average of the closing prices
of such stock on such exchange or System or in such market (the highest such
closing price if there is more than one such exchange or market) on the five
trading dates immediately before the date of termination (or, if there is no
such closing price, then the Board shall use the mean between the highest bid
and lowest asked prices or between the high and low prices on such
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date), or, if no sale of the Stock has been made on one or more of such dates,
on the next preceding day on which any such sale shall have been made.
(c) During the Severance Period, Executive and his spouse will
continue to be covered by all Welfare Plans, maintained by Employer in which he
or his spouse were participating immediately prior to the date of his
termination as if he continued to be an employee of Employer; provided that, if
participation in any one or more of such Welfare Plans is not possible under the
terms thereof, Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer during the Severance
Period, such coverage shall be provided only to the extent that the coverage
exceeds the coverage of any substantially similar plans provided by his new
employer.
3. No Setoff. No payment or benefits payable to or with respect to
---------
Executive pursuant to this Agreement shall be reduced by any amount Executive or
his spouse may earn or receive from employment with another employer or from any
other source, except as expressly provided in subsection 2(c) of this Agreement.
4. Death. If Executive dies during the Severance Period:
-----
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse.
(b) The spouse of Executive shall, during the remainder of the
Severance Period, be covered under all Welfare Plans made available by Employer
to Executive or his spouse immediately prior to the date of his death; provided
that, if participation in any one or more of such plans and arrangements is not
possible under the terms thereof, Employer will provide substantially identical
benefits.
Any benefits payable under this Section 4 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any of the Incentive or Retirement
Plans.
5. Termination for Good Cause or Without Good Reason. If the employment
-------------------------------------------------
of Executive with Employer is terminated (a) for any reason prior to a Change in
Control other than at the request or direction of an acquiror in connection with
a Change in Control, or (b) after a Change in Control by Employer for Good
Cause, or by the voluntary action of Executive without Good Reason, Executive's
Base Salary (at the rate in effect on the date of termination) shall be paid
through the date of termination, and Employer shall have no further obligation
to Executive or his spouse under this Agreement, except for benefits accrued
under Incentive Plans pursuant to subsection 2(a) above.
6. Section 280G Gross-Up Payment.
-----------------------------
(i) Anything in this Agreement to the contrary notwithstanding and
except as set forth below in this Section 6(i), in the event it shall be
determined that any payment or distribution by Employer, or any other member of
the affiliated group (as determined for purposes of Sections 280G and 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") of which Employer or
Corporation is a member, to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 6) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 6(i), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $10,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(ii) Subject to the provisions of Section 6(iii), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PriceWaterhouseCoopers LLP such other certified public accounting firm
reasonably acceptable to Employer as may be designated in writing by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to Employer and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Employer. In the event that the Accounting Firm
is serving as accountant or auditor
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<PAGE>
for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm reasonably
acceptable to Employer to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by Employer. Any
Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
Employer to the Executive within five business days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Employer and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that the initial
Gross-Up Payments made by Employer will be inadequate and that additional Gross-
Up Payments by Employer should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Employer
exhaust its remedies pursuant to Section 6(iii) and the Executive thereafter are
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Employer to or for the benefit of the
Executive.
(iii) The Executive shall notify Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
Employer of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive receives
written notice of such claim and shall apprise Employer of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of 30 days following the date
on which the Executive gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If Employer notifies the Executive in writing prior to the expiration of such
period that they desire to contest such claim, the Executive shall:
(a) give Employer any information reasonably requested by
Employer relating to such claim,
(b) take such action in connection with contesting such claim as
Employer shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by Employer and reasonably acceptable to the Executive,
(c) cooperate with Employer in good faith in order effectively
to contest such claim, and
(d) permit Employer to participate in any proceedings relating
to such claim; provided, however, that Employer shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 6(iii), Employer shall control all
proceedings taken in connection with such contest and, at their sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at their
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
Employer shall determine; provided, however, that if Employer directs the
Executive to pay such claim and sue for a refund, Employer shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, Employer's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced by
Employer pursuant to Section 6(iii), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to
Employer's continued compliance with the requirements of this Section 6)
promptly pay to Employer the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by Employer pursuant to Section 6(iii), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and Employer does not notify the Executive in writing
of their intent to contest such denial of refund prior to the expiration of 30
days after such determination (or if any such contest shall be finally
determined in a manner adverse to such refund being allowed), then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
7. Definitions. For purposes of this Agreement:
-----------
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(a) "Base Salary" shall mean the higher of Executive's annual base
salary at the rate in effect on the date of a Change in Control or the rate in
effect on the date of termination of employment.
(b) "Change in Control" shall be deemed to have occurred if there has
been a change of control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or such item
thereof which may hereafter pertain to the same subject; provided that, and
notwithstanding the foregoing, a Change in Control shall be deemed to have
occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation or Employer representing 25% or more of
the combined voting power of Corporation's then outstanding securities, (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Boards of Directors of Corporation and Employer
cease for any reason to constitute at least a majority thereof unless the
election of each Director, who was not a Director at the beginning of the
period, was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of the period, (iii)
Corporation shall cease to be a publicly owned corporation, or (iv) any merger
or consolidation of Corporation with or into another entity shall occur as a
result of which the stockholders of Corporation do not retain or acquire 75% or
more of the capital stock of the resulting entity.
(c) "Good Cause" shall be deemed to exist if, and only if: (1)
Executive engages in acts or omissions constituting dishonesty, intentional
breach of fiduciary obligation or intentional wrongdoing or malfeasance; (2)
Executive is convicted of a criminal violation involving fraud or dishonesty; or
(3) Executive materially breaches the Agreement (other than by engaging in acts
or omissions enumerated in paragraphs (1) and (2) above), or materially fails to
satisfy the conditions and requirements of his employment with Employer, and
such breach or failure by its nature is incapable of being cured, or such breach
or failure remains uncured for more than 30 days following receipt by Executive
of written notice from Employer specifying the nature of the breach of this
paragraph (3), inattention by Executive to his duties shall be deemed a breach
or failure capable of cure.
Without limiting the generality of the foregoing, the following shall
not constitute Good Cause: any personal or policy disagreement between Executive
and Employer or any member of the Board of Directors of Employer; or any action
taken by Executive in connection with his duties if Executive acted in good
faith and in a manner he reasonably believed to be in, and not opposed to, the
best interest of Employer and had no reasonable cause to believe his conduct was
unlawful.
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(d) "Good Reason" shall exist if:
(1) there is a significant change in the nature or the scope of
Executive's authority;
(2) there is a reduction in Executive's base salary from the
rate in effect during the fiscal year before the Change in Control;
(3) Employer changes the principal location in which Executive
is required to perform services to one which is more than 50 miles from his
current location;
(4) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting his position, he is
unable to exercise the authority, powers, function or duties attached to his
position;
(e) "Incentive Plans" shall mean any incentive, bonus deferred
compensation or similar plan or arrangement currently or hereafter made
available by Corporation or Employer in which Executive is eligible to
participate.
(f) "Retirement Plans" shall mean any qualified or supplemental
defined benefit retirement plan or defined contribution retirement plan,
currently or hereinafter made available by Corporation or Employer in which
Executive is eligible to participate.
(g) "Severance Period" shall mean the period beginning on the date
Executive's employment with Employer terminates under circumstances described in
Section 2 above and ending on the first to occur of: (1) the date 24 months
thereafter, or (2) the date Executive attains or would have attained age 65.
(h) "Welfare Plan" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
8. Benefits Unfunded. All rights of Executive and his spouse or other
-----------------
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Corporation or Employer for payment of any amounts due hereunder. Neither
Executive nor his spouse or other
86
<PAGE>
beneficiary shall have any interest in or rights against any specific assets of
Corporation or Employer, and Executive and his spouse or other beneficiary shall
have only the rights of a general unsecured creditor of Employer.
9. Litigation Expense. Employer shall pay Executive's out of-pocket
------------------
expenses, including attorney's fees, in connection with any judicial proceeding
to enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith if Executive is successful in such
litigation.
10. Applicable Law. This Agreement shall be construed and interpreted
--------------
pursuant to the laws of the State of New York.
11. Entire Agreement. This Agreement contains the entire Agreement
----------------
between Employer and Executive and supersedes any and all previous agreements,
written or oral, among the parties relating to his or her employment by
Employer. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by Employer
and Executive. This Agreement is the exclusive agreement between Corporation,
Employer and Executive regarding payments to Executive in the event of a change
in control of Corporation or Employer. During the term of this Agreement,
Executive shall not participate in or benefit from any other change of control
severance plan or policy which may be adopted by Corporation or Employer,
provided that thereafter Executive shall participate in such plan or policy if
one has been established by Corporation or Employer.
12. No Employment Contract. Nothing contained in this Agreement shall be
----------------------
construed to be an employment contract between Executive and Employer. Executive
is employed at will and Employer may terminate his employment at any time, with
or without cause.
13. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original.
14. Severability. In the event any provision of this Agreement is held
------------
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
15. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective heirs, representatives and
successors.
16. Notice. Notices required under this Agreement shall be in writing and
------
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the others by written notice.
If to Employer: Attention: Alex S. DePersis
BSB Bank & Trust Company
58-68 Exchange Street
Binghamton, New York, 13902
If to Executive:
Larry G. Denniston
8 Devon Boulevard
Binghamton, New York 13903
17. Board Approval. The obligations of Employer under this Agreement are
--------------
contingent upon the approval or ratification by its Board of Directors of the
execution of this 'Agreement on its behalf.
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<PAGE>
In Witness Whereof, Executive has hereunto set his hand, and Corporation and
Employer have caused this agreement to be executed in their name and on their
behalf, all as of the day and year first above written.
BSB BANCORP INC.
BSB BANK & TRUST COMPANY
By : /s/ Alex S. DePersis
--------------------
Alex S. DePersis
President and Chief Executive Officer
By: /s/ Larry G. Denniston
----------------------
Larry G. Denniston
Vice President
88
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EXHIBIT 13
ANNUAL REPORT
<PAGE>
BSB Bancorp, Inc. 1999 Annual Report
Company Profile
BSB Bancorp, Inc., a Delaware corporation, is the bank holding company for BSB
Bank & Trust Co. BSB Bancorp, Inc. had 10,225,322 shares of common stock
outstanding at December 31, 1999. The stock is traded over-the-counter and is
listed on The Nasdaq Stock Market National Market under the symbol BSBN. BSB
Bancorp, Inc. is subject to regulation by the Federal Reserve Board. BSB Bank &
Trust is the principal subsidiary of BSB Bancorp, Inc.
Incorporated as a state-chartered mutual savings bank in 1867, BSB Bank & Trust
was converted to a state-chartered stock savings bank in 1985, and in 1995
completed a charter change to that of a state-chartered commercial bank. It is
headquartered in Binghamton, New York and conducts business in Broome, Tioga,
Chenango, Onondaga, Oswego, and Chemung Counties, and adjacent areas in New York
State.
BSB Bank & Trust is a diversified financial services institution providing a
broad range of deposit and loan products as well as trust and investment
services to area businesses and consumers. In particular, BSB Bank & Trust is a
major provider of financial services to the business community, as well as
offering banking services to school districts and cooperative education centers,
cities, towns, villages, and numerous municipal agencies. Deposits of BSB Bank &
Trust are insured by the Federal Deposit Insurance Corporation to applicable
limits. The Bank is subject to supervision and regulation by the Federal Deposit
Insurance Corporation and the State of New York Banking Department. BSB Bank &
Trust is also a member of the Federal Home Loan Bank System.
<PAGE>
BSB BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands - Except Per Share Amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 % Change
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
PERFORMANCE Net interest income $ 87,145 $ 81,380 7.1%
Income, exclusive of acquisition charges 21,542 21,519 0.1
Net income 18,225 21,519 (15.3)
Return on average equity, exclusive
of acquisition charges 13.48% 14.79% (8.9)
Diluted earnings per share,
exclusive of acquisition charges $ 2.09 $ 2.08 .5
Diluted earnings per share 1.77 2.08 (14.9)
- --------------------------------------------------------------------------------------------------------------------
SELECTED Interest rate margin 4.12% 4.30% (4.2)
FINANCIAL Dividend payout ratio, exclusive of
DATA acquisition charges 44.81 38.28 17.1
Efficiency ratio, exclusive of
acquisition charges 45.21 45.93 (1.6)
- --------------------------------------------------------------------------------------------------------------------
PER SHARE Book value $ 15.11 $ 15.35 (1.6)
Dividends declared 0.95 0.83 14.5
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL Total assets $ 2,240,948 $ 2,135,327 5.0
CONDITION Total loans 1,722,252 1,577,909 9.1
DATA Deposits 1,901,204 1,709,860 11.2
(at December 31) Shareholders' equity 154,493 154,091 0.3
Allowance for possible credit losses 29,134 25,030 16.4
Non-performing loans to total loans 0.67% 1.08% (38.0)
- --------------------------------------------------------------------------------------------------------------------
OFF-BALANCE Mortgage serviced loans $ 559,915 $ 513,287 9.1
SHEET Trust assets under management 343,326 299,188 14.8
(at December 31)
</TABLE>
2
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Message to Shareholders
This past year was a difficult year for bank stocks in general. Unfortunately,
our stock was not an exception to that trend. That being said, I want to
highlight the significant achievements your Company posted in 1999 and briefly
outline the reasons we are well positioned for the future.
Foremost among these was the acquisition of Skaneateles Bancorp, effective July
1, 1999. We are very pleased with all aspects of the acquisition, including the
positive response of former Skaneateles' customers and the achievement of our
initial strategic goals. The addition of the Skaneateles franchise boosted BSB's
market share in Onondaga County from less than 1% to approximately 4%. This
greater Syracuse area is three times larger than the Bank's primary market in
the Southern Tier and offers us an important opportunity for further growth and
profitability. Your Company is committed to significantly increasing its share
of market in that region during the next few years.
In addition to the Skaneateles purchase, your Bank was able to increase
deposits, loans, and trust assets to record levels last year. Our reserve
against loans outstanding was at an all-time high at year-end 1999, and
non-performing loans were reduced to the lowest levels in many years. These
trends are positive for the institution and shareholder value.
We are pleased with our performance in the fourth quarter of 1999. Net income
for the quarter ended December 31, 1999 was $6,228,000, compared to $5,659,000
for the same quarter in 1998, an increase of 10.1%. Diluted earnings per share
increased 10.9% for the quarter ended December 31, 1999 to $0.61, compared to
$0.55 for the same period in 1998.
Our interest rate margin rose to 4.29%, compared to 4.25% for the fourth quarter
of 1998, and we realized a 54.1% increase in non-interest income to $4,095,000
for the fourth quarter of 1999, compared to $2,658,000 for the fourth quarter of
1998.
Net income for the year ended December 31, 1999 was $21,542,000, or $2.09 per
diluted share, before giving effect to non-recurring after-tax acquisition
charges of $3,317,000, compared to net income of $21,519,000, or $2.08 per
diluted share for 1998. Third quarter charges affecting 1999 results included
after-tax charges of $700,000, or $0.07 per diluted share, as a result of the
write-down of a mortgage-backed security and $2,000,000, or $0.19 per diluted
share, as a result of the write-down of a commercial loan.
Initiatives directed toward enhancing our overall financial strength were
evident during 1999. The allowance for possible credit losses increased to
$29,134,000, or 1.69% of period-end loans outstanding at December 31, 1999, from
$25,030,000, or 1.59% of period-end loans at December 31, 1998. Non-performing
assets also were reduced from $20,114,000, or 0.94% of assets at December 31,
1998 to $12,517,000, or 0.56% of assets at December 31, 1999.
We are mindful that BSB needs to remain progressive and attuned to our
customers' needs in order to compete in the rapidly changing environment of
financial service and product delivery. Our goal is to excel at the options we
provide to our customers. We have an unwavering commitment to make continual
improvements to our multiple service delivery channels, including 24-hour online
MachineTeller ATM service, StoreTeller Banking at Giant Markets, TelephoneTeller
banking by phone, and, most recently, Internet Banking.
I would like to offer my personal welcome to John P. Driscoll, former Chief
Executive Officer of Skaneateles Savings Bank, and Ann G. Higbee, former
Skaneateles Director, to the Boards of Directors of BSB Bancorp, Inc. and BSB
Bank & Trust.
On February 14, 2000, BSB Bancorp announced the retirement of its President and
Chief Executive Officer, Alex S. DePersis. During his tenure as Chief Executive
Officer, Alex provided vision that was instrumental to the success of a number
of initiatives. Foremost among them was the Company's significant expansion of
both its commercial banking activities and its market area. His leadership in
the acquisition and successful assimilation of Skaneateles Bancorp, Inc. in 1999
has positioned BSB for important growth opportunities in Central New York. We
thank Alex for his many contributions and wish him well.
At that same time, Thomas L. Thorn was appointed Acting President and Chief
Executive Officer. Mr. Thorn has been a Director of BSB Bancorp since 1995 and
is currently a member of the Executive Committee.
3
<PAGE>
We are very fortunate to have a strong senior management team. They are
committed to the continued implementation of our sound strategic programs.
These are exciting and promising times for our Company. We have just completed a
challenging yet productive year, bringing to completion a number of initiatives
supporting continued growth and future profitability. We are confident we have
the people, know-how, facilities, capital, technology, and market opportunities
to drive our Company to higher levels of performance.
I want to offer my sincere gratitude to our Board of Directors for their
diligence, guidance, and support. On behalf of our Board of Directors, officers,
and staff, "thank you"--our shareholders--for your continued support.
William C. Craine
Chairman of the Board
4
<PAGE>
Lending Operations
The best way to describe 1999 from a Lending Operations point of view might be
to call it a year of carefully managed, moderate growth. The result was an
overall increase of 9.1% in loans outstanding over year-end 1998 totals. We
approached the year with intentionally modest growth objectives for a number of
reasons. To begin with, we knew that proper integration of the newly acquired
Skaneateles Savings Bank ("SSB") loan portfolio was a top priority, as was the
transitioning of the SSB lending staff into the BSB operational structure. These
tasks were expedited by the presence of the existing BSB office in downtown
Syracuse. As part of the process, that office was consolidated with the former
Skaneateles Savings office located nearby. Both the portfolio assimilation and
the staff integration have gone very smoothly, and we are excited about the
growth potential the Syracuse market offers us.
In addition to allowing for the absorption of the former Skaneateles Savings
Bank loan activity, one other important consideration guided our strategy for
the year. As a result of the aggressive growth in loan originations during the
past few years, our loan portfolio increased at a rate that was greater than the
sustainable growth rate of core deposits. By embarking on a plan of moderate
growth in the loan portfolio, we are bringing the two growth curves back in
line.
Despite significant improvements in key loan quality measures, such as the
relationship of loan loss reserves to total loans, and the level of
non-performing assets versus a year ago, the Bank did incur higher levels of
loan losses in 1999. Nevertheless, management believes that the current level of
loan loss reserve provides adequate protection for the risk inherent in the loan
portfolio.
The Bank's consumer loan portfolio grew by 13.9% or $57.2 million in 1999. Again
in 1999, the majority of our growth came from the indirect auto and mobile home
loan portfolios. Our vast network of auto dealers throughout the Southern Tier
and Central New York Region continues to provide a significant volume of loans.
This type of lending remains highly competitive, with profitability being
dependent on sound underwriting standards and originating a large enough volume
of quality loans to achieve efficiency of operations. BSB demands a high level
of loan quality versus volume. As a result, loan originations can be affected
adversely during periods of intensified competitive pressure. Such was the case
in the latter half of 1999, when competition for this kind of loan activity was
particularly fierce. We believe that our "quality over quantity" approach will
yield the most favorable results over the long term.
In addition to continued strength in the indirect loan portion of our loan
portfolio, we anticipate significant direct lending activity, particularly from
loans originated by the branch-banking network. These loans showed good growth
during 1999 and they are especially attractive due to their higher net yield.
Our plans for the year 2000 call for further development of these loans,
especially at the former Skaneateles branch offices.
Originations in 1999 were $118.4 million, considerably below 1998 originations
of $198.0 million. This decline was due to rising interest rates and a decline
in mortgage loan refinancing activity compared to 1998. These factors, combined
with the Bank's decision to sell a significant portion of the residential
mortgage loans originated, led to a decrease in the size of this portfolio at
year-end 1999 to $176.4 million from $196.5 million at year-end 1998.
We had continued growth in our portfolio of serviced loans in 1999. These are
loans originated by BSB but sold into the secondary mortgage market with BSB
retaining the right to collect payments and provide other services to the
customers. This activity generated $1.4 million in servicing fee income in 1999,
an increase of 4.8% over 1998. The Bank remains the largest originator of
residential mortgage loans in its Broome County home market and is taking action
to increase its market share in the Onondaga market, as well.
The Bank's commercial loan portfolio grew by 12.7% or $102.2 million in 1999,
with the majority of the growth occurring in the first part of the year. This is
a lower growth rate than in past years, in large part for the reasons mentioned
previously. Originations remained strong at $286.0 million in 1999, down from
the originations of $346.9 million in 1998. The referral base, which has been
built over many years, continues to perform very well in generating significant
loan opportunities for the Bank. This referral network is considered a valuable
asset for the Bank, as is the highly experienced staff of lenders and support
personnel who enjoy an excellent reputation for service and responsiveness in
the business community. In particular, the longevity and continuity of the loan
officers is important to business owners and their professional staff, alike. In
addition, BSB has proven its willingness to provide loans of various types,
including working capital lines, equipment term loans, accounts receivable
financing, and real estate construction and acquisition commitments, to
companies of all sizes across a wide range of industries.
5
<PAGE>
The commercial real estate loan portfolio grew by 3.0% or $5.1 million in 1999.
Much of the Bank's success can be attributed to the experience and dedication of
our lending staff. Their focus has been on originating loans to finance
acquisitions, to make improvements on existing commercial properties, and for
new construction. Through their efforts, we have established a strong presence
in the Binghamton, Syracuse, and Rochester markets, specializing in
moderate-sized loans to owners and developers with recourse, as these loans
involve comparatively lower risk and a higher net yield.
Retail Banking
The mid-year acquisition of Skaneateles Savings Bank was the centerpiece of an
exciting and rewarding year for the Retail Banking Division. The addition of
nine banking offices in greater Syracuse and Central New York has given us a
greatly expanded sales platform with thousands of new customers, accounts, and
households. As important as their business is to us today, these customers will
be the source of important future growth from our continually growing menu of
products and services. In addition, our expanded physical presence will greatly
facilitate our efforts to broaden the relationships we already have with over
10,000 indirect loan customers in the Central New York Region. It will also
provide important support to our new business development efforts as we seek to
expand retail, small business, and commercial relationships.
Towards the end of the year, we further solidified our presence in our core
market with the opening of our newest full-service banking office in the Giant
Plaza on Rano Boulevard in the Town of Vestal. This facility places us in the
heart of Broome County's rapidly expanding, new retail hub that attracts
shoppers from throughout the region. From this site, we will be better able to
serve customers who live and work in the western Broome County area. If the
results achieved during the first few weeks of operation of our new office are
any indication, our customers are in complete agreement.
In the future, we will continue to strengthen our branch presence where we can
achieve the best results. Given the solid concentration of branch locations and
resulting market share we enjoy in our core market, we will primarily seek to
expand our presence and market share in the Syracuse area and elsewhere.
BSB Bank & Trust has been acknowledged as leading the way with its highly
developed Retail Banking Delivery System. We have long recognized the importance
of offering our customers the convenience of any time, anywhere banking. As
such, we have an unwavering commitment to making continual improvements to our
multiple service delivery channels including 24-hour online MachineTeller ATM
service, StoreTeller Banking at Giant Markets, TelephoneTeller banking by phone,
and our Payday Deposit and Direct Deposit services. We have most recently added
Internet Banking. To date, the response to our Internet Banking has far exceeded
our most ambitious expectations and we will soon be introducing a web browser
product that will make it possible for commercial banking customers to access
the Bank via the Internet. Work site ATMs will receive priority attention in the
year ahead as they provide an invaluable first step toward more significant
banking relationships with both employees and the sponsoring company.
We continually upgrade the technology in our branches to improve customer
service, create operating efficiencies, and facilitate communication. Recent
software changes, for example, have reduced account opening time by nearly one
half allowing our representatives to spend more time building relationships with
their customers.
Technology notwithstanding, a retail banking operation still is only as good as
its people. Day in and day out, it is our staff of banking professionals that is
responsible for satisfying customers, for making sure that new products and
services have the benefit of a proper introduction, and insuring the Bank's
sales goals are reached. To those ends, we continue to work hard to be the
banking sector's preferred employer in our region. We also continue to place a
great deal of emphasis on training and upgrading job skills. By establishing a
genuine "sales culture" in our branches, we are preparing our employees to
assess the financial needs of each customer and to provide them with appropriate
BSB product solutions. We will continue to link pay to performance and to
strengthen our incentive programs by creating sales goals that are "branch
specific" and suited to the demographic make up of the trading area for each
branch.
Perhaps it goes without saying that 1999 was a very exciting and rewarding year
for the Retail Banking Division. But, the Skaneateles Savings Bank acquisition
is only the beginning.
With 22 full-service banking offices and 50 ATMs in six counties, we now have
the critical mass and geographic reach to bring our brand of banking to
thousands of new customers in the Central and Southern Tier Regions of
6
<PAGE>
New York and the Northern Tier of Pennsylvania. We truly believe we have the
people, the products, the services, and the responsiveness to make the most of
those opportunities and to create new ones during 2000 and in the years ahead.
We look forward to the challenge!
7
<PAGE>
BSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER DATA
(Dollars in Thousands-Except Share Amounts)
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL Total assets $2,240,948 $2,135,327 $1,816,672 $1,605,302 $1,449,683
CONDITION Total loans 1,722,252 1,577,909 1,420,352 1,215,185 1,098,581
DATA Investment securities 401,723 427,537 302,671 305,977 269,852
Deposits 1,901,204 1,709,860 1,457,526 1,323,081 1,185,584
Borrowings and mandatorily
redeemable preferred securities 172,045 259,736 196,701 138,683 113,335
Shareholders' equity 154,493 154,091 138,538 124,957 131,713
Allowance for possible credit losses 29,134 25,030 21,768 19,168 17,179
<CAPTION>
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS Total interest income $ 176,721 $ 166,166 $ 141,348 $ 123,414 $ 114,905
DATA Total interest expense 89,576 84,786 71,452 61,582 59,029
---------------------------------------------------------------------------------------------------
Net interest income 87,145 81,380 69,896 61,832 55,876
Provision for credit losses 19,137 12,931 10,814 10,146 7,568
---------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 68,008 68,449 59,082 51,686 48,308
Gains (losses) on sale of securities (231) (851) 380 1,285 (2)
Gains (losses) on sale of mortgages (363) (573) (297) (27)
Non-interest income 12,965 10,019 8,065 9,145 7,344
Operating expense 45,255 41,983 36,940 35,463 33,450
---------------------------------------------------------------------------------------------------
Income before acquisition charges and
income taxes 35,124 35,061 30,290 26,653 22,173
Acquisition charges 5,408
---------------------------------------------------------------------------------------------------
Income before income taxes 29,716 35,061 30,290 26,653 22,173
Income tax expense 11,491 13,542 11,641 9,968 8,527
---------------------------------------------------------------------------------------------------
Net income $ 18,225 $ 21,519 $ 18,649 $ 16,685 $ 13,646
===================================================================================================
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED Weighted average yield of all
FINANCIAL AND interest-earning assets 8.35% 8.77% 8.79% 8.68% 8.66%
OTHER DATA Weighted average cost of all
interest-bearing liabilities 4.36 4.63 4.63 4.58 4.75
Interest rate spread during the period 3.99 4.14 4.16 4.10 3.91
Interest rate margin during the period 4.12 4.30 4.35 4.35 4.21
Return on average assets 0.82 1.08 1.10 1.11 0.98
Return on average equity 11.41 14.79 14.01 12.99 10.48
Average equity to average assets 7.16 7.28 7.84 8.54 9.32
Dividend payout ratio 52.95 38.28 36.48 33.09 31.05
Efficiency ratio 50.61 45.93 47.38 49.96 52.91
Book value per share $ 15.11 $ 15.35 $ 13.92 $ 12.76 $ 12.29
Basic earnings per share $ 1.80 $ 2.15 $ 1.88 $ 1.63 $ 1.25
Diluted earnings per share $ 1.77 $ 2.08 $ 1.82 $ 1.59 $ 1.21
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
BSB Bancorp, Inc. (the "Company") is the bank holding company of BSB Bank &
Trust Company, Binghamton, New York (the "Bank"). The Bank, a New York-chartered
commercial bank and trust company, operates 22 branches in Broome, Chemung,
Chenango, Onondaga, Oswego, and Tioga Counties of New York State. The Bank is in
the business of providing a wide variety of loan and deposit products to its
commercial and consumer customers. In addition, the Bank provides mortgage
banking, trust, municipal, and other related services. Unless otherwise
specified, references to the Company are intended also to include the activities
of the Bank.
In July 1999, the Company completed its acquisition of Skaneateles Bancorp,
Inc. Pursuant to the terms of the merger, each share of Skaneateles Bancorp
common stock was exchanged for .97 shares of the Company's common stock. The
acquisition constituted a tax-free reorganization and has been accounted for as
a pooling of interests under Accounting Principles Board Opinion No. 16,
"Business Combinations." Accordingly, the consolidated financial statements for
the periods presented have been restated to include the combined results of
operations, financial position and cash flows of BSB Bancorp, Inc. and
Skaneateles Bancorp, Inc. prior to the merger. Certain reclassifications were
made to Skaneateles Bancorp's prior year financial statements to conform to the
Company's presentation.
Net income for the year ended December 31, 1999 was $21.5 million, or $2.09
per diluted share, before giving effect to non-recurring after-tax acquisition
charges of $3.3 million, compared to prior earnings of $21.5 million, or $2.08
per diluted share for 1998. Third quarter charges affecting 1999 results also
included after-tax charges of $0.7 million, or $0.07 per diluted share, as a
result of a write-down of a mortgage-backed security, and an after-tax
charge-off of $2.0 million, or $0.19 per diluted share, as a result of
write-down of a $9.7 million loan. The return on average equity decreased from
14.79% in 1998 to 11.41% in 1999, and the return on average assets decreased
from 1.08% in 1998 to 0.82% in 1999.
Net interest income increased 7.1% in 1999 to $87.1 million from $81.4
million in 1998, mainly as a result of an increase in the average balance of
interest-earning assets. The interest rate margin decreased from 4.30% in 1998
to 4.12% in 1999. Non-interest income increased 29.4% from $10.0 million in 1998
to $13.0 million in 1999. Included in the 1999 results is the pre-tax recovery
in the fourth quarter of approximately $1.0 million on a letter of credit that
had initially been reserved for in 1993. Net gains and losses on the sale of
securities and loans produced a loss of $594,000 in 1999, compared to a loss of
$1.4 million in 1998. The provision for credit losses increased from $12.9
million in 1998 to $19.1 million in 1999. Net charge-offs increased from $9.7
million in 1998 to $15.0 million in 1999, the largest of which was a $3.3
million pre-tax charge as previously noted as occurring in the third quarter of
1999. Operating expense increased 20.7% from $42.0 million in 1998 to $50.7
million in 1999. This increase was mainly the result of pre-tax acquisition
charges of $5.4 million.
Total assets increased from $2.1 billion at December 31, 1998 to $2.2
billion at December 31, 1999, an increase of 5.0%. Total loans increased 9.1%
from $1.6 billion at December 31, 1998 to $1.7 billion at December 31, 1999.
This growth was due primarily to the Company's ability to originate commercial
and consumer loans in its lending market. The Company's management strategy is
designed to accommodate earning asset growth while controlling overall risk to
the institution. Both liquidity and interest rate sensitivity are constantly
monitored. The Company's loan originations decreased 15.6%, from $845.5 million
in 1998 to $713.4 million in 1999. Loan sales and securitizations decreased from
$184.5 million in 1998 to $114.7 million in 1999. The allowance for possible
credit losses (reserves) increased from $25.0 million at December 31, 1998 to
$29.1 million at December 31, 1999, an increase of 16.4%. Deposits increased
11.2% from $1,709.9 million at December 31, 1998 to $1,901.2 million at December
31, 1999. Borrowings decreased from $229.7 million at December 31, 1998 to
$142.0 million at December 31, 1999, a decrease of 38.2%. Shareholders' equity
increased 0.3% from $154.1 million at December 31, 1998 to $154.5 million at
December 31, 1999.
The Company operates as an independent, community, commercial bank focusing
on the origination of commercial and consumer loans. The Company provides a
broad range of deposit and loan products to area businesses and consumers
through its Retail Branch network. In addition, the Company's Trust Department
provides full trust services to individuals, corporations, and non-profit
organizations. The Bank's wholly owned subsidiary, BSB Financial Services, Inc.,
markets brokerage services. The Company expects to continue to focus on
enhancing shareholder value through increasing market share as well as
developing new geographic market areas. Emphasis will continue to center on
originating commercial and selected consumer loan products.
A fundamental objective of the Company is to manage its liquidity
effectively. Prudent liquidity management insures that the Company can meet all
its contractual obligations, meet its customers' loan demands, fund all of its
operations, and minimize the effects of interest rate fluctuations on earnings.
To enhance its funding and its funding
9
<PAGE>
capabilities, the Company has expanded its market area through bank and branch
acquisitions, promoted an active and effective municipal deposit program, and
increased its borrowing capabilities through retail repurchase agreements and a
variety of other borrowing sources.
To assist in managing the average cost of funds, the Company continues an
aggressive campaign to produce new low cost checking and NOW account deposits.
This effort produced growth in average NOW account deposit levels by
approximately 8% for the year 1999 and 10% for the year 1998. Non-interest
bearing commercial checking accounts average balances increased approximately
35% for the year 1999. This is a by-product of the strong growth in commercial
loan relationships during the year. The growth in these low cost funding
sources, coupled with the continued effort to originate higher yielding consumer
and commercial loan assets, resulted in the Company producing an average
interest rate margin of 4.12% for the year 1999.
As the evolution of the financial services industry continues, more and
more emphasis has been placed on the use of customer information and cost
effective use of technologies in new delivery and processing systems. In
addition, the acquisition of Skaneateles Bancorp, Inc. has provided greater
access for the Bank's customers in the Central New York Region. The Company
expanded its electronic delivery systems by adding ATMs to our new branches and
enhancing its Internet Banking, a personal interactive banking service via
personal computer.
This Annual Report, including certain statements made in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, may
include "forward-looking statements". Any statements with regard to the
Company's expectations as to its financial results, and other aspects of its
business, and general economic conditions, may constitute forward-looking
statements. Although the Company makes such statements based on assumptions
which it believes to be reasonable, there can be no assurance that actual
results will not differ materially from the Company's expectations. Some of the
important factors which could cause its results to differ from any results which
might be projected, forecasted, or estimated based on such forward-looking
statements include: (i) general economic and competitive conditions in the
markets in which the Company operates, and the risks inherent in its operations;
(ii) the Company's ability to continue to control its provision for credit
losses and operating expense, increase earning assets and non-interest income,
and maintain its margin; and (iii) the level of consumer demand for new and
existing products. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in the forward-looking statements. The
Company does not intend to update forward-looking statements.
10
<PAGE>
FINANCIAL CONDITION
- -------------------
The following table sets forth information regarding average balances of the
Company's assets and liabilities, and shareholders' equity, as well as changes
in such amounts from period to period.
<TABLE>
<CAPTION>
1999 1998 1997
Average Increase (Decrease) Average Increase (Decrease) Average
(Dollars in Thousands) Balance Amount % Balance Amount % Balance
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 870,304 $138,513 18.9% $ 731,791 $135,696 22.8% $ 596,095
Consumer loans
Passbook 124 (59) (32.2) 183 (88) (32.5) 271
Overdraft checking 867 (374) (30.1) 1,241 377 43.6 864
Business line of credit 1,240 219 21.4 1,021 932 1,047.2 89
Credit cards 9,564 (93) (1.0) 9,657 556 6.1 9,101
Personal-direct 83,338 7,530 9.9 75,808 11,300 17.5 64,508
Personal-indirect-new auto 56,464 7,668 15.7 48,796 2,102 4.5 46,694
Personal-indirect-used auto 175,482 38,277 27.9 137,205 45,455 49.5 91,750
Personal-indirect-mobile homes 60,273 10,453 21.0 49,820 14,258 40.1 35,562
Personal-indirect-other 24,450 10,353 73.4 14,097 9,971 241.7 4,126
Home Equity Line of Credit 31,481 (1,892) (5.7) 33,373 451 1.4 32,922
Checkcard reserve 2,099 630 42.9 1,469 535 57.3 934
Student 2,621 (1,056) (28.7) 3,677 130 3.7 3,547
- -------------------------------------------------------------------------------------------------------------------
Total consumer loans 448,003 71,656 19.0 376,347 85,979 29.6 290,368
- -------------------------------------------------------------------------------------------------------------------
Mortgage loans
Residential-fixed 104,590 (6,960) (6.2) 111,550 5,502 5.2 106,048
Commercial-fixed 8,687 2,134 32.6 6,553 (809) (11.0) 7,362
Residential-adjustable 79,847 (22,997) (22.4) 102,844 (24,005) (18.9) 126,849
Commercial-adjustable 162,217 7,361 4.8 154,856 (13,365) (7.9) 168,221
- -------------------------------------------------------------------------------------------------------------------
Total mortgage loans 355,341 (20,462) (5.4) 375,803 (32,677) (8.0) 408,480
- -------------------------------------------------------------------------------------------------------------------
Investment securities 420,488 40,054 10.5 380,434 75,515 24.8 304,919
Mortgages held for sale 8,304 (5,737) (40.9) 14,041 9,619 217.5 4,422
Federal funds sold 13,888 (1,970) (12.4) 15,858 12,334 350.0 3,524
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 2,116,328 222,054 11.7 1,894,274 286,466 17.8 1,607,808
- -------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 116,170 10,352 9.8 105,818 16,168 18.0 89,650
- -------------------------------------------------------------------------------------------------------------------
Total assets $2,232,498 $232,406 11.6% $2,000,092 $302,634 17.8% $1,697,458
===================================================================================================================
Interest-bearing liabilities:
Deposits
Savings $ 191,719 $ 8,424 4.6% $ 183,295 $ 7,516 4.3% $ 175,779
Money market 329,143 28,751 9.6 300,392 23,163 8.4 277,229
Certificates of deposit 1,055,370 114,632 12.2 940,738 203,821 27.7 736,917
NOW 98,882 7,325 8.0 91,557 8,444 10.2 83,113
Commercial checking 124,989 32,217 34.7 92,772 18,786 25.4 73,986
- -------------------------------------------------------------------------------------------------------------------
Total deposits 1,800,103 191,349 11.9 1,608,754 261,730 19.4 1,347,024
Borrowings 225,787 18,129 8.7 207,658 11,860 6.1 195,798
Mandatorily redeemable
preferred securities 30,000 16,671 125.1 13,329 13,329
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 2,055,890 226,149 12.4 1,829,741 286,919 18.6 1,542,822
- -------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 16,845 (7,989) (32.2) 24,834 3,340 15.5 21,494
Shareholders' equity 159,763 14,246 9.8 145,517 12,375 9.3 133,142
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 2,232,498 $ 232,406 11.6% $ 2,000,092 $ 302,634 17.8% $ 1,697,458
===================================================================================================================
</TABLE>
11
<PAGE>
USES OF FUNDS
- --------------------------------------------------------------------------------
The Company's principal use of funds is originating loans, primarily to
individuals and small- and medium-sized companies in its lending area. Comparing
1998 to 1999, in general, loan originations have declined, especially in the
second half of 1999. As demand for loans softened, competition for the available
loans increased. The Company continues to stress strong underwriting standards
and has been able to show increases in outstanding balances from December 31,
1998 to December 31, 1999, while lowering the balance of non-performing loans.
Commercial loans tend to increase the interest rate sensitivity of the loan
portfolio, because interest rates on these loans are generally tied to the
Company's Prime Rate (the "Prime Rate"). Commercial loan originations decreased
from $346.9 million in 1998 to $286.0 million in 1999. The average balance of
commercial loans increased from $731.8 million in 1998 to $870.3 million in
1999, an increase of $138.5 million, or 18.9%. The increase in portfolio size in
1999 over 1998 was due primarily to an increase in activity in the Syracuse
market.
Consumer loan originations were $244.6 million in 1998 and $262.3 million
in 1999. The average balance of consumer loans increased from $376.3 million in
1998 to $448.0 million in 1999, an increase of $71.7 million, or 19.0%. This
increase resulted mainly from the Company's continuing efforts to expand its
direct consumer lending as well as its indirect financing through local and
surrounding area automobile dealers. These types of loans typically earn among
the highest yields of the Bank's assets, as is the case of indirect used auto
loans which yielded 9.39% for 1999. These loans also tend to have a higher
credit risk. Indirect used auto loan originations decreased 2.4%, from $105.3
million in 1998 to $102.8 million in 1999. Direct loan originations decreased
from $39.3 million for 1998 to $38.2 million for 1999, a decrease of $1.1
million, or 2.8%.
The Company originated residential mortgage loans of $198.0 million in 1998
and $118.4 million in 1999, a decrease of 40.2%. Commercial real estate
originations decreased from $56.0 million in 1998 to $46.6 million in 1999.
The Company's policy of selling or securitizing fixed-rate residential
mortgages to improve the liquidity of the portfolio and to build the servicing
income portfolio resulted in sales and securitizations of $179.9 million in
1998. In 1999, $111.7 million of fixed-rate residential mortgages were sold to
aid in managing liquidity and collateral needs. The average balance of
fixed-rate residential mortgage loans decreased from $111.6 million in 1998 to
$104.6 million in 1999, a decrease of 6.2%. The average balance of
adjustable-rate residential mortgage loans decreased from $102.8 million in 1998
to $79.8 million in 1999, a decrease of 22.4%. The average balance of
adjustable-rate commercial real estate loans increased from $154.9 million in
1998 to $162.2 million in 1999, an increase of 4.8%.
The Company has authority to invest in a wide range of investment and
mortgage-backed securities, including corporate and municipal bonds, and a
limited amount of common and preferred stock. The portfolio consists primarily
of U.S. Government Agency securities and mortgage-backed securities issued by
U.S. Government agencies such as Freddie Mac and Fannie Mae. The average balance
of investment securities increased from $380.4 million in 1998 to $420.5 million
in 1999.
SOURCES OF FUNDS
- --------------------------------------------------------------------------------
Funding for the Company's assets is derived primarily from deposits from
individuals, business customers, municipalities, and borrowings. The average
balance of all deposits increased 11.9% from $1,608.8 million in 1998 to
$1,800.1 million in 1999. The average balance of all borrowings increased 8.7%
from $207.7 million in 1998 to $225.8 million in 1999. Within deposits, the
average balance of brokered deposits increased $73.1 million to $154.5 million
at December 31, 1999, while the average balance of other deposits increased
$118.2 million to $1,645.6 million at December 31, 1999.
ASSET QUALITY
- --------------------------------------------------------------------------------
The Company has maintained its focus on sound credit quality in the loan
portfolio. The Company utilizes a system to rate substantially all of its loans
based on their respective risks. This assists management in determining and
maintaining the desired blend of assets with varying risks within the loan
portfolio, and helps in assessing the adequacy of the allowance for possible
credit losses. Loan ratings are continually reviewed to determine the propriety
of the respective ratings.
12
<PAGE>
Allowance for Possible Credit Losses
A loan is considered impaired, based on current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based upon the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all loans that have become collateral-dependent are
measured for impairment based on the fair value of the collateral. Loans not
deemed impaired continue to be classified based on their risk-rating and general
reserves are maintained accordingly. Management considers the current level of
reserves adequate to cover potential credit losses.
The following table summarizes activity in the Company's allowance for possible
credit losses during the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average total loans outstanding $1,699,850 $1,507,493 $1,313,576
================================================================================================================
Allowance at beginning of period $25,030 $21,768 $19,168
Charge-offs:
Commercial loans 11,635 6,389 5,314
Consumer loans 5,110 3,280 2,244
Residential real estate loans 267 238 175
Commercial real estate loans 381 1,083 2,718
- ----------------------------------------------------------------------------------------------------------------
Total loans charged-off 17,393 10,990 10,451
Recoveries
Commercial loans 1,173 456 1,348
Consumer loans 1,087 785 588
Residential real estate loans 83 9 2
Commercial real estate loans 17 71 299
- ----------------------------------------------------------------------------------------------------------------
Total recoveries 2,360 1,321 2,237
- ----------------------------------------------------------------------------------------------------------------
Net charge-offs 15,033 9,669 8,214
- ----------------------------------------------------------------------------------------------------------------
Provision for credit losses charged to
operating expenses 19,137 12,931 10,814
- ----------------------------------------------------------------------------------------------------------------
Allowance at end of period $29,134 $25,030 $21,768
================================================================================================================
Ratio of net charge-offs to:
Average total loans outstanding 0.88% 0.64% 0.63%
- -----------------------------------------------------------------------------------------------------------------
Ratio of allowance to:
Non-performing loans 251.00% 146.43% 128.86%
- -----------------------------------------------------------------------------------------------------------------
Year-end total loans outstanding 1.69% 1.59% 1.53%
=================================================================================================================
</TABLE>
The provision for credit losses increased from $12.9 million in 1998 to $19.1
million in 1999. As previously noted, in the third quarter of 1999, the Company
had a write-down of $3.3 million on a $9.7 million commercial loan. This loan
was sold in the fourth quarter of 1999 with no additional charge-off. The
Company chose to maintain the reserve level at the time of the write-down and,
in fact, raised the ratio of allowance to loans outstanding at December 31, 1999
to its current level. The allowance for possible credit losses increased to
$29.1 million, or 1.69% of total loans at December 31, 1999, from $25.0 million,
or 1.59% at year-end 1998. Net charge-offs in 1999 amounted to $15.0 million, or
0.88% of average total loans outstanding, compared to $9.7 million, or 0.64% in
1998. Non-performing loans at December 31, 1999 were $11.6 million, or 0.67% of
total loans outstanding, as compared to $17.1 million, or 1.08% of total loans
outstanding at December 31, 1998.
13
<PAGE>
Non-Performing Assets
The Company's accounting and classification policies regarding non-accrual
loans reflect the importance of recognizing problems early.
Loans are placed on a non-accrual status when, in the judgment of
management, the probability of collection of principal or interest is deemed to
be insufficient to warrant further accrual. Such loans include potential problem
loans where known information about possible credit problems of borrowers has
caused management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. When a loan is placed in a non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Company does not accrue interest on loans greater than 90 days past due
unless the estimated fair value of the collateral and active collection efforts
are believed to be adequate to result in full recovery.
At December 31, 1999, the Company had $945,000 of consumer loans greater
than 90 days past due on which it was accruing interest, as compared to $818,000
and $557,000 at December 31, 1998 and 1997, respectively. At each such date,
consumer loans were the only accruing loans 90 days or more past due.
The following table sets forth information regarding non-accrual loans,
loans which are 90 days or more overdue, and other real estate owned ("ORE")
held by the Company at the dates indicated:
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial loans:
Non-accrual loans $ 8,448 $11,732 $11,037
Consumer loans:
Accruing loans 90 days overdue 945 818 557
Residential real estate loans:
Non-accrual loans 2,161 2,813 2,400
Commercial real estate loans:
Non-accrual loans 53 1,730 2,899
- ----------------------------------------------------------------------------------------------------------------
Total non-performing loans and accruing
loans 90 days overdue $11,607 $17,093 $16,893
================================================================================================================
Total non-performing loans to total loans 0.67% 1.08% 1.19%
- -----------------------------------------------------------------------------------------------------------------
Total real estate acquired in settlement of loans at lower of
cost or fair value $ 910 $ 3,021 $ 3,735
- ----------------------------------------------------------------------------------------------------------------
Total non-performing loans and real estate acquired in
settlement of loans at fair value to total assets 0.56% 0.94% 1.14%
=================================================================================================================
</TABLE>
Total non-performing loans and other real estate owned decreased to $12.5
million, or 0.56% of total assets at December 31, 1999, compared to $20.1
million, or 0.94% of total assets at December 31, 1998.
At December 31, 1998, non-performing residential real estate loans totaled
$2.8 million. At December 31, 1999, non-performing residential real estate loans
totaled $2.2 million.
At December 31, 1998, non-performing commercial real estate loans totaled
$1.7 million. At December 31, 1999, non-performing commercial real estate loans
decreased to $53,000. This decline resulted primarily from Skaneateles Bancorp
loans that had matured by December 31, 1998, but had not been renewed or paid
off as of that date. At December 31, 1999, these loans had been paid off or
renewed and were currently performing.
Non-performing commercial loans at December 31, 1998 totaled $11.7 million.
At December 31, 1999, non-performing commercial loans decreased to $8.4 million
and consisted of 34 individual loans ranging in size from $6,000 to $1.2
million. The decline in non-performing commercial loans was accomplished through
continued aggressive workout programs, the applications of payments to principal
reduction, and charge-offs. During the last quarter of 1999, only four loans
were added to non-performing, the largest being a $178,000 loan. These loans and
all other non-performing loans have been internally risk-rated.
The Company's non-performing loans decreased from $17.1 million at December
31, 1998 to $11.6 million at December 31, 1999, and the ratio of non-performing
loans to total loans decreased from 1.08% to 0.67%. At December 31, 1998, the
recorded investment in loans for which impairment has been recognized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 114
totaled $10.6 million with a valuation allowance aggregating $4.1 million. For
the twelve months ended December 31, 1998, the average recorded investment in
impaired loans was approximately $9.0 million. The Company recognized, on a cash
basis, $256,000 of interest on impaired loans during the portion of the year
they were impaired. At December 31, 1999, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114 totaled
$5.5 million with a valuation allowance aggregating $1.8 million. For the twelve
months ended December 31, 1999, the average
14
<PAGE>
recorded investment in impaired loans was approximately $10.1 million. The
Company recognized, on a cash basis, $151,000 of interest on impaired loans
during the portion of the year they were impaired.
At December 31, 1998, ORE, which is defined to include property acquired by
foreclosure or by deed in lieu of foreclosure, totaled $3.0 million, which
consisted of 8 single-family residential properties with a book value totaling
$271,000 and 13 commercial real estate properties with a book value totaling
$2.7 million. At December 31, 1999, ORE totaled $0.9 million and consisted of 10
single-family residential properties with a book value totaling $526,000 and 4
commercial real estate properties with a book value totaling $384,000. The
largest single property in ORE at December 31, 1999 was $204,000.
During 1999, 8 single-family residential properties with a book value
totaling of $247,000 were sold. At December 31, 1999, 17 single-family
residential properties with a book value totaling of $864,000 were added to the
ORE portfolio from 1998. In 1999, 13 residential real estate ORE properties were
written down by $390,000.
During 1999, 7 commercial real estate properties with a book value totaling
$1.5 million were sold, 3 commercial real estate properties with a book value of
$167,000 were charged off, and 4 commercial real estate properties valued at
$1.1 million were partially charged off. During 1999, 2 commercial real estate
properties with a book value totaling $57,000 were added to the portfolio.
During the year, 11 commercial real estate ORE properties were written down by
$887,000. All ORE charge-offs are recorded as other real estate expenses. All
real estate carried in the Company's ORE portfolio are supported by recent
independent appraisals.
LIQUIDITY AND MARKET RISK
- --------------------------------------------------------------------------------
A fundamental objective of the Company is effective management of its liquidity.
The goal of liquidity management is to maintain the Company's ability to meet
its contractual obligations, to meet its customers' loan demands, fund all its
operations, and minimize the effects of interest rate fluctuations on earnings.
The major factor which determines the exposure of the Company's earnings to
interest rate risk is the relationship between the maturities and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
The management of the Company continues to employ strategies designed to achieve
a favorable match between those assets and liabilities. The Board authorizes the
Asset and Liability Management Committee (the "Committee") of the Company to
manage the sources and uses of the Company's cash flow, and establish the
pricing of its products. The Committee's primary goal is to structure the
Company's assets and liabilities in a manner that produces a favorable interest
rate spread and also provides net interest income protection against significant
volatility in the general level of interest rates.
Accordingly, the Committee focuses on effectively managing the Bank's gap,
which is a measure of the mismatch between the dollar amount of the Company's
interest-earning assets and interest-bearing liabilities which mature or reprice
within certain time frames. If those assets exceed the liabilities within a
prescribed time period, a "positive" gap results. This could tend to have a
favorable impact on earnings during a period of rising interest rates and could
have an unfavorable impact during a period of declining rates. Conversely, if
those liabilities exceed the assets during the time period in question, a
"negative" gap results, in which case a rise in the general level of interest
rates could have an unfavorable impact on earnings, while a decline in rates
could have a favorable influence on earnings.
To accommodate asset growth during 1999, deposits and borrowing balances
increased; the greatest of these was an increase of $120.0 million in
certificates of deposits, primarily from the addition of brokered deposits.
Non-interest-bearing deposits increased $26.5 million to $141.9 million, and
money market accounts increased $129.1 million to $430.0 million at December 31,
1999. The other primary source of funding is borrowed funds which decreased from
$259.7 million at December 31, 1998 to $172.0 million at December 31, 1999. See
Note 9 in Notes to Consolidated Financial Statements for further discussion on
borrowed funds.
15
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown:
<TABLE>
<CAPTION>
More More More More
than than than than More Not
3 mos 3 mos to 1 yr to 3 yrs to 5 yrs to than Rate
(Dollars in Thousands) or less 12 mos 3 yrs 5 yrs 10 yrs 10 yrs Sensitive Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial and
consumer loans $644,753 $ 118,083 $287,594 $176,243 $ 84,685 $ 61,260 $1,372,618
Mortgage loans 58,166 88,134 131,016 20,555 38,617 15,231 351,719
Mortgage-backed securities 2,629 2,956 10,369 13,875 65,834 64,082 159,745
Investment securities 83,142 33,478 68,864 18,334 7,629 30,531 241,978
Other assets $114,888 114,888
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 788,690 242,651 497,843 229,007 196,765 171,104 114,888 2,240,948
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Money market accounts 107,498 107,498 107,498 107,497 429,991
Savings accounts 46,700 46,700 46,700 46,699 186,799
Demand and NOW accounts 7,799 7,799 7,799 7,800 141,907 173,104
Certificate accounts 309,481 612,294 112,654 16,127 60,754 1,111,310
FHLB advances 15,540 2,000 2,000 70,443 555 90,538
Borrowed funds 49,218 2,289 51,507
Preferred securities 30,000 30,000
Other liabilities 13,206 13,206
Shareholders' equity 154,493 154,493
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 536,236 776,291 276,651 178,123 133,486 30,555 $309,606 $2,240,948
- ---------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap
per period $252,454 $(533,640) $221,192 $ 50,884 $ 63,279 $140,549
=================================================================================================================================
Cumulative interest
sensitivity gap $252,454 $(281,186) $(59,994) $ (9,110) $ 54,169 $194,718
=================================================================================================================================
Cumulative interest
sensitivity gap as a
percentage of total assets 11.27% (12.55)% (2.68)% (0.41)% 2.42% 8.69%
================================================================================================================================
</TABLE>
With the exception of certain categories described below, the amounts of assets
and liabilities shown which reprice or mature during a particular period were
determined in accordance with their contractual terms. All assets and
liabilities are placed in time periods which represent the earlier of their next
repricing or scheduled maturity. Adjustable-rate loans, for example, are placed
in the time periods which correspond to their next scheduled rate change.
Prepayment assumptions are made to indicate the rate at which these loans prepay
in excess of scheduled amortization.
Money market accounts, which increased from $300.9 million at December 31,
1998 to $430.0 million at December 31, 1999, and savings accounts, which
decreased from $188.3 million at December 31, 1998 to $186.8 million at December
31, 1999, are included in interest-bearing liabilities anticipated to reprice
within 5 years. Demand and NOW accounts, decreased from $229.4 million at
December 31, 1998 to $173.1 million at December 31, 1999. NOW accounts are
assumed to be withdrawn within 5 years; these assumed withdrawal rates are based
upon management's estimate of the impact of a substantial and sustained rise in
interest rates. At December 31, 1999, the Company had outstanding $90.5 million
of borrowings from the Federal Home Loan Bank of New York (the "FHLB"), a
decrease of $97.9 million from December 31, 1998, and had $81.5 million in other
borrowings at December 31, 1999 compared to $71.3 million at December 31, 1998.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict the magnitude of changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of
changes in interest rate, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table. Finally,
should interest rates increase, the ability of borrowers to service their debt
may decrease.
16
<PAGE>
As part of the Company's management of interest rate risk, interest rate
swap agreements are utilized to modify the repricing characteristics of certain
portions of the deposit portfolio. Revenue and expense arising from these
agreements are reflected in the rates paid on deposits. The notional amount of
the interest rate swaps outstanding at December 31, 1999 was $60.0 million.
Under the terms of the swap agreements, the Company pays a variable rate of
interest and receives a fixed rate of interest based upon the notional amount
outstanding. The Company estimates that as of December 31, 1999, it would have
paid approximately $1.5 million if all interest rate swaps entered into had been
terminated. This estimated fair value of the interest rate swaps results from
the effects of changing interest rates and should be considered in the context
of the entire balance sheet and the Company's overall interest rate risk
profile. Changes in the estimated fair value of the interest rate swaps are not
reflected in the consolidated financial statements.
At year end, the Bank conducted a rate shock test of all rate-sensitive
assets and liabilities. The test is a simulation of the impact an instantaneous
change in interest rates would have on the Bank's net interest income. The test
is conducted in two parts. First, all rates are raised 1 percent and annualized
net interest income is determined, then rates are lowered by 1 percent and net
interest income is again measured. The results are compared with anticipated
results when interest rates do not change. With rates raised 1 percent, the test
indicated an increase in net interest income of $119,000. When rates were
lowered 1 percent, the test indicated an increase in net interest income of
$202,000. The test assumes that all categories of rates will move at the same
time and by the same amount. The test further assumes that depositor and
borrower preferences will not change, and therefore the composition of the
Company's balance sheet, will remain unchanged. There can be no assurance that
if interest rates did move by 1% that the Company's results of operations would
be impacted as indicated by these tests.
The Company's primary sources of funds have consisted of deposits,
amortization and prepayments of outstanding loans and mortgage-backed
securities, bond maturities, and such other sources as long- and short-term
borrowings, and sales of investment securities, loans, and mortgage-backed
securities. Scheduled maturities of borrowings during 2000 are $119.0 million.
Of these borrowings, $67.5 million are advances from the Federal Home Loan Bank
which are anticipated to be renewed. See Note 9 of Notes to Consolidated
Financial Statements for details. The remainder of borrowings are short-term in
nature, and the Company anticipates these to be renewed. Savings certificates
which are scheduled to mature during 2000 total $981.8 million. Management
expects that a substantial portion of these maturing certificates will remain on
deposit with the Company. At December 31, 1999, the Company had $53.0 million of
long-term borrowings. See Note 9 of Notes to Consolidated Financial Statements
for details.
The liquidity of the Company's operations, measured by the ratio of cash
and cash equivalents (not committed, pledged or required to liquidate specific
liabilities) to the sum of net withdrawable deposits and borrowings payable
within one year, averaged 3.95% in 1997, 4.36% in 1998, and 4.32% in 1999.
The primary source of cash and cash equivalent resources for the Company on
an unconsolidated basis is dividends from the Bank. During 1999, the Bank paid
$9.7 million of dividends to the Company. The payment of such dividends by the
Bank is subject to various regulatory and other restrictions.
CAPITAL
- --------------------------------------------------------------------------------
Shareholders' equity increased from $154.1 million in 1998 to $154.5 million in
1999. The 1999 net income of $18.2 million and $2.0 million in new capital
received as a result of the exercise of stock options, were offset by the
unrealized depreciation of $10.2 million recognized under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and cash
dividends paid on common stock of $9.7 million. At year-end 1997, 1998, and
1999, the Company's book value per common share was $13.92, $15.35, and $15.11,
respectively.
Capital adequacy is an important indicator of financial stability and
performance. Overall, the Company's capital position remains strong with a ratio
of total shareholders' equity to total assets of 6.89% at December 31, 1999, and
7.22% at December 31, 1998.
Banking industry regulators define minimum capital ratios for bank holding
companies and their bank subsidiaries. The Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation (the "FDIC") also
have adopted regulations which group holding companies and banks into five broad
categories based on certain capital ratios. The five categories are "well
capitalized," "adequately capitalized," "under capitalized," "significantly
undercapitalized," and "critically undercapitalized." The Company and the Bank
met the requirements for "well capitalized" at December 31, 1999. Under the
capital rules, the Bank's Tier I and total capital to risk-adjusted assets
ratios at December 31, 1999 were 9.83% and 11.08%, respectively. These compare
favorably with the minimum requirements of 4.00% for Tier I and 8.00% for total
capital. At December 31, 1999, the Bank's leverage ratio was 7.85%,
substantially higher than the minimum requirement of 4.00%.
17
<PAGE>
The following table presents the Bank's capital position at the dates
indicated based on the current capital guidelines:
<TABLE>
<CAPTION>
Capital Analysis Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I:
Common Shareholders' Equity $ 170,060 $ 159,759 $ 137,439
Adjusted for FASB No. 115 9,758 (425) 768
Adjusted for unamortized goodwill (1,598) (1,983) (2,370)
- -----------------------------------------------------------------------------------------------------------------
Total Tier I capital 178,220 157,351 135,837
- -----------------------------------------------------------------------------------------------------------------
Tier II:
Allowable portion of reserve for possible credit losses 22,748 20,962 18,337
- -----------------------------------------------------------------------------------------------------------------
Total Tier II capital 22,748 20,962 18,337
- -----------------------------------------------------------------------------------------------------------------
Total risk-based capital $ 200,968 $ 178,313 $ 154,174
=================================================================================================================
Risk-adjusted assets $1,813,436 $1,672,848 $1,463,023
- -----------------------------------------------------------------------------------------------------------------
Total average assets 2,269,046 2,114,384 1,771,420
- -----------------------------------------------------------------------------------------------------------------
Amount by which capital exceeds minimum requirements:
Tier I capital/risk-adjusted assets $ 105,683 $ 90,437 $ 77,316
- -----------------------------------------------------------------------------------------------------------------
Total risk-based capital/risk-adjusted assets 55,893 44,485 37,132
- -----------------------------------------------------------------------------------------------------------------
Tier I capital/total average assets (leverage ratio) 110,149 93,919 82,694
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Capital Ratios Regulatory Years Ended December 31,
Minimums 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I capital/risk-adjusted assets 4.0% 9.83% 9.41% 9.28%
- -----------------------------------------------------------------------------------------------------------------
Total risk-based capital/risk-adjusted assets 8.0 11.08 10.66 10.54
- -----------------------------------------------------------------------------------------------------------------
Tier I capital/total average assets (leverage ratio) 3.0 to 5.0 7.85 7.44 7.67
=================================================================================================================
</TABLE>
EARNINGS PERFORMANCE
- --------------------------------------------------------------------------------
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, mainly loans and investments, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. The Company's operating results
also are affected by credit losses, operating expenses, the level of other
income, including gains or losses on sale of loans and securities, and other
fees.
18
<PAGE>
The following table sets forth, for and at the periods indicated,
information regarding (i) the total dollar amount of interest income from
interest-earning assets and the resulting average yields, (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost, (iii) net interest income, (iv) interest rate spread, (v) interest
rate margin, and (vi) ratio of interest-earning assets to interest-bearing
liabilities. No tax equivalent adjustments were made.
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
(Dollars in Thousands) Interest Yield/Rate Interest Yield/Rate Interest Yield/Rate
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans $ 78,619 9.03% $ 70,634 9.65% $ 58,265 9.77%
Consumer loans:
Passbook 15 12.10 20 10.93 33 12.18
Overdraft checking 116 13.38 144 11.60 174 20.14
Business line of credit 138 11.13 111 10.87 9 10.11
Credit cards 1,560 16.31 1,559 16.14 1,416 15.56
Personal-direct 7,958 9.55 7,409 9.77 6,340 9.83
Personal-indirect-new auto 4,674 8.28 4,247 8.70 3,998 8.56
Personal-indirect-used auto 16,484 9.39 12,914 9.41 8,502 9.27
Personal-indirect-mobile homes 5,986 9.93 4,802 9.64 3,393 9.54
Personal-indirect-other 2,090 8.55 1,298 9.21 403 9.77
Home Equity Line of Credit 2,704 8.59 3,056 9.16 3,082 9.36
Checkcard reserve 930 44.31 622 42.34 269 28.80
Student 203 7.75 291 7.91 170 4.79
- --------------------------------------------------------------------------------------------------------------------------
Total consumer loans 42,858 9.57 36,473 9.69 27,789 9.57
- --------------------------------------------------------------------------------------------------------------------------
Mortgage loans:
Residential-fixed 7,607 7.27 8,577 7.69 8,637 8.14
Commercial-fixed 726 8.36 518 7.90 651 8.84
Residential-adjustable 6,131 7.68 7,782 7.57 10,035 7.91
Commercial-adjustable 14,281 8.80 14,263 9.21 15,021 8.93
- --------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 28,745 8.09 31,140 8.29 34,344 8.41
- --------------------------------------------------------------------------------------------------------------------------
Investment securities 25,038 5.95 25,926 6.81 20,398 6.69
Mortgages held for sale 779 9.38 1,127 8.03 352 7.96
Federal funds sold 682 4.91 866 5.46 200 5.68
- --------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 176,721 8.35% $166,166 8.77% $141,348 8.79%
- --------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Savings $ 4,930 2.57% $ 5,189 2.83% $ 5,071 2.88%
Money market 13,357 4.06 12,900 4.29 12,435 4.49
Certificates of deposit 55,655 5.27 52,829 5.62 41,426 5.62
NOW 1,600 1.62 1,469 1.60 1,248 1.50
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 75,542 4.20 72,387 4.50 60,180 4.47
- --------------------------------------------------------------------------------------------------------------------------
Borrowings 11,548 5.11 11,324 5.45 11,272 5.76
Mandatorily redeemable
preferred securities 2,486 8.29 1,075 8.07
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 89,576 4.36 84,786 4.63 71,452 4.63
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $ 87,145 $ 81,380 $ 69,896
==========================================================================================================================
Interest rate spread 3.99% 4.14% 4.16%
==========================================================================================================================
Interest rate margin 4.12 4.30 4.35
==========================================================================================================================
Ratio of interest-earning assets
to interest-bearing liabilities 1.03x 1.04x 1.04x
==========================================================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
(Dollars in Thousands) Volume Rate Net Volume Rate Net
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income on interest-
earning assets:
Commercial loans $12,736 $(4,751) $ 7,985 $13,093 $(724) $12,369
Consumer loans 6,843 (458) 6,385 8,331 353 8,684
Mortgage loans (1,660) (735) (2,395) (2,719) (485) (3,204)
Investment securities and other 2,065 (3,485) (1,420) 6,548 421 6,969
- -------------------------------------------------------------------------------------------------------------------
Total 19,984 (9,429) 10,555 25,253 (435) 24,818
- -------------------------------------------------------------------------------------------------------------------
Interest expense on interest-
bearing liabilities:
Savings 231 (490) (259) 159 (41) 118
Money market 1,179 (722) 457 477 (12) 465
Certificates of deposit 6,228 (3,402) 2,826 11,403 11,403
NOW 113 18 131 133 88 221
- -------------------------------------------------------------------------------------------------------------------
Total deposits 7,751 (4,596) 3,155 12,172 35 12,207
Borrowings 1,906 (271) 1,635 1,162 (35) 1,127
- -------------------------------------------------------------------------------------------------------------------
Total 9,657 (4,867) 4,790 13,334 13,334
- -------------------------------------------------------------------------------------------------------------------
Net interest income $10,327 $(4,562) $5,765 $11,919 $(435) $11,484
===================================================================================================================
</TABLE>
The above table presents changes in interest income and interest expense
attributable to (i) changes in volume (change in volume multiplied by old rate),
and (ii) changes in rate (change in rate multiplied by old volume). The net
change attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
Net Interest Income
Net interest income is determined by the difference between rates earned on
interest-earning assets and the rates paid on interest-bearing liabilities
(interest rate spread), and the relative amounts of interest-earning assets and
interest-bearing liabilities. The interest income and the cost of funds of
financial institutions are significantly affected by general economic
conditions, policies of regulatory authorities, and other factors.
The Company earned net interest income of $69.9 million, $81.4 million, and
$87.1 million in 1997, 1998, and 1999, respectively. The Company's interest rate
spread decreased from 4.16% in 1997 to 4.14% in 1998 to 3.99% in 1999. The
increase in average balances offset the decrease in the interest rate spread to
produce a 16.4% increase in net interest income from 1997 to 1998 and a 7.1%
increase from 1998 to 1999.
Interest on Commercial Loans
Growth in commercial lending continued in 1999 with the average balance of
commercial loans increasing from $596.1 million in 1997, to $731.8 million in
1998, and to $870.3 million in 1999. The yields on these loans decreased from
9.77% in 1997 to 9.65% in 1998 to 9.03% in 1999. The Prime Rate was 8.50% in
1997, decreased to 7.75% in 1998, and increased to 8.50% in 1999. During this
three year period, the interest on commercial loans was $58.3 million, $70.6
million, and $78.6 million, respectively, due to the steady growth in the
balance of this portfolio. The yield on approximately 80% of the commercial loan
portfolio fluctuates with changes in Prime. Yields on the balance of the
portfolio are fixed for up to five years with adjustments based on other market
indices.
Interest on Consumer Loans
Interest on consumer loans consists of interest on passbook, personal, direct
and indirect auto and mobile home, student loans, credit cards, overdraft
checking, checkcard reserve, and home equity line of credit.
The consumer loan portfolio has continued to grow and has continued to be
among the highest yielding assets of the Company. Average balances for the years
1997, 1998, and 1999 were $290.4 million, $376.3 million, and $448.0 million,
respectively. Yields on all consumer loans for 1997, 1998, and 1999 were 9.57%,
9.69%, and 9.57%, respectively. Interest income on all these loans continued to
increase for the three-year period 1997 through 1999 with income of $27.8
million in 1997, $36.5 million in 1998, and $42.9 million in 1999.
The Company continues to emphasize the origination of direct and indirect
auto and mobile home loans. The single biggest area of consumer loan growth has
been in indirect used auto loans. The average balance of these loans have grown
from $91.8 million in 1997, to $137.2 million in 1998, and to $175.5 million in
1999. The average rates
20
<PAGE>
paid on these loans remains relatively high as well, providing yields of 9.27%,
9.41%, and 9.39% for the years 1997, 1998, and 1999, respectively. Accordingly,
income provided from these loans has also risen from $8.5 million in 1997 to
$12.9 million in 1998, and finally $16.5 million in 1999. Indirect mobile home
loans have shown a 24.7% growth in interest income from 1998 to 1999. This has
resulted from an increase in average balance from $49.8 million in 1998 to $60.3
million in 1999, with yields of 9.64% in 1998 to 9.93% in 1999. Direct personal
loans have steadily increased for 1997, 1998, and 1999. Average balances have
increased from $64.5 million in 1997, to $75.8 million in 1998, and to $83.3
million in 1999. This has generated interest income of $6.3 million in 1997 with
an average yield of 9.83%, $7.4 million in 1998 with an average yield of 9.77%,
and $8.0 million in 1999 with an average yield of 9.55%.
Interest on Mortgage Loans
Interest on mortgage loans consists of interest on fixed- and adjustable-rate
residential mortgages and fixed- and adjustable-rate commercial real estate
mortgages.
Interest on mortgage loans declined $3.2 million from 1997 to 1998, and
declined $2.4 million from the twelve months ended December 31, 1998 to $28.7
million for the twelve months ended December 31, 1999. The average balance of
all mortgage loans declined from $408.5 million at December 31, 1997 to $375.8
million at December 31, 1998, to $355.3 million at December 31, 1999, and was
the primary cause of the decline in the interest income earned on these loans.
Yields on mortgage loans declined from 8.41% for 1997 to 8.29% for 1998, and
declined to 8.09% for the twelve months ended December 31, 1999. The Bank
continues to sell fixed-rate residential mortgage loans, with $111.7 million of
loans sold in 1999 compared to $136.2 million in 1998. No residential mortgage
loans were securitized in 1999, while $43.8 million were securitized in 1998.
The decrease in sales and securitizations was a result of the $80.3 million
decline of fixed-rate residential mortgage loan originations from 1998 to 1999.
The average balance of adjustable-rate residential mortgages decreased from
$126.8 million in 1997 to $102.8 million in 1998, and declined to $79.8 million
in 1999. Adjustable-rate residential mortgage originations declined from $8.6
million in 1997 to $4.1 million in 1998, and increased to $4.8 million in 1999.
The fluctuation in origination levels is primarily a result of changing consumer
preferences for fixed-versus adjustable-rate loans as changes occur from time to
time in the rate differential between the two.
The average balance of adjustable-rate commercial real estate loans
decreased from $168.2 million in 1997 to $154.9 million in 1998. The yields on
these loans increased from 8.93% in 1997 to 9.21% in 1998. This resulted in a
decrease in interest income from these loans from $15.0 million in 1997 to $14.3
million in 1998. Although the average balance of adjustable-rate commercial real
estate loans increased $7.4 million to $162.2 million in 1999, the average yield
decreased to 8.80% resulting in interest income of $14.3 million for the year.
Interest and Dividends on Investments
The practice of the Company has been to reduce fixed-rate, long-term investments
and to acquire assets with shorter maturities or shorter estimated lives. The
average balance of investment securities was $304.9 million in 1997, $380.4
million in 1998, and $420.5 million in 1999. Interest and dividends on
investment securities were $20.4 million in 1997, $25.9 million in 1998, and
$25.0 million in 1999. The yields on these assets increased from 6.69% in 1997
to 6.81% in 1998, and decreased to 5.95% in 1999.
Interest on Deposits
Deposit balances continued to rise. In 1997, the average balance of all deposits
was $1,347.0 million, rising to $1,608.8 million in 1998. In 1999, average
balances rose $191.3 million to $1,800.1 million. Customer preference fuels
changes in deposit balances; this is reflected in an increase in savings account
average balances from $175.8 million in 1997 to $191.7 million in 1999, with a
minimal change in the rates during that time. Augmenting this level in savings
average balances was a growth in the average balance of money market deposits.
Average balances for these deposits for the years 1997, 1998, and 1999 were
$277.2 million, $300.4 million, and $329.1 million. This increase in money
market average balances accompanied a decrease in the rates from 4.49% in 1997
to 4.29% in 1998. Interest expense was $12.4 million for 1997 rising to $12.9
million in 1998. With the increase in average balance and the decrease in the
average rate paid in 1999 to 4.06%, interest expense rose to $13.4 million for
the year. The growth in the certificates of deposit balances was the major
reason why the interest expense on these products rose from $52.8 million in
1998 to $55.7 million in 1999. Average balances of certificates of deposits have
steadily increased from $736.9 million, $940.7 million, and $1,055.4 million in
1997, 1998, and 1999, respectively. With the average rate of certificates of
deposit remaining constant at 5.62% in 1997 and 1998, the average rate declined
to 5.27% in 1999. The Bank continues to monitor the cost and the availability of
deposits against the cost and levels of borrowing to determine the best funding
sources for the growth seen in the loan portfolios.
21
<PAGE>
Interest on Borrowings
The average balance of borrowings increased from $195.8 million in 1997 to
$207.7 million in 1998. The cost of borrowings decreased from 5.76% in 1997 to
5.45% in 1998, and interest paid on borrowings remained constant at $11.3
million from 1997 to 1998. The average balance of borrowings during 1999
increased to $225.8 million, and offset with a decrease in the average interest
rate paid on borrowings to 5.11%, caused interest paid on borrowings to increase
marginally to $11.5 million. This source of funding is used to supplement or
enhance retail and business deposits that in turn provide the funds for asset
growth. See Note 9 in Notes to Consolidated Financial Statements.
Provision for Credit Losses
The provision for credit losses was $10.8 million, $12.9 million, and $19.1
million for the years 1997, 1998, and 1999, respectively. The growth in the
commercial and consumer loan portfolio continued, and management increased the
allowance for possible credit losses in 1998 to $25.0 million. Net charge-offs
increased from $8.2 million in 1997, to $9.7 million in 1998, and to $15.0
million in 1999. Impacting the 1999 provision was the charge-off of a single
commercial loan for $3.3 million, as previously noted. In 1999, as the
commercial and consumer loan portfolios continued to increase, management
increased the allowance for possible credit losses to $29.1 million. With this
provision increase in 1999, the Bank was able to increase the allowance for
possible credit losses to 1.69% of loans outstanding at December 31, 1999 from
1.59% at December 31, 1998.
Gains (Losses) on Sale of Investments
As a result of investment security sales, the Company had net security gains of
$380,000 in 1997. During 1998, the Company had net losses of $851,000, and in
1999, had net losses of $231,000.
Gains (Losses) on Sale of Loans
The losses on the sale of mortgages were $297,000 in 1997 and $573,000 in 1998.
These losses were principally the result of the Company selling and securitizing
mortgages. During 1999, the losses on sale of mortgages was $363,000.
Non-interest Income
As shown in the chart below, non-interest income increased from $8.1 million in
1997 to $10.0 million in 1998, and increased to $13.0 million in 1999. Trust
fees, service charges on deposit accounts, and other fees and commissions
reflected significant increases for 1997 and 1998. Mortgage servicing fees
continued to rise as the servicing portfolio continued to increase. Fees and
commissions from brokerage services increased as investors using this service
had more activity in the market increasing in 1997 through 1998 and 1999. Other
charges, commissions, and fees was enhanced by a $1.0 million recovery on a
letter of credit that had initially been reserved for in 1993.
<TABLE>
<CAPTION>
Analysis of Non-Interest Income Percent Change
(Dollars in Thousands) 1999 1998 1997 1999-98 1998-97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 4,382 $ 3,714 $3,297 18.0% 12.6%
Credit card fees 1,667 1,275 893 30.7 42.8
Mortgage servicing fees 1,356 1,294 1,142 4.8 13.3
Fees and commissions-brokerage services 796 518 407 53.7 27.3
Trust fees 1,104 994 709 11.1 40.2
Other charges, commissions, and fees 3,660 2,224 1,617 64.6 37.5
- ----------------------------------------------------------------------------------------------------------------
$12,965 $10,019 $8,065 29.4% 24.2%
=================================================================================================================
</TABLE>
Operating Expense
Operating expense increased from $36.9 million in 1997 to $42.0 million in
1998 and to $50.7 million in 1999. The increase from 1997 to 1998 reflected the
growth of interchange fees on credit cards to $925,000 which is consistent with
the growth of credit card fee income to $1.3 million for 1998. The increase in
operating expenses from 1998 to 1999 was largely the result of $5.4 million of
costs relating to the acquisition of Skaneateles Bancorp, Inc. The largest
components of this transaction were $1.3 million for severance agreements and
$2.0 million for exit costs.
Since a substantial portion of operating expense relates directly to income
generation, an effective measurement of the control of operating expense is the
Efficiency Ratio. This ratio consists of operating expense divided by recurring
revenues (net interest income and non-interest income) on a pre-tax basis. The
Efficiency Ratio for the
22
<PAGE>
Company, excluding acquisition charges of $5.4 million for 1999, was 47.38%,
45.93%, and 45.21% for 1997, 1998, and 1999, respectively. The Company's ratio
of operating expense to average assets was 2.18% in 1997, 2.10% in 1998, and
2.27% in 1999. Both ratios reflect the attention paid to expense control by
management and staff.
INCOME TAXES
- --------------------------------------------------------------------------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
an asset and liability approach to recognizing the tax effects of temporary
differences between tax and financial reporting. See Note 14 of Notes to
Consolidated Financial Statements for details.
The Company is subject to New York State and Delaware franchise taxes.
State taxes amounted to $2.5 million in 1997, $2.7 million in 1998, and $2.4
million in 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 the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services.
OTHER MATTERS
- --------------------------------------------------------------------------------
New Accounting Pronouncements
The Statement on Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", will be
effective for the Company's fiscal year beginning on January 1, 2001. This
statement requires all derivative instruments to be carried on the balance sheet
at fair value. Changes in fair value are recorded in either comprehensive income
or net income, depending on the nature of the derivative instrument. The Company
currently holds interest rate swaps which it expects will qualify as hedges
under SFAS No. 133. The Company does not expect this pronouncement to have a
significant effect on its financial statements.
Year 2000
Prior to December 31, 1999, the Company had implemented a review and a strategic
plan to deal with the issues related to the arrival of the year 2000. This
review and strategic plan was successful as no problems were noted with the
arrival of 2000.
MARKET PRICES AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The common stock of the Company is listed on The Nasdaq Stock Market National
Market Tier under the symbol "BSBN". As of December 31, 1999, the Company had
2,330 shareholders of record and 10,225,322 shares of common stock issued and
outstanding. The number of shareholders does not reflect persons or entities who
hold their stock in nominee or "street" name through various brokerage firms.
Payment of dividends on the Company's common stock is subject to various
restrictions and limitations which may affect the Company's ability to pay cash
dividends in the future.
23
<PAGE>
The following table sets forth the market price information for the common stock
and the cash dividends paid per share:
<TABLE>
<CAPTION>
1999
Price Range Cash Dividends
High Low Per Share
- --------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $32.68 $24.25 $0.22
Second Quarter 28.00 24.25 0.23
Third Quarter 27.63 24.00 0.25
Fourth Quarter 24.88 18.50 0.25
<CAPTION>
1998
Price Range Cash Dividends
High Low Per Share
- --------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $36.00 $28.00 $0.20
Second Quarter 35.25 27.50 0.20
Third Quarter 32.75 25.63 0.20
Fourth Quarter 33.00 22.00 0.23
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
BSB BANCORP, INC.
BINGHAMTON, NEW YORK
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated statements of condition and the related consolidated
statements of income, changes in shareholders' equity and cash flows present
fairly, in all material respects, the financial position of BSB Bancorp, Inc.
(the "Company") and Subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of Skaneateles
Bancorp, Inc. on July 1, 1999 in a transaction accounted for as a pooling of
interests, as described in Note 1 to the consolidated financial statements. We
did not audit the financial statements of Skaneateles Bancorp, Inc., which
statements reflect total assets of $276,148,000 as of December 31, 1998 and net
interest income of $10,642,000 and $9,532,000 for the years ended December 31,
1998 and 1997, respectively. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Skaneateles Bancorp, Inc., is
based solely on the report of the other auditors. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Syracuse, New York
January 21, 2000
25
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands, Except Share Data) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 70,065 $ 45,987
Federal funds sold 24,300
---------------------------------------------------------------------------------------------
Total cash and cash equivalents 70,065 70,287
Investment securities available for sale 387,251 415,000
Investment securities held to maturity 14,472 12,537
Mortgages held for sale 2,085 16,806
Loans:
Commercial 904,632 802,474
Consumer 467,986 410,787
Real estate 349,634 364,648
---------------------------------------------------------------------------------------------
Total loans 1,722,252 1,577,909
Less: Net deferred fees and costs (636) (507)
Allowance for possible credit losses 29,134 25,030
---------------------------------------------------------------------------------------------
Net loans 1,693,754 1,553,386
Bank premises and equipment 15,988 15,864
Accrued interest receivable 14,612 16,352
Other real estate 910 3,021
Intangible assets 1,598 1,984
Other assets 40,213 30,090
---------------------------------------------------------------------------------------------
$2,240,948 $2,135,327
=============================================================================================
LIABILITIES Due to depositors $1,901,204 $1,709,860
AND Borrowings 142,045 229,736
SHAREHOLDERS' Other liabilities 13,206 11,640
EQUITY Company obligated mandatorily redeemable preferred
securities of subsidiary, Capital Trust I, holding
solely junior subordinated debentures
of the Company 30,000 30,000
Commitments
Shareholders' Equity:
Preferred stock, par value $.01 per share;
2,500,000 shares authorized; none issued
Common stock, par value $.01 per share;
30,000,000 shares authorized; 11,398,991 and
11,237,470 shares issued 114 112
Additional paid-in capital 37,287 35,202
Undivided profits 140,295 131,723
Accumulated other comprehensive income (9,757) 425
Treasury stock, at cost; 1,173,669 and 1,196,396 shares (13,446) (13,371)
---------------------------------------------------------------------------------------------
Total shareholders' equity 154,493 154,091
---------------------------------------------------------------------------------------------
$2,240,948 $2,135,327
=============================================================================================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
26
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands, Except Share Data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $150,222 $138,247 $120,398
Interest on federal funds sold 682 866 200
Interest on investment securities 25,038 25,926 20,398
Interest on mortgages held for sale 779 1,127 352
- -------------------------------------------------------------------------------------------------------------------
Total interest income 176,721 166,166 141,348
- -------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on savings deposits 4,930 5,189 5,071
Interest on time accounts 55,655 52,829 41,426
Interest on money market deposit accounts 13,357 12,900 12,435
Interest on NOW accounts 1,600 1,469 1,248
Interest on borrowed funds 11,548 11,324 11,272
Interest on mandatorily redeemable securities of subsidiary 2,486 1,075
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 89,576 84,786 71,452
- -------------------------------------------------------------------------------------------------------------------
Net interest income 87,145 81,380 69,896
Provision for credit losses 19,137 12,931 10,814
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 68,008 68,449 59,082
Gains (losses) on sale of securities (231) (851) 380
Losses on sale of loans (363) (573) (297)
Non-interest income:
Service charges on deposit accounts 4,382 3,714 3,297
Credit card fees 1,667 1,275 893
Mortgage servicing fees 1,356 1,294 1,142
Fees and commissions-brokerage services 796 518 407
Trust fees 1,104 994 709
Other charges, commissions, and fees 3,660 2,224 1,617
- -------------------------------------------------------------------------------------------------------------------
Total non-interest income 12,965 10,019 8,065
- -------------------------------------------------------------------------------------------------------------------
Operating expense:
Salaries, pensions, and other employee benefits 20,386 19,528 17,121
Building occupancy 4,607 4,377 3,925
Dealer commission expense 940 996 1,626
Computer service fees 1,930 2,027 1,358
Services 6,001 4,086 2,716
FDIC insurance 222 199 163
Goodwill 386 386 386
Interchange fees 1,286 925 573
Other real estate 441 127 976
Acquisition charges 5,408
Other expenses 9,056 9,332 8,096
- -------------------------------------------------------------------------------------------------------------------
Total non-interest expense 50,663 41,983 36,940
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 29,716 35,061 30,290
Provision for income taxes 11,491 13,542 11,641
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 18,225 $ 21,519 $ 18,649
===================================================================================================================
Earnings per share:
Basic $ 1.80 $ 2.15 $ 1.88
Diluted $ 1.77 $ 2.08 $ 1.82
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Number Common Paid-In Undivided Treasury Comprehensive
(Dollars in Thousands, Except Share Data) of Shares Stock Capital Profits Stock Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996,
as previously stated 7,344,427 $ 73 $27,824 $111,465 $(29,757) $ (876) $108,729
Adjustments to reflect acquisition 4,738 (4,867) 16,415 (58) 16,228
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996, as restated 7,344,427 73 32,562 106,598 (13,342) (934) 124,957
Comprehensive income:
Net income 18,649 18,649
Other comprehensive income, net of taxes:
Unrealized appreciation in
available for sale securities 166 166
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 18,649 166 18,815
Effect of three-for-two stock split 3,714,246 37 (37)
Stock options exercised 101,251 1 1,431 1,432
Tax benefit on stock options 138 138
Cash dividend paid on common
stock ($0.69 per share) (6,804) (6,804)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 11,159,924 111 34,094 118,443 (13,342) (768) 138,538
Comprehensive income:
Net income 21,519 21,519
Other comprehensive income, net of taxes:
Unrealized appreciation in
available for sale securities 1,193 1,193
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 21,519 1,193 22,712
Stock options exercised 77,546 1 1,000 1,001
Tax benefit on stock options 108 108
Cash dividend paid on common
stock ($0.83 per share) (8,239) (8,239)
Treasury stock purchased (29) (29)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 11,237,470 112 35,202 131,723 (13,371) 425 154,091
Comprehensive income:
Net income 18,225 18,225
Other comprehensive income, net of taxes:
Unrealized depreciation in
available for sale securities (10,182) (10,182)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 18,225 (10,182) 8,043
Stock options exercised 161,521 2 1,976 1,978
Tax benefit on stock options 109 109
Cash dividend paid on common
stock ($0.95 per share) (9,653) (9,653)
Treasury stock purchased (75) (75)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 11,398,991 $114 $37,287 $140,295 $(13,446) $ (9,757) $154,493
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
BSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 18,225 $21,519 $18,649
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Deferred taxes (528) (1,662) (629)
Provision for credit losses 19,137 12,931 10,814
Realized losses (gains) on available for sale investment securities 231 851 (380)
Other losses, net 357 23 59
Depreciation and amortization 2,869 2,581 2,423
Net amortization of premiums and discounts on investment securities (617) (1,532) (194)
Net (accretion) of premiums and discounts on loans (130) (780)
Sales of loans originated for sale 53,722 83,144 48,150
Net increase in loans originated for sale (39,945) (102,564) (53,606)
Writedowns of other real estate 1,276 943 1,011
Net change in other assets and liabilities 934 (24,064) (2,143)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 55,531 (8,610) 24,154
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from calls of held to maturity investment securities 5,284 11,295 17,046
Purchases of held to maturity investment securities (11,872) (3,939) (6,159)
Principal collected on held to maturity investment securities 647 745 2,101
Proceeds from sales of available for sale investment securities 71,196 192,642 182,700
Purchases of available for sale investment securities (89,964) (305,896) (219,988)
Principal collected on available for sale investment securities 33,367 26,608 30,113
Net increase in longer-term loans (220,812) (260,085) (254,942)
Proceeds from sales of loans 60,654 57,046 35,126
Proceeds from sales of other real estate 1,763 2,136 1,747
Other (2,608) (2,402) (2,517)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (152,345) (281,850) (214,773)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in demand deposits, NOW accounts, savings
accounts, and money market deposit accounts 71,351 64,025 53,837
Net increase in time deposits 119,993 188,528 80,608
Net change in short-term borrowings (36,224) (33,943) 57,935
Net change in long-term borrowings (50,778) 66,980 82
Net proceeds from issuance of capital securities 30,000
Proceeds from exercise of stock options 1,978 1,001 1,432
Purchases of treasury stock (75) (29)
Dividends paid (9,653) (8,239) (6,804)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 96,592 308,323 187,090
- ---------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (222) 17,863 (3,529)
Cash and cash equivalents at beginning of year 70,287 52,424 55,953
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 70,065 $70,287 $52,424
===========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest credited on deposits and paid on other borrowings $ 87,559 $83,734 $70,294
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes $ 13,043 $15,917 $11,655
- ---------------------------------------------------------------------------------------------------------------------------
Non-cash investing activity:
Securitization of mortgage loans and transfers to other real estate 922 $45,613 $ 5,781
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized (depreciation) appreciation in securities $(17,543) $ 2,016 $ 262
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Business Combination
In July 1999, BSB Bancorp, Inc., (the "Company") completed its acquisition of
Skaneateles Bancorp, Inc. Pursuant to the terms of the merger, each share of
Skaneateles Bancorp common stock was converted into .97 share of the Company's
common stock, which amounted to approximately 1.4 million shares. The
acquisition constituted a tax-free reorganization and has been accounted for as
a pooling of interests under Accounting Principles Board Opinion No. 16,
"Business Combinations". Accordingly, the consolidated financial statements for
the periods presented have been restated to include the combined results of
operations, financial position and cash flows of BSB Bancorp, Inc. and
Skaneateles Bancorp, Inc. prior to the merger. Certain reclassifications were
made to Skaneateles Bancorp's prior year financial statements to conform to the
Company's presentation.
The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Year Ended
June 30, December 31, December 31,
(Dollars in Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income
BSB Bancorp, Inc. $37,192 $70,738 $60,364
Skaneateles Bancorp, Inc. 5,629 10,642 9,532
- -------------------------------------------------------------------------------------------------------------------
Combined $42,821 $81,380 $69,896
===================================================================================================================
Net income
BSB Bancorp, Inc. $10,679 $19,870 $16,987
Skaneateles Bancorp, Inc. (358) 1,649 1,662
- -------------------------------------------------------------------------------------------------------------------
Combined $10,321 $21,519 $18,649
===================================================================================================================
</TABLE>
In conjunction with the acquisition, the Company recorded a 1999 charge to
operating expenses of $5.4 million ($3.3 million after tax, or $0.32 per diluted
common share) for direct costs relating to the acquisition. Details of the
acquisition related costs follow:
<TABLE>
<CAPTION>
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Merger transaction costs $2,127
Restructuring costs:
Employee severance 1,318
Exit costs 1,963
- -------------------------------------------------------------------------------------------------------------------
$5,408
===================================================================================================================
</TABLE>
Nature of Operations
The Company is the bank holding company of BSB Bank & Trust Company (the
"Bank"). The Bank is a New York-chartered commercial bank and trust company and
operates 22 full-service branches in Broome, Chemung, Chenango, Onondaga, Oswego
and Tioga Counties of New York State. The Bank is in the business of providing a
wide variety of loan and deposit products to its commercial and consumer
customers, and also provides mortgage banking, trust, municipal, and other
related services.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Bank and the Bank's wholly owned subsidiaries, after elimination of intercompany
accounts and transactions.
30
<PAGE>
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Investment Securities
The Bank has classified its investment securities as held to maturity or
available for sale. Held to maturity securities are those for which the Bank has
the positive intent and ability to hold to maturity, and are reported at cost,
adjusted for amortization of premiums and accretion of discounts. Securities not
classified as held to maturity are classified as available for sale and reported
at market value, with net unrealized gains and losses reflected as a separate
component of shareholders' equity, net of the applicable income tax effect. None
of the Bank's securities have been classified as trading securities.
Purchases and sales of securities are recorded as of the settlement date.
Premiums and discounts on securities are amortized and accreted, respectively,
on a systematic basis over the period to maturity, estimated life, or earliest
call date of the related security. Gains or losses on securities sold are
computed based on identified cost.
Mortgages Held For Sale
Mortgages held for sale are carried at the lower of cost or fair value. Fair
value is determined in the aggregate.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days. While a loan is classified as nonaccrual and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and principal are generally applied as a reduction to principal outstanding.
When future collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis.
Deferred Loan Fees and Costs
Nonrefundable loan fees and related direct costs are deferred and amortized over
the life of the loan as an adjustment of loan yield.
Allowance for Possible Credit Losses
The allowance for possible credit losses is maintained at a level considered
adequate to provide for potential credit losses related to lending activities.
The allowance is increased by provisions charged to expense. The level of the
allowance is based upon management's evaluation of potential losses relating to
outstanding loans, as well as prevailing economic conditions. Loans are charged
against the allowance for possible credit losses when management believes that
the collectibility of principal is unlikely.
A loan is considered impaired, based on current information and events, if
it is probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based upon the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral.
Banking Premises and Equipment
Banking premises and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets (15-50
years for bank premises and 3-10 years for furniture and equipment). Maintenance
and repairs are charged to operating expenses as incurred.
Other Real Estate
Other real estate is comprised of real estate acquired through foreclosure and
is recorded at the lower of cost or fair value (net of estimated costs to sell)
at the date of acquisition.
31
<PAGE>
Intangible Assets
Intangible assets result from acquisitions under the purchase method of
accounting consists of goodwill which is being amortized, on a straight-line
basis, over periods ranging from 7 to 10 years.
Earnings Per Share
Basic and diluted earnings per share are presented for each period in which an
income statement is presented. Basic earnings per share is based on the weighted
average shares actually outstanding for the period. Diluted earnings per share
reflects the dilutive effect of stock options.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statements of
condition for cash and short-term instruments approximate those assets' fair
value.
Investment securities: Fair values for investment securities are based on
quoted market prices or dealer quotes.
Loans and mortgages held for sale: Fair values for loans are estimated using
a discounted cash flow analysis, based on interest rates approximating those
currently being offered for loans with similar terms and credit quality. The
fair value of accrued interest approximates carrying value.
Deposits: The fair values disclosed for non-interest bearing accounts and
accounts with no stated maturities are, by definition, equal to the amount
payable on demand at the reporting date. The fair value of time deposits was
estimated by discounting expected monthly maturities at interest rates
approximating those currently being offered on time deposits of similar terms.
The fair value of accrued interest approximates carrying value.
Borrowings and mandatorily redeemable securities: The carrying amounts of
repurchase agreements and other short-term borrowings approximate their fair
values. Fair values of long-term borrowings are estimated using discounted cash
flows, based on current market rates for similar borrowings.
Off-balance sheet instruments: Off-balance sheet financial instruments
consist of letters of credit, commitments to extend credit, and interest rate
swaps. Letters of credit and commitments to extend credit are fair valued based
on fees and interest rates currently charged to enter into agreements with
similar terms and credit quality. Interest rate swaps are fair valued based upon
amounts receivable or payable to settle outstanding positions. The Company would
expect to receive or pay to terminate such contracts.
Comprehensive Income
Comprehensive income consists of net income and the net change in unrealized
gains or losses on securities available for sale, net of taxes. The Company
reports comprehensive income in the Statements of Changes in Shareholders'
Equity.
Reclassifications
Certain data for prior years has been reclassified to conform to the current
year's presentation. These reclassifications had no effect on net income.
32
<PAGE>
NOTE 2-INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The carrying value and market value of the investment securities portfolio at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999
- -------------------------------------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
(Dollars in Thousands) Value Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale portfolio:
U.S. Government Agencies $201,886 $ 6 $ 9,455 $192,437
Municipal obligations 12,922 2 347 12,577
Mortgage-backed securities 164,156 295 7,226 157,225
Equity securities 25,032 40 60 25,012
- -------------------------------------------------------------------------------------------------------------------
$403,996 $ 343 $ 17,088 $387,251
- -------------------------------------------------------------------------------------------------------------------
Held to maturity portfolio:
U.S. Government Agencies $ 1,020 $ 2 $ 1,018
Corporate debt securities 1,372 1,372
Municipal obligations 9,560 $ 74 17 9,617
Mortgage-backed securities 2,520 62 1 2,581
- -------------------------------------------------------------------------------------------------------------------
$ 14,472 $ 136 $ 20 $ 14,588
===================================================================================================================
<CAPTION>
1998
- -------------------------------------------------------------------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
(Dollars in Thousands) Value Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale portfolio:
U.S. Government Agencies $216,642 $ 1,243 $ 1,098 $216,787
Municipal obligations 10,359 215 10,574
Mortgage-backed securities 168,704 1,186 811 169,079
Equity securities 18,497 64 1 18,560
- -------------------------------------------------------------------------------------------------------------------
$414,202 $ 2,708 $ 1,910 $415,000
- -------------------------------------------------------------------------------------------------------------------
Held to maturity portfolio:
U.S. Government Agencies $ 1,019 $ 5 $ 1,024
Corporate debt securities 1,020 300 $ 270 1,050
Municipal obligations 7,155 250 1 7,404
Mortgage-backed securities 3,343 118 3,461
- -------------------------------------------------------------------------------------------------------------------
$ 12,537 $ 673 $ 271 $ 12,939
===================================================================================================================
</TABLE>
The following reflects the net unrealized gains (losses) on available for sale
securities on a before and net of tax basis, including it's effect on other
comprehensive income:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net unrealized gains (losses) on securities $(17,312) $ 2,867 $(118)
Reclassification adjustment for net realized
gains (losses) included in net income (231) (851) 380
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax (17,543) 2,016 262
Income tax benefit (expense) 7,361 (823) (96)
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax $(10,182) $ 1,193 $ 166
===================================================================================================================
</TABLE>
33
<PAGE>
The carrying value and market value of debt securities at December 31, 1999, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
certain obligations with or without penalties.
<TABLE>
<CAPTION>
Carrying Market
(Dollars in Thousands) Value Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities available for
Within one year $ 3,188 $ 3,160
After one year but within five years 67,976 66,804
After five years but within ten years 166,126 157,969
After ten years 141,674 134,306
- ----------------------------------------------------------------------------------------------------------
$ 378,964 $362,239
==========================================================================================================
Securities held to maturity:
Within one year $ 7,476 $ 7,467
After one year but within five years 1,359 1,366
After five years but within ten years 952 1,001
After ten years 4,685 4,754
- ----------------------------------------------------------------------------------------------------------
$ 14,472 $ 14,588
==========================================================================================================
</TABLE>
The gross realized gains and gross realized losses on investment securities
transactions (dollars in thousands) are summarized below:
<TABLE>
<CAPTION>
Available Held To
Year ended December 31, 1999 For Sale Maturity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross gains $ 253 $ 4
Gross losses 488
- ----------------------------------------------------------------------------------------------------------
Net gains $ (235) $ 4
==========================================================================================================
Year ended December 31, 1998
- ----------------------------------------------------------------------------------------------------------
Gross gains $ 823 $ 166
Gross losses 1,821 19
- ----------------------------------------------------------------------------------------------------------
Net gains $ (998) $ 147
==========================================================================================================
Year ended December 31, 1997
- ----------------------------------------------------------------------------------------------------------
Gross gains $ 1,159 $ 6
Gross losses 785
- ----------------------------------------------------------------------------------------------------------
Net gains $ 374 $ 6
==========================================================================================================
</TABLE>
Investment securities at December 31, 1999 and 1998 include approximately $349.2
million and $351.2 million, respectively, pledged under various agreements,
principally municipal deposits, letters of credit, lines of credit, and
municipal option put securities.
NOTE 3-LOANS
- --------------------------------------------------------------------------------
Substantially all of the Bank's loans are granted to borrowers concentrated
primarily within Broome, Chemung Chenango, Onondaga, Oswego, and Tioga Counties,
and other communities located in upstate New York.
34
<PAGE>
NOTE 4-ALLOWANCE FOR POSSIBLE CREDIT LOSSES
- --------------------------------------------------------------------------------
Changes in the allowance for possible credit losses at December 31 are presented
in the following summary:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 25,030 $ 21,768 $ 19,168
Recoveries credited 2,360 1,321 2,237
Provision for credit losses 19,137 12,931 10,814
Loans charged off (17,393) (10,990) (10,451)
- --------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 29,134 $ 25,030 $ 21,768
===================================================================================================================
</TABLE>
At December 31, 1999 and 1998, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled $5.5
million and $12.1 million, respectively. A valuation allowance aggregating $1.8
million and $4.4 million was recorded against impaired loans at December 31,
1999 and 1998, respectively. The average recorded investment in impaired loans
was approximately $10.1 million in 1999,$11.0 million in 1998, and $10.4 million
in 1997. The Bank recognized, on a cash basis, $151,000, $347,000, and $356,000
of interest on impaired loans during 1999, 1998, and 1997, respectively (during
the portion of the year they were impaired).
NOTE 5-LOAN SERVICING
- --------------------------------------------------------------------------------
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others were $560.0 million and $513.3 million at
December 31, 1999 and 1998, respectively.
Mortgage servicing rights capitalized and amortization recognized on those
rights were not significant.
NOTE 6-LOANS TO RELATED PARTIES
- --------------------------------------------------------------------------------
At December 31, 1999, loans to directors and officers or to entities (or other
shareholders of such entities) which owned or controlled 10% or more of the
Company's voting stock were $24.8 million. During 1999, new loans to such
related parties amounted to $15.2 million and repayments amounted to $2.0
million.
NOTE 7-BANK PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
A summary of bank premises and equipment at December 31 is shown as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,698 $ 1,698
Banking premises 19,735 18,707
Furniture and equipment 16,766 15,737
- -------------------------------------------------------------------------------------------------------------
38,199 36,142
Less: Accumulated depreciation 22,211 20,278
- -------------------------------------------------------------------------------------------------------------
$15,988 $15,864
=============================================================================================================
</TABLE>
35
<PAGE>
NOTE 8-DUE TO DEPOSITORS
- --------------------------------------------------------------------------------
A summary of amounts due to depositors at December 31 is shown as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Savings accounts $ 186,799 $ 188,254
Money market deposit accounts 429,991 300,911
Certificates of deposit 1,111,310 991,317
NOW accounts 31,197 113,949
Non-interest bearing deposit accounts 141,907 115,429
- --------------------------------------------------------------------------------
$ 1,901,204 $ 1,709,860
================================================================================
</TABLE>
Time deposits with balances in excess of $100,000 amounted to approximately
$305.8 million and $300.8 million at December 31, 1999 and 1998, respectively.
The approximate maturity of time deposits at December 31, 1999 follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Years of Maturity Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C>
1 $ 981,776 88.4%
2 72,723 6.5
3 39,931 3.6
4 9,402 0.8
5 and over 7,478 0.7
- --------------------------------------------------------------------------------
$ 1,111,310 100.0%
================================================================================
</TABLE>
NOTE 9-BORROWINGS
- --------------------------------------------------------------------------------
The following is a summary of borrowings at December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank advances $ 90,538 $ 188,465
Mandatorily redeemable preferred securities 30,000 30,000
Securities sold under repurchase agreements 49,218 38,638
Other 2,289 2,633
- -------------------------------------------------------------------------------
$ 172,045 $ 259,736
===============================================================================
</TABLE>
Borrowings at December 31, 1999 have maturity dates as follows:
<TABLE>
<CAPTION>
Weighted
(Dollars in Thousands) Average Rate Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Borrowings maturing or callable in 2000 5.45% $119,048
December 23, 2002 10.51 2,000
October 6, 2003 4.73 20,000
February 5, 2007 7.08 443
January 11, 2019 6.08 554
Mandatorily redeemable preferred securities - 2028 8.13 30,000
- --------------------------------------------------------------------------------
5.90% $172,045
================================================================================
</TABLE>
Information related to short-term borrowings at December 31 is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding balance at end of year $119,048 $155,272 $189,215
Average interest rate 5.45% 5.00% 6.10%
Maximum outstanding at any month end $256,863 $187,758 $230,860
Average amount outstanding during year $179,499 $153,242 $182,990
Average interest rate during year 5.11% 5.48% 5.68%
================================================================================
</TABLE>
36
<PAGE>
Average amounts outstanding and average interest rates are computed using
weighted monthly averages.
On July 24, 1998, the Company formed a wholly owned subsidiary business
trust, BSB Capital Trust I, L.L.C. (the "Trust"), for the purpose of issuing
preferred securities which qualify as Tier I capital. Concurrent with its
formation, the Trust issued $30.0 million at par value of 8.125% preferred
securities in an exempt offering. The preferred securities are non-voting,
mandatorily redeemable in 2028, and guaranteed by the Company. The Company's
guarantee, together with its other obligations under the relevant agreements,
constitute a full, irrevocable, and unconditional guarantee by the Company of
the securities issued by the Trust. The entire net proceeds to the Trust from
the offering were invested in junior subordinated obligations of the Company,
which are the sole assets of the Trust. The costs related to the issuance of
these securities are capitalized and amortized over the life of the period to
redemption on a straightline basis. The net proceeds were used to fund
commercial and consumer loan growth.
The Bank has assigned mortgage-backed securities as collateral for certain
other borrowings. Such securities have a market value aggregating $2.3 million,
and $12.9 million at December 31, 1999 and 1998, respectively.
At December 31, 1999, the Bank had available a line of credit with the
Federal Home Loan Bank of New York ("FHLB") subject to the amount of available
collateral, of which $15.5 million is outstanding as of December 31, 1999. This
outstanding balance is collateralized by certain mortgage loans, mortgage-backed
securities, and other investment securities under a blanket pledge agreement
with the FHLB. The Bank also had available a $15.0 million unsecured line of
credit with First Union Corp., which requires daily repayment.
Securities sold under repurchase agreements represent the purchase of
interests in government securities by commercial checking customers which are
repurchased by the Bank on the following business day. The government securities
continue to be held by the Bank and the purchaser is precluded from engaging in
repurchase transactions or otherwise pledging or hypothecating these securities.
NOTE 10-EMPLOYEE BENEFITS
- --------------------------------------------------------------------------------
The Bank has a noncontributory qualified defined benefit pension plan covering
substantially all employees. Under the plan, retirement benefits are primarily a
function of both the years of service and the level of compensation. The Bank's
policy is to fund the plan in amounts sufficient to pay liabilities. The pension
plan assets consist primarily of listed stocks, governmental securities, and
cash equivalents.
The Bank also provides certain life and health insurance benefits to
substantially all employees and eligible retirees through an unfunded plan. The
Bank makes contributions to the plan as premiums are due.
37
<PAGE>
The following table represents a reconciliation of the funded status of the
plans at October 1:
<TABLE>
<CAPTION>
Pension Benefits Life and Health Benefits
(Dollars in Thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $18,867 $16,607 $ 4,513 $ 3,471
Service cost 791 634 176 123
Interest cost 1,227 1,162 288 240
Actuarial (gains) losses (1,994) 1,286 (158) 830
Annuity payments (842) (817)
Premiums paid (195) (150)
Settlements (17) (5)
- -----------------------------------------------------------------------------------------------------------
Benefit obligations at end of year 18,032 18,867 4,624 4,514
- -----------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 18,339 19,127
Actual return on plan assets 3,279 34
Employer contributions 195 150
Annuity payments (842) (817)
Premiums paid (195) (150)
Settlements (17) (5)
- -----------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 20,759 18,339
- -----------------------------------------------------------------------------------------------------------
Funded status 2,727 (528) (4,624) (4,514)
Unrecognized transition (asset) obligation (5) 2,251 2,425
Unrecognized (gains) losses (1,933) 1,702 (354) (195)
Unrecognized past service liability (119) (144)
- -----------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 675 $ 1,025 $(2,727) $(2,284)
===========================================================================================================
</TABLE>
The benefit obligations and prepaid (accrued) benefit costs presented in the
above table were determined using the following weighted-average assumptions at
October 1:
<TABLE>
<CAPTION>
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate 7.75% 6.50% 7.75% 6.50%
Expected return on plan assets 8.75% 8.75%
Rate of compensation increase 5.50% 4.50% 5.50% 4.50%
</TABLE>
The net periodic pension cost and the net postretirement benefit cost for the
years ended December 31, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Life and Health Benefits
(Dollars in Thousands) 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 791 $ 634 $ 551 $176 $123 $107
Interest cost 1,228 1,162 1,085 288 240 232
Expected return on assets (1,639) (1,544) (1,328)
Unrecognized transition (asset) obligation (5) (167) (167) 173 173 173
Unrecognized (gain) loss (59) (76)
Unrecognized past service liability (25) (25) (25)
- -------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 350 $ 60 $ 116 $637 $477 $436
===================================================================================================================
</TABLE>
For measurement purposes, a 6.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000. The rate was assumed
to decrease gradually to 5.0% for 2003 and remain at that level thereafter.
38
<PAGE>
A one-percentage-point change in assumed health care cost trend rates would have
the following effect on life and health benefits at October 1, 1999:
<TABLE>
<CAPTION> 1-Percentage- 1-Percentage-
(Dollars in Thousands) Point Increase Point Decrease
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 23 $ (28)
Effect on postretirement benefit obligation 202 (138)
</TABLE>
The Bank also has a defined contribution employee savings 401(k) plan. Full-time
salaried employees, age twenty-one and older who have completed one year of
service, are eligible to join the 401(k) plan. The Bank matches 100% of basic
contributions up to 2.0% of each participant's annual contribution and 50% of
contribution over 2.0% with the Bank's total match not to exceed 3%.
Contributions to the plan amounted to $368,542 in 1999, $416,415 in 1998, and
$328,350 in 1997.
NOTE 11-DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The Company uses interest rate swap agreements as a part of its overall interest
rate risk management strategy. The swaps modify the repricing characteristics of
certain brokered certificate of deposit liabilities. Under terms of the
agreements, the Company receives a fixed rate of interest and pays a variable
rate of interest. The swaps are entered into with a counterparty that meets the
Company's established credit standards and the agreements contain collateral
provisions protecting the at-risk party. The Company considers the credit risk
inherent in these contracts to be negligible. The swaps match the related
brokered certificates of deposit in notional/face amount, fixed interest rate,
interest payment date, and maturity date. At December 31, 1999, the Company has
swaps outstanding with a notional amount of $60.0 million and a fair value of
$(1.5) million. Investment securities with a fair value of $1.7 are pledged as
collateral against the swaps at December 31, 1999.
The Company accounts for the interest rate swaps on the accrual method,
whereby the net receivable or payable is recognized on a periodic basis and is
included as a component of interest on time accounts.
NOTE 12-COMMITMENTS
- --------------------------------------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist primarily of commitments to extend credit and
letters of credit, which involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the consolidated statements of condition. The
contract amount of those commitments and letters of credit reflects the extent
of involvement the Bank has in those particular classes of financial
instruments. The Bank's exposure to credit loss in the event of nonperformance
by the counterparty to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of the
instruments. The Bank uses the same credit policies in making commitments and
letters of credit as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $422,499 $488,687
Letters of credit 29,488 25,166
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitment amounts are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby and other letters of credit written are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. Most of these
guarantees extend for periods ranging from three months to five years. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Since some of the
letters of credit are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
39
<PAGE>
For both commitments to extend credit and letters of credit, the amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral held
varies, but includes residential and commercial real estate. Outstanding loans
sold with recourse approximated $13.6 million as of December 31, 1999.
As required by certain letters of credit agreements, the Bank has pledged
as collateral mortgage-backed securities having a market value of approximately
$4.9 million at December 31, 1999. The Company is required to maintain a reserve
balance, as established by the Federal Reserve Board of New York. The required
average total reserve for the 14-day maintenance period ended December 29, 1999
was $16.0 million of which $2.1 million was required to be on deposit with the
Federal Reserve Bank of New York. The remaining $13.9 million was represented by
cash on hand and other adjustments.
The Bank rents facilities under leases expiring at various dates through
2016. Rent expense totaled approximately $786,000 in 1999, $784,000 in 1998, and
$737,000 in 1997.
Approximate minimum rental commitments under existing noncancelable leases with
remaining terms of one year or more are presented below:
<TABLE>
<CAPTION>
Years ending December 31, (Dollars in Thousands)
- --------------------------------------------------------------------------------
<S> <C>
2000 $ 847
2001 772
2002 693
2003 450
2004 443
Later years 2,032
- --------------------------------------------------------------------------------
Total minimum lease payment $5,237
================================================================================
</TABLE>
NOTE 13-LIMITS ON DIVIDENDS
- --------------------------------------------------------------------------------
The Company's ability to pay dividends to its shareholders is largely dependent
on the Bank's ability to pay dividends to the Company. In addition to state law
requirements and the capital requirements discussed below, the circumstances
under which the Bank may pay dividends are limited by federal statutes,
regulations, and policies. The Bank must obtain the approval of the Federal
Deposit Insurance Corporation (FDIC) for payment of dividends if the total of
all dividends declared in any calendar year would exceed the total of the Bank's
net profits as defined by applicable regulations, for that year, combined with
its retained net profits for the preceding two years. Furthermore, the Bank may
not pay a dividend in an amount greater than its undivided profits then on hand
after deducting its losses and bad debts, as defined by applicable regulations.
At December 31, 1999, the Bank had approximately $33.7 million in undivided
profits legally available for the payment of dividends.
In addition, the Federal Reserve Board and the FDIC are authorized to
determine under certain circumstances that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment of such dividends. The
payment of dividends that deplete a bank's capital base could be deemed to
constitute such an unsafe or an unsound practice. The Federal Reserve Board has
indicated that banking organizations could generally pay dividends only out of
current operating earnings. There are also statutory limits on the transfer of
funds to the Company by its banking subsidiary whether in the form of loans or
other extensions of credit, investments, or asset purchases. Such transfers by
the Bank to the Company generally are limited in amount to 10% of the Bank's
capital and surplus, or 20% in the aggregate. Furthermore, such loans and
extensions of credit are required to be collateralized in specific amounts.
NOTE 14-INCOME TAXES
- --------------------------------------------------------------------------------
The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" which requires an asset and liability approach to
recognizing the tax effects of temporary differences between tax and financial
reporting.
40
<PAGE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $12,019 $15,204 $12,270
Deferred (benefit) (528) (1,662) (629)
- --------------------------------------------------------------------------------
$11,491 $13,542 $11,641
================================================================================
</TABLE>
The components of deferred income taxes at December 31, which are included in
other assets are:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Available for sale investments $ 7,361
Allowance for possible credit losses 11,945 $10,437
Postretirement benefits 1,118 959
Contingent liabilities 1,219
Other 1,002 1,052
- --------------------------------------------------------------------------------
21,426 13,667
- --------------------------------------------------------------------------------
Liabilities:
Depreciation 700 768
Other 1,440 1,809
- --------------------------------------------------------------------------------
2,140 2,577
- --------------------------------------------------------------------------------
Net deferred tax asset $19,286 $11,090
================================================================================
</TABLE>
A reconciliation between the federal statutory income tax rate and the effective
income tax rate at December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.00% 35.00% 35.00%
State income taxes, net of federal benefit 4.60 5.30 5.10
Tax-exempt interest income (1.10) (0.80) (1.30)
Dividends received deduction (0.10)
Other 0.20 (0.90) (0.30)
- --------------------------------------------------------------------------------
Effective income tax rate 38.70% 38.60% 38.40%
================================================================================
</TABLE>
NOTE 15-EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Basic earnings per share is computed based on the weighted average shares
outstanding. Diluted earnings per share is computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options during the year. The following is a reconciliation of
basic earnings per share to diluted earnings per share for the years ended
December 31:
<TABLE>
<CAPTION>
Net Weighted Earnings
(Dollars in Thousands, Except Share Data) Income Average Shares Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997: Basic earnings per share $18,649 9,905,340 $1.88
Effect of stock options - 352,600 -
- --------------------------------------------------------------------------------
Diluted earnings per share $18,649 10,257,940 $1.82
================================================================================
1998: Basic earnings per share $21,519 10,006,369 $2.15
Effect of stock options - 358,813 -
- --------------------------------------------------------------------------------
Diluted earnings per share $21,519 10,365,182 $2.08
================================================================================
1999: Basic earnings per share $18,225 10,137,625 $1.80
Effect of stock options - 174,488 -
- --------------------------------------------------------------------------------
Diluted earnings per share $18,225 10,312,113 $1.77
================================================================================
</TABLE>
41
<PAGE>
NOTE 16-OPTIONS AND SHAREHOLDER RIGHTS
- --------------------------------------------------------------------------------
The Company has a Long-Term Incentive and Capital Accumulation Plan (the
"Incentive Plan") for the benefit of officers and certain other employees of the
Company and its subsidiary. The Plan, as approved by shareholders at the 1996
Annual Meeting of Shareholders and as amended at the 1998 and 1999 Annual
Meetings of Shareholders, provides for options to purchase a total of 1.3
million shares of authorized common stock, of which options to purchase 582,525
shares have been granted as of December 31, 1999. At December 31, 1999, there
were 717,475 options to purchase shares available for future grant under the
Plan. Four kinds of rights are contained in the Incentive Plan and are available
for grant: incentive stock options, non-qualified options, stock appreciation
rights, and performance share awards. Options under this Plan have a 10 year
term, and vest and become exercisable at 25% per year at the end of each of the
first four years following the grant date, or as otherwise determined by the
Company's Compensation Committee.
The Directors' Stock Option Plan (the "Directors' Plan"), as approved by
shareholders at the 1994 Annual Meeting of Shareholders, provides for options to
purchase 393,750 shares of authorized but unissued common stock by incumbent and
future non-employee directors of the Company; 222,750 options to purchase shares
have been granted as of December 31, 1999. At December 31, 1999, 171,000 options
to purchase shares are available for future grant under the Directors' Plan. All
options granted under the Directors' Plan are intended to be non-qualified
options. Vesting occurs on the grant date, and options may be exercised six
months after the grant date. Under the Directors' Plan, to the extent options
remain available for grant, upon initial election or appointment as a director,
new non-employee directors of the Company will each receive a grant of an option
to purchase 6,750 shares of common stock. Furthermore, in January of each year,
each non-employee director, including any director who becomes a non-employee
director prior to such anniversary, shall be granted an option to purchase 2,250
shares of common stock.
Activity in the Plans during 1997, 1998, and 1999 was as follows:
<TABLE>
<CAPTION>
Number of Option Price
(Dollars in Thousands, Except Share Data) Shares Per Share Aggregate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding options at December 31, 1996 407,890 $ 3.61-$17.17 $ 6,819
1997: Effect of three-for-two stock split 232,161
Options forfeited (6,934) 8.53-18.83 (67)
Options exercised (150,414) 4.52-18.83 (1,432)
Options granted 182,795 12.19-18.83 3,265
- --------------------------------------------------------------------------------------------------------------
Outstanding options at December 31, 1997 665,498 3.61-18.83 8,585
1998: Options forfeited (2,444) 15.62 (38)
Options exercised (85,093) 4.52-18.83 (1,001)
Options granted 208,799 20.05-32.75 5,977
- --------------------------------------------------------------------------------------------------------------
Outstanding options at December 31, 1998 786,760 3.61-32.75 13,523
1999: Options exercised (187,647) 3.61-23.10 (1,978)
Options granted 227,100 26.63-28.75 6,178
- --------------------------------------------------------------------------------------------------------------
Outstanding options at December 31, 1999 826,213 $ 3.61-$32.75 $17,723
==============================================================================================================
</TABLE>
Since the option price per share at the date of grant approximates the fair
market value of the shares on the grant date, no expense is recognized as the
stock options are exercised.
The Company maintains a shareholders' rights plan pursuant to which the
Company's Board of Directors declared a dividend of one right for each
outstanding share of common stock. These rights will also be attached to common
stock issued subsequent to the adoption of the plan. The rights can only be
exercised when an individual or group intends to acquire or has acquired a
defined amount of the Company's outstanding common shares. Each right will
entitle the holder to receive common stock having a market value equivalent to
two times the exercise price (as defined). The rights will expire on June 4,
2009 and may be redeemed by the Company in whole at a price of $.01 per right.
42
<PAGE>
NOTE 17-STOCK-BASED COMPENSATION
- --------------------------------------------------------------------------------
The Company has two stock-based compensation plans, as described in Note 16. The
Company has elected to follow APB Opinion No. 25 and related interpretations in
accounting for stock options granted under these plans. Under APB No. 25,
because the exercise price of the Company's stock options approximates the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Had compensation cost for these plans been determined
based on the fair value at the grant dates for awards under those plans, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Share Data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As reported $ 18,225 $21,519 $18,649
Pro forma 17,062 20,552 18,091
- -------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
As reported:
Basic $ 1.80 $ 2.15 $ 1.88
Diluted $ 1.77 $ 2.08 $ 1.82
Pro forma:
Basic $ 1.68 $ 2.05 $ 1.83
Diluted $ 1.65 $ 1.98 $ 1.76
</TABLE>
The weighted average fair value of options granted during 1999, 1998, and 1997
was $6.51, $6.91, and $6.68, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: dividend
yield of 3.3% for 1999, 3.1% for 1998 and 1997; expected volatility of 24.9% for
1999, 24.2% for 1998, and 25.1% for 1997; risk-free interest rates of 4.7% for
1999, 5.7% in 1998, and 6.5% in 1997; and expected lives of 7.4 years in 1999,
1998, and 1997.
Options exercisable under the plans at December 31, 1999, 1998, and 1997
amounted to 506,705, 435,223, and 375,124, respectively. The weighted average
exercise price of options exercisable at December 31, 1999, 1998, and 1997 were
$18.43, $12.72, and $10.27, respectively.
The following table summarizes information about options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
[---------Outstanding---------] [--------Exercisable---------]
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.61 to $5.84 10,825 0.3 $ 4.60 10,825 $ 4.60
$9.33 to $12.33 176,077 4.3 $10.81 176,077 $10.81
$15.08 to $19.85 229,661 6.8 $18.04 167,778 $17.87
$26.63 to $32.75 409,650 8.7 $28.39 152,025 $28.86
- -------------------------------------------------------------------------------------------------------------------
826,213 506,705
===================================================================================================================
</TABLE>
43
<PAGE>
NOTE 18-SELECTED QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
Summarized quarterly financial information for the years ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Share Data) Three Months Ended Three Months Ended
- -------------------------------------------------------------------------------------------------------------------
3/31/99 6/30/99 9/30/99 12/31/99 3/31/98 6/30/98 9/30/98 12/31/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $42,505 $43,733 $44,262 $46,221 $38,436 $41,480 $43,148 $43,102
Total interest expense 21,393 21,981 22,835 23,367 19,622 21,227 22,090 21,847
- -------------------------------------------------------------------------------------------------------------------
Net interest income 21,112 21,752 21,427 22,854 18,814 20,253 21,058 21,255
Provision for credit losses 3,461 3,695 7,054 4,927 2,885 3,069 3,533 3,444
- -------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 17,651 18,057 14,373 17,927 15,929 17,184 17,525 17,811
Gains (losses) on sale of
securities (401) 185 1 (16) (150) (365) (15) (321)
Gains (losses) on sale of loans 6 (310) (32) (27) (226) (110) 47 (284)
Non-interest income 2,784 3,007 3,080 4,095 2,196 2,587 2,578 2,658
Operating expense 11,163 12,658 15,374 11,468 9,791 10,557 10,906 10,729
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,877 8,281 2,048 10,511 7,958 8,739 9,229 9,135
Income taxes 3,341 3,496 372 4,283 3,101 3,317 3,648 3,476
- -------------------------------------------------------------------------------------------------------------------
Net income $ 5,536 $ 4,785 $ 1,676 $ 6,228 $ 4,857 $ 5,422 $ 5,581 $ 5,659
===================================================================================================================
Earnings per share:
Basic $ 0.55 $ 0.48 $ 0.16 $ 0.61 $ 0.49 $ 0.54 $ 0.56 $ 0.56
===================================================================================================================
Diluted $ 0.54 $ 0.46 $ 0.16 $ 0.61 $ 0.47 $ 0.52 $ 0.54 $ 0.55
===================================================================================================================
</TABLE>
NOTE 19-FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
SFAS No. 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of condition, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the certain derived value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Bank. The fair value of off- balance-sheet financial instruments is not
significant.
The net carrying amount and fair values of financial instruments (in thousands
of dollars) at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 70,065 $ 70,065 $ 70,287 $ 70,287
Investment securities 241,979 242,033 255,114 255,400
Mortgage-backed securities 159,744 159,806 172,423 172,542
Loans 1,722,252 1,686,948 1,577,909 1,591,771
Allowance for possible credit losses (29,134) (25,030)
- ----------------------------------------------------------------------------------------------------------------
Net loans 1,693,118 1,686,948 1,552,879 1,591,771
Mortgages held for sale 2,085 2,085 16,806 16,806
- ----------------------------------------------------------------------------------------------------------------
Total financial assets $ 2,166,991 $ 2,160,937 $ 2,067,509 $ 2,106,806
================================================================================================================
Financial liabilities:
Deposits $ 1,901,204 $ 1,879,477 $ 1,709,860 $ 1,712,739
Borrowings 172,045 177,029 259,736 262,319
Interest rate swap agreements 1,548
- ----------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 2,073,249 $ 2,058,054 $ 1,969,596 $ 1,975,058
================================================================================================================
</TABLE>
44
<PAGE>
NOTE 20-REGULATORY MATTERS
- --------------------------------------------------------------------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total capital/to risk-weighted assets $200,968 11.08% *$145,075 *8.0% *$181,344 *10.0%
Tier I capital/to risk-weighted assets $178,220 9.83% *$ 72,537 *4.0% *$108,806 * 6.0%
Tier I capital/to average assets $178,220 7.85% *$ 90,762 *4.0% *$113,452 * 5.0%
As of December 31, 1998
- ----------------------------------------------------------------------------------------------------------------
Total capital/to risk-weighted assets $178,313 10.66% *$133,828 *8.0% *$167,285 *10.0%
Tier I capital/to risk-weighted assets $157,351 9.41% *$ 66,914 *4.0% *$100,371 * 6.0%
Tier I capital/to average assets $157,351 7.44% *$ 84,575 *4.0% *$105,719 * 5.0%
</TABLE>
* = greater than or equals to
45
<PAGE>
NOTE 21-FINANCIAL INFORMATION-PARENT COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands, Except Share Data 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 15,633 $ 24,619
Investment in Bank, at equity 170,063 159,837
Investment in trust subsidiary 928 928
Prepaid expenses 752 720
Other assets 52 53
------------------------------------------------------------------------------------------
$ 187,428 $ 186,157
==========================================================================================
LIABILITIES AND Accrued interest payable $ 1,104 $ 1,108
SHAREHOLDERS' Other liabilities 903 30
EQUITY Junior subordinated debentures 30,928 30,928
Shareholders' Equity:
Preferred stock, par value $.01 per share;
2,500,000 shares authorized, none issued
Common stock, par value $.01 per share;
30,000,000 shares authorized;
11,398,991 shares and 11,237,470 shares issued 114 112
Additional paid-in capital 37,287 35,202
Undivided profits 140,295 131,723
Accumulated other comprehensive income (9,757) 425
Treasury stock at cost; 1,173,669 and 1,196,396 shares (13,446) (13,371)
------------------------------------------------------------------------------------------
Total shareholders' equity 154,493 154,091
------------------------------------------------------------------------------------------
$ 187,428 $ 186,157
==========================================================================================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME Dividends from Bank $ 9,653 $ 8,239 $ 6,804
Interest on investments 77 33
Equity in undistributed net income of Bank,
net of dividends 12,445 14,525 12,344
---------------------------------------------------------------------------------------
Total income 22,175 22,797 19,148
---------------------------------------------------------------------------------------
EXPENSES Interest on long term debentures 2,563 1,108
Acquisition charges 2,941
Other expenses 1,146 1,020 839
---------------------------------------------------------------------------------------
Total expense 6,650 2,128 839
---------------------------------------------------------------------------------------
Income before tax benefit 15,525 20,669 18,309
Tax benefit 2,700 850 340
---------------------------------------------------------------------------------------
NET INCOME $ 18,225 $ 21,519 $ 18,649
=======================================================================================
</TABLE>
46
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Net income $ 18,225 $ 21,519 $ 18,649
ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income
of Bank, net of dividends (15,145) (15,375) (12,684)
Net change in other assets and liabilities 684 377 (26)
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,764 6,521 5,939
----------------------------------------------------------------------------------------------------
INVESTING Capital contributions to subsidiaries (5,000) (6,650)
----------------------------------------------------------------------------------------------------
ACTIVITIES Net cash used by investing activities (5,000) (6,650)
----------------------------------------------------------------------------------------------------
FINANCING Proceeds from issuance of junior subordinated debentures
ACTIVITIES to subsidiaries 30,928
Dividends paid to shareholders (9,653) (8,239) (6,804)
Purchases of treasury stock (75) (29)
Proceeds from exercise of stock options 1,978 1,001 1,432
----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (7,750) 23,661 (5,372)
----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (8,986) 23,532 567
Cash and cash equivalents at beginning of year 24,619 1,087 520
----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15,633 $ 24,619 $ 1,087
====================================================================================================
</TABLE>
47
<PAGE>
BSB Bank & Trust (Subsidiary of BSB Bancorp, Inc.)
Officers
Executive
Thomas L. Thorn, Acting President & Chief Executive Officer
Larry G. Denniston, Senior Vice President & Corporate Secretary
Cynthia A. Hicks, Assistant Corporate Secretary
Banking Operations
Arthur C. Smith, Executive Vice President--Retail Banking Officer
Branch Administration
Michael V. Radicchi, Administrative Vice President--Branch Administrator
Jacqueline L. Speicher, Vice President, Branch Lending, Sales & Business
Development
James E. Dove, Assistant Vice President--Branch Lending, Sales & Business
Development
Craig J. Nessel, Supermarket Banking Officer
James A. Berry, Assistant Vice President--Regional Business Development Officer
Margaret J. Murray, Assistant Vice President--Regional Business Development
Officer
Calvin L. Corriders, Assistant Vice President--Community Development Officer
Lori A. Micha, Assistant Vice President--Main Banking Office
<TABLE>
<S> <C>
Elizabeth I. Donahue, Senior Branch Officer Denise G. Mughetti, Senior Branch Officer
Richard L. Pitman, Senior Branch Officer Joan M. Rozycko, Senior Branch Officer
Gerald F. Walker, Senior Branch Officer Marian M. Avery-Tierno, Branch Officer
Patricia A. Blair, Branch Officer Jeanine M. Cianciosi, Branch Officer
Jodi A. DeAugustine, Branch Officer Christine M. Ferranti, Branch Officer
Lucille E. Roberts, Branch Officer Kelly L. Valenti, Branch Officer
LoriAnne Welch, Branch Officer
</TABLE>
Bank Operations
Robert N. Keller, Jr., Vice President--Banking Support Services
Thomas J. Lamphere, Assistant Vice President--Risk Management
James H. DiMascio, Assistant Vice President--Facilities & Services
Janet L. McHenry, Assistant Vice President--Special Services
Systems
Matthew W. Schaefer, Administrative Vice President
Paul F. Santodonato, Assistant Vice President--Technology
Joyce E. Burke, Assistant Vice President--Computer Services
Accounting
Rexford C. Decker, Senior Vice President & Chief Financial Officer
<TABLE>
<S> <C>
Donald R. Schmitt, Vice President & Controller Kevin P. Harty, Vice President--Finance
Keith A. Martin, Assistant Controller
</TABLE>
BSB Financial Services
Trust
Douglas R. Johnson, Senior Vice President & Senior Trust Officer
Leslie J. Distin, Vice President & Trust Officer
John P. Riesbeck, Vice President--Trust Investment Officer
Bradley S. Eaton, Trust Investment Officer
Brokerage
Pamela A. Kelley, Vice President
48
<PAGE>
Lending Operations
Glenn R. Small, Executive Vice President--Senior Credit Officer
Commercial Lending
<TABLE>
<S> <C>
John B. Westcott, Administrative Vice President F. Mathew Zlomek, Administrative Vice President
Edward P. Bahrenburg, Vice President Susan A. Burtis, Vice President
Marvin F. Mastrangelo, Vice President Edward P. Michalek, Vice President
Kevin P. O'Hara, Vice President Kenneth J. Scott, Vice President
Carl J. Speicher, Assistant Vice President James J. Frawley, Commercial Loan Officer
John S. Gibbs, Commercial Loan Officer
Ann Marie F. Smith, Assistant Vice President--Commercial Credit
Melody A. Gardner, Assistant Vice President--Commercial Loan Operations
</TABLE>
Commercial Real Estate
<TABLE> <C>
<S>
Gary K. Hart, Administrative Vice President William B. Meredith, Vice President
</TABLE>
Consumer Lending
William T. Slote, Administrative Vice President
Joseph Diorio, Assistant Vice President--Business Development
Joseph D. Dempsey, Assistant Vice President--Consumer Credit
Arthur L. Dunning, Jr., Assistant Vice President-Credit Card Officer
Karen L. Thurber, Assistant Vice President-Consumer Loans Operations
Matthew J. Parsons, Business Development Officer
James W. Rowlands, Assistant Vice President--Adjustments/Recovery
Residential Mortgage Lending
Gary T. Drabo, Administrative Vice President
Allen E. Fuller, Assistant Vice President--Mortgage Servicing
John J. Saraceno, Assistant Vice President--Business Development
Robert L. Anderson, Jr., Assistant Vice President--Mortgage Processing
Arthur R. Truesdell, Residential Collections Officer
Treasury Operations
John P. Driscoll, Executive Vice President & Treasurer
Jonathan J. Hullick, Interim Assistant Treasury Administration Officer
Christopher B. Loughridge, Interim Assistant Treasury Administration Officer
Lawrence M. Harris, Vice President--Municipal Services
Louis M. Petrilli, Municipal Development Officer
Auditing
Bruce R. Hayes, Administrative Vice President & Auditor
Penne M. Gaeta, Assistant Vice President--Assistant Auditor
Human Resources
<TABLE>
<S> <C>
Patricia A. Phelps, Administrative Vice President Roy W. Brock, Assistant Vice President
Patrick M. Gleason, Training Officer
</TABLE>
Loan Review
Phyllis K. Gilroy, Vice President
John A. Savelli, Loan Review Officer
Marketing
Stephanie Garrison, Vice President--Marketing Director
Kimberly A. Maietta, Assistant Marketing Director
<PAGE>
BSB Bancorp, Inc.
Board of Directors
Ferris G. Akel: President, Binghamton, Giant Markets, Inc.
Robert W. Allen: General Partner, Allen Family Limited Partnership
Diana J. Bendz: IBM Endicott Senior Location Executive
William C. Craine: Chairman of the Board; Chairman, Granite Capital Holdings,
Inc.
John P. Driscoll: Executive Vice President & Treasurer
Ann G. Higbee: Managing Partner, Public Relations Services, Eric Mower and
Associates
Thomas F. Kelly, Ph.D.: Vice President, Binghamton University, State University
of New York
David A. Niermeyer: President & Chief Executive Officer, Stakmore Co., Inc.
Mark T. O'Neil, Jr.: President & Chief Executive Officer, United Health
Services, Inc.
William H. Rincker: Former Chairman & Chief Executive Officer, BSB Bancorp
Thomas L. Thorn: Acting President & Chief Executive Officer
The membership of the Board of Directors of BSB Bank & Trust Company is
identical. All members serve on both boards.
Officers
Thomas L. Thorn: Acting President & Chief Executive Officer
John P. Driscoll: Executive Vice President & Treasurer
Glenn R. Small: Executive Vice President, Senior Credit Officer
Arthur C. Smith: Executive Vice President, Retail Banking Officer
Rexford C. Decker: Senior Vice President & Chief Financial Officer
Larry G. Denniston: Senior Vice President & Corporate Secretary
Douglas R. Johnson: Senior Vice President
Directors Emeriti
Aubrey S. Bowen Charles G. Brink
John J. Consey Vincent J. Earley
Helen A. Gamble Floyd H. Lawson, Jr.
Herbert R. Levine Robert J. Nash
Dr. William L. Roberts Edgar E. Severson
John V. Smith Dr. J. Glezen Watts
Shareholder Information
Corporate Headquarters: Mailing Address:
BSB Bancorp, Inc. P. O. Box 1056
58-68 Exchange Street Binghamton, New York 13902
Binghamton, New York 13901
Annual Meeting:
The Annual Meeting of Shareholders
of BSB Bancorp, Inc. will be held at 10:00 A.M. on April 24, 2000, in the South
Ballroom at the Binghamton Regency Hotel and Conference Center, One Sarbro
Square, 225 Water Street, Binghamton, New York.
Form 10-K Annual Report:
A copy of BSB Bancorp, Inc. Form 10-K Annual Report may be obtained without
charge upon written request to Larry G. Denniston, Senior Vice President &
Corporate Secretary, Shareholder Relations Department, BSB Bancorp, Inc., 58-68
Exchange Street, Binghamton, New York 13901.
Registrar and Transfer Agent:
American Stock Transfer and Trust Company
40 Wall Street--46th Floor
New York, New York 10005
50
<PAGE>
Stock Listing:
BSB Bancorp, Inc. common stock is traded over the counter and is listed on The
Nasdaq Stock Market under the symbol BSBN. High, low, and closing prices and
daily trading volume are reported in most major newspapers as "BSB Bcp."
Auditors: General Counsel:
PricewaterhouseCoopers LLP Hinman, Howard & Kattell, L.L.P.
One Lincoln Center Security Mutual Building
Syracuse, New York 13202 Binghamton, New York 13901
Special Counsel: Shareholder Relations Department:
Hogan & Hartson L.L.P. BSB Bancorp, Inc.
Columbia Square 58-68 Exchange Street
555 13th Street, N.W. Binghamton, New York 13901
Washington, D.C. 20004 607-779-2406
Toll Free (877) 289-0221
51
<PAGE>
EXHIBIT 21
List of the Company's Subsidiaries
BSB Bank & Trust Company
BSB Capital Trust I
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
BSB Bancorp, Inc. on Form S-8 (File No. 339-2138) of our report dated January
21, 2000, on our audits of the consolidated financial statements of BSB Bancorp,
Inc. as of December 31, 1999 and 1998, and for the years ended December 31,
1999, 1998, 1997, which report is included in the Annual Report to Shareholders,
which is incorporated by reference on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Syracuse, N.Y.
March 29, 2000
90
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 70,065 45,987 45,724
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 0 24,300 6,700
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 387,251 415,000 279,536
<INVESTMENTS-CARRYING> 14,472 12,537 21,573
<INVESTMENTS-MARKET> 401,839 427,939 301,612
<LOANS> 1,724,337 1,594,715 1,427,811
<ALLOWANCE> 29,134 25,030 21,768
<TOTAL-ASSETS> 2,240,948 2,135,327 1,816,672
<DEPOSITS> 1,901,204 1,709,860 1,457,526
<SHORT-TERM> 119,048 155,272 189,215
<LIABILITIES-OTHER> 13,206 11,640 23,908
<LONG-TERM> 52,997 104,464 7,486
114 112 111
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 154,379 153,979 138,427
<TOTAL-LIABILITIES-AND-EQUITY> 2,240,948 2,135,327 1,816,672
<INTEREST-LOAN> 151,001 139,374 120,750
<INTEREST-INVEST> 25,038 25,926 20,398
<INTEREST-OTHER> 682 866 200
<INTEREST-TOTAL> 176,721 166,166 141,348
<INTEREST-DEPOSIT> 75,542 72,387 60,180
<INTEREST-EXPENSE> 14,034 12,399 11,272
<INTEREST-INCOME-NET> 87,145 81,380 69,896
<LOAN-LOSSES> 19,137 12,931 10,814
<SECURITIES-GAINS> (231) (851) 380
<EXPENSE-OTHER> 50,663 41,983 36,940
<INCOME-PRETAX> 29,716 35,061 30,290
<INCOME-PRE-EXTRAORDINARY> 29,716 35,061 30,290
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 18,225 21,519 18,649
<EPS-BASIC> 1.80 2.15 1.88
<EPS-DILUTED> 1.77 2.08 1.82
<YIELD-ACTUAL> 8.35 8.77 8.79
<LOANS-NON> 10,662 16,275 16,336
<LOANS-PAST> 945 818 557
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 25,030 21,768 19,168
<CHARGE-OFFS> 17,393 10,990 10,451
<RECOVERIES> 2,360 1,321 2,237
<ALLOWANCE-CLOSE> 29,134 25,030 21,768
<ALLOWANCE-DOMESTIC> 29,134 25,030 21,768
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
