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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, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from _________________ to ____________________
Commission File Number: 000-25101
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ONEIDA FINANCIAL CORP.
-------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 16-1561678
------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
182 Main Street, Oneida, New York 13421-1676
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(315) 363-2000
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(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(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 twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES X NO
----------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of March 12, 2001, there were issued and outstanding 3,350,686 shares of
the Registrant's Common Stock. The aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of the Common Stock as of March 19, 2001 ($12.66) was $18,164,769.
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Stockholders for the fiscal year ended
December 31, 2000 (Parts II and IV).
2. Proxy Statement for the 2001 Annual Meeting of Stockholders (Parts I and
III).
PART I
ITEM 1. BUSINESS
- ----------------
Oneida Financial Corp.
Oneida Financial Corp. (the "Company") was organized in September 1998,
for the purpose of acquiring all of the capital stock of The Oneida Savings Bank
(the "Bank") upon completion of the Bank's reorganization into the two-tier form
of mutual holding company ownership and the minority stock offering. The Company
is majority owned by Oneida Financial, MHC, a New York-chartered mutual holding
company (the "Mutual Holding Company"). The Company is a bank holding company
subject to regulation by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). The Company's only assets consist of shares of
the Bank's common stock and net proceeds of the Offering which it retained. The
Company neither owns nor leases any property, but uses the premises, equipment
and furniture of the Bank. At the present time, the Company does not employ any
persons other than certain officers of the Bank and will use the support staff
of the Bank from time to time.
At December 31, 2000 the Company had consolidated assets and
consolidated stockholders' equity of $319.5 million and $41.8 million,
respectively. Through the Bank, the Company has deposits totaling $202.8
million.
The Company's executive office is located at the main office of the
Bank, at 182 Main Street, Oneida, New York 13421-1676. The Company's telephone
number is (315) 363-2000.
The Oneida Savings Bank
The Bank was organized in 1866 as a New York-chartered mutual savings
bank. The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the FDIC, up to the maximum amount permitted by law. The Bank is
a community bank engaged primarily in the business of accepting deposits from
customers through its main office and four full service branch offices and using
those deposits, together with funds generated from operations and borrowing
proceeds to make one-to-four family residential and commercial real estate
loans, commercial business loans, consumer loans and to invest in
mortgage-backed and other securities.
At December 31, 2000, $115.2 million, or 69.3%, of the Bank's loans
were secured by real estate, $84.4 million, or 50.7%, of the Bank's loans were
secured by one-to-four family residential real estate, $19.9 million, or 12.0%,
of the Bank's loans were secured by commercial real estate, and $10.9 million,
or 6.6%, of the Bank's loans were home equity loans. Consumer loans totaled
$31.2 million, or 18.8% of the Bank's total loans, at December 31, 2000. The
Bank also originates commercial business loans which totaled $19.9 million, or
11.9%, of total loans at December 31, 2000. The Bank's investment securities and
mortgage- backed securities portfolios totaled $90.8 million and $40.5 million,
respectively, at December 31, 2000.
In April 1999 the Bank established Oneida Preferred Funding Corp. as
the Bank's wholly-owned real estate investment trust subsidiary. At December 31,
2000 Oneida Preferred Funding Corp. held $38.6 million in mortgage and mortgage
related assets. All disclosures in the Form 10-K relating to the Bank's loans
and investments include loans and investments that are held by Oneida Preferred
Funding Corp.
On October 2, 2000, the Bank completed its acquisition of Bailey &
Haskell Associates, Inc., an insurance agency ("Agency"). The Bank agreed to pay
$3,075,000 in cash and $500,000 in common stock of the Company to the Agency's
shareholders. The acquisition was accounted for under the purchase method
1
of accounting and, accordingly, $3,350,000 in goodwill was recorded in
conjunction with the transaction. Goodwill is being amortized over 15 years.
Under the terms of the definitive purchase agreement, contingent purchase
consideration may be made over a five-year period beginning in the Company's
2001 fiscal year, based upon predetermined future performance levels of the
Agency. Issuance of the Company's common stock in connection with the
acquisition was subject to regulatory approval, which was obtained subsequent to
the Company's year-end, the stock was issued in a private placement to Agency
shareholders from treasury stock held by the Company. The Agency has been in
continual operation for over 30 years with five offices located in Central New
York State. The Agency offers personal and commercial insurance products and
services, life and financial services, group and employee benefits, claims
processing and risk management. The Agency is a wholly-owned subsidiary of the
Bank.
The Bank's main office is located at 182 Main Street, Oneida, New York
13421-1676. The Bank's telephone number is (315) 363-2000.
Market Area
The Bank is a community-based savings institution that offers a variety
of financial products and services. The Bank's primary lending area is Madison
county, New York and surrounding counties, and most of the Bank's deposit
customers reside in Madison county and surrounding counties. The City of Oneida
is located approximately 30 miles from Syracuse and 20 miles from Utica. The
Bank's market area is characterized as rural, although the local economy is also
affected by economic conditions in Syracuse and Utica, New York. As of 1997, the
average household income of persons residing in Oneida and Madison counties was
below that of New York State and the United States. During the period 1980-1990
the population of Oneida county decreased by 1.04% while the population of
Madison county grew by 6.09%.
The Bank competes with commercial banks, savings banks and credit
unions for deposits and loans. In addition to the financial institutions
operating in Madison and Oneida counties, the Bank competes with a number of
mortgage bankers for the origination of loans. The largest employers in the
Bank's market area are Oneida Ltd. and The Oneida Indian Nation of New York.
Lending Activities
General. The principal lending activity of the Bank has been the
origination, for retention in its portfolio, of ARM loans collateralized by
one-to-four family residential real estate located within its primary market
area. In the current low interest rate environment, borrowers have shown a
preference for fixed-rate loans. Consequently, in recent periods the Bank has
originated fixed-rate one-to-four family loans for resale in the secondary
market without recourse and on a servicing retained basis. In order to
complement the Bank's traditional emphasis of one-to-four family residential
real estate lending, management has sought to increase the amount of higher
yielding commercial real estate loans, consumer loans and commercial business
loans. To a limited extent, the Bank will originate loans secured by
multi-family properties. The Bank does not view multi-family lending as a
significant aspect of its business.
2
Loan Portfolio Composition. Set forth below is selected information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process and allowances for losses)
as of the dates indicated.
At December 31,
---------------------------------------------------------------
2000 1999 1998
-------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Real estate loans:
One-to-four family ........................ $84,386 50.7% $81,264 53.9% $82,353 61.6%
Multi-family............................... 1,134 0.7 1,358 0.9 1,468 1.1
Home equity................................ 10,940 6.6 9,740 6.5 9,377 7.0
Commercial real estate..................... 18,742 11.3 16,560 11.0 13,499 10.1
------- ------ ------- ------ ------- ------
Total real estate loans.................. 115,202 69.3 108,922 72.3 106,697 79.8
------ ------ ------
Consumer loans:
Automobile loans........................... 25,818 15.5 16,768 11.1 10,405 7.8
Mobile home................................ 526 0.4 595 0.4 717 0.5
Personal loans............................. 3,450 2.1 6,901 4.6 2,438 1.8
Guaranteed student loans................... -- -- 305 0.2 446 0.3
Other consumer loans....................... 1,432 0.8 1,451 1.0 1,547 1.2
------- ------ ------- ------ ------- ------
Total consumer loans..................... 31,226 18.8 26,020 17.3 15,553 11.6
------ ------ ------
Commercial business loans.................... 19,865 11.9 15,727 10.4 11,549 8.6
Total consumer and commercial business loans 51,091 30.7 41,747 27.7 27,102 20.2
------- ------ ------- ------ ------- ------
Total loans.............................. 166,293 100.0% 150,669 100.0% $133,799 100.0%
======= ====== ======= ====== ======== ======
Less:
Loans in process........................... -- -- --
Allowance for loan losses.................. 1,632 1,523 1,543
------- ------- -------
Total loans receivable, net.............. $164,661 $149,146 $132,256
======== ======== ========
At December 31,
-----------------------------------------
1997 1996
------------------- -------------------
Amount Percent Amount Percent
------- ------- ------- -------
(Dollars in thousands)
Real estate loans:
One-to-four family ........................ $96,792 67.0% $100,557 73.1%
Multi-family............................... 2,714 1.9 2,972 2.2
Home equity................................ 8,829 6.1 7,983 5.8
Commercial real estate..................... 13,868 9.6 12,686 9.1
------- ------ ------- ------
Total real estate loans.................. 122,203 84.6 124,198 90.2
------ ------
Consumer loans:
Automobile loans........................... 6,683 4.6 2,701 2.0
Mobile home................................ 784 0.5 914 0.7
Personal loans............................. 2,580 1.8 1,719 1.3
Guaranteed student loans................... 1,659 1.2 1,981 1.4
Other consumer loans....................... 1,017 0.7 879 0.6
------- ------ ------- ------
Total consumer loans..................... 12,723 8.8 8,194 6.0
------ ------
Commercial business loans.................... 9,587 6.6 5,241 3.8
Total consumer and commercial business loans 22,310 15.4 13,435 9.8
------- ------ ------- ------
Total loans.............................. $144,513 100.0% $137,633 100.0%
======== ====== ======== ======
Less:
Loans in process........................... 352 215
Allowance for loan losses.................. 1,793 1,546
------- -------
Total loans receivable, net.............. $142,368 $135,872
======== ========
3
The following table sets forth the composition of the Bank's loan
portfolio by fixed and adjustable rates at the dates indicated.
At December 31,
----------------------------------------------------------------
2000 1999 1998
-------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
(Dollars in thousands)
FIXED-RATE LOANS:
Real estate loans:
- -----------------
One-to-four family ....................... $17,485 10.5% $18,208 12.1% $12,879 9.6%
Multi-family.............................. -- -- -- -- -- --
Home equity............................... 6,211 3.7 5,416 3.6 4,626 3.5
Commercial real estate.................... 775 0.5 1,023 0.7 1,138 0.9
------- ------ ------- ------ ------- ------
Total real estate loans................. 24,471 14.7 24,647 16.4 18,643 14.0
------- ------ ------- ------ ------- ------
Consumer loans:
- --------------
Total consumer loans...................... 30,745 18.5 25,284 16.8 14,475 10.8
Commercial business loans:
- -------------------------
Total commercial loans.................... 12,965 7.8 10,027 6.6 5,355 4.0
------- ------ ------- ------ ------- ------
Total fixed-rate loans.................... $68,181 41.0 $59,958 39.8 $38,473 28.8
------- ------ ------- ------ ------- ------
ADJUSTABLE RATE LOANS:
Real estate loans:
- -----------------
One-to-four family........................ $66,901 40.2 $63,056 41.8% $69,474 51.9%
Multi-family.............................. 1,134 0.7 1,358 0.9 1,468 1.1
Home equity............................... 4,729 2.9 4,324 2.9 4,751 3.6
Commercial real estate.................... 17,967 10.8 15,537 10.3 12,361 9.2
------- ------ ------- ------ ------- ------
Total real estate loans................. 90,731 54.6 84,275 55.9 88,054 65.8
------- ------ ------- ------ ------- ------
Consumer loans:
- --------------
Total consumer loans...................... 481 0.3 736 0.5 $ 1,078 0.8
Commercial business loans:
- -------------------------
Total commercial business loans........... 6,900 4.1 5,700 3.8 6,194 4.6
------- ------ ------- ------ ------- ------
Total adjustable-rate loans............... $98,112 59.0 $90,711 60.2% $95,326 71.2
------- ------ ------- ------ ------- ------
Total loans............................... $166,293 100.0% $150,669 100.0% $133,799 100.0%
======== ====== ======== ====== ======== ======
Less:
- ----
Loans in process.......................... -- -- --
Allowance for loan losses................. 1,632 1,523 1,543
------- ------- -------
Total loans receivable, net................. $164,661 $149,146 $132,256
======== ======== ========
At December 31,
-----------------------------------------
1997 1996
------------------- -------------------
Amount Percent Amount Percent
------- ------- ------- -------
(Dollars in thousands)
FIXED-RATE LOANS:
Real estate loans:
- -----------------
One-to-four family ....................... $11,563 8.0% $ 9,678 7.0%
Multi-family.............................. -- --
Home equity............................... 2,804 1.9 1,679 1.2
Commercial real estate.................... 1,213 0.8 1,350 1.0
------- ------ ------- ------
Total real estate loans................. 15,580 10.7 12,707 9.2
------- ------ ------- ------
Consumer loans:
- --------------
Total consumer loans...................... 12,723 8.8 8,194 6.0
Commercial business loans:
- -------------------------
Total commercial loans.................... 1,628 1.1 748 0.5
------- ------ ------- ------
Total fixed-rate loans.................... $29,931 20.6 $21,649 15.7
------- ------ ------- ------
ADJUSTABLE RATE LOANS:
Real estate loans:
- -----------------
One-to-four family........................ $85,229 59.0% $90,879 66.0%
Multi-family.............................. 2,714 1.9 2,972 2.2
Home equity............................... 6,025 4.2 6,304 4.6
Commercial real estate.................... 12,655 8.8 11,336 8.2
------- ------ ------- ------
Total real estate loans................. 106,623 73.9 111,491 81.0
------- ------ ------- ------
Consumer loans:
- --------------
Total consumer loans...................... -- -- -- --
Commercial business loans:
- -------------------------
Total commercial business loans........... 7,959 5.5 4,493 3.3
------- ------ ------- ------
Total adjustable-rate loans............... $114,582 79.4 $15,984 84.3
-------- ------ ------- ------
Total loans............................... $144,513 100.0% $137,633 100.0%
======== ====== ======== ======
Less:
- ----
Loans in process.......................... 352 215
Allowance for loan losses................. 1,793 1,546
------- -------
Total loans receivable, net................. $142,368 $135,872
======== ========
4
One-to-Four Family Residential Loans. The Bank's primary lending
activity is the origination of one- to-four family residential mortgage loans
secured by property located in the Bank's primary lending area. Generally,
one-to-four family residential mortgage loans are made in amounts up to 80% of
the lesser of the appraised value or purchase price of the property however the
Bank will originate one-to-four family loans with loan-to-value ratios of up to
97%, with private mortgage insurance required. Generally, fixed-rate loans are
originated for terms of up to 30 years. One-to-four family fixed-rate loans are
offered with a monthly payment feature.
The Bank originates both adjustable rate and fixed-rate one-to-four
family loans. Historically, the Bank's emphasis has been on the origination of
ARM loans. The interest rate on ARM loans is indexed to the one year Treasury
Bill rate. The Bank's ARM loans currently provide for maximum rate adjustments
of 200 basis points per year and 600 basis points over the term of the loan. The
Bank offers ARM loans with initial interest rates that are below market,
referred to as "teaser rates." Residential ARM loans amortize over a maximum
term of up to 30 years. ARM loans are offered with both monthly and bi-weekly
payment features. ARM loans are originated for retention in the Bank's
portfolio. In the current interest rate environment, borrowers have shown a
preference for hybrid ARM loans, which provide for a fixed-rate period of 3 or 5
years, adjusting annually thereafter. Consequently, in recent periods the Bank
has increased its origination of hybrid ARM one-to-four family mortgage loans.
In addition, the Bank originates and generally sells its fixed- rate one-to-four
family loans on a servicing retained basis. Such loans are sold without recourse
to the Bank. At December 31, 2000, loans serviced by the Bank for others totaled
$39.7 million. During the year ended December 31, 2000 and December 31, 1999,
the Bank sold $7.8 million and $5.1 million, respectively in fixed- rate
one-to-four family loans.
ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment permitted
by the terms of the ARM loans, and therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At December 31,
2000, 40.3% of the Bank's loan portfolio consisted of one-to-four family
residential loans with adjustable interest rates.
All one-to-four family residential mortgage loans originated by the
Bank include "due-on-sale" clauses, which give the Bank the right to declare a
loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid.
At December 31, 2000, approximately $84.4 million, or 50.7% of the
Bank's loan portfolio, consisted of one-to-four family residential loans.
Approximately $112,000 of such loans (representing three loans) were included in
nonperforming loans as of that date.
Home Equity Loans. The Bank offers home equity loans that are secured
by the borrower's primary residence. The Bank offers a home equity line of
credit under which the borrower is permitted to draw on the home equity line of
credit during the first ten years after it is originated and repay the
outstanding balance over a term not to exceed 25 years from the date the line of
credit is originated. The interest rates on home equity lines of credit are
fixed for the first year and adjust monthly thereafter at a margin over the
prime interest rate. The Bank also offers a home equity product providing for a
fixed-rate of interest. Both
5
adjustable rate and fixed-rate home equity loans are underwritten under the same
criteria that the Bank uses to underwrite one-to- four family fixed-rate loans.
Fixed-rate home equity loans are originated with terms not to exceed ten years.
Home equity loans may be underwritten with a loan to value ratio of 85% when
combined with the principal balance of the existing mortgage loan. The maximum
amount of a home equity loan may not exceed $250,000 unless approved by the
Board of Directors. The Bank appraises the property securing the loan at the
time of the loan application (but not thereafter) in order to determine the
value of the property securing the home equity loans. At December 31, 2000, the
outstanding balances of home equity loans totaled $10.9 million, or 6.6% of the
Bank's loan portfolio.
Commercial Real Estate Loans. At December 31, 2000, $19.9 million, or
12.0% of the total loan portfolio consisted of commercial real estate loans.
Commercial real estate loans are secured by office buildings, mixed-use
properties, religious facilities and other commercial properties. The Bank
originates adjustable rate commercial mortgage loans with maximum terms of up to
20 years. The maximum loan-to- value ratio of commercial real estate loans is
80%. At December 31, 2000, the largest commercial real estate loan had a
principal balance of $1.1 million and was secured by a medical building. As of
December 31, 2000, approximately $75,000 of commercial real estate loans
(representing one loan) were included in nonperforming loans.
In underwriting commercial real estate loans, the Bank reviews the
expected net operating income generated by the real estate to ensure that it is
at least 110% of the amount of the monthly debt service; the age and condition
of the collateral; the financial resources and income level of the borrower; and
the borrower's business experience. Personal guarantees are routinely obtained
from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Commercial mortgage loans often involve large loan balances to single borrowers
or groups of related borrowers. Payments on these loans depend to a large degree
on the results of operations and management of the properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real estate market or the economy in general. Accordingly, the nature of
commercial real estate loans makes them more difficult for Bank management to
monitor and evaluate.
Consumer Lending. The Bank's consumer loans consist of automobile
loans, mobile home loans, secured personal loans (secured by bonds, equity
securities or other readily marketable collateral), and other consumer loans
(consisting of passbook loans, unsecured home improvement loans and recreational
vehicle loans). At December 31, 2000, consumer loans totaled $31.2 million, or
18.8% of the total loan portfolio. Consumer loans are originated with terms to
maturity of three to seven years. The Bank has sought to increase its level of
consumer loans primarily through increased automobile lending. The Bank
participates in a number of indirect automobile lending programs with local
automobile dealerships. All indirect automobile loans must satisfy the Bank's
underwriting criteria for automobile loans originated directly by the Bank to
the borrower and must be approved by one of the Bank's lending officers. At
December 31, 2000, loans secured by automobiles totaled $25.8 million, of which
$18.8 million were originated through the Bank's indirect automobile lending
program. The Bank has also sought to increase its level of automobile loans
directly to borrowers by increasing its marketing efforts with existing
customers. Automobile loans generally do not have terms exceeding five years.
The Bank does not provide financing for leased automobiles.
6
Consumer loans generally have shorter terms and higher interest rates
than one-to-four family mortgage loans. In addition, consumer loans expand the
products and services offered by the Bank to better meet the financial services
needs of its customers. Consumer loans generally involve greater credit risk
than residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance because of the
greater likelihood of damage to, loss of or depreciation in the underlying
collateral. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a deficiency judgment.
In addition, consumer loan collections depend on the borrower's personal
financial stability. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.
The Bank's underwriting procedures for consumer loans include an
assessment of the applicant's credit history and the ability to meet existing
and proposed debt obligations. Although the applicant's creditworthiness is the
primary consideration, the underwriting process also includes a comparison of
the value of the security to the proposed loan amount. The Bank underwrites its
consumer loans internally, which the Bank believes limits its exposure to credit
risks associated with loans underwritten or purchased from brokers and other
external sources.
Commercial Business Loans. The Bank also originates commercial business
loans. Commercial business loans are originated with terms of up to seven years
and provide for rates that adjust on a monthly basis. Commercial business loans
are originated to persons with a prior relationship with the Bank or referrals
from persons with a prior relationship with the Bank. The decision to grant a
commercial business loan depends primarily on the creditworthiness and cash flow
of the borrower (and any guarantors) and secondarily on the value of and ability
to liquidate the collateral which generally consists of receivables, inventory
and equipment. The Bank generally requires annual financial statements and tax
returns from its commercial business borrowers and personal guarantees from the
commercial business borrowers. The Bank also generally requires an appraisal of
any real estate that secures the commercial business loan. At December 31, 2000,
the Bank had $19.9 million of commercial business loans which represented 11.9%
of the total loan portfolio. On such date, the largest commercial business
lending relationship totaled $2.2 million, which consisted of 30 loans secured
by equipment and assignment of leases. As of December 31, 2000, unsecured
commercial business loans totaled $302,000.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Real estate
lending is generally considered to be collateral based, with loan amounts based
on predetermined loan to collateral values and liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business assets, the liquidation of collateral in the event
of a borrower default is often an insufficient source of repayment because
equipment and other business assets may be obsolete or of limited use, among
other things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors), while
liquidation of collateral is a secondary and often insufficient source of
repayment.
7
Loan Maturity Schedule. The following table sets forth certain
information as of December 31, 2000, regarding the amount of loans maturing in
the Bank's portfolio. Demand loans having no stated schedule of repayment and no
stated maturity and overdrafts are reported as due in one year or less. All
loans are included in the period in which the final contractual repayment is
due.
One Three Five Ten
Within Through Through Through Through Beyond
One Three Five Ten Twenty-Five Twenty-Five
Year Years Years Years Years Years Total
--------- --------- --------- --------- -------- -------- -------
(In thousands)
Real estate loans:
One-to-four family............... $ 525 $ 856 $ 1,828 $12,595 $50,148 $18,434 $84,386
Home equity...................... 37 319 1,792 8,132 660 -- 10,940
Commercial real estate........... 1,231 517 535 5 047 12,546 -- 19,876
------- ------- ------- ------- ------- ------- -------
Total real estate loans........ 1,793 1,692 4,155 25,774 63,354 18,434 115,202
------- ------- ------- ------- ------- ------- -------
Consumer and other loans............ 2,136 7,776 18,460 2,854 -- -- 31,226
Commercial business loans........... 5,076 4,544 6,879 2,866 500 -- 19,865
------- ------- ------- ------- ------- ------- -------
Total loans.................... $ 9,005 $14,012 $29,494 $31,494 $63,854 $18,434 $166,293
======= ======= ======= ======= ======= ======= ========
Fixed- and Adjustable-Rate Loan Schedule. The following table sets
forth at December 31, 2000, the dollar amount of all fixed-rate and
adjustable-rate loans due after December 31, 2001. Adjustable- and floating-rate
loans are included based on contractual maturities.
Due After December 31, 2001
-----------------------------------------------
Fixed Adjustable Total
---------- ---------- -----------
(In thousands)
Real estate loans:
One-to-four family........................ $ 17,025 $ 66,836 $ 83,861
Home equity............................... 6,174 4,729 10,903
Commercial real estate.................... 691 17,954 18,645
---------- ---------- -----------
Total real estate loans............... 23,890 89,519 113,409
---------- ---------- -----------
Consumer and other loans ...................... 28,884 206 29,090
Commercial business loans...................... 11,573 3,216 14,789
---------- ---------- -----------
Total loans........................... $ 64,347 $ 92,941 $ 157,288
========== ========== ===========
8
Loan Origination, Sales and Repayments. The following table sets forth
the loan origination, sales and repayment activities of the Bank for the periods
indicated. The Bank did not purchase any loans during the periods presented.
Year Ended December 31,
-----------------------------------------------------------
2000 1999 1998 1997
--------- --------- --------- --------
(In thousands)
Originations by Type:
- --------------------
Adjustable Rate:
Real estate:
One-to-four family......................... $ 7,351 $ 5,003 $ 5,417 $ 11,812
Home equity................................ 2,552 1,507 2,883 1,825
Commercial real estate..................... 2,253 2,575 2,294 2,363
--------- --------- --------- --------
Total real estate loans.................. 12,156 9,115 10,594 16,000
Consumer loans................................ 195 370 770 --
Commercial business loans..................... 11,773 4,422 5,364 6,395
--------- --------- --------- --------
Total adjustable rate loans.............. 24,124 13,907 16,728 22,395
--------- --------- --------- --------
Fixed Rate:
Real estate:
One-to-four family......................... 13,136 14,989 19,113 4,113
Home equity................................ 1,362 1,985 1,656 1,744
Commercial real estate..................... 2,048 1,748 165 67
--------- --------- --------- --------
Total real estate loans.................. 16,546 18,722 20,934 5,924
Consumer loans................................ 25,510 22,721 13,327 11,051
Commercial business loans..................... 12,063 10,774 7,173 6,800
--------- --------- --------- --------
Total fixed-rate loans................... 54,119 52,217 41,434 23,775
--------- --------- --------- --------
Total loans originated........................... 78,243 66,124 58,162 46,170
--------- --------- --------- --------
Sales:
- -----
Real estate:
One-to-four family......................... 7,754 5,106 16,523 3,988
--------- --------- --------- --------
Consumer loans............................. 413 -- 2,027 --
--------- --------- --------- --------
Total loans sold.............................. 8,167 5,106 18,550 3,988
========= ========= ========= ========
Repayments:
- ----------
Real estate:
One-to-four family......................... 9,611 16,005 22,446 15,702
Home equity................................ 2,714 3,129 3,991 2,723
Commercial real estate..................... 2,343 1,372 4,074 1,506
--------- --------- --------- --------
Total real estate loans.................. 14,668 20,506 30,511 19,931
Consumer loans................................ 20,086 12,624 9,240 6,522
Commercial business loans..................... 19,698 11,018 10,575 8,849
--------- --------- --------- --------
Total repayments......................... 54,452 44,148 50,326 35,302
--------- --------- --------- --------
Total reductions......................... 62,619 49,254 68,876 39,290
--------- --------- --------- --------
Net increases/(decreases)................ $ 15,624 $ 16,870 $ (10,714) $ 6,880
========= ========= ========= ========
- -----------------------------
* Includes charge offs, discounts and premiums
Loan Approval Procedures and Authority. The Board of Directors
establishes the lending policies and loan approval limits of the Bank. Loan
officers generally have the authority to originate mortgage loans, consumer
loans and commercial business loans up to amounts established for each lending
officer. All residential loans over $250,000 must be approved by the Bank Loan
Committee (consisting of three persons; the President and/or Senior Vice
President in charge of credit administration and either one or two of the four
trustees appointed to this committee). All loan relationships in excess of
$250,000 and up to $500,000 (exclusive of residential mortgages and home equity
loans secured by a lien on the borrower's primary residence) must be approved by
the Bank Loan Committee. All lending relationships in excess of $500,000 up to
$1.0 million (exclusive of residential mortgages and home equity loans secured
by a lien on the borrower's primary residence) must be approved by the Executive
Committee of the Board of Directors. All lending relationships in excess of $1.0
million must be approved by the Board of Directors.
9
The Board annually approves independent appraisers used by the Bank.
The Bank requires an environmental site assessment to be performed by an
independent professional for all non-residential mortgage loans. It is the Bank
policy to require hazard insurance on all mortgage loans and title insurance on
fixed-rate one-to-four family loans.
Loan Origination Fees and Other Income. In addition to interest earned
on loans, the Bank receives loan origination fees. Such fees and costs vary with
the volume and type of loans and commitments made and purchased, principal
repayments and competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other
fees, service charges and other income that consist primarily of deposit
transaction account service charges and late charges.
Loans-to-One Borrower. Savings banks are subject to the same
loans-to-one borrower limits as those applicable to national banks, which under
current regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis. An additional amount equal to 10% of
unimpaired net worth if the loan is secured by readily marketable collateral
(generally, financial instruments and bullion, but not real estate). The Bank's
policy provides that loans to one borrower (or related borrowers) should not
exceed 15% of the Bank's capital.
At December 31, 2000, the largest aggregate amount loaned by the Bank
to one borrower consisted of $2.2 million. The loans comprising this lending
relationship were performing in accordance with their terms.
Delinquencies and Classified Assets
Collection Procedures. A computer generated late notice is sent when
the loan's grace period ends. After the late notice has been mailed, accounts
are assigned to collectors for follow-up to determine reasons for delinquency
and explore payment options. Generally, loans that are 30 days delinquent will
receive a default notice from the Bank. With respect to consumer loans, the Bank
will commence efforts to repossess the collateral after the loan becomes 45 days
delinquent. Loans secured by real estate that are delinquent over 60 days are
turned over to the Collection Department Manager. Generally, after 90 days the
Bank will commence legal action.
Loans Past Due and Nonperforming Assets. Loans are reviewed on a
regular basis and are placed on nonaccrual status when, in the opinion of
management, the collection of additional interest is doubtful. Loans are placed
on nonaccrual status when either principal or interest is 90 days or more past
due. Interest accrued and unpaid at the time a loan is placed on a nonaccrual
status is reversed from interest income. At December 31, 2000, the Bank had
nonperforming loans of $187,000 and a ratio of nonperforming loans to total
assets of 0.06%. At December 31, 2000, the Bank's ratio of nonperforming assets
to total assets was 0.08%.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as Other Real Estate ("REO") until such time as it is
sold. When real estate is acquired through foreclosure or by deed
10
in lieu of foreclosure, it is recorded at its fair value, less estimated costs
of disposal. If the value of the property is less than the loan, less any
related specific loan loss provisions, the difference is charged against the
allowance for loan losses. Any subsequent write-down of REO is charged against
earnings.
The following table sets forth delinquencies in the Bank's loan
portfolio as of December 31, 2000. When a loan is delinquent 90 days or more,
the Bank fully reverses all accrued interest thereon and ceases to accrue
interest thereafter. For all the dates indicated, the Bank did not have any
material restructured loans within the meaning of SFAS 114.
Loans Delinquent for:
-------------------------------------------------------------------------
60-89 Days 90 Days or More Total delinquent Loans
------------------- ------------------- ----------------------
Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ -----
(Dollars in thousands)
One-to-four family.................. 1 $ 47 3 $ 112 4 $ 159
Home Equity......................... -- -- -- -- -- --
Commercial real estate.............. 1 75 -- -- 1 75
Consumer Loans...................... -- -- -- -- -- --
Commercial Loans.................... -- -- -- -- -- --
------ ------- ------- ------- ------- ------
Total ........................... 2 $ 122 3 $ 112 5 $ 234
====== ======= ======= ======= ======= ======
Nonaccrual Loans and Nonperforming Assets. The following table sets
forth information regarding nonaccrual loans and other nonperforming assets.
At December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- --------
(Dollars in thousands)
Non-accruing loans:
One-to-four family...................................... $ 112 $ 132 $ 1,010 $ 588 $ 735
Multi-family............................................ -- -- -- -- --
Commercial real estate.................................. 75 -- -- 242 274
Construction and land loans............................. -- -- -- -- --
Consumer................................................ -- -- 8 2 18
Commercial business..................................... -- -- 40 -- --
------- ------- ------- ------- -------
Total................................................. 187 132 1,058 832 1,027
------- ------- ------- ------- -------
Accruing loans delinquent more than 90 days:
One-to-four family...................................... $ -- $ -- $ -- 60 63
Multi-family............................................ -- -- -- -- --
Commercial real estate.................................. -- -- -- -- --
Construction and land loans............................. -- -- -- -- --
Consumer................................................ -- -- -- -- --
Commercial business..................................... -- -- -- 1 3
------- ------- ------- ------- -------
Total................................................. -- -- -- 61 66
------- ------- ------- ------- -------
Total nonperforming loans................................. $ 187 $ 132 $ 1,058 $ 893 $ 1,093
======= ======= ======= ======= =======
Foreclosed assets:
One-to-four family...................................... $ 55 $ 76 $ 179 $ 263 $ 712
Multi-family............................................ -- -- -- -- --
Commercial real estate.................................. -- 18 45 45 147
Construction and land loans............................. -- -- -- -- --
Consumer................................................ -- 1 -- -- --
Commercial business..................................... -- -- -- -- --
------- ------- ------- ------- -------
Total................................................. $ 55 $ 95 $ 224 $ 308 $ 859
======= ======= ======= ======= =======
Total nonperforming loans as a percentage of total assets. 0.06% 0.05% 0.43% 0.42% 0.52%
======= ======= ======= ======= =======
Total nonperforming assets................................ $ 242 $ 227 $ 1,282 $ 1,201 $ 1,952
======= ======= ======= ======= =======
Total nonperforming assets as a percentage of total assets 0.08% 0.08% 0.52% 0.57% 0.92%
======= ======= ======= ======= =======
11
During the years ended December 31, 2000 and 1999, respectively, gross
interest income of $7,500 and $4,000 would have been recorded on nonaccruing
loans under their original terms, if the loans had been current throughout the
period. No interest income was recorded on nonaccruing loans during the years
ended December 31, 2000 and 1999.
Classification of Assets. On the basis of management's review of its
assets, at December 31, 2000, the Bank had classified a total of $1.7 million of
loans as follows (in thousands):
Special Mention......................... $ 84
Substandard............................. 1,665
Doubtful assets......................... --
Loss assets............................. --
---------
Total ............................. $ 1,750
=========
General loss allowance.................. $ 1,632
=========
Specific loss allowance................. --
=========
Net Charge-offs......................... 236
=========
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio and current economic conditions. The allowance is
established based upon management's evaluation of the risks inherent in the loan
portfolio, the composition of the loan portfolio, the general economy and the
general trend in the savings industry to increase allowances for losses as a
percentage of total loans. Such evaluation also includes a review of all loans
on which full collectibility may not be reasonably assured, considering among
other matters, the estimated net realizable value or the fair value of the
underlying collateral, economic conditions, historical loan loss experience,
geographic concentrations and other factors that warrant recognition in
providing for an adequate loan loss allowance. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses and valuation of REO. Such agencies may
require us to recognize additions to the allowance based on their judgment about
information available to them at the time of their examination. At December 31,
2000, the total allowance was $1.6 million, which amounted to 0.99% of total
loans, net and 872.7% of nonperforming loans. Management considers whether the
allowance should be adjusted to protect against risks in the loan portfolio.
Management applies fixed percentages for each category of performing loans not
designated as problem loans to determine an additional component of the
allowance to protect against unascertainable risks inherent in any portfolio of
performing loans. Finally, management includes an unallocated component in its
allowance to address general factors and general uncertainties such as changes
in economic conditions and the inherent inaccuracy of any attempt to predict
future default rates and property values based upon past experience. Management
will continue to monitor and modify the level of the allowance for loan losses
in order to maintain it at a level which management considers adequate to
provide for potential loan losses. For the years ended December 31, 2000 and
1999, the Bank had charge-offs of $311,000 and $338,000, respectively, against
this allowance.
The Bank employed a new method at year-end 1997 of evaluating the
adequacy of the allowance for loan losses and determining the appropriate level
of provisions for loan losses. The new method applies fixed percentages to each
category of performing loans and classified loans. The allowance adjustment is
12
based upon the net change in each portfolio category since the prior quarter to
reflect the ongoing shifts in the portfolio toward higher risk loan categories,
such as consumer loans, commercial business loans and commercial real estate
loans. The former method utilized by the Bank followed the FDIC format which
considered historic losses, peer allowance levels and current portfolio mix.
Management believes the current method of determining the adequacy of the
allowance is more prudent in light of the Bank's intention to continue to
diversify its lending operations through the increased origination of consumer
loans, commercial business loans and commercial real estate loans.
Analysis of the Allowance For Loan Losses. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.
December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- --------
(Dollars in thousands)
Balance at the beginning of period........................ $1,523 $1,543 $1,793 $1,546 $1,781
Charge-offs:
One-to-four family..................................... 7 91 117 72 112
Commercial real estate................................. -- -- -- 118 --
Construction and land loans............................ -- -- -- -- --
Consumer............................................... 260 246 196 82 64
Commercial business.................................... 44 1 35 27 --
------ ------ ------ ------ ------
Total................................................ 311 338 348 299 176
------ ------ ------ ------ ------
Recoveries:
One-to-four family..................................... 3 3 15 14 7
Commercial real estate................................. -- -- 12 2 --
Construction and land loans............................ -- -- -- -- --
Consumer............................................... 66 85 71 53 28
Commercial business.................................... 6 1 -- -- 9
------ ------ ------ ------ ------
Total................................................ 75 89 98 69 44
------ ------ ------ ------ ------
Net charge-offs........................................... (236) (249) (250) (230) (132)
Additions charged to operations........................... 345 229 -- 477 (103)
------ ------ ------ ------ ------
Balance at end of period.................................. $1,632 $1,523 $1,543 $1,793 $1,546
====== ====== ====== ====== ======
Allowance for loan losses as a percentage of total loans
receivable, net........................................ 0.99% 1.02% 1.17% 1.26% 1.14%
====== ====== ====== ====== ======
Ratio of net charge-offs to average loans................. 0.15% 0.18% 0.18% 0.16% 0.10%
====== ====== ====== ====== ======
Ratio of net charge-offs to nonperforming loans........... 126.20% 188.64% 23.63% 25.76% 12.08%
====== ====== ====== ====== ======
13
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the allowance for loan losses by loan category for the periods
indicated.
At December 31,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
Percent Percent
of Loans of Loans
Amount of Loan In Each Amount of Loan In Each
Loan Loss Amounts Category to Loan Loss Amounts Category to
Allowance by Category Total Loans Allowances by Category Total Loans
--------- ----------- ----------- ---------- ----------- -----------
(Dollars in thousands)
Residential mortgages................... $ 487 $ 95,326 57.3% $ 469 $ 91,004 60.40%
Commercial real estate.................. 280 19,876 12.0 235 17,918 11.89
Consumer................................ 422 31,226 18.8 358 26,020 17.27
Commercial business..................... 434 19,865 11.9 295 15,727 10.44
Unallocated............................. 9 -- -- 166 -- --
--------- --------- -------- -------- --------- ---------
Total.......................... $ 1,632 $ 166,293 100.00% $ 1,523 $ 150,669 100.00%
========= ========= ======== ======== ========= =========
At December 31,
--------------------------------------------------------------------------------
1998 1996
--------------------------------------- --------------------------------------
Percent Percent
of Loans of Loans
Amount of Loan In Each Amount of Loan in Each
Loan Loss Amounts Category to Loan Loss Amounts Category to
Allowance by Category Total Loans Allowance by Category Total Loans
---------- ----------- ----------- --------- ----------- -----------
(Dollars in thousands)
Residential mortgages................... $ 610 $ 91,730 68.56% $ 455 $ 105,621 73.09%
Commercial real estate.................. 231 14,967 11.19 260 16,582 11.47
Consumer................................ 249 15,553 11.62 138 12,723 8.80
Commercial business..................... 250 11,549 8.63 171 9,587 6.64
Unallocated............................. 203 -- -- 769 -- --
--------- --------- -------- --------- --------- ---------
Total.......................... $ 1,543 $ 133,799 100.00 $ 1,793 $ 144,513 100.00%
========= ========= ======== ========= ========= =========
At December 31,
--------------------------------------
1995
--------------------------------------
Percent
of Loans
Amount of Loan In Each
Loan Loss Amounts Category to
Allowances by Category Total Loans
---------- ----------- -----------
(Dollars in thousands)
Residential mortgages..................... $ 467 $ 108,540 78.86%
Commercial real estate.................... 343 15,658 11.38
Consumer.................................. 82 8,194 5.95
Commercial business....................... 137 5,241 3.81
Unallocated............................... 517 -- --
-------- --------- ---------
Total............................ $ 1,546 $ 137,633 100.00%
======== ========= =========
14
Securities Investment Activities
The securities investment policy is established by the Board of
Directors. This policy dictates that investment decisions will be made based on
the safety of the investment, liquidity requirements, potential returns, cash
flow targets and desired risk parameters. In pursuing these objectives,
management considers the ability of an investment to provide earnings consistent
with factors of quality, maturity, marketability and risk diversification.
The Bank's current policies generally limit securities investments to
U.S. Government and agency securities, tax-exempt bonds, public utilities debt
obligations, corporate debt obligations and corporate equity securities. In
addition, the Bank's policy permits investments in mortgage related securities,
including securities issued and guaranteed by Fannie Mae, Freddie Mac, GNMA. In
the past, the Bank invested in collateralized mortgage obligations ("CMOs"), but
it has not invested in CMOs in recent years. The Bank's current securities
investment strategy utilizes a risk management approach of diversified investing
between three categories: short-, intermediate- and long-term. The emphasis of
this approach is to increase overall investment securities yields while managing
interest rate risk. The Bank will only invest in securities rated as investment
grade by a nationally recognized investment rating agency. The Bank does not
engage in any hedging transactions, such as interest rate swaps or caps.
Investment Securities. At December 31, 2000, the Bank had $90.8
million, or 28.4% of total assets, invested in investment securities, which
consisted primarily of U.S. Government obligations, tax-exempt securities,
public utility and corporate obligations, a mutual fund and equity investments
in corporate and FHLB stock. The corporate debt obligations reported includes a
trust preferred investment in Citigroup with a book value of $5.2 million
returning a yield of 7.75% resulting in an estimated market value of $4.9
million at December 31, 2000. SFAS No. 115 requires the Bank to designate its
securities as held to maturity, available for sale or trading, depending on the
Bank's ability and intent regarding its investments. The Bank does not have a
trading portfolio. Investment securities are classified as available for sale.
At December 31, 2000, the Bank's investment securities portfolio had a weighted
average life of 6.4 years.
15
Book Value of Investment Securities. The following table sets forth
certain information regarding the investment securities and other interest
earning assets as of the dates indicated.
December 31,
------------------------------------------------------------------------
2000 1999 1998
--------------------- ---------------------- ----------------------
Book Percent of Book Percent of Book Percent of
Value Total Value Total Value Total
--------- ---------- --------- ---------- -------- ----------
(Dollars in thousands)
Investment securities available for sale:
U.S. government securities........................... $ -- 0.00% $ -- 0.00% $ 1,000 1.63
Federal agency securities............................ 47,795 52.23 54,803 61.73 37,346 60.93
Corporate debt securities............................ 17,189 18.78 11,420 12.86 15,580 25.42
Tax exempt bonds..................................... 2,569 2.81 3,624 4.08 3,919 6.40
Public utilities..................................... 200 0.22 200 0.23 300 0.49
Equity securities.................................... 19,806 21.64 16,183 18.23 1,918 3.13
-------- ----- -------- ------ --------- ------
Subtotal........................................... 87,559 95.68 86,230 97.13 60,063 98.00
FHLB stock........................................... 3,950 4.32 2,547 2.87 1,228 2.00
-------- ----- -------- ------ --------- ------
Total.............................................. $ 91,509 100.00% $ 88,777 100.00% $ 61,291 100.00%
======== ====== ======== ====== ========= ======
Average remaining life of investment securities........ 6.40 Years 5.09 Years 3.92 Years
Other interest earning assets:
Interest-bearing deposits with banks................. 297 15.7 873 100.00 261 1.17
Federal funds sold................................... 1,600 84.3 -- -- 22,100 98.83
-------- ----- -------- ------ --------- ------
Total............................................ $ 1,897 100.00% $ 873 100.00% $ 22,361 100.00%
======== ====== ======== ====== ========= ======
December 31,
---------------------------------------------
1997 1996
---------------------- --------------------
Book Percent of Book Percent of
Value Total Value Total
-------- ---------- -------- --------
Investment securities available for sale:
U.S. government securities........................... $ 2,002 4.67 $ 5,013 9.52
Federal agency securities............................ 24,504 57.19 21,503 40.84
Corporate debt securities............................ 11,833 27.62 21,882 41.56
Tax exempt bonds..................................... 2,162 5.05 2,207 4.19
Public utilities..................................... 750 1.75 848 1.61
Equity securities.................................... 1,288 3.02 1,194 2.28
--------- ------ --------- ------
Subtotal........................................... 42,539 99.30 52,647 100.00
FHLB stock........................................... 306 0.70 -- --
--------- ------ --------- ------
Total.............................................. $ 42,845 100.00% $ 52,647 100.00%
========= ====== ========= ======
Average remaining life of investment securities........ 1.89 Years 1.51 Years
Other interest earning assets:
Interest-bearing deposits with banks................. 115 6.34 1,778 20.73
Federal funds sold................................... 1,700 93.66 6,800 79.27
--------- ------ --------- ------
Total............................................ $ 1,815 100.00% $ 8,578 100.00%
========= ====== ========= ======
16
Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, book value, market value and weighted average yields for
the Bank's investment portfolio at December 31, 2000.
December 31, 2000
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Securities
--------- ---------- ---------- ---------- --------------------------
Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- ---------- ------------
(Dollars in thousands)
Federal agency obligations.......... $ 4,998 $ 27,297 $ 15,500 $ -- $ 47,795 $47,686
Corporate bonds..................... -- 5,691 -- 11,498 17,189 16,541
Public utilities.................... -- -- 200 -- 200 198
Tax exempt bonds.................... -- 657 1,912 -- 2,569 2,542
Other .............................. -- -- -- 23,756 23,756 23,829
------- -------- --------- -------- -------- -------
Total securities.................. $ 4,998 $ 33,645 $ 17,612 $ 35,254 $ 91,509 $90,796
======= ======== ========= ======== ======== =======
Weighted average yield(1)........... 4.92% 6.29% 6.71% 7.44% 6.74% 7.13%
======= ======== ========= ======== ======== =======
- ----------------
(1) Weighted average yield has not been adjusted to reflect tax equivalent
adjustments.
Mortgage-Backed Securities. The Bank purchases mortgage-backed
securities in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower the Bank's credit risk as a result of the
guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and (iii) increase
liquidity. The Bank has not invested in CMOs in recent years. At December 31,
2000, mortgage-backed securities totaled $40.5 million or 12.7% of total assets,
all of which were classified as available for sale. The mortgage-backed
securities portfolio had coupon rates ranging from 6.00% to 8.25%, a weighted
average yield of 7.08% and a weighted average life (including payment
assumption) of 10.34 years at December 31, 2000. The estimated fair value of the
Bank's mortgage-backed securities at December 31, 2000 was $40.5 million which
was $55,000 lower than the amortized cost of $40.5 million.
Mortgage-backed securities are created by the pooling of mortgages and
the issuance of a security with an interest rate that is less than the interest
rate on the underlying mortgages. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage related securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including Fannie Mae,
Freddie Mac and GNMA) pool and resell the participation interests in the form of
securities to investors, such as the Bank, and guarantee the payment of
principal and interest to these investors. Mortgage-backed securities generally
yield less than the loans that underlie such securities because of the cost of
payment guarantees and credit enhancements. In addition, mortgage related
securities are usually more liquid than individual mortgage loans and may be
used to collateralize certain liabilities and obligations of the Bank.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. Management reviews prepayment estimates periodically
to ensure that prepayment assumptions are reasonable considering the underlying
collateral for the securities at issue and current interest rates and to
determine the yield and estimated maturity of the Bank's mortgage-backed
securities portfolio. Of the Bank's $40.5 million mortgage-backed securities
portfolio at December 31, 2000, $585,000 with a weighted average yield of 7.00%
had contractual maturities within five years, $2.0 million with a weighted
average yield of 6.5% had contractual maturities of five to ten years and $37.9
million with a weighted average yield of 7.11% had contractual maturities of
over ten years. However, the actual maturity of a mortgage-backed security may
be less than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related security.
Under such circumstances, the Bank
17
may be subject to reinvestment risk because, to the extent that the Bank's
mortgage related securities prepay faster than anticipated, the Bank may not be
able to reinvest the proceeds of such repayments and prepayments at a comparable
rate of return. Conversely, in a rising interest rate environment prepayments
may decline, thereby extending the estimated life of the security and depriving
the Bank of the ability to reinvest cash flows at the increased rates of
interest.
18
Mortgage-Backed Securities. Set forth below is information relating to
the Bank's mortgage-backed securities for the periods indicated.
December 31,
-----------------------------------------------------------------------------
2000 1999 1998
----------------------- ------------------------ -----------------------
Book Percent of Book Percent of Book Percent of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in thousands)
Mortgage-backed securities available for sale:
GNMA $13,349 32.94 $ 7,023 25.60% $ 12 0.06%
FNMA 13,336 32.91 14,824 54.05 13,851 69.74
FHLMC 13,793 34.03 5,518 20.12 5,924 29.82
CMOs 50 0.12 62 0.23 76 0.38
------- ------ ------- ------ ------- ------
Subtotal 40,528 100.00 27,427 100.00 19,863 100.00
Unamortized premium/discount -- -- -- -- -- --
------- ------ ------- ------ ------- ------
Total $40,528 100.00% $27,427 100.00% $19,863 100.00%
======= ====== ======= ====== ======= ======
December 31,
---------------------------------------------------
1997 1996
----------------------- -----------------------
Book Percent of Book Percent of
Value Total Value Total
----- ----- ----- -----
Mortgage-backed securities available for sale:
GNMA $ 16 0.14% $ 19 0.40%
FNMA 7,752 66.40 3,540 75.11
FHLMC 3,808 32.61 1,035 21.97
CMOs 99 0.85 119 2.52
------- ------ ------- ------
Subtotal 11,675 100.00 4,713 100.00
Unamortized premium/discount -- -- -- --
------- ------ ------- ------
Total $11,675 100.00% $ 4,713 100.00%
======= ====== ======= ======
19
Sources of Funds
General. The primary sources of the Bank's funds for use in lending,
investing and for other general purposes are deposits, repayments and
prepayments of loans and securities, proceeds from sales of loans and
securities, and proceeds from maturing securities and cash flows from
operations.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, noninterest-bearing checking accounts and money market accounts and
certificates of deposit. The Bank also offers IRAs and other qualified plan
accounts.
At December 31, 2000, deposits totaled $202.8 million. At December 31,
2000, the Bank had a total of $110.3 million in certificates of deposit, of
which $63.2 million had maturities of one year or less. Although the Bank has a
significant portion of its deposits in shorter term certificates of deposit,
management monitors activity on these accounts. Based on historical experience
and the Bank's current pricing strategy, management believes it will retain a
large portion of such accounts upon maturity. At December 31, 2000 certificates
of deposit with balances of $100,000 or more totaled $24.2 million.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. Deposits are obtained predominantly from the areas in which the
Bank's branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio and
print media and it generally does not solicit deposits from outside its market
area. While certificates of deposit in excess of $100,000 are accepted by the
Bank, and may be subject to preferential rates, the Bank does not actively
solicit such deposits as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.
The following table sets forth the deposit activities of the Bank for
the periods indicated.
Year Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- --------
(Dollars in thousands)
Opening balance........................ $ 189,120 $ 194,205 $182,961
Deposits............................... 1,008,188 979,766 843,441
Withdrawals............................ (1,002,146) (992,067) (840,130)
Interest credited...................... 7,593 7,216 7,933
--------- --------- --------
Ending balance......................... $ 202,755 $ 189,120 $194,205
--------- --------- --------
Net increase (decrease)................ $ 13,635 $ (5,085) $ 11,244
========= ========= ========
Percent increase (decrease)............ 7.21% (2.62)% 6.15%
========= ======== ========
20
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of December 31, 2000.
Maturity
--------------------------------------------------------------
3 Months Over 3 to 6 Over 6 to 12 Over 12
or Less Months Months Months Total
--------- --------- -------- -------- ---------
(In thousands)
Certificates of deposit less than $100,000........ $ 13,383 $ 13,755 $21,551 $37,427 $ 86,116
Certificates of deposit of $100,000 or more....... 9,003 3,166 2,367 9,694 24,230
-------- -------- ------- ------- --------
Total of certificates of deposit.................. $ 22,386 $ 16,921 $23,918 $47,121 $110,346
======== ======== ======= ======= ========
The following tables set forth information, by various rate categories,
regarding the average balance of deposits by types of deposit for the periods
indicated.
December 31,
-------------------------------------------------------------
2000 1999 1998
--------------- ---------------- ------------------
Amount Percent Amount Percent Amounts Percent
------ ------- ------ ------- ------- -------
(Dollars in thousands)
Transactions and savings deposits:
Noninterest-bearing......................... $22,672 11.18% $19,560 10.35% $20,564 10.59%
Savings accounts............................ 43,851 21.63 43,648 23.08 43,069 22.18
NOW accounts................................ 8,800 4.34 8,120 4.29 7,145 3.68
Money market accounts....................... 17,086 8.43 14,737 7.79 14,554 7.49
-------- ----- ------- ----- ------- -----
Total..................................... 92,409 45.58 86,065 45.51 85,332 43.94
-------- ----- ------- ----- ------- -----
Certificates of deposit:
0.00-3.99%.................................. 4,863 2.40 3,419 1.81 3,184 1.64
4.00-5.99%.................................. 57,027 28.12 87,850 46.45 88,583 45.61
6.00-7.99%.................................. 48,456 23.90 11,786 6.23 17,106 8.81
8.00-9.99%.................................. -- -- -- -- -- --
10.00% and over............................. -- -- -- -- -- --
-------- ----- ------- ----- ------- -----
Total certificates of deposit............... 110,346 54.42 103,055 54.49 108,873 56.06
-------- ----- ------- ----- ------- -----
Total deposits.............................. $202,755 100.00% $189,120 100.00% $194,205 100.00%
======== ====== ======== ====== ======== ======
The following table sets forth the amount and remaining maturities of
the Bank's certificates of deposit accounts at December 31, 2000.
Percent
2.00-3.99% 4.00-5.99% 6.00-7.99% Total of Total
---------- --------- ---------- ----- --------
(Dollars in thousands)
Certificate accounts maturing in quarter ending:
December 31, 2000........................... $ 4,075 $ -- $ -- $ 4,075 3.70%
March 31, 2001 ............................. 788 12,470 5,053 18,311 16.60
June 30, 2001............................... -- 15,453 1,468 16,921 15.33
September 30, 2001.......................... -- 11,439 4,177 15,616 14.15
December 31, 2001........................... -- 5,818 2,484 8,302 7.52
March 31, 2002.............................. -- 1,679 1,053 2,732 2.48
June 30, 2002............................... -- 1,194 7,074 8,268 7.49
September 30, 2002.......................... -- 1,254 11,018 12,272 11.12
December 31, 2002........................... -- 1,192 7,864 9,056 8.21
March 31, 2003.............................. -- 1,528 574 2,102 1.90
June 30, 2003............................... -- 931 1,522 2,453 2.22
September 30, 2003.......................... -- 685 228 913 0.83
December 31, 2003........................... -- 399 437 836 0.76
Thereafter.................................. -- 2,985 5,504 8,489 7.69
------- ------- ------- ------- -------
Total .................................... 4,863 57,027 48,456 110,346 100.00%
======= ======= ======= ======= =======
Percent of total............................ 4.41% 51.68% 43.91% 100.00%
======= ======= ======= =======
21
Borrowed Funds. Set forth below is a schedule detailing the Bank's
borrowings.
At December 31,
----------------------------------
2000 1999 1998
-------- -------- -------
(In Thousands)
Short-Term Borrowings:
Repurchase Agreements - FHLB......................................... $ 7,000 $ 14,000 $ 5,000
Term Advances - FHLB................................................. 5,000 -- --
Overnight Advance - FHLB............................................. -- 200 --
Long-Term Borrowings:
Repurchase Agreements - FHLB......................................... 31,000 20,000 --
Term Advances - FHLB................................................. 29,100 16,000 5,000
-------- -------- -------
Total Borrowings................................................... $ 72,100 $ 50,200 $10,000
-------- -------- -------
Weighted Average interest cost of short-term borrowings during the year 6.23% 5.71% 5.27%
-------- -------- -------
Weighted Average interest cost of long-term borrowings during the year. 6.03% 5.32% 4.73%
-------- -------- -------
Average Balance of borrowings outstanding during the year.............. $ 65,856 $ 32,841 $ 1,264
-------- -------- -------
Trust Activities. The Bank provides trust and investment services, acts
as executor or administrator of estates and as trustee for various types of
trusts. Trust services are offered through the Bank's Trust Department. Services
include fiduciary services for trusts and estates, money management and
custodial services. At December 31, 2000, the Bank maintained 307
trust/fiduciary accounts, with total assets of $37.7 million under management as
compared to 208 trust/fiduciary accounts with $30.8 total assets at December 31,
1999. Management anticipates that in the future the Trust Department will become
a more significant component of the Bank's business.
Insurance Activities
On October 2, 2000, the Bank completed the acquisition of Bailey &
Haskell Associates, Inc., ("B&H"), an insurance agency located in Central New
York State. B&H has offices in Oneida, Canastota, New Hartford and Syracuse. B&H
is a full-service insurance and financial services firm with over 40 employees
providing services to over 10,000 customers. The addition of insurance and
financial services enables the Bank to continue evolving from a traditional
depository institution into a financial services organization. B&H offers
personal and commercial property insurance, life insurance, pension plan
services, mutual funds and annuity sales, and other products and services. B&H
represents many insurance companies including, Travelers, CNA, Hartford,
Progressive, Utica National, Chubb and many more. The Bank also completed the
acquisition of two additional insurance agencies, to be merged into B&H, during
the first quarter of 2001.
Competition
Competition in the banking and financial services industry is intense.
The Bank competes with commercial banks, savings institutions, mortgage banking
firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of
these competitors have substantially greater resources and lending limits than
the Bank and may offer certain services that the Bank does not or cannot
provide. Moreover, credit unions which offer substantially the same services as
the Bank, are not subject to federal or state income taxation. Trends toward the
consolidation of the financial services industry, and the removal of
restrictions on interstate branching and banking powers may make it more
difficult for smaller institutions such as the Bank to compete effectively with
large national and regional banking institutions. The Bank's profitability
depends upon its continued ability to successfully compete in its market area.
Personnel
As of December 31, 2000, the Bank had 105 full-time employees and 15
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to be
good.
22
Regulation
General. The Bank is a New York-chartered stock savings bank and its
deposit accounts are insured up to applicable limits by the FDIC through the
BIF. The Bank is subject to extensive regulation by the Department, as its
chartering agency, and by the FDIC, as its deposit insurer. The Bank is required
to file reports with, and is periodically examined by, the FDIC and the
Superintendent concerning its activities and financial condition and must obtain
regulatory approvals prior to entering into certain transactions, including, but
not limited to, mergers with or acquisitions of other banking institutions. The
Bank is a member of the FHLB of New York and is subject to certain regulations
by the Federal Home Loan Bank System. Both the Company and the Mutual Holding
Company, as bank holding companies, are subject to regulation by the Federal
Reserve Board and file reports with the Federal Reserve Board. Any change in
such regulations, whether by the Department, the FDIC, or the Federal Reserve
Board could have a material adverse impact on the Bank, the Company, or the
Mutual Holding Company.
Regulatory requirements applicable to the Bank, the Company and the
Mutual Holding Company are referred to below or elsewhere herein.
New York Bank Regulation. The exercise by an FDIC-insured savings bank
of the lending and investment powers under the New York State Banking Law is
limited by FDIC regulations and other federal law and regulations. In
particular, the applicable provisions of New York State Banking Law and
regulations governing the investment authority and activities of an FDIC insured
state-chartered savings bank have been substantially limited by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the FDIC
regulations issued pursuant thereto.
The Bank derives its lending, investment and other authority primarily
from the applicable provisions of New York State Banking Law and the regulations
of the Department, as limited by FDIC regulations. Under these laws and
regulations, savings banks, including the Bank, may invest in real estate
mortgages, consumer and commercial loans, certain types of debt securities,
including certain corporate debt securities and obligations of federal, state
and local governments and agencies, certain types of corporate equity securities
and certain other assets. Under the statutory authority for investing in equity
securities, a savings bank may invest up to 7.5% of its assets in corporate
stock, with an overall limit of 5% of its assets invested in Common Stock.
Investment in the stock of a single corporation is limited to the lesser of 2%
of the outstanding stock of such corporation or 1% of the savings bank's assets,
except as set forth below. Such equity securities must meet certain earnings
ratios and other tests of financial performance. A savings bank's lending powers
are not subject to percentage of assets limitations, although there are limits
applicable to single borrowers. A savings bank may also, pursuant to the
"leeway" power, make investments not otherwise permitted under the New York
State Banking Law. This power permits investments in otherwise impermissible
investments of up to 1% of assets in any single investment, subject to certain
restrictions and to an aggregate limit for all such investments of up to 5% of
assets. Additionally, in lieu of investing in such securities in accordance with
and reliance upon the specific investment authority set forth in the New York
State Banking Law, savings banks are authorized to elect to invest under a
"prudent person" standard in a wider range of investment securities as compared
to the types of investments permissible under such specific investment
authority. However, in the event a savings bank elects to utilize the "prudent
person" standard, it will be unable to avail itself of the other provisions of
the New York State Banking Law and regulations which set forth specific
investment authority. The Bank has not elected to conduct its investment
activities under the "prudent person" standard. A savings bank may also exercise
trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment authority. A savings bank may use
this power to invest in corporations that engage in various activities
authorized for savings banks, plus any additional activities which may be
authorized by the Banking Board. Investment by a savings bank in the stock,
capital notes and debentures of its service corporations is limited to 3% of the
bank's assets, and such investments, together with the bank's loans to its
service corporations, may not exceed 10% of the savings bank's assets.
Furthermore, New York banking regulations impose requirements on loans which a
bank may make to its executive officers and directors and to certain
corporations or partnerships in which such persons have
23
equity interests. These requirements include, but are not limited to,
requirements that (i) certain loans must be approved in advance by a majority of
the entire board of trustees and the interested party must abstain from
participating directly or indirectly in the voting on such loan, (ii) the loan
must be on terms that are not more favorable than those offered to unaffiliated
third parties, and (iii) the loan must not involve more than a normal risk of
repayment or present other unfavorable features.
Under the New York State Banking Law, the Superintendent may issue an
order to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Superintendent to
discontinue such practices, such director, trustee or officer may be removed
from office after notice and an opportunity to be heard. The Bank does not know
of any past or current practice, condition or violation that might lead to any
proceeding by the Superintendent or the Department against the Bank or any of
its directors, trustees or officers.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member
of the BIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the U.S. Government. As insurer, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting
by FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings banks, after giving the Superintendent an
opportunity to take such action, and may terminate the deposit insurance if it
determines that the institution has engaged or is engaging in unsafe or unsound
practices or is in an unsafe or unsound condition.
Pursuant to the FDICIA, the FDIC established a system for setting
deposit insurance premiums based upon the risks a particular bank or savings
association posed to its deposit insurance funds. Under the risk-based deposit
insurance assessment system, the FDIC assigns an institution to one of three
capital categories based on the institution's financial information, as of the
reporting period ending six months before the assessment period, consisting of:
(i) well capitalized; (ii) adequately capitalized; or (iii) undercapitalized and
one of three supervisory subcategories within each capital group. With respect
to the capital ratios, institutions are classified as well capitalized or
adequately capitalized using ratios that are substantially similar to the prompt
corrective action capital ratios discussed above. Any institution that does not
meet these two definitions is deemed to be undercapitalized for this purpose.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessments rates for deposit
insurance currently range from 0 basis points to 27 basis points. The capital
and supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed. The Bank's rate of deposit insurance
assessments will depend upon the category and subcategory to which the Bank is
assigned by the FDIC. Any increase in insurance assessments could have an
adverse effect on the earnings of the Bank.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), the
assessment base for the payments on the bonds ("FICO bonds") issued in the late
1980s by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF- insured institutions, such as the Bank.
Until December 31, 1999, or such earlier date on which the last savings
association ceases to exist, the rate of assessment for BIF-assessable deposits
shall be one-fifth of the rate imposed on SAIF-assessable deposits. The annual
rate of assessments for the payments on the FICO bonds for the semi-annual
period beginning on July 1, 1998 was 0.0122% for BIF-assessable deposits and
0.0610% for SAIF-assessable deposits.
24
Regulatory Capital Requirements. The FDIC has adopted risk-based
capital guidelines to which the Bank is subject. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among banking organizations. The Bank
is required to maintain certain levels of regulatory capital in relation to
regulatory risk-weighted assets. The ratio of such regulatory capital to
regulatory risk-weighted assets is referred to as the Bank's "risk-based capital
ratio." Risk-based capital ratios are determined by allocating assets and
specified off-balance sheet items to four risk-weighted categories ranging from
0% to 100%, with higher levels of capital being required for the categories
perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The
first tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of at least 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC and the other federal banking regulators have proposed amendments to their
minimum capital regulations to provide that the minimum leverage capital ratio
for a depository institution that has been assigned the highest composite rating
of 1 under the Uniform Financial Institutions Rating System will be 3% and that
the minimum leverage capital ratio for any other depository institution will be
4% unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution. The FDIC may,
however, set higher leverage and risk-based capital requirements on individual
institutions when particular circumstances warrant. Savings banks experiencing
or anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
Standards for Safety and Soundness. The federal banking agencies have
adopted a final regulation and Interagency Guidelines Prescribing Standards for
Safety and Soundness ("Guidelines") to implement the safety and soundness
standards required under federal law. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The standards set forth in the Guidelines address internal controls
and information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; and compensation, fees
and benefits. The agencies also adopted additions to the Guidelines which
require institutions to examine asset quality and earnings standards. If the
appropriate federal banking agency determines that an institution fails to meet
any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by federal law. The final regulations establish
deadlines for the submission and review of such safety and soundness compliance
plans.
Limitations on Dividends and Other Capital Distributions. The FDIC has
the authority to use its enforcement powers to prohibit a savings bank from
paying dividends if, in its opinion, the payment of dividends would constitute
an unsafe or unsound practice. Federal law also prohibits the payment of
dividends by a bank that will result in the bank failing to meet its applicable
capital requirements on a pro forma basis. New York law also restricts the Bank
from declaring a dividend which would reduce its capital below (i) the amount
required to be maintained by state law and regulation, or (ii) the amount of the
Bank's liquidation account established in connection with the Reorganization.
Prompt Corrective Action. The federal banking agencies have promulgated
regulations to implement the system of prompt corrective action required by
federal law. Under the regulations, a bank shall be deemed to be (i)
25
"well capitalized" if it has total risk-based capital of 10.0% or more, has a
Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital
ratio of 5.0% or more and is not subject to any written capital order or
directive; (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a
Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized"; (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 8.0%, a Tier I
risk-based capital ratio that is less than 4.0% or a Tier I leverage capital
ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
Tier I leverage capital ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Federal law and regulations also specify
circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution to comply with supervisory actions as if it were in the
next lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well
capitalized" savings institution.
Activities and Investments of Insured State-Chartered Banks Acting as
Principal. Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. Under regulations dealing with equity
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things, (i) acquiring or retaining a majority interest in a
subsidiary, the activities of which are limited to those permissible for a
subsidiary of a national bank; (ii) investing as a limited partner in a
partnership the sole purpose of which is the direct or indirect investment in
the acquisition, rehabilitation, or new construction of a qualified housing
project, provided that such limited partnership investments may not exceed 2% of
the bank's total assets; (iii) acquiring up to 10% of the voting stock of a
company that solely provides or reinsures directors', trustees', and officers'
liability insurance coverage or bankers' blanket bond group insurance coverage
for insured depository institutions; and (iv) acquiring or retaining the voting
shares of a depository institution if certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the
foregoing limitation. For example, certain state-chartered banks, such as the
Bank, may continue to invest in common or preferred stock listed on a National
Securities Exchange or the National Market System of Nasdaq, and in the shares
of an investment company registered under the Investment Company Act of 1940, as
amended. As of December 31, 2000, the Bank had $19.4 million of securities
pursuant to this exception. As a savings bank, the Bank may also continue to
sell savings bank life insurance.
Transactions With Affiliates. Under current federal law, transactions
between depository institutions and their affiliates are governed by Sections
23A and 23B of the Federal Reserve Act. An affiliate of a savings bank is any
company or entity that controls, is controlled by, or is under common control
with the savings bank, other than a subsidiary of the savings bank. In a holding
company context, at a minimum, the parent holding company of a savings bank and
any companies which are controlled by such parent holding company are affiliates
of the savings bank. Generally, Section 23A limits the extent to which the
savings bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such savings bank's capital stock and
surplus and contains an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus. The term
"covered transaction" includes the making of loans or other extensions of credit
to an affiliate; the purchase of assets from an affiliate, the purchase of, or
an investment in, the securities of an affiliate; the acceptance of securities
of an affiliate as collateral for a loan or extension of credit to any person;
or issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate. Section 23A also establishes specific collateral requirements for
loans or extensions of credit to, or guarantees, acceptances on letters of
credit issued on behalf of an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms
substantially the same, or no less favorable, to the savings bank or its
subsidiary as similar transactions with nonaffiliates.
26
Further, Section 22(h) of the Federal Reserve Act restricts a savings
bank with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
Federal Bank Holding Company Regulation. The Company, as the sole
stockholder of the Bank, and the Mutual Holding Company, as indirect controlling
stockholder of the Bank, are bank holding companies. Bank holding companies are
subject to comprehensive regulation and regular examinations by the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and the regulations of the Federal Reserve Board. The Federal Reserve
Board also has extensive enforcement authority over bank holding companies,
including, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to require that a holding company
divest subsidiaries (including its bank subsidiaries). In general, enforcement
actions may be initiated for violations of law and regulations and unsafe or
unsound practices.
The Company is subject to capital adequacy guidelines for bank holding
companies (on a consolidated basis) which are substantially similar to those of
the FDIC for the Bank. The Company's total stockholders' equity exceeds these
requirements.
Under Federal Reserve Board policy, a bank holding company must serve
as a source of strength for its subsidiary bank. Under this policy the Federal
Reserve Board may require and has required in the past, a holding company to
contribute additional capital to an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain Federal Reserve
Board approval before: (i) acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve Board regulation or
order, have been identified as activities closely related to the business of
banking or managing or controlling banks. The list of activities permitted by
the Federal Reserve Board includes, among other things, operating a savings
association, mortgage company, finance company, credit card company or factoring
company; performing certain data processing operations; providing certain
investment and financial advice; underwriting and acting as an insurance agent
for certain types of credit-related insurance; leasing property on a
full-payout, non-operating basis; selling money orders, travelers' checks and
United States Savings Bonds; real estate and personal property appraising;
providing tax planning and preparation services; and, subject to certain
limitations, providing securities brokerage services for customers.
27
Interstate Banking and Branching. Federal law allows the Federal
Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of the bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Federal Reserve Board is prohibited from approving an application if
the applicant (and its depository institution affiliates) controls or would
control more than 10% of the insured deposits in the United States or 30% or
more of the deposits in the target bank's home state or in any state in which
the target bank maintains a branch. Individual states continue to have authority
to limit the percentage of total insured deposits in the state which may be held
or controlled by a bank or bank holding company to the extent such limitation
does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit referred
to above.
Additionally, beginning on June 1, 1997, the federal banking agencies
were authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks "opted out" by adopting a law which applies equally to
all out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
In response to Riegle-Neal, the State of New York enacted laws allowing
interstate mergers and branching on a reciprocal basis.
Federal law authorizes the FDIC to approve interstate branching de novo
by national and state banks, respectively, only in states which specifically
allow for such branching. The appropriate federal banking agencies are required
to prescribe regulations which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
The FDIC and Federal Reserve Board have adopted such regulations. These
regulations include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve. Should the FDIC determine that a bank
interstate branch is not reasonably helping to meet the credit needs of the
communities serviced by an interstate branch, the FDIC is authorized to close
the interstate branch or not permit the bank to open a new branch in the state
in which the bank previously opened an interstate branch.
Dividends. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company should pay cash
dividends only to the extent that the holding company's net income for the past
year is sufficient to cover both the cash dividends and a rate of earning
retention that is consistent with the holding company's capital needs, asset
quality and overall financial condition. The Federal Reserve Board also
indicated that it would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends. Furthermore, under the
prompt corrective action regulations adopted by the Federal Reserve Board, the
Federal Reserve Board may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized."
Bank holding companies are required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve Board may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve Board
order or any condition imposed by, or written agreement with, the Federal
Reserve Board. This notification requirement does not apply to any company that
meets the well-capitalized standard for commercial banks, has a safety and
soundness examination rating of at least a "2" and is not subject to any
unresolved supervisory issues.
New York State Bank Holding Company Regulation. In addition to the
federal bank holding company regulations, a bank holding company organized or
doing business in New York State also may be subject to regulation
28
under the New York State Banking Law. The term "bank holding company," for the
purposes of the New York State Banking Law, is defined generally to include any
person, company or trust that directly or indirectly either controls the
election of a majority of the directors or owns, controls or holds with power to
vote more than 10% of the voting stock of a bank holding company or, if the
Company is a banking institution, another banking institution, or 10% or more of
the voting stock of each of two or more banking institutions. In general, a bank
holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
the New York State Banking Law. Under New York State Banking Law, the prior
approval of the Banking Board is required before: (1) any action is taken that
causes any company to become a bank holding company; (2) any action is taken
that causes any banking institution to become or be merged or consolidated with
a subsidiary of a bank holding company; (3) any bank holding company acquires
direct or indirect ownership or control of more than 5% of the voting stock of a
banking institution; (4) any bank holding company or subsidiary thereof acquires
all or substantially all of the assets of a banking institution; or (5) any
action is taken that causes any bank holding company to merge or consolidate
with another bank holding company. Additionally, certain restrictions apply to
New York State bank holding companies regarding the acquisition of banking
institutions which have been chartered five years or less and are located in
smaller communities. Officers, directors and employees of New York State bank
holding companies are subject to limitations regarding their affiliation with
securities underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries.
Mutual Holding Company Regulation. Under New York law, the Mutual
Holding Company may exercise all powers and privileges of a New York chartered
mutual savings bank, except for the power of accepting deposits. The exercise of
such powers and privileges is subject to the limitations of the BHCA.
Dividend Waivers by the Mutual Holding Company. It has been the policy
of many mutual holding companies to waive the receipt of dividends declared by
any savings institution subsidiary. In connection with its approval of the
Reorganization, however, it is expected that the Federal Reserve Board will
impose certain conditions on the waiver by the Mutual Holding Company of
dividends paid on the Common Stock. In particular, the Mutual Holding Company is
expected to be required to obtain prior Federal Reserve Board approval before it
may waive any dividends. As of the date hereof, management does not believe that
the Federal Reserve Board has given its approval to any waiver of dividends by
any mutual holding company that has requested its approval.
The terms of the Federal Reserve Board approval of the Reorganization
require that the amount of any waived dividends will not be available for
payment to Minority Stockholders and be excluded from capital for purposes of
calculating dividends payable to Minority Stockholders. Moreover, the cumulative
amount of waived dividends must be maintained in a restricted capital account
which would be added to any liquidation account of the Bank, and would not be
available for distribution to Minority Stockholders. The restricted capital
account and liquidation account amounts would not be reflected in the Bank's
financial statements or the notes thereto, but would be considered as a
notational or memorandum account of the Bank, and would be maintained in
accordance with the rules, regulations and policy of the Office of Thrift
Supervision except that such rules would be administered by the Federal Reserve
Board, and any other rules and regulations adopted by the Federal Reserve Board.
If the Mutual Holding Company decides that it is in its best interest
to waive a particular dividend to be paid by the Company and the Federal Reserve
Board approves such waiver, then the Company would pay such dividend only to
Minority Stockholders. The amount of the dividend waived by the Mutual Holding
Company would be treated in the manner described above. The Mutual Holding
Company's decision as to whether or not to waive a particular dividend, if such
waiver is approved by the Federal Reserve Board, will depend on a number of
factors, including the Mutual Holding Company's capital needs, the investment
alternatives available to the Mutual Holding Company as compared to those
available to the Company and regulatory approvals. There can be no assurance (i)
that the Mutual Holding Company will waive dividends paid by the Company, (ii)
that the Federal Reserve Board will approve any dividend waivers by the Mutual
Holding Company or (iii) of the terms that may be imposed by the Federal Reserve
Board on any dividend waiver.
29
Conversion of the Mutual Holding Company to Stock Form. Under New York
law, regulations of the Banking Board and the Plan of Reorganization permit the
Mutual Holding Company to convert from the mutual to the capital stock form of
organization (a "Conversion Transaction"). There can be no assurance when, if
ever, a Conversion Transaction will occur, and the board of trustees has no
current intention or plan to undertake a Conversion Transaction. In a Conversion
Transaction, the Mutual Holding Company would merge with and into the Bank or
the Company, with the Bank or the Company as the resulting entity. Certain
depositors of the Bank would receive the right to subscribe for additional
shares of the resulting entity. In a Conversion Transaction, each share of
Common Stock outstanding immediately prior to the completion of the Conversion
Transaction held by persons other than the Mutual Holding Company would be
automatically converted into and become the right to receive a number of shares
of Common Stock of the resulting entity determined pursuant to an exchange ratio
that ensures that after the Conversion Transaction, subject to the Dividend
Waiver and MHC Assets Adjustment described below (if required by the applicable
federal banking regulators) and any adjustment to reflect the receipt of cash in
lieu of fractional shares, the percentage of the to-be outstanding shares of the
resulting entity issued to Minority Stockholders in exchange for their Common
Stock would be equal to the percentage of the outstanding shares of Common Stock
held by Minority Stockholders immediately prior to the Conversion Transaction.
The total number of shares held by Minority Stockholders after the Conversion
Transaction also would be affected by any purchases by such persons in the
offering that would be conducted as part of the Conversion Transaction.
The Dividend Waiver and MHC Assets Adjustment would adjust the
percentage of the to-be outstanding shares of the resulting entity issued in
exchange for minority shares to reflect (i) the aggregate amount of dividends
waived by the Mutual Holding Company and (ii) assets, other than Common Stock,
held by the Mutual Holding Company. Pursuant to the Dividend Waiver and MHC
Assets Adjustment, the percentage of the to-be outstanding shares of the
resulting entity issued to Minority Stockholders in exchange for their minority
shares (the "Adjusted Minority Ownership Percentage") is equal to the percentage
of the outstanding shares of Common Stock held by Minority Stockholders
multiplied by the Dividend Waiver Fraction. The Dividend Waiver Fraction is
equal to the product of (a) a fraction, of which the numerator is equal to the
Company's stockholders' equity at the time of the Conversion Transaction less
the aggregate amount of dividends waived by the Mutual Holding Company, and the
denominator is equal to the Company's stockholders' equity at the time of the
Conversion Transaction, and (b) a fraction, of which the numerator is equal to
the appraised pro forma market value of the resulting entity in the Conversion
Transaction minus the value of the Mutual Holding Company's assets other than
Common Stock and the denominator is equal to the appraised pro forma market
value of the resulting entity in the Conversion Transaction.
Financial Services Modernization Act. On November 12, 1999, the
Gramm-Leach-Bliley Act was signed into law, repealing provisions of the
depression-era Glass-Steagall Act, which prohibited commercial banks, securities
firms, and insurance companies from affiliating with each other and engaging in
each other's businesses. The major provisions of the Act took effect on March
12, 2000.
The Act creates a new type of financial services company called a
"Financial Holding Company" (an "FHC"), a bank holding company with dramatically
expanded powers. FHCs may offer virtually any type of financial service,
including banking, securities underwriting, insurance (both agency and
underwriting) and merchant banking. The Federal Reserve serves as the primary
"umbrella" regulator of FHCs. Balanced against the attractiveness of these
expanded powers are higher standards for capital adequacy and management, with
heavy penalties for noncompliance.
Bank holding companies that wish to engage in expanded activities but
do not wish to become financial holding companies may elect to establish
"financial subsidiaries," which are subsidiaries of national banks with expanded
powers. The Act permits financial subsidiaries to engage in the same types of
activities permissible for nonbank subsidiaries of financial holding companies,
with the exception of merchant banking, insurance underwriting and real estate
investment and development. Merchant banking may be permitted after a five-year
waiting period under certain regulatory circumstances.
30
Implementing regulations under the Act have not yet been promulgated,
and though the Company cannot predict the full impact of the new legislation,
there is likely to be consolidation among financial services institutions and
increased competition for the Company. The Company expects to remain a bank
holding company for the time being and access its options as circumstances
change.
Federal Securities Law. The Common Stock of the Company is registered
with the SEC under the Exchange Act, prior to completion of the Offering and
Reorganization. The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the SEC under the
Exchange Act.
The Company Common Stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain noninterest-bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 1999, the Bank was in compliance with these
reserve requirements.
Federal Regulation. Under the Community Reinvestment Act, as amended
(the "CRA"), as implemented by FDIC regulations, a savings bank has a continuing
and affirmative obligation, consistent with its safe and sound operation, to
help meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA requires the FDIC to provide a written evaluation
of an institution's CRA performance utilizing a four-tiered descriptive rating
system. The Bank's latest CRA rating was "outstanding."
New York State Regulation. The Bank is also subject to provisions of
the New York State Banking Law which impose continuing and affirmative
obligations upon banking institutions organized in New York State to serve the
credit needs of its local community ("NYCRA") which are substantially similar to
those imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual
NYCRA report and copies of all federal CRA reports with the Department. The
NYCRA requires the Department to make a biennial written assessment of a bank's
compliance with the NYCRA, utilizing a four-tiered rating system and make such
assessment available to the public. The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's application to engage
in certain transactions, including mergers, asset purchases and the
establishment of branch offices or automated teller machines, and provides that
such assessment may serve as a basis for the denial of any such application.
The Bank's NYCRA rating as of its latest examination was
"satisfactory."
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs, that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home financing.
31
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York. As of December 31, 2000, the Bank had $3.9 million of FHLB
stock. The dividend yield from FHLB stock was 7.32% at December 31, 2000. No
assurance can be given that such dividends will continue in the future at such
levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
Federal Taxation
General. The Mutual Holding Company, the Company and the Bank are
subject to federal income taxation in the same general manner as other
corporations, with some exceptions discussed below. The following discussion of
federal taxation is intended only to summarize certain pertinent federal income
tax matters and is not a comprehensive description of the tax rules applicable
to the Bank.
Method of Accounting. For federal income tax purposes, the Bank
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its consolidated federal
income tax returns. The Small Business Protection Act of 1996 (the "1996 Act")
eliminated the use of the reserve method of accounting for bad debt reserves by
savings institutions, effective for taxable years beginning after 1995.
Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return. In addition, the federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The Bank did
not have any such reserves subject to recapture.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 5, 1997. At December 31, 2000, the Bank had
no net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. The Company may exclude from
its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. Following completion of the Reorganization and
Offering, it is expected that the Mutual Holding Company will own less than 80%
of the outstanding Common Stock of the Company. As such, the Mutual Holding
Company will not be permitted to file a consolidated federal income tax return
with the Company and the Bank. The corporate dividends-received deduction is 80%
in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated return, and corporations which own less
than 20% of the stock of a corporation distributing a dividend may deduct only
70% of dividends received or accrued on their behalf.
32
State Taxation
New York State Taxation. The Company and the Bank will report income on
a combined calendar year basis to New York State. New York State Franchise Tax
on corporations is imposed in an amount equal to the greater of (a) 9% of
"entire net income" allocable to New York State (b) 3% of "alternative entire
net income" allocable to New York State (c) 0.01% of the average value of assets
allocable to New York State or (d) nominal minimum tax. Entire net income is
based on federal taxable income, subject to certain modifications. Alternative
entire net income is equal to entire net income without certain modifications.
Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
The IRS and New York State Department of Taxation have recently
completed their audit of the Bank's 1993, 1994 and 1995 federal and state income
tax returns.
Executive Officers of the Registrant
Listed below is information, as of December 31, 2000, concerning the
Company's executive officers. There are no arrangements or understandings
between the Registrant and any of persons named below with respect to which he
or she was or is to be selected as an officer.
Name Age Position and Term
---- --- -------------------------------------------------------------
Michael R. Kallet 50 President and Chief Executive Officer since 1990
Eric E. Stickels 39 Senior Vice President and Chief Financial Officer since 1998
Thomas H. Dixon 46 Senior Vice President\Credit Administration since 1996
ITEM 2. PROPERTIES
- -----------------------------------------
The Bank conducts its business through its main office located in
Oneida, New York, and five additional full service branch offices. The following
table sets forth certain information concerning the main office and each branch
office of the Bank at December 31, 2000. The aggregate net book value of the
Bank's premises and equipment was $6.2 million at December 31, 2000.
Original Date of Net Book Value
Year Lease of Property
Location Acquired Expiration at December 31, 2000
- ----------------------------------------------------------------------------------------------
(In thousands)
Main Office:
182 Main Street 1889 N/A $ 2,388
Oneida, New York 13421
Branch Offices:
Camden Branch 1997 N/A 990
41 Harden Boulevard
Camden, New York 13316
Canastota Branch 1999 N/A 1,087
104 S. Peteboro St.
Canastota, New York 13032
33
Cazenovia Branch 1971 N/A 272
48 Albany Street
Cazenovia, New York 13035
Hamilton Branch 1976 N/A 48
35 Broad Street
Hamilton, New York 13346
Convenience Center 1988 N/A 247
585 Main Street
Oneida, New York 13421
Operations Center
126 Lenox Avenue 1989 N/A 654
Oneida, New York 13421
Bailey & Haskell Associates, Inc.
Oneida Office 2000 8/03 267
131 Main Street
Oneida, New York 13421
Other Bank Property
102 S. Peterboro St. 2000 N/A 219
Canastota, New York 13032
ITEM 3. LEGAL PROCEEDINGS
Much of the Bank's market area is included in the 270,000-acre land
claim of the Oneida Indian Nation ("Oneidas"). The land claim area is held
primarily by private persons. Over 15 years ago, the United States Supreme Court
ruled in favor of the Oneidas in a lawsuit which Management believes was
intended to encourage the State of New York to negotiate an equitable settlement
in a land dispute that has existed for 200 years.
In June 1998, the United States Justice Department intervened in the
action on behalf of the Oneidas against Madison County and Oneida County in New
York State. In September 1998, a U.S. District Court removed a stay of
litigation, having been in place since the late 1980s pending settlement
negotiations. In December 1998, both the Oneidas and the U.S. Justice Department
filed motions to amend the long outstanding claim against the State of New York.
The motion attempts to include in the claim, various named and 20,000 unnamed
additional defendants, who own real property in parts of Madison and Oneida
counties, thereby including the additional defendants in the original suit. The
U.S. District Court granted the motions to add as a defendant the State of New
York, but denied the motions to add the private landowners. Neither the Bank nor
the Company is a named defendant in the motion. The Court further rejected as
not being viable the remedies of ejectment and/or of monetary damages against
private landowners. Amended complaints were served by the Oneidas and the United
States which seek to eject the Counties of Madison and Oneida from lands owned
by the counties, and the Oneidas also seek a declaration that they have the
right to possess all land within the land claim area.
To date neither the original claim nor the motion to amend has had an
adverse impact on the local economy or real property values. In addition, title
insurance companies continue to underwrite policies in the land claim area with
no change in premiums or underwriting standards. The Bank requires title
insurance on all residential real estate loans, excluding home equity loans.
Both the State of New York and the Oneidas have indicated in their respective
communications that individual landowners will not be adversely affected by the
ongoing litigation. The Company continues to monitor the situation.
The Company is not involved in any other pending legal proceedings
other than routine legal proceedings occurring in the ordinary course of
business which, in the aggregate, involve amounts which are believed by
management to be immaterial to the financial condition or operations of the
Company.
34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
No matters were submitted during the fourth quarter of the year ended
December 31, 2000 to a vote of securityholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ------------------------------------------------------------------
STOCKHOLDER MATTERS
For information concerning the market for the Company's common stock,
the section captioned "Stockholder Information" in the Company's Annual Report
to Stockholders for the Year Ended December 31, 2000 (the "Annual Report to
Stockholders") is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- ----------------------------------------------------------------
The "Selected Consolidated Financial and Other Data" section of the
Company's Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ---------------------------------------------------------------------------
Interest Rate Risk. In recent years, the Bank has used the following
strategies to manage interest rate risk: (i) emphasizing the origination and
retention of residential monthly and bi-weekly adjustable-rate mortgage loans,
commercial adjustable-rate mortgage loans, other business purpose loans and
consumer loans consisting primarily of auto loans; (ii) selling substantially
all newly originated longer-term fixed-rate one-to-four family residential
mortgage loans into the secondary market without recourse and on a servicing
retained basis; and (iii) managing the Company's investment activities in a
prudent manner in the context of overall balance sheet asset/liability
management. Investing in shorter-term securities will generally bear lower
yields as compared to longer-term investments, but which better position the
Bank for increases in market interest rates and better matches the maturities of
the Bank's certificate of deposit accounts. Certificates of deposit that mature
in one year or less, at December 31, 2000 totaled $63.2 million, or 25.1% of
total interest-bearing liabilities. The wholesale arbitrage strategy of
investing allows the Company to invest in longer-term assets by hedging the
additional interest rate risk with liabilities of similar maturity or repricing
characteristics. Borrowed funds that mature in one year or less, at December 31,
2000 totaled $12.0 million, or 4.8% of total interest-bearing liabilities.
Management believes that this balanced approach to investing will reduce the
exposure to interest rate fluctuations will enhance long-term profitability.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature, reprice or otherwise cash flow within that time period. The
interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within the same
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. At December
31, 2000, the Bank's one-year gap position, the difference between the amount of
interest-earning assets maturing or repricing within one year and
interest-bearing liabilities maturing or repricing within one year, was 105.1%.
During a period of rising interest rates, an institution with a negative gap
position is likely to experience a decline in net interest income as the cost of
its interest-bearing liabilities increases at a rate faster than its yield on
interest-earning assets. In comparison,
35
an institution with a positive gap is likely to realize a decline in its net
interest income in a falling interest rate environment. Given the Bank's
existing liquidity position and its ability to sell securities from its
available for sale portfolio, the Bank's negative gap position will not have a
material adverse effect on its operating results or liquidity position
The following table sets forth the amounts of all interest-earning
assets and interest-bearing liabilities outstanding at December 31, 2000, which
are anticipated by the Bank, based upon certain assumptions, to mature, reprice
or cash flow in each of the future time periods shown (the "GAP Table"). Except
as stated below, the table sets forth an approximation of the projected cash
flow of assets and liabilities at December 31, 2000, on the basis of contractual
maturities, scheduled loan amortization, and scheduled rate adjustments within
the selected time intervals. Savings accounts were assumed to decay at 9.50%,
9.75%, 10.00%, 10.25%, 10.50% and 50.00%; NOW accounts were assumed to decay at
9.20%, 9.35%, 9.55%, 9.70%, 9.90% and 52.30%; and money market accounts were
assumed to decay at 18.65%, 19.30%, 20.00%, 20.65%, 21.40% and 0% for the
periods of one to two years, two to three years, three to four years, four to
five years and more than five years, respectively. Prepayment and deposit decay
rates can have a significant impact on the Company's estimated gap.
While the Company believes the data to be reasonable, there can be no
assurance that the contractual maturity, repricing periods and decay rates will
approximate actual future loan prepayment and deposit withdrawal activity.
At December 31, 2000
-------------------------------------------------------------------------- Fair
2001 2002 2003 2004 2005 Thereafter Total Value
-------- -------- -------- -------- -------- -------- -------- --------
Interest Earning Assets:
Fixed Rate:
Loans receivable............. $ 20,250 $ 13,369 $ 9,983 $ 7,031 $ 4,791 $ 12,757 $ 68,181 $ 69,026
Average interest rate.......... 9.21% 8.96% 8.95% 8.99% 9.04% 8.13% 8.90%
Investment and MBS........... 7,720 6,320 10,432 14,197 12,711 51,901 103,281 102,437
Average interest rate.......... 5.20% 6.21% 6.95% 6.21% 6.28% 7.89% 7.06%
Variable Rate:
Loans receivable............. 54,454 14,786 9,798 7,349 7,768 3,957 98,112 99,327
Average interest rate.......... 9.23% 8.50% 8.18% 7.352% 7.56% 10.89% 8.79%
Investment and MBS........... 5,000 -- -- -- -- -- 5,000 5,003
Average interest rate.......... 8.25% -- -- -- -- -- 8.25%
Federal funds................ 1,600 -- -- -- -- -- 1,600 1,600
Average interest rate.......... 6.10% -- -- -- -- -- 6.10%
Equity securities............ -- -- -- -- -- 23,756 23,756 23,829
Average interest rate.......... -- -- -- -- -- 6.49% 6.49%
-------- -------- -------- -------- -------- -------- -------- --------
Total interest-earning assets.. $ 89,024 $34,475 $ 30,213 $ 28,577 $ 25,270 $ 92,371 $299,930 $301,222
======== ======== ======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Fixed Rate:
Certificate accounts......... $ 61,454 $ 32,187 $ 6,391 $ 2,951 $ 5,517 $ 76 $108,576 $108,879
Average interest rate......... 5.57% 6.49% 5.89% 5.44% 6.37% 5.74% 5.90%
Borrowings.................. 7,000 5,000 9,500 -- 9,000 27,500 58,000 57,589
Average interest rate......... 6.66% 5.48% 6.57% -- 6.54% 5.54% 5.99%
Variable Rate:
Certificate accounts........ 1,771 -- -- -- -- -- 1,771 1,776
Average interest rate......... 6.00% -- -- -- -- -- 6.00%
Savings accounts............ 5,215 4,292 4,292 4,292 4,292 21,468 43,851 43,850
Average interest rate......... 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Money market and NOW........ 4,298 4,297 4,297 4,297 4,297 4,400 25,886 25,886
Average interest rate......... 3.23% 3.23% 3.23% 3.23% 3.23% 1.88% 3.00%
Borrowings.................. 5,000 4,100 -- 5,000 -- -- 14,100 14,100
Average interest rate......... 6.64% 6.62% -- 6.86% -- -- 6.71%
-------- -------- -------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities................. $ 84,738 $ 49,876 $ 24,480 $ 16,540 $ 23,106 $ 53,444 $252,184 $251,980
-------- -------- -------- -------- -------- -------- -------- --------
Interest sensitivity gap/period $ 4,286 $(15,401) $ 5,733 $ 12,037 $ 2,164 $ 38,927 $ 47,746
-------- -------- -------- -------- -------- -------- --------
Cumulative sensitivity gap.... $ 4,286 $(11,115) $ (5,382) $ 6,655 $ 8,819 $ 47,746 $ 47,746
-------- -------- -------- -------- -------- -------- --------
Ratio of interest-earning assets
to interest-bearing liabilities 105.06% 69.12% 123.42% 172.78% 109.37% 172.84% 118.93%
-------- -------- -------- -------- -------- -------- --------
Cumulative interest sensitivity gap
as a percentage of total assets 1.34% (3.49)% (1.68)% 2.08% 2.76% 14.94% 14.94%
-------- -------- -------- -------- -------- -------- --------
36
The Gap Table above includes all interest sensitive assets and
liabilities grouped based upon instruments with common characteristics. The
following assumptions were used to prepare the table. Fixed-rate loans with
amortizing payments are scheduled according to amortized cash flows, since this
represents a repricing opportunity on funds received as payments. Fixed-rate
demand loans, time notes or any other fixed-rate loans with no scheduled
amortizing payment are assigned by final maturity. Investment and
mortgage-backed securities are scheduled based on the earlier of their maturity
date or next scheduled call date. Variable rate loans are assumed to cash flow
as of their next scheduled repricing date since this represents a repricing
opportunity. Federal funds are assigned to immediate repricing since they
represent an overnight investment and therefore they mature and reprice daily.
Equity securities have no stated maturity and are considered by the Bank as
long-term investments and therefore are grouped in the final maturity category.
Fixed-rate certificate accounts are assigned by final maturity dates. Except as
described above, the GAP table does not take into account prepayments of loans,
mortgage-backed securities or investments nor early withdrawal activity for
certificate accounts.
Certain shortcomings are inherent in the methodologies used in the
above interest rate risk measurements, and the use of interest rate risk
measurements to generally measure market risks. Although certain assets and
liabilities may have similar maturities or terms to repricing, they react in
different degrees to changes in market interest rates. The interest rates on
certain types of assets and liabilities may lag behind changes in market rates.
Certain assets, such as ARM loans have features that restrict changes in
interest rates from year to year and over the life of the loan. Moreover,
changes in interest rates, prepayments and early withdrawals of certificates of
deposits would affect the results set forth in the GAP table. Finally, the
ability of some borrowers to service their adjustable rate loans may decrease in
the event of interest rate increases. There are no other interest-earning assets
or liabilities that have been omitted from the table. As a result of these
shortcomings, the Company focuses more attention on simulation modeling, such as
the Net Income and Portfolio Value Analysis discussed below, rather than Gap
Analysis. Even though the Gap Analysis reflects a ratio of cumulative gap to
total assets within the Company's targeted range of acceptable limits, the net
income and net portfolio value simulation modeling is considered by management
to be more informative in forecasting future income and economic value trends.
Net Income and Portfolio Value Analysis. The Company's interest rate
sensitivity is also monitored by management through the use of a net income
model and a net portfolio value ("NPV") model which generates estimates of the
change in the Company's net income and NPV over a range of interest rate
scenarios. NPV is the present value of expected cash flows from assets and
liabilities. The model assumes estimated loan prepayment rates; reinvestment
rates and deposit decay rates similar to the assumptions utilized for the GAP
Table. The following sets forth the Company's net income and NPV as of December
31, 2000.
Change in Net Interest Income Net Portfolio Value
Interest Rates ------------------------- ---------------------------
In Basis Points Dollar Dollar Percent Dollar Dollar Percent
(Rate Shock) Amount Change Change Amount Change Change
-------------- ----------------------------------------------------
(Dollars in thousands)
+300 $10,548 $ 150 1.44% $41,838 $ (10,039) (19.35)%
+200 10,541 143 1.38% 45,359 (6,518) (12.56)%
+100 10,517 119 1.14% 49,004 (2,874) (5.54)%
Static 10,398 -- -- 51,877 -- --
-100 10,325 (73) (0.70)% 53,089 1,212 2.34%
-200 10,180 (218) (2.10)% 53,507 1,630 3.14%
-300 10,000 (399) (3.84)% 52,491 614 1.18%
As is the case with the GAP Table, certain shortcomings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in Net Income and NPV requires the making of certain assumptions, which
may or may not reflect the manner in which actual yields and costs respond to
changes in market interest rates. In this regard, the Net Interest Income and
NPV Table presented assumes that the composition of the Company's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period
37
being measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the Net Income and NPV Table provides an indication of the Company's interest
rate risk exposure at a particular point in time, such measurements are not
intended to and do not provide a precise forecast of the effect of changes in
market interest rates on the Company's net interest income and will differ from
actual results.
ITEM 8. FINANCIAL STATEMENTS
- --------------------------------------
The financial statements identified in Item 14(a)(1) hereof are
incorporated by reference hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------------
There were no changes in or disagreements with accountants in the
Company's accounting and financial disclosure during 2000.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
- ----------------------------------------------------------
Information concerning Directors of the Company is incorporated herein
by reference from the Company's definitive Proxy Statement dated March 22, 2001,
(the "Proxy Statement"), specifically the section captioned "Proposal
I--Election of Directors." In addition, see Item 1. "Executive Officers of the
Registrant" for information concerning the Company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION
- ----------------------------------------
Information concerning executive compensation is incorporated herein by
reference from the Registrant's Proxy Statement, specifically the sections
captioned "Proposal I--Election of Directors--Executive Compensation,"
"--Directors' Compensation," and "--Benefits."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
- -----------------------------------------------------------------
Information concerning security ownership of certain owners and
management is incorporated herein by reference from the Company's Proxy
Statement.
ITEM 13. CERTAIN TRANSACTIONS
- --------------------------------------
Information concerning relationships and transactions is incorporated
herein by reference from the Company's Proxy Statement.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
- -------------------------------------------------------------
The exhibits and financial statement schedules filed as a part
of this Form 10-K are as follows:
(a)(1) Financial Statements
o Report of Independent Accountants
o Consolidated Statements of Condition, December 31, 2000
and 1999
o Consolidated Statements of Income, Years Ended December
31, 2000, 1999 and 1998
o Consolidated Statements of Comprehensive Income , Years
Ended December 31, 2000, 1999 and 1998
o Consolidated Statements of Changes in Stockholders'
Equity, Years Ended December 31, 2000, 1999 and 1998
o Consolidated Statements of Cash Flows, Years Ended
December 31, 2000, 1999 and 1998
o Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
No financial statement schedules are filed because the
required information is not applicable or is included in the
consolidated financial statements or related notes.
(a)(3) Exhibits
3.1 Certificate of Incorporation of Oneida Financial Corp.**
3.2 Bylaws of Oneida Financial Corp.**
4 Form of Stock Certificate.**
10.1 Employee Stock Ownership Plan.**
10.2 Stock Option Plan
10.3 Recognition and Retention Plan
13 Annual Report to Stockholders.
21 Subsidiaries of the Company.
** Incorporated by Reference to the Company's Registration Statement on Form S-1
filed on September 17, 1998.
(b) Reports on Form 8-K:
-------------------
None
(c) The exhibits listed under (a)(3) above are filed herewith.
(d) Not applicable.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONEIDA FINANCIAL CORP.
Date: March 23, 2001 By: /s/Michael R. Kallet
----------------------
Michael R. Kallet
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange 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/Michael R. Kallet By: /s/Eric E. Stickels
-------------------- -------------------
Michael R. Kallet, President and Chief Eric E. Stickels, Senior
Executive Officer Vice President and Chief
(Principal Executive Officer) Financial Officer (Principal
Financial and Accounting Officer)
Date: March 23, 2001 Date: March 23, 2001
By: /s/Thomas H. Dixon By: /s/Nicholas J. Christakos
------------------ -------------------------
Thomas H. Dixon, Senior Vice President Nicholas J. Christakos, Director
Date: March 23, 2001 Date: March 23, 2001
By: /s/Patricia D. Caprio By: /s/Edward J. Clarke
--------------------- -------------------
Patricia D. Caprio, Director Edward J. Clarke, Director
Date: March 23, 2001 Date: March 23, 2001
By: /s/James J. Devine, Jr. By: /s/John E. Haskell
----------------------- ------------------
James J. Devine, Jr., Director John E. Haskell, Director
Date: March 23, 2001 Date: March 23, 2001
By: /s/Rodney D. Kent By: /s/William D. Matthews
----------------- ----------------------
Rodney D. Kent, Director William D. Matthews, Director
Date: March 23, 2001 Date: March 23, 2001
By: /s/Michael W. Milmoe By: /s/Richard B. Myers
-------------------- -------------------
Michael W. Milmoe, Director Richard B. Myers, Director
Date: March 23, 2001 Date: March 23, 2001
By: /s/Frank O. White, Jr.
----------------------
Frank O. White, Jr., Director
Date: March 23, 2001