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UNITED STATES
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, 2003
Commission file number: 001-31896
The Wilber Corporation
(Exact name of registrant as specified in its charter)
New York 15-6018501
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
245 Main Street, P.O. Box 430, Oneonta, NY 13820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 607-432-1700
Securities registered pursuant to 12(b) of the Act:
Title of each class to be registered Name of each exchange on which registered
Common Stock American Stock Exchange
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |_| No |X|
Based upon the closing price of the registrant's common stock as of June 30,
2003, the aggregate value of the voting stock, common stock, $0.01 par value per
share held by non-affiliates of the registrant was $75.4 million. Although
Directors and Executive Officers of the registrant were assumed to be
"affiliates" for the purposes of this calculation, the classification is not to
be interpreted as an admission of such status. There were no classes of
non-voting common stock authorized on June 30, 2003.
The number of shares of common stock outstanding on March 12, 2004 was
11,209,392.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement for the Registrant's
Annual Meeting of Shareholders to be held on April 24, 2004 are incorporated by
reference.
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THE WILBER CORPORATION
FORM 10-K
INDEX
FORWARD-LOOKING STATEMENTS
PART I
ITEM 1: BUSINESS
A. General
B. Market Area
C. Lending Activities
a. Loan Products and Services
b. Loan Approval Procedures and Authority
c. Credit Quality Practices
D. Investment Securities Activities
E. Sources of Funds
F. Electronic and Payment Services
G. Trust and Investment Services
H. Insurance Services
I. Supervision and Regulation
J. Competition
K. Legislative Developments
ITEM 2: PROPERTIES
ITEM 3: LEGAL PROCEEDINGS
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5: MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
ITEM 6: SELECTED FINANCIAL DATA
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. General
B. Financial Condition
a. Comparison of Financial Condition at September 30, 2003 and
December 31, 2002
C. Results of Operations
a. Comparison of Operating Results for the Years Ended December 31,
2003 and December 31, 2002
b. Comparison of Operating Results for the Years Ended December 31,
2002 and December 31, 2001
D. Liquidity
E. Capital Resources and Dividends
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A: CONTROLS AND PROCEDURES
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors of the Registrant
B. Executive Officers of the Registrant Who Are Not Directors
C. Compliance With Section 16(a)
ITEM 11: EXECUTIVE COMPENSATION
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
3-K
FORWARD-LOOKING STATEMENTS
When we use words or phrases like "will probably result," "we expect," "will
continue," "we anticipate," "estimate," "project," "should cause," or similar
expressions in this annual report or in any press releases, public
announcements, filings with the Securities and Exchange Commission (the "SEC")
or other disclosures, we are making "forward-looking statements" as described in
the Private Securities Litigation Reform Act of 1995. In addition, certain
information we provide, such as analysis of the adequacy of our allowance for
loan losses or an analysis of the interest rate sensitivity of our assets and
liabilities, is always based on predictions of the future. From time to time, we
may also publish other forward-looking statements about anticipated financial
performance, business prospects, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. We want you to know that a variety of future events
and uncertainties could cause our actual results and experience to differ
materially from what we anticipate when we make our forward-looking statements.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in consumer preferences, changes in interest
rates, deposit flows, cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products
services and fees.
Please do not rely unduly on any forward-looking statements, which are valid
only as of the date made. Many factors, including those described above, could
affect our financial performance and could cause our actual results or
circumstances for future periods to differ materially from what we anticipate or
project. We have no obligation to update any forward-looking statements to
reflect future events which occur after the statements are made, and we
specifically disclaim such obligation.
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PART I
ITEM 1: BUSINESS
A. General
The Wilber Corporation (the "Company"), a New York corporation, was originally
incorporated in 1928. The Company held and disposed of various real estate
assets until 1974. In 1974, the Company and its real estate assets were sold to
Wilber National Bank (the "Bank"), a nationally chartered bank established in
1874. The Company's real estate assets were used to expand the banking house of
Wilber National Bank. The Company was an inactive subsidiary of the Bank until
1982. In 1983, under a plan of reorganization, the Company was re-capitalized,
acquired 100% of the voting stock of the Bank, and registered as a bank holding
company within the meaning of the Bank Holding Company Act of 1956 ("BHCA").
The business of the Company consists primarily of the ownership, supervision and
control of its sole bank subsidiary, Wilber National Bank. The Company, through
the Bank and the Bank's subsidiaries (collectively "we" or "our"), offers a full
range of commercial and consumer financial products including business,
municipal, mortgage and consumer loans, deposits, trust and investment services,
and insurance. We serve our customers through nineteen (19) full service branch
banking offices located in Otsego, Delaware, Schoharie, Chenango, Ulster, and
Broome counties, New York, an ATM network, and electronic / Internet banking
services. In addition, we operate an insurance sales office located in Walton,
New York (Delaware County) and a representative loan production banking office
in Kingston, New York (Ulster County). The Bank's Main Office is located at 245
Main Street, Oneonta, New York 13820 (Otsego County). We employed 219 full-time
equivalent employees at December 31, 2003. Our website address is
www.wilberbank.com.
The Bank's subsidiaries include Wilber REIT, Inc., Western Catskill Realty, LLC
and Mang-Wilber, LLC. Wilber REIT, Inc. is wholly - owned by the Bank and
primarily holds mortgage related assets. Western Catskill Realty, LLC is a
wholly - owned real estate holding company, which primarily holds foreclosed
real estate. Mang-Wilber, LLC is the Bank's insurance agency subsidiary, which
is operated under a joint venture arrangement with a regional insurance agency.
At December 31, 2003, the Bank owned a 70.8% membership interest in Mang-Wilber,
LLC.
Our principal business is to act as a financial intermediary in the communities
we serve by obtaining funds through customer deposits and institutional
borrowings, lending the proceeds of those funds to our customers, and investing
excess funds in debt securities and short-term liquid investments. Our funding
base consists of deposits derived principally from the central New York
communities which we serve. To a lesser extent, we borrow funds from
institutional sources, principally the Federal Home Loan Bank of New York
(hereinafter referred to as "FHLBNY"). We target our lending activities to
consumers and municipalities in the immediate geographic areas and to small and
mid-sized businesses in the immediate geographic areas and broader statewide
region. Our investment activities primarily consist of purchases of high-quality
U.S. Treasury, U.S. Government Agency ("GinnieMae"), U.S. Government Sponsored
Entities ("FannieMae" and "FreddieMac"), municipal, mortgage-backed and high
quality corporate debt instruments. Through our Trust and Investment Division,
we provide personal trust, agency, estate administration and retirement planning
services for individuals, as well as, custodial and investment management
services to institutions. We also offer stocks, bonds and mutual funds through a
third party broker-dealer firm. Through our joint venture insurance subsidiary,
Mang-Wilber, LLC, we offer a full line of life, health and property and casualty
insurance products.
B. Market Area
We primarily operate in the small town and rural markets to the North and West
of the Catskill Mountains in central New York. The regional economy is driven by
small not-for-profit businesses; farming; hospitals; small, independently owned
retailers, restaurants and motels; light manufacturing; several small colleges;
and tourism. The National Baseball Hall of Fame (Cooperstown, New York), the
National Soccer Hall of Fame (Oneonta, New York), and outdoor recreation such as
camping, hunting, fishing, and skiing bring seasonal activity to several
communities within our market area. The Bank's Main Office in Oneonta, New York
is approximately 70 miles southwest of Albany, New York, the state's capital,
and 180 miles northwest of New York City.
Our primary market area consists of four rural counties in central New York,
namely Otsego, Delaware, Schoharie and Chenango counties. The estimated
population of our four county primary market area is 192,000. Between the 1990
and 2000 U.S. Government census, the area population increased by less than 1%.
Approximately 15.9% of the individuals that reside in our four county primary
market area are over the age of 65, as compared to a national average of 12.4%.
In 1999 (the latest available statistics) the per capita income for the four
county region was approximately $17,000. This is approximately 80% of the United
States national average for 1999 of $21,181 and 73% of the New York State
average of
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$23,389 for the same period. Private non-farm employment increased by less than
1% between 1990 and 1999 from 47,604 jobs in 1990 to 47,979 jobs in 1999.
Management believes the demographic profile of the primary market area in which
we operate had not materially changed through 2003.
We also operate one full service branch office in Ulster County, New York.
Although the demographic profile of that county differs from our primary
four-county market, the town in which we operate our branch is similar to our
primary market. The full service branch located in Johnson City, New York
(Broome County) and the loan production office located in Kingston, New York
(Ulster County) operate in more densely populated markets.
C. Lending Activities
General. The Company, through its subsidiary bank, engages in a wide range of
lending activities, including commercial lending primarily to small and
mid-sized businesses; mortgage lending for 1-4 family and multi-family
properties including home equity loans; mortgage lending for commercial
properties; consumer installment and automobile lending and to a lesser extent
agricultural lending.
Over the last several decades we have designed and implemented lending
strategies and policies that are designed to provide flexibility to meet
customer needs, while minimizing losses associated with borrowers' inability or
unwillingness to repay loans. The loan portfolio, in general, is fully
collateralized, and many commercial loans are further secured by personal
guarantees. We do not commonly grant unsecured loans to our customers. Annually,
we utilize the services of an outside consultant to conduct on-site reviews of
the larger, more complex commercial real estate and commercial loan portfolios
to ensure adherence to underwriting standards and loan policy guidelines.
We periodically participate in loan participations with other banks or financial
institutions both as an originator and as a participant. A participation loan is
generally formed when the aggregate size of a single loan exceeds the
originating bank's regulatory maximum loan size or a self-imposed loan limit. We
typically make participation loans for commercial or commercial real estate
purposes. Although we do not always maintain direct contact with the borrower,
credit underwriting procedures and credit monitoring practices associated with
participation loans are identical in all material respects to those practices
and procedures followed for loans that we originate, service and hold for our
own account. We typically buy participation loans from other commercial banks
operating within New York State with whose management we are familiar. Our total
participation loans represent less than 10% of the total loans outstanding and
are comprised of less than 20 borrowers.
If deemed appropriate for the borrower and for the Bank, we place certain loans
in Federal, State or Local Government agency or government sponsored loan
programs. These placements often help reduce our exposure to credit losses and
often provide our borrowers with lower interest rates on their loans.
a. Loan Products and Services
Residential Real Estate. Historically, we hold for our own loan portfolio the
majority of the residential real estate loans we originate. The terms are
typically 15 - 30 years and are usually secured by a first lien position on the
home of the borrower. We offer both adjustable rate and fixed rate loans and
provide monthly and bi-weekly payment options. The 1-4 family residential loan
portfolio primarily consists of owner-occupied, primary residence properties and
to a lesser extent rental properties for off-campus student housing, which
surround each of the local colleges. Our property appraisal process,
debt-to-income limits for borrowers, and established loan-to-value limits
dictate our residential real estate lending practices. During 2002, we
established a broker relationship with Sun Trust Mortgage Corporation in order
to be more competitive in the interest-rate sensitive 15 to 30-year fixed rate
residential mortgage market.
Our home equity loans are typically granted as adjustable rate lines of credit.
The interest rate on the line of credit adjusts twice per year and is tied to
the Wall Street Journal Prime loan rate. The loan terms generally include a 2nd
lien position on the borrower's residence and a 10-year interest only repayment
period. At the end of a 10-year term, the home equity line of credit is either
renewed by the borrower or placed on a scheduled principal and interest payment
plan by the Bank.
Commercial Real Estate. We originate commercial real estate loans to finance the
purchase of developed real estate. To a lesser extent, we will also provide
financing for the construction of commercial real estate. Our commercial real
estate loans are typically larger than those made for residential real estate.
The loans are often secured by properties whose tenants include "Main Street"
type small businesses, retailers and motels. We also finance properties for
commercial office and owner-occupied manufacturing space. Our commercial real
estate loans are usually limited to a maximum repayment period of 20 years. Most
of our commercial real estate loans are fully collateralized and further secured
by the personal guarantees of the property owners. Construction loans are
generally granted as a line of credit whose term does
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not exceed 12 months. We typically advance funds on construction loans based
upon an advance schedule, to which the borrower agrees, and physical inspection
of the premises.
Commercial Loans. In addition to commercial real estate loans, we also make
various types of commercial loans to qualified borrowers, including business
installment and term loans, lines-of-credit, demand loans, time notes,
automobile dealer floor-plan financing, and accounts receivable financing.
Business installment and term loans are typically provided to borrowers for long
term working capital or to finance the purchase of a piece of equipment, truck
or automobile utilized in their business. We generally limit the term of the
borrowing to a period shorter than the estimated useful life of the equipment
being purchased. We also place a lien on the equipment being financed by the
borrower.
Lines-of-credit are typically provided to meet the short-term working capital
needs of the borrowers for inventory and other seasonal aspects of their
business. We also offer a "cash management" line of credit that is tied to a
borrower's primary demand deposit operating account. Each day, on an automated
basis, the borrower's line of credit is paid down with the excess operating
funds available in the primary operating account. Upon complete repayment of the
line-of-credit, excess operating funds are invested in securities on a
short-term basis, usually overnight, through a securities repurchase agreement
with the Bank.
Demand loans and time notes are often granted to borrowers to provide short term
or "bridge" financing for special orders, contracts or projects. These loans are
often secured with a lien on business assets, liquid collateral and / or
personal guarantees.
On a limited basis we also provide inventory financing or "floor plans" for
automobile dealers. Floor plan lines of credit create unique risks that require
close oversight by the Bank and its lending personnel. Accordingly, we have
developed special procedures for floor plan lines of credit to assure the
borrower maintains sufficient inventory collateral at all times.
In 1997 we began offering accounts receivable financing to qualified borrowers
through affiliation with a third party vendor specializing in this type of
financing. The program allows business customers to borrow funds from the Bank
by assigning their accounts receivable to the Bank for billing and collection.
The program is supported by limited fraud and credit insurance.
Commercial loans and commercial real estate loans generally involve a higher
degree of risk and are more complex than residential mortgages and consumer
loans. Such loans typically involve large loan balances to single borrowers or
groups of related borrowers. Commercial loan repayment and interest terms are
often established to meet the unique needs of the borrower and the
characteristics of his business. Typically payments on commercial real estate
are dependent upon leases whose terms are shorter than the borrower's repayment
period. This places significant reliance upon the owner's successful operation
and management of the property. Accordingly, the borrower and we must be aware
of the risks that affect the underlying business including, but not limited to,
economic conditions, competition, product obsolescence, inventory cycles,
seasonality and the business owner's experience and expertise.
Standby Letters of Credit. We offer stand-by letters of credit for our business
customers. Stand-by letters of credit are not loans. They are guarantees to pay
other creditors of the customer should the customer fail to meet certain payment
obligations required by the third party creditor. Those guarantees are primarily
issued to support public and private borrowing arrangements, including bond
financing and similar transactions. The issuance of a stand-by letter of credit
creates a contingent liability for the Bank. Accordingly, a stand-by letter of
credit will only be issued upon completing our credit review process. We charge
our customers a fee for providing this service, which is based on the principal
amount of the stand-by letter of credit.
Consumer Loans. We offer a variety of consumer loans to our customers. These
loans are usually provided to purchase a new or used automobile, motorcycle or
recreational vehicle or to make a home improvement. We also make personal loans
to finance the purchase of consumer durables or other needs of our customers.
The consumer loans are generally offered for a shorter term than residential
mortgages because the collateral typically has an estimated useful life of 5 to
10 years and tends to depreciate rapidly. Automobile loans comprise the largest
portion of our consumer loan portfolio. The financial terms of our automobile
loans are determined by the age and condition of the vehicle and the ability of
the borrower to make scheduled principal and interest payments on the loan. We
obtain a lien on the vehicle and collision insurance policies are required on
these loans. Although we lend directly to borrowers, the majority of our
automobile loans are originated through auto dealerships within our primary
market area.
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We also provide an overdraft line of credit product called ChequeMate, which
provides our customers with an option to eliminate overdraft fees should they
make an error in balancing their checking account. Our Chequemate lines of
credit are typically unsecured and are generally limited to less than $5,000 per
account.
b. Loan Approval Procedures and Authority
General. The Bank's Board of Directors delegates the authority to provide loans
to borrowers through the Bank's Loan Policy. The policy is modified, reviewed
and approved on an annual basis to assure that lending policies and practices
meet the needs of borrowers, mitigate perceived credit risk, and reflect current
economic conditions. Currently, we use a four (4) tier structure to approve
loans. First, the full Board of Directors of the Bank has authority to approve
single loans or loans to any one borrower up to the bank's legal lending limit,
which was $9.6 million at December 31, 2003. The full Board of Directors also
approves all loans made to members of the Board of Directors, their family
members, and their related businesses when the total loans exceed $500,000.
Second, the Board of Directors, as required by the Bank's by-laws, appoints a
Loan and Investment Committee. The Loan and Investment Committee must be
comprised of at least three (3) outside directors and meets on an as-needed
basis, generally bi-weekly. Its lending authority is limited to 50% of the
Bank's legal lending limit, which is approximately $4.8 million. The Committee
may also make loans up to 100% of the Bank's legal lending limit if the loan is
secured by readily marketable collateral such as stocks and bonds. The Loan and
Investment Committee is also responsible for ratifying and affirming all loans
made that exceed $25,000, approving collateral releases, establishing bid prices
for real estate in process of foreclosure, authorizing charge-offs in excess of
$7,500, and annually reviewing all lines of credit that exceed all individual
loan officer's authority. The actions of the Loan and Investment Committee are
reported to and ratified by the full Board of Directors each month.
Third, the Board of Directors has authorized the creation of the Officers' Loan
Committee. The Officers' Loan Committee is comprised of four voting members, the
President & CEO, the two (2) highest-ranking members of the Bank's Loan
Division, and the manager of the Credit Department. The Officers' Loan Committee
may approve secured and unsecured loans up to 15% of the Bank's legal lending
limit (approximately $1.4 million) and loans up to 100% of the Bank's legal
lending limit if the loan is secured by readily marketable collateral. The
Committee also has the authority to adjust loan rates from time to time as
market conditions dictate. Loan charge-offs up to $7,500 and collateral releases
within prescribed limits established by the Board of Directors are also approved
by the Officers' Loan Committee. All actions of the Officers' Loan Committee are
reported to the Loan and Investment Committee for ratification.
Fourth, through the loan policy, individual loan officers are provided specific
loan limits by category of loan. Each officer's lending limits are determined
based on the individual officer's experience, past credit decisions, and
expertise.
Our goal for the loan approval process is to provide adequate review of loan
proposals while at the same time responding quickly to customer requests. We
complete a credit review and maintain a credit file for each borrower. The
purpose of the file is to provide the history and current status of each
borrower's relationship and credit standing, so that a loan officer can quickly
understand the borrower's status and make a fully informed decision on a new
loan request. We require that all business borrowers submit audited, reviewed,
or internal financial statements no less than annually.
Loans to Directors and Executive Officers. Loans to members of the Board of
Directors (and their related interests) are granted under the same terms and
conditions as loans made to unaffiliated borrowers. Any fee that is normally
charged to other borrowers is also charged to the members of the Board of
Directors. Loans to Executive Officers are limited by banking regulation. There
is no regulatory loan limit established for Executive Officers to purchase,
construct, maintain or improve a residence or finance the education of a
dependent. However, any loans to Executive Officers which are not for the
construction, improvement, or purchase of a residence, or not used to finance a
child's education, or not secured by readily marketable investment collateral,
are limited to a maximum of $100,000. In addition, we require that all loans
made to Executive Officers be reported to the Board of Directors at the next
Board of Directors meeting.
c. Credit Quality Practices
General. One of our key objectives is to maintain strong credit quality of the
Bank's loan portfolio. We strive to accomplish this objective by maintaining a
diversified mix of loan types, limiting industry concentrations, and monitoring
regional economic conditions. In addition, we use a variety of strategies to
protect the quality of individual loans within the loan portfolio during the
credit review and approval process. We evaluate both the primary and secondary
sources of repayment and complete financial statement review and cash flow
analysis for commercial borrowers. We also generally require personal guarantees
on small business loans, cross-collateralize loan obligations, complete on-site
inspections of the business, and require the company to adhere to financial
covenants. Similarly, in the event a modification to an outstanding loan is
requested, we reevaluate the loan under the proposed terms prior to making the
modification. If we
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approve the modification, we often secure additional collateral or impose
stricter financial covenants. In the event a loan becomes delinquent, we follow
collection procedures to assure repayment. If it becomes necessary to repossess
or foreclose on collateral, we strive to execute the proceedings in a timely
manner and dispose of the repossessed or foreclosed property quickly to minimize
the level of non-performing assets, subsequent asset deterioration, and costs
associated with monitoring the collateral.
Delinquent Loans and Collection Procedures. When a borrower fails to make a
required payment on a loan, we take a number of steps to induce the borrower to
cure the delinquency and restore the loan to current status. Our Chief Credit
Officer continuously monitors the past due status of the loan portfolio.
Individual delinquencies are reported to the Directors' Loan and Investment
Committee at least monthly and the overall delinquency levels to the Board of
Directors at least quarterly. Separate collection procedures have been
established for residential mortgage, consumer, and commercial and commercial
real estate loans.
On residential mortgage loans fifteen (15) days past due, we send the borrower a
notice which requests immediate payment. At twenty (20) days past due, the
borrower is usually contacted by telephone by an employee of the Bank. The
borrower's response and promise to pay is recorded. At sixty (60) days or more
past due, if satisfactory repayment arrangements are not made with the borrower,
generally, an attorney letter will be sent and foreclosure procedures will
begin.
On consumer loans ten (10) days past due, we send the borrower a notice which
requests immediate payment. If the loan remains past due, an employee of the
Bank's Collection Department or the approving Loan Officer will usually contact
the borrower before day thirty (30) of past due status. Loans sixty to ninety
(60 - 90) days past due are generally subject to repossession.
We send past due notices to borrowers with commercial term loans, demand notes
and time notes (including commercial real estate) when the loan reaches ten (10)
days past due. Between day fifteen and day thirty (15 - 30), borrowers are
contacted by telephone by an employee of the Bank's Collection Department or by
the approving Loan Officer to attempt to return the account to current status.
After thirty (30) days past due, the loan officer and senior loan officer decide
whether to pursue further action against the borrower.
Loan Portfolio Monitoring Practices. Our loan policy requires that the Chief
Credit Officer continually monitor the status of the loan portfolio, by
regularly reviewing and analyzing reports, which include information on
delinquent loans, criticized loans and foreclosed real estate. We risk rate our
loan portfolios and individual loans based on their perceived risks and
historical losses. For commercial borrowers whose aggregate loans exceed
$50,000, we assign an individual risk rating annually. We arrive at a risk
rating based on current payment performance and payment history, the current
financial strength of the borrower, and the value of the collateral and personal
guarantee. Loans classified as "substandard" typically exhibit some or all of
the following characteristics:
o the borrower lacks current financial information,
o the business of the borrower is poorly managed,
o the borrower's business becomes highly-leveraged or appears to
be insolvent,
o the borrower exhibits inadequate cash flow to support the debt
service,
o the loan is chronically delinquent, or
o the industry in which the business operates has become
unstable or volatile.
Loans we classify as "special mention" are loans that are generally performing,
but the borrower's financial strength appears to be deteriorating. Loans we
categorize as a "pass" are generally performing per contractual terms and
exhibit none of the characteristics of special mention or substandard loans.
Allowance for Loan Loss. The allowance for loan losses is an amount, which, in
the opinion of management, is necessary to absorb probable losses inherent in
the loan portfolio. We continually monitor the allowance for loan losses to
determine its reasonableness. At each quarter end our Chief Credit Officer
prepares a formal assessment of the allowance for loan loss and submits it to
the full Board of Directors to determine the adequacy of the allowance. The
allowance is determined based upon numerous considerations. For the consumer,
residential mortgage and small commercial loans, we consider local economic
conditions, the growth and composition of the loan portfolio, the trend in
delinquencies and the trend in loan charge-offs and non-performing loans. Based
on these factors, we estimate the probable or "embedded" losses in the loan
portfolio. On large commercial loans, we take into consideration the specific
characteristics of the loan including the borrower's payment history, business
conditions in the borrower's industry, the collateral and guarantees securing
the loan, and our historical experience with similarly structured loans. We then
assign an estimated loss percentage based on these characteristics. The adequacy
of our allowance for loan losses is also reviewed by our
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primary regulatory agency, the Office of the Comptroller of the Currency (the
"OCC"), on a periodic basis. Its comments and recommendations are factored into
the determination of the allowance for loan loss.
The allowance for loan losses is increased by the provision for loan losses,
which is recorded as an expense on our income statement. Charge-offs are
recorded as a reduction in the allowance for loan loss. Recoveries are recorded
as an increase in the allowance for loan losses.
Non-Performing Loans. There are three categories of non-performing loans, (i)
those 90 or more days delinquent and still accruing interest, (ii) non-accrual
loans, and (iii) troubled debt restructured loans ("TDR"). We place individual
loans on non-accrual status when timely collection of contractual principal and
interest payments is doubtful. This generally occurs when a loan becomes ninety
(90) days delinquent. When deemed prudent, however, we will place loans on
non-accrual status before they become 90 days delinquent. Conversely, on
occasion, we maintain loans on accrual status even though they have become 90 or
more days delinquent. Upon being placed on non-accrual status, we reverse all
interest accrued in the current year against interest income. Interest accrued
and not collected from a prior year is charged-off through the allowance. If
ultimate repayment of a non-accrual loan is expected, any payments received may
be applied in accordance with contractual terms. If ultimate repayment of
principal is not expected, any payment received on the non-accrual loan is
applied to principal until ultimate repayment becomes expected.
A loan is considered to be a troubled debt restructured loan when we grant a
special concession to the borrower because the borrower's financial condition
has deteriorated to the point where servicing the original loan under the
original terms becomes difficult or detrimental to the financial condition of
the business. Such concessions include the reduction of interest rates,
forgiveness of principal or interest, or other similar modifications to the
original terms. TDR loans that are in compliance with their modified terms and
that yield a market rate may be removed from TDR status after a period of
performance.
Our goal is to minimize the number of non-performing loans because of their
negative impact on the Company's earnings.
Foreclosure and Repossession. At times it becomes necessary to foreclose or
repossess property that a delinquent borrower pledged as collateral on a loan.
Upon concluding foreclosure or repossession procedures, we take title to the
collateral and attempt to dispose of it in the most efficient manner possible.
Real estate properties formerly pledged as collateral on loans which we have
acquired through foreclosure proceedings or acceptance of a deed in lieu of
foreclosure are called Other Real Estate Owned (hereinafter referred to as
"OREO"). OREO is carried at the lower of the recorded investment in the loan or
the fair value of the real estate, less estimated costs to sell. Write-downs
from the unpaid loan balance to fair value are charged to the allowance for loan
losses. The proceeds from the sale of the foreclosed or repossessed collateral
are applied against the outstanding loan balance of the delinquent borrower.
Loan Charge-Offs. We charge off loans or portions of loans that we deem
non-collectible and can no longer justify carrying as an asset on the Bank's
balance sheet. We determine if a loan should be charged-off by analyzing all
possible sources of repayment. Once the responsible Loan Officer determines the
loan is not collectible, he/she completes a "Recommendation for Charge-off"
form, which is subsequently reviewed and approved by the Bank's Loan and
Investment Committee (or by the Officers' Loan Committee for charge-offs less
than $7,500).
D. Investment Securities Activities
General. The Bank's Board of Directors has final authority and responsibility
for all aspects of the Bank's investment activities. It exercises this authority
by setting the Bank's Investment Policy each year and appointing the Loan and
Investment Committee to monitor adherence to the policy. The Board of Directors
delegates its powers by appointing designated investment officers to purchase
and sell investment securities for the account of the Bank. The CEO and the
Chief Investment Officer have the authority to make investment purchases within
the limits set by the Board of Directors. All investment securities transactions
are reviewed monthly by the Loan and Investment Committee and the Board of
Directors.
The Bank's investment securities portfolio is primarily comprised of high-grade
fixed income debt instruments. Investment purchases are generally made when we
have funds that exceed the present demand for loans. Our primary investment
objectives are to:
(i) minimize risk through strong credit quality,
(ii) provide liquidity to fund loans and meet deposit run-off,
(iii) diversify the Bank's assets,
(iv) generate a favorable investment return,
(v) meet the pledging requirements of State, County and Municipal
depositors,
(vi) manage the risk associated with changing interest rates, and
(vii) match the maturities of securities with deposit and borrowing
maturities.
10-K
Our current investment policy generally limits securities investments to U.S.
Government, agency and sponsored entity securities, corporate debt, municipal
bonds, pass-through mortgage backed securities issued by Fannie Mae, Freddie Mac
or Ginnie Mae, and collateralized mortgage obligations (issued by these same
agencies).
The investment securities we hold are classified as held-to-maturity, trading,
or available-for-sale, depending on the purposes for which the investment
securities were acquired and are being held. Securities held-to-maturity are
debt securities that the Company has both the positive intent and ability to
hold to maturity. These securities are stated at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of sale in the
near term are classified as trading securities and are reported at fair value
with unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to-maturity or trading securities are
classified as available-for-sale and are reported at fair value with unrealized
gains and losses excluded from earnings and reported net of taxes in accumulated
other comprehensive income or loss.
On a daily basis we buy and sell overnight Federal Funds to and from our
correspondent banks. Federal Funds are unsecured general obligations of the
purchasing bank and therefore subject to credit risk. To mitigate this risk, we
monitor the financial strength of our correspondent banks on a continuous basis.
Financial strength rating reports of each correspondent bank are formally
reviewed by the Bank's management on a quarterly basis.
From time to time we purchase and hold certificates of deposit with banks
domiciled in the United States. These obligations are all fully insured by the
Federal Deposit Insurance Corporation ("FDIC").
On a limited basis, we also invest in permissible types of equity securities.
E. Sources of Funds
General. The Bank's lending and investment activities are highly dependent upon
the Bank's ability to obtain funds. Our primary source of funds is customer
deposits. To a lesser extent we have borrowed funds from the FHLBNY and entered
into repurchase agreements to fund our loan and investment activities.
Deposits. We offer a variety of deposit accounts to our customers. The fees,
interest rates and terms of each deposit product vary to meet the unique needs
and requirements of our depositors. Presently, we offer a variety of accounts
for consumers, businesses, not-for-profit businesses and municipalities
including: demand deposit accounts, interest bearing transaction accounts, money
market accounts, statement savings accounts, passbook savings accounts and fixed
and variable rate certificates of deposit. The majority of our deposit accounts
are owned by individuals and businesses who reside near our branch locations.
Municipal deposits are generally derived from the local and county taxing
authorities, school districts near our branch locations and, to a limited
degree, New York State public funds. Accordingly, deposit levels are dependent
upon regional economic conditions, as well as more general national and
statewide economic conditions, local competition and our pricing decisions.
Borrowed Funds. From time to time we borrow funds to finance our loan and
investment activities. Most of our borrowings are with the FHLBNY. These
advances are secured by a general lien on our eligible 1-4 family residential
mortgage portfolio or specific investment securities collateral. We determine
the maturity and structure of each advance based on market conditions at the
time of borrowing and the interest rate risk profile of the loans or investments
being funded.
We also utilize repurchase agreements to fund our loan and investment
activities. Repurchase agreements are contracts for sale of securities owned or
borrowed by us, with an agreement with the counter party to repurchase those
securities at an agreed upon price and date. In addition, when necessary, we
borrow overnight federal funds from other banks or borrow monies from the
Federal Reserve Bank's discount window.
Deposit account structures, fees and interest rates, as well as funding
strategies, are determined by the Bank's Asset and Liability Committee ("ALCO").
The ALCO is comprised of the Bank's senior managers and meets on a bi-weekly
basis. The ALCO reviews general economic conditions, the Bank's need for funds,
and local competitive conditions prior to establishing funding strategies and
interest rates to be paid. The actions of the ALCO are reported to the
Directors' Loan and Investment Committee at their regularly scheduled meetings.
F. Electronic and Payment Services
General. We offer a variety of electronic services to our customers. Most of the
services are provided for convenience purposes and are typically offered in
conjunction with a deposit or loan account. Certain electronic and payment
services are provided using marketing arrangements and third party services,
branded with the Wilber National Bank name. These
11-K
services often provide us with additional sources of fee income or reduce our
operating and transaction expenses. Our menu of electronic and payment services
include point of sale transactions, debit card payments, ATMs, merchant credit
and debit card processing, Internet banking, Internet bill pay services, voice
response, wire transfer services, automated clearing house services, direct
deposit of Social Security and other payments, loan autodraft payments, and cash
management services.
G. Trust and Investment Services
General. We offer various personal Trust and Investment services through our
Trust and Investment Division including both fiduciary and custodial services.
At December 31, 2003 and December 31, 2002 we had $334.3 million and $258.4
million respectively of assets under management in the Bank's Trust and
Investment Division. The following chart summarizes the Trust and Investment
Division assets under management as of the dates noted:
Trust Assets Summary Table:
--------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------
2003 2002
--------------------------------------------------
Estimated Estimated
Number of Market Number of Market
Dollars in Thousands Accounts Value Accounts Value
--------------------------------------------------------------------------------------------------
Trusts 320 $198,166 317 $124,532
--------------------------------------------------------------------------------------------------
Estates 6 2,954 8 2,455
--------------------------------------------------------------------------------------------------
Custodian, Investment Management and Others 212 131,322 214 131,751
--------------------------------------------------------------------------------------------------
Total 538 $332,442 539 $258,738
--------------------------------------------------------------------------------------------------
We also provide investment services through a third party provider, INVEST
Financial Corp., for the purchase of mutual funds and annuities.
H. Insurance Services
General. In 1998, the Bank established an insurance agency through a joint
venture with a regional independent insurance agency. The agency, Mang-Wilber,
LLC, is licensed to sell, within New York State, various insurance products,
including life, health, property and casualty insurance products to both
consumers and businesses. The principal office of the agency is in Sidney, New
York with satellite sales offices in Oneonta, New York (the Bank's Main Office),
and Walton, New York (doing business as Mang-Sholes Insurance).
We also offer credit life and disability insurance through an affiliation with
the New York Bankers Association. The insurance is typically offered to and
purchased by consumers securing a mortgage or consumer loan through the Bank. In
addition, we offer title insurance through New York Bankers Title Agency East,
LLC. Title insurance is sold in conjunction with origination of residential and
commercial mortgages. We own an interest in New York Bankers Title Agency East,
LLC and receive profit distributions based upon the overall performance of the
agency.
I. Supervision and Regulation
The following generally describes the regulation to which the Company and its
subsidiaries are subject. Bank holding companies and banks are extensively
regulated under both federal and state law. To the extent that the following
information summarizes statutory or regulatory provisions, it is qualified in
its entirety by reference to the particular laws and regulations. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Company.
The Company is a registered bank holding company within the meaning of the BHCA
and is subject to regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). Wilber National Bank is a nationally chartered
bank and is subject to supervision and examination by the OCC, a division of the
United States Treasury Department. The Bank is also subject to certain banking
laws and regulations of New York State. The Bank's insurance agency subsidiary,
Mang-Wilber LLC, is subject to New York State insurance laws and regulations.
The Bank is a member of the Federal Reserve System and its deposits are insured
by the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC")
up to $100,000 per depositor. The BHCA generally prohibits the Company from
engaging, directly or indirectly, in activities other than banking, activities
closely related to banking, and certain other financial activities. Under the
BHCA, a bank holding company must obtain Federal Reserve Board approval before
acquiring,
12-K
directly or indirectly, 5% or more of the voting shares of another bank or bank
holding company (unless it already owns a majority of such shares). Bank holding
companies are able to acquire banks or other bank holding companies located in
all 50 states, and 48 of the 50 states permit banks headquartered in other
states to branch into their states, although in some cases only by acquisition
of existing banks in such states. As a result of the Gramm-Leach-Bliley Act of
1999 ("GLBA"), bank holding companies are now permitted to affiliate with a much
broader array of other financial institutions than was previously permitted,
including insurance companies, investment banks and merchant banks. See PART I,
Item 1.K., "Legislative Developments" of this document for additional
information on the GLBA.
An important area of banking regulation is the establishment by federal
regulators of minimum capitalization standards. The Federal Reserve Board has
adopted various "capital adequacy guidelines" for its use in the examination and
supervision of bank holding companies. The risk based capital guidelines assign
risk weightings to all assets and certain off-balance sheet items and establish
an 8% minimum ratio of qualified total capital to the aggregate dollar amount of
risk weighted assets (which is almost always less than the dollar amount of such
assets without risk weighting). At least half of total capital must consist of
"Tier 1" capital, which comprises common equity, retained earnings and a limited
amount of permanent preferred stock, less goodwill. Up to half of total capital
may consist of so called "Tier 2" capital, comprising a limited amount of
subordinated debt, other preferred stock, certain other instruments and a
limited amount of the allowance for loan losses. The Federal Reserve Board's
other important guideline for measuring a bank holding company's capital is the
leverage ratio standard, which establishes minimum limits on the ratio of a bank
holding company's "Tier 1" capital to total tangible assets (not risk-weighted).
For top rated holding companies, the minimum leverage ratio is 3%, but lower
rated companies may be required to meet substantially greater minimum ratios.
The Bank is also subject to similar capital requirements adopted by its primary
federal regulator, the OCC.
Under applicable law, federal banking regulators are required to take prompt
corrective action with respect to depository institutions that do not meet
minimum capital requirements. The regulators have established five capital
classifications for banking institutions, the highest being "well capitalized."
Under regulations adopted by the federal bank regulators, a banking institution
is considered "well capitalized" if it has a total risk adjusted capital ratio
of 10% or greater, a Tier 1 risk adjusted capital ratio of 6% or greater and a
leverage ratio of 5% or greater and is not subject to any regulatory order or
written directive regarding capital maintenance. The Company and the Bank each
qualify as "well capitalized." The capital ratios of the Company and the Bank
are set forth in Note 13 of the Consolidated Financial Statements contained
within Part II, Item 8, of this document.
A bank holding company's ability to pay dividends or repurchase its outstanding
stock, as well as its ability to expand its business through acquisitions of
additional banking organizations or permitted non-bank companies, may be
restricted if capital falls below these minimum capitalization standards or
other informal capital guidelines that the regulators may apply from time to
time to specific banking organizations. In addition to these potential
regulatory limitations on the payment of dividends, the Company and the Bank's
ability to pay dividends is subject to various restrictions under applicable
corporate laws. The ability of the Company and the Bank to pay dividends in the
future is, and is expected to continue to be, influenced by regulatory policies,
capital guidelines and applicable law.
In cases where banking regulators have significant concerns regarding the
financial condition, assets or operations of a bank or bank holding company, the
regulators may take enforcement action or impose enforcement orders, formal or
informal, against the organization. Neither the Company nor the Bank is now, nor
has been within the past year, subject to any formal or informal regulatory
enforcement action or order.
J. Competition
We face competition in all the markets we serve. Traditional competitors are
other local commercial banks, savings banks, savings and loan institutions and
credit unions, as well as local offices of major regional and money center
banks. Also, non-banking financial organizations, such as consumer finance
companies, mortgage brokers, insurance companies, securities firms, money market
funds, and mutual funds and credit card companies offer substantive equivalents
of transaction accounts and various loan and financial products. As a result of
the GLBA (discussed further in Item 1.M. below), other non-banking financial
organizations now may be in a position not only to offer comparable products to
those offered by the Company, but actually to establish, acquire or affiliate
with commercial banks themselves.
K. Legislative Developments
The Sarbanes-Oxley Act ("SOX"), signed into law on July 30, 2002, adopted a wide
range of measures applicable to publicly traded companies. Generally, SOX seeks
to improve the quality of financial reporting of these companies, strengthen the
independence of their auditors, and compel them to adopt good corporate
governance practices. SOX places substantial additional duties on directors,
officers, auditors and attorneys of public companies. Among other
13-K
specific measures, SOX requires that chief executive officers and chief
financial officers certify periodically to the Securities and Exchange
Commission ("SEC") the accuracy of the company's financial statements and the
integrity of its internal controls. It also requires publicly traded companies
to provide disclosure to shareholders about the operations of the companies'
nominating committees and the means, if any, by which security holders may
communicate with the Board of Directors. Furthermore, SOX accelerates insiders'
reporting obligations for transactions in company securities, restricts certain
executive officer and director transactions, imposes new obligations on
corporate audit committees, and provides for enhanced review of company filings
by the SEC. As part of the general effort to improve public company auditing,
SOX placed limits on consulting services that may be performed by a company's
independent auditors and created a Public Company Accounting Oversight Board,
which sets auditing standards, inspects registered public accounting firms, and
possesses enforcement powers, subject to oversight by the SEC.
In November 1999, Congress enacted the GLBA, which permitted bank holding
companies to engage in a wider range of financial activities. Under GLBA, for
example, bank holding companies may underwrite all types of insurance and
annuity products and all types of securities products and mutual funds, and may
engage in merchant banking activities. Bank holding companies that wish to
engage in these or other newly-permitted financial activities generally must do
so through separate "financial" subsidiaries and may themselves be required to
register (and qualify to register) as a "financial holding company." A bank
holding company that does not register as a financial holding company will
remain a bank holding company subject to substantially the same regulatory
restrictions and permitted activities as applied to bank holding companies prior
to GLBA (see PART I, Item 1.I., "Supervision and Regulations," above). The
Company has not elected to become a "financial holding company" but continues to
evaluate the opportunities provided by GLBA. Under GLBA, as well as the Fair
Credit Reporting Act amendments of 1996, all financial institutions have become
subject to more stringent customer privacy regulations.
In 1995, the federal bank regulatory authorities promulgated a set of revised
regulations addressing the responsibilities of banking organizations under the
Community Reinvestment Act ("CRA"). The revised regulations place additional
emphasis on the actual experience of a bank in making loans, providing other
banking services and making qualified investments in low and moderate-income
areas and to low to moderate-income individuals and families within its service
area as the key determinants in evaluation of the bank's compliance with the
statute. As in the prior regulations, bank regulators are authorized to bring
enforcement actions against banks under the CRA only in the context of bank
expansion or acquisition transactions. The Bank received a SATISFACTORY rating
for CRA on it last performance evaluation conducted by the OCC as of August 11,
2003.
The FDIC levies assessments on the Bank's deposit accounts. In 1996 Congress
enacted the Deposit Insurance Funds Act, under which deposits insured by the
Bank Insurance Fund ("BIF"), such as the deposits of Wilber National Bank, are
subject to assessment for payment on bond obligations financing the FDIC's
Savings Association Insurance Fund ("SAIF") at a rate one-fifth the rate paid on
deposits by SAIF-insured thrift institutions. Accordingly, the deposits of the
Bank were assessed an additional 1.160 cents per $100 of insured deposits in
1999, 1.220 cents per $100 of insured deposits in 1998 and an additional 1.256
cents per $100 of insured deposits in 1997. Beginning in 2000, the BIF and SAIF
rates were equalized. For institutions with the lowest risk classification
(including this Bank), the BIF rate increased to 2.120 and the SAIF rate
decreased from 5.800 to 2.120. The rate is adjusted quarterly, depending on the
need of the fund. At December 31, 2002 the rate had decreased to 1.680 cents per
$100 of insured deposits. At December 31, 2003 the rate was 1.54 cents per $100
of insured deposits.
Various federal bills that would significantly affect banks are introduced in
Congress from time to time. The Company cannot estimate the likelihood of any
currently pending banking bills being enacted into law, or the ultimate effect
that any such potential legislation, if enacted, would have upon its financial
condition or results of operations.
ITEM 2: PROPERTIES
The Company and the Bank are headquartered at 245 Main Street, Oneonta, New
York. The three buildings that comprise our headquarters are owned by the Bank
and also serve as our main office. In addition to our main office, we own
seventeen (17) branch offices and lease two offices at market rates. We also own
an insurance sales office in Walton, New York through our insurance agency
subsidiary, Mang-Wilber LLC.
In the opinion of management, the physical properties of the Company are
suitable and adequate. All of our properties are insured at full replacement
cost.
14-K
ITEM 3: LEGAL PROCEEDINGS
The Company is not the subject of any material pending legal proceedings, other
than ordinary routine litigation occurring in the normal course of its business.
On an ongoing basis, the Bank also becomes subject to various legal claims from
time to time, which arise in the normal course of business. The various pending
legal claims against the Bank will not, in the opinion of management based upon
consultation with counsel, result in any material liability to the Company and
will not materially affect our financial position, results of operation or cash
flow.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders of the Company
during the fourth quarter of the fiscal year ended December 31, 2003.
PART II
ITEM 5: MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
During 2002 and 2003 the common stock of The Wilber Corporation was inactively
traded on Nasdaq's Over-the-Counter Bulletin Board market under the symbol
WLBC.OB. Market makers for the stock were Ryan, Beck and Company, Monroe
Securities, Inc., Hill Thompson Magid & Co., Inc., Knight Equity Markets, L.P.,
Schwab Capital Markets, L.P., and Stifel, Nicolaus & Company, Incorporated. The
following table was the high and low bid quotations for the common stock and
quarterly dividend paid to our security holders for the periods presented:
Common Stock Market Price and Dividend Table:
2003 2002
------------------------------- ------------------------------------------
Extra
High Low Dividend High Low Dividend Dividend
------------------------------- ------------------------------------------
4th Quarter $ 15.00 $ 12.10 $0.0925 $ 10.69 $ 8.69 $0.0900 $0.0150
3rd Quarter $ 13.75 $ 10.20 $0.0925 $ 9.50 $ 8.63 $0.0900 --
2nd Quarter $ 10.81 $ 9.81 $0.0925 $ 8.63 $ 7.97 $0.0900 --
1st Quarter $ 10.25 $ 9.78 $0.0925 $ 8.37 $ 7.94 $0.0900 --
(1) All prices and dividends provided in this table have been
adjusted for the 4:1 stock split approved on September 5,
2003.
(2) The high and low bid quotations provided in this table were
obtained from www.finance.yahoo.com and reflect inter-dealer
prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
On February 12, 2004, the Company's common stock ($.01 par value per share)
began trading on the American Stock Exchange under the symbol GIW. At March 12,
2004 there were 617 holders of record of our common stock (excluding beneficial
owners who hold their shares in nominee name through brokerage accounts). The
closing price of the common stock at March 12, 2004 was $13.60 per share.
The Company has not sold any unregistered securities within the past three
years.
ITEM 6: SELECTED FINANCIAL DATA
The comparability of the information provided in the following tables have not
been materially impacted by any significant business combinations, dispositions
of business operations or accounting changes other than those provided in the
footnotes of our financial statements provided in PART II, Item 8, of this
document. However, all per share financial information contained in this
document, as well as all exhibits, was restated to reflect a 4:1 stock split
approved on September 5, 2003.
15-K
Summary Table of Selected Financial Data:
The Wilber Corporation and Subsidiary
(Dollars in Thousands, Except Per Share Data)
As of and for 12-month Period Ended December 31,
--------------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------------
Consolidated Statements of Income Data:
Interest Income $ 38,620 $ 41,636 $ 42,293 $ 42,326 $ 41,356
Interest Expense 14,153 17,170 20,449 21,438 20,320
--------------------------------------------------------------
Net Interest Income 24,467 24,466 21,844 20,888 21,036
Provision for Loan Losses 1,565 1,920 1,540 1,680 1,920
Net Interest Income After Provision for Loan Losses 22,902 22,546 20,304 19,208 19,116
Other Income 4,863 4,776 4,555 4,369 4,285
Net Gains (Losses) on Securities Transactions 808 488 279 (1) 3
Other Expense (1) 16,583 15,890 13,945 12,701 12,466
--------------------------------------------------------------
Income Before Provision for Income Taxes 11,990 11,920 11,193 10,875 10,938
Provision for Income Taxes 3,277 3,358 3,147 3,017 3,124
--------------------------------------------------------------
Net Income $ 8,713 $ 8,562 $ 8,046 $ 7,858 $ 7,814
==============================================================
Earnings Per Common Share: (2)
Basic $ 0.78 $ 0.76 $ 0.71 $ 0.68 $ 0.66
Per Common Share: (2)
Cash Dividends 0.37 0.38 0.35 0.35 0.33
Book Value 5.74 5.61 4.92 4.51 4.09
Tangible Book Value (3) 5.46 5.32 4.88 4.39 3.98
Consolidated Period-End Balance Sheet Data:
Total Assets $729,023 $708,984 $626,787 $ 560,089 $570,577
Securities Available-for-Sale 275,051 234,542 188,712 111,329 129,182
Securities Held-to-Maturity 44,140 42,837 46,017 74,888 84,086
Gross Loans 360,906 358,295 329,544 324,758 323,580
Nonperforming Assets 3,678 3,160 4,137 4,243 4,490
Deposits 580,633 549,081 491,012 439,408 454,181
Federal Home Loan Bank Advances 55,849 73,346 62,512 50,500 48,900
Other Borrowed Funds 20,018 13,260 10,530 13,765 15,460
Shareholder's Equity 64,304 63,162 55,827 51,526 47,441
Selected Key Ratios:
Return on Average Assets 1.20% 1.25% 1.36% 1.42% 1.37%
Return on Average Equity 13.67% 14.36% 14.91% 16.20% 15.71%
Dividend Payout 47.44% 50.00% 49.30% 51.47% 50.00%
(1) Amortization of goodwill was discontinued with retroactive effect back to
January 1, 2002 upon adoption of SFAS No. 147 during the third quarter of
2003.
(2) All per share amounts have been adjusted for the 4 for 1 stock split
approved on September 5, 2003.
(3) Tangible book value numbers exclude goodwill and intangible assets
associated with prior business combinations.
16-K
2003
---------------------------------------------------------
Selected Quarterly Financial Data Fourth Third Second First
---------------------------------------------------------
(Dollars in Thousands)
Interest income $ 9,442 $ 9,372 $ 9,783 $ 10,024
Interest expense 3,314 3,433 3,609 3,797
---------------------------------------------------------
Net interest income 6,128 5,939 6,174 6,227
Provision for loan losses 360 350 435 420
---------------------------------------------------------
Net interest income after provision for loan losses 5,768 5,589 5,739 5,807
---------------------------------------------------------
Investment Security Gains (Losses), Net 68 21 297 422
---------------------------------------------------------
Other non-interest income 1,347 1,125 1,225 1,166
---------------------------------------------------------
Non-interest expense 4,193 4,269 4,080 4,010
---------------------------------------------------------
Income before income tax expense $ 2,990 $ 2,466 $ 3,181 $ 3,385
---------------------------------------------------------
Income tax expense 789 642 888 990
---------------------------------------------------------
Net income $ 2,201 $ 1,824 $ 2,293 $ 2,395
=========================================================
Basic earnings per share $ 0.20 $ 0.16 $ 0.21 $ 0.21
=========================================================
Basic weighted average shares outstanding 11,209,392 11,209,392 11,209,392 11,238,743
=========================================================
Net interest margin (tax equivalent) (1) 3.77% 3.67% 3.82% 3.86%
Return on average assets 1.19% 0.99% 1.27% 1.35%
Return on average equity 13.68% 11.49% 14.27% 15.25%
Efficiency ratio (2) 53.01% 56.64% 52.18% 51.30%
2002
--------------------------------------------------------
Selected Quarterly Financial Data Fourth Third Second First
--------------------------------------------------------
(Dollars in Thousands)
Interest income $ 10,344 $ 10,509 $ 10,549 $ 10,234
Interest expense 4,056 4,250 4,417 4,447
--------------------------------------------------------
Net interest income 6,288 6,259 6,132 5,787
Provision for loan losses 480 480 480 480
--------------------------------------------------------
Net interest income after provision for loan losses 5,808 5,779 5,652 5,307
--------------------------------------------------------
Investment Security Gains (Losses), Net 192 140 86 70
--------------------------------------------------------
Other non-interest income 1,091 1,318 1,101 1,266
--------------------------------------------------------
Non-interest expense 4,807 3,887 3,313 3,883
--------------------------------------------------------
Income before income tax expense $ 2,284 $ 3,350 $ 3,526 $ 2,760
--------------------------------------------------------
Income tax expense 572 988 1,036 762
--------------------------------------------------------
Net income $ 1,712 $ 2,362 $ 2,490 $ 1,998
========================================================
Basic earnings per share $ 0.15 $ 0.21 $ 0.22 $ 0.18
========================================================
Basic weighted average shares outstanding 11,257,060 11,260,068 11,304,030 11,321,176
========================================================
Net interest margin (tax equivalent) (1) 3.95% 3.92% 4.06% 3.92%
Return on average assets 0.96% 1.34% 1.46% 1.22%
Return on average equity 11.03% 15.58% 17.47% 14.27%
Efficiency ratio (2) 61.50% 48.74% 42.77% 51.54%
(1) Net interest margin (tax-equivalent) is tax-equivalent net interest income
divided by average earning assets.
(2) The Efficiency Ratio is calculated by dividing total non-interest expense
less amortization of intangibles and other real estate expense by
tax-equivalent net interest income plus non-interest income other than
securities gains and losses
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. General
The primary objective of this financial review is to provide an overview of the
financial condition and results of operations of The Wilber Corporation and its
subsidiaries for each of the years in the three-year period ended December 31,
2003. This discussion and tabular presentations should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes presented in
PART II, Item 8, of this document.
Our financial performance is heavily dependent upon net interest income, which
is the difference between the interest income earned on our loans and investment
securities less the interest paid on our deposits and borrowings. Results of
operations are also affected by the provision for loan losses, investment
securities gains (losses), service charges and penalty fees on deposit accounts,
fees collected for trust and investment services, insurance commission income,
the increase on the cash surrender value on bank owned life insurance, other
service fees and other income. Our non-interest expenses primarily consist of
employee salaries and benefits, occupancy and equipment expense, advertising and
marketing expense, computer service fees, professional fees and other expenses.
Results of operations are also influenced by general economic and competitive
conditions (particularly changes in interest rates), government policies,
changes in Federal or State tax law, and the actions of our regulatory
authorities.
Critical Accounting Policies. Management of the Company considers the accounting
policy relating to the allowance for loan losses to be a critical accounting
policy given the uncertainty in evaluating the level of the allowance required
to cover credit losses inherent in the loan portfolio and the material effect
that such judgments can have on the results of operations. While management's
current evaluation of the allowance for loan losses indicates that the allowance
is adequate, under adversely different conditions or assumptions, the allowance
would need to be increased. For example,
17-K
if historical loan loss experience significantly worsened or if current economic
conditions significantly deteriorated, additional provisions for loan losses
would be required to increase the allowance. In addition, the assumptions and
estimates used in the internal reviews of the Company's non-performing loans and
potential problem loans has a significant impact on the overall analysis of the
adequacy of the allowance for loan losses. While management has concluded that
the current evaluation of collateral values is reasonable under the
circumstances, if collateral valuations were significantly lowered, the
Company's allowance for loan losses would also require additional provisions for
loan losses.
Our policy on the allowance for loan losses is disclosed in Note 1 of the
Consolidated Financial Statements. A more detailed description of the allowance
for loan losses is included in PART II, Items 7 B.a. and B.b., of this report.
All accounting policies are important, and as such, the Company encourages the
reader to review each of the policies included in Note 1 of the Consolidated
Financial Statements (provided in PART II, Item 8, of this document) to obtain a
better understanding of how the Company's financial performance is reported.
Recent Accounting Pronouncements. In August 2001, FASB issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with retirement of tangible
long-lived assets and the associated asset retirement costs. This Statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002. Earlier application is permitted. The adoption of this pronouncement
did not have any material effect on the Company's consolidated financial
statements as of and for the year ended December 31, 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement is
effective for exit or disposal activities initiated after December 31, 2002. The
adoption of this statement did not have any material effect on the Company's
consolidated financial statements as of and for the year ended December 31,
2003.
On November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation expands the disclosures to be made
by a guarantor in its financial statements about its obligations under certain
guarantees and requires the guarantor to recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN No. 45 clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies," relating to
guarantees. In general, FIN No. 45 applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on changes in an underlying that is related to an asset,
liability, or equity security of the guaranteed party. Certain guarantee
contracts are excluded from both the disclosure and recognition requirements of
this Interpretation, including, among others, guarantees relating to employee
compensation, residual value guarantees under capital lease arrangements,
commercial letters of credit, loan commitments, subordinated interests in a
special purpose entity, and guarantees of a company's own future performance.
Other guarantees are subject to the disclosure requirements of FIN No. 45 but
not to the recognition provisions and include, among others, a guarantee
accounted for as a derivative instrument under SFAS No. 133, a parent's
guarantee of debt owed to a third party by its subsidiary or vice versa, and a
guarantee which is based on performance not price. The disclosure requirements
of FIN No. 45 are effective for the Company as of December 31, 2002, and require
disclosure of the nature of the guarantee, the maximum potential amount of
future payments that the guarantor could be required to make under the
guarantee, and the current amount of the liability, if any, for the guarantor's
obligations under the guarantee. The recognition requirements of FIN No. 45 are
to be applied prospectively to guarantees issued or modified after December 31,
2002. The requirements of FIN No. 45 did not have a material impact on the
Company's consolidated financial statements. The Company does not issue any
guarantees that would require liability-recognition or disclosure, other than
its standby letters of credit. At December 31, 2003 and 2002, the fair value of
standby letters of credit was not material. The estimated fair value of the
Company's standby letters of credit was $43 thousand and $14 thousand at
December 31, 2003 and December 31, 2002, respectively. The estimated fair value
of standby letters of credit at their inception is equal to the fee that is
charged to the customer by the Company. Generally, the Company's standby letters
of credit have a term of one year. In determining the fair values disclosed
above, the fees were reduced on a straight-line basis from the inception of each
standby letter of credit to the respective dates above. Due to immateriality of
the fair value of the Company's standby letters of credit, as well as their
short-term nature, the Company recognized the fees for the standby letters of
credit in income at inception during 2003, 2002 and 2001 for each standby letter
of credit.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." The objective of this Interpretation is to provide guidance on how to
identify a variable interest entity (VIE) and determine whether the assets,
liabilities, noncontrolling interests, and results of operations of a VIE need
to be included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity if the
18-K
company's interest in the VIE is such that the company will absorb a majority of
the VIE's expected losses and/or receive a majority of the entity's expected
residual returns, if they occur. FIN No. 46 also requires additional disclosures
by primary beneficiaries and other significant variable interest holders. FIN 46
was effective for all VIEs created after January 31, 2003. However, the FASB
postponed that effective date to December 31, 2003. In December 2003, the FASB
issued a revised FIN No. 46 (FIN No. 46R), which further delayed the effective
date for public companies to March 31, 2004 for VIE's created prior to February
1, 2003, except for interests in special purpose entities, for which a company
must adopt either FIN No. 46 or FIN No. 46R as of December 31, 2003. Adoption of
the requirements of FIN No. 46R is not expected to have a material impact on our
consolidated financial position, results of operations or cash flows.
The FASB issued SFAS 149, "Amendment of Statement No. 133 on Derivative
Instruments and Hedging Activities." The statement is effective for contracts
entered into or modified after September 30, 2003 and for hedging relationships
designated after September 30, 2003. This statement amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The adoption of this Statement did not have a significant impact on the
Company's consolidated financial statements.
In May 2003, the Company adopted SFSAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
150 establishes standards for how an issuer classifies and measures certain
financial instruments that are within its scope as a liability (or an asset in
some circumstances). Many of those instruments were previously classified as
equity. SFAS 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise was effective at the beginning of the first
interim period beginning after June 15, 2003. For certain financial instruments,
the classification and measurement provisions of SFAS 150 have been deferred
indefinitely. The adoption of certain provisions of SFAS 150 did not have a
material impact on the Company's consolidated financial statements as of and for
the year ended December 31, 2003, nor do we expect the adoption of the remaining
provisions of FAS 150 to have a material impact on future consolidated financial
statements of the Company.
Accounting for Branch Acquisition. In February 2002, the Company acquired a
branch. This acquisition was accounted for as a business combination in
accordance with SFAS No. 141. SFAS No. 141 states that a business combination
occurs when a entity acquires net assets that constitute a business, as defined
by Emerging Issues Task Force Issue (EITF) No. 98-3, "Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business."
EITF No. 98-3 states that a business is a self-sustaining integrated set of
activities and assets conducted and managed for the purpose of providing a
return to investors. A business consists of inputs (long-lived assets,
intellectual property, the ability to obtain access to necessary materials or
rights, employees, etc.), processes (the existence of systems necessary for
normal, self sustaining operations) and outputs (the ability to obtain access to
customers).
Our branch acquisition involved the acquisition of (i) long-lived and intangible
assets (building, core deposit intangible and equipment), (ii) employees (branch
management and staff), (iii) certain processes (administration of personnel,
operational processes and strategic management processes); and (iv) the ability
to obtain access to customers who purchase outputs (deposit and loan customers
and accounts of the acquired branch were included in the purchase).
Due to the factors involved in the acquisition of the branch in February 2002,
the Company's management has concluded that the branch acquired was a business
under EITF No. 98-3 and, therefore, the acquisition of that branch constituted a
business combination within the scope of SFAS No. 141. In connection with the
branch acquisition in February 2002, the Company, in accordance with SFAS No.
72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions,"
recorded an unidentified intangible asset of $1,877,000 and in accordance with
SFAS No. 141, a core deposit intangible of $285,000. Upon the adoption of SFAS
No. 147 in October 2002, the identified intangible asset of $1,877,000 was
reclassified as goodwill on the Company's consolidated balance sheet.
B. Financial Condition
a. Comparison of Financial Condition at December 31, 2003 and December 31, 2002
Please refer to the Consolidated Financial Statements presented in PART
II, Item 8, of this document.
Asset Composition
Our assets are comprised of earning and non-earning assets. Earning assets
include our investment securities, loans, interest-bearing deposits at other
banks and Federal Funds sold. Non-earning assets include our real estate and
other assets acquired as the result of foreclosure, facilities, equipment,
intangibles, non-interest bearing deposits at other banks, and cash. We
generally maintain between 92 - 95% of our total assets in earning assets.
19-K
Total Assets
During 2003 our total assets increased $20.0 million or 2.8%, from $709.0
million at December 31, 2002 to $729.0 million at December 31, 2003. The modest
growth in total assets was driven primarily by an increase in customer deposits.
Total deposits at December 31, 2002 were $549.1 million, as compared to $580.6
million at December 31, 2003, a $31.6 million or 5.7% increase.
The substantial majority of additional deposits gathered during 2003 was
primarily invested in the investment securities portfolio with only modest
growth in total loans. At December 31, 2002 total investment securities equaled
$277.4 million. By comparison, at December 31, 2003 total investment securities
equaled $319.2 million, an increase of $41.8 million or 15.1%. Total loans
increased only slightly between the two periods from $358.3 million at December
31, 2002 to $360.9 million at December 31, 2003, a $2.6 million or 0.73%
increase.
Investment Securities
Our investment securities portfolio consists of available-for-sale and
held-to-maturity securities. The following table summarizes our
available-for-sale and held-to-maturity investment securities portfolio for the
periods indicated.
Summary of Investment Securities:
At December 31
--------------------------------------------------------------------------
2003 2002 2001
--------------------------------------------------------------------------
Amortized Estimated Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value Cost Fair Value
--------------------------------------------------------------------------
(In Thousands)
Available-for-sale:
U.S. Treasury and obligations of U.S.
Government corporations and
agencies $ 5,978 $ 6,028 $ 18,265 $ 18,469 $ 16,795 $ 17,001
Obligations of States and Political
Subdivisions (Municipal Bonds) 56,684 58,016 38,172 39,629 39,754 39,654
Mortgage - Backed Securities 192,745 192,365 142,983 146,574 94,082 94,596
Corporate Bonds 13,038 13,949 23,171 24,816 32,538 32,780
Equity securities 4,520 4,693 4,963 5,054 4,676 4,681
-------- -------- -------- -------- -------- --------
Total available-for-sale $272,965 $275,051 $227,554 $234,542 $187,845 $188,712
-------- -------- -------- -------- -------- --------
Held-to-maturity:
Obligations of States and Political
Subdivisions (Municipal Bonds) $ 6,292 $ 6,515 $ 3,230 $ 3,231 $ 3,712 $ 3,381
Mortgage-Backed Securities 37,848 37,901 39,607 40,721 42,305 43,019
-------- -------- -------- -------- -------- --------
Total held-to-maturity $ 44,140 $ 44,416 $ 42,837 $ 43,952 $ 46,017 $ 46,400
-------- -------- -------- -------- -------- --------
During the period, we reduced corporate bond holdings and substantially
increased our holdings of mortgage-backed securities and obligations of States
and Political Subdivisions, i.e., municipal bonds. Specifically, the estimated
fair value of the mortgage-backed securities available-for-sale portfolio, which
includes both mortgage pass-through securities and collateralized mortgage
obligations, increased from $146.6 million at December 31, 2002 to $192.4
million at December 31, 2003, a $45.8 million or 31.2% increase. Similarly, the
estimated fair value of municipal bonds available for sale increased from $39.6
million at December 31, 2002 to $58.0 million at December 31, 2003, a $18.4
million or 46.4% increase. The estimated fair value of corporate bonds available
for sale decreased from $24.8 million at December 31, 2002 to $13.9 million at
December 31, 2003 due to the sale of certain securities in which the issuer, in
management's opinion, posed moderate levels of credit risk.
The estimated fair value of the investment portfolio is largely dependent upon
the interest rate environment at the time the market price is determined. As
interest rates decline, the estimated fair value of bonds generally increases,
and conversely, as interest rates increase, the estimated fair value of bonds
generally decreases. At December 31, 2002, the net unrealized gain on the
available-for-sale investment securities portfolio was $7.0 million. By
comparison, at December 31, 2003, the net unrealized gain on the
available-for-sale investment securities portfolio decreased to $2.1 million.
The net unrealized gain on the available-for-sale investment securities
portfolio decreased during 2003 due to the
20-K
replacement of matured, called and sold higher-yield investment securities with
lower-yield investment securities. During 2003, $156.0 million or 56% of the
December 31, 2002 investment securities portfolio matured or was sold. In
addition, the Treasury interest rates increased during the third and fourth
quarters of 2003. This, in turn, caused a decrease in the net unrealized gains
recorded on the available-for-sale investment securities.
The following table sets forth information regarding the carrying value,
weighted average yields and anticipated principal repayments of the Bank's
investment securities portfolio as of December 31, 2003. All amortizing security
principal payments, including CMO's and mortgage pass-through securities, are
included based on their expected average lives. Callable securities, primarily
callable agency securities and municipal bonds, are assumed to mature at the
date in which management believes the bond will be called. Available-for-sale
securities are shown at fair value. Held-to-maturity securities are shown at
their amortized cost. The yields on debt securities shown in the table below are
calculated by dividing annual interest, including accretion of discounts and
amortization of premiums, by the amortized cost of the securities at December
31, 2003. Yields on obligations of states and municipalities exempt from federal
taxation were not tax-effected.
Investment Securities Maturity Table:
At December 31, 2003
-----------------------------------------------------------------
After One Year through After Five Years
In One Year or Less Five Years through Ten Years
-----------------------------------------------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Dollars in Thousands Value Yield Value Yield Value Yield
-----------------------------------------------------------------
U.S Treasury and federal
agency securities $ 4,016 4.69% $ -- 0.00% $ 2,012 4.24%
Municipal obligations 6,795 4.96% 28,395 4.61% 16,222 4.24%
Mortgage-backed securities 14,668 7.23% 196,027 5.76% 19,518 4.77%
Corporate securities 3,066 7.07% 8,533 7.14% 2,350 8.23%
-----------------------------------------------------------------
Total securities(1) $ 28,545 6.32% $232,955 5.67% $ 40,102 4.73%
=================================================================
At December 31, 2003
------------------------------------------
After Ten Years Total
------------------------------------------
Weighted Weighted
Carrying Average Carrying Average
Dollars in Thousands Value Yield Value Yield
------------------------------------------
U.S Treasury and federal
agency securities $ -- 0.00% $ 6,028 4.54%
Municipal obligations 12,896 3.46% 64,308 4.32%
Mortgage-backed securities -- 0.00% 230,213 5.77%
Corporate securities -- 0.00% 13,949 7.31%
------------------------------------------
Total securities(1) $ 12,896 3.46% $314,498 5.52%
==========================================
(1) This table excludes other equity securities totaling $4.683 million at
December 31, 2003.
At December 31, 2003 the approximate weighted average maturity for all of the
Bank's available-for-sale and held-to-maturity debt securities was 4.2 years. By
comparison, at December 31, 2002 the approximate weighted average maturity of
the Bank's available-for-sale and held-to-maturity debt securities was 3.9
years. The weighted average maturity of the debt securities portfolio was
greater at December 31, 2003 than at December 31, 2002 due to a reduction in
anticipated prepayments on our mortgage-backed securities portfolio. Because
many homeowners refinanced their mortgages during 2002 and 2003 due to decreased
mortgage rates, the likelihood of refinancing existing mortgages diminished,
resulting in an extension of our mortgage-backed securities investment portfolio
at December 31, 2003.
At December 31, 2003, 98.5% of the securities held in the Bank's bond portfolio
were rated "A" or better by Moody's or Standard and Poor's credit rating
services; 89.8% were rated AAA.
At December 31, 2003 we also held $4.7 million of equity securities including:
$135 thousand of Federal Reserve Bank of New York stock, $3.053 million in
FHLBNY stock, $733 thousand equity interest in a Small Business Investment
Company, Meridian Venture Partners II, L.P, $10 thousand in a money market
mutual fund, $36 thousand in New York Business Development Corp. stock and $726
thousand of common stock of other banking institutions. At December 31, 2002
equity securities totaled $5.1 million at estimated fair value. The slight
reduction in other equity securities was due to mandatory redemptions of FHLBNY
stock.
Interest Bearing Bank Balances and Federal Funds Sold
During 2003 the interest bearing bank balances and federal funds sold averaged
$29.3 million. By comparison, during 2002 the interest bearing bank balances and
federal funds sold averaged $34.1 million.
The slight decrease in these average balances was primarily due to the maturity
of FDIC-insured certificates that were not replaced with new certificates of
deposit. At December 31, 2003 we held a portfolio of FDIC-insured certificates
of deposit with other banks headquartered throughout the United States. At
December 31, 2003 this portfolio was $8.0 million
21-K
versus $16.0 million at December 31, 2002. We purchased the certificates of
deposit during December 2000 and January 2001 as part of an investment arbitrage
strategy. Specifically, these certificates of deposit were funded by advances
secured by the Bank at FHLBNY in the same amount with nearly identical maturity
terms. The cost of the advances are 0.70 - 0.75% below the yield on the like
maturity certificates of deposit. All of the certificates of deposit will mature
by January 2006.
In the normal course of business, we sell and purchase federal funds to and from
other banks to meet our daily liquidity needs. Because the funds are generally
an unsecured obligation of the counter party, we only sell federal funds to
well-capitalized banks that carry strong credit ratings. Our average federal
funds sold position did not change significantly from period to period. For 2003
average federal funds sold was $15.1 million, $800 thousand greater than the
average federal funds sold position of $14.3 million maintained during 2002.
Loan Portfolio
General. The bank's total loan portfolio increased by 0.7% or $2.6 million, from
$358.3 million at December 31, 2002 to $360.9 million at December 31, 2003.
Although there was no significant change in the total loan portfolio between the
two periods, the composition of the portfolio did change. The following table
summarizes the composition of our loan portfolio over the prior five-year
period.
Distribution of Loans Table:
At December 31,
-------------------------------------------------------------------------
2003 2002 2001
-------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------
(Dollars in Thousands)
Agricultural $ 2,467 0.7% $ 2,439 0.7% $ 2,020 0.6%
Residential real estate (1) 118,571 32.9% 125,464 35.0% 125,510 38.1%
Commercial real estate 115,733 32.1% 104,967 29.3% 87,268 26.5%
Commercial 62,564 17.3% 63,156 17.6% 51,137 15.5%
Consumer 61,571 17.1% 62,269 17.4% 63,609 19.3%
Total loans 360,906 100.0% 358,295 100.0% 329,544 100.0%
=========================================================================
Less:
Allowance for loan losses (5,757) (5,392) (4,476)
--------- --------- ---------
Net loans $ 355,149 $ 352,903 $ 325,068
========= ========= =========
At December 31,
-----------------------------------------------
2000 1999
-----------------------------------------------
Amount Percent Amount Percent
-----------------------------------------------
(Dollars in Thousands)
Agricultural $ 2,412 0.7% $ 2,627 0.8%
Residential real estate (1) 130,003 40.0% 137,310 42.4%
Commercial real estate 76,860 23.7% 75,110 23.1%
Commercial 48,534 14.9% 46,129 14.2%
Consumer 66,949 20.6% 62,404 20.6%
Total loans 324,758 100.0% 323,580 100.0%
===============================================
Less:
Allowance for loan losses (4,003) (3,998)
--------- ---------
Net loans $ 320,755 $ 319,582
========= =========
(1) Includes Home Equity Loans
Consumer and residential mortgage loans outstanding each declined due to a very
competitive pricing environment for both automobile loans and residential
mortgages. Total loans outstanding in these two portfolios decreased from $187.7
million at December 31, 2002 to $180.1 million at December 31, 2003, a $7.6
million or 4.0% decrease. We ceded both consumer and residential mortgage loans
to competition in a very low interest rate environment to mitigate interest rate
risk. During 2003, automobile manufacturers and their captive finance companies
provided cash rebate incentives on new car purchases and/or maintained very low
new car financing rates, which have negatively impacted the purchase of used
vehicles. The lower levels of used vehicle purchases, an important market for
the Company, reduced our origination of consumer loans. Similarly, residential
mortgage providers that have the capability to originate and sell conforming
mortgages to the secondary market lowered their interest rates to levels below
our minimum interest rate threshold for 15 to 30-year fixed rate mortgages
thereby reducing our origination of new residential mortgage loans during 2003.
Conversely, in 2003 we increased our commercial, commercial real estate and
agricultural loans outstanding. Loans outstanding in these three loan types
increased from $170.6 million at December 31, 2002 to $180.8 million at December
31, 2003, a $10.2 million or 6.0% increase. Most of this increase is due to an
expansion of our small business lending services outside of our primary five
county market area.
The following table sets forth the amount of loans maturing and repricing in our
portfolio. The full principal amount outstanding of adjustable rate loans are
included in the period in which the interest rate is next scheduled to adjust.
Similarly, the full principal amount outstanding of fixed-rate loans are shown
based on their final maturity date. The full principal amount outstanding of
demand loans without a repayment schedule and no stated maturity, financed
accounts
22-K
receivable, and overdrafts are reported as due within one year. The table has
not been adjusted for scheduled principal payments nor anticipated principal
pre-payments.
Maturity and Repricing of Loans Table:
One More
Within One Through Than
Year (1) Five Years Five Years Total
---------------------------------------------------
Agricultural $ 1,464 $ 367 $ 636 $ 2,467
Residential real estate (1) 50,053 2,625 65,893 118,571
Commercial real estate 60,427 15,620 39,686 115,733
Commercial 43,840 8,107 10,617 62,564
Consumer 10,520 42,273 8,778 61,571
---------------------------------------------------
Total loans receivable $166,304 $ 68,992 $125,610 $360,906
===================================================
(1) Includes Home Equity Loans
Table of Fixed and Adjustable Rate Loans:
Due After December 31, 2004
------------------------------------
Fixed Adjustable Total
------------------------------------
Agricultural $ 468 $ 1,779 $ 2,247
Residential real estate (1) 64,572 44,460 109,032
Commercial real estate 57,307 51,972 109,279
Commercial 15,460 14,719 30,179
Consumer 50,135 862 50,997
------------------------------------
Total loans $187,942 $113,792 $301,734
====================================
(1) Includes Home Equity Loans
Commitments and Lines of Credit. Standby letters of credit are conditional
commitments issued by us to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and private
borrowing arrangements, including bond financing and similar transactions. The
credit risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. Since most of the standby
letters of credit are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit represent extensions of credit. At December 31, 2003
and December 31, 2002, standby letters of credit totaled $10.0 million and $1.6
million, respectively. The increase is primarily due to the issuance of a $4.8
million standby letter of credit for the construction of an assisted living
housing project and a $2.9 million standby letter of credit for the development
of a municipal parking deck. Both projects are being financed through their
respective county's regional Industrial Development Agency. At December 31, 2003
and December 31, 2002, the fair value of the Bank's standby letters of credit
was not material.
In addition to standby letters of credit, we have issued lines of credit and
other commitments to lend to our customers. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the loan agreement. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
These include home equity lines of credit, commitments for residential and
commercial construction loans, and other personal and commercial lines of
credit. At December 31, 2003 and December 31, 2002, we had outstanding unfunded
loan commitments of $49.1 million and $45.4 million, respectively. The increase
in the unfunded loan commitments is primarily due to growth in our home equity
line of credit portfolio. Our experience shows that these unfunded commitments
do not fluctuate significantly from month to month.
Asset Quality and Risk Elements
General. One of our key objectives is to maintain strong credit quality of the
Bank's loan portfolio. The following narrative provides summary information and
our experience regarding the quality and risk elements of our loan portfolio.
Delinquent Loans. At December 31, 2003 we had $2.744 million of loans that were
30 or more days past due (excluding loans placed on non-accrual status). This
equals 0.76% of total loans outstanding. By comparison, at December 31, 2002 we
had $5.081 million of loans 30 or more days past due (excluding loans placed on
non-accrual status), or 1.42%
23-K
of loans outstanding. In management's opinion, the decrease in delinquent loans
(still accruing interest) from December 31, 2002 to December 31, 2003 of $2.337
million was due to the implementation of an improved consumer credit
identification and management system established in 2001. In addition, one large
loan totaling $1.425 million and several small loans were transferred from
accrual status to non-accrual status.
Non-accrual, Past Due and Restructured Loans. The following chart sets forth
information regarding non-performing assets for the periods stated.
Table of Non-performing Assets:
At December 31,
---------------------------------------------------
Dollars in Thousands 2003 2002 2001 2000 1999
---------------------------------------------------
Loans in Non-Accrual Status:
Agricultural $1,425 $ 747 $ -- $ -- $ --
Residential real estate 257 222 465 437 554
Commercial real estate 1,199 1,049 1,587 1,249 487
Commercial 275 13 33 227 498
Consumer 8 3 5 -- --
---------------------------------------------------
Total non-accruing loans 3,164 2,034 2,090 1,913 1,539
Loans Contractually Past Due 90 Days or
More and Still Accruing Interest 123 717 329 345 372
Troubled Debt Restructured Loans 371 387 861 888 917
---------------------------------------------------
Total non-performing loans 3,658 3,138 3,280 3,146 2,828
Other real estate owned 20 22 857 1,097 1,662
---------------------------------------------------
Total non-performing assets $3,678 $3,160 $4,137 $4,243 $4,490
==================================================
Total non-performing assets as a
percentage of total assets 0.50% 0.45% 0.66% 0.76% 0.79%
==================================================
Total non-performing loans as a percentage
of total loans 1.01% 0.88% 1.00% 0.97% 0.87%
==================================================
Total non-performing loans increased from $3.138 million at December 31, 2002 to
$3.658 million at December 31, 2003, a $520 thousand increase. Non-performing
loans as a percent of total loans outstanding totaled 1.01% at December 31,
2003, as compared to 0.88% at December 31, 2002. The net increase in
non-performing loans was primarily due to the inclusion of one agricultural loan
totaling $1.425 million placed on non-accrual status during the first quarter of
2003 and the foreclosure and removal of an unrelated agricultural loan totaling
$747 thousand at December 31, 2002. At December 31, 2003, two loans, the $1.425
million agricultural loan mentioned above and a $761 thousand loan made to a
high-tech manufacturing company (70% guaranteed by the United States Department
of Agriculture), comprised $2.186 million or 60% of the non-accrual loans
outstanding.
Other Real Estate Owned and Repossessed Assets. Other Real Estate Owned ("OREO")
consists of properties formerly pledged as collateral on loans which have been
acquired by the Company through foreclosure proceedings or acceptance of a deed
in lieu of foreclosure. OREO is carried at the lower of the recorded investment
in the loan or the fair value of the real estate, less estimated costs to sell.
At December 31, 2003 and December 31, 2002 we held one property in OREO totaling
$20 thousand and $22 thousand respectively.
Potential Problem Loans. In addition to non-performing loans, we have identified
through normal credit review procedures, $7.854 million of potential problem
loans at December 31, 2003. By comparison, at December 31, 2002 potential
problem loans totaled $7.106 million. Potential problem loans are loans that are
currently performing, but where known information about possible credit problems
of the related borrowers causes management to have doubts as to the ability of
such borrowers to comply with the present loan repayment terms and which may
result in disclosure of such loans as non-performing at some time in the future.
Potential problem loans are typically loans that are performing but are
classified by our loan rating system as "substandard." Management cannot predict
the extent to which economic conditions may worsen or other factors which may
impact borrowers and the potential problem loans. Accordingly, there can be no
assurance that other loans will not become 90 days or more past due, be placed
on non-accrual status, become restructured, or require increased allowance
coverage and provision for loan losses.
Loan Concentrations. At December 31, 2003 we had outstanding $29.2 million of
loans or 45% of the Company's total equity capital to borrowers who operate in
the hotel / motel industry. The hotel / motel properties that we finance are
24-K
geographically dispersed throughout our market area and the broader statewide
region. The Bank's Board of Directors has established a specific exposure
guideline for this industry of 50% of the Bank's total equity capital, which at
December 31, 2003 was $32.2 million.
At December 31, 2003 we also held $18.2 million of loans secured by commercial
rental properties. The portfolio is comprised of a diverse group of properties
and borrowers. The average loan size for each of these borrowings is
approximately $325 thousand. Five (5) of these loans are each in excess of $1.0
million, totaling $7.728 million.
At December 31, 2003 we had $16.8 million of loans outstanding to four (4)
borrowers in the convenience store / fuel business. At December 31, 2003 none of
the loans to these borrowers were rated substandard by our management.
Other areas of concentration at December 31, 2003 include $14.9 million of loans
outstanding to automotive dealerships, $13.9 million of loans secured by 5 or
more unit residential properties, and $8.2 million of loans outstanding to
various restaurants.
Summary of Loss Experience (Charge-Offs) and Allowance for Loan Losses. The
following table sets forth the analysis of the activity in the allowance for
loan losses, including charge-offs and recoveries, for the periods indicated.
Analysis of the Allowance for Loan Losses Table:
Years Ended December 31,
--------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------
(Dollars in Thousands)
Balance at beginning of year $5,392 $4,476 $4,003 $3,998 $3,458
Charge offs:
Agricultural 147 -- -- -- --
Residential real estate 174 93 225 559 206
Commercial real estate -- -- 148 -- 103
Commercial 46 402 123 753 760
Consumer 1,109 926 905 722 751
--------------------------------------------------
Total charge offs 1,476 1,421 1,401 2,033 1,819
--------------------------------------------------
Recoveries:
Agricultural 8 -- -- -- --
Residential real estate 10 -- 24 7 1
Commercial real estate -- -- 40 -- --
Commercial 70 250 88 135 203
Consumer 188 167 181 216 235
--------------------------------------------------
Total recoveries 276 417 334 358 439
--------------------------------------------------
Net charge-offs 1,200 1,004 1,068 1,675 1,380
Provision for loan losses 1,565 1,920 1,540 1,680 1,920
--------------------------------------------------
Balance at end of year $5,757 $5,392 $4,476 $4,003 $3,998
==================================================
Ratio of net charge-offs during
the year to average loans
outstanding during the year 0.33% 0.29% 0.33% 0.51% 0.44%
==================================================
Allowance for loan losses to
total loans 1.63% 1.50% 1.36% 1.23% 1.24%
==================================================
Allowance for loan losses to
non-performing loans 139% 172% 136% 127% 141%
==================================================
25-K
The allowance for loan losses increased from $5.392 million at December 31, 2002
to $5.757 million at December 31, 2003, a $365 thousand or 6.8% increase. The
allowance for loan losses as a percent of total loans increased slightly during
2003, from 1.50% at December 31, 2002 to 1.63% at December 31, 2003. Management
and the Board of Directors deemed the allowance for loan losses as adequate at
December 31, 2002 and December 31, 2003.
Allocation of the Allowance for Loan Losses. We allocate our allowance for loan
losses among the loan categories indicated below primarily for purposes of
complying with disclosure requirements of the SEC. This allocation should not be
interpreted as a projection of (i) likely sources of future charge-offs, (ii)
likely proportional distribution of future charge-offs among loan categories, or
(iii) likely amounts of future charge-offs. Since management regards the
allowance as a general balance and has assigned unallocated values to categories
in the table primarily for purposes of compliance with the disclosure
requirements, the amounts presented do not represent the total balance available
to absorb future charge-offs that might occur within the designated categories.
Subject to the qualifications noted above, an allocation of the allowance for
loan losses by principal classification and the proportion of the related loan
balance represented by the allocation is presented below for the periods
indicated.
Loan Loss Summary Allocation Table:
At December 31,
------------------------------------------------------------------------
2003 2002 2001
------------------------------------------------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Amount of Each Amount of Each Amount of Each
Allowance Category Allowance Category Allowance Category
for Loan to Total for Loan to Total for Loan to Total
Dollars in Thousands Losses Loans Losses Loans Losses Loans
------------------------------------------------------------------------
Agricultural $ 57 0.99% $ 48 0.89% $ 34 0.76%
Residential real estate (1) 545 9.47% 718 13.32% 598 13.36%
Commercial real estate 2,248 39.05% 2,051 38.04% 1,461 32.64%
Commercial 1,240 21.54% 1,234 22.89% 857 19.15%
Consumer 966 16.78% 1,017 18.86% 982 21.94%
Unallocated 701 12.18% 324 6.01% 544 12.15%
------------------------------------------------------------------------
Total $5,757 100.00% $5,392 100.00% $4,476 100.00%
========================================================================
At December 31,
-----------------------------------------------
2000 1999
-----------------------------------------------
Percent of Percent of
Loans in Loans in
Amount of Each Amount of Each
Allowance Category Allowance Category
for Loan to Total for Loan to Total
Dollars in Thousands Losses Loans Losses Loans
-----------------------------------------------
Agricultural $ 45 1.12% $ 54 1.35%
Residential real estate (1) 639 15.96% 483 12.08%
Commercial real estate 1,447 36.15% 1,536 38.42%
Commercial 914 22.83% 944 23.61%
Consumer 689 17.21% 607 15.18%
Unallocated 269 6.72% 374 9.35%
-----------------------------------------------
Total $4,003 100.00% $3,998 100.00%
===============================================
(1) Includes Home Equity Loans
Other Assets
Other Assets are comprised of Premises and Equipment, Bank-Owned Life Insurance,
Goodwill, Other Intangible Assets and Other Assets. The following table
summarizes the change in Other Assets between December 31, 2002 and December 31,
2003:
Table of Other Assets:
--------------------------------------------------------------
At December 31,
-------------------
Dollars in Thousands 2003 2002 Change
--------------------------------------------------------------
Premises and Equipment $ 5,721 $ 5,954 $ (233)
--------------------------------------------------------------
Bank-Owned Life Insurance 14,405 13,766 639
--------------------------------------------------------------
Goodwill 2,682 2,682 --
--------------------------------------------------------------
Intangible Assets, Net 461 576 (115)
--------------------------------------------------------------
Other Assets 11,524 8,660 2,864
--------------------------------------------------------------
Total Other Assets $34,793 $31,638 $ 3,155
--------------------------------------------------------------
Bank-Owned Life Insurance. The cash surrender value of the life insurance at
December 31, 2003 was $14.405 million, compared to $13.766 million at December
31, 2002. The increase is attributable to an increase in the cash surrender
value of the policies between the periods totaling $639 thousand. The policies
are issued by five different life insurance companies and are issued on the
lives of the Bank's senior management.
26-K
Goodwill and Other Intangible Assets. In February 2002 we acquired a branch in
the City of Norwich, New York from a regional competitor. We acquired $34.3
million in deposit liabilities and $3.2 million in loan assets. We recorded
$1.877 million in goodwill and $285 thousand in core deposit intangible in
conjunction with the branch acquisition. No impairment of the goodwill was
deemed necessary during 2003. The core deposit intangible is being amortized
over 5 years.
Other Assets. Other assets increased by $2.864 million from $8.660 million at
December 31, 2002 to $11.524 million at December 31, 2003. During 2003 our
prepaid pension plan asset increased by $1.157, from $3.372 million at December
31, 2002 to $4.529 million at December 31, 2003. Most of the increase was due to
a $1.700 million contribution made to the plan during the third quarter of 2003.
At December 31, 2003, interest receivable, deferred tax assets and accounts
receivable totaled $4.420 million. By comparison, these assets totaled $3.379
million at December 31, 2002, netting an increase of $1.041 million year over
year. And finally, during the third quarter of 2003, we placed a $253 thousand
escrow deposit on a property which will serve as the location for a new full
service Bank branch location.
Composition of Liabilities
Deposits. Deposits are our primary funding source. At December 31, 2003 deposits
represented 87.4% of our total liabilities, compared to 84.9% at December 31,
2002. Total deposits increased by $31.6 million or 5.7% during 2003, from $549.1
million at December 31, 2002 to $580.6 million at December 31, 2003. Nearly all
of the growth occurred in core deposit accounts, specifically demand deposits,
personal savings and NOW accounts. Management believes that consumers placed
their investable funds in liquid bank deposit accounts during 2003 because of a
perception that bond and equity investment opportunities were limited.
The following table indicates the amount of our time accounts by time remaining
until maturity as of December 31, 2003.
Time Accounts Maturity Table:
Maturity as of December 31, 2003
--------------------------------------------------------------------
3 Months Over 3 to 6 Over 6 to 12 Over 12
Dollars in Thousands or Less Months Months Months Total
--------------------------------------------------------------------
Certificates of Deposit and Other Time
Deposits of $100,000 or more $ 19,207 $ 24,009 $ 12,329 $ 30,407 $ 85,952
Certificates of Deposit and Other Time
Deposits less than $100,000 23,594 17,075 43,357 98,208 182,234
--------------------------------------------------------------------
Total of time accounts $ 42,801 $ 41,084 $ 55,686 $128,615 $268,186
====================================================================
Foreign Deposits in Domestic Offices. At December 31, 2003 we held $14.4 million
of deposits from foreign depositors. This compares to $13.8 million at December
31, 2002. The substantial majority of these deposit relationships were acquired
during 1994 when we purchased certain assets and all of the deposit liabilities
from the First National Bank of Downsville in Delaware County, New York.
Borrowings. Total borrowings decreased by $10.7 million during 2003, from $86.6
million at December 31, 2002 to $75.9 million at December 31, 2003. The decrease
in borrowed funds is the result of a few factors. During 2003 we reduced our
long-term borrowings by $17.5 million from $73.3 million at December 31, 2002 to
$55.8 million at December 31, 2003. Specifically, we repaid an $8.0 million
FHLBNY advance in January, a $1.5 million FHLBNY advance in June, a $500
thousand FHLBNY advance in July, $5.0 million of advances in December and $2.5
million in monthly amortizing payments throughout the period on other FHLBNY
long-term advances. In addition, treasury, tax & loan notes held for the benefit
of the U.S. Treasury Department decreased from $3.0 million at December 31, 2002
to $740 thousand at December 31, 2003. These reductions in borrowings were
offset by a $918 thousand increase in securities sold under agreements to
repurchase. At December 31, 2002 securities sold under agreements to repurchase
were $10.3 million, as compared to $11.2 million at December 31, 2003. In
addition, we borrowed $8.1 million of federal funds at December 31, 2003, as
compared to no federal funds borrowed at December 31, 2002. At December 31, 2003
borrowed funds represented 11.4% of our total liabilities, compared to 13.4% at
December 31, 2002. See Note 8 of the Consolidated Financial Statements contained
in PART II, Item 8, of this document for additional detail on our borrowings.
C. Results of Operations
a. Comparison of Operating Results for the Years Ended December 31, 2003 and
December 31, 2002
Please refer to the Consolidated Financial Statements presented in PART
II, Item 8, of this document.
27-K
Summary. Net income for 2003 was $8.713 million. This represents a $151 thousand
or 1.8% increase over 2002 net income of $8.562 million. Earnings per share
increased by $0.02 per share from $0.76 per share in 2002 to $0.78 per share in
2003. Net interest income was very flat between periods. Therefore, the increase
in our earnings was primarily due to an increase in other income, a reduction in
the provision for loan losses, and a lower provision for income taxes offset by
an increase in other expenses. More specifically, during 2003 other income
increased by $407 thousand, the provision for loan losses decreased by $355
thousand and the income tax provision was $81 thousand less in 2003 than in
2002. The combined improvement of these items totaling $843 thousand was offset
by a $693 thousand increase in other expenses.
Return on average assets declined from 1.25% in 2002 to 1.20% in 2003. This
occurred primarily because net interest margin declined during 2003.
Historically low and declining interest rates prompted significant loan
refinancing activity, reducing interest rate spreads on new loans and
investments. Return on average stockholders' equity also declined from 14.36% in
2002 to 13.67% in 2003.
Net Interest Income. Net interest income is our most significant source of
revenue. During 2003 and 2002 respectively net interest income comprised 81% and
82% of our total revenues. Therefore, the following tables including the Asset
and Yield Summary Table, the Interest Rate Table and the Rate and Volume Table
and the associated analytical narrative are important components of our results
of operations.
The following table summarizes the total dollar amount of interest income from
average earnings assets and the resultant yields, as well as, the interest
expense and rate paid on average interest bearing liabilities. No tax equivalent
adjustments were made for tax-exempt assets. The average balances presented are
calculated using daily totals and averaging them for the period indicated.
28-K
Asset and Yield Summary Table:
For the Years Ended December 31,
-----------------------------------------------------------------------------------------------
2003 2002 2001
-----------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned Yield/ Outstanding Earned Yield/ Outstanding Earned Yield/
Balance /Paid Rate Balance /Paid Rate Balance /Paid Rate
-----------------------------------------------------------------------------------------------
Earning Assets: (Dollars in thousands)
Federal funds sold and
interest bearing deposits $ 29,324 $ 1,101 3.75% $ 34,060 $ 1,495 4.39% $ 33,412 $ 1,853 5.55%
Securities (1) $301,502 $13,042 4.33% $275,643 $13,638 4.95% $206,642 $11,415 5.52%
Loans, Net (2) $352,935 $24,477 6.94% $336,283 $26,503 7.88% $319,083 $29,025 9.10%
------------------- ------------------- -------------------
Total earning assets $683,761 $38,620 5.65% $645,986 $41,636 6.45% $559,137 $42,293 7.56%
Non-earning assets $ 44,465 $ 41,520 $ 33,661
-------- -------- --------
Total assets $728,226 $687,506 $592,798
======== ======== ========
Liabilities:
Savings accounts $ 89,088 $ 792 0.89% $ 79,382 $ 1,101 1.39% $ 70,149 $ 1,403 2.00%
Money market accounts $ 30,938 $ 299 0.97% $ 36,548 $ 537 1.47% $ 41,892 $ 1,283 3.06%
NOW accounts $121,288 $ 1,351 1.11% $ 95,861 $ 1,678 1.75% $ 54,880 $ 1,118 2.04%
Time accounts $280,291 $ 8,258 2.95% $274,985 $ 9,719 3.53% $247,737 $12,806 5.17%
Borrowings $ 77,068 $ 3,453 4.48% $ 80,129 $ 4,135 5.16% $ 69,556 $ 3,839 5.52%
------------------- ------------------- -------------------
Total interest
bearing liabilities $598,673 $14,153 2.36% $566,905 $17,170 3.03% $484,214 $20,449 4.22%
Non-interest bearing
deposits $ 57,353 $ 52,652 $ 48,339
Other non-interest bearing
liabilities $ 8,454 $ 8,323 $ 6,265
-------- -------- --------
Total liabilities $664,480 $627,880 $538,818
Shareholder's equity $ 63,746 $ 59,626 $ 53,980
-------- -------- --------
Total liabilities and
shareholder's equity $728,226 $687,506 $592,798
======== ======== ========
Net interest income $24,467 $24,466 $21,844
======= ======= =======
Net interest rate spread (3) 3.29% 3.42% 3.34%
==== ==== ====
Net earning assets $ 85,088 $ 79,081 $ 74,923
======== ======== ========
Net interest margin (4) 3.58% 3.79% 3.91%
==== ==== ====
Ratio of earning assets to
interest bearing liabilities 114.21% 113.95% 115.47%
======== ======== ========
(1) Securities are shown at average amortized cost with net unrealized gains
or losses on securities available-for-sale included as a component of
non-earning assets.
(2) Average net loans equal average total loans less the average allowance for
loan losses. However, for purposes of these computations, non-accrual
loans are included in average loan balances outstanding.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) The net interest margin, also known as the net yield on average
interest-earning assets, represents net interest income as a percentage of
average interest-earning assets.
29-K
Net interest income was flat period over period, increasing by only $1 thousand
from 2002 to 2003. More specifically, net interest income was $24.467 million in
2003 as compared to $24.466 million in 2002. Although net interest margin
declined by 0.21% between the periods from 3.79% in 2002 to 3.58% in 2003, its
negative impact on net interest income was offset by growth in earning assets.
The decrease in our net interest margin was primarily driven by rapidly
declining earning asset yields. Our earning asset yields declined by 0.80%, from
6.45% in 2002 to 5.65% in 2003. This occurred because the interest rates at
which we originated new loans, acquired new investment securities and sold
overnight federal funds during 2003 were significantly lower than comparable
interest rates in 2002 (see comparative interest rate table below).
Comparative Interest Rate Table:
--------------------------------------------------------------------------------------------------------------------
2003 2002
---------------------------------------- ----------------------------------------
Interest Rates (1) December September June March December September June March
------------------------------------------------------------------------ ----------------------------------------
Target Federal Funds Rate 1.00% 1.00% 1.00% 1.25% 1.25% 1.75% 1.75% 1.75%
------------------------------------------------------------------------ ----------------------------------------
NYC Prime 4.00% 4.00% 4.00% 4.25% 4.25% 4.75% 4.75% 4.75%
------------------------------------------------------------------------ ----------------------------------------
90 Day Treasury Bill 0.88% 0.91% 0.81% 1.10% 1.18% 1.44% 1.66% 1.75%
------------------------------------------------------------------------ ----------------------------------------
6 Month Treasury Bill 0.99% 1.00% 0.82% 1.10% 1.21% 1.43% 1.68% 2.02%
------------------------------------------------------------------------ ----------------------------------------
1 Year Treasury Note 1.21% 1.06% 0.84% 1.16% 1.20% 1.47% 1.92% 2.57%
------------------------------------------------------------------------ ----------------------------------------
2 Year Treasury Note 1.84% 1.47% 1.10% 1.49% 1.59% 1.73% 2.75% 3.58%
------------------------------------------------------------------------ ----------------------------------------
3 Year Treasury Note 2.31% 1.97% 1.40% 1.86% 1.94% 2.13% 3.30% 4.18%
------------------------------------------------------------------------ ----------------------------------------
4 Year Treasury Note 2.77% 2.34% 1.79% 2.36% 2.37% 2.46% 3.70% 4.56%
------------------------------------------------------------------------ ----------------------------------------
5 Year Treasury Note 3.24% 2.82% 2.16% 2.73% 2.71% 2.72% 3.99% 4.81%
------------------------------------------------------------------------ ----------------------------------------
7 Year Treasury Note 3.68% 3.36% 2.67% 3.33% 3.21% 3.28% 4.41% 5.12%
------------------------------------------------------------------------ ----------------------------------------
10 Year Treasury Note 4.27% 3.94% 3.27% 3.82% 3.79% 3.68% 4.73% 5.28%
------------------------------------------------------------------------ ----------------------------------------
15 Year Treasury Note 4.81% 4.52% 3.89% 4.45% 4.48% 4.47% 5.34% 5.81%
------------------------------------------------------------------------ ----------------------------------------
30 Year Treasury Note 5.08% 4.88% 4.35% 4.84% 4.76% 4.78% 5.13% 5.42%
------------------------------------------------------------------------ ----------------------------------------
Federal Housing Finance
Board National Avg 5.79% 5.61% 5.68% 5.88% 6.03% 6.32% 6.62% 6.77%
Mortgage Contract Rate
--------------------------------------------------------------------------------------------------------------------
(1) The above interest rates are provided to us by a third party
vendor on a bi-weekly basis. The interest rates provided in
the table are obtained from the report nearest to the
month-end. The Federal Housing Finance Board national average
mortgage contract rate is presented with a one-month lag.
The yield on the loan portfolio declined from 7.88% in 2002 to 6.94% in 2003. As
existing loans matured and amortized throughout 2003, they were replaced by new
loans at lower rates of interest. In addition, the interest rates earned on
variable rate loans were lower in 2003 than in 2002. The prime rate and the
1-year constant maturity Treasury rate are index rates upon which a significant
amount of our variable rate loans are based. On average, these index rates were
lower in 2003 than in 2002. And finally, many large commercial and commercial
real estate borrowers with fixed rate loans renegotiated their existing loans to
lower rates of interest throughout 2002 and 2003.
The average yield on the investment securities portfolio also decreased during
2003. Specifically, the investment securities portfolio decreased from 4.95% in
2002 to 4.33% in 2003. Increased levels of mortgage refinancing activity
accelerated prepayments on our mortgage backed securities requiring that we
reinvest the maturing principal dollars at lower market yields. Additionally,
the increased prepayment levels also required us to increase amortization
expense on investment securities being held with "premiums," i.e., securities
with amortized book values exceeding par value, thereby decreasing interest
income and average yield.
The yield on the federal funds sold and interest-bearing liabilities at other
banks decreased from 4.39% in 2002 to 3.75% in 2003. This is primarily
attributable to the Federal Open Market Committee lowering its target Federal
Funds rate from 1.75% through most of 2002 to 1.00% for most of 2003. In
addition $8.0 million of our FDIC-insured certificates of deposit matured during
2003 and were not replaced by earning assets with comparable yields.
While earning asset yields decreased, management was only able to decrease the
cost of interest-bearing liabilities by 0.67% from 3.03% in 2002 to 2.36% in
2003. We, along with other banks and competitors, dropped deposit rates
significantly throughout the last two quarters of 2002 and the first two
quarters of 2003 to offset a general decline in interest rates, and in turn,
asset yields. Management, however, found it increasingly difficult throughout
2003 to lower interest rates paid on deposits further as many of the Bank's
non-maturity deposit accounts, such as savings and interest-
30-K
bearing checking accounts, were already near an interest rate floor of 0%.
Accordingly, management's options to reduce interest expense declined as
interest rates decreased.
Rate and Volume Analysis. Net interest income increased by $1 thousand from
$24.466 million in 2002 to $24.467 million in 2003. Changes in volume increased
net interest income by $1.761 million between the two periods, while changes in
rate decreased net interest income by $1.760 million.
The following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amount of change. The table has not been adjusted for
tax-exempt interest.
Rate and Volume Table:
Year Ended December 31,
-------------------------------------------------------------------------
2003 vs. 2002 2002 vs. 2001
-------------------------------------------------------------------------
Rate Volume Total Rate Volume Total
-------------------------------------------------------------------------
(In Thousands)
Earning assets:
Federal funds sold and interest
bearing deposits $ (216) $ (178) $ (394) $ (386) $ 28 $ (358)
Securities $(1,714) $ 1,119 $ (595) $(1,191) $ 3,414 $ 2,223
Loans $(3,182) $ 1,155 $(2,027) $(3,878) $ 1,356 $(2,522)
---------------------------------- ----------------------------------
Total earning assets $(5,112) $ 2,096 $(3,016) $(5,455) $ 4,798 $ (657)
---------------------------------- ----------------------------------
Interest bearing liabilities:
Savings accounts $ 395 $ (86) $ 309 $ 430 $ (128) $ 302
Money market accounts $ 184 $ 54 $ 238 $ 667 $ 79 $ 746
NOW accounts $ 610 $ (283) $ 327 $ 157 $ (717) $ (560)
Time accounts $ 1,619 $ (157) $ 1,462 $ 4,016 $ (929) $ 3,087
Borrowings $ 544 $ 137 $ 681 $ 250 $ (546) $ (296)
---------------------------------- ----------------------------------
Total interest bearing liabilities $ 3,352 $ (335) $ 3,017 $ 5,520 $(2,241) $ 3,279
---------------------------------- ----------------------------------
Change in net interest income $(1,760) $ 1,761 $ 1 $ 65 $ 2,557 $ 2,622
---------------------------------- ----------------------------------
The interest income earned on loans decreased by $2.027 million between the two
periods, from $26.503 million in 2002 to $24.477 million in 2003. The increase
in average loan volume from $336.3 million in 2002 to $352.9 million in 2003
contributed $1.155 million of additional interest income, whereas the reduction
in the average loan yield decreased interest income by $3.182 million. Average
loan yields decreased by 0.94% between the two periods from 7.88% in 2002 to
6.94% in 2003.
The interest income on investment securities decreased by $595 thousand, from
$13.638 million in 2002 to $13.042 million in 2003. The average volume of the
investment portfolio increased significantly between periods from $275.6 million
during 2002 to $301.5 million during 2003, generating $1.119 million in
additional interest income. This improvement, however, was offset by lower
investment yields, which reduced interest income by $1.714 million.
The interest income on Federal funds sold and interest-bearing deposits
decreased period over period. Specifically, interest income for these asset
categories, decreased by $394 thousand, from $1.495 million in 2002 to $1.101
thousand in 2003. A reduction in our average FDIC-insured certificate portfolio
and a reduction in the federal funds rate both contributed to the decrease in
interest income.
The average volume of savings accounts and NOW accounts increased significantly
between the two periods in spite of declining interest rates. Specifically, the
average volume of savings accounts increased from $79.4 million in 2002 to $89.1
million in 2003. Similarly, the average volume of NOW accounts increased from
$95.9 million in 2002 to $121.3 million in 2003. Interest expense for savings
and NOW accounts decreased between the two periods by $636 thousand. Increased
volume in these two deposit categories created additional interest expense of
$369 thousand, while a
31-K
significant decline in short-term interest rates allowed management to reduce
the interest expense on these accounts by $1.005 million.
Interest expense on money market accounts decreased from $537 thousand in 2002
to $299 thousand in 2003. Both a reduction in the average volume of money market
balances, as well as a reduction in the interest rate paid on money market
accounts, contributed to this reduction in interest expense.
Time account balances increased slightly between the two years. The average
outstanding balance of time accounts during 2003 was $280.3 million, as compared
to $275.0 million during 2002. Accordingly, interest expense due to volume for
time accounts only increased $157 thousand period over period. By comparison, a
substantial decrease in interest rates allowed management to lower certificate
of deposit rates, saving $1.619 million of interest expense period over period.
The net interest expense savings due to time account balances equaled $1.462
million.
Interest expense for borrowings decreased from $4.135 million in 2002 to $3.453
million in 2003. The $681 thousand decrease in interest expense for borrowings
is attributable to both a reduction in borrowings outstanding and a decrease in
average borrowing costs.
Provision for Loan Losses. The provision for loan losses for 2003 was $1.565
million, as compared to $1.920 million in 2002, a $355 thousand or 18.5%
decrease. The provision for loan losses decreased in 2003, as compared to 2002
due to a significant decrease in delinquent loans, a relatively stable level of
net charge-offs, and a stable level of specifically identified inherent losses
in the loan portfolio. Delinquent loans (those 30 or more days past due) as a
percent of total loans outstanding averaged 1.49% during 2003, as compared to
2.13% during 2002. Management attributes the improvement in delinquency levels
to implementation of an improved consumer credit identification and management
system established in 2001. Net charge-offs remained relatively stable between
2003 and 2002. Net charge-offs in 2003 were $1.200 million in 2003 or 0.33% of
average loans outstanding. By comparison, net charge-offs in 2002 were $1.004
million or 0.29% of average loans outstanding. While the level of non-performing
loans increased slightly period to period, the loans that were transferred to
non-accrual status during 2003 were adequately reserved for in the allowance for
loan losses prior to transfer to non-accrual status. The provision for loan
losses as a percentage of average total loans outstanding was 0.44% for 2003, as
compared to 0.57% for 2002.
Non-Interest Income. Non-interest income is comprised of trust fees, service
charges on deposit accounts, commission income, investment security gains /
(losses), other service fees and other income. Non-interest income increased
from $5.264 million in 2002 to $5.671 million in 2003. This represents a 7.7% or
$407 thousand increase. The most significant reason non-interest income
increased period over period is due to the increase in the realized gains on the
sale of available for sale investment securities.
Total trust fees decreased slightly in 2003. Specifically, trust fees totaled
$1.416 million in 2002, as compared to $1.383 million in 2003, a $33 thousand or
2.3% decrease. The decrease in trust fees was due to a slight reduction in the
average market value and account income in 2003, versus 2002, at the time fees
were charged. The sharp increase in the period end market value of trust
accounts between December 31, 2002 and December 31, 2003 was due to a single
Trust that was funded during December 2003. No fees were charged on this account
in 2003.
Service charges on deposit accounts declined from $1.583 million in 2002 to
$1.457 million in 2003, a $126 thousand or 8.0% decrease. During the second half
of 2002, the Bank removed certain service fee charges on its business checking
accounts in an effort to remain competitive and retain customers. This led to a
reduction in service fee income generated on these accounts.
Commission income from the Bank's insurance policy sales activities remained
fairly flat at $434 thousand for 2003, as compared to $428 thousand for 2002.
During 2003 we netted pre-tax realized gains of $808 thousand on the call and
sale of investment securities. This represents a $320 thousand increase over
2002 when net pre-tax realized gains were $488 thousand. During 2003 we sold
$9.6 million of long term corporate bonds and $1.8 million of mortgage-backed
securities and had an additional $145.7 million in municipal, government agency
and mortgage-backed securities available for sale and held to maturity
securities mature or be called as interest rates declined. The corporate
securities were sold because management believed it was prudent to reduce the
credit risk, lock-in gains and shorten the duration of the available for sale
investment securities portfolio while interest rates were at or near 40-year
lows. The long-term corporate bonds were sold in particular because of their
sensitivity to market value decline in an increasing interest rate environment.
The income related to the increase in the cash value of bank-owned life
insurance increased from $563 thousand in 2002 to $640 thousand in 2003, a $77
thousand increase. The increase was primarily due to the purchase of three
additional policies, totaling $2.5 million in premium, which occurred during the
fourth quarter of 2002. The policies were purchased
32-K
to finance the benefit expense associated with the Company's implementation of a
supplemental executive retirement plan ("SERP").
Other service fees are comprised of numerous types of fee income, including
merchant credit card processing fees, residential mortgage origination fees,
official check and check cashing fees, travelers check sales, wire transfer
fees, letter of credit fees and other miscellaneous service charges, commissions
and fees. Other service fees decreased from$404 thousand in 2002 to $325
thousand in 2003, a $79 thousand decrease. The reduction in other service fees
was primarily due to the loss of one significant merchant credit card processing
account offset by a slight increase in letter of credit fees.
Other income is comprised of numerous types of fee income, including investment
services, lease income, safe deposit box income, rental of foreclosed real
estate, and income related to the securities held for our executive deferred
compensation plan. Other income increased from $382 thousand in 2002 to $624
thousand in 2003, a $242 thousand or 63.4% increase. The income related to the
Bank's securities held by the executive deferred compensation plan increased by
$469 thousand, from a loss of $205 thousand in 2002 to a gain of $264 thousand
in 2003 due to improved returns on these securities. Income related to the
Bank's investment in New York Bankers Title Agency East increased by $34
thousand, from $34 thousand in 2002 to $68 thousand in 2003. These improvements
were offset by a $64 thousand reduction in other real estate owned (foreclosed
property) rental income due to sale of a foreclosed rental property in November
2002; a reduction in investment service fee income of $47 thousand; a reduction
in the New York Bankers Insurance Trust dividend payments of $62 thousand; a $24
thousand decrease in lease income; a $25 thousand insurance claim paid in 2002
only; and other miscellaneous items totaling $39 thousand.
Non-Interest Expense. Non-interest expenses are comprised of salary and employee
benefit expense, occupancy expense, furniture and equipment expense, computer
service fees, advertising and marketing expense, professional fees, and other
expense. Total non-interest expenses increased from $15.890 million in 2002 to
$16.583 million in 2003, a $693 thousand or 4.4% increase.
Salaries and benefits expense increased by $169 thousand or 1.6%, from $10.345
million in 2002 to $10.514 million in 2003. New staff salaries and wage
increases increased salary expense by $158 thousand period to period. The Bank's
defined benefit pension plan benefit expense increased by $317 thousand year
over year due to a decrease in investment returns on plan assets and a reduction
in the discount rate used to calculate the Bank's future benefit obligation
during 2001 and 2002. Other miscellaneous benefit programs including group life
insurance expenses increased benefit costs by $72 thousand period to period.
These increases were offset by a significant reduction in other benefits
expense. In 2002 we recorded an expense totaling $541 thousand for the SERP for
Messrs. Whittet and Moyer. The expense related to these agreements was $163
thousand in 2003, a $378 decrease.
Net occupancy expense totaled $1.360 million in 2003 as compared to $1.158
million in 2002, a $202 thousand or 17.4% increase. Increases in snow removal
and utility expenses related to a cold winter in the first-half of 2003, as well
as general increases in insurance cost and property taxes, were responsible for
the increased occupancy expense.
Furniture and equipment expense remained relatively unchanged between 2002 and
2003. Furniture and equipment expense was $803 thousand in 2003, as compared to
$810 thousand in 2002.
Computer service fees, advertising and marketing expense and professional fees
all increased during 2003. On a combined basis these expenses totaled $1.150
million in 2003 as compared to $905 thousand in 2002, a $245 thousand or 27%
increase. Professional fees increased by $134 thousand from 2002 to 2003,
primarily due to fees paid to legal advisors and our primary external auditor
for the listing of the Company's stock on the American Stock Exchange and the
associated registration with the Securities and Exchange Commission.
Other expenses increased from $2.673 million in 2002 to $2.756 million in 2003,
an $83 thousand or 3.1% increase. The expense related to the Bank's executive
deferred compensation plan increased by $469 thousand, from a gain of $205
thousand in 2002 to an expense of $264 thousand in 2003. This increase was
offset by a $141 thousand reduction in expenses associated with managing
foreclosed property; a $114 thousand decrease on the loss associated with the
disposal of assets; a $78 thousand reduction in expenses related to servicing
the Bank's accounts receivable financing program; and a $73 thousand decrease in
telephone expense. Other miscellaneous expenses increased (net) $20 thousand
from 2002 to 2003.
Income Taxes. Income tax expense decreased from $3.358 million in 2002 to $3.277
million in 2003, an $81 thousand decrease. The decrease in the income tax
expense is primarily due to an increase in tax-exempt income, for state and
municipal investment securities and an increase in the income related to
bank-owned life insurance.
33-K
b. Comparison of Operating Results for the Years Ended December 31, 2002 and
December 31, 2001
Please refer to the Consolidated Financial Statements presented in PART
II, Item 8, of this document.
General. Net Income for 2002 was $8.562 million, compared to $8.046 million in
2001, a $516 thousand improvement. This represented earnings per share of $0.76
for 2002 and $0.71 for 2001. The improvement in net income was largely driven by
improvements in Net Interest Income of $2.622 million and Non Interest Income of
$430 thousand offset by increases in the provision for loan losses, non-interest
expenses and the income tax provision. Return on average assets declined from
1.36% in 2001 to 1.25% in 2002. This occurred because net interest margin
declined during 2002. Historically low and declining interest rates prompted
significant loan refinancing activity, reducing interest rate spreads on new
loans and investments. Return on average stockholders' equity also declined from
14.91% in 2001 to 14.36% in 2002. This primarily occurred because average
stockholders' equity increased by $5.6 million or 10.5% during 2002 while net
income only increased by $516 thousand or 6.4%.
Net Interest Income. Net interest income increased from $21.8 million in 2001 to
$24.5 million in 2002. This increase was primarily driven by asset growth, not
by significant improvements in net interest spread. Average earning assets
increased by 15.5% or $86.8 million from $559.1 million during 2001 to $646.0
million during 2002.
The yield on the loan portfolio declined significantly during 2002.
Specifically, the yield on the loan portfolio was 9.10% in 2001, as compared to
7.88% in 2002. This occurred for two primary reasons. First, as mortgage,
consumer and commercial loan rates decreased throughout the period, many
borrowers refinanced or repaid their existing loans and secured new loans at
much lower interest rates. Second, the yield on the Bank's variable rate loans,
which are primarily tied to the Prime rate, declined steadily throughout 2001
and 2002.
Similar to the loan portfolio, the investment portfolio also experienced lower
yields in 2002 than in 2001. Specifically the investment portfolio yield
decreased from 5.52% in 2001 to 4.95% in 2002. Increased levels of mortgage
financing activity accelerated prepayments on our mortgage backed securities
requiring that we reinvest the maturing principal dollars at lower market
yields. Additionally, the increased prepayment levels also required us to
increase amortization expense on investment securities being held with
"premiums," i.e., securities with amortized cost exceeding par value.
A decrease in the yield on the federal funds sold and interest-bearing
liabilities at other banks is primarily attributed to a lower average Federal
Funds earnings rate during 2002.
The cost of total interest-bearing liabilities declined from 4.22% in 2001 to
3.03% in 2002, due to a declining national interest rate environment throughout
2001 and 2002. We, along with other banks and competitors, dropped deposit rates
significantly throughout 2001 and 2002 to offset a general decline in asset
yields.
Rate and Volume Analysis. In 2002 net interest income increased $2.622 million,
a 12% increase over 2001. Approximately 97% of this increase is attributable to
the increased volume of earning assets. Specifically, the increase in total
earning asset volumes contributed $4.798 million of additional interest income,
while the increase in interest bearing liabilities due to changes in volume only
increased interest expense by $2.241 million. By comparison, the reduction in
net interest income due to changes in interest rates totaled $65 thousand.
Interest income on earning assets declined by $5.455 million due to changes in
interest rates, while interest expense on interest bearing liabilities declined
by $5.520 million due to changes in interest rates.
Although interest rates declined during 2002 (see interest rate table below),
the Bank's management was able to slightly improve net interest rate spread by
reducing funding costs throughout the year. However, without the volume
increases in investment securities, loans and other earning assets, net interest
income would likely have remained relatively unchanged.
34-K
Interest Rate Table:
--------------------------------------------------------------------------------------------------------------------
2002 2001
------------------------------------------------------------ Change
Dec. 2001 to
Interest Rates (1) December September June March December Dec. 2002
--------------------------------------------------------------------------------------------------------------------
Target Federal Funds Rate 1.25% 1.75% 1.75% 1.75% 1.75% -0.50%
--------------------------------------------------------------------------------------------------------------------
NYC Prime 4.25% 4.75% 4.75% 4.75% 4.75% -0.50%
--------------------------------------------------------------------------------------------------------------------
90 Day Treasury Bill 1.18% 1.44% 1.66% 1.75% 1.67% -0.49%
--------------------------------------------------------------------------------------------------------------------
6 Month Treasury Bill 1.21% 1.43% 1.68% 2.02% 1.77% -0.56%
--------------------------------------------------------------------------------------------------------------------
1 Year Treasury Note 1.20% 1.47% 1.92% 2.57% 2.07% -0.87%
--------------------------------------------------------------------------------------------------------------------
2 Year Treasury Note 1.59% 1.73% 2.75% 3.58% 2.66% -1.07%
--------------------------------------------------------------------------------------------------------------------
3 Year Treasury Note 1.94% 2.13% 3.30% 4.18% 3.74% -1.80%
--------------------------------------------------------------------------------------------------------------------
4 Year Treasury Note 2.37% 2.46% 3.70% 4.56% 4.26% -1.89%
--------------------------------------------------------------------------------------------------------------------
5 Year Treasury Note 2.71% 2.72% 3.99% 4.81% 4.52% -1.81%
--------------------------------------------------------------------------------------------------------------------
7 Year Treasury Note 3.21% 3.28% 4.41% 5.12% 4.99% -1.78%
--------------------------------------------------------------------------------------------------------------------
10 Year Treasury Note 3.79% 3.68% 4.73% 5.28% 5.20% -1.41%
--------------------------------------------------------------------------------------------------------------------
15 Year Treasury Note 4.48% 4.47% 5.34% 5.81% 5.78% -1.30%
--------------------------------------------------------------------------------------------------------------------
30 Year Treasury Note 4.76% 4.78% 5.13% 5.42% 5.52% -0.76%
--------------------------------------------------------------------------------------------------------------------
Federal Housing Finance Board 6.03% 6.32% 6.62% 6.77% 6.56% -0.53%
National Avg. Mortgage Contract Rate
--------------------------------------------------------------------------------------------------------------------
(1) The above interest rates are provided to us by a third party vendor
on a bi-weekly basis. The interest rates provided in the table are
obtained from the report nearest to the month-end. The Federal
Housing Finance Board national average mortgage contract rate is
presented with a one-month lag.
Provision for Loan Losses. During 2002 the provision for loan losses increased
to $1.92 million, as compared to $1.54 million in 2001. The provision for loan
losses as a percentage of average loans outstanding was 0.48% in 2001, as
compared to 0.57% in 2002. Although net loan charge-offs and non-performing
loans remained relatively unchanged from 2001 to 2002, we determined it was
advisable to increase the provision for loan losses because the total loans
outstanding increased by $28.8 million or 8.72% period over period and the level
of inherent risk of loss in our loan portfolio increased. Specifically,
management increased the allowance for loan losses during 2002 because:
(i) The number of loans outside of our primary market area has
increased. During 2002 loans outstanding originated by our
Binghamton loan production office increased by $19.5 million.
(ii) The number of approved large loans (over $1.0 million) increased
from $71.2 million outstanding at December 31, 2001 to $87.1 million
outstanding at December 31, 2002.
(iii) And, commercial and commercial real estate loans outstanding, which
are typically larger and have more risk than consumer and
residential real estate loans, have increased in each of the last 5
years. Commercial and commercial real estate loans combined
increased from $212.8 million at December 31, 2001 to $230.4 million
at December 31, 2002.
Non-Interest Income. Non-interest income is comprised of trust fees, service
charges on deposit accounts, commission income, investment security
gains/(losses), other service fees and other income. Non-interest income
increased from $4.834 million in 2001 to $5.264 million in 2002, a $430 thousand
or 8.9% increase. The most significant reason non-interest income increased
period over period was due to the increase in the realized gains on the sale of
available for sale investment securities.
Although the total market value of assets managed by our trust department
declined by 11.5% from $292.2 million at December 31, 2001 to $258.7 million at
December 31, 2002, total trust fees remained relatively unchanged from 2001 to
2002. Specifically, trust fees totaled $1.416 million in 2002, as compared to
$1.422 million in 2001. Lower levels of recurring service fees in 2002, which
are based both on the market value of the account and income generated by the
account, were offset by an increase in estate settlement fees and trust
termination fees. Estate settlement and trust termination fees totaled $241
thousand in 2002, as compared to $170 thousand in 2001, a $71 thousand increase.
Service charges on deposit accounts remained relatively unchanged from 2001 to
2002. In 2002, service charges on deposit accounts were $1.583 million, as
compared to $1.603 million in 2001. A reduction in service charges for checking
and NOW accounts from 2001 to 2002 was offset by an increase in penalty charges
and ATM fees.
35-K
Commissions Income increased from $336 thousand in 2001 to $428 thousand in
2002, a $92 thousand or 27% increase. The increase is due to additional
insurance policy sales through the Bank's insurance agency subsidiary
Mang-Wilber LLC.
During 2002 we sold available-for-sale investment securities netting pre-tax
realized gains of $488 thousand. This represents a $209 thousand increase over
2001 when net pre-tax realized gains were $279 thousand. Net realized gains on
the matured, called and sold securities totaling $738 thousand, were partially
offset by a $250 thousand write-down of an equity investment held by the
Company. Specifically, during 2002 we sold $21.2 million of available-for-sale
securities, primarily corporate bonds and Treasury bonds. The corporate bonds
were sold in anticipation of credit rating downgrades and Treasury securities
were sold to improve the current investment portfolio yield. In addition, during
2002 we had $57.3 million of available for sale and held to maturity securities
mature or be called primarily the result of a declining interest rate
environment.
Bank-owned life insurance income increased $218 thousand from $345 thousand in
2001 to $563 thousand in 2002 due to an improvement in insurance policy
crediting rates in the third quarter of 2001 (on existing policies) and new
income on policies purchased during 2002.
Other service fees were $404 thousand in 2002, as compared to $341 thousand in
2001, a $63 thousand or 18.5% increase. During 2002 merchant credit card
processing income increased $47 thousand, from $126 thousand in 2001 to $173
thousand in 2002 due to the increased sales of one significant customer.
Other income was $382 thousand in 2002. This compares to $508 thousand in 2001,
a $126 thousand or 33% decrease. Due to poor market performance, during 2002 the
income related to the Bank's securities held by the executive deferred
compensation plan decreased by $115 thousand, from a loss of $90 thousand in
2001 to a loss of $205 thousand in 2002. In addition, rental income on the
Bank's other real estate owned (foreclosed property) decreased by $108 thousand
in 2002 due to lower occupancy levels at one multi-unit rental property sold in
November 2002. Rental income was $177 thousand in 2001 as compared to $69
thousand in 2002. In addition, investment services income was $146 thousand in
2001, as compared to $107 thousand in 2002, a $39 thousand decrease. And
finally, commissions from the Bank's official check vendor decreased $31
thousand in 2002 as compared to 2001. These reductions were offset by increases
in lease income totaling $96 thousand; increased revenue from our title agency
investment, New York Bankers' Title Agency East, LLC totaling $20 thousand;
increased dividends from the New York Bankers Insurance Trust totaling $23
thousand; an insurance claim reimbursement totaling $25 thousand; and other
miscellaneous items totaling $3 thousand.
Non-Interest Expense. Total non-interest expenses increased from $13.945 million
in 2001 to $15.890 million in 2002, a $1.945 million or 13.9% increase. The
substantial growth in non-interest expenses is primarily due to significant
increases in salary and benefits expense related to expansionary activities and
increases in benefit costs.
Salaries and benefits expense increased from $8.191 million in 2001 to $10.345
million in 2002, a $2.154 million or 26.3% increase. Our expansionary activities
resulted in substantial staff increases between the second quarter of 2001 and
the first quarter of 2002. Specifically, we established a loan production office
in Binghamton, NY during May 2001, opened the Norwich (NY) Town branch in
November 2001, and acquired the Norwich (NY) City branch in February 2002. In
addition, the expense related to the "phantom stock" component of the
executive's deferred compensation plan increased by $285 thousand from $746
thousand in 2001 to $1.031 million in 2002 as a result of a $2.38 per share or
29.2% increase in the trading price of the Company's common stock. Under this
plan, executives may defer portions of their compensation, and, if elected by
the executives, deferred amounts can be indexed to the financial performance of
the Company's common stock. Since no actual shares of stock are purchased by the
plan and the common stock of the Company is used solely as an index to
periodically determine the value of the deferred amounts for each executive in
the plan, it is referred to as "phantom stock." Increases and decreases in the
related deferred amounts were determined based upon changes in the trading price
of the Company's stock. The remainder of the salary expense was due to
additional staff, pay increases and incentive compensation.
Benefit costs also increased substantially. In December 2002 we accrued $541
thousand of other benefit expense related to the approval of "SERPs" for two
senior executives. In addition our defined benefit pension plan expense
increased by $313 thousand in 2002, from a benefit of $86 thousand in 2001 to an
expense of $226 thousand in 2002 because of a decrease in the investment returns
on plan assets and changes in discount rate assumptions used for calculating
future benefit payments. And finally, health insurance costs on our partially
self-insured medical plan increased by $116 thousand from $532 thousand in 2001
to $648 thousand in 2002.
Net occupancy expense and furniture and fixture expense did not vary
significantly from 2001 to 2002. Total expenses in these expense categories were
$1.968 million in 2002, as compared to $1.760 million in 2001, a $208 thousand
or 11.8%
36-K
increase. The increase in these costs was primarily associated with our
expansion activities in Binghamton and Norwich, New York.
Computer service fees, advertising and marketing expense and professional fees
totaled $1.044 million in 2001, as compared to $904 thousand in 2002, a $140
thousand decrease. Decreases in professional fees and advertising and marketing
totaling $175 thousand, were partially offset by a $35 thousand increase in
computer service fees. Professional fees decreased by $88 thousand in 2002, as
compared to 2001 due to the non-recurrence of certain consulting fees recorded
in 2001.
Other expenses decreased from $2.950 million in 2001 to $2.673 million in 2002,
a $277 thousand or 9.4% decrease. In 2001 the bank recorded a loss associated
with a check kiting fraud totaling $462 thousand. A similar loss was notincurred
in 2002. Other miscellaneous expenses increased (net) $185 thousand from 2001 to
2002.
Income Taxes. The provisions for federal and state income taxes totaled $3.358
million and $3.147 million for 2002 and 2001, respectively. The tax provision
increased due to an increase in pre-tax income, while the effective income tax
rates for 2002 and 2001 remained level at 27.8%. The use of tax exempt
instruments and tax advantaged entities is the primary reason we maintain an
effective tax rate below the statutory Federal and New York State tax rates.
D. Liquidity
Liquidity describes our ability to meet financial obligations in the normal
course of business. Liquidity is primarily needed to meet the borrowing and
deposit withdrawal requirements of our customers and to fund our current and
planned expenditures. We are committed to maintaining a strong liquidity
position. Accordingly, we monitor our liquidity position on a daily basis
through our daily funds management process. This includes:
(i) maintaining the appropriate levels of currency throughout our branch
system to meet the daily cash needs of our customers,
(ii) balancing our mandated deposit or "reserve" requirements at the
Federal Reserve Bank of New York,
(iii) maintaining adequate cash balances at the FHLBNY and other
correspondent banks, and
(iv) assuring adequate levels of Federal Funds sold, liquid assets, and
borrowing resources are available to meet obligations including
reasonably anticipated daily fluctuations.
In addition to the daily funds management process, we also monitor certain
liquidity ratios and complete a liquidity assessment every 90 days to estimate
current and future sources and uses of liquidity. The 90-day sources and uses
assessment is reviewed by our Asset and Liability Committee. The committee,
based on this assessment and other data, determines our future funding or
investment needs and strategies. The following list represents the sources of
funds available to meet our liquidity requirements. Our primary sources of funds
are denoted by an asterisk (*).
Source of Funding
o Currency*
o Federal Reserve and Correspondent Bank Balances*
o Federal Funds Sold*
o Loan and Investment Principal and Interest Payments*
o Investment Security Maturities and Calls*
o Demand Deposits & NOW Accounts*
o Savings & Money Market Deposits*
o Certificates of Deposit and Other Time Deposits*
o Repurchase Agreements*
o FHLBNY Advances / Lines of Credit*
o Sale of Available for Sale Investment Securities
o Brokered Deposits
o Correspondent Lines of Credit
o Fed. Reserve Discount Window Borrowings
o Sale of Loans
o Proceeds from Issuance of Equity Securities
o Branch Acquisition
At December 31, 2003 and December 31, 2002, we maintained adequate levels of
liquidity. The following table summarizes several of our key liquidity measures
for the periods stated:
37-K
Table of Liquidity Measures:
--------------------------------------------------------------------
Liquidity Measure December 31,
--------------------------------------------------------------------
Dollars in Thousands 2003 2002
--------------------------------------------------------------------
Cash and Cash Equivalents $ 19,890 $ 47,064
--------------------------------------------------------------------
Available for Sale Investment Securities at
Estimated Fair Value less Securities pledged $106,933 $ 88,377
for State and Municipal Deposits
--------------------------------------------------------------------
Total Loan to Total Asset Ratio 49.5% 50.5%
--------------------------------------------------------------------
FHLBNY Remaining Borrowing Capacity $ 18,314 $ 11,409
--------------------------------------------------------------------
Correspondent Bank Lines of Credit $ 10,000 $ 10,000
--------------------------------------------------------------------
In addition to the above liquidity measures, at December 31, 2003 and December
31, 2002, we had $14.4 million, and $13.8 million respectively, of cash
surrender value of bank-owned life insurance. These policies could be terminated
and surrendered for cash upon our demand.
In the opinion of management, the Bank's liquidity position was strong in both
periods. A steady improvement in the Bank's liquidity position can be primarily
attributed to increases in deposits including the acquisition of the City of
Norwich branch in February 2002. As mentioned above, total deposits increased
steadily between periods. Specifically, total deposits increased by $31.5
million or 5.7% between December 31, 2002 and December 31, 2003, while total
loans outstanding increased by only $2.6 million for the same period. Available
for sale investment securities at estimated fair value less securities pledged
for state and municipal deposits increased by $18.6 million between December 31,
2002 and December 31, 2003. This increase was driven by the increase in consumer
deposits and subsequent purchase of available for sale investment securities.
The substantial majority of these unencumbered available for sale securities are
highly liquid and could be sold immediately to meet our anticipated or
unanticipated loan and other funding requirements.
Our commitments to extend credit and standby letters of credit increased by
$12.1 million or 28% from $47.0 million at December 31, 2002 to $59.1 million at
December 31, 2003. Although the amount of these commitments increased by $12.1
million, in management's opinion it will not have a significant impact on our
liquidity position. Our experience indicates that draws on the commitments to
extend credit and standby letters of credit do not fluctuate significantly.
Deposit flows and loan and investment prepayment activity are affected by the
level of interest rates, the interest rates and products offered by competitors,
and other factors. Based on our deposit retention experience, anticipated levels
of regional economic activity, particularly moderate levels of loan demand
within our primary market area, and current pricing strategies, we anticipate
that we will have sufficient levels of liquidity to meet our current funding
commitments. Also, expected principal payments, principal prepayments, and
interest payments from the Bank's loan and investment portfolios increased
between periods due to a lower interest rate environment and higher levels of
mortgage refinancing activity. During 2002 the proceeds from the maturity of
investment securities, both held to maturity and available for sale, was $57.3
million. By comparison, during 2003 the proceeds from the maturity of investment
securities in both categories were $145.7 million.
E. Capital Resources and Dividends
The maintenance of appropriate capital levels is a management priority. Overall
capital adequacy is monitored on an ongoing basis by our management and reviewed
regularly by the Board of Directors. Our principal capital planning goal is to
provide an adequate return to shareholders while retaining a sufficient capital
base to provide for future expansion and comply with all regulatory standards.
At December 31, 2003 stockholders' equity was $64.3 million, a $1.142 million or
1.8% increase over December 31, 2002 shareholders' equity of $63.2 million. The
increase was due to an increase in retained earnings of $4.604 million offset by
a $2.970 million reduction in other comprehensive income and a $492 thousand
increase in Treasury stock.
From time to time the Company has repurchased outstanding common stock from its
shareholders. These shares were recorded as Treasury Stock on the Company's
Balance Sheet and are provided in the Consolidated Financial Statements in PART
II, Item 8, of this statement. The Company's management has been provided
authority to re-purchase common shares into Treasury within limits prescribed by
the Board of Directors. These limits have been set by the Board of Directors
based upon the Company's capital ratio. Given the Company's financial condition,
the Board of Directors has attempted to maintain a total capital to total assets
ratio of 8.0% to 9.0%. At December 31, 2003 management did not have any
authority to re-purchase its common shares into Treasury. Any future stock
repurchase activities will be approved by the Board of Directors and will be
designed to comply with applicable Securities and Exchange Commission and
American Stock Exchange rules.
38-K
The Company and the Bank are both subject to regulatory capital guidelines.
Under these guidelines, as established by federal bank regulators, to be
adequately capitalized, the Company and the Bank must both maintain the minimum
ratio of "Tier 1" capital to risk-weighted assets at 4.0% and the minimum ratio
of total capital to risk-weighted assets of 8.0%. Tier 1 capital is comprised of
shareholders' equity, less intangible assets and accumulated other comprehensive
income. Total capital, for this risk-based capital standard, includes Tier 1
capital plus the Company's allowance for loan losses. Similarly, for the Bank to
be considered "well capitalized," it must maintain a Tier 1 capital to
risk-weighted assets of 6.0% and a total capital to risk-weighted assets ratio
of 10.00%. The Company and the Bank exceeded all capital adequacy and well
capitalized guidelines at December 31, 2003 and December 31, 2002. Additional
details are set forth in Note 13 of the Company's consolidated financial
statements located in PART II, Item 8, of this document.
The principal source of funds for the payment of shareholder dividends by the
Company has been dividends declared and paid to the Company by its subsidiary
bank. There are various legal and regulatory limitations applicable to the
payment of dividends to the Company by its subsidiaries as well as the payment
of dividends by the Company to its shareholders. As of December 31, 2003, under
this statutory limitation, the maximum amount that could have been paid by the
Bank subsidiary to the Company, without special regulatory approval, was
approximately $10.2 million. The ability of the Company and the Bank to pay
dividends in the future is and will continue to be influenced by regulatory
policies, capital guidelines and applicable laws.
See Item 5 of this statement, "Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters," for a recent history of the
Company's cash dividend payments.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our business activities generate market risk. Market risk is the possibility
that changes in future market conditions, including rates and prices, will
reduce earnings and make the Company less valuable. We are primarily exposed to
market risk through changes in interest rates. This risk is called Interest Rate
Risk and is an inherent component of risk for all banks. The risk occurs because
we pay interest on deposits and borrowed funds at varying rates and terms, while
receiving interest income on loans and investments with different rates and
terms. As a result, our earnings and the market value of assets and liabilities
are subject to potentially significant fluctuations as interest rates rise and
fall. Our objective is to minimize the fluctuation in Net Interest Margin and
Net Interest Income caused by anticipated and unanticipated changes in interest
rates.
Ultimately, the Company's Board of Directors is responsible for monitoring and
managing market and interest rate risk. The Board accomplishes this objective by
annually reviewing and approving an Asset and Liability Management Policy, which
establishes broad risk limits and delegates responsibility to carry out asset
and liability oversight and control to the Directors' Loan and Investment
Committee and management's Asset and Liability Committee ("ALCO").
We manage a few different forms of Interest Rate Risk. The first is mismatch
risk, which involves the mismatch of maturities of fixed rate assets and
liabilities. The second is basis risk. Basis risk is the risk associated with
non-correlated changes in different interest rates. For example, we price many
of our adjustable rate commercial loans (an asset) using the Prime Rate as a
basis, while some of our deposit accounts (a liability) are tied to Treasury
security yields. In a given timeframe, the Prime rate might decrease 2% while a
particular Treasury security might only decrease 1%. If this were to occur, our
yield on Prime based commercial loans would decrease by 2%, while the cost of
deposits might only decrease by 1% negatively affecting Net Interest Income and
Net Interest Margin. The third risk is option risk. Option risk generally
appears in the form of prepayment volatility on residential mortgages,
commercial and commercial real estate loans, consumer loans, mortgage backed
securities, and callable agency or municipal investment securities. The Bank's
customers generally have alternative financing sources (or options) to refinance
their existing debt obligations with other financial institutions. When interest
rates decrease, many of these customers exercise this option and refinance at
other institutions and prepay their loans with us, forcing us to reinvest the
prepaid funds in lower yielding investments and loans. The same type of
refinancing activity also accelerates principal payments on mortgage-backed
securities held by the Bank. Municipal investment securities and agency
securities are issued with specified call dates and call prices and are
typically exercised by the issuer when interest rates on comparable maturity
securities are lower than the current coupon rate on the security.
Measuring and managing interest rate risk is a dynamic process that the Bank's
management must continually perform to meet the objective of maintaining stable
Net Interest Income and Net Interest Margin. This means that prior to setting
the term or interest rate on loans or deposits, or before purchasing investment
securities or borrowing funds, management must understand the impact that
alternative interest rates will have on the Bank's interest rate risk profile.
This is accomplished through simulation modeling. Simulation modeling is the
process of "shocking" the current Balance Sheet under a variety of interest rate
scenarios and then measuring the impact of interest rate changes on both
projected
39-K
earnings and the market value of the Bank's equity. The estimates underlying the
sensitivity analysis are based on numerous assumptions including, but not
limited to: the nature and timing of interest rate changes, prepayments on loans
and securities, deposit decay rates, pricing decisions on loans and deposits,
and reinvestment/replacement rates on asset and liability cash flows. While
assumptions are developed based on available information and current economic
and local market conditions, management cannot make any assurances as to the
ultimate accuracy of these assumptions including competitive influences and
customer behavior. Accordingly, actual results will differ from those predicted
by simulation modeling.
The following table shows the projected changes in Net Interest Income from a
parallel shift in all market interest rates. The shift in interest rates is
assumed to occur in monthly increments of 0.50% per month until the full shift
is complete. In other words, the model assumes it will take 6 months for a 3.00%
shift to take place. This is also known as a "ramped" interest rate shock. The
projected changes in Net Interest Income are totals for the 12-month period
beginning January 1, 2004 and ending December 31, 2004 under ramped shock
scenarios.
Interest Rate Sensitivity Table:
- ----------------------------------------------------------------------------------------------------------------
Interest Rates Dollars in Thousands
- ----------------------------------------------------------------------------------------------------------------
Projected Change in
Projected Projected Dollar Projected Percentage Net Interest Income as
Interest Rate Prime Annualized Net Change in Net Change in Net a Percent of Total
Shock (1) Rate Interest Income Interest Income Interest Income Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------
-2.00% 2.00% $24,093 ($1,259) -4.97% -1.96%
- ----------------------------------------------------------------------------------------------------------------
-1.00% 3.00% $24,937 ($415) -1.64% -0.65%
- ----------------------------------------------------------------------------------------------------------------
No change 4.00% $25,352 -- -- --
- ----------------------------------------------------------------------------------------------------------------
1.00% 5.00% $24,516 ($837) -3.30% -1.30%
- ----------------------------------------------------------------------------------------------------------------
2.00% 6.00% $24,935 ($417) -1.65% -0.65%
- ----------------------------------------------------------------------------------------------------------------
3.00% 7.00% $25,766 $414 1.63% 0.64%
- ----------------------------------------------------------------------------------------------------------------
(1) Under a ramped interest rate shock, interest rates are modeled to change
at a rate of 0.50% per month.
Many assumptions are embedded within our interest rate risk model. These
assumptions are approved by the Bank's Asset and Liability Committee and are
based upon both management's experience and projections provided by investment
securities companies. Assuming our prepayment and other assumptions are accurate
and assuming we take reasonable actions to preserve Net Interest Income, we
project that Net Interest Income would decline by $417 thousand or 0.65% of
total stockholders' equity in a +2.00% ramped interest rate shock and $1.259
million or 1.96% of total stockholders' equity in a -2.00% ramped interest rate
shock. This is within our Asset and Liability Policy guideline, which limits the
maximum projected decrease in net interest income in a +2.00% or -2.00% ramped
interest rate shock to -5.0% of the Company's total equity capital.
Our strategy for managing interest rate risk is impacted by general market
conditions and customer demand. But, generally, we try to limit the volume and
term of fixed-rate assets and fixed-rate liabilities, so that we can adjust the
mix and pricing of assets and liabilities to mitigate Net Interest Income
volatility. We also purchase investments for the securities portfolio and
structure borrowings from the FHLBNY to counter-balance interest rate risk taken
in the loan portfolio. We also offer adjustable rate loan and deposit products
that change as interest rates change. Approximately 22% of our Total Assets are
invested in adjustable rate loans and investments.
40-K
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors of The Wilber Corporation:
We have audited the accompanying consolidated statements of condition of The
Wilber Corporation and subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Wilber
Corporation and subsidiary as of December 31, 2003 and 2002, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Albany, New York
March 11, 2004
41-K
The Wilber Corporation
Consolidated Statements of Condition
December 31,
dollars in thousands except share and per share data 2003 2002
- -------------------------------------------------------------------------------------------
Assets
Cash and Due from Banks $ 11,892 $ 13,071
Time Deposits with Other Banks 7,998 15,993
Federal Funds Sold -- 18,000
--------- ---------
Total Cash and Cash Equivalents 19,890 47,064
Securities Available-for-Sale, at Fair Value (Note 2) 275,051 234,542
Securities Held-to-Maturity, Fair Value of $44,416 at
December 31, 2003, $43,952 at December 31, 2002 (Note 2) 44,140 42,837
Loans (Note 3) 360,906 358,295
Allowance for Loan Losses (Note 4) (5,757) (5,392)
--------- ---------
Loans, Net 355,149 352,903
--------- ---------
Premises and Equipment, Net (Note 5) 5,721 5,954
Bank Owned Life Insurance 14,405 13,766
Goodwill (Note 6) 2,682 2,682
Intangible Assets, Net (Note 6) 461 576
Other Assets 11,524 8,660
--------- ---------
Total Assets $ 729,023 $ 708,984
========= =========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 61,267 $ 53,527
Savings, NOW and Money Market Deposit Accounts 251,180 230,217
Certificates of Deposit (Over $100M) 82,847 82,192
Certificates of Deposit (Under $100M) 158,783 156,338
Other Time Deposits 26,556 26,807
--------- ---------
Total Deposits 580,633 549,081
--------- ---------
Borrowings (Note 8) 75,867 86,606
Other Liabilities 8,219 10,135
--------- ---------
Total Liabilities 664,719 645,822
--------- ---------
Stockholders' Equity:
Common Stock, $.01 Par Value, 13,961,664 Shares Issued at
December 31, 2003, and No Par Value, 3,490,416 Shares
Issued at December 31, 2002 140 2,182
Additional Paid in Capital 4,224 2,182
Retained Earnings 79,043 74,439
Accumulated Other Comprehensive Income 1,272 4,242
Treasury Stock at Cost, 2,752,272 Shares at December 31, 2003
and 676,151 Shares at December 31, 2002 (20,375) (19,883)
--------- ---------
Total Stockholders' Equity 64,304 63,162
--------- ---------
Total Liabilities and Stockholders' Equity $ 729,023 $ 708,984
========= =========
See accompanying notes to consolidated financial statements.
42-K
The Wilber Corporation
Consolidated Statements of Income
Year Ended December 31,
dollars in thousands except share and per share data 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Interest and Dividend Income
Interest and Fees on Loans $ 24,477 $ 26,503 $ 29,025
Interest and Dividends on Securities:
U.S. Government and Agency Obligations 9,751 9,839 7,866
State and Municipal Obligations 2,198 1,992 2,180
Other 1,093 1,807 1,369
Interest on Federal Funds Sold and Time Deposits 1,101 1,495 1,853
------------ ------------ ------------
Total Interest and Dividend Income 38,620 41,636 42,293
------------ ------------ ------------
Interest Expense
Interest on Deposits:
Savings, NOW and Money Market Deposit Accounts 2,442 3,316 3,804
Certificates of Deposit (Over $100M) 2,414 2,891 3,799
Other Time 5,844 6,828 9,007
Interest on Short-Term Borrowings 116 189 406
Interest on Long-Term Borrowings 3,337 3,946 3,433
------------ ------------ ------------
Total Interest Expense 14,153 17,170 20,449
------------ ------------ ------------
Net Interest Income 24,467 24,466 21,844
Provisions for Loan Losses (Note 4) 1,565 1,920 1,540
------------ ------------ ------------
Net Interest Income After Provision for Loan Losses 22,902 22,546 20,304
------------ ------------ ------------
Other Income
Trust Fees 1,383 1,416 1,422
Service Charges on Deposit Accounts 1,457 1,583 1,603
Commissions Income 434 428 336
Investment Security Gains, Net 808 488 279
Increase in Cash Surrender Value of Bank Owned Life Insurance 639 552 303
Other Service Fees 325 404 341
Other Income 625 393 550
------------ ------------ ------------
Total Other Income 5,671 5,264 4,834
------------ ------------ ------------
Other Expense
Salaries and Employee Benefits 10,514 10,345 8,191
Net Occupancy Expense of Bank Premises 1,360 1,158 914
Furniture and Equipment Expense 803 810 846
Computer Service Fees 305 277 242
Advertising and Marketing 436 352 439
Professional Fees 409 275 363
Other 2,756 2,673 2,950
------------ ------------ ------------
Total Other Expense 16,583 15,890 13,945
------------ ------------ ------------
Income Before Taxes 11,990 11,920 11,193
Income Taxes (3,277) (3,358) (3,147)
------------ ------------ ------------
Net Income $ 8,713 $ 8,562 $ 8,046
============ ============ ============
Weighted Average Shares Outstanding (1) 11,214,288 11,285,340 11,374,128
Basic Earnings Per Share (1) $ 0.78 $ 0.76 $ 0.71
See accompanying notes to consolidated financial statements.
(1) All Share and per share information has been restated to give retroactive
effect to the 4-for-1 stock split that was approved September 5, 2003.
43-K
The Wilber Corporation
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income
Accumulated
Additional Other
dollars in thousands except Common Paid in Retained Comprehensive Treasury
share and per share data Stock Capital Earnings Income (Loss) Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ 2,182 $ 2,182 $ 66,083 $ (330) $(18,591) $ 51,526
-------- -------- -------- -------- -------- --------
Comprehensive Income:
Net Income -- -- 8,046 -- -- 8,046
Change in Net Unrealized Gain (Loss)
on Securities, Net of Taxes -- -- -- 850 -- 850
--------
Total Comprehensive Income 8,896
--------
Cash Dividends ($.35 per share) -- -- (3,980) -- -- (3,980)
Purchase of Treasury Stock (19,169 shares) -- -- -- -- (618) (618)
Sale of Treasury Stock (100 shares) -- -- -- -- 3 3
-------- -------- -------- -------- -------- --------
Balance December 31, 2001 $ 2,182 $ 2,182 $ 70,149 $ 520 $(19,206) $ 55,827
-------- -------- -------- -------- -------- --------
Comprehensive Income:
Net Income -- -- 8,562 -- -- 8,562
Change in Net Unrealized Gain (Loss)
on Securities, Net of Taxes -- -- -- 3,722 -- 3,722
--------
Total Comprehensive Income 12,284
--------
Cash Dividends ($.38 per share) -- -- (4,272) -- -- (4,272)
Purchase of Treasury Stock (20,316 shares) -- -- -- -- (677) (677)
-------- -------- -------- -------- -------- --------
Balance December 31, 2002 $ 2,182 $ 2,182 $ 74,439 $ 4,242 $(19,883) $ 63,162
-------- -------- -------- -------- -------- --------
Comprehensive Income:
Net Income -- -- 8,713 -- -- 8,713
Change in Net Unrealized Gain (Loss)
on Securities, Net of Taxes -- -- -- (2,970) -- (2,970)
--------
Total Comprehensive Income 5,743
--------
Cash Dividends ($.37 per share) -- -- (4,109) -- -- (4,109)
Purchase of Treasury Stock (11,917 shares) -- -- -- -- (492) (492)
Change in Par Value and Stock Split (2,042) 2,042 -- -- -- --
-------- -------- -------- -------- -------- --------
Balance December 31, 2003 $ 140 $ 4,224 $ 79,043 $ 1,272 $(20,375) $ 64,304
-------- -------- -------- -------- -------- --------
See accompanying notes to consolidated financial statements.
(1) Per share information has been restated to give retroactive effect to the
4-for-1 stock split that was approved September 5, 2003.
44-K
The Wilber Corporation
Consolidated Statements of Cash Flows
Year Ended December 31,
dollars in thousands 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 8,713 $ 8,562 $ 8,046
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 1,565 1,920 1,540
Depreciation and Amortization 896 931 950
Net Amortization of Premiums and Accretion of Discounts on Investments 1,682 1,042 703
Investment Security Gains (808) (488) (279)
Deferred Income Taxes 336 (373) 29
Other Real Estate Losses 66 188 122
Increase in Cash Surrender Value of Bank Owned Life Insurance (639) (552) (303)
Increase in Other Assets (2,837) (586) (694)
(Decrease) Increase in Other Liabilities (141) 1,455 2,015
--------- --------- ---------
Net Cash Provided by Operating Activities 8,833 12,099 12,129
--------- --------- ---------
Cash Flows from Investing Activities:
Net Cash Provided by Branch Acquisition -- 29,168 --
Proceeds from Maturities of Held-to-Maturity Investment Securities 32,230 13,757 39,513
Purchases of Held-to-Maturity Investment Securities (33,745) (10,635) (10,654)
Proceeds from Maturities of Available-for-Sale Investment Securities 112,562 42,721 16,265
Proceeds from Sales of Available-for-Sale Investment Securities 11,239 21,181 7,484
Purchases of Available-for-Sale Investment Securities (169,874) (104,107) (100,128)
Purchase of Bank Owned Life Insurance -- (3,050) (5,000)
Net Increase in Loans (3,921) (26,797) (6,231)
Purchase of Premises and Equipment, Net of Disposals (548) (853) (1,661)
Proceeds from Sale of Other Real Estate 47 966 442
--------- --------- ---------
Net Cash Used in Investing Activities (52,010) (37,649) (59,970)
--------- --------- ---------
Cash Flows from Financing Activities:
Net Increase in Demand Deposits, Savings, NOW,
Money Market and Other Time Deposits 28,452 41,364 38,985
Net Increase (Decrease) in Certificates of Deposit 3,100 (17,951) 12,619
Net Increase (Decrease) in Short-Term Borrowings 6,758 2,730 (3,235)
Increase in Long-Term Borrowings -- 21,000 14,200
Repayment of Long-Term Borrowings (17,497) (10,167) (2,187)
(Decrease) Increase in Dividends Payable (209) 209 --
Purchase of Treasury Stock (492) (677) (618)
Sale of Treasury Stock -- -- 3
Cash Dividends Declared (4,109) (4,272) (3,980)
--------- --------- ---------
Net Cash Provided by Financing Activities 16,003 32,236 55,787
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (27,174) 6,686 7,946
Cash and Cash Equivalents at Beginning of Year 47,064 40,378 32,432
--------- --------- ---------
Cash and Cash Equivalents at End of Period $ 19,890 $ 47,064 $ 40,378
========= ========= =========
See accompanying notes to consolidated financial statements.
45-K
The Wilber Corporation
Consolidated Statements of Cash Flows, continued
Year Ended December 31,
dollars in thousands 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid during Period for:
Interest $ 14,334 $ 17,374 $ 20,422
Income Taxes $ 3,683 $ 2,321 $ 658
Non Cash Investing Activities:
Change in Unrealized Gain on Securities $ (4,902) $ 6,121 $ 1,416
Transfer of Loans to Other Real Estate $ 110 $ 202 $ 378
Transfer of Securities to Available-for-Sale from Held-to-Maturity
upon Adoption of Statement of Financial Accounting Standard
("SFAS") No. 133 (Fair Value of $28,507) $ -- $ -- $ 28,589
Fair Value of Assets Acquired $ -- $ 3,325 $ --
Fair Value of Liabilities Assumed $ -- $ 34,656 $ --
See accompanying notes to consolidated financial statements.
46-K
Note 1. Summary of Significant Accounting Policies
The Wilber Corporation (the Parent Company) operates 18 branches serving Otsego,
Delaware, Schoharie, Ulster and Chenango Counties through its wholly owned
subsidiary Wilber National Bank (the Bank). The Company's primary source of
revenue is interest earned on commercial, mortgage and consumer loans to
customers who are predominately individuals and small and middle-market
businesses. Collectively, the Parent Company and the Bank are referred to herein
as "the Company."
The Bank owns a majority interest in Mang-Wilber, LLC, an insurance agency
offering a full line of life, health and property and casualty insurance.
Accordingly, the assets and liabilities and revenues and expenses of
Mang-Wilber, LLC are included in the Company's consolidated financial
statements.
The consolidated financial statements of the Company conform to accounting
principles generally accepted in the United States of America (GAAP). The
following is a summary of the more significant policies:
Principles of Consolidation -- The consolidated financial statements include the
accounts of the Parent Company and its wholly owned subsidiary after elimination
of intercompany accounts and transactions. In the "Parent Company Only Financial
Statements," the investment in subsidiary is carried under the equity method of
accounting.
Management's Use of Estimates -- The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
Reclassifications -- Whenever necessary, reclassifications are made to prior
period amounts to conform to current year presentation.
Cash Equivalents -- The Company considers amounts due from correspondent banks,
cash items in process of collection, Federal Funds sold and time deposit
balances with other banks to be cash equivalents for purposes of the
consolidated statements of cash flows.
Securities -- The Company classifies its investment securities at date of
purchase as either held-to-maturity or available-for-sale. Held-to-maturity
securities are those for which the Company has the intent and ability to hold to
maturity, and are reported at amortized cost. Securities not classified as
held-to-maturity are classified as available-for-sale and reported at fair
value, with net unrealized gains and losses reflected in stockholders' equity as
accumulated other comprehensive income (loss), net of the applicable income tax
effect. Transfers of securities between categories are recorded at full value at
the date of transfer.
Non-marketable equity securities, including Federal Reserve and Federal Home
Loan Bank stock required for membership in those organizations, are carried at
cost.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using a method that approximates the interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses on the sale of securities are included in securities gains (losses).
The cost of securities sold is based on the specific identification method.
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the security.
Loans -- Loans are reported at their outstanding principal balance. Interest
income on loans is accrued based upon the principal amount outstanding.
Loans are placed on nonaccrual status when timely collection of principal and
interest in accordance with contractual terms is doubtful. Loans are transferred
to a nonaccrual basis generally when principal or interest payments become
ninety days delinquent, unless the loan is well secured and in the process of
collection, or sooner when management concludes circumstances indicate that
borrowers may be unable to meet contractual principal or interest payments. When
a loan is transferred to a nonaccrual status, all interest previously accrued in
the current period but not collected is reversed against interest income in that
period. Interest accrued in a prior period and not collected is charged-off
against the allowance for loan losses.
If ultimate repayment of a nonaccrual loan is expected, any payments received
are applied in accordance with contractual terms. If ultimate repayment of
principal is not expected, any payment received on a nonaccrual loan is applied
to principal until ultimate repayment becomes expected. Nonaccrual loans are
returned to accrual status when they become current as to principal and interest
or demonstrate a period of performance under the contractual terms and, in the
opinion of management, are fully collectible as to
47-K
Note 1. Summary of Significant Accounting Policies, Continued
principal and interest. When in the opinion of management the collection of
principal appears unlikely, the loan balance is charged-off in total or in part.
Commercial type loans are considered impaired when it is probable that the
borrower will not repay the loan according to the original contractual terms of
the loan agreement, and all loan types are considered impaired if the loan is
restructured in a troubled debt restructuring.
A loan is considered to be a troubled debt restructured loan (TDR) when the
Company grants a concession to the borrower because of the borrower's financial
condition that it would not otherwise consider. Such concessions include the
reduction of interest rates, forgiveness of principal or interest or other
modifications of interest rates that are less than the current market rate for
new obligations with similar risk. TDR loans that are in compliance with their
modified terms and that yield a market rate may be removed from the TDR status
after a period of performance.
Allowance for Loan Losses -- The allowance for loan losses is the amount, which
in the opinion of management, is necessary to absorb probable losses inherent in
the loan portfolio. The allowance is determined based upon numerous
considerations, including local economic conditions, the growth and composition
of the loan portfolio with respect to the mix between the various types of loans
and their related risk characteristics, a review of the value of collateral
supporting the loans, comprehensive reviews of the loan portfolio by the
external Loan Review and management, as well as consideration of volume and
trends of delinquencies, non-performing loans, and loan charge-offs. As a result
of the test of adequacy, required additions to the allowance for loan losses are
made periodically by charges to the provision for loan losses.
The allowance for loan losses related to impaired loans is based on discounted
cash flows using the loan's initial effective interest rate or the fair value of
the collateral for certain loans where repayment of the loan is expected to be
provided solely by the underlying collateral (collateral dependent loans). The
Company's impaired loans are generally collateral dependent. The Company
considers the estimated cost to sell, on a discounted basis, when determining
the fair value of collateral in the measurement of impairment if those costs are
expected to reduce the cash flows available to repay or otherwise satisfy the
loans.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future additions
to the allowance for loan losses may be necessary based on changes in economic
conditions or changes in the values of properties securing loans in the process
of foreclosure. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance for loan losses based on their judgments about information available
to them at the time of their examination, which may not be currently available
to management.
Other Real Estate Owned -- Other real estate owned consists of properties
formerly pledged as collateral on loans, which have been acquired by the Company
through foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
Other real estate owned is carried at the lower of the recorded investment in
the loan or the fair value of the real estate, less estimated costs to sell.
Upon transfer of a loan to foreclosure status, an appraisal is obtained and any
excess of the loan balance over the fair value, less estimated costs to sell, is
charged against the allowance for loan losses. Expenses and subsequent
adjustments to the fair value are treated as other operating expense. Gains on
the sale of other real estate owned are included in income when title has passed
and the sale has met the minimum down payment requirements prescribed by GAAP.
Bank Premises and Equipment -- Land is carried at cost. Premises and equipment
are stated at cost less accumulated depreciation computed principally using
accelerated methods over the estimated useful lives of the assets, which range
from 15 to 40 years for buildings and from 3 to 10 years for furniture and
equipment. Maintenance and repairs are charged to expense as incurred.
Bank Owned Life Insurance ("BOLI") -- The BOLI was purchased as a financing tool
for employee benefits. The value of life insurance financing is the tax
preferred status of increases in life insurance cash values and death benefits
and the cash flow generated at the death of the insured. The purchase of the
life insurance policy results in an interest sensitive asset on the Company's
consolidated statements of condition that provides monthly tax-free income to
the Company. In addition to interest risk related to BOLI investments, there is
also credit risk related to insurance carriers. To mitigate this risk, annual
financial condition reviews are completed on all carriers. BOLI is stated on the
Company's consolidated statements of condition at its current cash surrender
value. Increases in BOLI's cash surrender value are reported as other operating
income in the Company's consolidated statements of income.
Income Taxes -- Income taxes are accounted for under the asset and liability
method. The Company files a consolidated tax return on the accrual method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income
48-K
Note 1. Summary of Significant Accounting Policies, Continued
in the years in which temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Pension Costs -- The Company maintains a noncontributory, defined benefit
pension plan covering substantially all employees, as well as supplemental
employee retirement plans covering certain executives. Costs associated with
these plans, based on actuarial computations of current and future benefits for
employees, are charged to current operating expenses.
Treasury Stock -- Treasury stock acquisitions are recorded at cost. Subsequent
sales of treasury stock are recorded on an average cost basis. Gains on the sale
of treasury stock are credited to additional paid-in-capital. Losses on the sale
of treasury stock are charged to additional paid-in-capital to the extent of
previous gains, otherwise charged to retained earnings.
Earnings Per Share -- Basic earnings per share (EPS) is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Entities with complex capital structures must
also present diluted EPS, which reflect the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common shares. The Company does not have a complex capital
structure and, accordingly, has presented only basic EPS.
Trust Department -- Assets held in fiduciary or agency capacities for customers
are not included in the accompanying consolidated statements of condition, since
such items are not assets of the Company.
Financial Instruments with Off-Balance Sheet Risk -- The Bank is a party to
other financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit
which involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the statement of condition. The contract
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
Comprehensive Income -- For the Company, comprehensive income represents net
income plus other comprehensive income (loss), which consists of the net change
in unrealized gains or losses on securities available for sale, net of income
taxes, for the period and is presented in the consolidated statements of changes
in stockholders' equity and comprehensive income. Accumulated other
comprehensive income (loss) represents the net unrealized gains or losses on
securities available-for-sale as of the balance sheet dates, net of income
taxes.
Segment Reporting -- The Company's operations are solely in the community
banking industry and include the provision of traditional commercial banking
services. The Company operates solely in the geographical region of Central New
York State. The Company has identified separate operating segments; however,
these segments did not meet the quantitative thresholds for separate disclosure.
Goodwill and Other Intangible Assets -- The Company accounts for goodwill and
intangible assets in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that acquired intangible assets (other
than goodwill) be amortized over their useful economic life, while goodwill and
any acquired intangible assets with an indefinite useful economic life would not
be amortized, but would be reviewed for impairment on an annual basis based upon
guidelines specified in the Statement. SFAS No. 142 requires that goodwill be
evaluated for impairment annually. The Company adopted SFAS No. 142 on a
prospective basis beginning January 1, 2002. Prior to the adoption of SFAS No.
142, the core deposit intangible and goodwill were being amortized on a
straight-line basis over ten and fifteen years, respectively.
Prior to October 1, 2002, the unidentified intangible assets acquired in the
acquisition of a bank or thrift (including acquisitions of branches), where the
fair value of the liabilities assumed exceeds the fair value of the assets
acquired, was amortized to expense under SFAS No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions." In October 2002, SFAS No. 147,
"Acquisitions of Certain Financial Institutions," was issued. This Statement
amends SFAS No. 72, SFAS No. 144 and Financial Accounting Standards Board (FASB)
Interpretation (FIN) No. 9. Except for transactions between two or more mutual
enterprises, this Statement removes acquisitions of financial institutions from
the scope of both SFAS No. 72 and FIN No. 9 and requires that those transactions
be accounted for in accordance with SFAS No. 141, "Business Combinations," and
No. 142. In addition, this Statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that SFAS No. 144 requires for other long-lived assets
that are held and used. The provisions of this Statement were applied
retroactively to January 1, 2002.
Furthermore, upon adoption of SFAS No. 147, approximately $1,877,000 in
unidentified intangible assets was reclassified as goodwill retroactive to
January 1, 2002.
49-K
Note 2. Investment Securities
The amortized cost and fair value of investment securities are as follows:
December 31, 2003
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
dollars in thousands Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
Available-for-Sale Portfolio
U.S. Treasury and Obligations of U.S.
Government Corporations and Agencies $ 5,978 $ 50 $ -- $ 6,028
Obligations of States and Political Subdivisions 56,684 1,736 404 58,016
Mortgage-Backed Securities 192,745 1,191 1,571 192,365
Corporate Bonds 13,038 911 -- 13,949
Equity Securities 4,520 173 -- 4,693
-------- -------- -------- --------
$272,965 $ 4,061 $ 1,975 $275,051
======== ======== ======== ========
Held-to-Maturity Portfolio
Obligations of States and Political Subdivisions $ 6,292 $ 238 $ 15 $ 6,515
Mortgage-Backed Securities 37,848 341 288 $ 37,901
-------- -------- -------- --------
$ 44,140 $ 579 $ 303 $ 44,416
======== ======== ======== ========
December 31, 2002
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
dollars in thousands Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
Available-for-Sale Portfolio
U.S. Treasury and Obligations of U.S.
Government Corporations and Agencies $ 18,265 $ 204 $ -- $ 18,469
Obligations of States and Political Subdivisions 38,172 1,457 -- 39,629
Mortgage-Backed Securities 142,983 3,591 -- 146,574
Corporate Bonds 23,171 1,645 -- 24,816
Equity Securities 4,963 125 34 5,054
-------- -------- -------- --------
$227,554 $ 7,022 $ 34 $234,542
======== ======== ======== ========
Held-to-Maturity Portfolio
Obligations of States and Political Subdivisions $ 3,230 $ 1 $ -- $ 3,231
Mortgage-Backed Securities 39,607 1,114 -- 40,721
-------- -------- -------- --------
$ 42,837 $ 1,115 $ -- $ 43,952
======== ======== ======== ========
The following table provides information on temporarily impaired securities at
December 31, 2003:
--------------------------------------------------------------------------------
Less Than 12 Months 12 Months or Longer Total
Estimated Unrealized Estimated Unrealized Estimated Unrealized
dollars in thousands Fair Value Losses Fair Value Losses Fair Value Losses
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of States and Political Subdivisions 15,525 419 -- -- 15,525 419
Mortgage-Backed Securities 153,303 1,859 -- -- 153,303 1,859
-------- -------- --- -------- -------- --------
$168,828 $ 2,278 $-- $ -- $168,828 $ 2,278
======== ======== === ======== ======== ========
50-K
Note 2. Investment Securities, Continued
At December 31, 2003 and 2002, substantially all of the mortgage-backed
securities held by the Company were issued or backed by Federal agencies.
The amortized cost and fair value of debt securities by contractual maturity are
shown below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. Equity securities have no stated maturity and are excluded
from the following tables.
December 31, 2003
-------------------------
Amortized Fair
dollars in thousands Cost Value
- --------------------------------------------------------------------------------
Available-for-Sale Securities
Due in One Year or Less 8,566 8,695
Due After One Year Through Five Years 26,455 27,548
Due After Five Years Through Ten Years 77,983 78,883
Due After Ten Years 155,441 155,232
-------- --------
$268,445 $270,358
======== ========
December 31, 2003
-------------------------
Amortized Fair
dollars in thousands Cost Value
- --------------------------------------------------------------------------------
Held-to-Maturity Securities
Due in One Year or Less 590 724
Due After One Year Through Five Years 1,679 1,844
Due After Five Years Through Ten Years 1,325 1,264
Due After Ten Years 40,546 40,584
-------- --------
$ 44,140 $ 44,416
======== ========
The following table sets forth information with regard to securities gains and
losses realized on sales or calls:
Year Ended December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Gross Gains $ 842 $ 760
Gross Losses (34) (272)
----- -----
Net Securities Gains $ 808 $ 488
===== =====
Federal Home Loan Bank and Federal Reserve Bank stock of $3,188,000 at December
31, 2003, and $3,812,000 in 2002 is carried at cost, as fair values are not
readily determinable. Both investments are required for membership. At December
31, 2003, investment securities carried at $160,614,000, with an estimated fair
value of $162,168,000 were pledged as collateral for certain public deposits and
other purposes as required or permitted by law.
51-K
Note 3. Loans
December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Agricultural $ 2,467 $ 2,439
Residential Real Estate 118,571 125,464
Commercial Real Estate 115,733 104,967
Commercial 62,564 63,156
Consumer 61,571 62,269
--------- ---------
360,906 358,295
Less: Allowance for Loan Losses (5,757) (5,392)
--------- ---------
Net Loans $ 355,149 $ 352,903
========= =========
At December 31, 2003, $88,578,000 residential real estate loans were pledged as
collateral for FHLB advances.
At the periods presented below, the subsidiary bank had loans to directors and
executive officers of the Company and its subsidiary, or company in which they
have ownership. Such loans are made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than normal risk of collectibility or present other unfavorable
features. Loan transactions with related parties are as follows:
December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Balance at Beginning of Year $ 17,701 $ 16,156
(Decrease) Increase (4,447) 1,545
--------- ---------
Ending Balance $ 13,254 $ 17,701
========= =========
Note 4. Allowance for Loan Losses
Changes in the allowance for loan losses are presented in the following summary:
Year Ended December 31,
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Balance at Beginning of Year $ 5,392 $ 4,476 $ 4,003
Provision for Loan Losses 1,565 1,920 1,540
Recoveries Credited 276 417 334
Loans Charged-Off (1,476) (1,421) (1,401)
-------- --------- ---------
Ending Balance $ 5,757 $ 5,392 $ 4,476
======== ========= =========
The following provides information on impaired loans for the periods presented:
As of and For the
Year Ended December 31,
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Impaired Loans $ 3,270 $ 2,196 $ 2,481
Allowance for Impaired Loans 510 442 359
Average Recorded Investment in Impaired Loans 3,485 2,339 2,423
52-K
Note 4. Allowance for Loan Losses, Continued
The following table sets forth information with regards to non-performing loans:
As of December 31,
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Loans in Non-Accrual Status $3,164 $2,034 $2,090
Loans Contractually Past Due 90 Days or More
and Still Accruing Interest 123 717 329
Troubled Debt Restructured Loans 371 387 861
------ ------ ------
Total Non-Performing Loans $3,658 $3,138 $3,280
====== ====== ======
Had the loans in non-accrual status performed in accordance with their original
terms, additional interest income of $83,000 would have been recorded for the
year ended December 31, 2003. In addition, in 2002 and 2001, interest income of
$116,000 and $134,000, respectively, would have been recorded.
Had the troubled debt restructured loans performed in accordance with their
original terms, the Company would have recorded interest income of $31,000,
$34,000 and $35,000 for the years ended December 31, 2003, 2002 and 2001,
respectively. Under the restructured terms, the Company recorded interest income
of $32,000, $35,000 and $35,000 for the years ended December 31, 2003, 2002 and
2001, respectively.
Note 5. Premises and Equipment
December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Land $ 539 $ 483
Buildings 7,418 7,194
Furniture, Fixtures and Equipment 5,386 5,404
-------- --------
13,343 13,081
Less: Accumulated Depreciation (7,622) (7,127)
-------- --------
$ 5,721 $ 5,954
======== ========
Depreciation expense was $781,000, $825,000, and $783,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.
Note 6. Goodwill and Intangible Assets
Goodwill and intangible assets are presented in the following table:
December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Goodwill $ 2,682 $ 2,682
======== ========
Core Deposit Intangible $ 285 $ 285
Other Intangible Assets 450 450
-------- --------
Total Intangible Assets $ 735 $ 735
Accumulated Amortization (274) (159)
-------- --------
Intangible Assets, Net $ 461 $ 576
======== ========
Amortization expense on intangible assets was $115,000 for 2003, $106,000 for
2002, and $168,000 for 2001. The core deposit intangible and other intangible
assets are amortized over a weighted average period of approximately 5 and 12
years, respectively.
53-K
Note 6. Goodwill and Intangible Assets, Continued
In February 2002, the Company acquired a branch and recorded related goodwill of
$1,877,000 and a core deposit intangible asset of $285,000. See Note 1 "Goodwill
and Intangible Assets."
Estimated annual amortization expense of intangible assets, absent any
impairment or change in estimated useful lives is summarized as follows for each
of the next five years:
dollars in thousands
- --------------------------------------------------------------------------------
2004 $80
2005 80
2006 80
2007 30
2008 23
Pro forma net income and net income per share for December 31, 2001, adjusted to
eliminate historical amortization of goodwill per SFAS No. 142, is as follows
(per share information restated to give retroactive effect to the 4-for-1 stock
split that was approved September 5, 2003):
December 31,
dollars in thousands 2001
- --------------------------------------------------------------------------------
Reported Net Income $8,046
Goodwill Amortization (nondeductible for tax) 115
------
Pro Forma Net Income $8,161
======
Reported Net Income Per Share $ 0.71
Pro Forma Net Income Per Share $ 0.72
Note 7. Time Deposits
Contractual maturities of time deposits were as follows:
December 31, 2003
dollars in thousands Amount %
- --------------------------------------------------------------------------------
2004 $139,571 52.04
2005 49,430 18.43
2006 20,459 7.63
2007 27,321 10.19
2008 31,285 11.67
Thereafter 120 0.04
-------- ------
$268,186 100.00%
======== ======
54-K
Note 8. Borrowings
The following is a summary of borrowings:
December 31,
dollars in thousands 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Borrowings:
Federal Funds Purchased $ 8,100 $ -
Securities Sold Under Agreements to Repurchase 11,178 10,260
Treasury Tax and Loan Notes 740 3,000
Long-Term Borrowings:
Advances from Federal Home Loan Bank
Bearing Interest at 5.675%, Due January 2003 - 8,000
Bearing Interest at 6.11%, Due June 2003 - 1,500
Bearing Interest at 5.45%, Due July 2003 - 500
Bearing Interest at 5.87% to 6.11%, Due December 2003 - 5,000
Bearing Interest at 5.47%, Due January 2004 500 500
Bearing Interest at 6.52%, Due January 2005, Callable January 2004 10,000 10,000
Bearing Interest at 6.55%, Due March 2005, Callable March 2004 10,000 10,000
Bearing Interest at 3.43% to 6.13%, Due December 2004 2,746 3,411
Bearing Interest at 3.64% to 5.68%, Due January 2005 1,304 1,966
Bearing Interest at 2.62%, Due November 2012, Callable November 2005 8,000 8,000
Bearing Interest at 5.90% to 6.11%, Due December 2005 4,000 4,000
Bearing Interest at 5.77%, Due January 2006 1,000 1,000
Bearing Interest at 5.22%, Due July 2006 848 1,137
Bearing Interest at 3.05%, Due December 2012, Callable December 2007 8,000 8,000
Bearing Interest at 5.56%, Due July 2008 709 838
Bearing Interest at 5.03%, Due January 2009 1,542 1,797
Bearing Interest at 5.89% to 5.95%, Due July 2011 1,388 1,527
Bearing Interest at 5.30%, Due December 2011 1,694 1,857
Bearing Interest at 6.26%, Due July 2016 899 944
Bearing Interest at 5.77%, Due December 2016 1,830 1,921
Bearing Interest at 6.04%, Due January 2017 920 965
Bearing Interest at 6.46%, Due July 2021 469 483
------- -------
Total Borrowings $75,867 $86,606
======= =======
Borrowings from the Federal Home Loan Bank (FHLB) are collateralized by mortgage
loans, mortgage-backed securities or other government agency securities. At
December 31, 2003, $18,000,000 of the long-term borrowings were collateralized
by securities with a carrying value and estimated fair value of $18,403,000 and
$18,379,000, respectively. The remaining long-term borrowings totaling
$37,849,000 are collateralized by the Company's mortgage loans. At December 31,
2003, the Bank had a line of credit of $72,880,000 with the FHLB. However, based
on outstanding borrowings at FHLB, the total potential borrowing capacity on
these lines is reduced to $18,314,000 at December 31, 2003.
Information related to short-term borrowings is as follows: As of and For the
Year Ended December 31,
dollars in thousands 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding Balance at End of Period $20,018 $13,260 $10,530
Maximum Outstanding at any Month-End 20,018 16,416 18,168
Average Amount Outstanding during Period 13,529 12,889 12,380
Average Interest Rate during Period 0.86% 1.47% 3.28%
55-K
Note 8. Borrowings, Continued
Average amounts outstanding and average interest rates are computed using
weighted daily averages.
Securities sold under agreements to repurchase included in short-term borrowings
represent the purchase of interests in government securities by the Bank's
customers, which are repurchased by the Bank on the following business day or at
stated maturity. The underlying securities are held in a third party custodian
account and are under the Company's control. The carrying value and estimated
fair value of securities pledged as collateral for repurchase agreements was
$22,012,000 and $22,078,000 at December 31, 2003 and 2002, respectively. These
amounts are included in the total of investment securities pledged disclosed in
Note 2.
Note 9. Income Taxes
Income tax expense attributable to income before taxes is comprised of the
following:
Year Ended December 31,
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Current:
Federal $ 2,620 $ 3,328 $ 2,795
State 321 403 323
------- ------- -------
Total Current 2,941 3,731 3,118
Deferred:
Federal 275 (299) 20
State 61 (74) 9
------- ------- -------
Total Deferred 336 (373) 29
------- ------- -------
Total Income Tax Expense $ 3,277 $ 3,358 $ 3,147
======= ======= =======
The components of deferred income taxes, which are included in the consolidated
statements of condition are:
Year Ended December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Assets:
Allowance for Loan Losses $ 2,242 $ 2,100
Deferred Compensation 1,255 1,000
Reserves 97 97
Other 45 17
------- -------
3,639 3,214
------- -------
Liabilities:
Securities Discount Accretion 211 178
Defined Benefit Pension Plan 1,738 1,287
Net Unrealized Gain on Securities
Available-for-Sale 812 2,744
Other 503 226
------- -------
3,264 4,435
------- -------
$ 375 $(1,221)
Net Deferred Tax (Liabilities) Assets ======= =======
56-K
Note 9. Income Taxes, Continued
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carry-back period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable income
and projected future taxable income over the periods in which the temporary
differences comprising the deferred tax assets will be deductible. Based on its
assessment, management determined that no valuation allowance is necessary.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
Year Ended December 31,
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Statutory Federal Income Tax Rate 34% 34% 34%
Variances from Statutory Rate:
State Income Tax, Net of Federal Tax Benefit 2.1 1.8 2.0
Tax Exempt Income (8.8) (8.0) (8.2)
Other -- 0.4 0.3
---- ---- ----
Effective Tax Rate 27.3% 28.2% 28.1%
==== ==== ====
Note. 10. Employee Benefit Plans
The Company, through its bank subsidiary, has a non-contributory defined benefit
pension plan covering employees who have attained the age of 21 and have
completed one year of service. The Company's funding practice is to contribute
at least the minimum amount annually to meet minimum funding requirements.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future. Plan
assets consist primarily of marketable fixed income securities and common
stocks. Plan benefits are based on years of service and the employee's average
compensation during the five highest consecutive years of the last ten years of
employment.
The following table sets forth the components of pension expense (benefit) as
well as changes in the plan's projected benefit obligation and plan assets and
the plan's funded status and amounts recognized in the consolidated statements
of condition based on a September 30 measurement date.
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year $ 11,868 $ 10,684
Service Cost 541 484
Interest Cost 785 758
Actuarial Loss 1,413 422
Additional Prior Service Cost 161 --
Benefits Paid (509) (480)
-------- --------
Benefit Obligation at End of Year $ 14,259 $ 11,868
======== ========
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year $ 10,929 $ 12,139
Actual (Gain) Loss on Plan Assets 1,908 (730)
Employer Contribution 2,210 --
Benefits Paid (509) (480)
-------- --------
Fair Value of Plan Assets at End of Year $ 14,538 $ 10,929
======== ========
57-K
Note. 10. Employee Benefit Plans, continued
- --------------------------------------------------------------------------------
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Funded (Unfunded) Status $ 279 $ (939)
Unrecognized Net Actuarial Loss 3,827 3,530
Unrecognized Net Transition Asset (21) (62)
Unrecognized Prior Service Cost 444 333
------- -------
Prepaid Benefit Cost before Fourth Quarter Contribution $ 4,529 $ 2,862
Amount Contributed during the Fourth Quarter -- 510
------- -------
Prepaid Benefit Cost at December 31 $ 4,529 $ 3,372
======= =======
The following table presents a comparison of the accumulated benefit obligation
and plan assets:
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Projected benefit obligation $14,259 $11,868
Accumulated benefit obligation 11,926 9,572
Fair Value of Plan Assets 14,538 10,929
Components of Net Periodic Benefit Cost (Benefit) are:
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Service Cost $ 541 $ 484 $ 397
Interest Cost 785 758 689
Expected Return on Plan Assets (949) (1,034) (1,144)
Net Amortization 166 18 (28)
----- ------- -------
$ 543 $ 226 $ (86)
===== ======= =======
The following weighted-average assumptions were used to determine the benefit
obligation of the plan as of September 30:
dollars in thousands 2003 2002 2001
- --------------------------------------------------------------------------------
Discount Rate 6.00% 6.75% 7.25%
Expected Return on Plan Assets 8.00% 8.50% 8.50%
Rate of Compensation Increase 3.00% 4.00% 4.00%
The following weighted-average assumptions were used to determine the net
periodic benefit cost of the plan for the years ended December 31:
2003 2002 2001
- --------------------------------------------------------------------------------
Discount Rate 6.75% 7.25% 7.75%
Expected Return on Plan Assets 8.50% 8.50% 8.85%
Rate of Compensation Increase 4.00% 4.00% 4.25%
The plan's weighted average asset allocations at September 20, 2003 and 2003, by
asset category are as follows:
Plan Assets at
September 30,
2003 2002
- --------------------------------------------------------------------------------
Equity Securities 59.7% 55.3%
Debt Securities 34.5% 36.3%
Other 5.8% 8.4%
------ ------
100.0% 100.0%
====== ======
58-K
Note. 10. Employee Benefit Plans, continued
Investment Strategy
The plan assets are invested in the New York State Bankers Retirement System
(the "System") which was established in 1938 to provide for the payment of
benefits to employees of participating banks. The System is overseen by a Board
of Trustees who meet quarterly and set the investment policy guidelines. The
System utilizes two investment management firms, each investing approximately
50% of the total portfolio. The System's investment objective is to exceed the
investment benchmarks in each asset category. Each firm operates under a
separate written investment policy approved by the Board of Trustees and
designed to achieve an allocation approximating 60% invested in Equity
Securities and 40% invested in Debt Securities. Each firm reports at least
quarterly to the Investment Committee and semi-annually to the Board.
The equity portfolio consists of a diversified portfolio of common or capital
stocks, or bonds, debentures, notes, or preferred stocks convertible into common
or capital stocks, or in other types of equity investments whether foreign or
domestic. The fixed income portfolio focuses on high quality securities drawn
from various market sectors, including U.S. treasuries and government sponsored
agencies, sovereigns, supranationals, residential Mortgage Backed Securities
(MBS), corporates, Commercial Mortgage Backed Securities (CMBS), Asset Backed
Securities (ABS), and municipals.
Expected Long-Term Rate-of-Return
The expected long-term rate-of-return on the plan assets reflects long-term
earnings expectations on existing plan assets and those contributions expected
to be received during the current plan year. In estimating that rate,
appropriate consideration was given to historical returns earned by plan assets
in the fund and the rates of return expected to be available for reinvestment.
Average rates of return over the past 1, 3, 5 and 10 year periods were
determined and subsequently adjusted to reflect current capital market
assumptions and changes in investment allocations.
The Company expects to make the maximum tax-deductible contribution of $552,000
to the pension plan in 2004.
Supplemental Retirement Income Agreement
In addition to the Company's noncontributory defined benefit pension plan, in
2002 the Company adopted two supplemental employee retirement plans for one
current executive and one former executive. The amount of the liabilities
recognized in the Company's consolidated statements of condition associated with
these plans was $656,000 at December 31, 2003 and $541,000 at December 31, 2002.
For the years ended December 31, 2003, and 2002, the Company recognized $163,000
and $541,000, respectively, of expense related to those plans. The discount rate
used in determining the actuarial present values of the projected benefit
obligations was 6.00% at December 31, 2003.
Note 11. Commitments and Contingencies
Financial instruments whose contract amounts represent credit risk consist of
the following:
December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Commitments to Extend Credit $49,124 $ 45,378
Standby Letters of Credit 9,954 1,607
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
59-K
Note 11. Commitments and Contingencies, Continued
Standby letters of credit written are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including bond financing and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Since some of the letters of credit are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
The estimated fair value of the Company's stand-by letters of credit was $43
thousand and $14 thousand at December 31, 2003 and December 31, 2002,
respectively. The estimated fair value of stand-by letters of credit at their
inception is equal to the fee that is charged to the customer by the Company.
Generally, the Company's stand-by letters of credit have a term of one year. In
determining the fair values disclosed above, the fees were reduced on a
straight-line basis from the inception of each stand-by letter of credit to the
respective dates above. Due to immateriality of the fair value of the Company's
stand-by letters of credit, as well as their short-term nature, the Company
recognized the fees for the stand-by letters of credit in income at inception
during 2003.
The amount of collateral obtained, if deemed necessary, by the Bank upon
extension of credit for commitments to extend credit and letters of credit, is
based upon management's credit evaluation of the counter party. Collateral held
varies but includes residential and commercial real estate.
In the ordinary course of business there are various legal proceedings pending
against the Company. After consultation with outside counsel, management
considers that the aggregate exposure, if any, arising from such litigation
would not have a material adverse effect on the Company's consolidated financial
position.
Note 12. Disclosures about Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the consolidated statement of condition, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and in many cases could not be realized in
immediate settlement of the instruments. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Short-Term Financial Instruments
The fair value of certain financial instruments is estimated to approximate
their carrying value because the remaining term to maturity of the financial
instrument is less than 90 days or the financial instrument reprices in 90 days
or less. Such financial instruments include cash and due from banks, Federal
Funds sold, accrued interest receivable and accrued interest payable.
Securities
Fair values of securities are based on quoted market prices or dealer quotes. If
a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
Loans
For certain homogenous categories of loans, such as some residential mortgages,
credit card receivables, and other consumer loans, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
60-K
Note 12. Disclosures about Fair Value of Financial Instruments, Continued
Deposits
The fair value of demand deposits, savings accounts, and certain NOW and money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity time deposits is estimated using the rates currently
offered for deposits of similar remaining maturities.
Borrowings
The fair value of repurchase agreements, short-term borrowings, and long-term
borrowings is estimated using discounted cash flow analysis based on the
Company's current incremental borrowing rate for similar borrowing arrangements.
Off-Balance Sheet Instruments
The fair value of outstanding loan commitments and standby letters of credit are
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements, the counter parties' credit
standing and discounted cash flow analysis. The fair value of these instruments
approximates the value of the related fees and is not material.
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
December 31 December 31
2003 2002
------------------------------------------------------
Carrying Fair Carrying Fair
dollars in thousands Value Value Value Value
- -------------------------------------------------------------------------------------------
Financial Assets:
Cash and Cash Equivalents $ 19,890 $ 19,891 $ 47,064 $ 47,067
Securities 319,191 319,467 277,379 278,494
Loans 360,906 361,434 358,295 360,182
Allowance for Loan Losses (5,757) (5,757) (5,392) (5,392)
--------- --------- --------- ---------
Net Loans 355,149 355,677 352,903 354,790
Accrued Interest Receivable 3,045 3,045 2,519 2,519
Financial Liabilities:
Demand, Savings, NOW and Money
Market Deposit Accounts $ 312,447 $ 312,447 $ 283,744 $ 283,744
Time Deposits 268,186 271,217 265,337 265,812
Borrowings 75,867 78,290 86,606 86,627
Accrued Interest Payable 769 769 953 953
Note 13. Regulatory Matters
The Company and the subsidiary bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the subsidiary bank must meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's and subsidiary bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes the Company and subsidiary bank meet
all capital adequacy requirements to which they are subject.
61-K
Note 13. Regulatory Matters, Continued
The most recent notification from the Office of the Comptroller of the Currency
categorized the subsidiary bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company and subsidiary bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the following table.
There have been no conditions or events since that notification that management
believes have changed the subsidiary institution's category.
For Capital
Actual: Adequacy Purposes: Action Provisions:
dollars in thousands Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
As of December 31, 2003
Total Capital to Risk-Weighted Assets:
The Company $65,642 14.26% $36,817 8.00% N/A N/A
Subsidiary Bank $63,849 13.88% $36,794 8.00% $45,993 10.00%
Tier 1 Capital to Risk-Weighted Assets:
The Company $59,889 13.01% $18,409 4.00% N/A N/A
Subsidiary Bank $58,099 12.63% $18,397 4.00% $27,596 6.00%
Tier 1 Capital to Average Assets:
The Company $59,889 8.18% $29,278 4.00% N/A N/A
Subsidiary Bank $58,099 7.94% $29,255 4.00% $36,569 5.00%
As of December 31, 2002
Total Capital to Risk-Weighted Assets:
The Company $60,912 14.49% $36,641 8.00% N/A N/A
Subsidiary Bank $59,601 14.19% $33,590 8.00% $41,987 10.00%
Tier 1 Capital to Risk-Weighted Assets:
The Company $55,662 13.24% $16,820 4.00% N/A N/A
Subsidiary Bank $54,351 12.94% $16,795 4.00% $25,192 6.00%
Tier 1 Capital to Average Assets:
The Company $55,662 7.92% $28,116 4.00% N/A N/A
Subsidiary Bank $54,351 7.74% $28,081 4.00% $35,101 5.00%
As of December 31, 2001
Total Capital to Risk-Weighted Assets:
The Company $58,581 15.35% $30,534 8.00% N/A N/A
Subsidiary Bank $57,424 15.07% $30,476 8.00% $38,094 10.00%
Tier 1 Capital to Risk-Weighted Assets:
The Company $54,104 14.18% $15,267 4.00% N/A N/A
Subsidiary Bank $52,947 13.90% $15,238 4.00% $22,857 6.00%
Tier 1 Capital to Average Assets:
The Company $54,104 8.81% $24,564 4.00% N/A N/A
Subsidiary Bank $52,947 8.63% $24,535 4.00% $30,669 5.00%
Banking regulations limit the amount of dividends that may be paid to
stockholders. Generally, dividends are limited to retained net profits for the
current year and two preceding years. At December 31, 2003, dividends totaling
$10,212,000 could have been paid without prior regulatory approval.
62-K
Note 14. Other Comprehensive Income
The following is a summary of changes in other comprehensive income for the
periods presented:
Year Ended December 31,
dollars in thousands 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Unrealized Holding (Losses) Gains Arising During the Period Net of Tax
(Pre-tax Amount of $(5,710,000), $6,608,000, and $1,695,000) $(2,485) $ 4,015 $ 1,018
Reclassification Adjustment for (Gains) Losses Realized in Net Income
During the Period, Net of Tax (Pre-tax Amount of ($808,000),
($488,000), and ($279,000)) (485) (293) (168)
------- ------- -------
Other Comprehensive (Loss) Income, Net of Tax of ($1,932,000),
$2,398,000, and $566,000 $(2,970) $ 3,722 $ 850
======= ======= =======
Note 15. Parent Company Only Financial Statements
Presented below are the condensed statements of condition for December 31, 2003,
and 2002 and statements of income and cash flows for each of the years in the
three-year period ended December 31, 2003, for the Parent Company. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto.
Condensed Statements of Condition
December 31,
dollars in thousands 2003 2002
- --------------------------------------------------------------------------------
Assets
Cash and Cash Equivalents $ 1,121 $ 690
Securities Available for Sale, at Estimated Fair Value 726 644
Investment in Subsidiary, Equity Basis 62,408 61,796
Other Assets 1,029 907
------- -------
Total Assets $65,284 $64,037
======= =======
Liabilities and Stockholders' Equity
Total Liabilities $ 980 $ 875
Stockholders' Equity 64,304 63,162
------- -------
Total Liabilities and Stockholders' Equity $65,284 $64,037
======= =======
63-K
Note 15. Parent Company Only Financial Statements, Continued
Condensed Statements of Income
December 31,
dollars in thousands 2003 2002 2001
- -------------------------------------------------------------------------------------------
Dividends from Subsidiary $ 5,375 $ 5,026 $ 4,887
Interest and Other Dividend Income 31 28 34
Net (Loss) Gain on Sale of Securities -- (165) 99
------- ------- -------
5,406 4,889 5,020
Operating Expense 172 83 75
------- ------- -------
Income Before Income Tax (Benefit) Expense and Equity
in Undistributed Income of Subsidiary 5,234 4,806 4,945
Income Tax (Benefit) Expense (56) (91) 17
Equity in Undistributed Income of Subsidiaries 3,423 3,665 3,118
------- ------- -------
Net Income $ 8,713 $ 8,562 $ 8,046
======= ======= =======
Condensed Statements of Cash Flows
Year Ended December 31,
dollars in thousands 2003 2002 2001
- -------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 8,713 $ 8,562 $ 8,046
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Investment Security Losses (Gains) -- 165 (99)
(Increase) Decrease in Other Assets (4)
(Decrease) Increase in Other Liabilities (44) (91) 17
Equity in Undistributed Income of Subsidiaries (3,423) (3,665) (3,118)
------- ------- -------
Net Cash Provided by Operating Activities 5,242 4,971 4,846
------- ------- -------
Cash Flows from Investing Activities:
Proceeds from Sales of Available-for-Sale Securities -- 258 161
Purchase of Available-for-Sale Securities -- (246) --
------- ------- -------
Net Cash Provided by Investing Activities -- 12 161
------- ------- -------
Cash Flows from Financing Activities:
Purchase of Treasury Stock (492) (677) (618)
Sale of Treasury Stock -- -- 3
Cash Dividends (4,319) (4,062) (3,980)
------- ------- -------
Net Cash Used in Financing Activities (4,811) (4,739) (4,595)
------- ------- -------
Net Increase (Decrease) in Cash Equivalents 431 244 412
Cash and Cash Equivalents at Beginning of Year 690 446 34
------- ------- -------
Cash and Cash Equivalents at End of Year $ 1,121 $ 690 $ 446
======= ======= =======
64-K
Note 16. Stockholders' Equity
On July 21, the Board of Directors approved a 4-for-1 stock split payable on
September 18, 2003. On September 5, 2003, the stockholders approved: (i) an
increase in authorized shares of common stock to 16,000,000 and (ii) a change in
the par value of the common stock from no par value to $0.01 par value. All per
share amounts have been restated to reflect the 4-for-1 stock split. The stock
split resulted in an increase in the shares issued and treasury shares of
10,471,248 and 2,064,204 shares, respectively.
Note 17. Federal Reserve Bank Requirement
The Company is required to maintain a clearing balance with the Federal Reserve
Bank. The required clearing balance for the 14-day maintenance period ending
December 24, 2003 was $1,300,000.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Our management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the design and operational effectiveness of the Company's
disclosure controls and procedures (as defined in Rule 13(a)-15(e) and
15(d)-15(e) under the Securities Exchange Act of 1934, as amended) as of
December 31, 2003. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934 are recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors of the Registrant
Information contained under the caption, "The Election of Directors
(introduction);" "The Election of Directors - The Nominees;" and "The Election
of Directors - Meetings of the Board of Directors and Certain Committees" in the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
April 24, 2004, to be filed with the Commission within 120 days after the end of
the fiscal year covered by this Form 10-K, is incorporated herein by this
reference.
B. Executive Officers of the Registrant Who Are Not Directors
Information contained under the caption, "The Election of Directors -The
Nominees - Alfred S. Whittet" and "The Election of Directors - Executive
Officers Who Are Not Directors," in the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 24, 2004, to be filed with
the Commission within 120 days after the end of the fiscal year covered by this
Form 10-K, is incorporated herein by this reference.
C. Compliance With Section 16(a)
Information contained under the caption, "Section 16(a) Beneficial Ownership
Reporting Compliance," in the definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on April 24, 2004, to be filed with the Commission
within 120 days after the end of the fiscal year covered by this Form 10-K, is
incorporated herein by this reference.
The Company has adopted a Code of Ethics for adherence by its Chief Executive
Officer, Chief Financial Officer, and Chief Accounting Officer to ensure honest
and ethical conduct; full, fair and proper disclosure of financial information
in the Company's periodic reports; and compliance with applicable laws, rules,
and regulations. The text of the Company's Code of Ethics is included as Exhibit
14 hereto.
65-K
ITEM 11: EXECUTIVE COMPENSATION
Information contained under the caption, "Compensation," in the definitive Proxy
Statement for the Annual meeting of Shareholders to be held on April 24, 2004,
to be filed with the Commission within 120 days after the end of the fiscal year
covered by this Form 10-K, is incorporated herein by this reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information contained under the caption, "Principal Owners of Our Common Stock,"
in the definitive Proxy Statement for the Annual Meeting of Stockholders to be
held on April 24, 2004, to be filed with the Commission within 120 days after
the end of the fiscal year covered by this Form 10-K, is incorporated herein by
this reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption, "Compensation - Transactions With
Directors and Officers," in the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on April 24, 2004, to be filed with the
Commission within 120 days after the end of the fiscal year covered by this Form
10-K, is incorporated herein by this reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information contained under the caption, "Independent Auditors' Fees - Audit and
Non-Audit Fees," and "Independent Auditors' Fees - Pre-Approval Policies and
Procedures" in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 24, 2004, to be filed with the Commission
within 120 days after the end of the fiscal year covered by this Form 10-K, is
incorporated herein by this reference.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The financial statement schedules and exhibits filed as part of this Form 10-K
are as follows:
(a) (1) The following Consolidated Financial Statements are included in PART
II, Item 8, hereof:
-Independent Auditors' Report
-Consolidated Balance Sheets at December 31, 2003 and 2002
-Consolidated Statements of Income for the Years Ended December 31,
2003, 2002 and 2001
-Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 2003, 2002 and 2001
-Consolidated Statements of Cash Flows for the Years Ended December
31, 2003, 2002 and 2001
-Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2003, 2002 and 2001
-Notes to Consolidated Financial Statements
(2) None.
(3) Exhibits: See Exhibit Index to this Form 10-K
(b) Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended December 31, 2003.
(c) None.
(d) Not applicable.
66-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE WILBER CORPORATION
Date: March 23, 2004 By: /s/ Alfred S. Whittet
-------------------------------------
Alfred S. Whittet
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Alfred S. Whittet President and Chief Executive Officer March 23, 2004
- -----------------------------
Alfred S. Whittet
/s/ Joseph E. Sutaris Secretary and Chief Financial Officer March 23, 2004
- -----------------------------
Joseph E. Sutaris
/s/ Brian R. Wright Director, Chairman March 23, 2004
- -----------------------------
Brian R. Wright
/s/ Robert W. Moyer Director, Vice Chairman March 23, 2004
- -----------------------------
Robert W. Moyer
/s/ David F. Wilber, III Director March 23, 2004
- -----------------------------
David F. Wilber, III
/s/ James F. VanDeusen Director March 23, 2004
- -----------------------------
James F. VanDeusen
/s/ Philip J. Devine Director March 23, 2004
- -----------------------------
Philip J. Devine
67-K
EXHIBIT INDEX
No. Document
3.1 Articles of Incorporation of The Wilber Corporation (incorporated by
reference to Exhibit 3.1 of the Company's Form 10/A Registration
Statement (No. 001-31896) with the Securities and Exchange
Commission on January 30, 2004)
3.2 Bylaws of The Wilber Corporation (incorporated by reference to
Exhibit 3.2 of the Company's Form 10/A Registration Statement (No.
001-31896) with the Securities and Exchange Commission on January
30, 2004)
10.1 Deferred Compensation Agreement between Wilber National Bank and
Alfred S. Whittet (incorporated by reference to Exhibit 10.1 of the
Company's Form 10/A Registration Statement (No. 001-31896) with the
Securities and Exchange Commission on January 30, 2004)
10.2 Summary Plan Description for the Amended and Restated Wilber
National Bank Split-Dollar Life Insurance Plan (incorporated by
reference to Exhibit 10.2 of the Company's Form 10/A Registration
Statement (No. 001-31896) with the Securities and Exchange
Commission on January 30, 2004)
10.3 Amendment to the Wilber National Bank Split-Dollar Life Insurance
Plan Agreement and Split-Dollar Policy Endorsement between Wilber
National Bank and Alfred S. Whittet (incorporated by reference to
Exhibit 10.3 of the Company's Form 10/A Registration Statement (No.
001-31896) with the Securities and Exchange Commission on January
30, 2004)
10.4 Executive Salary Continuation Agreement between Wilber National Bank
and Robert W. Moyer (incorporated by reference to Exhibit 10.4 of
the Company's Form 10/A Registration Statement (No. 001-31896) with
the Securities and Exchange Commission on January 30, 2004)
10.5 Executive Salary Continuation Agreement between Wilber National Bank
and Alfred S. Whittet (incorporated by reference to Exhibit 10.5 of
the Company's Form 10/A Registration Statement (No. 001-31896) with
the Securities and Exchange Commission on January 30, 2004)
10.6 Employment Agreement between Wilber National Bank and Alfred S.
Whittet (incorporated by reference to Exhibit 10.6 of the Company's
Form 10/A Registration Statement (No. 001-31896) with the Securities
and Exchange Commission on January 30, 2004)
10.7 Severance Compensation Agreement between The Wilber Corporation and
Alfred S. Whittet (incorporated by reference to Exhibit 10.7 of the
Company's Form 10/A Registration Statement (No. 001-31896) with the
Securities and Exchange Commission on January 30, 2004)
10.8 Retention Bonus Agreement between Wilber National Bank and Douglas
C. Gulotty (incorporated by reference to Exhibit 10.8 of the
Company's Form 10/A Registration Statement (No. 001-31896) with the
Securities and Exchange Commission on January 30, 2004)
13 Annual Report to Shareholders (included in this annual report on
Form 10-K)
14 Code of Ethics
21 Subsidiaries of the Registrant
31.1 Certification of Chief Executive Officer Pursuant to 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
68-K